Börsiteade

Pealkiri

2022 6 months and II quarter consolidated unaudited interim report

Teade

COMMENTARY FROM MANAGEMENT

Merko  Ehitus revenue was EUR  88 million in Q2 2022, and  EUR 156 million in H1
2022, while  the respective figures for net  profit were EUR 4.2 million and EUR
7.2 million.  This  year,  Merko  has  delivered  214 apartments to buyers and a
number of development projects will be completed in the second half of the year.

According  to  the  management  of  Merko  Ehitus, the results met expectations,
considering  the current market situation and the adaptation of all participants
in  the construction sector to the rapid rise in construction prices. Net profit
in  the second  quarter was  also influenced  by a  EUR 0.3 million  donation to
Ukrainian support projects and income tax expense that is EUR 0.3 million higher
than a year ago.

The  influence of  inflation and  rising input  prices in  the group's sector of
construction  service continues  to be  high, yet  the implementation of all the
construction projects in progress has continued according to plan. The situation
is   complicated  in  all  construction  sectors,  yet  most  critical  in  road
construction  where  the  rise  in  input  prices  has  been the highest and new
investment  plans have been put on hold.  We share the concern of sector leaders
as to the sustainability of the sector.

In  H1, the  group companies  entered into  new construction contracts worth EUR
193 million  and the secured order  book balance stood at  EUR 323 million as of
the  end of June. According to the management, the group's secured order book is
currently   strong,   yet   there   is  little  business  real  estate  and  new
infrastructure  construction orders  on the  market as  a whole. Considering the
energy crisis and green transition policy, it is somewhat surprising that only a
few  major renewable energy and high energy efficient building designs have come
on  to the  market. The  faster customers  adapt to  the higher input prices and
supply  chain problems  that construction  companies are  facing, the faster the
planned  projects will reach construction. It is necessary to find solutions for
sharing the  risks  with  project  owners  and  continue to invest regardless of
faster inflation.

In the first six months of this year, Merko delivered 214 new apartments and one
commercial unit to buyers and a number of apartment developments in progress are
expected  to be completed on schedule in  H2. Merko new sales of apartments have
continued  even after the price rise caused  by rising input prices, which shows
that  the market  is gradually  adapting to  the new  prices. The  supply of new
apartments  on the market as a  whole has decreased. Residential construction is
for  Merko  a  business  area  with  a  long  perspective  and we have continued
investing into new development projects, although at a more moderate pace.

During  H1,  the  group  launched  construction  of  186 new apartments and four
commercial  units in Riga.  As of the  end of the  quarter, over 1700 apartments
were  under construction  in the  three Baltic  states, over  half of which have
preliminary sale contracts concluded and will be completed in 2022 and 2023. The
largest  apartment developments were Uus-Veerenni,  Noblessneri and Lahekalda in
Tallinn,  Erminurme in Tartu,  Viesturdarzs, Mezhpils?ta and  Magnolijas in Riga,
and Vilneles Skverai in Vilnius.

In  the second quarter of 2022, the largest objects in operation in Estonia were
the  third development phase of the Mustamäe medical campus of the North-Estonia
Medical  Centre,  the  Tallinn  School  of  Music and Ballet, St John's School,
Pelgulinna  State gymnasium and the Arter  quarter, and also the construction of
infrastructure  segments of the Republic of  Estonia's southeast land border and
reconstruction  of  Rannamõisa  tee.  In  Latvia,  the  Orkla  wafer and biscuit
production  plant, GUSTAVS business centre,  Elemental Skanste office buildings,
NATO  facilities in  ?dazhi and  the Kauguri  city park  and youth  house were in
progress; and in Lithuania, infrastructure for a number of wind farms, and a car
service centre in Vilnius.

OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS

PROFITABILITY
2022 6 months'  pre-tax  profit  was  EUR  8.4 million  and Q2 2022 was EUR 4.9
million  (6M  2021: EUR  10.5 million  and  Q2  2021 was EUR 6.7 million), which
brought the pre-tax profit margin to 5.4% (6M 2021: 7.2%).
Net  profit attributable to  shareholders for 6 months  2022 was EUR 7.2 million
(6M   2021: EUR   9.8 million)  and  for  Q2  2022 net  profit  attributable  to
shareholders was EUR 4.2 million (Q2 2021: EUR 6.4 million). 6 months net profit
margin was 4.6% (6M 2021: 6.7%).

REVENUE
Q2  2022 revenue was EUR 87.8 million  (Q2 2021: EUR 85.8 million) and 6 months'
revenue  was EUR  156.2 million (6M  2021: EUR 145.9 million). 6 months' revenue
increased by 7.2% compared to same period last year. The share of revenue earned
outside Estonia in 6 months 2022 was 53.8% (6M 2021: 38.0%).

SECURED ORDER BOOK
As  of 30 June  2022, the group's  secured order  book was EUR 322.9 million (30
June   2021: EUR   249.8 million).  In  6 months  2022, group  companies  signed
contracts in the amount of EUR 193.3 million (6M 2021: EUR 135.1 million). In Q2
2022, new  contracts were signed in the amount of EUR 22.1 million (Q2 2021: EUR
37.8 million).

