Börsiteade

Pealkiri

2014 12 months and IV quarter consolidated unaudited interim report

Teade

Tallinn, Estonia, 2015-02-12 07:00 CET (GLOBE NEWSWIRE) --



COMMENTARY OF THE CHAIRMAN OF THE MANAGEMENT BOARD

The Q4 2014 sales revenue of Merko Ehitus was EUR 70.1 million, with a figure
of EUR 252.3 million for the financial year. Net profit grew by 96% in the
fourth quarter to EUR 4.8 million and for the financial year by 19% to EUR 12.4
million. The Management Board of AS Merko Ehitus proposes that the shareholders
be paid 0.41 euros per share in dividends from retained earnings of previous
periods and to reduce the share capital by 0.23 euros per share in 2015. 

In 2014, Merko earned 32% of its sales revenue from outside Estonia –
Lithuanian sales doubled and Latvian sales increased by more than half compared
to 2013. Merko sold 395 apartments in 2014 – 132 apartments more than the year
before – as a result of which sales revenue in the real estate development
segment increased by 48%. 

We can be satisfied with the 2014 results, which were achieved in what
continues to be a complicated market situation. Above all, improved profit
figures, growth in Latvia and Lithuania and apartment sales in Estonia are
reason to cheer. As expected, the decline in construction volumes in the
engineering and road construction sectors continued, due to the decreased
amount of EU-funded projects, even though the profitability of these segments
exceeded our expectations. 

2015 will be a difficult year in terms of public sector orders, a certain
pickup can be expected starting in 2016. For that reason, our priority in all
three Baltic states is good cooperation with private sector customers, to whom
we want to offer high-quality and optimum construction solutions and an
efficient construction process. The overall weak economic growth and low
investor confidence in the Baltic states and the region also leaves an imprint
on the construction market. We see growth opportunities for Merko opening up in
2015 mainly on the Lithuanian construction market, and also in apartment
development, where we plan to invest about EUR 45-55 million in the coming
year. The volume of orders will presumably not decline in electrical
construction either, which is an important sector for us. 

The Merko Ehitus group had a 12-month gross margin of 9.8% and net profit
margin of 4.9%, which are both better than last year. 2014 profit before taxes
was EUR 13.3 million; and EUR 5.3 million in the fourth quarter. The company’s
net profit for 2014 was EUR 12.4 million and EUR 4.8 million in the fourth
quarter, representing growth of 19% and 99%, respectively, compared to the
previous year. 

In the fourth quarter, group companies signed new agreements worth EUR 62.9
million and the volume of new contracts in 2014 totalled at EUR 170.4 million.
As of 31 December 2014, the group had a secured order book balance of EUR 179.1
million. 

The Management Board of AS Merko Ehitus proposes to pay shareholders EUR 7.3
million (0.41 euros per share) in dividends from retained earnings of previous
periods, resulting in a dividend rate of 58% in 2014. Considering the outlook
for 2015 and to support the return on equity, the Management Board also
proposes reducing share capital by a total EUR 4.1 million by way of reducing
the book value of shares (0.23 euros per share). These proposals will be
submitted to the annual general meeting of shareholders for approval to be held
on 29 April 2015. 

The growth of sales revenue in the real estate segment as well as the
proportional growth went according to plan and is the result of the investments
made into the segment in the past few years. In 2015, we expect the apartment
market to maintain a stable price level, buyers will continue to be selective
and focus on premium offers, where we consider our position to be strong. We
also take into consideration the lengthening of apartments sale periods. 

In 2014, Merko sold 395 apartments with a total price of EUR 39.4 million;
including 160 apartments worth EUR 16.0 million in Q4 (both figures exclusive
of VAT). The sales revenue in the real estate development segment has grown 48%
compared to the same period last year and the share of the segment’s sales
revenue in the group’s total revenue has increased to 18%. 



