Börsiteade

Pealkiri

2018 12 months and IV quarter consolidated unaudited interim report

Teade

COMMENTARY FROM MANAGEMENT

Merko  Ehitus posted revenue of EUR 119.2 million in Q4 of 2018 and the 12-month
revenue  figure was EUR 418 million.  The group's net profit  for Q4 of 2018 was
EUR  7 million and the  12-month net profit  was EUR 19.3 million.  Both the 12-
month  revenue as well as  net profit grew by  32%, compared to 2017 figures. As
discussed  with the supervisory board, the  group's management board proposes to
pay  shareholders  a  dividend  of  92% of  last year's profit, which amounts to
1 euro per share.

In  recent years, the management  of Merko Ehitus has  implemented a strategy by
which  one-half of the group's business  would be located outside Estonia. Also,
investments   into  apartment  development  have  been  increased.  2018 was  an
exceptional  year in regard to construction volumes, with the group's revenue on
the  upswing in all Baltic states, and doubling in Latvia. The growth in revenue
was  supported by several major ongoing projects  in Latvia and Estonia on which
construction  work was completed in 2018 or is  set to be completed in the first
half  of 2019. All of  the group's countries  and main areas  of activity made a
profit and the growth in revenue also increased the group's net profit.

Because of the rise in construction input prices and higher wages, the situation
on  the construction market  continued to be  complicated in 2018, especially in
regard to contracts concluded by the group at a fixed price in earlier years. In
addition,  the problems  of availability  of building  design and subcontracting
resources  exacerbated risks related  to on-time completion  of construction and
financial risks. The rise in construction prices began slowing the growth in the
volume  of new orders on the market,  which also resulted in stiffer competition
between  main contractors vying for construction  orders and applied pressure on
profit  margins. The launch of  new commercial real estate  projects is also now
being  slowed by the large volume of  retail and office space accruing in recent
years  and the more complicated financing  conditions. The group's secured order
book   shrank   by  about  one-third  in  2018, which  will  likely  affect  our
construction volumes in 2019.

In  addition  to  providing  construction  services  to  customers,  a strategic
business  area for Merko  Ehitus is apartment  development, into which the group
invested EUR 35 million in 2018. Last year, Merko launched the construction of a
total  of more than 1,000 new  apartments in Tallinn, Riga  and Vilnius, most of
which  will be completed in 2020. The  largest projects are the Uus-Veerenni and
Pikaliiva  residential environments  in Tallinn,  the Gai?ezers and Viesturd?rzs
developments in Riga and the Vilneles slenis and Rinktin?s Urban developments in
Vilnius.  In Q4 of  2018, Merko sold 227 apartments;  for the entire year, sales
totalled 482 apartments.

The  apartment  market  in  the  Baltics  in 2018 was stable and demand remained
healthy.  As the  supply of  new apartments  has increased,  the price level has
stabilized  and sales periods are somewhat longer.  The trend can be expected to
continue  this year, especially in case of apartments in the above-average price
segment.  On the  other hand,  the apartment  market is  supported by  low prime
interest  rates, high  employment and  economic growth.  Large development areas
occupy  a more central  position in the  group's apartment development strategy,
allowing to shape an integral living environment and launch development projects
stage-by-stage in response to demand.

In  Q4 of 2018, Merko Ehitus posted revenue  of EUR 119.2 million with EBITDA of
EUR  7.6 million and  a net  profit of  EUR 7.0 million. For 2018 overall, sales
revenue  was EUR  418 million, EBITDA  was 21.9 million  and net  profit was EUR
19.3 million.  The growth of  net profit was  supported not only  by the rise in
revenue  but the lower expense on income tax compared to 2017, as dividends were
paid  out in 2018 from dividends received  from subsidiaries outside Estonia. At
the  same time, 2018 did not  see real estate transactions  of a one-off nature,
which had a positive influence on the Q4 2017 profit.