REAL ESTATE DEVELOPMENT
In  6 months 2022, the group sold a  total of 214 apartments; in 6 months 2021,
the  group sold 145 apartments.  The group earned  a revenue of EUR 27.1 million
from  sale of own developed apartments  in 6 months 2022 and EUR 25.8 million in
6 months 2021. In Q2 of 2022 a total of 88 apartments were sold, compared to 55
apartments in Q2 2021, and earned a revenue of EUR 11.6 million from sale of own
developed apartments (Q2 2021: EUR 11.0 million).

CASH POSITION
At  the end of the reporting period, the  group had EUR 16.8 million in cash and
cash  equivalents,  and  equity  of  EUR  156.7 million (41.5% of total assets).
Comparable  figures  as  of  30 June  2021 were  EUR 21.7 million and EUR 145.3
million  (52.5% of total assets), respectively.  As of 30 June 2022, the group's
net debt was EUR 73.2 million (30 June 2021: EUR 16.1 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                               2022      2021        2022        2021      2021
                           6 months  6 months  II quarter  II quarter 12 months

 Revenue                    156,198   145,860      87,772      85,753   339,375

 Cost of goods sold       (138,917) (128,622)    (78,363)    (75 489) (292,563)

 Gross profit                17,281    17,238       9,409      10 264    46,812



 Marketing expenses         (2,169)   (1,830)     (1,054)       (883)   (3,611)

 General and
 administrative expenses    (7,522)   (5,706)     (3,799)     (2,991)  (13,925)

 Other operating income       1,422     1,314         736         639     3,508

 Other operating expenses     (455)      (93)       (394)        (39)     (582)

 Operating profit             8,557    10,923       4,898       6,990    32,202



 Finance income/costs         (193)     (441)        (33)       (257)      (75)

 incl. finance
 income/costs from
 associates and joint
 ventures                       328         3         330         (4)       799

 interest expense             (374)     (316)       (212)       (170)     (681)

 foreign exchange gain
 (loss)                        (67)      (39)       (119)        (39)       (8)

 other financial income
 (expenses)                    (80)      (89)        (32)        (44)     (185)

 Profit before tax            8,364    10,482       4,865       6,733    32,127



 Corporate income tax
 expense                    (1,176)     (856)       (755)       (427)   (3,104)



 Net profit for financial
 year                         7,188     9,626       4,110       6,306    29,023

 incl. net profit
 attributable to equity
 holders of the parent        7,202     9,763       4,196       6,395    29,140

 net profit attributable
 to non-controlling
 interest                      (14)     (137)        (86)        (89)     (117)



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

 Currency translation
 differences of foreign
 entities                      (12)        16        (28)         (7)        33

 Comprehensive income for
 the period                   7,176     9,642       4,082       6,299    29,056

 incl. net profit
 attributable to equity
 holders of the parent        7,189     9,779       4,169       6,387    29,163

 net profit attributable
 to non-controlling
 interest                      (13)     (137)        (87)        (88)     (107)

 Earnings per share for
 profit attributable to
 equity holders of the
 parent (basic and
 diluted, in EUR)              0.41      0.55        0.24        0.36      1.65


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

unaudited
in thousand euros

                                               30.06.2022 30.06.2021 31.12.2021

 ASSETS

 Current assets

 Cash and cash equivalents                         16,773     21,713     44,930

 Trade and other receivables                       68,317     62,902     55,484

 Prepaid corporate income tax                          36        315        114

 Inventories                                      228,240    136,605    160,593

                                                  313,366    221,535    261,121

 Non-current assets

 Investments in associates and joint ventures       9,707      2,357      7,703

 Other long-term loans and receivables             23,616     22,797     24,079

 Deferred income tax assets                         1,115        842        622

 Investment property                               11,536     13,872     13,828

 Property, plant and equipment                     17,347     14,611     16,350

 Intangible assets                                    635        733        669

                                                   63,956     55,212     63,251



 TOTAL ASSETS                                     377,322    276,747    324,372



 LIABILITIES

 Current liabilities

 Borrowings                                        48,854      9,279     11,636

 Payables and prepayments                         117,702     77,814     90,054

 Income tax liability                               2,275        731        681

 Short-term provisions                              6,879      5,720      7,976

                                                  175,710     93,544    110,347

 Non-current liabilities

 Long-term borrowings                              41,153     28,493     41,001

 Deferred income tax liability                      1,649      1,739      3,112

 Other long-term payables                           2,322      3,586      2,900

                                                   45,124     33,818     47,013



 TOTAL LIABILITIES                                220,834    127,362    157,360



 EQUITY

 Non-controlling interests                          (240)      4,078      (227)

 Equity attributable to equity holders of the
 parent

 Share capital                                      7,929      7,929      7,929

 Statutory reserve capital                            793        793        793

 Currency translation differences                   (804)      (798)      (791)

 Retained earnings                                148,810    137,383    159,308

                                                  156,728    145,307    167,239

 TOTAL EQUITY                                     156,488    149,385    167,012



 TOTAL LIABILITIES AND EQUITY                     377,322    276,747    324,372

The  interim report  is attached  to the  announcement and  is also published on
NASDAQ      Tallinn      and      Merko's      web      page     (group.merko.ee
(https://group.merko.ee/en/)).

Urmas Somelar
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250
[email protected] (mailto:[email protected])

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