Börsiteade

Pealkiri

2017 3 months consolidated unaudited interim report

Teade

Tallinn, Estonia, 2017-05-11 07:00 CEST (GLOBE NEWSWIRE) --




COMMENTARY OF THE CHAIRMAN OF THE MANAGEMENT BOARD

In Q1 of 2017, Merko Ehitus posted revenue of EUR 58 million and a net profit
of EUR 1.0 million. Revenue grew both in Estonia and in other home markets,
apartment sales picked up as well. The first quarter revenue generally met the
managements expectations, yet profitability is still under pressure due to the
thin margin on construction contracts. The management estimates, that to
improve profitability, we need to come up with greater internal efficiency. The
volume of new construction contracts signed in Q1 was close to EUR 60 million
that can be considered an average figure and includes the first significant
contract in Norway. In early April, we were able to add to our portfolio a EUR
100 million contract for building the Akropole Centre in Riga. 

With regard to market demand, the management notes that the construction
volumes of new commercial buildings in Tallinn and Vilnius are stabilising, and
the past growth rate is also becoming calmer in residential construction. Road
and infrastructure procurements are on the way in Estonia; in Lithuania we
expect more public sector building procurements, which there have been
surprisingly few so far. In Latvia, we see room for new commercial buildings
and apartment development, but the economic growth rate as a whole remains a
question. 

In Q1, the group sold 141 apartments with a total price of EUR 16 million
(excluding VAT); compared to the 101 apartments sold in the first three months
of 2016. In the apartment development sector, we will continue implementing our
strategy – we plan to invest about EUR 45 million into real estate development
this year and start construction of 650 new apartments. In Q1, Merko launched
four apartment development projects in the Baltic capital cities: the Staapli 3
building in Noblessner in Tallinn, with 105 apartments, and two buildings in
Paepargi with 66 apartments. In Riga, the first phase of the Gailezers
development with 96 apartments was started, and in Vilnius, the Rinktines Urban
project with 141 apartments, hotel and an underground parking garage connecting
the whole development area. In the first quarter, we added to our development
projects portfolio a development area on R?pniec?bas street in immediate
proximity to the city centre of Riga that will accommodate construction of
around 350 apartments. 

The group's Q1 2017 revenue was EUR 58.1 million, EBITDA was EUR 1.9 million,
profit before taxes was EUR 1.1 million and net profit was EUR 1.0 million. In
comparison, the group’s revenue in Q1 2016 was EUR 46.8 million, EBITDA was EUR
1.2 million, profit before taxes was EUR 0.3 million and net profit was EUR 0.1
million. In Q1 2017, the group signed new construction contracts in the total
amount of EUR 59 million, including the tower B of the Öpiku Maja office
building, the Staapli 3 apartment building in the Noblessner development in
Tallinn, the Šaltiniu Namai apartment building complex in Vilnius and Blakstad
Hospital in Norway. 

As at 31 March 2017, the group's secured order book amounted to EUR 288
million, compared to EUR 243 million in the same period in the previous year.
Major projects in progress for Merko in Q1 included, in Tallinn, the
construction of T1 shopping centre, Maakri Kvartal, Öpiku Maja office
building’s tower B, and the tram line that will serve the airport. In Latvia,
the largest projects in progress are the Ventspils music school and concert
hall; in Lithuania, Radisson Blu Hotel Lietuva, the Philip Morris plant and a
hotel and residential building complex in the Rinktines Urban development
project. 



OVERVIEW OF THE 3 MONTHS RESULTS

PROFITABILITY

Net profit in 3M 2017 was EUR 1.0 million (3M 2016: EUR 0.1 million), having
increased by 822.8% compared to the same period last year and net profit margin
increased to 1.8% (3M 2016: 0.2%). Profit before tax in 3M 2017 was EUR 1.1
million (3M 2016: EUR 0.3 million), which is equivalent to a profit before tax
margin of 1.9% (3M 2016: 0.6%). 

REVENUE

Revenue in 3M 2017 was EUR 58.1 million (3M 2016: EUR 46.8 million), which has
increased by 24.2% compared to last year. The number of apartments (141 units,
incl. 1 apartment in a joint venture) sold in 3 months of 2017 has increased by
39.6% compared to last year and the revenue from apartment sales (EUR 16.3
million) has increased by 43.6% (3 months of 2016: 101 units, revenues of EUR
11.4 million). 

