Börsiteade

Pealkiri

2016 3 months consolidated unaudited interim report

Teade

Tallinn, Estonia, 2016-05-05 07:00 CEST (GLOBE NEWSWIRE) --




COMMENTARY OF THE CHAIRMAN OF THE MANAGEMENT BOARD

Merko Ehitus posted revenue of EUR 46.8 million in Q1 2016, EBIDTA of EUR 1.2
million and profits before taxes of EUR 0.3 million. Merko continues to focus
on private sector customers and real estate development, and the share of
revenue from the latter increased to 42% of the group’s total Q1 revenue. Merko
sold 101 apartments in the first quarter compared to 62 in the same period last
year. 

Due to the recent developments on the Baltic construction market, the
management of the group is not satisfied with the results of the first quarter.
Civil engineering construction volumes are in a slump, which has affected
profitability, and the volume of government orders in general is down. While at
the end of 2014, government contracts made up close to half of the Merko
portfolio, today the figure is only 20%. The first quarter results were also
impacted by the slower than planned launch of construction of several
large-scale projects, due to changes in project design solutions and delays in
getting approvals. 

According to the management the goal continues to be to strengthen the group’s
positions on the general contracting and residential real estate market in
Latvia and Lithuania, where similarly to Estonia, there are currently few
public sector orders and the realisation of private sector commercial real
estate projects takes a long time. In the first quarter, we acquired a majority
holding in a Norwegian construction company with the objective to form the
basis for the operations in the Norwegian construction market. Merko has
continued investing into real estate development as planned and the apartment
sales results are satisfactory in all three Baltic capitals. The management
hopes that similarly to Vilnius and Tallinn, the Riga apartment market will
also become active, as there has recently clearly been an undersupply of new
apartments in the biggest city in the Baltics. For the first time, sales
revenue in the real estate segment made up over 40% of the group’s total
revenue, which includes the sale of strategically non-core immovable properties
for the group. In apartment development, the group will continue investing into
quality product development and construction. 

In Q1, Merko sold 101 apartments with a total price of EUR 11.4 million (not
including VAT), compared to the 62 apartments sold in the first three months of
2015. In the first quarter, Merko launched construction of the second Paepargi
high-rise in Tallinn and the last apartment building in the Kaupmehe project in
Tartu. The group will continue investing into residential real estate projects
and similarly to last year, plans to start construction of more than 500 new
apartments in 2016. 

Merko Ehitus posted revenue of EUR 46.8 million in Q1 2016, which includes sale
of non-strategic immovable properties. Q1 EBITDA was EUR 1.2 million, profit
before taxes was EUR 0.3 million and the net profit was EUR 0.1 million. 

In Q1 2016, the group’s companies entered into new contracts totalling EUR 22.4
million, including the BAUHAUS department store in Rocca al Mare and Tallink
tennis centre. As at 31 March 2016, the group had a secured order book balance
of EUR 243.5 million. Major projects in progress in Tallinn for Merko in Q1
included the construction of Hilton Tallinn Park Hotel, the design and
construction of Maakri Quarter, Öpiku Building, T1 shopping centre and the
design and construction of a tram line that will serve the airport. In Latvia
and Lithuania, the largest projects in progress are the Riga Airport passenger
terminal, the Kauno/Algirdo residential and commercial quarter and the Narbuto
5 office building. 



OVERVIEW OF THE 3 MONTHS RESULTS

PROFITABILITY

Profit before tax in 3M 2016 was EUR 0.3 million (3M 2015: EUR 0.8 million),
which is equivalent to a profit before tax margin of 0.6% (3M 2015: 1.8%).
Gross margin in 3M was 6.5% (3M 2015: 7.8%). Net margin in 3M 2016 decreased to
0.2% (3M 2015: 1.8%) and net profit was EUR 0.1 million (3M 2015: EUR 0.8
million), having decreased by 86.2% compared to the same period last year. 

REVENUE

Revenue in 3M 2016 was EUR 46.8 million (3M 2015: EUR 45.6 million), which has
increased by 2.7% compared to last year. The share of revenue earned outside
Estonia has decreased in 3M 2016 to 33% (3M 2015: 42%) and the share of revenue
earned in Estonia has accordingly increased to 67% (3M 2015: 58%). The number
of apartments (101 units) sold in 3 months of 2016 has increased by 62.9% and
the revenue from apartment sales (EUR 11.4 million) by 5.4% (3 months of 2015:
62 units, revenues of EUR 10.8 million). 

