Börsiteade

Pealkiri

2014 9 months and III quarter consolidated unaudited interim report

Teade

Tallinn, Estonia, 2014-11-06 15:30 CET (GLOBE NEWSWIRE) --


MANAGEMENT REPORT

Overview of the 9 months and III quarter results

REVENUE                                                                         
Revenue in 9M 2014 was EUR 182.2 million (9M 2013: EUR 197.8 million), which has
 decreased by 7.9% compared to the same period last year. Q3 revenue was EUR    
 68.5 million (Q3 2013: EUR 84.1 million). The share of revenue earned outside  
 of Estonia has incresed in 9M 2014 to 31.5% (9M 2013: 17.4%) and the number of 
 apartments sold in 9 months of 2014 (235 pcs, revenues of EUR 23.8 million) has
 increased by 42.4% (9 months of 2013: 165 apartments, revenues of EUR 17.4     
 million).                                                                      
PROFITABILITY                                                                   
Gross margin in 9M was 8.9% (9M 2013: 8.8%), which has increased by 1.6%        
 compared to the same period last year. Net margin increased to 4.2% (9M 2013:  
 4.0%). Net profit in 9M was EUR 7.6 million (9M 2013: EUR 7.9 million). Q3 net 
 profit was EUR 3.3 million (Q3 2013: EUR 3.9 million).                         
CASH POSITION                                                                   
At the end of the reporting period, the group had EUR 40.3 million in cash and  
 cash equivalents and equity EUR 122.2 million (47.5% of total assets).         
 Comparable figures as at 30 September 2013 were accordingly EUR 39.1 million   
 and EUR 119.4 million (48.1% of total assets). As at 30 September 2014 the     
 group had net debt of EUR 0.1 million (30 September 2013: negative EUR 5.4     
 million), which has grown mainly due to loans taken to finance the increased   
 development activities.                                                        
SECURED ORDER BOOK                                                              
In Q3 2014, group companies signed new contracts in the amount of EUR 37.2      
 million (Q3 2013: EUR 109.8 million). 9M 2014 new contracts signed in amount of
 EUR 107.5 million (9M 2013: EUR 205.7 million). As at 30 September 2014, the   
 group’s secured order book stood at EUR 166.4 million (30 September 2013: EUR  
 218.1 million).                                                                



                        9M ’14  9M ’13  Varianc  Q3 ’14  Q3 ’13  Varianc     12M
                                              e                        e     ‘13
--------------------------------------------------------------------------------
Revenue       million    182.2   197.8    -7.9%    68.5    84.1   -18.5%   262.7
               EUR                                                              
--------------------------------------------------------------------------------
Gross profit  million     16.3    17.4    -6.4%     6.2     7.5   -18.1%    22.7
               EUR                                                              
--------------------------------------------------------------------------------
Gross profit  %            8.9     8.8    +1.6%     9.0     9.0    +0.6%     8.6
 margin                                                                         
--------------------------------------------------------------------------------
Net profit    million      7.6     7.9    -4.1%     3.3     3.9   -16.3%    10.4
 (parent)      EUR                                                              
--------------------------------------------------------------------------------
Net profit    %            4.2     4.0    +4.1%     4.8     4.6    +2.7%     4.0
 margin                                                                         
--------------------------------------------------------------------------------
EPS           EUR         0.43    0.45    -4.1%    0.18    0.22   -16.3%    0.59
--------------------------------------------------------------------------------



                                    30.09.14  30.09.13  Variance  31.12.13
--------------------------------------------------------------------------
ROE (on yearly basis)  %                 8.3      10.5    -21.1%       8.8
--------------------------------------------------------------------------
Equity ratio           %                47.5      48.1     -1.2%      50.9
--------------------------------------------------------------------------
Secured order book     million EUR     166.4     218.1    -23.7%     213.7
--------------------------------------------------------------------------
Total assets           million EUR     257.3     248.3     +3.6%     239.2
--------------------------------------------------------------------------
Number of employees    people            804       902    -10.9%       860
--------------------------------------------------------------------------



OPERATING RESULTS

Business activities

Key financial indicators (in million euros)

                            9 months  9 months        III         III  12 months
                                2014      2013    quarter     quarter       2013
                                                     2014        2013           
--------------------------------------------------------------------------------
Revenue                                                                         
--------------------------------------------------------------------------------
Estonia                        124.8     163.4       46.0        70.6      211.9
--------------------------------------------------------------------------------
Latvia                          47.8      29.4       18.6        11.9       44.4
--------------------------------------------------------------------------------
Lithuania                        9.6       5.0        3.9         1.6        6.4
--------------------------------------------------------------------------------
Revenue total                  182.2     197.8       68.5        84.1      262.7
--------------------------------------------------------------------------------
Gross profit                    16.3      17.4        6.2         7.5       22.7
--------------------------------------------------------------------------------
EBITDA                          10.2      11.6        4.1         5.3       15.1
--------------------------------------------------------------------------------
Operating profit (EBIT)          8.5       9.5        3.5         4.4       12.3
--------------------------------------------------------------------------------
Net profit                                                                      
--------------------------------------------------------------------------------
attributable to equity           7.6       7.9        3.3         3.9       10.4
 holders of the parent                                                          
--------------------------------------------------------------------------------
attributable to                (0.2)       0.0      (0.1)         0.0        0.0
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Net profit total                 7.4       7.9        3.2         3.9       10.4
--------------------------------------------------------------------------------
Earnings per share (EPS),       0.43      0.45       0.18        0.22       0.59
 euros                                                                          
--------------------------------------------------------------------------------
Cash and cash equivalents       40.3      39.1       40.3        39.1       46.6
 closing position                                                               
--------------------------------------------------------------------------------



Revenue and gross profit

Merko Ehitus group generated a total of EUR 182.2 million in revenue in 9
months of 2014 (9 months of 2013: EUR 197.8 million). 68.5% of the revenue was
generated in Estonia, 26.2% in Latvia and 5.3% in Lithuania (9 months of 2013:
82.6% in Estonia, 14.9% in Latvia and 2.5% in Lithuania). Compared to the 9
months of 2013 the group revenue has decreased by 7.9%. In the 9 months of 2014
the share of Latvian revenue has increased from 14.9% to 26.2%, which is an
ongoing trend in 2014. Revenue in Q3 2014 was EUR 68.5 million, which has
decreased 18.5% compared to the previous year (Q3 2013: EUR 84.1 million).The
main changes in the revenue structure compared to the same period last year,
can be mainly attributed to projects pursued in the general construction and
real estate development segment. At the same time there has been a significant
reduction in sales revenue from engineering construction and road construction
segments, which is primarily due to the end of major projects financed from EU
structural funds and the reduced project volumes. A similar trend was already
seen in the first half of 2014. 

In 9 months of 2014 the group’s gross profit from development and construction
activities totalled EUR 16.3 million (9 months of 2013: EUR 17.4 million) and
in Q3 2014 EUR 6.2 million (Q3 2013: EUR 7.5 million). The 9 months gross
profit margin (8.9%) has increased compared to the same period last year (9
months of 2013: 8.8%). The growth of the profit margin has been supported by
growth in the volumes of the real estate development segment. Simultaneously
profitability has been negatively impacted by a growth in volumes in the
lower-profitability general construction segment. Additionally maintaining the
stability of profit margins during the 9 months of 2014 both in the road
construction and civil engineering segments has been important, despite the
decline in sales volumes. 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, but especially in general construction, where the number of companies
participating in tenders and the risk of low pricing bids is high. 