CASH POSITION

At the end of the reporting period, the group had EUR 33.8 million in cash and
cash equivalents and equity EUR 123.8 million (53.6% of total assets).
Comparable figures as at 31 March 2016 were accordingly EUR 34.4 million and
EUR 125.8 million (62.3% of total assets). As at 31 March 2017 the group had
net debt of EUR 6.9 million (31 March 2016: negative EUR 8.2 million). 

SECURED ORDER BOOK

As at 31 March 2017, the group’s secured order book had grown to EUR 287.7
million (31 March 2016: EUR 243.5 million). In 3M 2017, group companies signed
new contracts in the amount of EUR 58.6 million (3M 2016: EUR 22.4 million). 

DISTRIBUTION OF PROFITS

The general meeting of shareholders held on 28 April 2017 resolved to approve
the profit allocation proposal for 2016 and to distribute EUR 7.3 million (EUR
0.41 per share) in dividends from retained earnings. This is equivalent to a
119% dividend rate for 2016. 

                                  3M 2017  3M 2016  Variance  12m 2016
----------------------------------------------------------------------
Revenue              million EUR     58.1     46.8    +24.2%     252.0
----------------------------------------------------------------------
EBITDA               million EUR      1.9      1.2    +60.8%      11.2
----------------------------------------------------------------------
EBITDA margin             %           3.3      2.5    +29.5%       4.4
----------------------------------------------------------------------
EBIT                      %           1.3      0.5   +159.6%       7.7
----------------------------------------------------------------------
EBIT margin               %           2.2      1.0   +109.0%       3.1
----------------------------------------------------------------------
Profit before tax    million EUR      1.1      0.3   +261.7%       7.3
----------------------------------------------------------------------
PBT margin                %           1.9      0.6   +191.2%       2.9
----------------------------------------------------------------------
Net profit (parent)  million EUR      1.0      0.1   +822.8%       6.1
----------------------------------------------------------------------
Net profit margin         %           1.8      0.2   +643.1%       2.4
----------------------------------------------------------------------
EPS                      EUR         0.06     0.01   +822.8%      0.35
----------------------------------------------------------------------



                                    31.03.2017  31.03.2016  Variance  31.12.2016
--------------------------------------------------------------------------------
ROE (on yearly basis)       %              5.8         7.5    -23.0%         5.0
--------------------------------------------------------------------------------
Equity ratio                %             53.6        62.3    -13.9%        51.6
--------------------------------------------------------------------------------
Secured order book     million EUR       287.7       243.5    +18.2%       269.6
--------------------------------------------------------------------------------
Total assets           million EUR       231.0       202.0    +14.4%       237.8
--------------------------------------------------------------------------------
Number of employees       people           799         782     +2.2%         797
--------------------------------------------------------------------------------



OPERATING RESULTS

Revenue and operating profit

Merko Ehitus group generated a total of EUR 58.1 million in revenue in 3 months
of 2017 (3 months of 2016: EUR 46.8 million). 46.0% of the revenue was
generated in Estonian construction service, 19.2% in other home markets
construction service and 34.8% in real estate development segment (3 months of
2016: 40.7% in Estonian construction service, 17.0% in other home markets
construction service and 42.3% in real estate development segment). Compared to
the 3 months of 2016 the group revenue has increased by nearly a quarter. The
revenue growth was boosted as several large-scale projects that lagged in the
last year gained momentum in the first quarter of the year, as well by the
increase of apartments sales. Compared to the 3 months of the previous year in
the 3 months of 2017 the share of other home markets construction service
revenue in the group’s revenue has increased from 17.0% to 19.2% and the share
of Estonian construction service from 40.7% to 46.0%. The main changes in the
revenue structure compared to the same period last year lie in the growth in
revenue from Estonian construction services’ general construction projects, in
the increase in the sales revenue of construction services from joint venture
projects and the increase in revenues from apartment sales in the real estate
development segment. This trend has been in line with the group’s expectations,
considering the distribution of the secured order book as at the end of 2016. 

In 3 months of 2017 the group’s operating profit from development and
construction activities totalled EUR 1.3 million (3 months of 2016: EUR 0.5
million). The 3 months operating profit margin (2.2%) has increased by 1.2 pp
compared to the same period last year (3 months of 2016: 1.0%). The group’s aim
is to preserve the profitability both in the Estonian but also other home
markets construction service domain in spite of the prevailing competition
situation on the construction market and the decrease in sales volumes in
regard to previously higher-margin civil engineering projects, which was so far
been supported by stable input prices, but which in on an upward trend in the
medium time horizon. Considering the small size of the Estonian market, the
current situation – where several large-scale building construction projects
are simultaneously in works – means occasionally limited capability for
subcontractors to carry out work or to do so under reasonable conditions, which
in turn puts pressure on the general contractors’ margins. Operating profit
margin has also been impacted to some extent by the recovery in profitability
in the real estate development segment, which depends largely on the price of
the land as part of the total specific project expenses and is thus different
on a project basis. The level of operating profit compared to that of last year
was additionally influenced by higher marketing, general and administrative
expenses, mainly due to the increase in the labour cost bonuses. 