CASH POSITION

At the end of the reporting period, the group had EUR 34.4 million in cash and
cash equivalents and equity EUR 125.8 million (62.3% of total assets).
Comparable figures as at 31 March 2015 were accordingly EUR 40.9 million and
EUR 127.8 million (53.1% of total assets). As at 31 March 2016 the group had
net debt of negative EUR 8.2 million (31 March 2015: negative EUR 5.8 million). 

SECURED ORDER BOOK

In Q1 2016, group companies signed new contracts in the amount of EUR 22.4
million (Q1 2015: EUR 22.4 million). As at 31 December 2016, the group’s
secured order book stood at EUR 243.5 million (31 March 2015: EUR 167.2
million). 

DISTRIBUTION OF PROFITS

The general meeting of shareholders held on 27 April 2016 resolved to approve
the profit allocation proposal for 2015 and to distribute EUR 9.0 million (EUR
0.51 per share) in dividends from retained earnings. This is equivalent to a
90% dividend rate for 2015. 



                                  3M 2016  3M 2015  Variance  12M 2015
----------------------------------------------------------------------
Revenue              million EUR     46.8     45.6     +2.7%     251.0
----------------------------------------------------------------------
Gross profit         million EUR      3.1      3.6    -14.0%      23.0
----------------------------------------------------------------------
Gross profit margin  %                6.5      7.8    -16.3%       9.1
----------------------------------------------------------------------
EBITDA               million EUR      1.2      1.9    -36.6%      15.5
----------------------------------------------------------------------
EBITDA margin        %                2.5      4.1    -38.3%       6.2
----------------------------------------------------------------------
Profit before tax    million EUR      0.3      0.8    -63.7%      11.7
----------------------------------------------------------------------
PBT margin           %                0.6      1.8    -64.7%       4.7
----------------------------------------------------------------------
Net profit (parent)  million EUR      0.1      0.8    -86.2%      10.0
----------------------------------------------------------------------
Net profit margin    %                0.2      1.8    -86.6%       4.0
----------------------------------------------------------------------
EPS                  EUR             0.01     0.05    -86.2%      0.56
----------------------------------------------------------------------



                                    31.03.2016  31.03.2015  Variance  31.12.2015
--------------------------------------------------------------------------------
ROE (on yearly basis)  %                   7.5        10.1    -25.5%         8.0
--------------------------------------------------------------------------------
Equity ratio           %                  62.3        53.1    +17.3%        59.5
--------------------------------------------------------------------------------
Secured order book     million EUR       243.5       167.2    +45.6%       246.9
--------------------------------------------------------------------------------
Total assets           million EUR       202.0       240.8    -16.1%       211.1
--------------------------------------------------------------------------------
Number of employees    people              782         776     +0.8%         791
--------------------------------------------------------------------------------



OPERATING RESULTS

Revenue and gross profit

Merko Ehitus group generated a total of EUR 46.8 million in revenue in 3 months
of 2016 (3 months of 2015: EUR 45.6 million). 40.7% of the revenue was
generated in Estonian construction service, 17.0% in Latvian and Lithuanian
construction service and 42.3% in and real estate development segment (3 months
of 2015: 37.5% in Estonian construction service, 38.2% in Latvian and
Lithuanian construction service and 24.3% in real estate development segment).
Compared to the 3 months of 2015 the group revenue has increased by 2.7%.
Compared to the 3 months of the previous year in the 3 months of 2016 the share
of Latvian and Lithuanian construction service revenue in the group’s revenue
has decreased from 38.2% to 17.0% and the share of real estate development
revenues has increased from 24.3% to 42.3%. The main changes in the revenue
structure compared to the same period last year lie in a one-off increase in
the sales revenue from immovable properties in the real estate development
segment and the growth in revenue from Estonian construction services’ general
construction projects. At the same time, revenue is down in the Latvian and
Lithuanian constructions service segment. This trend has been in line with the
group’s expectations, considering the distribution of the secured order book as
at the end of 2015. 

In 3 months of 2016 the group’s gross profit from development and construction
activities totalled EUR 3.1 million (3 months of 2015: EUR 3.6 million). The 3
months gross profit margin (6.5%) has decreased by 1.3 pp compared to the same
period last year (3 months of 2015: 7.8%). Comparing the three-month results,
it has been important for the group to preserve profitability in the
construction service domain in all three Baltic countries in spite of the
prevailing competition situation on the construction market and the decrease in
sales volumes in regard to higher-margin civil engineering projects, which was
supported by somewhat of a drop in input prices, which may not continue in
2016. Gross profit margin has also been impacted by the decreased profitability
in the real estate development segment, which depends largely on the price of
the land as part of the total specific project expenses and is thus different
on a project basis, but also by sold immovable properties with lower margin
than average for the segment. The scarcity of projects and the ever-tightening
competition in the construction sector poses a great challenge in the
maintaining of the current gross profit margin for new procurements in all
segments. The number of companies participating in tenders and the risk of low
pricing bids is high in all three Baltic states. 

