Tallinn, Estonia, 2014-02-13 15:30 CET (GLOBE NEWSWIRE) --
MANAGEMENT REPORT
Overview of the 12 months and Q4 results
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| 12M ’13 | 12M ’12 | Variance | Q4 ’13 | Q4 ’12 | Variance | ||
| Revenue | million EUR | 262.7 | 249.1 | +5.5% | 64.9 | 71.4 | -9.1% |
| Gross profit | million EUR | 22.7 | 17.9 | +26.9% | 5.4 | 7.3 | -26.2% |
| Gross profit margin | % | 8.6 | 7.2 | +20.3% | 8.3 | 10.2 | -18.8% |
| Net profit (parent) | million EUR | 10.4 | 7.6 | +36.3% | 2.5 | 4.4 | -44.6% |
| Net profit margin | % | 4.0 | 3.1 | +29.3% | 3.8 | 6.2 | -39.0% |
| EPS | EUR | 0.59 | 0.43 | +36.4% | 0.14 | 0.25 | -44.5% |
| 31.12.13 | 31.12.12 | Variance | |||||
| ROE (on yearly basis) | % | 8.8 | 6.8 | +28.7% | |||
| Equity ratio | % | 50.9 | 52.0 | -2.0% | |||
| Secured order book | million EUR | 213.7 | 189.9 | +12.5% | |||
| Total assets | million EUR | 239.2 | 225.0 | +6.3% | |||
| Number of employees | people | 860 | 915 | -6.0% |
Background information and major changes introduced in the corporate structure
AS Merko Ehitus is a holding company incorporating construction and real estate development companies offering integrated construction solutions in Estonia, Latvia and Lithuania. Major construction companies incorporated under the holding company include AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba (100%), as well as the AS Merko Ehitus Eesti group companies Tallinna Teede AS (100%) and AS Merko Infra (100%).
The main activity of the holding company is development and implementation of the strategies of Merko Ehitus group’s separate business areas primarily through long-term planning of resources. The Management Board of the holding company AS Merko Ehitus has two members: Andres Trink and Tõnu Toomik.
Annual General Meeting and changes in the management structure of AS Merko Ehitus
The general meeting of the shareholders was held on 5 June 2013. The general meeting resolved to approve the annual report and the profit allocation proposal for 2012. The dividends in the sum of EUR 5.3 million (EUR 0.3 per share) were paid out to shareholders on 3 July 2013.
In addition, the annual general meeting resolved to recall Member of the Supervisory Board Tõnu Toomik in connection with the Supervisory Board's resolution to appoint Tõnu Toomik as Member of the Management Board of AS Merko Ehitus. The Supervisory Board of AS Merko Ehitus resolved to recall Member of the Management Board Viktor Mõisja from 5 June 2013, with Mr Mõisja continuing service in the engineering division of the company’s subsidiary AS Merko Ehitus Eesti, and to appoint the former member of the Supervisory Board Tõnu Toomik as a new member of the Management Board.
Changes in the legal structure of the group
In the first quarter of 2013, OÜ Paepargi 57 was established as a 100% subsidiary of AS Merko Ehitus group. The share capital of the private limited company is EUR 2,500. The company was founded for the purpose of ensuring company-based accounting for development projects.
In the second quarter of 2013, OÜ Baltic Electricity Engineering, a 100% subsidiary of AS Merko Ehitus, was renamed OÜ Merko Investments. The private limited company has a share capital of EUR 10,000.
On 22 May 2013, AS Merko Ehitus concluded an intra-group transaction, disposing a 100% stake in SIA Merks, a subsidiary engaged in construction, to OÜ Merko Investments, which is fully owned by AS Merko Ehitus. The transaction served the technical purpose of reorganising the legal structure of the group.
By 4 July 2013, the liquidation of Merko Ukraine LLC, initiated in the autumn of 2012, was completed, with the company deleted from the registers.
On 10 June 2013, the shareholders of OÜ Unigate, a 50%-owned joint venture of AS Merko Ehitus, resolved to increase the nominal value of the share of the joint venture by EUR 887.07 to EUR 6,000 with the aim of bringing the company’s share capital into line with the requirements arising from the Commercial Code. A monetary contribution of EUR 350,000 was made by both shareholders, with the nominal value of the share capital amounting to EUR 444 and the share premium to EUR 349,556.
On 17 July 2013, UAB Merko Bustas, a 100% subsidiary of AS Merko Ehitus, established a 100% subsidiary UAB Kražiu Projektas in Lithuania, with a share capital of LTL 10,000 (EUR 2,896). The subsidiary was established with the aim of acquiring registered immovables for development purposes in Lithuania.
On 16 August 2013, OÜ Paepargi, a 100% subsidiary of AS Merko Ehitus 100% subsidiary OÜ Constancia, was sold at a sales price of EUR 2,500 to Capital Mill OÜ.
AS Merko infra branch in Latvia was registered on 10 September 2013. The branch was established with the aim of participating in large-scale infrastructure facilities construction tenders, including electrical engineering tenders, in order to supplement the competence and references of SIA Merks if necessary.
On 3 October 2013, AS Merko Ehitus Eesti, a 100% subsidiary of AS Merko Ehitus, established a 51% subsidiary OÜ Heamaja. The company was established with the aim of participating in the Suur-Ameerika 1, Tallinn building construction works concession contract tender organized by AS Riigi Kinnisvara.
