Tallinn, Estonia, 2014-05-08 15:30 CEST (GLOBE NEWSWIRE) --
MANAGEMENT REPORT
Overview of the 3 months results
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Revenue Revenue in Q1 2014 was EUR 48.9 million (Q1 2013: EUR 47.9 million), which has increased 2.1% compared to the same period last year. The share of revenue earned outside of Estonia has incresed in Q1 2014 to 33.4% (Q1 2013: EUR 21.6%). Profitability Net profit in Q1 was EUR 0.7 million (comparable figure in Q1 2013: EUR 1.8 million). Gross margin in Q1 was 8.1% (Q1 2013: 8.8%), which has decreased by 9.0% compared to the same period last year. Current period’s net profit has been exceptionally effected by the dividend tax expense of Gustaf Tallinn OÜ in the amount of EUR 0.3 million. Cash position At the end of the reporting period, the group had EUR 51.9 million in cash and cash equivalents and equity EUR 122.6 million (51.0% of total assets). Comparable figures in 2013 were accordingly EUR 35.8 million and EUR 118.6 million (52.9% of total assets). Secured order book In Q1 2014, group companies signed new contracts in the amount of EUR 48.6 million (Q1 2013: EUR 44.6 million) and as at 31 March 2014, the group’s secured order book stood at EUR 224.0 million (31 Marchr 2013: EUR 193.4 million). Changes in group structure In Q1 2014 the group sold its 80% share in subsidiary Gustaf Tallinn OÜ. |
| Q1 ’14 | Q1 ’13 | Variance | 2013 | ||
| Revenue | million EUR | 48.9 | 47.9 | +2.1% | 262.7 |
| Gross profit | million EUR | 3.9 | 4.2 | -7.1% | 22.7 |
| Gross profit margin | % | 8.1 | 8.8 | -9.0% | 8.6 |
| Net profit (parent) | million EUR | 0.7 | 1.8 | -59.8% | 10.4 |
| Net profit margin | % | 1.5 | 3.7 | -60.6% | 4.0 |
| EPS | EUR | 0.04 | 0.10 | -59.8% | 0.59 |
| 31.03.14 | 31.03.13 | Variance | 31.12.13 | ||
| ROE (on yearly basis) | % | 7.8 | 8.1 | -3.4% | 8.8 |
| Equity ratio | % | 51.0 | 52.9 | -3.7% | 50.9 |
| Secured order book | million EUR | 224.0 | 193.4 | +15.8% | 213.7 |
| Total assets | million EUR | 240.5 | 224.0 | +3.4% | 239.2 |
| Number of employees | people | 824 | 870 | -5.3% | 860 |
OPERATING RESULTS
Business activities
Key financial indicators (in million euros)
| 3M 2014 | 3M 2013 | 12M 2013 | |
| Revenue | |||
| Estonia | 32.6 | 37.5 | 211.9 |
| Latvia | 14.0 | 8.4 | 44.4 |
| Lithuania | 2.3 | 2.0 | 6.4 |
| Revenue total | 48.9 | 47.9 | 262.7 |
| Gross profit | 3.9 | 4.2 | 22.7 |
| EBITDA | 1,9 | 2,9 | 15.1 |
| Operating profit (EBIT) | 1.3 | 2.3 | 12.3 |
| Net profit | |||
| attributable to equity holders of the parent | 0.7 | 1.8 | 10.4 |
| attributable to non-controlling interest | (0.1) | 0.0 | 0.0 |
| Net profit total | 0.6 | 1.8 | 10.4 |
| Earnings per share (EPS), euros | 0.04 | 0.10 | 0.59 |
| Cash and cash equivalents closing position | 51.9 | 35.8* | 46.6 |
* incl short-term deposits in the amount of EUR 2.5 million
Revenue and gross profit
Merko Ehitus group generated a total of EUR 48.9 million in revenue in 3 months of 2014 (3 months of 2013: EUR 47.9 million). 66.6% of the revenue was generated in Estonia, 28.6% in Latvia and 4.8% in Lithuania (3 months of 2013: 78.4% in Estonia, 17.4% in Latvia and 4.2% in Lithuania). Compared to the first 3 months of 2013 the group revenue increased by 2.1%. During the reporting period, orders from the private sector have increased as an ongoing trend. In the first quarter of 2014 the share of Latvian revenue has increased from 17.4% to 28.6%, which is an ongoing trend in 2014. The increase in revenue, compared to the same period last year, can be mainly attributed to projects pursued in the general construction, real estate development and road construction segment. At the same time there has been 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.
The group’s objective is to increase the revenues outside Estonia. Therefore we are continually monitoring the development of and searching for opportunities in the neighbouring markets.