Profit before tax and net profit

In 3 months of 2016, the group’s profit before tax totalled EUR 0.3 million and
net profit attributable to equity holders of the parent was EUR 0.1 million as
compared to the pre-tax profit or EUR 0.8 million and net profit attributable
to equity holders of the parent of EUR 0.8 million in 3 months of 2015. Group’s
profit before tax margin was 0.6% (3 months of 2015: 1.8%) and the net profit
margin was 0.2% (3 months of 2015: 1.8%). Both the group’s profit before tax
(EUR 0.3 million) and the profit before tax margin (0.6%) have decreased
compared to the same period last year (3 months of 2015: EUR 0.8 million and
1.8%, respectively). 



Business segments

The group operates mainly in Estonian, Latvian and Lithuanian market through
its subsidiaries. By purchasing a majority shareholding the group has formed
the basis for entering the Norwegian market starting from Q1 2016. Depending on
the country the group provides construction services and real estate
development services across the following business segments: Estonian
construction service (incl. construction services on project basis in Finland),
Latvian and Lithuanian construction service (incl. construction services in
Norway) and real estate development. The group’s segment structure is alined
with group’s management structure. 

Estonian construction service (incl. construction services on project basis in
Finland) and Latvian and Lithuanian construction service service (incl.
construction services in Norway) segments include all projects of the
respective countries pertaining to construction services: 

  -- General construction consists of the construction of different buildings,
     from commercial and office buildings, retail and entertainment centres to
     public sector and residential and specialised industrial buildings. Group
     companies provide strategic consulting and quality complete solutions as
     part of the general contracting service of construction according to the
     customer's requirements: preparation, design, construction, interior and
     warranty service. In the field of general construction the group operates
     in all three Baltic countries and Norway.

  -- The civil engineering pürojects the group constructs include port, waste
     management and road structures (bridges, tunnels, overpasses, roads),
     electrical construction of up to 330 kV, various environmental protection
     structures, water treatment plants, both open-cut and trenchless
     construction of water and sewerage pipelines and other various engineering
     projects. Complex and unique engineering projects require specialised
     knowledge and a good partnership with the customer and local authorities.
     In this area the group operates in Estonia and Latvia.

  -- In the road construction division, the group carries out road construction
     and builds the associated infrastructure, road maintenance and maintenance
     repair. In the area or road construction the group operates only in
     Estonia.

Real estate development is based on the development of real estate in the
ownership of the group, encompassing development of apartment projects,
long-term investments into real estate and real estate projects executed for
business purposes, and to a minor extent also real estate maintenance and
lease. In this segment, similarly to before, the group recognises projects
being developed in all of the different countries. 

Estonian construction service

The Estonian construction services segment consists of various services in the
field of general construction, civil engineering (including construction of
electrical and external networks) and road construction. 

In the 3 months of 2016, the revenue of the Estonian construction service
segment was EUR 19.0 million (3 months of 2015: EUR 17.1 million), having
decreased by 11.4% from the same period last year. The 3 months revenue also
includes revenue from Finnish projects in the amount of EUR 0.4 million (3
months of 2015: EUR 0.0 million). The revenues have clearly decreased in the
field of civil engineering and increased in the field of general construction.
The increase in revenue in the field is primarily due to the fact that
large-scale general construction projects launched in 2015 – where previously
design development took place – are gradually starting to reach a stage of more
extensive construction activity. If the revenue of the Estonian construction
service segment have formed the largest proportion in the group’s revenue in
the previous periods, then in the 3 months of 2016 the Estonian construction
service segment revenues formed a 40.7% share, having decreased by 8.4% in the
yearly comparison. 

In this segment, the group earned a gross profit of EUR 1.0 million for 3
months (3 months of 2015: EUR 1.4 million). In 3 months of 2016, the gross
margin of the Estonian construction service segment was 4.9%, which decreased
by 3.3 pp compared to the 3 months of 2015 (8.2%), mainly due to the scarcity
of projects in the field of civil engineering. In light of the close
competition on the Estonian construction services market and the drop in
volumes of work for nearly all market participants, we consider this as a
satisfactory result. Due to the decrease in the volume of public procurements,
we are critically monitoring any changes in the volume of work-in-progress and
also constantly improving the efficiencies of internal project management
processes. We have reduced and re-allocated staff within the group and, in
order to maintain the efficiency of the cost base, made preparations for
responding to further market changes. 