Net profit

In 9 months of 2014, the group’s profit before tax totalled EUR 8.0 million and
net profit attributable to equity holders of the parent was EUR 7.6 million as
compared to the pre-tax profit or EUR 8.7 million and net profit attributable
to equity holders of the parent of EUR 7.9 million in 9 months of 2013. Group’s
net profit margin was 4.2% (9 months of 2013: 4.0%). The net profit for the 9
months of 2014 was affected by the income tax expenses paid in the first
quarter of 2014 on the dividends received from OÜ Gutsaf Tallinn in the amount
of EUR 0.3 million. This increases the income tax expenses as extraordinary
one-off item, compared to the 9 months of 2013. 

In Q3 of 2014, the group’s pre-tax profit totalled EUR 3.3 million and net
profit was EUR 3.3 million as compared to the pre-tax profit or EUR 4.2 million
and net profit of EUR 3.9 million in Q3 of 2013. If the group’s quarterly net
profit (EUR 3.3 million) has decreased compared to the same period last year (9
months of 2013: EUR 3.9 million), then the quarterly net profit margin (4.8%)
has decreased increased compared to the same period last year (9 months of
2013: 4.6%). 

In the second quarter of 2014, the group paid EUR 7.3 million in dividends,
which incurred no additional income tax expense in connection with previously
received and taxed distribution of profits from subsidiaries. The situation in
the third quarter of 2013 was alike, when the group paid EUR 5.3 million in
dividends. 



Business segments

The group operates mainly in Estonian, Latvian and Lithuanian market through
its subsidiaries and depending on the country provide services across the
following business segments: general construction, civil engineering (including
electrical and external networks), road construction, real estate development
(including apartment development and sales, long-term real estate investments
and commercial real estate projects) and other comprising sale of raw materials
obtained from pit mining, equipment lease, consulting and construction
supervision. The groups management structure is country based and is in turn
divided by business segments. 

General construction

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. 

million EUR

            9 months  9 months  Change         III         III  Change        12
                2014      2013             quarter     quarter            months
                                              2014        2013              2013
--------------------------------------------------------------------------------
Revenue         85.8      59.9  +43.3%        28.9        26.4   +9.5%      86.6
--------------------------------------------------------------------------------
% of total     47.1%     30.3%  +55.6%       42.2%       31.4%  +34.3%     32.9%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross            3.4       1.5  +121.9         1.9         0.3  +557.1     (0.5)
 profit                              %                               %          
 (loss)                                                                         
--------------------------------------------------------------------------------
Gross           3.9%      2.6%  +54.8%        6.5%        1.1%  +550.4     -0.6%
 profit                                                              %          
 margin                                                                         
--------------------------------------------------------------------------------

In the 9 months of 2014, the revenue of the general construction segment was
EUR 85.8 million (9 months of 2013: EUR 59.9 million), having increased by
43.3% from the same period last year. The segments gross profit has increased
by 121.9% and the segments overall gross profit for the period is EUR 3.4
million (9 months of 2013: EUR 1.5 million). The segment continues to be mainly
influenced by the pressure on the margins exerted by tightening competition. In
the 9 months the revenue of the general construction segment formed the largest
proportion in the group’s revenue with a 47.1% share. This proportional
increase was expected, especially given the knowledge that the volumes in the
civil engineering and road construction segments were decreasing. 

The tight competition in the general construction segment has left it’s mark on
the segments gross margin (9 months of 2014: 3.9%), which has increased by
54.8% compared to the same period last year, but mainly due the non-realisation
of the previously forecasted risks in projects nearly or fully completed in the
reporting period and therefore having a one-off effect in the results. While we
saw a rise in the proportion of private sector orders starting in 2013,
unfortunately the same tendency has not continued in the 9 months of 2014.
Nevertheless, with regard to projects in progress in the general construction
segment, private sector orders still outstrip public procurements as at the end
of the quarter. 

Our major projects in the third quarter included the construction workw of
Hilton Tallinna Park hotel and Tondiraba ice arena in Tallinn, the
reconstruction work at the North-Estonia Medical Centre in Mustamäe in Tallinn,
the construction of Polipaks NT manufacturing and logistics centre in Marupe
and the construction of multifunctional concert hall in Liepaja. 

Among the projects completed and delivered to the customer in 9 months of 2014
the ones to highlight are the Tondiraba ice arena and the Nurmevälja logistics
centre. 

Civil engineering

The civil engineering segment includes 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. 

million EUR

             9 months  9 months  Change        III        III  Change  12 months
                 2014      2013            quarter    quarter               2013
                                              2014       2013                   
--------------------------------------------------------------------------------
Revenue          45.4      74.1  -38.8%       21.1       28.6  -26.4%       94.5
--------------------------------------------------------------------------------
% of total      24.9%     37.5%  -33.6%      30.8%      34.0%   -9.6%      36.0%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross             5.0       7.6  -34.8%        1.8        3.6  -50.8%       12.5
 profit                                                                         
--------------------------------------------------------------------------------
Gross           10.9%     10.2%   +6.6%       8.5%      12.7%  -33.2%      13.2%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------

The revenue of the civil engineering segment amounted to EUR 45.4 million in
the 9 months of 2014 (9 months of 2013: EUR 74.1 million), which is 38.8% less
than in 2013. The decrease from the previous year is mainly due to a drop in
the volume of pipeline projects. If the civil engineering segment revenues of 9
months of 2013 formed the largest proportion in the group’s revenue (9 months
of 2013: 37.5%), then during 9 months of the current year the segments revenues
formed 24.9% of total revenue being down 33.6% compared to the previous year.
The 9 month gross profit of the civil engineering segment amounted to EUR 5.0
million (9 months of 2013: EUR 7.6 million) and the gross profit margin was
10.9% (9 months of 2013: 10.2%), which increased by 6.6% compared to the same
period previous year. The increase in the gross margin has been achieved mainly
due to cost savings through an early completion of some projects as well as the
risks previously forecasted not materialised in some nearly completed projects.
Considering the declining volumes in the segment we see this as a very good and
strong outcome. We continue to closely monitor the changes in the volumes, to
maintain an effective cost base. 

In the third quarter of 2014, the main ongoing projects included were the
design and renovation of the infrastructure of Tallinn tram line No. 4, the
reconstruction of pipelines in Narva-Jõesuu and the closing of industrial waste
and semi-coke landfill in Kohtla-Järve and the re-cultivation and construction
works of waste recycling site at A. Deglava Street in Riga. 

The civil engineering segment includes 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, this applies particularly to water
management projects. 

Road construction

In the road construction segment, the company carries out road construction and
builds the associated infrastructure, road maintenance and maintenance repair. 

million EUR

             9 months  9 months  Change        III        III  Change  12 months
                 2014      2013            quarter    quarter               2013
                                              2014       2013                   
--------------------------------------------------------------------------------
Revenue          23.6      43.5  -45.7%       12.4       21.0  -40.7%       49.5
--------------------------------------------------------------------------------
% of total      12.9%     22.0%  -41.1%      18.1%      24.9%  -27.3%      18.8%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross             3.6       5.6  -35.1%        2.0        2.8  -29.3%        5.9
 profit                                                                         
--------------------------------------------------------------------------------
Gross           15.4%     12.9%  +19.7%      16.2%      13.6%  +19.3%      12.0%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------

The revenue of the road construction segment amounted to EUR 23.6 million in
the 9 months of 2014 (9 months of 2013: EUR 43.5 million), which means a 45.7%
decrease from the same period 2013. In the 9 months of 2014, the segment earned
a gross profit of EUR 3.6 million (9 months of 2013: EUR 5.6 million), which
yields a gross profit margin of 15.4% (9 months of 2013: 12,9%). The drop in
revenue has been affected the most by the lack of large-scale construction
projects (such as the last year’s Ülemiste junction in Tallinn) in the
contracts portfolio of the group in 2014. In the 9 months of 2014, the growth
of profitability in the road construction segment was supported largely by an
increase in the volume of small-scale road construction and repair works with
higher-than-average profitability compared to the same period last year when
the number of similar contracts was smaller. 