AS Merko Ehitus has decided to make changes in the structure of the group companies in 2014 for the purpose of more effective management and saving on administrative costs. As part of the activity plan, holdings in non-significant subsidiaries will be reviewed and possible mergers or disposals of companies will be decided. The activity plan will not affect the significant subsidiaries, nor will they have a significant effect on the group’s financial results. The first changes are in progress and the activity plan will continue to be implemented during 2014.
On 20 December 2013 AS Merko Ehitus initiated a process to merge real estate development companies in which it has a 100% holding – OÜ Woody, OÜ Metsailu and OÜ Käibevara – specifically for the purpose of reducing the administrative costs of managing the companies. The acquiring company will be OÜ Metsailu. The companies being acquired will be merged into OÜ Metsailu and as a result of the merger the companies being acquired will wind up without liquidation proceedings and OÜ Metsailu will become the legal successor of the companies being acquired. As a result of the merger, AS Merko Ehitus will remain the sole shareholder in OÜ Metsailu, the acquiring company. The balance sheet date of the merger – i.e., the date as of which all of the transactions of the companies being acquired are considered executed from the accounts of the acquiring company – is 1 January 2014. The final merger entry will be made in the Commercial Register during the first half of 2014.
AS Merko Ehitus Eesti, a subsidiary of AS Merko Ehitus group, signed an agreement on 15 January 2014 for the transfer of its entire 80% holding in the subsidiary Gustaf Tallinn OÜ to the previous co-shareholder and member of the Management Board Tiit Pomerants. The share capital of Gustaf Tallinn OÜ is EUR 23,967 of which the holding of AS Merko Ehitus Eesti with a nominal value of EUR 19,174 comprises 80% and the holding of Tiit Pomerants with a nominal value of EUR 4,793 made up 20%. The holding was transferred with the purpose of re-arranging the structure of the group companies and reducing holdings in non-significant subsidiaries. The principal area of activity of the construction company Gustaf Tallinn OÜ is construction and finishing work and the company offers prime contractor service for smaller renovations and repair jobs, which are not one of the strategically significant principal areas of activity of the AS Merko Ehitus group.
On 15 January 2014, the buyer paid the seller a sum of EUR 20,000. The final sales price will be calculated in accordance with the audited 2013 annual report of Gustav Tallinn OÜ on the basis of the share of equity held by AS Merko Ehitus Eesti, adjusted by dividend payment of EUR 960,000 paid to the seller before transfer of the share as well as by the income tax expense of EUR 255,190 related to the dividend. AS Merko Ehitus Group considers the additional influence of adjustments of sales price to be immaterial. The buyer is obliged to pay the adjusted part of the sales price to the seller’s bank account by 1 May 2014.
As a result of the share disposal and future non-consolidation of Gustaf Tallinn OÜ line by line, the transaction will have an estimated EUR 0 influence on the consolidated profit of AS Merko Ehitus group, a decreasing influence on assets and liabilities of EUR 966,775 and EUR 945,274 respectively.
On 22 January 2014, UAB Merko Bustas, a 100% subsidiary of AS Merko Ehitus, established a 100% subsidiary UAB VPSP 1 in Lithuania, with a share capital of LTL 10,000 (EUR 2,896). The subsidiary was established with the aim to participate in the Lithuanian state organized puplic-private partnership (PPP) procurement tenders.
OPERATING RESULTS
Business activities
Key financial indicators (in million of euros):
| 12M 2013 | 12M 2012 | Q4 2013 | Q4 2012 | |
| Revenue | ||||
| Estonia | 211.9 | 202.1 | 48.6 | 49.3 |
| Latvia | 44.4 | 38.3 | 14.9 | 19.4 |
| Lithuania | 6.4 | 8.7 | 1.4 | 2.7 |
| Revenue total | 262.7 | 249.1 | 64.9 | 71.4 |
| Gross profit | 22.7 | 17.9 | 5.4 | 7.3 |
| Operating profit (EBIT) | 12.3 | 8.8 | 2.7 | 4.7 |
| attributable to equity holders of the parent | 10.4 | 7.6 | 2.5 | 4.4 |
| attributable to non-controlling interest | 0.0 | 0.0 | 0.0 | 0.1 |
| Net profit | 10.4 | 7.6 | 2.5 | 4.5 |
| Earnings per share (EPS), in euros | 0.59 | 0.43 | 0.14 | 0.25 |
| Cash and cash equivalents closing position | 46.6 | 35.3 | 46.6 | 35.3 |
Revenue and gross profit
Merko Ehitus group generated a total of EUR 262.7 million in revenue in 12 months of 2013 (12 months of 2012: EUR 249.1 million). 80.7% of the revenue was generated in Estonia, 16.9% in Latvia and 2.4% in Lithuania (12 months of 2012: 81.1% in Estonia, 15.4% in Latvia and 3.5% in Lithuania). Compared to the first 12 months of 2012 the group revenue increased by 5.5%. During the reporting period, orders from the private sector have increased as an ongoing trend, but the majority of revenue is still related to projects financed with support from the EU structural funds – state orders. Revenue in Q4 2013 was EUR 64.9 million, which has decreased 9.1% compared to the previous year (Q4 2012: EUR 71.4 million). The increase in revenue, compared to last year, can be mainly attributed to projects pursued in the general construction, real estate development and road construction segment. There is a negative impact by a significant reduction in sales revenue from engineering construction segment, which is primarily due to the end of major projects financed from EU structural funds and the reduced project volumes.