The scarcity of projects and the ever-tightening competition in the
construction sector poses a great challenge in the maintaining of the current
level of operating profit in all segments. The number of companies
participating in tenders and the risk of low pricing bids is high in all three
Baltic states. 

Profit before tax and net profit

In 3 months of 2017, the group’s profit before tax totalled EUR 1.1 million (3
months of 2016: EUR 0.3 million) and net profit attributable to equity holders
of the parent was EUR 1.0 million (3 months of 2016: EUR 0.1 million). Group’s
profit before tax margin was 1.9% (3 months of 2016: 0.6%) and the net profit
margin was 1.8% (3 months of 2016: 0.2%). Both the group’s profit before tax
(EUR 1.1 million) and the profit before tax margin (1.9%) have increased
compared to the same period last year (3 months of 2016: EUR 0.3 million and
0.6%, respectively). 



Business segments

The group operates in Estonian, Latvian, Lithuanian and Norwegian market
through its subsidiaries, the reporting of which is divided into following
business segments: Estonian construction service (incl. construction services
on project basis in Finland), other home markets construction service (incl.
construction services in Latvia, Lithuania and Norway) and real estate
development. The group’s segment structure is aligned with group’s management
structure. 

Estonian construction service

The Estonian construction services segment consists of various services in the
field of general construction, civil engineering, electricity and road
construction and construction services on project basis in Finland. 

In the 3 months of 2017, the revenue of the Estonian construction service
segment was EUR 26.7 million (3 months of 2016: EUR 19.0 million), having
increased by 40.6% from the same period last year. The 3 months revenue
includes revenue from Finnish projects in the amount of EUR 0.02 million (3
months of 2016: EUR 0.4 million). The revenues have clearly increased in the
field of general construction. The increase in revenue in the segment is
primarily influenced by the fact that several large-scale general construction
projects launched in 2016 have continued to progress. The Estonian construction
service segment revenues for 3 months 2017 were 46.0% of the group’s revenue,
forming the largest proportion in the group’s revenue, having increased by
13.2% in the yearly comparison. 

Our major projects in the first quarter in Tallinn included the design and
construction works of Maakri Kvartal business complex, office building located
at Mustamäe tee 3, T1 shopping centre, Pärnu mnt 22 office building and BAUHAUS
DIY store, construction of the airport tram line infrastructure and
construction work on the passenger walkway at Vanasadama Harbour quay No 5, in
Tapa construction works of the barracks in military campus depot and Viru
Infantry Battalion technology park buildings and facilities. Additionally the
construction works of Juuliku road junction and road section at Tallinn
roundabout and the road maintenance works done under the service agreement with
Tallinn and Viljandi county had a significant impact. 

Other home markets construction service

The Other home markets construction service segment consists of general
construction work in Latvia, Lithuania and Norway and provision of civil
engineering and electricity services in Latvia. 

The revenue of the other home markets construction service segment amounted to
EUR 11.2 million in the 3 months of 2017 (3 months of 2016: EUR 8.0 million),
which is 40.3% more than in the 3 months of 2016. If the other home markets
construction service segment revenues of 3 months of 2016 formed 17.0% of the
group’s revenue, then during 3 months of the current year the segments revenues
have increased to 19.2%. The change in this percentage has been in line with
expectations, considering the level of new contracts signed in Latvia and
Lithuania at the end of 2016 and the low comparison base of 2016, where there
were less large-scale projects in works in Latvia and Lithuania. 

Merko’s position among Latvia general contractors is currently strong and we
see opportunities for growing our business volumes. In Lithuania, we are
continuing our strategic plan to focus on external customers who make up the
predominant part of the group’s Lithuanian construction contracts portfolio. In
Lithuania, we have also entered more widely the public procurement sphere in
the field of general construction. In Norway, the group is mainly performing
smaller-scale agreements, while actively working on building project management
capability and systems to conclude larger general contracting agreements. The
group’s Norwegian subsidiary concluded the first major construction contract at
the end of the first quarter. The group’s continued focus is on increasing the
revenues outside Estonia. 