In 3 months of 2014 the group’s gross profit from development and construction activities totalled EUR 3.9 million (3 months of 2013: EUR 4.2 million). The gross profit margin (8.1%) has decreased compared to the same period last year (3 months of 2013: 8.8%). The main impact is from the general construction segment and the decrease of civil engineering segment volumes. At the same time the margin has been supported by road construction segment and the higher profitability in real estate development 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 3 months of 2014, the group’s profit before tax totalled EUR 1.1 million and net profit attributable to equity holders of the parent was EUR 0.7 million as compared to the pre-tax profit or EUR 2.0 million and net profit attributable to equity holders of the parent of EUR 1.8 million in 3 months of 2013. Group’s net profit margin was 1.5% (3 months of 2013: 3.7%). The net profit for the first quarter of 2014 was affected by the income tax expenses paid on the dividends received from OÜ Gutsaf Tallinn in the amount of EUR 0.3 million. This will increase the income tax expenses as extraordinary one-off item, compared to the first quarter of 2013.
Business segments
The group companies operate mainly in Estonian, Latvian and Lithuanian market and depending on the country provide services across the following segments: general construction, civil engineering (including electrical and external networks), road construction, real estate development (including apartment development and sales, long-term real estate investments and commercial real estate projects) and other comprising sale of raw materials obtained from pit mining, equipment lease, consulting and construction supervision.
General construction
General construction consists of the construction of different buildings, from commercial and office buildings, retail and entertainment centres to public sector and residential and specialised industrial buildings. Group companies provide strategic consulting and quality complete solutions as part of the general contracting service of construction according to the customer's requirements: preparation, design, construction, interior and warranty service.
million EUR
| 3M 2014 | 3M 2013 | Change | 12M 2013 | |
| Revenue | 25.8 | 12.6 | +105.4% | 86.6 |
| % of total revenue | 52.8% | 26.3% | +101.2% | 32.9% |
| Gross profit (loss) | 0.2 | 0.5 | -54.9% | (0.5) |
| Gross profit margin | 0.8% | 3.8% | -78.0% | -0.6% |
In the first 3 months of 2014, the revenue of the general construction segment increased by 105.4% from the same period last year. At the same time the segments gross profit has decreased by 54.9% and the segments overall gross profit for the period is EUR 0.2 million (3 months of 2013: EUR 0.5 million). The segment continues to be mainly influenced by the pressure on the margins exerted by tightening competition. In the first quarter the revenue of the general construction segment formed the largest proportion in the group’s revenue with a 52.8% share. The tight competition in the general construction segment has left it’s mark on the segments gross margin (3 months of 2014: 0.8%), having decreased 78.0% compared to the same period last year.
While in 2013 the market saw an increase in private sector orders, then the trend has continued in the first 3 months of 2014. As at the end of the quarter the private sector projects make up more than half of general construction segment projects in work.
Our major projects in the first quarter included the construction of Tondiraba ice arena and Hilton Tallinna Park hotel construction works in Tallinn, the reconstruction work at the North-Estonia Medical Centre in Mustamäe, the construction of Polipaks NT manufacturing and logistics centre in Marupe and the multifunctional concert hall in Liepaja. Among the projects completed and delivered to the customer in Q1 2014 the one to highlight is the Nurmevälja logistics center.
Civil engineering
The civil engineering segment includes port, waste management and road structures (bridges, tunnels, overpasses, roads), electrical construction of up to 330 kV, various environmental protection structures, water treatment plants, both open-cut and trenchless construction of water and sewerage pipelines and other various engineering projects. Complex and unique engineering projects require specialised knowledge and a good partnership with the customer and local authorities.
million EUR
| 3M 2014 | 3M 2013 | Change | 12M 2013 | |
| Revenue | 9.4 | 20.7 | -54.7% | 94.5 |
| % of total revenue | 19.2% | 43.3% | -55.6% | 36.0% |
| Gross profit | 1.0 | 2.4 | -56.4% | 12.5 |
| Gross profit margin | 11.0% | 11.4% | -3.7% | 13.2% |
The revenue of the civil engineering segment amounted to EUR 9.4 million in the first 3 months of 2014 (3 months of 2013: EUR 20.7 million), which is 54.7% less than in 2013. The decrease from the previous year is mainly due to a drop in the volume of pipeline projects. If the civil engineering segment revenues of first 3 months of 2013 formed the largest proportion in the group’s revenue (3 months of 2013: 43.3%), then during 3 months of the current year the segments revenues formed 19.2% of total revenue being down 55.6% compared to the previous year. The gross profit of the civil engineering segment amounted to EUR 1.0 million (3 months of 2013: EUR 2.4 million) and the gross profit margin was 11.0% (3 months of 2013: 11.4%), which has remained unchanged compared to the same period previous year. We consider this a very good result, given that the volumes of the segment have decreased by more than a half. We continue to closely monitor the changes in the volumes, to maintain an effective cost base.
In the first quarter of 2014, the main projects included were the reconstruction of pipelines in Vääna-Jõesuu and Narva-Jõesuu and the closing of industrial waste and semi-coke landfill in Kohtla-Järve.
