General information
Merko Ehitus is a leading building corporation offering integral solutions,
with branches currently in Estonia, Latvia and Lithuania. Merko Ehitus has
been in business since 1990. The Group consists of 32 subsidiaries and 7
associates and joint ventures the largest of which are: SIA Merks (100%),
UAB Merko Statyba (100%), Tallinna Teede AS (100%), AS Gustaf (75%),
OÜ Gustaf Tallinn (80%), AS Merko Tartu (66%), OÜ Woody (100%) and AS Tartu
Maja Betoontooted (25%).
In 2006, the following important changes took place in the Group's structure.
• In February AS Merko Ehitus sold a 12% holding in the associated company
AS Telegrupp for 1847 thousand kroons. In June, the remaining 19% holding
in AS Telegrupp was sold for 3004 thousand kroons.
• In July AS Merko Ehitus sold a 25% holding in the subsidiary AS Gustaf
for 5125 thousand kroons.
• In December a Latvian subsidiary of AS Merko Ehitus SIA Merks sold its
100% holding in a trading company SIA Arena Riga, as a non-related
operating area to primary activities. The sales price was 17.61 million
euros.
• In December AS Merko Ehitus sold its 100% holding in a trading company
OÜ Rannamõisa Kinnisvara for 31.89 million kroons. Regarding the whole
Group, the sales transaction is considered as sale of real estate.
Business operations
The revenue from sales of Merko Ehitus Group for 12 months in 2006 was
4414.4 million kroons, with a 36.6% rise within a year. The capacity of
activities carried out outside Estonia rise from 24.5% to 36.7% of the
Group's revenue from sales. 63.3% of revenue from sales was earned in
Estonia, 23.9% in Latvia and 12.8% in Lithuania. Compared to 2005 the
revenue from sales grew 14.5% in Estonia, 88.5% in Latvia and 144.4% in
Lithuania.
In 4th quarter of 2006 the Group's revenue from sales was 1343.3 million
kroons, which exceeded the numbers of 2005 for the same period by 77.7%,
which is 587.5 million kroons more. The seasonal and cyclical influence
of the construction activities for Group's 4th quarter's revenues was
insignificant.
Companies of the Group 12M 2006 consolidated net sales
(sales outside the Group) were (in thousand kroons and euros):
12M 2006 12M 2005
EEK EUR EEK EUR
Estonian companies
Construction
AS Merko Ehitus (parent company) 1 789 157 114 348 1 779 827 113 752
AS Gustaf (75% partnership) 97 049 6 203 60 922 3 894
OÜ Gustaf Tallinn (80% partnership) 124 068 7 929 77 555 4 957
AS Merko Tartu (66% partnership) 255 769 16 347 232 972 14 890
Tallinna Teede AS (100% partnership) 317 591 20 298 204 005 13 038
OÜ Woody (100% partnership) 306 354 19 580 106 080 6 780
Latvian companies
Construction
SIA Merks (100% partnership) 973 636 62 227 545 068 34 836
Lithuanian companies
Construction
UAB Merko Statyba (100% partnership) 507 309 32 423 208 850 13 348
Due to the growth of capacities, rise in prices for work labor and materials,
the expense for the output grew 36.1% within a year constituting 84.4% from
sales. Marketing and administrative expenses grew 14.5%, constituting 3.9%
from sales. Despite the rapid rise of expenses for work labor and materials
and also intensive situation in labor market, the company managed to maintain
the total profit margin on a 15.6% level from sales and rise the operating
profit margin from 13.5% to 14.3% from revenue.
The Group's net profit for 12 months was 581.7 million kroons. 125.1 million
kroons from net profit was earned as extraordinary profit from sales of
shareholdings, 284.7 million kroons from development activities, 164.2
million from construction activities and 7.7 million kroons from financing
activities. The benefit-cost ratio of the net profit without extraordinary
profit was 10.3% and profit margin for construction activities 4.6%.
The Group's net profit grew by 32.6% within a year and profit earned outside
Estonia grew by 155.9%. For the first time the net profit of Latvian and
Lithuanian units (252.7 million kroons) exceeded parent company AS Merko
Ehitus' 218.1 million kroons profit.