The largest projects in work in the third quarter were the maintenance works
done under the service agreement with Tallinn and Jõgeva County and the
surfacing works on the road of Harju and Rapla County. 

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. 

million EUR

             9 months  9 months  Change        III        III  Change  12 months
                 2014      2013            quarter    quarter               2013
                                              2014       2013                   
--------------------------------------------------------------------------------
Revenue          26.4      19.4  +36.3%        5.8        7.7  -25.2%       31.0
--------------------------------------------------------------------------------
% of total      14.5%      9.8%  +47.9%       8.4%       9.2%   -8.3%      11.8%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross             4.3       2.9  +49.2%        0.6        1.0  -41.5%        5.1
 profit                                                                         
--------------------------------------------------------------------------------
Gross           16.4%     15.0%   +9.5%      10.5%      13.4%  -21.8%      16.5%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------

A total of 235 apartments were sold in 9 months of 2014 at the total value of
EUR 23.8 million (excl. VAT), (9 months of 2013: 165 apartments and EUR 17.4
million, respectively). In Q3 of 2014 a total of 37 apartments were sold at the
total value of EUR 5.2 million (excl. VAT), (Q3 2013: 71 apartments and EUR 6.6
million). 9 months real estate development segment revenues have increased
36.3% compared to the same period last. The share of revenue from the real
estate development segment also increased in the 9 months to 14.5% of the
group’s total revenue  (9 months of 2013: 9.8%), which has been planned and
occasioned by the strategic decisions made in 2013 to increase the segment’s
investments into various new real estate development projects. 

In 9 months of 2014, the group has earned EUR 1.4 million of revenue from the
sale of properties (9 months of 2013: EUR 0.3 million). Q3 revenue from the
sale of properties was EUR 0.0 million (Q3 2013: EUR 0.1 million). 

At the end of the period, Merko Ehitus group’s inventory comprised 15 completed
but not yet sold apartments (7 in Estonia, 1 in Latvia and 7 in Lithuania) and
6 completed and pre-sold apartments (all in Estonia). 

As at 30 September 2014, Merko Ehitus group had a total of 366 apartments for
active sale (as at 30 September 2013: 385 apartments), for which there are no
pre-sale agreements and the vast majority is under construction. 

Apartment projects in progress and indicative date of completion

Project                    Municipality/Country    Completion         No of     
                                                      date        apartments *  
--------------------------------------------------------------------------------
Pärna avenue 7             Tartu municipality,      Completed           3       
                                 Estonia                                        
--------------------------------------------------------------------------------
Grostonas 17                   Riga, Latvia         Completed           1       
--------------------------------------------------------------------------------
Mokslininku stage I        Vilnius, Lithuania       Completed           2       
--------------------------------------------------------------------------------
Mokslininku stage II       Vilnius, Lithuania       Completed           5       
--------------------------------------------------------------------------------
Vana-Kalamaja                Tallinn, Estonia       Completed           10      
 31+Suur-Laagri 2 **                                                            
--------------------------------------------------------------------------------
                                                                        21      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Grostonas 19                   Riga, Latvia       Autumn 2014           82      
--------------------------------------------------------------------------------
Paepargi 17, 19, 21 **       Tallinn, Estonia     Autumn 2014           54      
--------------------------------------------------------------------------------
Kentmanni 6                  Tallinn, Estonia     End of 2014 /         93      
                                                  Beginning of                  
                                                      2015                      
--------------------------------------------------------------------------------
Pärna avenue 10 **         Tartu municipality,    End of 2014           42      
                                 Estonia                                        
--------------------------------------------------------------------------------
Pärna avenue 9 **          Tartu municipality,    End of 2014           28      
                                 Estonia                                        
--------------------------------------------------------------------------------
Grostonas 21                   Riga, Latvia       Spring 2015          125      
--------------------------------------------------------------------------------
                                                                       424      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Started in Q3 2014                                                              
--------------------------------------------------------------------------------
Rästa 18                     Tallinn, Estonia     End of 2015           47      
--------------------------------------------------------------------------------
Fizik?                     Vilnius, Lithuania     End of 2015           38      
--------------------------------------------------------------------------------
Kraziu                     Vilnius, Lithuania     End of 2015           29      
--------------------------------------------------------------------------------
Paepargi 49                  Tallinn, Estonia     End of 2015           60      
--------------------------------------------------------------------------------
                                                                       174      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Total                                                                  619      
--------------------------------------------------------------------------------

* The completed apartments indicate the number of apartments that are unsold
and where possession has not been given to consumers. 
** Project launched in 2014.

In 9 months of 2014, we launched the construction of a total of 310 new
apartments in the Baltic States (9 months of 2013: 396 apartments). In 2013 we
launched the construction of a total of 409 new apartments. We will continue to
invest in residential real estate projects and depending on the apartment
market developments in 2014, the group plans to launch the construction of
approximately 500-550 new apartments in the Baltic States. Group is considering
potential launch of Tartu mnt 50/52 stage II (185 apartments) development
project in Tallinn as one of the largest projects in the last quarter. In 2014,
the group’s planned investments in both development projects initiated in the
previous years and new projects to be launched in 2014 will be in the range of
EUR 45-50 million. In the 9 months of this year, the group has invested a total
of EUR 33.5 million in new development projects launched in 2014 as well as
projects already in progress from previous year. 

As at 30 September 2014, the group has 60 apartments in Tartu where the
construction activity has been frozen (as at 30 September 2013, the respective
number in Tallinn and Tartu was 158 apartments). During 2014, we have
re-launched two development projects that were frozen in prior years: 

  -- Development of Pärna avenue 10 in Tartu municipality in the 1st quarter
     (the number of apartments for sale is 42);
  -- Development of Pärna avenue 9 in Tartu municipality in the 2nd quarter (the
     number of apartments for sale is 28).

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. The group is searching for new land plots for real estate
development purposes in Estonian and Lithuania. The real estate portfolio in
Latvia is extensive enough. In the 9 months of 2014, the group has purchased
new land plots in Lithuania at an acquisition cost of EUR 3.2 million (9 months
of 2013: EUR 1.2 million). Also in the second quarter, the group realized an
option agreement to acquire the Rästa 18 land plot in Tallinn in the amount of
EUR 1.2 million. 

The real estate market has not changed significantly over the last 9 months,
even though the events in Ukraine are likely to have somewhat slowed down
customers' investment decisions. At the same time the supply of apartments has
increased, which allows the customers to take more time in making their
purchase decisions. Customers have become more knowledgeable as to what they
desire, and thus project location, development volume, design solutions and
target consumer group play an important role for the group before launching
each project and in the course of assessing the risks. Taking into account low
interest rates on loans and limited supply on the market of new apartments, in
the recent years the demand and transaction activity on the apartment market
has grown moderately. The number of transactions and the average price per
square meter of new apartments have shown a marginal growth trend. There is
still room for new development projects in the Baltic capital cities, though
one should proceed with care in Vilnius. The increased supply of apartments
will result in the stabilisation of prices and the pro-longing of sale periods,
which the group needs to consider while launching new developments. 

