OREANDA-NEWS. The sales revenue of Merko Ehitus in Q3 stood at 68.4 million euros and for the first 9 months at 184.6 million euros and has stayed at the level of the previous year. The net profit of the group for Q3 stood at 3.1 million euros and for the first 9 months at 5.6 million euros, and it includes the additional income tax expenses arising from the payment of dividends. The decrease in the sales revenue from construction services in Estonia has been compensated by the growth of the sales revenue in Latvia and Lithuania, and also by active real estate development, where the sales revenue has grown by 73% in the first 9 months and accounts for a quarter of the group’s sales revenue.

In this challenging year, the group has managed to maintain the sales revenue at a level comparable to the previous year, which has not been easy, given the situation in the Baltic construction market and the relatively weak position of the group’s secured order book at the beginning of the year. As expected, the volume of construction service in Estonia has decreased, because the number of orders by the government has decreased in civil engineering and the company has sought to avoid excess risks in price competitions within the general construction segment. Group-wide, the growth of sales revenue in Latvia and Lithuania and more active real estate development throughout the Baltic states has helped to balance the sales revenue.

Even though the group’s portfolio of new contracts has increased in comparison with the corresponding 9 months of the previous year, its volume cannot be deemed satisfying. As the public sector has recently placed only a few orders and only a few procurements have been large, the price war at these tenders is very fierce. The private customers have nevertheless had the courage to invest and several private customers have had trust in Merko – to date, the majority of new contracts in the portfolio have been entered into with private customers. Within the first 9 months of the year, the group has entered into new contracts to the value of 152.2 million euros. As of 30 September 2015, the group had a secured an order book balance of 193.6 million euros (30 September 2014: 166.4 million euros).

The management estimates that 2016 will definitely be challenging, particularly due to the fact that the launch of the projects co-funded by the EU has been postponed longer than expected and the growth in the Baltic states remains at only a few percentage points. In Latvia, the group has completed the construction of several large-scale projects, but this year has not succeeded in entering into new contracts in the same volume, which may affect the volume of construction work in Latvia next year. The results of the group are also substantially affected by the trends in the Baltic apartment market, where developments have so far been positive for us, although the rapid growth in the last three years has begun to stabilise. We believe that the long-term outlooks of the construction market will remain good in our home markets despite the current challenges as investments in infrastructure and housing construction are still essential, and the yield on commercial property remains at a competitive level for investors.

The sales revenue of Merko Ehitus in Q3 of 2015 stood at 68.4 million euros and for the first 9 months at 184.6 million euros (Q3 in 2014: 68.5 million euros and the first 9 months in 2014: 182.2 million euros). The Q3 gross margin of the group was 9.3% and the profit before taxes was 3.5 million euros; the performance for the first 9 months was 8.3% and 7.0 million euros, respectively. The net profit of the company in Q3 stood at 3.1 million euros and for the first 9 months at 5.6 million euros. The net profit for the first 9 months was influenced by additional income tax expenses in Estonia in the amount of 0.9 million euros, which resulted from the payment of dividends to the shareholders in Q2.

The real estate development projects launched by the group in this year have progressed as planned and although the apartment markets in Tallinn and Vilnius have begun to stabilise, potential customers are still interested in purchasing apartments developed by Merko. In order to maintain and strengthen our longstanding market position, the group has also acquired new land plots, the largest of these is the approximately 1.3-hectare Rinktines development area in the city centre of Vilnius, where more than 300 new apartments can be built. It is relevant to note that the group has purchased the new land plots for the company’s own resources without drawing on external funding this year. Over the first 9 months, the group has invested 30.1 million euros into the construction of apartments and 11.7 million euros into the acquisition of different land plots. During the first 9 months, the share of the sales revenue from real estate development has increased to about 25% of the total revenues of the group (the first 9 months in 2014: 14.5%).

In the first 9 months, the group sold 248 apartments at the total cost of 42.6 million euros, and in Q3 it sold 80 apartments at the total cost of 10.9 million euros (figures exclusive of VAT), (the first 9 months in 2014: 235 apartments, sales revenue 23.5 million euros). The sales revenue from real estate development has increases by 72.7% over the first 9 months. This year, the company has launched the construction of a total of 386 apartments in the Baltic states (the first 9 months in 2014: 310 apartments), including apartment buildings in the city centre of Tallinn at 52 Tartu mnt (I stage), at 33 Sõpruse pst in Kristiine district, at 1a Jahu Street in Kalamaja district, in Paepargi Perepark, Kaupmehe Street in Tartu rural municipality and at 73 Krokuvos Street in the city centre of Vilnius. 