In 12 months of 2013 the group’s gross profit from development and construction activities totalled EUR 22.7 million (12 months of 2012: EUR 17.9 million). The gross profit in Q4 2013 was EUR 5.4 million (Q4 2012: EUR 7.3 million). While the 12 month gross profit margin (8.6%) has improved, compared to the same period last year (12 months of 2012: 7.2%, then the fourth quarter gross profit margin (8.3%) has decreased, compared to the same period last year (Q4 2012: 10.2%). Key contributors to the rise in the profit margin are the road construction segment and the real estate development segment. At the same time, the margin has fallen at the expense of the profitability of the general construction segment. The scarcity of projects and the ever-tightening competition in the construction sector pose a huge challenge in the maintaining of the current gross profit margin for new procurements in all segments, but especially in general construction, where competition and the number of companies participating at the procurements is the highest.
Net profit
In 12 months of 2013, the group’s profit before tax totalled EUR 11.1 million and net profit attributable to equity holders of the parent was EUR 10.4 million as compared to the pre-tax profit or EUR 7.9 million and net profit attributable to equity holders of the parent of EUR 7.6 million in 12 months of 2012. Group’s net profit margin was 4.0% (12 months of 2012: 3.1%).
In Q4 of 2013, the group’s profit before tax totalled EUR 2.4 million and net profit attributable to equity holders of the parent was EUR 2.5 million as compared to the pre-tax profit or EUR 4.4 million and net profit attributable to equity holders of the parent of EUR 4.4 million in Q4 of 2012.
Business segments
The group business activities are managed according to the following areas:
- General construction – includes the construction of buildings for different purposes including offices, hotels, museums, culture and business centres, social, production and service buildings as well as buildings of various industrial structures.
- Engineering construction – The engineering construction segment of Merko builds port structures, landfilling areas at landfills, various road structures (tunnels, overpasses, bridges), water and sewerage pipelines, water treatment plants, up to 330 kV electrical construction projects and other complex engineering and environmental projects.
- Road construction – In this segment, Merko carries out road construction and builds the associated infrastructure. In addition, we carry out road maintenance works and maintenance repair.
- Real estate development – including development of apartment projects, long-term financial investments and commercial real estate projects;
- Other – covers sales of materials from quarries, equipment rental, consultations, construction supervision and other transactions not related to the main area of activity.
General construction
| General construction million EUR | 12M 2013 | 12M 2012 | Variance | Q4 2013 | Q4 2012 | Variance |
| Revenue | 86.6 | 61.7 | +40.3% | 26.7 | 18.6 | +43.7% |
| % of revenue | 32.9% | 24.8% | +33.1% | 41.1% | 26.0% | +58.2% |
| Gross profit (loss) | (0.5) | 5.0 | -110.0% | (2.0) | 1.8 | -211.9% |
| Gross profit margin | -0.6% | 8.1% | -107.1% | -7.6% | 9.8% | -177.9% |
In the first 12 months of 2013, the revenue of the general construction segment increased by 40.3% from the same period last year. The segments overall gross loss for the year is EUR 0.5 million, which represents a decrease by 110.0% compared to the previous year. The segment continues to be mainly influenced by the pressure on the margins exerted by tightening competition. The loss recognized in the fourth quarter is mainly due to risks – unforeseen in earlier phases – materialising with regard to one reconstruction project in progress. On the basis of the realisation of the said risks, the total loss from the project has been recognised by the group in the current period. Measures are being implemented by the Group subsidiaries to prevent similar project management risks and losses in the future.
While in 2012 the market was primarily dominated by public sector projects, the 2013 has seen an increase also in private sector orders and at the end of the year the private sector projects make up more than half of general construction segment projects in work.
Our major projects in the fourth quarter included reconstruction work at the North-Estonia Medical Centre in Mustamäe, the launch of construction of Polipaks NT manufacturing and logistics centre in Marupe and the multifunctional concert hall in Liepaja and the continuation of Tondiraba ice arena construction.
Engineering or infrastructure construction
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Civil engineering million EUR |
12M 2013 | 12M 2012 | Variance | Q4 2013 | Q4 2012 | Variance |
| Revenue | 94.5 | 113.3 | -16.6% | 20.4 | 27.0 | -24.4% |
| % of revenue | 36.0% | 45.5% | -20.9% | 31.5% | 37.8% | -16.8% |
| Gross profit | 12.5 | 9.0 | +39.1% | 4.9 | 3.5 | +39.8% |
| Gross profit margin | 13.2% | 7.9% | +66.7% | 24.1% | 13.0% | +85.0% |
The revenue of the civil engineering segment amounted to EUR 94.5 million in the first 12 months of 2013 (12 months of 2012: EUR 113.3 million), which is 16.6% less than in 2012. The decrease from the previous year is mainly due to a drop in the volume of pipeline projects. In the fourth quarter of 2013, our main projects included the reconstruction of pipelines in Vääna-Jõesuu, the reconstruction of pipelines in Narva-Jõesuu and the closing of industrial waste and semi-coke landfill in Kohtla-Järve.
The civil engineering segment continues to form the largest proportion in the group’s revenue (12 months of 2013: 36.0%), even so, the drop in the volumes in the field during the last 12 months has been the highest (12 months: -16.6%).