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
In the road construction segment, the company carries out road construction and builds the associated infrastructure, road maintenance and maintenance repair.
million EUR
| 3M 2014 | 3M 2013 | Change | 12M 2013 | |
| Revenue | 3.1 | 7.8 | -60.3% | 49.5 |
| % of total revenue | 6.3% | 16.3% | -61.1% | 18.8% |
| Gross profit | 0.5 | 0.5 | -4.4% | 5.9 |
| Gross profit margin | 15.3% | 6.4% | +140.5% | 12.0% |
The revenue of the road construction segment amounted to EUR 3.1 million in the first 3 months of 2014 (3 months of 2013: EUR 7.8 million), which means a 60.3% decrease from the same period 2013. In the first 3 months of 2014, the segment earned a gross profit of EUR 0.5 million (3 months of 2013: EUR 0.5 million), which yields a gross profit margin of 15.3%. The drop in revenue has been affected the most by the lack of large-scale construction projects (such as the last year’s Ülemiste junction in Tallinn) in the contracts portfolio of the group in 2014. On a positive note, the road construction segment was supported by a growth in the volume of road repair and maintenance work, compared to the same period last year. This was mostly due to favorable weather conditions, that allowed the seasonal road works to be started earlier compared to the last year.
The largest projects in work in the first quarter were the maintenance works done under the service agreement with Tallinn and Jõgeva county.
Real estate development
The real estate development segment includes residential construction, the development of apartment projects, long-term real estate investments and commercial real estate projects.
million EUR
| 3M 2014 | 3M 2013 | Change | 12M 2013 | |
| Revenue | 10.3 | 6.5 | +58.5% | 31.0 |
| % of total revenue | 21.1% | 13.6% | +55.2% | 11.8% |
| Gross profit | 2.2 | 0.9 | +146.7% | 5.1 |
| Gross profit margin | 21.8% | 14.0% | +55.7% | 16.5% |
A total of 99 apartments were sold in 3 months of 2014 at the total value of EUR 9.0 million (excl. VAT), (3 months of 2013: 57 apartments and EUR 6.2 million, respectively). At the end of the period, Merko Ehitus group’s inventory comprised 23 completed but not yet sold apartments (8 in Estonia, 7 in Latvia and 8 in Lithuania) and 11 completed and pre-sol apartments (all in Latvia).
As at 31 March 2014, Merko Ehitus group had a total of 304 apartments for sale (as at 31 March 2013: 242 apartments; as at 31 December 2013: 300 apartments), this comprises apartments for which no pre-sale agreements have been signed with buyers.
Apartment projects in progress and indicative date of completion
| Project | Municipality/Country | Completion date | No of apartments* |
| Pärna avenue 6 | Tartu municipality, Estonia | Completed | 2 |
| Eha st. 4 / Paldiski road 17 | Tallinn, Estonia | Completed | 2 |
| Pärna avenue 8 | Tartu municipality, Estonia | Completed | 2 |
| Pallasti 48, 50 | Tallinn, Estonia | Completed | 2 |
| Skanstes virsotnes 4 tower | Riga, Latvia | Completed | 6 |
| Grostonas 17 | Riga, Latvia | Completed | 12 |
| Mokslininku stage I | Vilnius, Lithuania | Completed | 2 |
| Mokslininku stage II house 1 | Vilnius, Lithuania | Completed | 6 |
| 34 | |||
| Tedre 55 | Tallinn, Estonia | Spring 2014 | 47 |
| Grostonas 19 | Riga, Latvia | Autumn 2014 | 82 |
| Mokslininku stage II house 2 | Vilnius, Lithuania | Summer 2014 | 36** |
| Pärna avenue 7 | Tartu municipality, Estonia | Autumn 2014 | 28 |
| Kentmanni 6 | Tallinn, Estonia | End of 2014 | 93 |
| Grostonas 21 | Riga, Latvia | Spring 2015 | 125 |
| 411 | |||
| Started in Q1 2014 | |||
| Vana-Kalamaja 31+Suur-Laagri 2 | Tallinn, Estonia | Autumn 2014 | 12 |
| Paepargi 17, 19, 21 | Tallinn, Estonia | Autumn 2014 | 54 |
| Pärna avenue 10 | Tartu municipality, Estonia | End of 2014 | 42 |
| 108 | |||
| Total | 553 |
* The completed apartments indicate the number of apartments that are unsold and where possession has not been given to consumers.
** The first house of the projecti with 18 apartments is completed (out of which 12 have been sold); the second house with 36 apartments is due to be completed in summer 2014.
In 3 months of 2014, we launched the construction of a total of 108 new apartments in the Baltic States (3 months of 2013: 93 apartments). In 2013 we launched the construction of a total of 409 new apartments. We will continue to invest in residential real estate projects and depending on the apartment market developments in 2014, the group plans to launch the construction of approximately 500-550 new apartments in the Baltic States. In 2014, the group’s investments in both development projects initiated in the previous years and new projects to be launched in 2014 will be in the range of EUR 45-50 million.