OVERVIEW OF THE 12 MONTHS AND IV QUARTER RESULTS

PROFITABILITY
Gross margin in 12M was 9.8% (12M 2013: 8.6%), which has increased by 13.3%
compared to the same period last year. Profit before tax in 12M 2014 was EUR
13.3 million (12M 2013: EUR 11.1 million), which is equivalent to a profit
before tax margin of 5.3% (12M 2013: 4.2%). Q4 profit before tax was EUR 5.3
million (Q4 2013: EUR 2.4 million). Net margin increased to 4.9% (12M 2013:
4.0%). Net profit in 12M was EUR 12.4 million (12M 2013: EUR 10.4 million). Q4
net profit was EUR 4.8 million (Q4 2013: EUR 2.5 million). 

REVENUE
Revenue in 12M 2014 was EUR 252.3 million (12M 2013: EUR 262.7 million), which
has decreased by 4.0% compared to the same period last year. Q4 revenue was EUR
70.1 million (Q4 2013: EUR 64.9 million). The share of revenue earned outside
of Estonia has incresed in 12M 2014 to 32.3% (12M 2013: 19.3%) and the number
of apartments sold in 12 months of 2014 (395 pcs, revenues of EUR 39.4 million)
has increased by 50.2% (12 months of 2013: 263 apartments, revenues of EUR 28.3
million). 

CASH POSITION
At the end of the reporting period, the group had EUR 51.6 million in cash and
cash equivalents and equity EUR 127.0 million (51.0% of total assets).
Comparable figures as at 31 December 2013 were accordingly EUR 46.6 million and
EUR 121.1 million (50.9% of total assets). As at 31 December 2014 the group had
net debt of negative EUR 13.9 million (31 December 2013: negative EUR 11.2
million). 

SECURED ORDER BOOK
In Q4 2014, group companies signed new contracts in the amount of EUR 62.9
million (Q4 2013: EUR 48.6 million). 12M 2014 new contracts signed in amount of
EUR 170.4 million (12M 2013: EUR 254.3 million). As at 31 December 2014, the
group’s secured order book stood at EUR 179.1 million (31 December 2013: EUR
213.7 million). 

PROPOSAL FOR DISTRIBUTION OF PROFITS AND REDUCTION OF SHARE CAPITAL
The Management Board proposes to distribute to shareholders EUR 7.3 million
(EUR 0.41 per share) in dividends from retained earnings in 2015. This is
equivalent to a 58% dividend rate for 2014. The Management Board also proposes
to reduce the share capital by a total of EUR 4.1 million (EUR 0,23 per share)
by way of reducing the book value of shares. 



                             12M ’14  12M ’13  Varianc  Q4 ’14  Q4 ’13  Variance
                                                     e                          
--------------------------------------------------------------------------------
Revenue           million      252.3    262.7    -4.0%    70.1    64.9     +8.0%
                   EUR                                                          
--------------------------------------------------------------------------------
Gross profit      million       24.7     22.7    +8.8%     8.5     5.4    +58.1%
                   EUR                                                          
--------------------------------------------------------------------------------
Gross profit      %              9.8      8.6   +13.3%    12.1     8.3    +46.4%
 margin                                                                         
--------------------------------------------------------------------------------
EBITDA            million       16.4     15.1    +8.9%     6.2     3.5    +79.5%
                   EUR                                                          
--------------------------------------------------------------------------------
EBITDA marginaal  %              6.5      5.7   +13.4%     8.9     5.4    +66.2%
--------------------------------------------------------------------------------
Profit before     million       13.3     11.1   +19.4%     5.3     2.4   +116.9%
 tax               EUR                                                          
--------------------------------------------------------------------------------
PBT margin        %              5.3      4.2   +24.3%     7.6     3.8   +100.7%
--------------------------------------------------------------------------------
Net profit        million       12.4     10.4   +19.4%     4.8     2.5    +95.6%
 (parent)          EUR                                                          
--------------------------------------------------------------------------------
Net profit        %              4.9      4.0   +24.3%     6.8     4.0    +81.1%
 margin                                                                         
--------------------------------------------------------------------------------
EPS               EUR           0.70     0.59   +19.4%    0.27    0.14    +95.6%
--------------------------------------------------------------------------------