In the first quarter of 2017, the main ongoing projects included in the other
home markets construction service segment were in Vilnius the construction
works of Narbuto 5 office building, the construction works of Kauno/Algirdo
residential complex with office premises and the design and construction works
of Radisson Blu Hotel Lietuva extension, in Klaipeda the reconstruction and
extension construction works of Philip Morris plant, in Riga the construction
works of apartment building Magdal?nas nami, the construction works of the
British International School, the construction works of C?su 9 apartment
building, In Jurmala the construction works of Jasm?nu 10 residential complex
and in Ventspils the construction works of music school and concert hall. 

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 Estonia, Latvia and Lithuania. 

The group sold a total of 141 apartments (incl. 1 apartment in a joint venture)
in 3 months of 2017 at the total value of EUR 16.3 million (excl. VAT),
compared to 101 apartments and EUR 11.4 million in 3 months of 2016. In 3
months of 2017, the group has earned EUR 0.0 million of revenue from the sale
of immovable properties (3 months of 2016: EUR 7.5 million). The construction
service revenue from projects developed by joint ventures in 3 months of 2017
was EUR 2.5 million (3 months of 2016: EUR 0.6 million). 

In 3 months of 2017 real estate development segment revenues have increased by
2.0% compared to the same period last year, The growth is primarily influenced
by the increase of revenues from the sale of apartments in the current period,
especially considering that in the reference period the group sold immovable
properties that were strategically not needed by the group. 

In the 3 months of 2017 the share of revenue from the real estate development
segment formed 34.8% of the group’s total revenue (3 months of 2016: 42.3%). 

At the end of the period, group’s inventory comprised 202 apartments where a
preliminary agreement had been signed: 71 completed apartments (60 in Estonia,
1 in Latvia and 10 in Lithuania) and 131 apartments under construction (77 in
Estonia, 29 in Latvia and 25 in Lithuania). The sale of these apartments had
not yet been finalised and delivered to customers, because the development site
is still under construction or the site was completed at the end of the
reporting period and the sales transactions have not all been finalised yet. 

As at 31 December 2017, the group had a total of 598 apartments for active sale
(as at 31 March 2016: 457 apartments; as at 31 December 2016: 497 apartments),
for which there are no pre-sale agreements and of which 109 have been completed
(75 in Estonia, 15 in Latvia and 19 in Lithuania) and 489 are under
construction (220 in Estonia, 153 in Latvia and 116 in Lithuania). The increase
in the number of apartments on active sale as at 31 March 2017, compared to 31
March 2016 is mainly due to the higher volume of projects launched in the 3
months of the current year. 

In 3 months of 2017, we launched the construction of a total of 408 new
apartments in the Baltic states (3 months of 2016: 90 apartments): 

  -- the construction of Gai?ezera nami residential development with 96
     apartments at Mežciems district in Riga, located between L?duma, Gai?ezera
     and Hipokr?ta streets;
  -- the construction of Rinktin?s Urban residential development project with
     141 apartments in the city centre of Vilnius, located at the corner of
     Rinktin?s and Ceikiniu streets;
  -- In Tallinna, the construction of the second stage of Noblessner residential
     development project with 105 apartments located at Staapli 3;
  -- In Tallinna, the construction of 66 apartments in the new phase of Paepargi
     development project located at Paepargi 43 and 47.

In the 3 months of this year, the group has invested a total of EUR 7.5 million
(3 months of 2016: EUR 10.1 million; 12 months of 2016: EUR 53.6 million) in
new development projects launched in 2017 as well as projects already in
progress from previous year. 

We will continue to invest in residential real estate projects and in 2017, the
group plans to launch the construction of approximately 650-700 (incl. 60-160
apartments in joint ventures) new apartments in the Baltic states. In 2016,
construction was started on 344 apartments. The investment level in 2017 in
both development projects initiated in the previous years and new projects to
be launched in 2017 is in the range of EUR 45 million (2016: EUR 53.6 million
invested). 

One of our objectives is to keep a moderate portfolio of land plots to ensure
stable inventory of property development projects considering the market
conditions. At 31 March 2017, the group's inventories included land plots with
the development potential, where the construction works have not started, of
EUR 67.0 million (31.03.2016: EUR 50.5 million; 31.12.2016: EUR 63.2 million). 

In the 3 months of 2017, the group has purchased new land plots at an
acquisition cost of EUR 4.1 million purposes (3 months of 2016: no new land
plot acquisitions; 12 months of 2016: acquired different new land plots in
Tallinn, Estonia at an acquisition cost of EUR 16.8 million and in Vilnius,
Lithuania at an acquisition cost of EUR 2.3 million). In Q1 of 2017, the group
acquired an approximately 1.5-hectare development area between R?pniec?bas and
P?tersalas streets in the heart of Riga at an acquisition cost of EUR 4.1
million, allowing to build nearly 350 apartments in the upcoming years.
According to a preliminary agreement with a credit institution the acquisition
of the development area is planned to be financed with a bank loan in the
second quarter of 2017. 