Other

The segment other includes the sale of raw materials obtained from pit mining,
equipment lease, consulting, construction supervision and other non-core
activities. 

million EUR

             9 months  9 months  Change        III        III  Change  12 months
                 2014      2013            quarter    quarter               2013
                                              2014       2013                   
--------------------------------------------------------------------------------
Revenue           1.0       0.9   +9.0%        0.3        0.4   -7.8%        1.1
--------------------------------------------------------------------------------
% of total       0.6%      0.4%  +18.3%       0.5%       0.5%  +13.1%       0.5%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross           (0.0)     (0.2)  -78.8%      (0.1)      (0.2)  -57.2%      (0.3)
 profit                                                                         
 (loss)                                                                         
--------------------------------------------------------------------------------
Gross           -5.2%    -26.6%  -80.6%     -31.9%     -68.6%  -53.6%     -29.9%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------



Secured order book

As at 30 September 2014, the group’s secured order book (without own
developments) amounted to EUR 166.4 million as compared to EUR 218.1 million as
at 30 September 2013. The secured order book excludes the group's own
residential development projects and work related to developing real estate
investments. 

In third quarter of 2014, EUR 37.2 million worth of new contracts were signed
(without own developments) as compared to EUR 109.8 million in same period last
year. The value of new contracts signed (without own developments) in the 9
months of 2014 amounted to EUR 107.5 million (9 months of 2013: EUR 205.7
million). 

Largest construction contracts signed in the third quarter of 2014

Brief description of contract                         Countr  Completio   Cost  
                                                         y     n time    million
                                                                           EUR  
--------------------------------------------------------------------------------
Design and construction works of apartment building   Lithua   December    2.9  
 in Saltiniu Namai residential building complex        nia       2015           
--------------------------------------------------------------------------------
Construction works of sports hall of The American     Lithua   August      2.2  
 International School of Vilnius                       nia       2015           
--------------------------------------------------------------------------------
Reconstruction of E20 main road Tallinn-Narva         Estoni  September    5.7  
 Kodasoo-Läsna sections                                  a       2015           
--------------------------------------------------------------------------------
Reconstruction of Suur-Sõjamäe Street in Tallinn      Estoni  June 2015    2.9  
                                                         a                      
--------------------------------------------------------------------------------

After the balance sheet date, a contract was concluded on 3 November 2014
between AS Merko Ehitus Eesti, which is a part of AS Merko Ehitus group, and AS
Mainor Ülemiste, to perform the design and construction works of a 13-storey
office building located in Tallinn Estonia, at the Ülemiste City, in the amount
of EUR 17.4 million. 

Whereas the share of public procurements was still predominant among new
construction contracts at the start of 2013, the private customer segment
became more active in the construction markets of all three Baltic countries in
the second half of 2013. Of the contracts signed in 2013, at 31 December close
to half were connected to private contracting entities. The majority of the
contracts signed in the 9 months of the current year were public tenders and
the company did not manage to garner as much work from private sector customers
as it had envisaged. It is the general construction segment that is seeing the
stiffest competition and where competitors are making aggressive offers that
the construction companies in the Merko Ehitus group have thus far not gone
along with. As at 30 September 2014, the group’s secured order book was
dominated by public sector orders, which made up nearly two-thirds of the
portfolio. Considering the end of the previous EU funding period and the
beginning phase of the current EU funding period, one can forecast continued
decline in the volume of public procurements for 2014. In this respect, it
continues to be a great challenge to maintain the group’s secured order book at
the level of 2013 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 continue to look for construction
orders from outside Estonia. Thus, we are closely monitoring the development
and opportunities in the neighbouring markets. AS Merko Ehitus Eesti has
selectively and on project basis started to participate in public 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. 



Cash flows

The liquidity of the group is strong and the cash position is stable. As at 30
September 2014 the group had cash equivalents in the amount of EUR 40.3 million
(30.09.2013: EUR 39.1 million). Compared to the same period last year, the
group's strategic cash level and investment capacity have strengthened. 

The 9-month cash flow from operating activity was negative at EUR 0.2 million
(9 months of 2013: positive EUR 11.8 million), cash flow from investing
activity was negative at EUR 1.6 million (9 months of 2013: negative EUR 0.2
million) and the cash flow from financing activity was negative at EUR 4.4
million (9 months of 2013: negative EUR 7.8 million). 

The cash flow from operating activity was mostly influenced by the operating
profit EUR 8.5 million (9 months of 2013: EUR 9.5 million), by the positive
change in receivables and liabilities related to construction contracts
recognised under the stage of completion method EUR 2.3 million (9 months of
2013: negative change of EUR 1.4 million), by the negative change in provisions
EUR 0.3 million (9 months of 2013: positive change of EUR 0.1 million), by the
negative change in trade and other receivables related to operating activities
EUR 5.6 million (9 months of 2013: negative change of EUR 14.6 million), by the
negative change in inventory EUR 16.0 million (9 months of 2013: negative
change of EUR 5.9 million), and by the positive change in trade and other
payables related to operating activities EUR 10.1 million (9 months of 2013:
positive change of EUR 22.5 million, incl. significant positive inflow from the
advances for real estate development projects). The cash flows from operating
activities of the reporting period were negatively influenced mainly by changes
in inventories (EUR 16.0 million) which are due to group’s increased apartment
development volumes and the gradual completing thereof (Grostonas 21 in Riga
and Kentmanni 6 in Tallinn) as well as from the acquisition of new land plots.
The negative impact is partly positively offset from the prepayments received
from pre-sales of apartments and from construction service customers, which
still remain EUR 12.4 million lower than in the same period last year. 

The group’s cash flows from operating activities continue to have contracts
(incl. both government and private sector) with long payment terms (by
contract, an average of 56 days after registered delivery of the work) and
there is an persistent burden on working capital, including optimal management
of cash flows. This is especially true, considering the increase in Latvian
construction volumes and the need for additional working capital. 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 (15.7% as at 30.09.2014; 13.9% as
at 30.09.2013). 

Cash flows from investment activities include negative cash flow from the cash
balance excluded from the group in connection with the sale of subsidiary
Gustaf Tallinn OÜ in the amount of EUR 0.4 million, but also negative cash flow
from the acquisition of minority shareholding in subsidiary AS Gustaf in the
amount of EUR 0.1 million and the acquisition of subsidiary UAB Timana (related
to the purchase of a new land plot in Lithuania) in the amount of EUR 0.3
million. Cash flows from investment activities was additionally influenced by
the negative cash flow from the acquisition of non-current asset in the amount
of EUR 1.1 million (9 months of 2013: EUR 0.6 million) and the positive cash
flow from the sale of non-current assets in the amount of EUR 0.1 million (9
months of 2013: EUR 0.8 million). Cash flows from investment activities in 9
months of 2013 was negatively impacted by the acquisition of other investments
in the amount of EUR 0.3 million. The group mainly invested in non-current
assets for the purpose of renewing its fleet of machinery in the road
construction segment. 

The largest single negative item in cash flows from financing was the dividend
payment of EUR 7.3 million (9 months of 2013: EUR 5.3 million) and the
premature repayment of a working capital loan in the amount of EUR 3.5 million,
instead of which the group entered into an overdraft contract with an overall
limit of EUR 3.5 million. Project specific loans obtained using investment
property as collateral were repaid in the amount of EUR 0.4 million (9 months
of 2013: positive cash flow in net amount of EUR 1.7 million), net of loans
received and loans repaid in connection with development projects amounted to
positive cash flow of EUR 7.5 million (9 months of 2013: negative cash flow of
EUR 1.3 million), factoring in the amount of EUR 0.0 million (9 months of 2013:
negative cash flow of EUR 1.5 million) and finance lease principal repayments
of EUR 0.7 million (9 months of 2013: EUR 0.9 million). The group has not used
bank loans to finance all of the ongoing development projects – and this is the
case particularly in Estonia, where many advance sales were agreed in the early
phase of construction. 