The net profit of the Group for 4th quarter of 2006 was 246.5 million kroons,
with a yearly growth of 82.1%.
Construction market
4th quarter did not bring significant changes in the construction landscape,
the demand in the sector was good and the construction market grew strongly
in all three Baltic States. In market prices, the growth of the construction
sector during the last 9 months amounted to 37.9% in Estonia, 38.5% in Latvia
and 31.2% in Lithuania according to the Statistical Offices. Constantly
increasing construction prices contributed significantly to this growth.
Rapidly increasing volumes have affected the availability of workforce and
building materials, and have also boosted the rise of construction costs.
As compared to the fourth quarter in 2005, construction costs increased by
25.0% in Latvia, 13.7% in Estonia and 9.9% in Lithuania including the
respective 41.1% and 25.2% increase in labour costs in Latvia and Estonia.
The deficit for work labor and construction details as well rapid growth in
real estate prices will still be biggest challenges for the development of
the sector. Rapid growth brings instability to the sector; the risk for due
date and post-budget construction rises. In short term perspective the
demand exceeds offerings and the growth in construction sector exceeds the
economic growth. In middle term perspective the rapid growth of prices of
construction services and according to economy analysts' predictions the
slackening of economic growth can have a negative effect on the demand and
the growth in building sector might slow down.
The ratios and calculation methods characterizing the operating activities
of the Group were as follows:
12M 2006 12M 2005
Net profit margin * 10.2 % 9.0 %
Operating profit margin 14.3 % 13.5 %
Return on equity per annum 43.2 % 48.2 %
Return on assets per annum 21.4 % 24.9 %
Current ratio 2.0 2.0
Equity ratio 49.6 % 49.6 %
General expenses to net sales 3.9 % 4.6 %
Staff costs to net sales 8.0 % 7.3 %
Average number of full-time employees 850 695
* less extraordinary profit
Net profit margin: Net profit / Sales
Operating profit margin: Operating profit / Sales
Return on equity: Net profit x 4/3* / Average equity during the period*
Return on assets: Net profit x 4/3* / Average assets during the period
Current ratio: Current assets / Current liabilities
Equity ratio: Owners equity* / Total assets
General expenses to net sales: General expenses / Sales
Staff costs to net sales: Staff costs / Sales
* calculated from the share of the parent company's shareholders
In 31.12.2006, the average number of full-time employees in the Group's
service was 850, having increased by 9 employees in last quarter and
by 155 employees in last year. The gross salaries paid to full-time
personnel amounted to 276.5 million kroons, an increase of 59.0% compared
to the year 2005.
Shares and shareholders
AS Merko Ehitus biggest shareholders as of 31.12.2006
No. of shares Ownership
AS Merko Grupp 12 742 686 71.99%
ING Luxembourg S.A. 1 214 700 6.86%
Skandinaviska Enskilda Banken Ab, clients 789 365 4.46%
Nordea Bank Finland Plc, clients 503 172 2.84%
OKO Bank Plc, clients 248 594 1.40%
J.P. Morgan Bank Luxembourg S.A. 189 306 1.07%
The shares of Merko Ehitus are listed in the main list of Tallinn Stock
Exchange. In 2006 the number of transactions with Merko Ehitus' shares was
3589, during which 3.4 million shares changed ownership and the turnover of
the transactions was 832.6 million kroons. The cheapest bargain with a share
was 197.46 kroons and highest 326.23 kroons per share. The closing share
price with a state of 29.12.2006 was 307.46 kroons.