Based on its long-term strategy, the group will continue investing in land
plots, and is searching for new land plots with development potential, in 2017
above all, in Estonia and Lithuania. 



Secured order book

As at 31 March 2017, the group’s secured order book (without own developments)
amounted to EUR 287.7 million as compared to EUR 243.5 million as at 31 March
2016, having increased by approximately 20% in the annual comparison. The
secured order book excludes the group's own residential development projects
and construction work related to developing real estate investments. 

In 3 months of 2017, EUR 58.6 million worth of new contracts were signed
(without own developments) as compared to EUR 22.4 million in same period last
year. 

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

  -- On 7 April 2017, SIA Merks – a subsidiary of AS Merko Ehitus – signed a
     contract with SIA M257, to perform the construction works of
     Multifunctional Centre Akropole located at 257 Maskavas street, Riga,
     Latvia. The main general contractor SIA Merks has decided to engage UAB
     Mitnija as project management partner with a share of 50:50. The given
     contract is recognised 100% in the secured order book, as SIA Merks bears
     the sole liability to the customer. The value of the contract is
     approximately EUR 100 million. The works are scheduled for completion in
     January of 2019.

Of the contracts signed in the 3 months of 2017, private sector orders
accounted for the majority proportion, which is also represented in the group’s
secured order book as at the end of the reporting period, where private sector
orders from projects in progress constitute approximately 70% (31.03.2016:
approximately 80%; 31.12.2016: approximately 70%). Apart from a few large-scale
procurements where Merko companies were not as optimistic as our competitors in
bidding at a low price, the share of government contracts has continuingly been
very modest. The group continues to focus on comprehensive design and
construction contracts. In this regard, four important design and construction
contracts were signed in the first 3 months of 2017. 

The portfolio of contracts has increased compared to the same period of the
last few years (31.03.2016: EUR 243.5 million; 31.03.2015: EUR 167.2 million).
Yet aside from individual larger-scale agreements in Estonia, the secured order
book balance is not satisfactory. This is particularly the case in regard to
public procurements. Considering the beginning phase of the current EU funding
period, the volume of public procurements has stayed at the previous year’s
level and at the moment we predict that the volume of public procurements will
start to increase in 2017. 

Traditionally the share of Estonian construction activity has been the highest
in the group's revenues. Given the growth outlook of the Estonian construction
market, the group's goal is to increase the volume of construction orders from
outside Estonia. Thus, we will continue to identify and strengthen the groups
competitive advantages and are closely monitoring the development and
opportunities both in the Baltic states and Norway, where the group concluded a
transaction through which it acquired a controlling holding in Peritus
Entreprenør AS, a Norwegian construction company that provides general
construction services. The long-term objective of the group in Norway is to
gradually build the capacity to undertake bigger projects, to operate as a
Norwegian company and to gain the trust of local customers, whilst exploiting
Merko's experience in quality and project management and the network of
partners. In 2017, the group will continue to take part in various individual
Finnish and Swedish construction procurements in a selective and project-based
manner in order to gain experience and regarding the conditions and
requirements set out in these countries for qualifying for construction company
procurements, as well as assess the risks so as to evaluate potential
competitive advantages for entering these markets, but focusing above all in
the Nordic countries on the Norwegian market. 



Cash flows

As at 31 December 2016 the group had cash equivalents in the amount of EUR 33.8
million (31.03.2016: EUR 34.4 million; 31.12.2016: EUR 33.5 million). The
group's cash level is slightly lower compared to the same period last year;
still, the financial position is continually strong, as the group has not
utilised its credit lines of existing overdrafts and loan agreements. 

The 3-month cash flow from operating activity was positive at EUR 5.6 million
(3 months of 2016: negative EUR 1.6 million), cash flow from investing activity
was negative at EUR 0.1 million (3 months of 2016: positive EUR 0.9 million)
and the cash flow from financing activity was negative at EUR 5.2 million (3
months of 2016: negative EUR 4.8 million). 