Our major projects in the first quarter included the construction works of
Hilton Tallinn Park hotel, the design and construction works of Öpik Office
Building in Tallinn, the design and construction works of T1 shopping centre in
Tallinn, the reconstruction work an office building located at Mustamäe tee 3,
Tallinn and the road maintenance works done under the service agreement with
Tallinn. 

Latvian and Lithuanian construction service

The Latvian and Lithuanian construction service segment consists of general
construction work in both of the aforementioned Baltic countries and stating
from the first quarter of 2016 also in Norway and provision of civil
engineering services in Latvia. 

The revenue of the Latvian and Lithuanian construction service segment amounted
to EUR 8.0 million in the 3 months of 2016 (3 months of 2015: EUR 17.4
million), which is 54.3% less than in the 3 months of 2015. If the Latvian and
Lithuanian construction service segment revenues of 3 months of 2015 formed
38.2% of the group’s revenue, then during 3 months of the current year the
segments revenues have decreased to 17.0%. The change in this percentage was in
line with expectations, considering the lower level of new contracts signed in
Latvia and Lithuania during 2015 and the 2015 comparison base, where
large-scale projects were in progress in Latvia, such as the construction of
Liepaja Concert Hall and Polipaks NT manufacturing and logistics centre. The
group’s continued focus is on increasing the revenues outside Estonia. The 3
month gross profit of the Latvian and Lithuanian construction service segment
amounted to EUR 0.3 million (3 months of 2015: EUR 1.0 million) and the gross
profit margin was 3.9% (3 months of 2015: 5.7%), which decreased by 31.8%
compared to the same period previous year. 

In the first quarter of 2016, the main ongoing projects included were the
construction of kindergarten and school buildings complex near Riga in Pinki,
the construction works of the second phase of the passanger terminal in Riga
International Airport and the construction works of Kauno/Algirdo residential
complex with office premises in Vilnius. 

Real estate development

The real estate development segment includes residential construction, the
development of apartment projects, long-term real estate investments and
commercial real estate projects. 

The group sold a total of 101 apartments in 3 months of 2016 at the total value
of EUR 11.4 million (excl. VAT), compared to 62 apartments and EUR 10.8 million
in 3 months of 2015. In 3 months of 2016, the group has earned EUR 7.5 million
of revenue from the sale of immovable properties (3 months of 2015: EUR 0.0
million). In 3 months of 2016 real estate development segment revenues have
increased 79.0% compared to the same period last year. This is mainly because
of the one-time effect of revenues from the sale of immovable properties that
are strategically not needed by the group, the profitability of which is not
comparable with a situation where the value of land is increased by passing
through all phases of the development process.. The share of revenue from the
real estate development segment has increased as anticipated in the 3 months to
42.3% of the group’s total revenue (3 months of 2015: 24.3%), forming the the
largest proportion in the group’s revenue having increased by 74.3%. 

The 3 month gross profit of the segment amounted to EUR 1.8 million (3 months
of 2015: EUR 1.2 million) and the gross profit margin was 9.2% (3 months of
2015: 10.5%), which decreased by 12.8% compared to the same period previous
year. The profitability of the apartment development projects varies by project
and depends greatly on the cost structure of the specific project, incl. the
land acquisition price. The sector’s gross profit of the first three months was
also significantly influenced by the fact that revenue from the sale of
immovable properties with lower than average profitability made up a noteworthy
share of total revenue in the segment. 

At the end of the period, group’s inventory comprised 217 apartments where a
preliminary agreement had been signed: 34 completed apartments (26 in Estonia,
5 in Latvia, 1 in Lithuania and 2 in Finland) and 183 apartments under
construction (136 in Estonia, 8 in Latvia and 39 in Lithuania). The sale of
these apartments had not yet been finalised and delivered to customers, because
the development site is still under construction or the site was completed at
the end of the reporting period and the sales transactions have not all been
finalised yet. 

As at 31 March 2016, Merko Ehitus group had a total of 457 apartments for
active sale (as at 31 March 2015: 361 apartments), for which there are no
pre-sale agreements and of which 73 have been completed (23 in Estonia, 27 in
Latvia, 16 in Lithuania and 7 in Finland) and 384 are under construction (281
in Estonia, 44 in Lithuania and 59 in Lithuania). The number of apartments on
sale as at 31 March 2016 has increased, compared to 31 March 2015, mainly due
to the volume of projects launched in the fourth quarter of 2015 and the first
quarter of 2016: launch of construction of 278 new apartments, compared to the
162 new apartments in the reference period. 

In 3 months of 2016, we launched the construction of a total of 90 new
apartments in the Baltic states (3 months of 2015: 103 apartments). In the 3
months of this year, the group has invested a total of EUR 10.1 million (3
months of 2015: EUR 10.7 million) in new development projects launched in 2016
as well as projects already in progress from previous year. 

