Tallinn, Estonia, 2012-08-08 15:30 CEST (GLOBE NEWSWIRE) --
MANAGEMENT REPORT
General information and structure of the group
AS Merko Ehitus operates as a holding company the group of undertakings of which includes construction and real estate development companies that provide integral solutions in Estonia, Latvia and Lithuania. The largest construction companies of the group are AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba (100%) and companies belonging to the AS Merko Ehitus Eesti group Tallinna Teede AS (100%), AS Merko Infra (100%), AS Gustaf (85%), OÜ Gustaf Tallinn (80%) and AS Merko Tartu (66%).
In the 2nd quarter of the year 2012 it was decided to make changes in the management of SIA Merks, the Latvian subsidiary of AS Merko Ehitus, according to which the former chairman of the management board Ivars Geidāns will become a member of the supervisory board of SIA Merks and the former Director of Finance Oskars Ozoliņš will become the chairman of the management board of SIA Merks as of September 2012. The management board of SIA Merks will continue to consist of two members: Oskars Ozoliņš as the chairman of the management board and Construction Director Jānis Šperbergs as a member of the management board. The supervisory board of the company will continue to consist of Andres Trink as the chairman of the supervisory board and Tõnu Toomik, Jaan Mäe and Ivars Geidāns as members of the supervisory board.
After the balance sheet date, on 6 July 2012, AS Merko Ehitus transferred its 25% of shareholding in a producer of reinforced concrete structures AS TMB to the management of the company.
Operating results
In 2012 6 months, the revenue of the group was EUR 106.9 million. Estonia contributed 88.2%, Latvia 7.9% and Lithuania 3.9% to the group’s revenue. As compared to 2011 6 months, the group’s revenue increased by +42.4%, including +59.3% in Estonia, +72.0% in Lithuania and -37.1% in Latvia.
Group’s revenue for 2nd quarter of the year 2012 was EUR 59.1 million, which constitutes an annual increase of EUR 10.2 million (+20.8%).
The consolidated revenue of the group’s largest entities (in thousand euros):
| 6 months 2012 | 6 months 2011** | 6 months 2010** | |
| Estonian entities | |||
| AS Merko Ehitus* | 8 521 | 112 | 533 |
| AS Merko Ehitus Eesti group (100% ownership) | 86 511 | 59 283 | 46 213 |
| AS Merko Ehitus Eesti (100% ownership) | 41 668 | 41 561 | 34 104 |
| Tallinna Teede AS (100% ownership) | 11 097 | 6 895 | 8 328 |
| AS Merko Infra (100% ownership) | 25 576 | 4 034 | 5 |
| Other subsidiaries | 8 170 | 6 793 | 3 776 |
| Latvian entity | |||
| SIA Merks (100% ownership) | 8 493 | 13 508 | 22 630 |
| Lithuanian entity | |||
| UAB Merko Statyba (100% ownership) | 3 330 | 2 144 | 1 478 |
| Total Merko Ehitus group | 106 855 | 75 047 | 70 854 |
* includes the revenues of the smaller subsidiaries of AS Merko Ehitus
** approximate comparative indicators of the new structure of AS Merko Ehitus
As of 30 June 2012, the group’s portfolio on unfinished construction contracts totalled EUR 233 million. The contract portfolio does not include residential projects developed by the group and the works related to construction of investment properties.
In 2012 6 months, 67 apartments were sold at the total cost of EUR 8.0 million (VAT not included), which does not include transactions covered with preliminary contracts under the law of obligations. As of 30.06.2012 inventories included 103 unsold completed apartments (78 apartments in Tallinn, 23 in Tartu and 2 in Riga) with the total cost of EUR 9.5 million and 580 apartment in the stage of construction, the cost of which, as on the balance sheet date was EUR 22.9 million. Due to the continuing low transaction activity on the housing market, the construction of 311 apartments (in the amount of EUR 8.5 million) has currently been halted. The construction of 269 apartments is underway, including in Tallinn three 13-apartment buildings on Pallasti street (time of completion: summer of 2012), 20-apartment buildings on Räägu street (time of completion: summer of 2013) and 27-apartment building on Eha street (time of completion: summer of 2013). A 115-apartment building in Riga, on Skanstese street (time of completion: autumn of 2012) and 68-apartment building in Vilnius, on Mokslininkų street (time of completion: at the end of 2012) is also underway. In order to minimise risks, new projects are generally small-scaled or directed at a specific target group and regionally dispersed. The cyclical nature of the development activities was affected in 2nd quarter by the sale of apartments in the amount of EUR 6.0, accounting for 75.2% of the 6 months 2012 sales from apartments.