                                    31.12.14  31.12.13  Variance
----------------------------------------------------------------
ROE (on yearly basis)  %                10.1       8.8    +15.6%
----------------------------------------------------------------
Equity ratio           %                51.0      50.9     +0.1%
----------------------------------------------------------------
Secured order book     million EUR     179.1     213.7    -16.2%
----------------------------------------------------------------
Total assets           million EUR     249.3     239.2     +4.2%
----------------------------------------------------------------
Number of employees    people            765       860    -11.0%
----------------------------------------------------------------



OPERATING RESULTS

Revenue and gross profit

Merko Ehitus group generated a total of EUR 252.3 million in revenue in 12
months of 2014 (12 months of 2013: EUR 262.7 million). 67.7% of the revenue was
generated in Estonia, 27.2% in Latvia and 5.1% in Lithuania (12 months of 2013:
80.7% in Estonia, 16.9% in Latvia and 2.4% in Lithuania). Compared to the 12
months of 2013 the group revenue has decreased by 4.0%. In the 12 months of
2014 the share of Latvian revenue has increased from 16.9% to 27.2%. Revenue in
Q4 2014 was EUR 70.1 million, which has increased 8.0% compared to the previous
year (Q4 2013: EUR 64.9 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. This trend was similar throughout the whole year. 

In 12 months of 2014 the group’s gross profit from development and construction
activities totalled EUR 24.7 million (12 months of 2013: EUR 22.7 million) and
in Q4 2014 EUR 8.5 million (Q4 2013: EUR 5.4 million). The 12 months gross
profit margin (9.8%) has increased compared to the same period last year (12
months of 2013: 8.6%). 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 12 months of 2014 both in the road
construction and civil engineering segments has been important, despite the
decline in sales volumes, that has been supported by the decrease in input
priced, which may not continue in 2015. 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. 

Profit before tax and net profit

In 12 months of 2014, the group’s profit before tax totalled EUR 13.3 million
and net profit attributable to equity holders of the parent was EUR 12.4
million as compared to the pre-tax profit or EUR 11.1 million and net profit
attributable to equity holders of the parent of EUR 10.4 million in 12 months
of 2013. Group’s net profit margin was 4.9% (12 months of 2013: 4.0%). The net
profit for the 12 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 12 months of 2013. 

In Q4 of 2014, the group’s pre-tax profit totalled EUR 5.3 million and net
profit was EUR 4.8 million as compared to the pre-tax profit of EUR 2.4 million
and net profit of EUR 2.5 million in Q4 of 2013. Both the group’s quarterly net
profit (EUR 4.8 million) and the net profit margin (6.8%) have increased
compared to the same period last year (12 months of 2013: EUR 2.5 million and
3.8%, respectively). 

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

In the 12 months of 2014, the revenue of the general construction segment was
EUR 110.5 million (12 months of 2013: EUR 86.6 million), having increased by
27.7% from the same period last year. In this segment, the group earned a gross
profit of EUR 6.1 million for 12 months (12 months of 2013: EUR 0.5 million
gross loss). The segment continues to be mainly influenced by the pressure on
the margins exerted by tightening competition. In the 12 months the revenue of
the general construction segment formed the largest proportion in the group’s
revenue with a 43.8% share. This proportional increase was expected, especially
given the knowledge that the volumes in the civil engineering and road
construction segments have decreased. 

The gross margin of the general construction segment in 12 months of 2014 was
5.5%, which was supported by the fact that the previously forecasted risks did
not materialise in projects nearly or fully completed in the reporting period.
This exerted an one-time effect on the results, both in Q3 and Q4. The 2013
comparison base was also influenced by a major one-off loss from one renovation
project in the year’s last quarter. We have seen rise in the proportion of
private sector orders starting from 2013, and the same tendency, although to a
lesser extent than expected, has continued in the 12 months of 2014. With
regard to projects in progress in the general construction segment as at the
end of year, private sector orders constitute approximately 3/4. 