The Q3 2014 cash flow from operating activity was negative at EUR 6.9 million
(Q3 2013: positive EUR 8.6 million), cash flow from investing activity was
negative at EUR 0.8 million (Q3 2013: positive EUR 3.0 million) and the cash
flow from financing activity was positive at EUR 4.6 million (Q3 2013: negative
EUR 3.9 million). 

The quarterly cash flows from operating activities were negative primarily as a
result of the need for working capital to cover large-scale development
projects. Cash flow from operating activities was also impacted negatively by
the acquisition cost of land plots for development activity in the amount of
EUR 2.0 million. 

Cash flows from investment activities was negative primarily due to the
acquisition of non-current asset in the amount of EUR 0.5 million, which is
mainly related to the renewal of equipment in the road construction segment.
Cash flow from investment activities was also negatively effected by the
acquisition of shareholdings in subsidiaries AS Gustaf and UAB Timana total in
the amount of EUR 0.4 million. 

Cash flow from financing activities was positive primarily due the net positive
cash flow of EUR 4.7 million of loans received and loans repaid to finance the
construction costs of development projects. 



Ratios

(attributable to equity holders of the parent)

                          9M ‘14  9M ‘13  9M ‘12  Q3 ‘14  Q3 ‘13  Q3 ‘12     12M
                                                                             ‘13
--------------------------------------------------------------------------------
Income statement                                                                
 summary                                                                        
--------------------------------------------------------------------------------
Revenue           millio   182.2   197.8   177.7    68.5    84.1    70.9   262.7
                   n EUR                                                        
--------------------------------------------------------------------------------
Gross profit      millio    16.3    17.4    10.7     6.2     7.5     5.6    22.7
                   n EUR                                                        
--------------------------------------------------------------------------------
Gross profit         %       8.9     8.8     6.0     9.0     9.0     7.9     8.6
 margin                                                                         
--------------------------------------------------------------------------------
Operating profit  millio     8.5     9.5     4.0     3.5     4.4     2.9    12.3
                   n EUR                                                        
--------------------------------------------------------------------------------
Operating profit     %       4.7     4.8     2.3     5.1     5.3     4.1     4.7
 margin                                                                         
--------------------------------------------------------------------------------
Profit before     millio     8.0     8.7     3.5     3.3     4.2     2.6    11.1
 tax               n EUR                                                        
--------------------------------------------------------------------------------
EBT margin           %       4.4     4.4     1.9     4.8     5.0     3.7     4.2
--------------------------------------------------------------------------------
Net profit        millio     7.4     7.9     3.1     3.2     3.9     2.6    10.4
                   n EUR                                                        
--------------------------------------------------------------------------------
attributable to   millio     7.6     7.9     3.2     3.3     3.9     2.6    10.4
 equity holders    n EUR                                                        
 of the parent                                                                  
--------------------------------------------------------------------------------
attributable to   millio   (0.2)     0.0   (0.1)   (0.1)     0.0     0.0     0.0
 non-controlling   n EUR                                                        
 interest                                                                       
--------------------------------------------------------------------------------
Net profit           %       4.2     4.0     1.8     4.8     4.6     3.7     4.0
 margin                                                                         
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income                                                                    
 statement                                                                      
 indicators                                                                     
--------------------------------------------------------------------------------
EBITDA            millio    10.2    11.6     5.9     4.1     5.3     3.6    15.1
                   n EUR                                                        
--------------------------------------------------------------------------------
EBITDA margin        %       5.6     5.9     3.3     5.9     6.3     5.1     5.7
--------------------------------------------------------------------------------
General expense      %       4.9     4.7     4.5     4.5     4.2     4.4     4.7
 ratio                                                                          
--------------------------------------------------------------------------------
Labour cost          %      12.1    12.1    11.0    11.3    11.2    10.5    11.8
 ratio                                                                          
--------------------------------------------------------------------------------
Revenue per       thousa     230     226     194      87      96      77     308
 employee         nd EUR                                                        
--------------------------------------------------------------------------------



Other significant                 30.09.2014  30.09.2013  30.09.2012  31.12.2013
 indicators                                                                     
--------------------------------------------------------------------------------
Return on equity           %             8.3        10.5        -3.2         8.8
--------------------------------------------------------------------------------
Return on assets           %             4.1         5.3        -1.6         4.4
--------------------------------------------------------------------------------
Return on invested         %             7.1         9.4        -1.7         8.0
 capital                                                                        
--------------------------------------------------------------------------------
Equity ratio               %            47.5        48.1        47.9        50.9
--------------------------------------------------------------------------------
Debt ratio                 %            15.7        13.9        17.6        14.8
--------------------------------------------------------------------------------
Current ratio            times           2.2         2.0         1.9         2.0
--------------------------------------------------------------------------------
Quick ratio              times           1.0         1.1         1.0         1.1
--------------------------------------------------------------------------------
Accounts receivable       days            61          55          60          58
 turnover                                                                       
--------------------------------------------------------------------------------
Accounts payable          days            38          43          51          43
 turnover                                                                       
--------------------------------------------------------------------------------
Average number of       people           792         877         916         853
 employees                                                                      
--------------------------------------------------------------------------------
Secured order book      million        166.4       218.1       199.5       213.7
                          EUR                                                   
--------------------------------------------------------------------------------



Employees and labour costs

Compared to the same period last year, the number of group’s employees
decreased by 98 (-10.9%) and as at 30 September 2014, the group had a total of
804 employees (including fixed-term and part-time employees). Compared to the
end of the previous financial year the number of employees has decreased by 56
(-6.5%). 

In 2014, the number of employees has declined because of the proportion of the
civil engineering segment declined within the work volumes of the group, but
also due to the sale of subsidiary Gustav Tallinn OÜ, the change of the
principal area of activity of subsidiary AS Gustaf and the decrease of road
maintenance works of subsidiary AS Vooremaa Teed. On the other hand the number
of employees had increased at the expense of seasonal workers mainly in road
construction segment. In 2014, the reduction in the number of employees will
continue due to the streamlining of the group corporate structure and the
decrease in ownership interest in immaterial subsidiaries. 

The group’s objective is to pay its employees competitive salary. The interests
of employees and the company are balanced by performance-based remuneration. 

The group defines labour cost as salary (incl. fixed salary, additional pay
(night work, overtime and public holidays), holiday pay and bonus), taxes based
on salary, fringe benefits and taxes based on fringe benefits. In 9 months
2014, the labour cost was EUR 22.1 million (9 months 2013: EUR 24.0 million),
down 7.8% from the previous year. 



Share and shareholders

               INFORMATION ON SECURITY                
              Issuer  AS Merko Ehitus                 
    Name of security  Share of Merko Ehitus           
              Ticker  MRK1T                           
 Residency of issuer  Estonia                         
 Stock Exchange List  NASDAQ Tallinn, Baltic Main List
            Industry  Construction                    
                ISIN  EE3100098328                    
       Nominal value  without nominal value           
Number of securities  17,700,000                      
     Volume of issue  12,000,000                      
            Currency  EUR                             
        Listing date  11.08.2008                      

The shares of Merko Ehitus are listed in the Main List of NASDAQ Tallinn. As at
30 September 2014, the company has 17,700,000 shares. The number of shares has
not changed during 2014. 

A total of 1,351 transactions were conducted with the shares of Merko Ehitus in
9 months of 2014, with 0.88 million shares (5.0% of total shares) traded,
generating a turnover of EUR 6.57 million (comparable figures in 9 months 2013
were accordingly: 1,732 transactions with 0.59 million shares traded (3.3% of
total shares) and generating a turnover of EUR 4.08 million). The lowest share
price amounted to EUR 6.96 and the highest to EUR 7.99 per share (9 months of
2013: EUR 5.71 and EUR 7.70). The closing price of the share was EUR 7.15 on 30
September 2014 (30.09.2013: EUR 7.30). As at 30 September 2014, the market
value of AS Merko Ehitus amounted to EUR 126.6 million, which has decreased by
2.1% compared to the same period end last year (as at 30 September 2013: EUR
129.2 million). 