With the first six months of the year 2012, the group earned a gross profit of EUR 5.0 million (within 6 months of 2011 EUR -2.4 million) from development and construction activities. The impact of seasonality of construction activities on the results of the first half year as compared to the previous years has been insignificant. As compared to the 6 months of 2011 the marketing and general administration costs of the group decreased by 1.9% and the share of these costs in the revenue formed 4.6% (6.7% in the 6 months of 2011).
During the first half of the year 2012, the profit before taxes of the group was EUR 0.8 million and the net profit EUR 0.6 million as compared to the EUR 7.5 million of loss before taxes and EUR 7.6 million net loss during the first half of the year 2011.
Group’s net profit for 2nd quarter of 2012 was EUR 0.4 million, compared to EUR 3.5 million loss in 2nd quarter of 2011.
In 2012 6 months, the change in short-term investments, and cash and cash equivalents of Merko Ehitus group was EUR -6.7 million, improving by EUR 3.0 million in 2nd quarter and as of 30 June 2012, the cash and cash equivalents in the bank accounts and term deposits of the group were in the amount of EUR 11.7 million. The cash flows from operating activities totalled EUR -10.0 million, cash flows from investing activities totalled EUR +1.1 million and cash flows from financing activities totalled EUR +2.2 million. The cash flows from operating activities in the reporting period were mostly affected by the change in receivables and prepayments of EUR -13.5 million and change in liabilities and prepayments related to operating activities of EUR +5.2 million. Of the cash flows from investing activities, the balance of issued and repaid loans totalled EUR +2.3 million and purchase of investment property EUR -1.3 million. Of the cash flows from financing activities, the balance of loans received and repaid totalled EUR +2.7 million and finance lease payments totalled EUR -0.5 million.
The financial ratios and methodology for calculating the ratios describing the group’s main operations
| 6 months 2012 | 6 months 2011 | 6 months 2010 | |
| Net profit margin | 0,5 % | -10,1 % | 4,7 % |
| EBT margin | 0,8 % | -10,0 % | 5,5 % |
| Operating profit margin | 0,4 % | -9,6 % | 5,8 % |
| Gross margin | 4,7 % | -3,2 % | 11,9 % |
| EBITDA margin | 1,5 % | -8,3 % | 7,5 % |
| Return on equity per annum | 1,1 % | -12,6 % | 5,0 % |
| Return on assets per annum | 0,5 % | -7,4 % | 3,0 % |
| Equity ratio | 48,5 % | 53,7 % | 60,1 % |
| Current ratio | 1,8 | 2,0 | 2,3 |
| Quick ratio | 0,9 | 0,9 | 1,0 |
| General expense ratio | 4,6 % | 6,7 % | 7,3 % |
| Gross remuneration ratio | 8,1 % | 10,7 % | 10,9 % |
| Debt to assets | 17,6 % | 16,6 % | 13,9 % |
| Accounts receivable turnover (in days) | 76 | 85 | 56 |
| Accounts payable turnover (in days) | 62 | 66 | 55 |
| Revenue per employee (in thousand euros) | 122 | 81 | 92 |
| Average number of full-time employees at the group | 874 | 923 | 766 |
Net profit margin: Net profit* / Revenue
EBT margin: Profit before taxes / Revenue
Operating profit margin: Operating profit / Revenue
Gross margin: Gross profit / Revenue
EBITDA margin: (Operating profit + Depreciation and impairment charge) / Revenue
Return on equity: Net profit x 2* / Average equity during the period*
Return on assets: Net profit x 2* / Average assets during the period
Equity ratio: Owners equity* / Total assets
Current ratio: Current assets / Current liabilities
Quick ratio: (Current assets – Inventories) / Current liabilities
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue
Debt to assets: Interest-bearing liabilities / Total assets
Accounts receivable turnover: Trade receivables x 365 / Revenue x 2
Accounts payable turnover: Payables to supplies x 365 / Cost of goods sold x 2
Revenue per employee: Revenue / Average number of full-time employees
* attributable to equity holders of the parent
Employees and remuneration
The number of group’s employees decreased by 75 (-7.4%) employees in a year and as of 30.06.2012, the group had 942 employees. Within the framework of the efficiency program implemented at the beginning of 2012 changes were carried out in the management of UAB Merko Statyba and SIA Merks, furthermore, the number of administrative employees was decreased in the Lithuanian and Latvian subsidiaries. The gross remuneration paid to employees in 2012 6 months amounted to EUR 8.7 million an increase of 7.8% compared to previous year. Salaries accounted for 83.4% of the gross remuneration, and performance-related pay accounted for 16.6%.