As at 31 March 2014, the group has 88 apartments in Tartu where the construction activity has been frozen (as at 31 March 2013, the respective number in Tallinn and Tartu was 200 apartments). In the first quarter of 2014, we re-launched one development project that was frozen in prior years – the development of Pärna avenue 10 in Tartu municipality (the number of apartments for sale is 42).
One of our objectives is to keep a moderate portfolio of land plots to ensure stable inventory of property development projects considering the market conditions. The group is actively searching for new real estate development projects in Estonian and Lithuania. The real estate portfolio in Latvia is extensive enough, with no need for active portfolio expansion.
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 consumer group. Taking into account low interest rates on loans and limited supply on the market of new apartments, in the last three years the demand and transaction activity on the apartment market has grown moderately. The number of transactions and the average price per square meter are showing a growth trend, especially in Estonia and Latvia. There is still room for new development projects in the Baltic capital cities, though one should proceed with care in Vilnius. An increased supply of apartments will influence the stabilisation of prices and lengthening of sales periods in the future.
Other
The segment other includes the sale of raw materials obtained from pit mining, equipment lease, consulting, construction supervision and other non-core activities.
million EUR
| 3M 2014 | 3M 2013 | Change | 12M 2013 | |
| Revenue | 0.3 | 0.3 | -1.4% | 1.1 |
| % of total revenue | 0.6% | 0.5% | -3.4% | 0.5% |
| Gross profit (loss) | 0.0 | (0.1) | +1,900.0% | (0.3) |
| Gross profit margin | -7.1% | -0.4% | +1,928.6% | -29.9% |
Secured order book
As at 31 March 2014, the group’s secured order book (excluding property developments) amounted to EUR 224.0 million as compared to EUR 193.4 million as at 31 March 2013. The secured order book excludes the group's own residential development projects and work related to developing real estate investments.
In first quarter of 2014, EUR 48.6 million worth of new contracts were signed (without own developments) as compared to EUR 44.6 million in same period last year.
Largest construction contracts signed in the first quarter of 2014
| Brief description of contract | Country | Completion time |
Cost million eur |
| Design and renovation of the infrastructure of Tallinn tram line No. 4 | Estonia | December 2015 | 26.0 |
| Riga State Technical School school campus construction works | Latvia | June 2015 | 4.8 |
| Re-cultivation and construction works of a waste recycling site in Riga | Latvia | January 2016 | 6.5 |
Whereas the share of public procurements was still predominant among new construction contracts at the start of 2013, the private customer segment became more active in the construction markets of all three Baltic countries in the second half of 2013. Of the contracts signed in 2013, at 31 December close to half were connected to private contracting entities. Public orders made up a bulk of the contracts concluded in the first three months of the year. As at 31 March 2014, the group’s secured order book was dominated by public sector orders, which made up nearly two-thirds of the portfolio. Nonetheless, public sector orders are decreasing compared to private sector orders. Considering the end of the previous EU funding period and the beginning phase of the current EU funding period, one can forecast continued decline in the volume of public procurements for 2014.
It continues to be a challenge to maintain new construction contract volume at the level of 2013. Traditionally the share of Estonian construction activity has been the highest in the group's revenues. Given the weak growth outlook of the Estonian construction market, the group's goal is to continue to look for construction orders from outside Estonia. Thus, we are closely monitoring the development and opportunities in the neighbouring markets. AS Merko Ehitus Eesti has selectively and on project basis started to participate in public procurements in Finland, Sweden and Norway in order to gain experience and sufficient knowledge in the qualification conditions, requirements established and risks associated in these countries.
Cash flows
The cash position of the group is stable. As at 31 March 2014 the group had cash equivalents in the amount of EUR 51.9 million (31.03.2013: EUR 33.3 million, and additionally EUR 2.5 million in short-term deposits with a maturity term of more than 3 months). Compared to the same period last year, the group's strategic cash level and investment capacity have strengthened.
The 3-month cash flow from operating activity was positive at EUR 9.0 million (3 months of 2013: positive EUR 5.1 million), cash flow from investing activity was negative at EUR 0.5 million (3 months of 2013: negative EUR 2.7 million) and the cash flow from financing activity was negative at EUR 3.2 million (3 months of 2013: negative EUR 4.4 million). The cash flow from operating activity was mostly influenced by the operating profit EUR 1.3 million, by the positive change in receivables and liabilities related to construction contracts recognised under the stage of completion method EUR 5.3 million, by the negative change in provisions EUR 2.0 million, by the positive change in trade and other receivables related to operating activities EUR 2.7 million, by the negative change in inventory EUR 1.2 million, and by the positive change in trade and other payables related to operating activities EUR 2.6 million.
The group’s cash flows from operating activities continue to have contracts (incl. both government and private sector) with long payment terms (by contract, an average of 56 days after registered delivery of the work) and there is an persistent burden on working capital, including optimal management of cash flows. This is especially true, considering the increase in Latvian construction volumes and the need for additional working capital. 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 (13.4% as at 31.03.2014; 14.5% as at 31.03.2013).