                                 30.09.2014  30.09.2013  30.09.2012
-------------------------------------------------------------------
Number of shares                 17,700,000  17,700,000  17,700,000
-------------------------------------------------------------------
Earnings per share (EPS), euros        0.43        0.45        0.18
-------------------------------------------------------------------
Equity per share, euros                6.86        6.64        6.23
-------------------------------------------------------------------
P/B ratio                              1.04        1.10        0.97
-------------------------------------------------------------------
P/E ratio                             12.56       10.44      -29.99
-------------------------------------------------------------------
Market value, million EUR             126.6       129.2       106.6
-------------------------------------------------------------------

Structure of shareholders as at 30.09.2014

Number of shares           Number of            % of       Number of        % of
                        shareholders    shareholders          shares      shares
--------------------------------------------------------------------------------
1,000,001 - …                      1           0.07%      12,742,686      71.99%
--------------------------------------------------------------------------------
100,001 –                         10           0.71%       3,021,915      17.07%
 1,000,000                                                                      
--------------------------------------------------------------------------------
10,001 – 100,000                  32           2.26%         935,397       5.29%
--------------------------------------------------------------------------------
1,001-10,000                     231          16.30%         675,651       3.82%
--------------------------------------------------------------------------------
101-1,000                        736          51.94%         302,512       1.71%
--------------------------------------------------------------------------------
1-100                            407          28.72%          21,839       0.12%
--------------------------------------------------------------------------------
Total                          1,417            100%      17,700,000        100%
--------------------------------------------------------------------------------

Shareholders of AS Merko Ehitus as at 30.09.2014 and change compared to the
previous quarter 

                                  Number of    % of total    % of total   Change
                                     shares    30.09.2014    30.06.2014         
--------------------------------------------------------------------------------
AS Riverito                      12,742,686        71.99%        71.99%        -
--------------------------------------------------------------------------------
ING Luxembourg S.A. AIF Account     974,126         5.50%         5.50%        -
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken       469,378         2.65%         2.71%  -10,149
 S.A.                                                                           
--------------------------------------------------------------------------------
Firebird Republics Fund Ltd         375,704         2.12%         1.71%  +73,309
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken       293,660         1.66%         1.72%  -11,400
 AB, Swedish customers                                                          
--------------------------------------------------------------------------------
Firebird Avrora Fund Ltd            190,519         1.08%         0.96%  +20,519
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken       154,804         0.87%         0.74%  +23,112
 AB, Finnish customers                                                          
--------------------------------------------------------------------------------
State Street Bank and Trust         153,018         0.86%         0.86%        -
 Omnibus Account a Fund No OM01                                                 
--------------------------------------------------------------------------------
SEB Elu- ja Pensionikindlustus      148,020         0.84%         0.84%        -
 AS                                                                             
--------------------------------------------------------------------------------
Clearstream Banking Luxembourg      143,652         0.81%         0.81%        -
 S.A. customers                                                                 
--------------------------------------------------------------------------------
Total largest shareholders       15,645,567        88.38%        87.84%  +95,391
--------------------------------------------------------------------------------
Total other shareholders          2,054,433        11.62%        12.16%  -95,391
--------------------------------------------------------------------------------
Total                            17,700,000          100%          100%        -
--------------------------------------------------------------------------------



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 30 April
2014 approved the Supervisory Boards proposal to pay the shareholders the total
amount of EUR 7.3 million (EUR 0.41 per share) as dividends from net profit
brought forward, which is equivalent to a 70% dividend rate and a 5.7% dividend
yield for the year 2013 (using the share price as at 31 December 2013). 

According to the Estonian Income Tax Law §50 section 11 AS Merko Ehitus can pay
these dividends without any additional income tax expense and liabilities
occurring due to previously received and taxed distribution of profits from
subsidiaries. The dividend payment to the shareholders took place on 20 May
2014. 

In 2013 the total amount of EUR 5.3 million (EUR 0.30 per share) was paid to
shareholders as dividends, which is equivalent to a 70% dividend rate and a
5.1% dividend yield for the year 2012 (using the share price as at 31 December
2012). 

In the past five years, the shareholders have received dividends from the net
profit for the accounting year as follows: 

Dividend payments are carried out in the next fiscal year in accordance with
the decisions of the general meeting of the shareholders, regarding the
previous fiscal year. 



Corporate governance and structure

AS Merko Ehitus operates as a holding company whose companies in Estonia,
Latvia and Lithuania offer complete solutions in the field of construction and
real estate development. In the construction sector, the group’s largest
companies are AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba
(100%) and the companies belonging to the AS Merko Ehitus Eesti group: 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 holding company AS Merko Ehitus
has a two-member Management Board: Andres Trink and Tõnu Toomik. 

It is important to maintain a simple organisational structure in the group and
in management to be guided primarily by the group's objectives and
requirements. For the purposes of maximum efficiency in the group management,
we in some cases differentiate the management structure and legal structure.
The groups management is carried out on a country basis. 

Changes in the legal structure of the group

In 2014, AS Merko Ehitus has decided to streamline its group companies'
structure to improve management effectiveness and produce administrative cost
savings. As part of the action plan, ownership interests of insignificant
subsidiaries are reviewed and potential mergers or disposals are decided. The
action plan does not concern material subsidiaries of the group and does not
have a material near-term effect on the group's financial results. First
changes are under way and the implementation of the action plan will continue
in 2014. 

On 20 December 2013, AS Merko Ehitus initiated a process to merge its fully
owned subsidiaries OÜ Woody, OÜ Metsailu and OÜ Käibevara, all engaged in real
estate development, in order to have savings in administrative cost related to
company management. The acquiring company is OÜ Metsailu. The companies being
acquired will be merged into OÜ Metsailu and as a result of the merger the
companies being acquired will wind up without liquidation proceedings and OÜ
Metsailu will become the legal successor of the companies being acquired. As a
result of the merger, AS Merko Ehitus will remain the sole shareholder in OÜ
Metsailu, the acquiring company. The closing date of the merger was 1 January
2014 after which all transactions of the acquirees have been deemed to have
been made on account of the acquirer. The final merger entry was made in the
Commercial Register on 6 June 2014. 

On 15 January 2014, a subsidiary of AS Merko Ehitus group, AS Merko Ehitus
Eesti, signed an agreement for the transfer of its entire 80% holding in the
subsidiary Gustaf Tallinn OÜ to the current co-shareholder and member of the
management board Tiit Pomerants. The share capital of Gustaf Tallinn OÜ is EUR
23,967 of which the holding of AS Merko Ehitus Eesti with a nominal value of
EUR 19,174 comprises 80% and the holding of Tiit Pomerants with a nominal value
of EUR 4,793 made up 20%. The holding was transferred with the purpose of
re-arranging the structure of the group companies and reducing holdings in
non-significant subsidiaries. The principal area of activity of the
construction company Gustaf Tallinn OÜ is construction and finishing work and
the company offers prime contractor service for smaller renovations and repair
jobs, which are not one of the strategically significant principal areas of
activity of the AS Merko Ehitus group. On 15 January 2014, the buyer paid the
seller EUR 20,000. The final sales price was 17,201 euros, which was calculated
in accordance with the audited 2013 annual report of Gustaf Tallinn OÜ on the
basis of the share of equity held by AS Merko Ehitus Eesti, adjusted by
dividend payment of EUR 960 000 paid to the seller before transfer of the share
as well as by the income tax expense of EUR 255 190 related to the paid
dividend. On 2 May 2014, the seller returned the adjusted part of the sales
price EUR 2,799 to the buyer’s bank account. 