We will continue to invest in residential real estate projects and depending on
the apartment market developments in 2016, the group will launch the
construction of approximately 500-550 new apartments in the Baltic states
(2015: construction of 574 new apartments launched). In 2016, the group’s
investments in both development projects initiated in the previous years and
new projects to be launched in 2016 will be in the range of EUR 40-45 million
(2015: EUR 42.4 million invested). 

One of our objectives is to keep a moderate portfolio of land plots to ensure
stable inventory of property development projects considering the market
conditions. At 31 March 2016, the group's inventories included land plots with
the development potential, where the construction works have not started, of
EUR 50.5 million (31.03.2015: EUR 59.5 million; 31.12.2015: EUR 58.0 million). 

In the 3 months of 2016, the group has not purchased any new land plots for
real estate development pruposes (3 months of 2015: different new land plots in
Tallinn, Estonia acquired at an acquisition cost of EUR 5.1 million). Also the
group signed a notarised contract of sale of registered immovables, under which
all of the real estate governed by an option agreement in Tallinn were realised
for total of EUR 4.0 million. The group is searching for new land plots for
real estate development purposes primarily in Estonian and Lithuania. 



Secured order book

As at 31 March 2016, the group’s secured order book (without own developments)
amounted to EUR 243.5 million as compared to EUR 167.2 million as at 31 March
2015. The secured order book excludes the group's own residential development
projects and construction work related to developing real estate investments. 

In first quarter of 2016, EUR 22.4 million worth of new contracts were signed
(without own developments) as compared to EUR 22.4 million in same period last
year. 

After the balance sheet date, the group concluded one large construction
contract: 

  -- On 7 April 2016, SIA Merks – a subsidiary of AS Merko Ehitus – signed a
     contract with SIA Decco Centrs to perform the design and construction works
     of warehouse complex, located at Katlakalna street 6D, Riga, Latvia. The
     value of the contract is approximately EUR 4.8 million. The works are
     scheduled for completion by June of 2017.

Of the contracts signed in the 3 months of 2016, private sector orders
accounted for the majority proportion, which is also represented in the group’s
secured order book as at the end of the reporting period, where private sector
orders from projects in progress constitute 80% (31.03.2015: approximately 60%;
31.12.2015: approximately 80%). Apart from a few large-scale procurements where
Merko companies were not as optimistic as our competitors in bidding at a low
price, the share of government contracts in the 3 months of 2015 has been
modest. The group continues to focus on comprehensive design and construction
contracts. In this regard, two important contracts were signed in Estonia in
the first three months of 2016. 

The portfolio of contracts stands strong, especially in Estonia. At the same
time, the group has not managed to conclude new contracts in the estimated
volume, especially in Latvia and Lithuania. This is due to a
lower-than-estimated number of orders on the market, which will also affect the
volumes for 2016. Considering the beginning phase of the current EU funding
period, one can forecast the volume of public procurements to stay at the
previous years level. We forecast that the volume of public procurements will
start to increase in the second half of 2016. In this respect, it will not be
easy to maintain the secured order book at the level of 2015 or growing it. 

Traditionally the share of Estonian construction activity has been the highest
in the group's revenues. Given the weak growth outlook of the Estonian
construction market, the group's goal is to increase the volume of construction
orders from outside Estonia. Thus, we will continue to identify and strengthen
the groups competitive advantages and are closely monitoring the development
and opportunities both in the Baltic states and the Nordic countries. Starting
from 2014 AS Merko Ehitus Eesti has selectively and on project basis
participated in procurements in Finland, Sweden and Norway in order to gain
experience and sufficient knowledge in the qualification conditions,
requirements established and risks associated in these countries. As a result
of this activity, the group has carried out its first projects in Finland in
2015 and as a follow-up to this, in March 2016, a controlling holding was
acquired in Peritus Entreprenør AS, a Norwegian construction company that
provides general construction services. The group will continue to implement
the chosen strategy and to pursue revenue from new markets also in 2016. 



Cash flows

As at 31 March 2016 the group had cash equivalents in the amount of EUR 34.4
million (31.03.2015: EUR 40.9 million; 31.12.2015: EUR 39.9 million). The
group's cash level is lower compared to the same period last year; still, the
financial position is strong, as the group has not utilized its credit lines of
existing overdrafts and loan agreements and has not concluded loan agreements
for financing all of the projects in development. 

The 3-month cash flow from operating activity was negative at EUR 1.6 million
(3 months of 2015: negative EUR 7.9 million), cash flow from investing activity
was positive at EUR 0.9 million (3 months of 2015: negative EUR 0.2 million)
and the cash flow from financing activity was negative at EUR 4.8 million (3
months of 2015: negative EUR 2.6 million). 