Cash flows from investment activities include negative cash flow from the cash balance excluded from the group in connection with the sale of subsidiary Gustaf Tallinn OÜ, while the balance of non-current asset acquisition was EUR 0.1 million (3 months of 2013: EUR 0.2 million). Cash flows from investment activities in 3 months of 2013 was negatively impacted by the acquisition of short-term deposit with a maturity term of more than 3 months in the amount of EUR 2.5 million. The group mainly invested in non-current assets for the purpose of renewing its fleet of machinery in the road construction segment.
The largest single negative item in cash flows from financing was the premature repayment of a working capital loan in the amount of EUR 3.5 million, instead of which the group entered into an overdraft contract with an overall limit of EUR 3.5 million. Project specific loans obtained using investment property as collateral were repaid in the amount of EUR 0.1 million (3 months of 2013: EUR 0.1 million), net of loans received and loans repaid in connection with development projects amounted to positive cash flow of EUR 0.6 million (3 months of 2013: negative cash flow of EUR 3.2 million), factoring in the amount of EUR 0.0 million (3 months of 2013: negative cash flow of EUR 0.7 million) and finance lease principal repayments of EUR 0.2 million (3 months of 2013: EUR 0.3 million).
Ratios
(attributable to equity holders of the parent)
| 3M 2014 | 3M 2013 | 3M 2012 | 12M 2013 | ||
| Income statement summary | |||||
| Revenue | million EUR | 48.9 | 47.9 | 47.8 | 262.7 |
| Gross profit | million EUR | 3.9 | 4.2 | 2.5 | 22.7 |
| Gross profit margin | % | 8.1 | 8.8 | 5.2 | 8.6 |
| Operating profit | million EUR | 1.3 | 2.3 | 0.6 | 12.3 |
| Operating profit margin | % | 2.7 | 4.8 | 1.2 | 4.7 |
| Profit before tax | million EUR | 1.1 | 2.0 | 0.4 | 11.1 |
| EBT margin | % | 2.3 | 4.1 | 0.9 | 4.2 |
| Net profit | million EUR | 0.6 | 1.8 | 0.2 | 10.4 |
| attributable to equity holders of the parent | million EUR | 0.7 | 1.8 | 0.2 | 10.4 |
| attributable to non-controlling interest | million EUR | (0.1) | 0.0 | 0.0 | 0.0 |
| Net profit margin | % | 1.5 | 3.7 | 0.3 | 4.0 |
| Other income statement indicators | |||||
| EBITDA | million EUR | 1.9 | 2.9 | 1.2 | 15.1 |
| EBITDA margin | % | 3.8 | 6.0 | 2.4 | 5.7 |
| General expense ratio | % | 6.1 | 5.5 | 5.2 | 4.7 |
| Labour cost ratio | % | 13.9 | 13.6 | 12.0 | 11.8 |
| Revenue per employee | thousand EUR | 61 | 57 | 54 | 308 |
| Other significant indicators | 31.03.2014 | 31.03.2013 | 31.03.2012 | 31.12.2013 | |
| Return on equity | % | 7.8 | 8.1 | -8.7 | 8.8 |
| Return on assets | % | 3.9 | 4.1 | -4.5 | 4.4 |
| Return on invested capital | % | 7.3 | 7.0 | -5.9 | 8.0 |
| Equity ratio | % | 51.0 | 52.9 | 51.7 | 50.9 |
| Debt ratio | % | 13.4 | 14.5 | 17.4 | 14.8 |
| Current ratio | times | 2.0 | 2.2 | 2.0 | 2.0 |
| Quick ratio | times | 1.1 | 1.2 | 0.9 | 1.1 |
| Accounts receivable turnover | days | 59 | 58 | 55 | 58 |
| Accounts payable turnover | days | 41 | 46 | 47 | 43 |
| Average number of employees | people | 800 | 839 | 880 | 853 |
| Secured order book | million EUR | 224.0 | 193.4 | 189.4 | 213.7 |
Employees and labour costs
Compared to the same period last year, the number of the group’s employees decreased by 46 (-5.3%) and as at 31 March 2014, the group had a total of 824 employees (including fixed-term and part-time employees). Compared to the end of the previous financial year the number of empolyees has decreased by 36 (-4.2%).
In 2014, the number of employees mainly declined because of the sale of subsidiary Gustav Tallinn OÜ but also due to the proportion of the civil engineering segment declined within the work volumes of the group. In 2014, the reduction in the number of employees will continue due to the streamlining of the group corporate structure and the decrease in ownership interest in immaterial subsidiaries, however not materially.
The group’s objective is to pay its employees competitive salary. The interests of employees and the company are balanced by performance-based remuneration.
The group defines labour cost as salary (incl. fixed salary, additional pay (night work, overtime and public holidays), holiday pay and bonus), taxes based on salary, fringe benefits and taxes based on fringe benefits. In 3 months 2014, the labour cost was EUR 6.8 million (3 months 2012: EUR 6.5 million), up 4.4% from the previous year. This increase is mainly caused by accrued bonuses.