The cash flow from operating activity was mostly influenced by the EBITDA
(operating profit adjusted with depreciation and amortisation) EUR 1.9 million
(3 months of 2016: EUR 1.2 million), by the negative change in receivables and
liabilities related to construction contracts recognised under the stage of
completion method EUR 2.0 million (3 months of 2016: negative change of EUR 3.5
million), by the negative change in the provisions EUR 2.0 million (3 months of
2016: negative change of EUR 2.8 million), by the positive change in trade and
other receivables related to operating activities EUR 10.8 million, incl. the
return of VAT prepayment related to Veerenni development area aquisition in
January of 2017 in the amount of EUR 3.4 million (3 months of 2016: positive
change of EUR 0.4 million, incl. a negative change in financing co-financed
projects of EUR 1.6 million), by the positive change in inventory EUR 2.6
million, incl. negative cash flow from purchase of new land plots in the amount
of EUR 4.1 million (3 months of 2016: positive change of EUR 6.6 million, incl.
positive cash flow from sale of immovable properties in the amount of EUR 7.5
million) and by the positive change in trade and other payables related to
operating activities EUR 5.0 million (3 months of 2016: negative change of EUR
2.9 million). 

To support cash flows arising from operating activity, the group has been
cautious in raising additional external capital, including factoring. At the
same time, the debt ratio has remained at a moderate level (17.7% as at
31.03.2017; 12.9% as at 31.03.2016; 19.3% as at 31.12.2016). 

Cash flows from investment activities include negative cash flow from the
acquisition of non-current asset in the amount of EUR 0.4 million (3 months of
2016: EUR 0.5 million) and the positive cash flow from the sale of non-current
assets in the amount of EUR 0.3 million (3 months of 2016: EUR 0.1 million).
The group mainly invested in non-current assets for the purpose of renewing its
fleet of machinery in the road construction segment. Cash flows from investment
activities in the reference period was also positively impacted by the
acquisition of majority shareholding in subsidiary Peritus Entreprenør AS
(related to the offering of construction services on Norwegian market) in the
amount of EUR 1.2 million. 

Project specific loans obtained using investment property as collateral,
included under cash flows from financing activities, were repaid in the amount
of EUR 0.1 million (3 months of 2016: negative cash flow in the net amount of
EUR 0.1 million). Net of loans received and loans repaid in connection with
development projects amounted to positive cash flow of EUR 9.1 million (3
months of 2016: net negative cash flow of EUR 2.7 million) and finance lease
principal repayments of EUR 0.2 million (3 months of 2016: EUR 0.2 million). In
addition, over the 3 months of 2016, the group made repayments in the amount of
EUR 1.0 million to related party Järvevana OÜ pursuant to the terms and
conditions of an overdraft agreement between the parties. The group has not
used bank loans to finance all ongoing development projects – and this is the
case particularly in Estonia, where many advance sales were agreed in the early
phase of construction. At the end of 2016 EUR 12.5 million was engaged in
short-term loan from the parent company AS Riverito to purchase the Veerenni
development area. The loan was refinanced at the beginning of 2017 with
long-term loans from various credit institutions. In analogous fashion, the
group plans to take a bank loan in Q2 2017 for financing the development area
located between R?pniec?bas and P?tersalas streets in Riga, Latvia, which was
acquired in Q1 2017. 



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 28 April
2017 approved the Supervisory Board’s 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 90% dividend rate and a 4.5%
dividend yield for the year 2016 (using the share price as at 31 December
2016). Comparable figures in 2015 were accordingly: EUR 9.0 million (EUR 0.51
per share) as dividends, which is equivalent to a 90% dividend rate and a 6.0%
dividend yield (using the share price as at 31 December 2015). 

According to the Estonian Income Tax Law §50 section 11 AS Merko Ehitus can pay
certain portion of dividends without any additional income tax expense and
liabilities occurring due to previously received and taxed distribution of
profits from subsidiaries. Taking into account the dividends already paid to
the parent company by the subsidiaries during 2017, the group will incur
additional income tax expense in connection with the disbursement of dividends
of EUR 0.9 million (Q2 2016: EUR 0.6 million) in Estonia in the second quarter
of 2017.The dividend payment to the shareholders will take place on 26 May
2017. 