In  the 12 months  of 2018, the  group signed  new contracts  totalling EUR 246
million,  and  in  Q4  alone,  EUR  89 million,  including  for  the  design and
construction of an office building at Pärnu mnt 186 in Tallinn and Tesla service
centre  in  Oslo,  the  construction  of  a  student  home in Rakvere, laying of
undersea  cables under the Suur  and Väike Väin straits  in western Estonia, and
road maintenance in the city of Tallinn.

As  at 31 December 2018, Merko Ehitus group´s secured order book amounted to EUR
229 million,  compared to EUR  344 million as at  the same date  in the previous
year. In Q4, the largest projects in progress in Estonia were T1 Mall of Tallinn
shopping centre, Maakri Kvartal business complex, Öpiku Office Building tower B,
Noblessner  residential district,  Tallink office  building, and  renovation and
dredging  work  at  the  Port  of  Hundipea.  In Latvia, the largest projects in
progress  were Akropole and Alfa shopping centres, Z?Towers business complex and
Ventspils  Music  School  and  Concert  Hall;  and in Lithuania, they were Hotel
Neringa,  Quadrum  office  building  and  two  school  buildings. In Norway, the
biggest  projects in progress  in Q4 were  the design and  construction of Tesla
customer  service  centre  and  renovation  of  an office building at Møllergata
23-25 in Oslo.


OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS


PROFITABILITY
Q4 2018 net profit was EUR 7.0 million (Q4 2017: EUR 8.1 million) and net profit
margin  5.9% (Q4 2017: 7.9%). Net profit  in 12 months 2018 was EUR 19.3 million
(12M  2017: EUR 14.7 million),  having increased  by 31.6% compared  to the same
period  last  year.  Net  profit  margin  remained  at the same level: 4.6% (12M
2017: 4.6%). In  2018, the group incurred EUR  2.6 million less corporate income
tax costs.

Q4  2018 profit before tax  was EUR 7.1 million  (Q4 2017: EUR 10.6 million) and
12 months   2018 profit   before   tax   was   EUR   19.8 million   (12M  2017:
EUR 18.8 million),  which  brought  the  profit  before  tax margin to 4.7% (12M
2017: 5.9%).

REVENUE
Q4 2018 revenue was EUR 119.2 million (Q4 2017: EUR 102.8 million) and 12 months
2018 revenue  was  EUR  418.0 million  (12M 2017: EUR 317.6 million). 12 months'
revenue  has increased by 31.6% compared to same  period last year. The share of
revenue earned outside Estonia in 12 months 2018 was 51.5% (12M 2017: 39.9%).

SECURED ORDER BOOK
As at 31 December 2018, the group's secured order book was EUR 229.0 million (31
December 2017: EUR 344.4 million). In 12 months 2018, group companies signed new
contracts  in the amount of EUR  246.4 million (12M 2017: EUR 334.9 million). In
Q4  2018, new contracts were signed in the amount of EUR 89.4 million (Q4 2017:
EUR 31.3 million).

REAL ESTATE DEVELOPMENT
In  12 months  2018, the  group  sold  a  total  of  482 apartments  (incl. 131
apartments in a joint venture); in 12 months 2017, the group sold 392 apartments
(incl. 17 apartment in a joint venture). The group earned a revenue of EUR 41.3
million  from sale of  own developed apartments  in 12 months 2018 and EUR 47.1
million  in  12 months  2017. In  Q4  of  2018, the  group  sold a total of 227
apartments  (incl. 84 apartments in  a joint venture);  in Q4 of 2017, the group
sold  106 apartments (incl. 16 apartment in a joint venture). The group earned a
revenue of EUR 17.0 million from sale of own developed apartments in Q4 of 2018
and EUR 13.3 million in Q4 of 2017.