The cash flow from operating activity was mostly influenced by the EBITDA
(operating profit adjusted with depreciation and amortisation) EUR 1.2 million
(3 months of 2015: EUR 1.9 million), by the negative change in receivables and
liabilities related to construction contracts recognised under the stage of
completion method EUR 3.5 million (3 months of 2015: negative change of EUR 4.6
million), by the negative change in the provisions EUR 2.8 million (3 months of
2015: negative change of EUR 4.6 million), by the positive change in trade and
other receivables related to operating activities EUR .4 million, incl. a
negative change in financing co-financed projects of EUR 1.6 million (3 months
of 2015: positive change of EUR 5.0 million, incl. a negative change in
financing co-financed projects of EUR 0.0 million), by the positive change in
inventory EUR 6.6 million, incl. positive cash flow from sale of immovable
properties in the amount of EUR 7.5 million (3 months of 2015: negative change
of EUR 2.3 million, incl. negative cash flow from purchase of new land plots in
the amount of EUR 5.1 million), by the negative change in trade and other
payables related to operating activities EUR 2.9 million (3 months of 2015:
negative change of EUR 3.5 million, incl. significant negative outflow from the
realization of an option agreement in the amount of EUR 4.0 million but also
from the advances for real estate development projects). 

To support cash flows arising from operating activity, the group has been
cautious in raising additional external capital, including factoring. At the
same time, the debt ratio has remained at a moderate level (12.9% as at
31.03.2016; 14.6% as at 31.03.2015; 14.8% as at 31.12.2015). 

Cash flows from investment activities include negative cash flow from the
acquisition of non-current asset in the amount of EUR 0.5 million (3 months of
2015: EUR 0.3 million) and the positive cash flow from the sale of non-current
assets in the amount of EUR 0.1 million (3 months of 2015: EUR 0.1 million).
The group mainly invested in non-current assets for the purpose of renewing its
fleet of machinery in the road construction segment. Cash flows from investment
activities in 3 months of 2015 was also positively impacted by the acquisition
of majority shareholding in subsidiary Peritus Entreprenør AS (related to the
offering of construction services on Norwegian market) in the amount of EUR 1.2
million. 

Project specific loans obtained using investment property as collateral were
repaid in the amount of EUR 0.1 million (3 months of 2015: negative cash flow
in the amount of EUR 0.1 million). Net of loans received and loans repaid in
connection with development projects amounted to negative cash flow of EUR 2.7
million (3 months of 2015: negative cash flow of EUR 2.1 million) and finance
lease principal repayments of EUR 0.2 million (3 months of 2015: EUR 0.4
million). In addition, over the first three months of 2016, the group made
repayments in the amount of EUR 1.0 million to related party AS Järvevana
pursuant to the terms and conditions of an overdraft agreement between the
parties. The group has not used bank loans to finance all ongoing development
projects – and this is the case particularly in Estonia, where many advance
sales were agreed in the early phase of construction. 



Dividends and 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. The achievement of this objective is an important priority for
the group. 

The annual general meeting of shareholders of AS Merko Ehitus held at 27 April
2016 approved the Supervisory Board’s proposal to pay the shareholders the
total amount of EUR 9.0 million (EUR 0.51 per share) as dividends from net
profit brought forward, which is equivalent to a 90% dividend rate and a 6.0%
dividend yield for the year 2015 (using the share price as at 31 December
2015), (comparable figures in 2015 were accordingly: EUR 7.3 million (EUR 0.41
per share) as dividends, which is equivalent to a 58% dividend rate and a 5.7%
dividend yield (using the share price as at 31 December 2014)). 

According to the Estonian Income Tax Law §50 section 11 AS Merko Ehitus can pay
certain portion of dividends without any additional income tax expense and
liabilities occurring due to previously received and taxed distribution of
profits from subsidiaries. Taking into account the dividends already paid to
the parent company by the subsidiaries during 2016, the group will incur
additional income tax expense in connection with the disbursement of dividends
of approximately EUR 0.7 million (2015: EUR 0.9 million) in Estonia in the
second quarter of 2016.The dividend payment to the shareholders will take place
on 20 May 2016. 