The gross profit of the civil engineering segment amounted to EUR 12.5 million (12 months of 2012: EUR 9.0 million) and the gross profit margin was 13.2% (12 months of 2012: 7.9%) which gives a positive shift compared to last year. This is related to efficient project management in the segment. Certain stages of Vääna-Jõesuu water and sewerage pipelines reconstruction project were completed almost 18 months earlier than forseen by the contract.
The civil engineering segment includes challenges, primarily in connection with the end of the 2007-2013 EU budgeting period and due to the fact that the pace of launching new projects has decreased. This applies particularly to water management projects.
Road construction
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Road construction million EUR |
12M 2013 | 12M 2012 | Variance | Q4 2013 | Q4 2012 | Variance |
| Revenue | 49.5 | 45.1 | +9.6% | 6.0 | 12.5 | -52.5% |
| % of revenue | 18.8% | 18.1% | +3.9% | 9.2% | 17.6% | -47.7% |
| Gross profit | 5.9 | 1.7 | +246.4% | 0.3 | 0.5 | -27.6% |
| Gross profit margin | 12.0% | 3.8% | +216.1% | 5.7% | 3.8% | +52.3% |
The revenue of the road construction segment amounted to EUR 49.5 million in the first 12 months of 2013, which means a 9.6% increase from 2012. In the first 12 months of 2013, the segment earned a gross profit of EUR 5.9 million, which yields a gross profit margin of 12.0%. The increase in both revenue and profit was supported by the increase in road construction and maintenance volumes in the second and third quarter of 2013.
The largest construction projects in the fourth quarter were the maintenance works done under the service agreement with Tallinn. In addition, we completed the constructing at the Ülemiste traffic junction in October, which was the largest project in the segment during the last year.
Real estate development
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Real estate development million EUR |
12M 2013 | 12M 2012 | Variance | Q4 2013 | Q4 2012 | Variance |
| Revenue | 31.0 | 27.1 | +14.3% | 11.6 | 12.8 | -9.4% |
| % of revenue | 11.8% | 10.9% | +8.4% | 17.9% | 17.9% | -0.3% |
| Gross profit | 5.1 | 2.4 | +113.3% | 2.2 | 1.5 | +43.9% |
| Gross profit margin | 16.5% | 8.9% | +86.5% | 19.0% | 12.0% | +58.8% |
A total of 263 apartments were sold in 12 months of 2013 at the total value of EUR 28.3 million (excl. VAT), (12 months of 2012: 235 apartments and EUR 25.0 million, respectively). At the end of the period, Merko Ehitus group’s inventory comprised 36 completed but not yet sold apartments (23 in Estonia, 7 in Latvia and 6 in Lithuania) and 33 completed and pre-sol apartments (2 in Estonia, 30 in Latvia and 1 in Lithuania).
As at 31 December 2013, Merko Ehitus group had 300 apartments on active sale (as at 31 December 2012: 326 apartments), meaning apartments that had no signed pre-sale agreement.
The following table lists the apartment projects in progress and their indicative completion time:
| Project | City/Country | Completion time | No of apartments* |
| Pärna Avenue 5 and 6 | Tartu county, Estonia | Completed | 8 |
| Eha 4 / Paldiski 17 | Tallinn, Estonia | Completed | 8 |
| Pärna Avenue 8 | Tartu county, Estonia | Completed | 9 |
| Skanstes Virsotnes 4th thower | Riga, Latvia | Completed | 6 |
| Grostonas 17 | Riga, Latvia | Completed | 31 |
| Mokslininku I stage | Vilnius, Lithuania | Completed | 7 |
| 69 | |||
| Pallasti 48 | Tallinn, Estonia | 2014 beginning | 23 |
| Pallasti 50 | Tallinn, Estonia | 2014 spring | 23 |
| Tedre 55 | Tallinn, Estonia | 2014 spring | 47 |
| Grostonas 19 | Riga, Latvia | 2014 autumn | 82 |
| Mokslininku II stage | Vilnius, Lithuania | 2014 autumn | 54 |
| Kentmanni 6 | Tallinn, Estonia | 2014 year-end | 93 |
| Grostonas 21 | Riga, Latvia | 2015 spring | 125 |
| 447 | |||
| Started in Q4 2013 | |||
| Pärna Avenue 7 | Tartu county, Estonia | 2014 autumn | 28 |
| 28 | |||
| Total | 544 | ||
| * Included under completed apartments is the number of apartments that are unsold and not delivered to the customers | |||
During 2013 construction of 409 apartments was iniciated in Baltic States (12 months of 2012 respectively: 308 apartments).
Two previously frozen development projects were re-launched in the second quarter of 2013. In Tallinn, the company launched construction of the Kentmanni 6 residential and commercial building (number of apartments in the new design: 93), a project frozen in 2008. The first two floors of the building have been designed as commercial space, with the remaining 12 floors allocated for apartments. Two underground parking lots had been constructed for the building by the end of 2008. The building is scheduled to be completed at the end of 2014. In addition we partially re-launched in the second quarter of 2013, the Pärna Avenue 8 development project (number of apartments for sale according to the new design: 27 apartments, of which 9 apartments remain unsold as at the balance sheet date) in Raadi district, Tartu.
We launched new development projects in both Riga and Vilnius in the second quarter of 2013. In Riga we launched a 82 apartment development project at Grostonas 17 and in Vilnius 54 apartment in the second stage of the Mokslininku project.