Construction market
The company’s assessment of the principal trends affecting the construction market in the upcoming quarters has not significantly changed compared to the previous quarter.
In the year 2012, most new construction contracts still originate from the public sector and they are financed from the sources of the Structural Funds of the Europen Union. Considering the contracting entities’ continuously strict demands for guarantees and long payment periods, the strain on the current assets of a construction company continues to be significant and in order to remain competitive a company must demonstrate significant skills in managing its cash flows. Some construction companies may experience difficulties in the acquisition of guarantees due to lack of securities. Construction companies with a stronger equity base and lower debt burden have better chances to improve their market positions in the segment of larger building orders.
Competition will continue to be severe in major public procurements. It is still reasonable to predict that in public procurements the price risks and costs arising from building design flaws will be left for the contractors to bear, thus having a potential negative impact on the business results of construction companies upon the realisation of risks. Considering the low profitability of the construction sector and the negative business results of previous years, especially in the area of road construction, companies can no longer afford to take on new lossmaking construction sites. Risk assessment and management in the process of making building offers has become an increasingly significant area that construction companies regard as progressively more important.
As a positive trend, the activity of private contracting entities is somewhat increasing in the preparation of commercial real estate development projects, supported by relatively strong domestic consumption indicators. The Lithuanian market indicates an increasing interest in the commencement of public-private partnership projects.
The activity of the apartment market is still low in all three Baltic markets compared to the pre-crisis years, although it has shown a steady improvement. Some of the previously frozen apartment development projects have once again been revitalised and this has increased the supply of new apartments. Buyers of apartments are increasingly aware of construction quality and they base their purchasing decisions on the existence of relevant infrastructure (parking, services and logistics) in the area. The availability of bank loans in the financing of apartment transactions may be described as relatively good in all three Baltic countries and this situation is continuously stimulated by the low level of Euribor interest rates.
Share and shareholders
Share information
ISIN EE3100098328
Short name of the security MRK1T
Stock Exchange List Baltic Main List
Nominal value no par value
Total no of securities issued 17 700 000
No of listed securities 17 700 000
Listing date 11.08.2008
The shares of Merko Ehitus are listed in the main list of NASDAQ OMX Tallinn Stock Exchange. In 2012 6 months 1085 transactions with the shares of Merko Ehitus were performed in the course of which 0.6 million shares were traded and the total monetary value of transactions was EUR 3.4 million. The lowest share price was EUR 5.37 and the highest price was EUR 6.80 per share. The closing share price as of 30.06.2012 was EUR 6.24. AS Merko Ehitus market value as of 30.06.2012 was EUR 110 million.
| 30.06.2012 | 30.06.2011 | 30.06.2010 | |
| No. of shares, thousand pcs | 17 700 | 17 700 | 17 700 |
| Earnings per share (EPS), in euros | 0,03 | -0,43 | 0,19 |
| Equity per share, in euros | 6,21 | 6,52 | 7,17 |
| P/B (price to book ratio) | 1,00 | 1,20 | 1,03 |
Main shareholders of AS Merko Ehitus as of 30.06.2012
| Number of shares | Percentage of total | |
| AS Riverito | 12 742 686 | 71,99% |
| ING Luxembourg S.A., clients | 974 126 | 5,50% |
| Skandinaviska Enskilda Banken Ab, clients | 738 864 | 4,17% |
| Firebird Republics Fund Ltd | 269 654 | 1,52% |
| Ergo Pensionifond 2P2 | 171 679 | 0,97% |
| State Street Bank and Trust Omnibus Account a Fund No OM01 | 153 018 | 0,86% |
| Gamma Holding OÜ | 151 265 | 0,85% |
| SEB Elu- ja Pensionikindlustus AS | 125 520 | 0,71% |
| Skandinaviska Enskilda Banken Finnish Clients | 125 191 | 0,71% |
| AS Midas Invest | 112 555 | 0,64% |
| Andersson Investeeringud OÜ | 111 841 | 0,63% |
| Clearstream Banking Luxembourg S.A. clients | 102 937 | 0,58% |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited, in thousand euros
|
2012 6 months |
2011 6 months |
|
| Revenue | 106 855 | 75 047 |