Share and shareholders
| Information on security | |
| Issuer | AS Merko Ehitus |
| Name of security | Share of Merko Ehitus |
| Ticker | MRK1T |
| Residency of issuer | Estonia |
| Stock Exchange List | NASDAQ OMX Tallinn, Baltic Main List |
| Industry | Construction |
| ISIN | EE3100098328 |
| Nominal value | without nominal value |
| Number of securities | 17,700,000 |
| Volume of issue | 12,000,000 |
| Currency | EUR |
| Listing date | 11.08.2008 |
The shares of Merko Ehitus are listed in the Main List of NASDAQ OMX Tallinn. As at 31 March 2014, the company has 17,700,000 shares. The number of shares has not changed during 2014.
A total of 613 transactions were conducted with the shares of Merko Ehitus in 3 months of 2014, with 0.29 million shares (1.7% of total shares) traded, generating a turnover of EUR 2.26 million (comparable figures in 3 months 2013 were accordingly: 408 transactions with 0.13 million shares traded (0.7% of total shares) and generating a turnover of EUR 0.85 million). The lowest share price amounted to EUR 7.20 and the highest to EUR 7.99 per share (3 months of 2013: EUR 5.71 and EUR 7.48). The closing price of the share was EUR 7.75 on 31 March 2014 (31.03.2013: EUR 7.18). As at 31 March 2014, the market value of AS Merko Ehitus amounted to EUR 137.2 million, which has risen 7.9% compared to the same period end last year (as at 31 March 2013: EUR 127.1 million).
| 31.03.2014 | 31.03.2013 | 31.03.2012 | |
| Number of shares | 17,700,000 | 17,700,000 | 17,700,000 |
| Earnings per share (EPS), euros | 0.04 | 0.10 | 0.01 |
| Equity per share, euros | 6.77 | 6.47 | 6.35 |
| P/B ratio | 1.14 | 1.11 | 0.94 |
| P/E ratio | 14.68 | 13.76 | -10.81 |
| Market value, million EUR | 137.2 | 127.1 | 106.2 |
Structure of shareholders as at 31.03.2014
| Number of shares | Number of shareholders | % of shareholders | Number of shares | % of shares |
| 1,000,001 - … | 1 | 0.07% | 12,742,686 | 71.99% |
| 100,001 – 1,000,000 | 10 | 0.70% | 2,966,814 | 16.76% |
| 10,001 – 100,000 | 31 | 2.18% | 962,246 | 5.44% |
| 1,001-10,000 | 235 | 16.54% | 698,793 | 3.95% |
| 101-1,000 | 740 | 52.08% | 307,605 | 1.74% |
| 1-100 | 404 | 28.43% | 21,856 | 0.12% |
| Total | 1,421 | 100% | 17,700,000 | 100% |
Shareholders of AS Merko Ehitus as at 31.03.2014 and change compared to the previous quarter
| Number of shares | % of total 31.03.2014 | % of total 31.12.2013 | Change | |
| 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% | 2.72% | - |
| Skandinaviska Enskilda Banken AB, Swedish customers | 305,060 | 1.72% | 1.86% | -25,000 |
| Firebird Republics Fund Ltd | 302,395 | 1.71% | 1.71% | - |
| Gamma Holding OÜ | 198,182 | 1.12% | 1.07% | +9,420 |
| State Street Bank and Trust Omnibus Account a Fund No OM01 | 153,018 | 0.86% | 0.86% | - |
| SEB Elu- ja Pensionikindlustus AS | 148,020 | 0.84% | 0.72% | +20,000 |
| Clearstream Banking Luxembourg S.A. customers | 141,052 | 0.80% | 0.80% | -210 |
| Skandinaviska Enskilda Banken AB, Finnish customers | 132,397 | 0.75% | 0.76% | -2,585 |
| Total largest shareholders | 15,578,315 | 88.01% | 87.99% | +1,625 |
| Total other shareholders | 2,121,685 | 11.99% | 12.01% | -1,625 |
| Total | 17,700,000 | 100% | 100% | - |
Dividends and 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.
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. The achievement of this objective is an important priority for the group.
The annual general meeting of shareholders of AS Merko Ehitus held at 30 April 2014 approved the Supervisory Boards proposal to pay the shareholders the total amount of EUR 7.3 million (EUR 0.41 per share) as dividends from net profit brought forward, which is equivalent to a 70% dividend rate and a 5.7% dividend yield for the year 2013 (using the share price as at 31 December 2013).
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. The dividend payment to the shareholders will take place on 20 May 2014. In 2013 the total amount of EUR 5.3 million (EUR 0.30 per share) was paid to shareholders as dividends, which is equivalent to a 70% dividend rate and a 5.1% dividend yield for the year 2012 (using the share price as at 31 December 2012).