In the third quarter of 2013 we launched a new development projects in Riga. The development project launched constitutes a continuation of the apartment building block in the Skanstese district where we will build a residential building with 125 apartments at Grostonas 21. The building is scheduled to be completed in the spring of 2015.
In the fourth quarter of 2013 we partially re-launched the second development project at Pärna Avenue 7 (number of apartments for sale according to the new design: 28 apartments) in Raadi district, Tartu. As at 31 December 2013, the company thus has a single frozen project in Tartu – the 130-apartment project shelved in 2007 (the comparable number in Tallinn and Tartu as at 31 December 2012 was 311 apartments).
One of our objectives is to keep a moderate portfolio of land plots to ensure stable implementation of property development projects considering the market conditions. At the same time the real estate market has become more selective – key aspects considered in the evaluation of risks prior to the launch of each project are the location, scale of development, design solutions and the target group. In view of the low mortgage interest rates and the limited supply on the market of new apartments over the last three years, demand and transaction activity in the apartment market has grown moderately.
Other
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Other million EUR |
12M 2013 | 12M 2012 | Variance | Q4 2013 | Q4 2012 | Variance |
| Revenue | 1.1 | 1.9 | -39.1% | 0.2 | 0.5 | -57.2% |
| % of revenue | 0.5% | 0.7% | -42.3% | 0.3% | 0.7% | -52.9% |
| Gross profit (loss) | (0.3) | (0.2) | +59.3% | 0.0 | 0.0 | 0.0% |
| Gross profit margin | -29.9% | -11.4% | +161.6% | -46.1% | -19.3% | +139.1% |
Revenue for the segment other amounted to EUR 1.1 million in 2013, which was 39.1% lower then in 2012. All in all, 2013 ended with a gross loss of EUR 0.3 million, which is primarily due to imparment of mined inventory.
Secured Order Book
As at 31 December 2013, the group’s secured order book amounted to EUR 213.7 million as compared to EUR 189.9 million as at 31 December 2012. The group does not include residential building projects developed by the group and development of the investment property in the order book.
In fourth quarter of 2013, EUR 48.6 million worth of new contracts were signed (without own developments) as compared to EUR 49.4 million in same period previous year. The table below shows the largest construction contracts that were signed in the fourth quarter of 2013:
| Brief description of contract |
Cost million EUR |
Completion time | Country |
| Long-term contract to carry out road repair and maintenance works in Tallinn | 17.5* | October 2018* | Estonia |
| Valmiera’s Professional School construction | 5.9 | April 2015 | Latvia |
| Dzintaru 28, Jurmala apartment buildings construction | 13.7 | July 2015 | Latvia |
| * The contract value is approximately 3.5 million per year | |||
After the balance sheet date, a contract was concluded on 23 January 2014 between the AS Merko Ehitus group company AS Merko Ehitus Eesti, KMG Insenerehituse AS and Ratatek OY, and the city’s transport operator Tallinna Linnatranspordi AS entered into a contract to perform the design and renovation work on the infrastructure of Tallinn tram line no. 4. The contract value is EUR 26.0 million. The works will be performed during 2014 and 2015.
On 7 February 2014, SIA Merks – a Latvian-based subsidiary of AS Merko Ehitus – concluded a contract with Riga State Technical School to perform the construction works of several buildings in the school campus. The contract value is EUR 4.8 million, with the work scheduled to be delivered in June 2015.
Furthermore, on 10 February 2014, SIA Merks concluded a contract with Riga City Council City Development Department to perform the re-cultivation and construction works of waste recycling site in Riga. The contract value is EUR 6.5 million, with the work scheduled to be delivered in January 2016.
As at 31 December 2013 the secured order book is still dominated by public orders, which show a clear tendency of decreasing when compared with new private sector orders. If the public procurements made up the bulk of construction orders in the end of 2012 and the beginning of 2013, then the private sector has recovered in all three Baltic States during the second half of 2013. As at 31 December about half of the new contracts entered into during the year 2013 are in connection with the private sector. We are expecting a steady decrease in the volume of public procurements in 2014 due to the expiry of the current EU budget period. Consequently, it will prove quite challenging during the next 12 months to keep the volume of new contracts at its current level.
Cash flows
The cash position of the group is stable. As at the end of the reporting period, the cash and cash equivalents of Merko Ehitus group amounted to EUR 46.6 million (as at 31 December 2012: EUR 35.3 million). The strategic cash position and investment capability of AS Merko Ehitus has improved during the year.
The 12-month cash flow from operating activity was positive at EUR 19.7 million (12 months of 2012: positive EUR 21.0 million), cash flow from investing activity was negative at EUR 1.3 million (12 months of 2012: positive EUR 0.9 million) and the cash flow from financing activity was negative at EUR 7.1 million (12 months of 2012: positive EUR 5.1 million). The cash flow from operating activity was mostly influenced by the operating profit EUR 12.3 million, by the negative change in trade and other receivables related to operating activities EUR 6.1 million, by the negative change in inventory EUR 4.9 million, and by the positive change in trade and other payables related to operating activities EUR 10.2 million (incl. significant positive inflow from the advances for real estate development projects).
The share of public orders remains high in the consolidated cash flows, with long terms of payment (an average of 56 days after registered delivery of the work) and a persistent burden on current assets, including cash flow management. To support cash flows arising from operating activity, the group has been prudent in raising additional external capital, including factoring. At the same time, the debt ratio has remained at a moderate level (14.8% as at 12 months of 2013, 15.8% as at 12 months of 2012).