As a result of the sale of the ownership interest and the subsequent
deconsolidation of Gustaf Tallinn OÜ, the estimated impact on the consolidated
profit of AS Merko Ehitus group is EUR 0, the negative impact on assets and
liabilities is EUR 967 thousand and EUR 945 thousand, respectively. 

On 22 January 2014, fully owned subsidiary of AS Merko Ehitus, UAB Merko
Bustas, formed a fully owned subsidiary in Lithuania, UAB VPSP 1 with a share
capital of LTL 10,000 (EUR 2,896). The subsidiary was initially formed to
participate in public-private partnership (PPP) procurements organised by the
Lithuanian government and later changed to acquiring registered immovables for
development purposes in Lithuania. 

On 13 June 2014, fully owned subsidiary of AS Merko Ehitus, AS Merko Ehitus
Eesti formed a 50% joint venture in Estonia, Kivimäe 32 OÜ with a share capital
of EUR 2,600. The joint venture was formed to acquire a property for
development in Tallinn, Estonia. 

On July 30, fully owned subsidiary of AS Merko Ehitus, UAB Merko Bustas
acquired a 100% subsidiary UAB Timana in Lithuania, with a share capital of LTL
10,000 (EUR 2,896) and a purchase price of LTL 1,100,000 (EUR 318,582). The
subsidiary was acquired with the aim of acquiring registered immovables for
development purposes in Vilnius. 

On 31 July 2014, a subsidiary of AS Merko Ehitus group, AS Merko Ehitus Eesti,
signed an agreement for the transfer of 7,5% holding in the subsidiary AS
Gustaf from the former co-shareholders and members of the management board
Raigo Jaanuste and Ago Randorg. After the acquisition of the minority share, AS
Gustaf became a 100% subsidiary of AS Merko Ehitus Eesti. The holding was
acquired with the purpose of re-arranging the structure of the group companies.
The principal area of activity of the construction company AS Gustaf was
general contracting of construction, mainly in the western and southern regions
of Estonia. Following the acquisition of 100% shares in AS Gustaf, the
principal area of activity of the company will be changed to real estate
development. On 1 August 2014, AS Merko Ehitus Eesti paid the sellers 95% of
the shares sales price of EUR 89,058. The final sales price will be calculated
in accordance with the audited 2015 annual report of AS Gustav, on the basis of
the designated equity. AS Merko Ehitus Group considers the additional influence
of adjustments of the sales price to be immaterial. 

On 5 August 2014, a subsidiary of AS Merko Ehitus group, SIA Merks, signed an
agreement for the transfer of 25% holding (275 thousand shares) in the joint
venture SIA Zakusala Estates from the current co-shareholder Tritan Group AS.
After the acquisition of the additional shareholding, SIA Zakusala Estates
became a 75% subsidiary of SIA Merks and the group will consolidate SIA
Zakusala Estetes in its financial report on a line-by-line basis going forward
(Note 16). The additional 25% holding was acquired with the purpose of gaining
a greater control over the assets and the management of SIA Zakusala Estates.
The principal area of activity of the real estate company SIA Zakusala Estates
is the development of approximately 126 thousand square meters land located on
the island Zakusala on Daugava river in Riga. With the increased control the
group will be better positioned to lead the overall future development of the
project. This is a long term investment for AS Merko Ehitus group. According to
the agreement SIA Merks paid for the additional 25% holding the purchase prices
of EUR 696,273, by assigning the corresponding part of a loan given by SIA
Merks to SIA Zakusala Estates, to AS Tritan Group. 

On 11 August 2014 the liquidation of SIA Merks’s 100% subsidiary SIA Polystar,
which started in the first half of 2014, was finalised and the company was
deleted from the business register. 

On 15 August 2014, a subsidiary of AS Merko Ehitus group, AS Merko Ehitus
Eesti, signed an agreement for the transfer of 49% holding in the subsidiary OÜ
Heamaja from the former co-shareholder for the purchase price of EUR 1,225.
After the acquisition of the minority share, OÜ Heamaja became a 100%
subsidiary of AS Merko Ehitus Eesti. 

On 16 September 2014, AS Merko Ehitus acquired a 100% shareholding in the
subsidiary SIA Merko Investments (prev. SIA Skanstes Virsotnes) from the
subsidiary SIA Merks in an intercompany transaction, with the purpose of
re-arranging the structure of the group companies. 

Changes in the Management structure of the group

Authorisation and responsibility of supervisory boards of subsidiaries of AS
Merko Ehitus are based on their Articles of Association and intergroup rules.
Generally, Supervisory Boards of subsidiaries consist of members of the
Management Board and Supervisory Board of the company that is the main
shareholder of the specific subsidiary. Supervisory Board meetings of the most
significant subsidiaries are held usually once a month, otherwise according to
the group’s needs, Articles of Association of subsidiaries and legal
provisions. Generally, no separate fee is paid to members of the Supervisory
Board of subsidiaries. Members of the Supervisory Board will also receive no
termination benefit in case their contract of service is terminated before due
date or not extended 

In conjunction with a streamlining of the management structure, there was a
change on 7 March 2014 in the composition of the Management Board of AS Merko
Ehitus Eesti, a 100% subsidiary of AS Merko Ehitus. Andres Agukas, the Member
of the Management Board was recalled. The Management Board will continue with
four members: Tiit Roben (The Chairman), Jaan Mäe, Veljo Viitmann and Alar
Lagus. 

As a result of the departure of Andres Agukas, the composition of the
Supervisory Boards of AS Merko Infra and Tallinna Teede AS, subsidiaries of the
AS Merko Ehitus Eesti group, was changed. Effective 7 March 2014, Tiit Roben
was appointed as Chairman of the Supervisory Board of AS Merko Infra to replace
Andres Agukas. The Supervisory Board will continue with three members: Tiit
Roben (Chairman), Veljo Viitmann and Mihkel Mugur. The Supervisory Board of
Tallinna Teede AS will continue with three members after the departure of
Andres Agukas: Tiit Roben (The Chairman), Alar Lagus and Veljo Viitmann. 

The Supervisory Board of AS Merko Infra, a 100% subsidiary AS Merko Ehitus
Eesti and with ultimate parent AS Merko Ehitus, decided to appoint Boris
Tehnikov as an additional member of the Management Board and to elect the
current member, Arno Elias, as the Chairman of the Management Board of AS Merko
Infra as of 2 April 2014. The Management Board of AS Merko Infra will continue
with three members: Arno Elias (The Chairman), Tarmo Pohlak and Boris Tehnikov. 

AS Merko Ehitus board decided to recall a member of the Supervisory Board of
UAB Merko Statyba Jaan Mäe and appoint Signe Kukin as the new member of the
Supervisory Board as of 2 April 2014. The Supervisory Board will continue with
three members: Andres Trink (The Chairman), Tõnu Toomik and Signe Kukin. 

OÜ Merko Investments, part of AS Merko Ehitus group, which has 100% holding in
SIA Merks, board decided to recall a member of the Supervisory Board of SIA
Merks Jaan Mäe and appoint Signe Kukin as the new member of the Supervisory
Board as of 2 April 2014. The Supervisory Board will continue with three
members: Andres Trink (The Chairman), Tõnu Toomik and Signe Kukin. 