CASH POSITION
At  the end of the reporting period, the  group had EUR 40.0 million in cash and
cash  equivalents,  and  equity  EUR  131.8 million  (48.9%  of  total  assets).
Comparable  figures as at 31 December 2017 were  EUR 39.2 million and EUR 130.2
million (47.0% of total assets), respectively. As at 31 December 2018, the group
had net debt of EUR 4.2 million (31 December 2017: EUR 20.1 million).

PROPOSAL FOR DISTRIBUTION OF PROFITS
As  discussed  with  the  Supervisory  Board,  the  Management Board proposes to
distribute to shareholders EUR 17.7 million in dividends (1 euro per share) from
retained earnings in 2019. This is equivalent to a 92% dividend rate for 2018.


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                                         2018      2017        2018        2017
                                    12 months 12 months  IV quarter  IV quarter
-------------------------------------------------------------------------------
 Revenue                              418,011   317,598     119,243     102,791
-------------------------------------------------------------------------------
 Cost of goods sold                 (384,962) (286,747)   (107,978)    (88,638)
-------------------------------------------------------------------------------
 Gross profit                          33,049    30,851      11,265      14,153
-------------------------------------------------------------------------------
 Marketing expenses                   (3,285)   (3,215)       (803)       (795)
-------------------------------------------------------------------------------
 General and administrative
 expenses                            (12,304)  (11,289)     (3,721)     (3,500)
-------------------------------------------------------------------------------
 Other operating income                 3,527     3,793       1,050       1,148
-------------------------------------------------------------------------------
 Other operating expenses             (1,115)     (601)       (838)       (277)
-------------------------------------------------------------------------------
 Operating profit                      19,872    19,539       6,953      10,729
-------------------------------------------------------------------------------
 Finance income/costs                    (97)     (767)         176       (173)
-------------------------------------------------------------------------------
 incl. finance income/costs from
 sale of subsidiary and
 liquidation                             (62)        14         (3)          14
-------------------------------------------------------------------------------
 finance income/costs from joint
 ventures                                 653        64         379          76
-------------------------------------------------------------------------------
 finance income/costs from other
 long-term investments                      -         2           -           2
-------------------------------------------------------------------------------
 interest expense                       (652)     (745)       (200)       (192)
-------------------------------------------------------------------------------
 foreign exchange gain (loss)               5       (1)           6           1
-------------------------------------------------------------------------------
 other financial income (expenses)       (41)     (101)         (6)        (74)
-------------------------------------------------------------------------------
 Profit before tax                     19,775    18,772       7,129      10,556
-------------------------------------------------------------------------------
 Corporate income tax expense           (375)   (3,020)       (206)     (1,625)
-------------------------------------------------------------------------------
 Net profit for financial year         19,400    15,752       6,923       8,931
-------------------------------------------------------------------------------
 incl. net profit attributable to
 equity holders of the parent          19,343    14,694       7,031       8,133
-------------------------------------------------------------------------------
 net profit attributable to non-
 controlling interest                      57     1,058       (108)         798
-------------------------------------------------------------------------------
 Other comprehensive income, which
 can subsequently be classified in
 the income statement
-------------------------------------------------------------------------------
 Currency translation differences
 of foreign entities                      (6)      (74)        (37)        (47)
-------------------------------------------------------------------------------
 Comprehensive income for the
 period                                19,394    15,678       6,886       8,884
-------------------------------------------------------------------------------
 incl. net profit attributable to
 equity holders of the parent          19,324    14,637       6,981       8,099
-------------------------------------------------------------------------------
 net profit attributable to non-
 controlling interest                      70     1,041        (95)         785
-------------------------------------------------------------------------------
 Earnings per share for profit
 attributable to equity holders of
 the parent (basic and diluted, in
 EUR)                                    1.09      0.83        0.40        0.46
-------------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                                     31.12.2018 31.12.2017
--------------------------------------------------------------------------
 ASSETS
--------------------------------------------------------------------------
 Current assets
--------------------------------------------------------------------------
 Cash and cash equivalents                               39,978     39,210
--------------------------------------------------------------------------
 Trade and other receivables                             76,183     75,844
--------------------------------------------------------------------------
 Prepaid corporate income tax                               224        492
--------------------------------------------------------------------------
 Inventories                                            117,992    118,421
--------------------------------------------------------------------------
                                                        234,377    233,967
--------------------------------------------------------------------------
 Non-current assets
--------------------------------------------------------------------------
 Long-term financial assets                              11,123     17,242
--------------------------------------------------------------------------
 Deferred income tax assets                                   -          5
--------------------------------------------------------------------------
 Investment property                                     13,771     15,719
--------------------------------------------------------------------------
 Property, plant and equipment                            9,715      9,665
--------------------------------------------------------------------------
 Intangible assets                                          671        497
--------------------------------------------------------------------------
                                                         35 280     43,128
--------------------------------------------------------------------------