The balance of acquisitions and improvement of investment property – included under cash flow from investing activities – amounted to EUR -1.1 million, the balance of other investments amounted to EUR -0.3 million, the balance of acquisition of PPE amounted to EUR -0.8 million and the balance of sales of PPE to EUR +0.9 million. The balance of purchase of investment property primarily includes apartments in the Pärna allee 8 development project that were leased out to Tartu county for childcare. Additional explanations are described in Note 9 of the consolidated financial statements.
The largest single item in cash flows from financing was the dividend payment in the amount of EUR -5.3 million. The other contributors in the cash flow from financing activities where net of loans received and loans repaid in connection with development projects that amounted to EUR -1.0 million, net of loans received and loans repaid in connection with investment property projects amounted to EUR +1.9 million, factoring to EUR -1.5 million and financial lease repayments to EUR -1.2 million.
The Q4 2013 cash flow from operating activity was positive at EUR 7.9 million (Q4 2012: positive EUR 26.0 million), cash flow from investing activity was negative at EUR 1.2 million (Q4 2012: negative EUR 0.2 million) and the cash flow from financing activity was positive at EUR 0.8 million (Q4 2012: negative EUR 6.0 million). Due to the seasonal nature of construction activity, the quarterly cash flows from operating activities were positive in both 2013 and 2012 primarily due to a drop in receivables from construction work customers and of receivables calculated using the percentage of completion method.
Cash flow from investing activities in the fourth quarter of 2013 includes the acquisition of investment property in the amount of EUR -1.0 million.
Cash flow from financing activities was positive in the fourth quarter of 2013 EUR 0.8 million, which is primarily due to balance of loans received and loans repaid in connection with development projects in the amount of EUR 1.1 million.
Financial ratios
(per share attributable to equity holders of the parent company)
| 12M 2013 | 12M 2012 | 12M 2011 | Q4 2013 | Q4 2012 | Q4 2011 | ||
| Income statement summary | |||||||
| Revenue | million EUR | 262.7 | 249.1 | 219.3 | 64.9 | 71.4 | 65.9 |
| Gross profit | million EUR | 22.7 | 17.9 | (3.6) | 5.4 | 7.3 | (4.0) |
| Gross profit margin | % | 8.6 | 7.2 | -1.6 | 8.3 | 10.2 | -6.0 |
| Operating profit | million EUR | 12.3 | 8.8 | (12.3) | 2.7 | 4.7 | (5.6) |
| Operating profit margin | % | 4.7 | 3.5 | -5.6 | 4.2 | 6.6 | -8.6 |
| Profit before tax | million EUR | 11.1 | 7.9 | (14.0) | 2.4 | 4.4 | (6.9) |
| EBT margin | % | 4.2 | 3.2 | -6.4 | 3.8 | 6.2 | -10.5 |
| Net profit | million EUR | 10.4 | 7.6 | (14.2) | 2.5 | 4.5 | (6.8) |
| equity holders of the parent | million EUR | 10.4 | 7.6 | (14.1) | 2.5 | 4.4 | (6.8) |
| non-controlling interest | million EUR | 0.0 | 0.0 | (0.1) | 0.0 | 0.1 | 0.0 |
| Net profit margin | % | 4.0 | 3.1 | -6.4 | 3.8 | 6.2 | -10.2 |
| Other income statement figures | |||||||
| EBITDA | million EUR | 15.1 | 11.4 | (10.1) | 3.5 | 5.4 | (5.0) |
| EBITDA margin | % | 5.7 | 4.6 | -4.6 | 5.4 | 7.6 | -7.6 |
| General expense ratio | % | 4.7 | 4.5 | 4.6 | 4.7 | 4.5 | 3.7 |
| Labour cost ratio | % | 11.8 | 11.2 | 10.2 | 10.7 | 11.7 | 9.2 |
| Revenue per employee | thousand EUR | 308 | 278 | 235 | 76 | 80 | 71 |
| 31.12.13 | 31.12.12 | 31.12.11 | |||||
| Other key figures | |||||||
| ROE | % | 8.8 | 6.8 | -12.2 | |||
| ROA | % | 4.4 | 3.4 | -6.6 | |||
| ROIC | % | 8.0 | 6.0 | -9.0 | |||
| Equity ratio | % | 50.9 | 52.0 | 49.6 | |||
| Debt ratio | % | 14.8 | 15.8 | 18.3 | |||
| Current ratio | times | 2.0 | 2.1 | 2.0 | |||
| Quick ratio | times | 1.1 | 1.1 | 1.0 | |||
| Accounts receivable turnover | days | 58 | 58 | 56 | |||
| Accounts payable turnover | days | 43 | 47 | 45 | |||
| Average number of employees (group) | people | 853 | 895 | 934 | |||
| Secured Order Book | million EUR | 213.7 | 189.9 | 166.5 | |||
Employees and labour costs
Compared to the same period end last year the number of the group’s employees has decreased by 55 employees (-6.0%) and as at 31 December 2013, the group had a total of 860 employees (including fixed-term and part-time employees).
The group’s objective is to pay its employees competitive salary. The interests of employees and the company are balanced by performance-based remuneration.