Civil engineering

The revenue of the civil engineering segment amounted to EUR 63.6 million in
the 12 months of 2014 (12 months of 2013: EUR 94.5 million), which is 32.7%
less than in 2013. The decrease from the previous year is mainly due to a drop
in the volume of external pipeline projects. If the civil engineering segment
revenues of 12 months of 2013 formed the largest proportion in the group’s
revenue (12 months of 2013: 36.0%), then during 12 months of the current year
the segments revenues formed 25.2% of total revenue being down 30.0% compared
to the previous year. The 12 month gross profit of the civil engineering
segment amounted to EUR 6.1 million (12 months of 2013: EUR 12.5 million) and
the gross profit margin was 9.6% (12 months of 2013: 13.2%), which decreased by
27.7% compared to the same period previous year. 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. 

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

The revenue of the road construction segment amounted to EUR 30.9 million in
the 12 months of 2014 (12 months of 2013: EUR 49.5 million), which means a
37.5% decrease from the same period 2013. In the 12 months of 2014, the segment
earned a gross profit of EUR 4.6 million (12 months of 2013: EUR 5.9 million),
which yields a gross profit margin of 15.0% (12 months of 2013: 12,0%). 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 12 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. In addition, the results of
Q4 2014 were influenced by a relatively mild December compared to 2013. 

Real estate development

A total of 395 apartments were sold in 12 months of 2014 at the total value of
EUR 39.4 million (excl. VAT), compared to 263 apartments and EUR 28.3 million
in 2013. In Q4 of 2014 a total of 160 apartments were sold at the total value
of EUR 16.0 million (excl. VAT), (Q4 2013: 98 apartments and EUR 11.0 million).
12 months real estate development segment revenues have increased 47.6%
compared to the same period last. The share of revenue from the real estate
development segment also increased in the 12 months to 18.1% of the group’s
total revenue (12 months of 2013: 11.8%), which has been planned and occasioned
by the strategic decisions made in 2012 to increase the segment’s investments
into various new real estate development projects. 

In 12 months of 2014, the group has earned EUR 1.4 million of revenue from the
sale of properties (12 months of 2013: EUR 0.3 million). Q4 revenue from the
sale of properties was EUR 0.0 million (Q4 2013: EUR 0.0 million). 

The Q4 2014 profitability of the segment was positively impacted by a net
change in impairments of development projects and immovable properties
amounting to EUR 0.5 million, which has an one-off nature. 

At the end of the period, Merko Ehitus group’s inventory comprised 110
completed (92 in Estonia, 16 in Latvia and 2 in Lithuania) and 82 apartments
under construction (39 in Estonia, 34 in Latvia and 9 in Lithuania), where a
preliminary agreement had been signed but where the sale had not yet been
finalised and delivered to customers. The reasoning is that the development
site is still under construction or the site was completed at the end of the
reporting period and the sales transactions have not all been finalised yet. 

As at 31 December 2014, Merko Ehitus group had a total of 326 apartments for
active sale (as at 31 December 2013: 300 apartments), for which there are no
pre-sale agreements and of which 50 have been completed (22 in Estonia, 24 in
Latvia and 4 in Lithuania) and 276 are under construction (128 in Estonia, 91
in Latvia and 57 in Lithuania). 

In 12 months of 2014, we launched the construction of a total of 369 new
apartments in the Baltic States (12 months of 2013: 409 apartments). In the 12
months of this year, the group has invested a total of EUR 46.9 million in new
development projects launched in 2014 as well as projects already in progress
from previous year. We will continue to invest in residential real estate
projects and depending on the apartment market developments in 2015, the group
plans to launch the construction of approximately 500-550 new apartments in the
Baltic States. In 2015, the group’s planned investments in both development
projects initiated in the previous years and new projects to be launched in
2015 will be in the range of EUR 45-50 million. 

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. In the 12 months of 2014, the group has purchased new land plots in
Lithuania at an acquisition cost of EUR 3.2 million (12 months of 2013: EUR 2.1
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
group is searching for new land plots for real estate development purposes
primarily in Estonian and Lithuania. 



Secured order book

As at 31 December 2014, the group’s secured order book (without own
developments) amounted to EUR 179.1 million as compared to EUR 213.7 million as
at 31 December 2013. The secured order book excludes the group's own
residential development projects and work related to developing real estate
investments. 