Corporate governance and structure
AS Merko Ehitus operates as a holding company whose companies in Estonia, Latvia and Lithuania offer complete solutions in the field of construction and real estate development. In the construction sector, the group’s largest companies are AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba (100%) and the companies belonging to the AS Merko Ehitus Eesti group: 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 holding company AS Merko Ehitus has a two-member Management Board: Andres Trink and Tõnu Toomik.
It is important to maintain a simple organisational structure in the group and in management to be guided primarily by the group's objectives and requirements. For the purposes of maximum efficiency in the group management, we in some cases differentiate the management structure and legal structure.
General Meeting of Shareholders
The general meeting of the shareholders was held on 30 April 2014. The general meeting resolved to approve the annual report and the profit allocation proposal for 2013. The dividends payment in the sum of EUR 7.3 million (EUR 0.40 per share) will be paid out to shareholders on 20 May 2014.
In addition, the annual general meeting resolved to extend the terms of office of members of the Supervisory Board Toomas Annus, Teet Roopalu, Indrek Neivelt and Olari Taal until April 30th 2017, i.e. for a period of three years from the decision for the extension. The remuneration of members of the Supervisory Board did not change and will continue based on terms and conditions approved at general meeting of shareholders of AS Merko Ehitus, held on October 31st 2008.
In addition the general meeting of shareholders decided to appoint AS PricewaterhouseCoopers the auditor of AS Merko Ehitus for the financial year of 2014 and to pay to the auditing company for auditing the financial year of 2014 as per contract to be entered into with AS PricewaterhouseCoopers.
Changes in the legal structure of the group
In 2014, AS Merko Ehitus has decided to streamline its group companies' structure to improve management effectiveness and produce administrative cost savings. As part of the action plan, ownership interests of insignificant subsidiaries are reviewed and potential mergers or disposals are decided. The action plan does not concern material subsidiaries of the group and does not have a material near-term effect on the group's financial results. First changes are under way and the implementation of the action plan will continue in 2014.
On 20 December 2013, AS Merko Ehitus initiated a process to merge its fully owned subsidiaries OÜ Woody, OÜ Metsailu and OÜ Käibevara, all engaged in real estate development, in order to have savings in administrative cost related to company management. The acquiring company is 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 closing date of the merger was 1 January 2014 after which all transactions of the acquirees have been deemed to have been made on account of the acquirer. The final merger entry will be made in the Commercial Register during the first half of 2014.
On 15 January 2014, a subsidiary of AS Merko Ehitus group, AS Merko Ehitus Eesti, signed an agreement for the transfer of its entire 80% holding in the subsidiary Gustaf Tallinn OÜ to the current 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 EUR 20,000. The final sales price was 17,201 euros, which was calculated in accordance with the audited 2013 annual report of Gustaf 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 paid dividend. On 2 May 2014, the seller returned the adjusted part of the sales price EUR 2,799 to the buyer’s bank account.
As a result of the sale of the ownership interest and the subsequent deconsolidation of Gustaf Tallinn OÜ, the estimated impact on the consolidated profit of AS Merko Ehitus group is EUR 0, the negative impact on assets and liabilities is EUR 967 thousand and EUR 945 thousand, respectively.
On 22 January 2014, fully owned subsidiary of AS Merko Ehitus, UAB Merko Bustas, formed a fully owned subsidiary in Lithuania, UAB VPSP 1 with a share capital of LTL 10,000 (EUR 2,896). The subsidiary was formed to participate in public-private partnership (PPP) procurements organised by the Lithuanian government.
Changes in the management structure of the group
In conjunction with a streamlining of the management structure, there was a change on 7 March 2014 in the composition of the Management Board of AS Merko Ehitus Eesti, a 100% subsidiary of AS Merko Ehitus. Andres Agukas, the Member of the Management Board was recalled. The Management Board will continue with four members: Tiit Roben (Chairman), Jaan Mäe, Veljo Viitmann and Alar Lagus.
As a result of the departure of Andres Agukas, the composition of the Supervisory Boards of AS Merko Infra and Tallinna Teede AS, subsidiaries of the AS Merko Ehitus Eesti group, will change. Effective 7 March 2014, Tiit Roben was appointed as Chairman of the Supervisory Board of AS Merko Infra to replace Andres Agukas. The Supervisory Board will continue with three members: Tiit Roben (Chairman), Veljo Viitmann and Mihkel Mugur. The Supervisory Board of Tallinna Teede AS will continue with three members after the departure of Andres Agukas: Tiit Roben (Chairman), Alar Lagus and Veljo Viitmann.
The Supervisory Board of AS Merko Infra, a 100% subsidiary AS Merko Ehitus Eesti and with ultimate parent AS Merko Ehitus, decided to appoint Boris Tehnikov as an additional member of the Management Board and to elect the current member, Arno Elias, as the Chairman of the Management Board of AS Merko Infra as of 2 April 2014. The Management Board of AS Merko Infra will continue with three members: Arno Elias (The Chairman), Tarmo Pohlak and Boris Tehnikov.