On 30 July 2014, the Supervisory Board of Tallinna Teede AS – the subsidiary of
AS Merko Ehitus Eesti, part of AS Merko Ehitus group – decided to extend the
powers of the Chairman of the Management Board, Jüri Läll for three years, i.e.
till 30 July 2017. The Management Board of Tallinna Teede AS will continue with
two members: Jüri Läll (The Chairman) and Jüri Helila. 

On 31 July 2014, the Supervisory Board of AS Merko Ehitus Eesti, part of AS
Merko Ehitus group, decided to extend the powers of the Member of the
Management Board, Alar Lagus for three years, i.e. till 31 July 2017. The
Management Board of AS Merko Ehitus Eesti will continue with four members: Tiit
Roben (The Chairman), Jaan Mäe, Veljo Viitmann and Alar Lagus. 

On 8 September 2014, the Supervisory Board of AS Merko Ehitus decided to extend
the powers of the Chairman of the Management Board, Andres Trink for three
years, i.e. till 1 January 2018. The Management Board of AS Merko Ehitus will
continue with two members: Andres Trink (The Chairman) and Tõnu Toomik. 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited

in thousand euros

                                  2014       2013      2014      2013       2013
                              9 months   9 months       III       III  12 months
                                                    quarter   quarter           
--------------------------------------------------------------------------------
Revenue                        182,237    197,844    68,536    84,101    262,719
--------------------------------------------------------------------------------
Cost of goods sold           (165,979)  (180,479)  (62,357)  (76,561)  (239,996)
--------------------------------------------------------------------------------
Gross profit                    16,258     17,365     6,179     7,540     22,723
--------------------------------------------------------------------------------
Marketing expenses             (2,290)    (2,229)     (781)     (838)    (3,041)
--------------------------------------------------------------------------------
General and administrative     (6,577)    (7,041)   (2,285)   (2,702)    (9,260)
 expenses                                                                       
--------------------------------------------------------------------------------
Other operating income           1,265      1,771       428       553      2,264
--------------------------------------------------------------------------------
Other operating expenses         (156)      (318)      (73)     (132)      (425)
--------------------------------------------------------------------------------
Operating profit                 8,500      9,548     3,468     4,421     12,261
--------------------------------------------------------------------------------
Finance income/costs             (502)      (852)     (165)     (238)    (1,116)
--------------------------------------------------------------------------------
incl. finance income/costs       (103)      (103)      (33)      (33)      (138)
 from joint ventures                                                            
--------------------------------------------------------------------------------
finance income/costs from            1         32         -         9          2
 other long-term                                                                
 investments                                                                    
--------------------------------------------------------------------------------
interest expense                 (482)      (615)     (149)     (199)      (814)
--------------------------------------------------------------------------------
foreign exchange gain              (5)      (185)       (4)      (18)      (202)
 (loss)                                                                         
--------------------------------------------------------------------------------
other financial income              87         19        21         3         36
 (expenses)                                                                     
--------------------------------------------------------------------------------
Profit before tax                7,998      8,696     3,303     4,183     11,145
--------------------------------------------------------------------------------
Corporate income tax             (558)      (847)      (76)     (326)      (791)
 expense                                                                        
--------------------------------------------------------------------------------
Net profit for financial         7,440      7,849     3,227     3,857     10,354
 year                                                                           
--------------------------------------------------------------------------------
incl. net profit                 7,621      7,947     3,261     3,897     10,399
 attributable to equity                                                         
 holders of the parent                                                          
--------------------------------------------------------------------------------
net profit attributable to       (181)       (98)      (34)      (40)       (45)
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Other comprehensive income                                                      
--------------------------------------------------------------------------------
Currency translation                 -      (155)         -       (7)      (157)
 differences of foreign                                                         
 entities                                                                       
--------------------------------------------------------------------------------
Comprehensive income for         7,440      7,694     3,227     3,850     10,197
 the period                                                                     
--------------------------------------------------------------------------------
incl. net profit                 7,621      7,792     3,261     3,890     10,242
 attributable to equity                                                         
 holders of the parent                                                          
--------------------------------------------------------------------------------
net profit attributable to       (181)       (98)      (34)      (40)       (45)
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Earnings per share for            0.43       0.45      0.18      0.22       0.59
 profit attributable to                                                         
 equity holders of the                                                          
 parent (basic and diluted,                                                     
 in EUR)                                                                        
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited

in thousand euros

                                              30.09.2014  30.09.2013  31.12.2013
--------------------------------------------------------------------------------
ASSETS                                                                          
--------------------------------------------------------------------------------
Current assets                                                                  
--------------------------------------------------------------------------------
Cash and cash equivalents                         40,332      39,082      46,633
--------------------------------------------------------------------------------
Trade and other receivables                       67,277      74,049      57,172
--------------------------------------------------------------------------------
Prepaid corporate income tax                          58          39          19
--------------------------------------------------------------------------------
Inventories                                      118,917      88,614      87,451
--------------------------------------------------------------------------------
                                                 226,584     201,784     191,275
--------------------------------------------------------------------------------
Non-current assets                                                              
--------------------------------------------------------------------------------
Long-term financial assets                         9,823      26,646      27,415
--------------------------------------------------------------------------------
Deferred income tax assets                         1,593       1,616       1,592
--------------------------------------------------------------------------------
Investment property                                4,498       3,396       4,672
--------------------------------------------------------------------------------
Property, plant and equipment                     13,774      13,630      13,117
--------------------------------------------------------------------------------
Intangible assets                                  1,051       1,271       1,167
--------------------------------------------------------------------------------
                                                  30,739      46,559      47,963
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL ASSETS                                     257,323     248,343     239,238
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
LIABILITIES                                                                     
--------------------------------------------------------------------------------
Current liabilities                                                             
--------------------------------------------------------------------------------
Borrowings                                        15,655      11,312      18,916
--------------------------------------------------------------------------------
Payables and prepayments                          83,170      86,409      72,162
--------------------------------------------------------------------------------
Income tax liability                                  93         184          62
--------------------------------------------------------------------------------
Short-term provisions                              5,770       4,281       5,906
--------------------------------------------------------------------------------
                                                 104,688     102,186      97,046
--------------------------------------------------------------------------------
Non-current liabilities                                                         
--------------------------------------------------------------------------------
Long-term borrowings                              24,740      23,240      16,469
--------------------------------------------------------------------------------
Deferred income tax liability                        651         464         505
--------------------------------------------------------------------------------
Other long-term payables                           1,688       1,900       2,162
--------------------------------------------------------------------------------
                                                  27,079      25,604      19,136
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                131,767     127,790     116,182
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
EQUITY                                                                          
--------------------------------------------------------------------------------
Non-controlling interests                          3,329       1,140       1,193
--------------------------------------------------------------------------------
Equity attributable to equity holders of the                                    
 parent                                                                         
--------------------------------------------------------------------------------
Share capital                                     12,000      12,000      12,000
--------------------------------------------------------------------------------
Statutory reserve capital                          1,200       1,200       1,200
--------------------------------------------------------------------------------
Currency translation differences                   (669)       (667)       (669)
--------------------------------------------------------------------------------
Retained earnings                                109,696     106,880     109,332
--------------------------------------------------------------------------------
                                                 122,227     119,413     121,863
--------------------------------------------------------------------------------
TOTAL EQUITY                                     125,556     120,553     123,056
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                     257,323     248,343     239,238
--------------------------------------------------------------------------------



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) comprises the leading Estonian construction
company AS Merko Ehitus Eesti, the Latvian market based SIA Merks and the
Lithuanian market based UAB Merko Statyba as well as the group’s real estate
development business unit together with companies holding real estate
properties. As at the end of 2013, the group employed 860 people and the 2013
revenue amounted to EUR 262.7 million.