In fourth quarter of 2014, EUR 62.9 million worth of new contracts were signed
(without own developments) as compared to EUR 48.6 million in same period last
year. The value of new contracts signed (without own developments) in the 12
months of 2014 amounted to EUR 170.4 million (12 months of 2013: EUR 254.3
million). The volume of contracts signed in 2013 were impacted significantly by
the large-scale contracts entered into in Latvia in the second half-year of
2013 such as Polipaks NT manufacturing and logistics center and Liepaja concert
hall, which are also reflected in the 2014 results. No contracts of this volume
were entered into in Latvia in 2014. 

Of the contracts signed in the 12 months of 2014, public and private sector
orders accounted for an equal proportion, above all due to the volume of
contracts signed with private clients in the last quarter. Nevertheless, in
2014 the company did not manage to garner as much work from private sector
customers as it had envisaged. The general construction segment is seeing the
stiffest competition, and is where competitors are making aggressive offers,
incurring risks for both customers and contractors. Considering the end of the
previous EU funding period and the beginning phase of the current EU funding
period, one can forecast the volume of public procurements to stay at the
previous years level or a slight decline for 2015. We forecast that the volume
of public procurements will start to increase at the end of 2015 or at the
beginning of 2016. In this respect, it continues to be a great challenge to
maintain the group’s secured order book at the level of 2014 or growing it. 

Traditionally the share of Estonian construction activity has been the highest
in the group's revenues. Given the weak growth outlook of the Estonian
construction market, the group's goal is to increase the volume of construction
orders from outside Estonia. Thus, we are closely monitoring the development
and opportunities both in the Baltic States and the Nordic countries. In 2014
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 31
December 2014 the group had cash equivalents in the amount of EUR 51.6 million
(31.12.2013: EUR 46.6 million). The group's cash level has strengthened
compared to the same period last year. 

The 12-month cash flow from operating activity was positive at EUR 14.5 million
(12 months of 2013: positive EUR 19.7 million), cash flow from investing
activity was negative at EUR 1.9 million (12 months of 2013: negative EUR 1.3
million) and the cash flow from financing activity was negative at EUR 7.6
million (12 months of 2013: negative EUR 7.0 million). 

The cash flow from operating activity was mostly influenced by the operating
profit EUR 14.0 million (12 months of 2013: EUR 12.3 million), by the negative
change in receivables and liabilities related to construction contracts
recognised under the stage of completion method EUR 0.2 million (12 months of
2013: positive change of EUR 4.7 million), by the positive change in provisions
EUR 1.3 million (12 months of 2013: positive change of EUR 1.6 million), by the
positive change in trade and other receivables related to operating activities
EUR 12.7 million (12 months of 2013: negative change of EUR 6.2 million), by
the negative change in inventory EUR 14.8 million (12 months of 2013: negative
change of EUR 4.9 million), and by the positive change in trade and other
payables related to operating activities EUR 0.3 million (12 months of 2013:
positive change of EUR 10.2 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 14.8 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 9.9 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 (15.1% as at 31.12.2014; 14.8% as
at 31.12.2013). 

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 1.5 million (12 months of 2013: EUR 0.8 million) and the positive cash
flow from the sale of non-current assets in the amount of EUR 0.1 million (12
months of 2013: EUR 0.9 million). Cash flows from investment activities in 12
months of 2013 was negatively impacted by the acquisitions and improvements of
real estate investment in the amount of EUR 1.1 million and 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 (12 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 0.6 million (12 months
of 2013: positive cash flow in net amount of EUR 1.9 million), net of loans
received and loans repaid in connection with development projects amounted to
positive cash flow of EUR 4.9 million (12 months of 2013: negative cash flow of
EUR 1.0 million), factoring in the amount of EUR 0.0 million (12 months of
2013: negative cash flow of EUR 1.5 million) and finance lease principal
repayments of EUR 1.1 million (12 months of 2013: EUR 1.2 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 Q4 2014 cash flow from operating activity was positive at EUR 14.7 million
(Q4 2013: positive EUR 7.9 million), cash flow from investing activity was
negative at EUR 0.3 million (Q4 2013: negative EUR 1.1 million) and the cash
flow from financing activity was negative at EUR 3.2 million (Q4 2013: positive
EUR 0.8 million). 

