Börsiteade

Pealkiri

2020 6 months and II quarter consolidated unaudited interim report

Teade

COMMENTARY FROM MANAGEMENT

Merko  Ehitus posted  revenue of  EUR 74 million  and a  net profit  of EUR 6.2
million in Q2 of 2020. The respective six month figures were EUR 130 million and
EUR 8.2 million. In 6 months of 2020, Merko sold 369 apartments, and the 6-month
revenue  generated by  the real  estate development  segment grew more than four
times  compared to  the same  period last  year, making  up 40 %  of the group's
revenue.  During the first six months of the year, the group companies concluded
new  construction contracts worth EUR  175 million, which is twice  as much as a
year ago.

The  sale of apartments  in the second  quarter exceeded the management's spring
expectations,  which due to the pandemic restrictions took a sudden turn for the
negative.  Yet the restrictions did  not significantly impact the second-quarter
delivery  of  apartments  sold  under  preliminary  contracts  signed before the
pandemic.  Merko sold  the most  apartments in  Vilnius and  at the  moment, the
market  for apartments in all three Baltic capitals is moderate. Activity levels
are  not as high as they were before the crisis but the price level has remained
stable.  The increase  in revenue  from real  estate development  had a positive
impact  on the growth  of net profit  in Q2 as  well. The sale of apartments may
vary  significantly by quarter,  depending on the  time during which development
projects were completed and authorisations for use were obtained.

The  group's volume of  construction contracts has  grown 38% compared to a year
ago,  and over the first six months  of the year, group signed 175 million euros
worth  of new construction contracts, which is  approximately twice as much as a
year ago. Based on the diminished economic outlook, a large share of orders from
private  sector customers has been postponed  and public contracts are prevalent
among new orders.

Despite  the positive results in  the second quarter, the  impacts caused by the
pandemic  are  gradually  becoming  more  apparent  in the construction and real
estate  sector, and because of this, the  outlook for the market developments in
the  second half  of the  year and  2021 are likely  to be  moving in a negative
direction.  The group companies have implemented cost-cutting measures to ensure
efficient  and flexible operations during and after  the crisis. The market as a
whole  has  been  supported  by  the  response  from banking in terms of payment
moratoria and more broadly in ensuring availability of credit.

Over  six months, Merko Ehitus Group  sold 369 apartments and 4 commercial units
(6  months 2019: 100 apartments and 6 commercial  units). The revenue figure for
the  real  estate  development  segment  in  the first half of 2020 saw fourfold
growth  year-over-year, making up  40.1% of the group's  total revenue (6 months
2019: 7.9%). Merko's biggest projects in Tallinn are the Uus-Veerenni, Lahekalda
and  Pikaliiva  residential  projects;  in  Riga, the Gai?ezers and Viesturd?rzs
developments;   and,  in  Vilnius,  the  Vilneles  slenis  and  Rinktin?s  Urban
developments. In spring, the group halted the launch of new development projects
for three months due to risks related to the pandemic. At the end of the period,
the third stage of construction and sales of the Uus-Veerenni project in Tallinn
was started.

Merko  Ehitus posted  revenue of  EUR 73.9 million  in Q2  of 2020 (Q2 2019: EUR
77.4 million),  an EBITDA of EUR 7.7 million (Q2 2019: EUR 5.3 million), and net
profit  of  EUR  6.2 million  (Q2  2019: EUR 1.7 million). In 6 months 2020, the
group  companies entered into new contracts totalling EUR 175.1 million and, for
Q2 alone, EUR 87.8 million (Q2 2019: EUR 53.8 million).