| Cost of goods sold | (101 817) | (77 480) |
| Gross profit (loss) | 5 038 | (2 433) |
| Marketing expenses | (902) | (1 162) |
| Administrative and general expenses | (4 056) | (3 893) |
| Other operating income | 458 | 320 |
| Other operating expenses | (120) | (49) |
| Operating profit (loss) | 418 | (7 217) |
| Finance income/costs | 397 | (321) |
| incl. finance income/costs from investments in associates and joint ventures | 182 | 25 |
| finance income/costs from other long-term investments | 675 | - |
| interest expense | (643) | (414) |
| foreign exchange gain | 56 | 27 |
| other financial income (expenses) | 127 | 41 |
| Profit (loss) before tax | 815 | (7 538) |
| Corporate income tax expense | (305) | - |
| Net profit (loss) for current period | 510 | (7 538) |
| incl. net profit (loss) attributable to equity holders of the parent | 579 | (7 592) |
| net profit (loss) attributable to non-controlling interest | (69) | 54 |
| Other comprehensive income (loss) | ||
| Currency translation differences of foreign entities | 88 | 26 |
| Comprehensive income (loss) for the period | 598 | (7 512) |
| incl. net profit (loss) attributable to equity holders of the parent | 667 | (7 566) |
| net profit (loss) attributable to non-controlling interest | (69) | 54 |
| Earnings per share for profit (loss) attributable to equity holders of the parent (basic and diluted, in euros) | 0,03 | (0,43) |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited, in thousand euros
|
2012 II quarter |
2011 II quarter |
|
| Revenue | 59 064 | 48 874 |
| Cost of goods sold | (56 529) | (49 872) |
| Gross profit (loss) | 2 535 | (998) |
| Marketing expenses | (474) | (600) |
| Administrative and general expenses | (2 008) | (1 921) |
| Other operating income | 221 | 136 |
| Other operating expenses | (97) | (12) |
| Operating profit (loss) | 177 | (3 395) |
| Finance income/costs | 222 | (45) |
| incl. finance income/costs from investments in associates and joint ventures | 77 | 101 |
| finance income/costs from other long-term investments | 340 | - |
| interest expense | (330) | (204) |
| foreign exchange gain | 119 | 36 |
| other financial income (expenses) | 16 | 22 |
| Profit (loss) before tax | 399 | (3 440) |
| Corporate income tax expense | (36) | - |
| Net profit (loss) for current period | 363 | (3 440) |
| incl. net profit (loss) attributable to equity holders of the parent | 424 | (3 485) |
| net profit (loss) attributable to non-controlling interest | (61) | 45 |
| Other comprehensive income (loss) | ||
| Currency translation differences of foreign entities | 111 | 8 |
| Comprehensive income (loss) for the period | 474 | (3 432) |
| incl. net profit (loss) attributable to equity holders of the parent | 535 | (3 477) |
| net profit (loss) attributable to non-controlling interest | (61) | 45 |
| Earnings per share for profit (loss) attributable to equity holders of the parent (basic and diluted, in euros) | 0,02 | (0,20) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited, in thousand euros
| 30.06.2012 | 31.12.2011 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 11 733 | 18 510 |
| Short-term deposits | - | 140 |
| Trade and other receivables | 76 405 | 64 449 |
| Prepaid corporate income tax | 476 | 686 |
| Inventories | 89 463 | 87 834 |
| Total current assets | 178 077 | 171 619 |
| Non-current assets | ||
| Long-term financial assets | 26 551 | 27 051 |
| Deferred income tax assets | 1 641 | 1 870 |
| Investment property | 3 534 | 2 313 |
| Property, plant and equipment | 15 648 | 16 057 |
| Intangible assets | 1 391 | 1 427 |
| Total non-current assets | 48 765 | 48 718 |
| TOTAL ASSETS | 226 842 | 220 337 |
| LIABILITIES AND EQUITY | ||
| Current liabilities | ||
| Borrowings | 24 238 | 16 574 |
| Payables and prepayments | 68 064 | 61 635 |
| Short-term provisions | 6 794 | 6 781 |
| Total current liabilities | 99 096 | 84 990 |
| Non-current liabilities | ||
| Long-term borrowings | 15 606 | 23 764 |
| Long-term trade payables | 773 | 790 |
| Deferred corporate income tax liability | 131 | 131 |
| Long-term provisions | 42 | 66 |
| Total non-current liabilities | 16 552 | 24 751 |
| Total liabilities | 115 648 | 109 741 |
| Equity | ||
| Non-controlling interest | 1 287 | 1 356 |
| Equity attributable to equity holders of the parent | ||
| Share capital | 12 000 | 12 000 |
| Statutory reserve capital | 1 200 | 1 131 |
| Currency translation differences | (482) | (570) |
| Retained earnings | 97 189 | 96 679 |
| Total equity attributable to equity holders of parent | 109 907 | 109 240 |
| Total equity | 111 194 | 110 596 |
| TOTAL LIABILITIES AND EQUITY | 226 842 | 220 337 |
Andres Trink
Chairman of Management Board
+372 680 5400
andres.trink@merko.ee