Due to the seasonal nature of construction activity, the quarterly cash flows
from operating activities were positive primarily due to a drop in receivables
from construction work customers, which on the other hand was negatively offset
by the increase of payments to subcontractors and receivables calculated using
the percentage of completion method. 

The quarterly cash flow from investment activities was negative primarily due
to the acquisition of non-current asset in the amount of EUR 0.4 million, which
is mainly related to the renewal of equipment in the road construction segment
as well as renewal of the car fleet. 

The quarterly cash flow from financing activities was negative primarily due
the net negative cash flow of EUR 2.8 million of loans received and loans
repaid to finance the construction costs of development projects. 



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),
(comparable figures in 2013 were accordingly: EUR 5.3 million (EUR 0.30 per
share) as dividends, which is equivalent to a 70% dividend rate and a 5.1%
dividend yield (using the share price as at 31 December 2012)). 

According to the Estonian Income Tax Law §50 section 11 AS Merko Ehitus could
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. 

The Management Board proposes to pay the shareholders EUR 7.3 million as
dividends from net profits brought forward (EUR 0.41 per share) in 2015, which
is equivalent to a 58% dividend rate and a 5.7% dividend yield for the year
2014 (using the share price as at 31 December 2014). Taking into account the
dividends already paid to the parent company and planned to be paid by foreign
subsidiaries in early 2015, the group will incur income tax expenses of
approximately EUR 0.9 million in 2015 in Estonia in connection with
disbursement of dividends. 



Share capital reduction

The Management Board proposes to reduce the share capital by EUR 4 071 000 (EUR
0.23 per share). 

Pursuant to subsection §50 section 2 of the Income Tax Act in force in Estonia,
income tax does not have to be paid on the portion of payments made from the
equity upon reduction of the share capital or contributions, upon redemption of
shares or contributions or in other cases, and on the portion of the paid
liquidation distributions made by way of previous monetary contributions. About
EUR 4.0 million in the said monetary contributions have been made in AS Merko
Ehitus. 

Based on the proposal of the management board, share capital would be reduced
by EUR 4,071,000 (EUR 0.23 per share), from the amount EUR 12.0 million to EUR
7.9 million. Share capital is reduced by way of reducing the book value of the
shares and as a result of the reduction the book value of one share will be
reduced from EUR 0.677966 to EUR 0.447967; the number of shares will remain the
same – 17,700,000 shares. 

Pursuant to the articles of association of Merko Ehitus, the minimum share
capital of the company is EUR 6.0 million and the maximum share capital is EUR
24.0 million. The new share capital will amount to EUR 7.9 million, which is in
line with the company’s articles of association. 

Considering the perspectives of the Baltic construction market in the coming
years and the related need for capital by the group, the share capital would be
reduced in order to improve the group’s capital structure and support return on
equity. AS Merko Ehitus lacks the need to possess share capital in the existing
amount and the requirements that legislation imposes on share capital will also
be fulfilled in the case of the reduced share capital. 

The proposal to reduce share capital will be submitted to the annual general
meeting of shareholders for approval on 29 April 2015. If the decision is
positive, the reduction of share capital – EUR 4,071,000 – will be paid to
shareholders by the term specified by law, which would probably fall within the
second half of 2015. 



Ratios
(attributable to equity holders of the parent)