OVERVIEW OF THE 9 MONTHS AND III QUARTER RESULTS

PROFITABILITY

Profit before tax in 9M 2015 was EUR 7.0 million (9M 2014: EUR 8.0 million), which is equivalent to a profit before tax margin of 3.8% (9M 2014: 4.4%). Gross margin in 9M was 8.3% (9M 2014: 8.9%), which has decreased by 7.3% compared to the same period last year. Q3 2015 profit before tax was EUR 3.5 million (Q3 2014: EUR 3.3 million). Net margin in 9M 2015 decreased to 3.0% (9M 2014: 4.2%) and net profit was EUR 5.6 million (9M 2014: EUR 7.6 million), having decreased by 27.1% compared to the same period last year. Q3 net profit was EUR 3.1 million (Q3 2014: EUR 3.3 million).

REVENUE

Revenue in 9M 2015 was EUR 184.6 million (9M 2014: EUR 182.2 million), which has increased by 1.3% compared to the same period last year. Q3 revenue was EUR 68.4 million (Q3 2014: EUR 68.5 million). The share of construction service revenue earned outside of Estonia has increased in 9M 2015 to 31.9% (9M 2014: 25.7%). The number of apartments sold in 9 months of 2015 (248 pcs, revenues of EUR 42.6 million) has increased by 5.5% and the revenue from apartment sales has increased by 81.5%(9 months of 2014: 235 apartments, revenues of EUR 23.5 million).

CASH POSITION

At the end of the reporting period, the group had EUR 19.9 million in cash and cash equivalents and equity EUR 121.3 million (53.4% of total assets). Comparable figures as at 30 September 2014 were accordingly EUR 40.3 million and EUR 122.2 million (47.5% of total assets). As at 30 September 2015 the group had net debt of positive EUR 10.0 million (30 September 2014: positive EUR 0.1 million).

SECURED ORDER BOOK

In Q3 2015, group companies signed new contracts in the amount of EUR 30.9 million (Q3 2014: EUR 37.2 million). 9M 2015 new contracts signed in amount of EUR 152.2 million (9M 2014: EUR 107.5 million). As at 30 September 2015, the group’s secured order book stood at EUR 193.6 million (30 September 2014: EUR 166.4 million).

    9M ‘15 9M ‘14 Variance Q3 ‘15 Q3 ‘14 Variance 12M ‘14
Revenue million EUR 184.6 182.2 +1.3% 68.4 68.5 -0.3% 252.3
Gross profit million EUR 15.3 16.3 -6.1% 6.3 6.2 +2.4% 24.7
Gross profit margin % 8.3 8.9 -7.3% 9.3 9.0 +2.7% 9.8
EBITDA million EUR 9.9 10.2 -2.5% 4.4 4.1 +7.8% 16.4
EBITDA margin % 5.4 5.6 -3.7% 6.4 5.9 +8.1% 6.5
Profit before tax million EUR 7.0 8.0 -12.0% 3.5 3.3 +4.9% 13.3
PBT margin % 3.8 4.4 -13.1% 5.1 4.8 +5.1% 5.3
Net profit (parent) million EUR 5.6 7.6 -27.1% 3.1 3.3 -3.8% 12.4
Net profit margin % 3.0 4.2 -28.0% 4.6 4.8 -3.5% 4.9
EPS EUR 0.31 0.43 -27.1% 0.18 0.18 -3.8% 0.70

 

    30.09.2015 30.09.2014 Variance 31.12.2014
ROE (on yearly basis) % 8.3 8.3 +0.2% 10.1
Equity ratio % 53.4 47.5 +12.5% 51.0
Secured order book million EUR 193.6 166.4 +16.3% 179.1
Total assets million EUR 227.0 257.3 -11.8% 249.3
Number of employees people 798 804 -0.7% 765

 

AS Merko Ehitus 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 and the real estate development business unit along with real estate holding companies. As at the end of the year 2014, the group employed 765 people and the company’s revenue for 2014 was EUR 252.3 million.