Ratios
(attributable to equity holders of the parent)

                                                  3M ‘16  3M ‘15  3M ‘14     12M
                                                                             ‘15
--------------------------------------------------------------------------------
Income statement summary                                                        
--------------------------------------------------------------------------------
Revenue                                million      46.8    45.6    48.9   251.0
                                         EUR                                    
--------------------------------------------------------------------------------
Gross profit                           million       3.1     3.6     3.9    23.0
                                         EUR                                    
--------------------------------------------------------------------------------
Gross profit margin                        %         6.5     7.8     8.1     9.1
--------------------------------------------------------------------------------
Operating profit                       million       0.5     1.0     1.3    12.5
                                         EUR                                    
--------------------------------------------------------------------------------
Operating profit margin                    %         1.0     2.2     2.7     5.0
--------------------------------------------------------------------------------
Profit before tax                      million       0.3     0.8     1.1    11.7
                                         EUR                                    
--------------------------------------------------------------------------------
PBT margin                                 %         0.6     1.8     2.3     4.7
--------------------------------------------------------------------------------
Net profit                             million       0.0     0.7     0.6     9.8
                                         EUR                                    
--------------------------------------------------------------------------------
attributable to equity holders of      million       0.1     0.8     0.7    10.0
 the parent                              EUR                                    
--------------------------------------------------------------------------------
attributable to non-controlling        million     (0.1)   (0.1)   (0.1)   (0.2)
 interest                                EUR                                    
--------------------------------------------------------------------------------
Net profit margin                          %         0.2     1.8     1.5     4.0
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income statement indicators                                               
--------------------------------------------------------------------------------
EBITDA                                 million       1.2     1.9     1.9    15.5
                                         EUR                                    
--------------------------------------------------------------------------------
EBITDA margin                              %         2.5     4.1     3.8     6.2
--------------------------------------------------------------------------------
General expense ratio                      %         6.8     6.5     6.1     4.8
--------------------------------------------------------------------------------
Labour cost ratio                          %        14.2    13.7    13.9    12.2
--------------------------------------------------------------------------------
Revenue per employee                   thousand       62      62      61     322
                                         EUR                                    
--------------------------------------------------------------------------------



Other significant                 31.03.2016  31.03.2015  31.03.2014  31.12.2015
 indicators                                                                     
--------------------------------------------------------------------------------
Return on equity           %             7.5        10.1         7.8         8.0
--------------------------------------------------------------------------------
Return on assets           %             4.3         5.0         3.9         4.4
--------------------------------------------------------------------------------
Return on invested         %             7.8         8.5         7.3         7.9
 capital                                                                        
--------------------------------------------------------------------------------
Equity ratio               %            62.3        53.1        51.0        59.5
--------------------------------------------------------------------------------
Debt ratio                 %            12.9        14.6        13.4        14.8
--------------------------------------------------------------------------------
Current ratio            times           3.4         2.6         2.0         3.2
--------------------------------------------------------------------------------
Quick ratio              times           1.3         1.1         1.1         1.2
--------------------------------------------------------------------------------
Accounts receivable       days            35          51          59          39
 turnover                                                                       
--------------------------------------------------------------------------------
Accounts payable          days            35          41          41          39
 turnover                                                                       
--------------------------------------------------------------------------------
Average number of       people           755         742         800         779
 employees                                                                      
--------------------------------------------------------------------------------
Secured order book      million        243.5       167.2       224.0       246.9
                          EUR                                                   
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited

in thousand euros

                                                       2016      2015       2015
                                                   3 months  3 months  12 months
--------------------------------------------------------------------------------
Revenue                                              46,820    45,599    251,012
--------------------------------------------------------------------------------
Cost of goods sold                                 (43,758)  (42,038)  (228,044)
--------------------------------------------------------------------------------
Gross profit                                          3,062     3,561     22,968
--------------------------------------------------------------------------------
Marketing expenses                                    (768)     (779)    (3,230)
--------------------------------------------------------------------------------
General and administrative expenses                 (2,417)   (2,193)    (8,907)
--------------------------------------------------------------------------------
Other operating income                                  648       428      1,943
--------------------------------------------------------------------------------
Other operating expenses                               (42)      (17)      (278)
--------------------------------------------------------------------------------
Operating profit                                        483     1,000     12,496
--------------------------------------------------------------------------------
Finance income/costs                                  (180)     (164)      (804)
--------------------------------------------------------------------------------
incl. finance income/costs from joint ventures         (17)      (44)      (138)
--------------------------------------------------------------------------------
finance income/costs from other long-term                 -         -          3
 investments                                                                    
--------------------------------------------------------------------------------
interest expense                                      (156)     (150)      (756)
--------------------------------------------------------------------------------
foreign exchange gain (loss)                            (8)         3        (3)
--------------------------------------------------------------------------------
other financial income (expenses)                         1        27         90
--------------------------------------------------------------------------------
Profit before tax                                       303       836     11,692
--------------------------------------------------------------------------------
Corporate income tax expense                          (274)      (95)    (1,857)
--------------------------------------------------------------------------------
Net profit for financial year                            29       741      9,835
--------------------------------------------------------------------------------
incl. net profit attributable to equity holders         112       809     10,000
 of the parent                                                                  
--------------------------------------------------------------------------------
net profit attributable to non-controlling             (83)      (68)      (165)
 interest                                                                       
--------------------------------------------------------------------------------
Other comprehensive income                                                      
--------------------------------------------------------------------------------
Currency translation differences of foreign             (2)       (2)          2
 entities                                                                       
--------------------------------------------------------------------------------
Comprehensive income for the period                      27       739      9,837
--------------------------------------------------------------------------------
incl. net profit attributable to equity holders         110       807     10,002
 of the parent                                                                  
--------------------------------------------------------------------------------
net profit attributable to non-controlling             (83)      (68)      (165)
 interest                                                                       
--------------------------------------------------------------------------------
Earnings per share for profit attributable to          0.01      0.05       0.56
 equity holders of the parent (basic and diluted,                               
 in EUR)                                                                        
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited

in thousand euros

                                              31.03.2016  31.03.2015  31.12.2015
--------------------------------------------------------------------------------
ASSETS                                                                          
--------------------------------------------------------------------------------
Current assets                                                                  
--------------------------------------------------------------------------------
Cash and cash equivalents                         34,400      40,912      39,905
--------------------------------------------------------------------------------
Trade and other receivables                       24,947      43,587      24,854
--------------------------------------------------------------------------------
Prepaid corporate income tax                         543          26         421
--------------------------------------------------------------------------------
Inventories                                      102,532     123,222     109,090
--------------------------------------------------------------------------------
                                                 162,422     207,747     174,270
--------------------------------------------------------------------------------
Non-current assets                                                              
--------------------------------------------------------------------------------
Long-term financial assets                        19,506      11,425      16,703
--------------------------------------------------------------------------------
Deferred income tax assets                         1,423       1,580       1,423
--------------------------------------------------------------------------------
Investment property                                4,309       4,557       4,371
--------------------------------------------------------------------------------
Property, plant and equipment                     13,375      14,614      13,442
--------------------------------------------------------------------------------
Intangible assets                                    948         907         879
--------------------------------------------------------------------------------
                                                  39,561      33,083      36,818
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL ASSETS                                     201,983     240,830     211,088
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
LIABILITIES                                                                     
--------------------------------------------------------------------------------
Current liabilities                                                             
--------------------------------------------------------------------------------
Borrowings                                         3,119      11,516       5,525
--------------------------------------------------------------------------------
Payables and prepayments                          38,360      62,932      43,266
--------------------------------------------------------------------------------
Income tax liability                               1,021         478         711
--------------------------------------------------------------------------------
Short-term provisions                              4,764       4,889       5,013
--------------------------------------------------------------------------------
                                                  47,264      79,815      54,515
--------------------------------------------------------------------------------
Non-current liabilities                                                         
--------------------------------------------------------------------------------
Long-term borrowings                              23,035      23,600      25,660
--------------------------------------------------------------------------------
Deferred income tax liability                        978         751         788
--------------------------------------------------------------------------------
Other long-term payables                             989       4,442       1,159
--------------------------------------------------------------------------------
                                                  25,002      28,793      27,607
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                 72,266     108,608      82,122
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
EQUITY                                                                          
--------------------------------------------------------------------------------
Non-controlling interests                          3,928       4,388       3,268
--------------------------------------------------------------------------------
Equity attributable to equity holders of the                                    
 parent                                                                         
--------------------------------------------------------------------------------
Share capital                                       7929      12,000        7929
--------------------------------------------------------------------------------
Statutory reserve capital                          1,200       1,200       1,200
--------------------------------------------------------------------------------
Currency translation differences                   (665)       (667)       (663)
--------------------------------------------------------------------------------
Retained earnings                                117,325     115,301     117,232
--------------------------------------------------------------------------------
                                                 125,789     127,834     125,698
--------------------------------------------------------------------------------
TOTAL EQUITY                                     129,717     132,222     128,966
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                     201,983     240,830     211,088
--------------------------------------------------------------------------------



Interim report and the investor presentation are attached to the announcement
and are also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee). 



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



AS Merko Ehitus (group.merko.ee) group consists of Estonia’s leading
construction company AS Merko Ehitus Eesti, the Latvian-market-oriented SIA
Merks, UAB Merko Statyba that is operating on the Lithuanian market and the
real estate development business unit along with real estate holding companies.
As at the end of 2015, the group employed 791 people and the company’s 2015
revenue was EUR 251 million.