Labour cost is recognized by the group as being salary (basic salary, additional remuneration (night hours, overtime and public holidays), holiday pay, and bonuses), taxes on salaries, fringe benefits and taxes on fringe benefits. Labour costs accounted for in the 12 months of 2013 amounted EUR 30.9 million (12 months of 2012: EUR 27.9 million), a growth of 10.8% compared to the same period last year. This increase mainly occurred due to the additional performance bonuses in the conditions of higher profitability and minor impact of selective basic salary increases. In Q4 2013 the labour costs were EUR 6.9 million, which is 16.7% lower than the previus year (Q4 2012: EUR 8.3 million). The comparison base is greater above all due to additional performance pay accounted for at the end of 2012 in connection with the good economic results posted by the company in Q4 2012.
Share and shareholders
| Information on security | |
| Issuer | AS Merko Ehitus |
| Name of security | Share of Merko Ehitus |
| Residency of issuer | Estonia |
| Stock Exchange List | Main List |
| ISIN | EE3100098328 |
| Nominal value | without nominal value |
| No of securities | 17,700,000 |
| Volume of issue | 12,000,000 |
| Currency | EUR |
| Date of listing | 11 August 2008 |
The shares of Merko Ehitus have been listed in the main list of NASDAQ OMX Tallinn. A total of 2,183 transactions were conducted with the shares of Merko Ehitus in 12 months of 2013, with 0.73 million shares (4.1% of total shares) traded, generating a turnover of EUR 5.08 million (comparable figures in 2012 were accordingly: 1,662 transactions with 0.94 million shares traded (5.3% of total shares) and generating a turnover of EUR 5.47 million). The lowest share price amounted to EUR 5.71 and the highest to EUR 7.70 per share (12 months of 2012: EUR 5.37 and EUR 7.30). The closing price of the share was EUR 7.20 on 31 December 2013 (31.12.2012: EUR 5.90). As at 31 December 2013, the market value of AS Merko Ehitus amounted to EUR 127.4 million, which has risen 22.0% compared to the same period end last year (as at 31 December 2012: EUR 104.4 million).
| 31.12.2013 | 31.12.2012 | 31.12.2011 | |
| No of shares | 17,700,000 | 17,700,000 | 17,700,000 |
| Earnings per share (EPS), in euros | 0.59 | 0.43 | -0.80 |
| Equity per share, in euros | 6.71 | 6.34 | 6.51 |
| P/B (price to book ratio) | 1.07 | 0.93 | 0.83 |
| P/E (price / earnings ratio) | 12.25 | 13.69 | -6.79 |
| Market value, million EUR | 127.4 | 104.4 | 95.6 |
Main shareholders of AS Merko Ehitus as of 31 December 2013 and the change compared to the previous quarter:
| No of shares | % of total 31.12.2013 | % of total 30.09.2013 | Variance | |
| AS Riverito | 12,742,686 | 71.99% | 71.99% | - |
| ING Luxembourg S.A. AIF Account | 974,126 | 5.50% | 5.50% | - |
| Skandinaviska Enskilda Banken S.A. | 481,379 | 2.72% | 0.00% | +481,379 |
| Skandinaviska Enskilda Banken Ab, Swedish clients | 330,060 | 1.86% | 4.58% | -481,379 |
| Firebird Republics Fund Ltd | 302,395 | 1.71% | 1.71% | - |
| Gamma Holding OÜ | 188,762 | 1.07% | 1.05% | +3,200 |
| State Street Bank and Trust Omnibus Account a Fund No OM01 | 153,018 | 0.86% | 0.86% | - |
| Clearstream Banking Luxembourg S.A. clients | 141,262 | 0.80% | 0.80% | - |
| Skandinaviska Enskilda Banken Ab, Finnish clients | 134,982 | 0.76% | 0.81% | -8,209 |
| OÜ Midas Invest | 131,185 | 0.74% | 0.68% | +10,000 |
| Main shareholders total | 15,579,855 | 88.01% | 87.98% | +4,991 |
| Minority shareholders total | 2,120,145 | 11.99% | 12.02% | -4,991 |
| Total | 17,700,000 | 100% | 100% |
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.
Dividends in the amount of EUR 5.3 million (EUR 0.3 per share) were paid out to shareholders on 3 July 2013. AS Merko Ehitus did not have to pay any income tax on dividend pay-out due to previously received and taxed distribution of profits from subsidiaries. In the year 2012 no dividends were paid.
The Management Board proposes to pay the shareholders EUR 7.3 million as dividends from net profits brought forward (EUR 0.41 per share) in 2014. According to the Estonian Income Tax Law §50 section 11 AS Merko Ehitus can pay these dividends without any additional income tax expense and liabilities occruing due to previously received and taxed distribution of profits from subsidiaries.