                                     12M     12M     12M  Q4 ‘14  Q4 ‘13  Q4 ‘12
                                     ‘14     ‘13     ‘12                        
--------------------------------------------------------------------------------
Income statement                                                                
 summary                                                                        
--------------------------------------------------------------------------------
Revenue                  million   252.3   262.7   249.1    70.1    64.9    71.4
                           EUR                                                  
--------------------------------------------------------------------------------
Gross profit             million    24.7    22.7    17.9     8.5     5.4     7.3
                           EUR                                                  
--------------------------------------------------------------------------------
Gross profit margin         %        9.8     8.6     7.2    12.1     8.3    10.2
--------------------------------------------------------------------------------
Operating profit         million    14.0    12.3     8.8     5.5     2.7     4.7
                           EUR                                                  
--------------------------------------------------------------------------------
Operating profit margin     %        5.5     4.7     3.5     7.8     4.2     6.6
--------------------------------------------------------------------------------
Profit before tax        million    13.3    11.1     7.9     5.3     2.4     4.4
                           EUR                                                  
--------------------------------------------------------------------------------
PBT margin                  %        5.3     4.2     3.2     7.6     3.8     6.2
--------------------------------------------------------------------------------
Net profit               million    12.3    10.4     7.6     4.8     2.5     4.5
                           EUR                                                  
--------------------------------------------------------------------------------
attributable to equity   million    12.4    10.4     7.6     4.8     2.5     4.4
 holders of the parent     EUR                                                  
--------------------------------------------------------------------------------
attributable to          million   (0.1)     0.0     0.0     0.0     0.0     0.1
 non-controlling           EUR                                                  
 interest                                                                       
--------------------------------------------------------------------------------
Net profit margin           %        4.9     4.0     3.1     6.8     3.8     6.2
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income statement                                                          
 indicators                                                                     
--------------------------------------------------------------------------------
EBITDA                   million    16.4    15.1    11.4     6.2     3.5     5.4
                           EUR                                                  
--------------------------------------------------------------------------------
EBITDA margin               %        6.5     5.7     4.6     8.9     5.4     7.6
--------------------------------------------------------------------------------
General expense ratio       %        4.9     4.7     4.5     4.9     4.7     4.5
--------------------------------------------------------------------------------
Labour cost ratio           %       11.9    11.8    11.2    11.3    10.7    11.7
--------------------------------------------------------------------------------
Revenue per employee     thousan     319     308     278      89      76      80
                          d EUR                                                 
--------------------------------------------------------------------------------