AS Merko Ehitus board decided to recall a member of the Supervisory Board of UAB Merko Statyba Jaan Mäe and appoint Signe Kukin as the new member of the Supervisory Board as of 2 April 2014. The Supervisory Board will continue with three members: Andres Trink (The Chairman), Tõnu Toomik and Signe Kukin.
OÜ Merko Investments, part of AS Merko Ehitus group, which has 100% holding in SIA Merks, board decided to recall a member of the Supervisory Board of SIA Merks Jaan Mäe and appoint Signe Kukin as the new member of the Supervisory Board as of 2 April 2014. The Supervisory Board will continue with three members: Andres Trink (The Chairman), Tõnu Toomik and Signe Kukin.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
|
2014 3 months |
2013 3 months |
2013 12 months |
|
| Revenue | 48,868 | 47,859 | 262,719 |
| Cost of goods sold | (44,932) | (43,624) | (239,996) |
| Gross profit | 3,936 | 4,235 | 22,723 |
| Marketing expenses | (854) | (656) | (3,041) |
| General and administrative expenses | (2,120) | (1,956) | (9,260) |
| Other operating income | 406 | 708 | 2,264 |
| Other operating expenses | (50) | (44) | (425) |
| Operating profit | 1,318 | 2,287 | 12,261 |
| Finance income/costs | (180) | (333) | (1,116) |
| incl. finance income/costs from joint ventures | (34) | (34) | (138) |
| finance income/costs from other long-term investments | - | 13 | 2 |
| interest expense | (178) | (210) | (814) |
| foreign exchange gain (loss) | (1) | (110) | (202) |
| other financial income (expenses) | 33 | 8 | 36 |
| Profit before tax | 1,138 | 1,954 | 11,145 |
| Corporate income tax expense | (522) | (194) | (791) |
| Net profit for financial year | 616 | 1,760 | 10,354 |
| incl. net profit attributable to equity holders of the parent | 711 | 1,766 | 10,399 |
| net profit attributable to non-controlling interest | (95) | (6) | (45) |
| Other comprehensive income | |||
| Currency translation differences of foreign entities | - | (141) | (157) |
| Comprehensive income for the period | 616 | 1,619 | 10,197 |
| incl. net profit attributable to equity holders of the parent | 711 | 1,625 | 10,242 |
| net profit attributable to non-controlling interest | (95) | (6) | (45) |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.04 | 0.10 | 0.59 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 31.03.2014 | 31.03.2013 | 31.12.2013 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 51,917 | 33,349 | 46,633 |
| Short-term deposits | - | 2,500 | - |
| Trade and other receivables | 58,204 | 58,853 | 57,172 |
| Prepaid corporate income tax | 21 | 480 | 19 |
| Inventories | 88,734 | 82,127 | 87,451 |
| 198,876 | 177,309 | 191,275 | |
| Non-current assets | |||
| Long-term financial assets | 21,601 | 25,124 | 27,415 |
| Deferred income tax assets | 1,592 | 1,818 | 1,592 |
| Investment property | 4,615 | 3,546 | 4,672 |
| Property, plant and equipment | 12,704 | 14,826 | 13,117 |
| Intangible assets | 1,139 | 1,346 | 1,167 |
| 41,651 | 46,660 | 47,963 | |
| TOTAL ASSETS | 240,527 | 223,969 | 239,238 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 15,836 | 12,590 | 18,916 |
| Payables and prepayments | 77,352 | 64,378 | 72,162 |
| Income tax liability | 197 | 47 | 62 |
| Short-term provisions | 5,152 | 5,268 | 5,906 |
| 98,537 | 82,283 | 97,046 | |
| Non-current liabilities | |||
| Long-term borrowings | 16,321 | 19,813 | 16,469 |
| Deferred income tax liability | 574 | 380 | 505 |
| Other long-term payables | 1,667 | 1,705 | 2,162 |
| 18,562 | 21,898 | 19,136 | |
| TOTAL LIABILITIES | 117,099 | 104,181 | 116,182 |
| EQUITY | |||
| Non-controlling interests | 854 | 1,232 | 1,193 |
| Equity attributable to equity holders of the parent | |||
| Share capital | 12,000 | 12,000 | 12,000 |
| Statutory reserve capital | 1,200 | 1,200 | 1,200 |
| Currency translation differences | (669) | (653) | (669) |
| Retained earnings | 110,043 | 106,009 | 109,332 |
| 122,574 | 118,556 | 121,863 | |
| TOTAL EQUITY | 123,428 | 119,788 | 123,056 |
| TOTAL LIABILITIES AND EQUITY | 240,527 | 223,969 | 239,238 |
The website of AS Merko Ehitus group, listed on Nasdaq OMX Tallinn, is from now on group.merko.ee, and the previous website of the group www.merko.ee will become the website of AS Merko Ehitus Eesti, Estonian leading construction company.
Interim report and the investor presentation are attached to the announcement and are also published on NASDAQ OMX Tallinn and Merko’s web page (group.merko.ee).
AS Merko Ehitus (group.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