As  of 30 June 2020, the  group had a  secured order book  balance of EUR 236.7
million  (30 June 2019: EUR 172.1 million). The  largest projects in progress in
Q2  in Estonia were the construction of the Tallinn Music and Ballet School, the
Arte  Gymnasium, Terminal  D parking  house at  the Tallinn  passenger port, the
high-voltage  power cables in Tallinn, Türi  Basic School, the reconstruction of
Aaspere-Haljala  road section, the public water  supply and sewerage pipeline in
Kohila Parish and a data centre in Harju County. In Latvia, the biggest projects
in  progress were  construction of  the school  building and dormitory in Pinki,
Lidl  logistics centre and the renovation of the Riga Technical University Civil
Engineering  Faculty building. In  Lithuania, the construction  of Hotel Neringa
and the Kaunas district police headquarter building were in progress.

OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS

PROFITABILITY
2020 6 months'  profit before tax  was EUR 8.8 million  and Q2 2020 was EUR 6.7
million  (6M  2019: EUR  7.5 million  and  Q2  2019 was  EUR 4.5 million), which
brought the profit before tax margin to 6.8% (6M 2019: 4.9%).

Net profit attributable to equity holders of the parent in 6 months 2020 was EUR
8.2 million  (6M 2019: EUR 4.5 million)  and Q2 2020 net  profit attributable to
equity  holders of the parent was EUR 6.2 million (Q2 2019: EUR 1.7 million). 6
months  net profit margin was  6.3% (6M 2019: 2.9%). Compared to 6 months 2020,
the  net  profitability  of  2019 was  influenced  by,  among  other  things,  a
significantly  increased  income  tax  expense:  in  Q2,  the group's income tax
expense  on paid dividends was  EUR 2.7 million. In 2020, the  group did not pay
dividends.

REVENUE
Q2  2020 revenue was EUR 73.9 million  (Q2 2019: EUR 77.4 million) and 6 months'
revenue  was EUR  129.7 million (6M  2019: EUR 154.2 million). 6 months' revenue
decreased  by  15.9% compared  to  same  period  last year. The share of revenue
earned outside Estonia in 6 months 2020 was 50.3% (6M 2019: 57.0%).

SECURED ORDER BOOK
As  at 30 June  2020, the group's  secured order  book was EUR 236.7 million (30
June  2019: EUR  172.1 million).  In  6 months  2020, group companies signed new
contracts  in the amount of EUR 175.1 million (6M 2019: EUR 86.0 million). In Q2
2020, new  contracts were signed in the amount of EUR 87.8 million (Q2 2019: EUR
53.8 million).

REAL ESTATE DEVELOPMENT
In  6 months 2020, the group sold a  total of 369 apartments (incl. 2 apartments
in  a joint venture); in 6 months 2019, the group sold 100 apartments (incl. 33
apartments  in a joint venture). The group  earned a revenue of EUR 46.0 million
from sale of own developed apartments in 6 months 2020 and EUR 9.2 million in 6
months  2019. In Q2 of 2020 a total  of 236 apartments (all in own developments)
were  sold, compared to 37 apartments (incl.  4 apartment in a joint venture) in
Q2  2019, and earned a  revenue of EUR  27.4 million from sale  of own developed
apartments (Q2 2019: EUR 4.7 million).

CASH POSITION
At  the end of the reporting period, the  group had EUR 23.7 million in cash and
cash  equivalents,  and  equity  of  EUR  138.4 million (50.3% of total assets).
Comparable  figures  as  at  30 June  2019 were  EUR 14.0 million and EUR 118.5
million  (41.2% of total assets), respectively.  As at 30 June 2020, the group's
net debt stood at EUR 34.2 million (30 June 2019: EUR 48.7 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                               2020      2019        2020        2019      2019
                           6 months  6 months  II quarter  II quarter 12 months



 Revenue                    129,733   154,202      73,861      77,357   326,779

 Cost of goods sold       (113,250) (139,532)    (62,852)    (68,893) (291,958)

 Gross profit                16,483    14,670      11,009       8,464    34,821



 Marketing expenses         (1,873)   (1,784)       (925)       (933)   (4,260)

 General and
 administrative expenses    (5,393)   (6,241)     (2,588)     (3,117)  (12,988)