Ratios
(attributable to equity holders of the parent)

                                                     3M      3M      3M      12M
                                                   2017    2016    2015     2016
--------------------------------------------------------------------------------
Income statement summary                                                        
--------------------------------------------------------------------------------
Revenue                               million      58.1    46.8    45.6    252.0
                                        EUR                                     
--------------------------------------------------------------------------------
Gross profit                          million       4.1     3.1     3.6     19.0
                                        EUR                                     
--------------------------------------------------------------------------------
Gross profit margin                       %         7.1     6.5     7.8      7.5
--------------------------------------------------------------------------------
Operating profit                      million       1.3     0.5     1.0      7.7
                                        EUR                                     
--------------------------------------------------------------------------------
Operating profit margin                   %         2.2     1.0     2.2      3.1
--------------------------------------------------------------------------------
Profit before tax                     million       1.1     0.3     0.8      7.3
                                        EUR                                     
--------------------------------------------------------------------------------
PBT margin                                %         1.9     0.6     1.8      2.9
--------------------------------------------------------------------------------
Net profit                            million       1.0     0.0     0.7      6.0
                                        EUR                                     
--------------------------------------------------------------------------------
attributable to equity holders of     million       1.0     0.1     0.8      6.1
 the parent                             EUR                                     
--------------------------------------------------------------------------------
attributable to non-controlling       million     (0.0)   (0.1)   (0.1)    (0.1)
 interest                               EUR                                     
--------------------------------------------------------------------------------
Net profit margin                         %         1.8     0.2     1.8      2.4
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income statement indicators                                               
--------------------------------------------------------------------------------
EBITDA                                million       1.9     1.2     1.9     11.2
                                        EUR                                     
--------------------------------------------------------------------------------
EBITDA margin                             %         3.3     2.5     4.1      4.4
--------------------------------------------------------------------------------
General expense ratio                     %         5.8     6.8     6.5      5.3
--------------------------------------------------------------------------------
Labour cost ratio                         %        13.2    14.2    13.7     11.7
--------------------------------------------------------------------------------
Revenue per employee                  thousand       77      62      62      325
                                        EUR                                     
--------------------------------------------------------------------------------



Other significant                 31.03.2017  31.03.2016  31.03.2015  31.12.2016
 indicators                                                                     
--------------------------------------------------------------------------------
Return on equity           %             5.8         7.5        10.1         5.0
--------------------------------------------------------------------------------
Return on assets           %             3.1         4.3         5.0         2.8
--------------------------------------------------------------------------------
Return on invested         %             5.5         7.8         8.5         5.1
 capital                                                                        
--------------------------------------------------------------------------------
Equity ratio               %            53.6        62.3        53.1        51.6
--------------------------------------------------------------------------------
Debt ratio                 %            17.7        12.9        14.6        19.3
--------------------------------------------------------------------------------
Current ratio *          times           2.7         3.4         2.6         2.9
--------------------------------------------------------------------------------
Quick ratio *            times           1.1         1.3         1.1         1.1
--------------------------------------------------------------------------------
Accounts receivable       days            39          35          51          37
 turnover                                                                       
--------------------------------------------------------------------------------
Accounts payable          days            38          35          41          38
 turnover                                                                       
--------------------------------------------------------------------------------
Average number of       people           759         755         742         776
 employees                                                                      
--------------------------------------------------------------------------------
Secured order book      million        287.7       243.5       167.2       269.6
                          EUR                                                   
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited

in thousand euros

                                                       2017      2016       2016
                                                   3 months  3 months  12 months
--------------------------------------------------------------------------------
Revenue                                              58,147    46,820    251,970
--------------------------------------------------------------------------------
Cost of goods sold                                 (54,026)  (43,758)  (232,961)
--------------------------------------------------------------------------------
Gross profit                                          4,121     3,062     19,009
--------------------------------------------------------------------------------
Marketing expenses                                    (860)     (768)    (3,281)
--------------------------------------------------------------------------------
General and administrative expenses                 (2,518)   (2,417)   (10,076)
--------------------------------------------------------------------------------
Other operating income                                  567       648      2,466
--------------------------------------------------------------------------------
Other operating expenses                               (57)      (42)      (399)
--------------------------------------------------------------------------------
Operating profit                                      1,253       483      7,719
--------------------------------------------------------------------------------
Finance income/costs                                  (156)     (180)      (440)
--------------------------------------------------------------------------------
incl. finance income/costs from joint ventures           28      (17)        163
--------------------------------------------------------------------------------
finance income/costs from other long-term                 -         -          2
 investments                                                                    
--------------------------------------------------------------------------------
interest expense                                      (173)     (156)      (610)
--------------------------------------------------------------------------------
foreign exchange gain (loss)                              2       (8)        (6)
--------------------------------------------------------------------------------
other financial income (expenses)                      (13)         1         11
--------------------------------------------------------------------------------
Profit before tax                                     1,097       303      7,279
--------------------------------------------------------------------------------
Corporate income tax expense                          (118)     (274)    (1,275)
--------------------------------------------------------------------------------
Net profit for financial year                           979        29      6,004
--------------------------------------------------------------------------------
incl. net profit attributable to equity holders       1,029       112      6,122
 of the parent                                                                  
--------------------------------------------------------------------------------
net profit attributable to non-controlling             (50)      (83)      (118)
 interest                                                                       
--------------------------------------------------------------------------------
Other comprehensive income, which can                                           
 subsequently be classified in the income                                       
 statement                                                                      
--------------------------------------------------------------------------------
Currency translation differences of foreign             (3)       (2)         19
 entities                                                                       
--------------------------------------------------------------------------------
Comprehensive income for the period                     976        27      6,023
--------------------------------------------------------------------------------
incl. net profit attributable to equity holders       1,025       110      6,140
 of the parent                                                                  
--------------------------------------------------------------------------------
net profit attributable to non-controlling             (49)      (83)      (117)
 interest                                                                       
--------------------------------------------------------------------------------
Earnings per share for profit attributable to          0.06      0.01       0.35
 equity holders of the parent (basic and diluted,                               
 in EUR)                                                                        
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited

in thousand euros

                                              31.03.2017  31.03.2016  31.12.2016
--------------------------------------------------------------------------------
ASSETS                                                                          
--------------------------------------------------------------------------------
Current assets                                                                  
--------------------------------------------------------------------------------
Cash and cash equivalents                         33,839      34,400      33,544
--------------------------------------------------------------------------------
Trade and other receivables                       45,414      24,947      45,566
--------------------------------------------------------------------------------
Prepaid corporate income tax                         528         543         617
--------------------------------------------------------------------------------
Inventories                                      120,838     102,532     123,364
--------------------------------------------------------------------------------
                                                 200,619     162,422     203,091
--------------------------------------------------------------------------------
Non-current assets                                                              
--------------------------------------------------------------------------------
Long-term financial assets                        11,922      19,506      15,805
--------------------------------------------------------------------------------
Deferred income tax assets                         1,326       1,423       1,325
--------------------------------------------------------------------------------
Investment property                                4,043       4,309       4,108
--------------------------------------------------------------------------------
Property, plant and equipment                     12,456      13,375      12,838
--------------------------------------------------------------------------------
Intangible assets                                    668         948         673
--------------------------------------------------------------------------------
                                                  30,415      39,561      34,749
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL ASSETS                                     231,034     201,983     237,840
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
LIABILITIES                                                                     
--------------------------------------------------------------------------------
Current liabilities                                                             
--------------------------------------------------------------------------------
Borrowings                                        14,586       3,119      21,485
--------------------------------------------------------------------------------
Payables and prepayments                          54,909      38,360      56,259
--------------------------------------------------------------------------------
Income tax liability                                 103       1,021         278
--------------------------------------------------------------------------------
Short-term provisions                              4,633       4,764       5,637
--------------------------------------------------------------------------------
                                                  74,231      47,264      83,659
--------------------------------------------------------------------------------
Non-current liabilities                                                         
--------------------------------------------------------------------------------
Long-term borrowings                              26,196      23,035      24,516
--------------------------------------------------------------------------------
Deferred income tax liability                      1,149         978       1,122
--------------------------------------------------------------------------------
Other long-term payables                           2,000         989       2,061
--------------------------------------------------------------------------------
                                                  29,345      25,002      27,699
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                103,576      72,266     111,358
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
EQUITY                                                                          
--------------------------------------------------------------------------------
Non-controlling interests                          3,643       3,928       3,692
--------------------------------------------------------------------------------
Equity attributable to equity holders of the                                    
 parent                                                                         
--------------------------------------------------------------------------------
Share capital                                      7,929        7929       7,929
--------------------------------------------------------------------------------
Statutory reserve capital                            793       1,200         793
--------------------------------------------------------------------------------
Currency translation differences                   (649)       (665)       (645)
--------------------------------------------------------------------------------
Retained earnings                                115,742     117,325     114,713
--------------------------------------------------------------------------------
                                                 123,815     125,789     122,790
--------------------------------------------------------------------------------
TOTAL EQUITY                                     127,458     129,717     126,482
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                     231,034     201,983     237,840
--------------------------------------------------------------------------------



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



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



AS Merko Ehitus (group.merko.ee) group consists of Estonia’s leading
construction company AS Merko Ehitus Eesti, the Latvian-market-oriented SIA
Merks, UAB Merko Statyba that is operating on the Lithuanian market, Peritus
Entreprenør AS construction company in Norway and the real estate development
business unit along with real estate holding companies. As at the end of 2016,
the group employed 797 people and the company’s 2016 revenue was EUR 252
million.