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.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
in thousand euros, unaudited
|
2013 12 months |
2012 12 months |
|
| Revenue | 262,719 | 249,131 |
| Cost of goods sold | (239,996) | (231,220) |
| Gross profit (loss) | 22,723 | 17,911 |
| Marketing expenses | (3,041) | (2,107) |
| Administrative and general expenses | (9,260) | (9,173) |
| Other operating income | 2,264 | 2,961 |
| Other operating expenses | (425) | (834) |
| Operating profit (loss) | 12,261 | 8,758 |
| Finance income/costs | (1,116) | (856) |
|
incl. finance income/costs from investments in associates and joint ventures |
(138) | |
| finance income/costs from other long-term investments | 2 | 2 |
| interest expense | (814) | (1,156) |
| foreign exchange gain | (202) | (44) |
| other financial income (expenses) | 36 | 179 |
| Profit (loss) before tax | 11,145 | 7,902 |
| Corporate income tax expense | (791) | (289) |
| Net profit (loss) for current period | 10,354 | 7,613 |
| incl. net profit (loss) attributable to equity holders of the parent | 10,399 | 7,627 |
| net profit (loss) attributable to non-controlling interest | (45) | (14) |
| Other comprehensive income (loss) | ||
| Currency translation differences of foreign entities | (157) | 58 |
| Comprehensive income (loss) for the period | 10,197 | 7,671 |
| incl. net profit (loss) attributable to equity holders of the parent | 10,242 | 7,685 |
| net profit (loss) attributable to non-controlling interest | (45) | (14) |
|
Earnings per share for profit (loss) attributable to equity holders of the parent (basic and diluted, in euros) |
0.59 | 0.43 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
in thousand euros, unaudited
|
2013 IV quarter |
2012 IV quarter |
|
| Revenue | 64,875 | 71,402 |
| Cost of goods sold | (59,517) | (64,143) |
| Gross profit (loss) | 5,358 | 7,259 |
| Marketing expenses | (812) | (722) |
| Administrative and general expenses | (2,219) | (2,485) |
| Other operating income | 493 | 1,342 |
| Other operating expenses | (107) | (654) |
| Operating profit (loss) | 2,713 | 4,740 |
| Finance income/costs | (264) | (302) |
|
incl. finance income/costs from investments in associates and joint ventures |
(35) | (26) |
| finance income/costs from other long-term investments | (30) | 1 |
| interest expense | (199) | (235) |
| foreign exchange gain | (17) | (81) |
| other financial income (expenses) | 17 | 39 |
| Profit (loss) before tax | 2,449 | 4,438 |
| Corporate income tax expense | 56 | 51 |
| Net profit (loss) for current period | 2,505 | 4,489 |
| incl. net profit (loss) attributable to equity holders of the parent | 2,452 | 4,425 |
| net profit (loss) attributable to non-controlling interest | 53 | 64 |
| Other comprehensive income (loss) | ||
| Currency translation differences of foreign entities | (2) | (49) |
| Comprehensive income (loss) for the period | ||
| incl. net profit (loss) attributable to equity holders of the parent | 2,503 | 4,440 |
| net profit (loss) attributable to non-controlling interest | 2,450 | 4,376 |
| Other comprehensive income (loss) | 53 | 64 |
|
Earnings per share for profit (loss) attributable to equity holders of the parent (basic and diluted, in euros) |
0.14 | 0.25 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
in thousand euros, unaudited
| 31.12.2013 | 31.12.2012 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 46,633 | 35,316 |
| Trade and other receivables | 57,172 | 60,343 |
| Prepaid corporate income tax | 21 | 478 |
| Inventories | 87,451 | 82,830 |
| Total current assets | 191,277 | 178,967 |
| Non-current assets | ||
| Long-term financial assets | 27,415 | 24,378 |
| Deferred income tax assets | 1,590 | 1,919 |
| Investment property | 4,672 | 3,566 |
| Property, plant and equipment | 13,117 | 14,853 |
| Intangible assets | 1,167 | 1,365 |
| Total non-current assets | 47,961 | 46,081 |
| TOTAL ASSETS | 239,238 | 225,048 |
| LIABILITIES AND EQUITY | ||
| Current liabilities | ||
| Borrowings | 15,614 | 16,299 |
| Payables and prepayments | 72,162 | 63,209 |
| Income tax liability | 62 | - |
| Short-term provisions | 5,906 | 6,165 |
| Total current liabilities | 93,744 | 85,673 |
| Non-current liabilities | ||
| Long-term borrowings | 19,771 | 19,205 |
| Long-term interest liabilities | 8 | 3 |
| Long-term trade payables | 2,123 | 1,553 |
| Other long-term liabilities | 31 | - |
| Deferred corporate income tax liability | 505 | 327 |
| Long-term provisions | - | 20 |
| Total non-current liabilities | 22,438 | 21,108 |
| Total liabilities | 116,182 | 106,781 |
| Equity | ||
| Non-controlling interest | 1,193 | 1,342 |
| Equity attributable to equity holders of the parent | ||
| Share capital | 12,000 | 12,000 |
| Statutory reserve capital | 1,200 | 1,200 |
| Currency translation differences | (669) | (512) |
| Retained earnings | 109,332 | 104,237 |
| Total equity attributable to equity holders of parent | 121,863 | 116,925 |
| Total equity | 123,056 | 118,267 |
| TOTAL LIABILITIES AND EQUITY | 239,238 | 225,048 |
Interim report and the investor presentation are attached to the announcement and are also published on NASDAQ OMX Tallinn and Merko’s web page (www.merko.ee).
AS Merko Ehitus (www.merko.ee) comprises the leading Estonian construction company AS Merko Ehitus Eesti, the Latvian market based SIA Merks and the Lithuanian market based UAB Merko Statyba as well as the group’s real estate development business unit together with companies holding real estate properties. As at the end of 2013, the group employed 860 people and the 2013 revenue amounted to EUR 262.7 million.
Signe Kukin
Group CFO
AS Merko Ehitus
+372 650 1250
signe.kukin@merko.ee