 Other operating income       1,122     1,230         614         529     2,983

 Other operating expenses   (1,252)     (253)     (1,189)       (218)   (1,318)

 Operating profit             9,087     7,622       6,921       4,725    19,238



 Finance income/costs         (310)      (97)       (211)       (180)     1,085

 incl. finance
 income/costs from joint
 venture                         92       203           2        (19)     1,766

 interest expense             (330)     (286)       (158)       (151)     (656)

 foreign exchange gain
 (loss)                         (4)       (4)         (4)         (4)         -

 other financial income
 (expenses)                    (68)      (10)        (51)         (6)      (25)

 Profit before tax            8,777     7,525       6,710       4,545    20,323



 Corporate income tax
 expense                      (786)   (2,888)       (648)     (2,813)   (3,833)



 Net profit for financial
 year                         7,991     4,637       6,062       1,732    16,490

 incl. net profit
 attributable to equity
 holders of the parent        8,175     4,453       6,156       1,675    16,270

 net profit attributable
 to non-controlling
 interest                     (184)       184        (94)          57       220



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

 Currency translation
 differences of foreign
 entities                     (128)        29          60         (3)        13

 Comprehensive income for
 the period                   7,863     4,666       6,122       1,729    16,503

 incl. net profit
 attributable to equity
 holders of the parent        8,044     4,480       6,221       1,672    16,281

 net profit attributable
 to non-controlling
 interest                     (181)       186        (99)          57       222

 Earnings per share for
 profit attributable to
 equity holders of the
 parent (basic and
 diluted, in EUR)              0.46      0.25        0.35        0.09      0.92

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                               30.06.2020 30.06.2019 31.12.2019

 ASSETS

 Current assets

 Cash and cash equivalents                         23,728     13,980     24,749

 Trade and other receivables                       44,790     72,561     50,413

 Prepaid corporate income tax                          91         94        104

 Inventories                                      161,534    162,829    166,226

                                                  230,143    249,464    241,492

 Non-current assets

 Investments in joint venture                       2,590        935      2,498

 Other long-term loans and receivables             14,504     11,418     11,094

 Investment property                               13,988     14,115     14,047

 Property, plant and equipment                     12,996     11,255     11,919

 Intangible assets                                    686        727        777

                                                   44,764     38,450     40,335



 TOTAL ASSETS                                     274,907    287,914    281,827



 LIABILITIES

 Current liabilities

 Borrowings                                        28,011     31,786     20,725

 Payables and prepayments                          63,243     88,748     69,585

 Income tax liability                                 912      2,854        812

 Short-term provisions                              5,915      6,276      7,976

                                                   98,081    129,664     99,098

 Non-current liabilities

 Long-term borrowings                              29,900     30,921     43,001

 Deferred income tax liability                      1,650      1,556      1,682

 Other long-term payables                           2,858      2,473      3,491

                                                   34,408     34,950     48,174



 TOTAL LIABILITIES                                132,489    164,614    147,272



 EQUITY

 Non-controlling interests                          4,036      4,763      4,217

 Equity attributable to equity holders of the
 parent

 Share capital                                      7,929      7,929      7,929

 Statutory reserve capital                            793        793        793

 Currency translation differences                   (841)      (694)      (710)

 Retained earnings                                130,501    110,509    122,326

                                                  138,382    118,537    130,338

 TOTAL EQUITY                                     142,418    123,300    134,555



 TOTAL LIABILITIES AND EQUITY                     274,907    287,914    281,827

Interim  report is 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
AS  Merko Ehitus  Eesti in  Estonia, SIA  Merks in  Latvia, UAB Merko Statyba in
Lithuania  and Peritus Entreprenør AS  in Norway. Besides providing construction
service  as  a  main  contractor,  the  group's  other major area of activity is
apartment development. As at the end of 2019, the group employed 694 people, and
the group's revenue for 2019 was EUR 327 million.