Other significant indicators               31.12.2014  31.12.2013  31.12.2012
-----------------------------------------------------------------------------
Return on equity                   %             10.1         8.8         6.8
-----------------------------------------------------------------------------
Return on assets                   %              5.0         4.4         3.4
-----------------------------------------------------------------------------
Return on invested capital         %              8.8         8.0         6.0
-----------------------------------------------------------------------------
Equity ratio                       %             51.0        50.9        52.0
-----------------------------------------------------------------------------
Debt ratio                         %             15.1        14.8        15.8
-----------------------------------------------------------------------------
Current ratio                    times            2.3         2.0         2.1
-----------------------------------------------------------------------------
Quick ratio                      times            1.1         1.1         1.1
-----------------------------------------------------------------------------
Accounts receivable turnover     days              56          58          58
-----------------------------------------------------------------------------
Accounts payable turnover        days              39          43          47
-----------------------------------------------------------------------------
Average number of employees      people           790         853         895
-----------------------------------------------------------------------------
Secured order book            million EUR       179.1       213.7       189.9
-----------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                                             2014       2013      2014      2013
                                        12 months  12 months        IV        IV
                                                               quarter   quarter
--------------------------------------------------------------------------------
Revenue                                   252,323    262,719    70,086    64,875
--------------------------------------------------------------------------------
Cost of goods sold                      (227,591)  (239,996)  (61,612)  (59,517)
--------------------------------------------------------------------------------
Gross profit                               24,732     22,723     8,474     5,358
--------------------------------------------------------------------------------
Marketing expenses                        (3,190)    (3,041)     (900)     (812)
--------------------------------------------------------------------------------
General and administrative expenses       (9,128)    (9,260)   (2,551)   (2,219)
--------------------------------------------------------------------------------
Other operating income                      1,901      2,264       636       493
--------------------------------------------------------------------------------
Other operating expenses                    (340)      (425)     (184)     (107)
--------------------------------------------------------------------------------
Operating profit                           13,975     12,261     5 475     2,713
--------------------------------------------------------------------------------
Finance income/costs                        (667)    (1,116)     (165)     (264)
--------------------------------------------------------------------------------
incl. finance income/costs from joint       (130)      (138)      (27)      (35)
 ventures                                                                       
--------------------------------------------------------------------------------
finance income/costs from other                 2          2         1      (30)
 long-term investments                                                          
--------------------------------------------------------------------------------
interest expense                            (662)      (814)     (180)     (199)
--------------------------------------------------------------------------------
foreign exchange gain (loss)                 (12)      (202)       (7)      (17)
--------------------------------------------------------------------------------
other financial income (expenses)             135         36        48        17
--------------------------------------------------------------------------------
Profit before tax                          13,308     11,145     5,310     2,449
--------------------------------------------------------------------------------
Corporate income tax expense              (1,055)      (791)     (497)        56
--------------------------------------------------------------------------------
Net profit for financial year              12,253     10,354     4,813     2,505
--------------------------------------------------------------------------------
incl. net profit attributable to           12,417     10,399     4,796     2,452
 equity holders of the parent                                                   
--------------------------------------------------------------------------------
net profit attributable to                  (164)       (45)        17        53
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Other comprehensive income                                                      
--------------------------------------------------------------------------------
Currency translation differences of             4      (157)         4       (2)
 foreign entities                                                               
--------------------------------------------------------------------------------
Comprehensive income for the period        12,257     10,197     4,817     2,503
--------------------------------------------------------------------------------
incl. net profit attributable to           12,421     10,242     4,800     2,450
 equity holders of the parent                                                   
--------------------------------------------------------------------------------
net profit attributable to                  (164)       (45)        17        53
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Earnings per share for profit                0.70       0.59      0.27      0.14
 attributable to equity holders of the                                          
 parent (basic and diluted, in EUR)                                             
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                                     31.12.2014  31.12.2013
---------------------------------------------------------------------------
ASSETS                                                                     
---------------------------------------------------------------------------
Current assets                                                             
---------------------------------------------------------------------------
Cash and cash equivalents                                51,583      46,633
---------------------------------------------------------------------------
Trade and other receivables                              46,382      57,172
---------------------------------------------------------------------------
Prepaid corporate income tax                                  3          19
---------------------------------------------------------------------------
Inventories                                             117,638      87,451
---------------------------------------------------------------------------
                                                        215,606     191,275
---------------------------------------------------------------------------
Non-current assets                                                         
---------------------------------------------------------------------------
Long-term financial assets                               11,476      27,415
---------------------------------------------------------------------------
Deferred income tax assets                                1,535       1,592
---------------------------------------------------------------------------
Investment property                                       4,619       4,672
---------------------------------------------------------------------------
Property, plant and equipment                            15,003      13,117
---------------------------------------------------------------------------
Intangible assets                                         1,011       1,167
---------------------------------------------------------------------------
                                                         33,644      47,963
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
TOTAL ASSETS                                            249,250     239,238
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
LIABILITIES                                                                
---------------------------------------------------------------------------
Current liabilities                                                        
---------------------------------------------------------------------------
Borrowings                                               14,287      18,916
---------------------------------------------------------------------------
Payables and prepayments                                 71,122      72,162
---------------------------------------------------------------------------
Income tax liability                                        352          62
---------------------------------------------------------------------------
Short-term provisions                                     6,239       5,906
---------------------------------------------------------------------------
                                                         92,000      97,046
---------------------------------------------------------------------------
Non-current liabilities                                                    
---------------------------------------------------------------------------
Long-term borrowings                                     23,359      16,469
---------------------------------------------------------------------------
Deferred income tax liability                               738         505
---------------------------------------------------------------------------
Other long-term payables                                  1,671       2,162
---------------------------------------------------------------------------
                                                         25,768      19,136
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
TOTAL LIABILITIES                                       117,768     116,182
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
EQUITY                                                                     
---------------------------------------------------------------------------
Non-controlling interests                                 4,455       1,193
---------------------------------------------------------------------------
Equity attributable to equity holders of the parent                        
---------------------------------------------------------------------------
Share capital                                            12,000      12,000
---------------------------------------------------------------------------
Statutory reserve capital                                 1,200       1,200
---------------------------------------------------------------------------
Currency translation differences                          (665)       (669)
---------------------------------------------------------------------------
Retained earnings                                       114,492     109,332
---------------------------------------------------------------------------
                                                        127,027     121,863
---------------------------------------------------------------------------
TOTAL EQUITY                                            131,482     123,056
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                            249,250     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 2014, the group employed 765 people and the 2014
revenue amounted to EUR 252.3 million.