--------------------------------------------------------------------------
 TOTAL ASSETS                                           269,657    277,095
--------------------------------------------------------------------------

--------------------------------------------------------------------------
 LIABILITIES
--------------------------------------------------------------------------
 Current liabilities
--------------------------------------------------------------------------
 Borrowings                                              19,900     24,218
--------------------------------------------------------------------------
 Payables and prepayments                                77,016     74,972
--------------------------------------------------------------------------
 Income tax liability                                       381        413
--------------------------------------------------------------------------
 Short-term provisions                                    8,100      4,569
--------------------------------------------------------------------------
                                                        105,397    104,172
--------------------------------------------------------------------------
 Non-current liabilities
--------------------------------------------------------------------------
 Long-term borrowings                                    24,266     35,138
--------------------------------------------------------------------------
 Deferred income tax liability                            1,481      1,259
--------------------------------------------------------------------------
 Other long-term payables                                 2,179      1,789
--------------------------------------------------------------------------
                                                         27,926     38,186
--------------------------------------------------------------------------

--------------------------------------------------------------------------
 TOTAL LIABILITIES                                      133,323    142,358
--------------------------------------------------------------------------

--------------------------------------------------------------------------
 EQUITY
--------------------------------------------------------------------------
 Non-controlling interests                                4,577      4,567
--------------------------------------------------------------------------
 Equity attributable to equity holders of the parent
--------------------------------------------------------------------------
 Share capital                                            7,929      7,929
--------------------------------------------------------------------------
 Statutory reserve capital                                  793        793
--------------------------------------------------------------------------
 Currency translation differences                         (721)      (702)
--------------------------------------------------------------------------
 Retained earnings                                      123,756    122,150
--------------------------------------------------------------------------
                                                        131,757    130,170
--------------------------------------------------------------------------
 TOTAL EQUITY                                           136,334    134,737
--------------------------------------------------------------------------

--------------------------------------------------------------------------
 TOTAL LIABILITIES AND EQUITY                           269,657    277,095
--------------------------------------------------------------------------

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
(http://group.merko.ee/en/)).


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

AS  Merko Ehitus (group.merko.ee  (http://group.merko.ee/en/)) group consists of
Estonia's  leading  construction  company  AS  Merko  Ehitus Eesti, the Latvian-
market-oriented SIA Merks, UAB Merko Statyba operating on the Lithuanian market,
and the Norwegian construction company Peritus Entreprenør AS. Besides provision
of  construction service as a  main contractor, the group's  other major area of
activity  is apartment  development. As  at the  end of 2018, the group employed
764 people, and the group's revenue for 2018 was EUR 418 million.

Attachments

  * Merko_Ehitus_2018_12M_presentation (https://ml-
    eu.globenewswire.com/Resource/Download/4df39dca-46b1-4f48-8da0-c9571a15194a)
  * Merko_Ehitus_2018_12M_interim_report (https://ml-
    eu.globenewswire.com/Resource/Download/2768f046-1dfa-4ca7-bd7d-54efea10f55d)