31.12.2006 31.12.2005 +/-
No. of shares, thousand pcs 17 700 17 700
Earnings per share (EPS), in kroons 32.87 24.78 +32.6%
Equity per share, in kroons 90.05 62.23 +44.7%
P/B (share price to equity per share) 3.41 4.34 -21.4%
P/E (share price / earnings per share) 9.35 10.89 -14.1%
INCOME STATEMENT IV quarter 2006
consolidated, unaudited in thousand EEK and EUR
EEK EUR
IVq 2006 IVq 2005 IVq 2006 IVq 2005
Sales 1 343 319 755 843 85 854 48 307
Cost of goods sold (1 131 204) (663 648) (72 297) (42 415)
GROSS PROFIT 212 115 92 195 13 557 5 892
Marketing expenses (7 921) (7 146) (506) (457)
Administrative and general expenses(51 824) (43 965) (3 312) (2 810)
Other operating income 133 435 89 115 8 528 5 695
Other operating expenses (14 485) (2 739) (926) (175)
OPERATING PROFIT 271 320 127 460 17 341 8 145
Financial income and expenses
from stocks of subsidiaries 0 2 356 0 151
Financial income and expenses
from stocks of associate companies
and joint ventures 5 346 5 274 342 337
Financial income and expenses from
other long-term financial investments 0 11 0 1
Interest expense (4 023) 593 (257) 38
Foreign exchange gain (2 298) (1 693) (147) (108)
Other financial income and expenses 3 046 887 195 57
Total financial income and expenses 2 071 7 428 133 476
PROFIT BEFORE TAX 273 391 134 888 17 474 8 621
Corporate income tax expense (24 264) 4 598 (1 551) 294
NET PROFIT FOR CURRENT PERIOD 249 127 139 486 15 923 8 915
incl. net profit attributable
to equity holders of
the parent company 246 463 135 374 15 752 8 652
minority interest 2 664 4 112 171 263
Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR) 13,92 7,65 0,89 0,49
INCOME STATEMENT 01.01.2006-31.12.2006
consolidated, unaudited in thousand EEK and EUR
EEK EUR
2006 2005 2006 2005
Sales 4 414 361 3 232 392 282 129 206 588
Cost of goods sold (3 727 561) (2 738 714) (238 234) (175 036)
GROSS PROFIT 686 800 493 678 43 895 31 552
Marketing expenses (23 390) (22 595) (1 495) (1 444)
Administrative and gener. expenses(148 654) (127 632) (9 501) (8 157)
Other operating income 148 067 185 052 9 463 11 827
Other operating expenses (29 952) (93 452) (1 914) (5 973)
OPERATING PROFIT 632 871 435 051 40 448 27 805
Financial income and expenses
from stocks of subsidiaries 2 326 7 499 149 479
Financial income and expenses
from stocks of associate
companies and joint ventures 17 461 19 632 1 116 1 255
Financial income and expenses from
other long-term financial investments 7 11 0 1
Interest expense (14 288) (2 418) (913) (155)
Foreign exchange gain (6 064) (2 277) (388) (145)
Other financial income and expenses 8 291 6 226 530 398
Total financial income and expenses 7 733 28 673 494 1 833
PROFIT BEFORE TAX 640 604 463 724 40 942 29 638
Corporate income tax expense (49 913) (18 437) (3 190) (1 178)
NET PROFIT FOR CURRENT PERIOD 590 691 445 287 37 752 28 460
incl. net profit attributable
to equity holders of
the parent company 581 738 438 638 37 180 28 034
minority interest 8 953 6 649 572 426
Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR) 32,87 24,78 2,10 1,58
BALANCE SHEET AS OF 31.12.2006
consolidated, unaudited in thousand EEK and EUR
EEK EUR
31.12.2006 31.12.2005 31.12.2006 31.12.2005
ASSETS
Current assets
Cash and cash equivalents 676 143 268 446 43 213 17 157
Trade receivables 860 531 544 581 54 998 34 806
Inventories 1 351 190 964 088 86 357 61 617
Non-current assets held for sale 733 0 47 0
Total current assets 2 888 597 1 777 115 184 615 113 580
Non-current assets
Long-term financial investments 215 866 196 886 13 796 12 583
Investment property 9 444 42 506 604 2 716
Property, plant and equipment 90 382 199 004 5 777 12 718
Intangible assets 10 240 4 365 654 279
Total non-current assets 325 932 442 761 20 831 28 296
TOTAL ASSETS 3 214 529 2 219 876 205 446 141 876
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings 283 792 114 841 18 138 7 340
Trade payables 1 079 371 712 186 68 985 45 517
Government grants 1 498 22 225 96 1 420
Short-term provisions 54 410 21 741 3 477 1 390
Total current liabilities 1 419 071 870 993 90 696 55 667
Non-current liabilities
Loans, bonds and
finance lease liabilities 159 335 202 824 10 183 12 963
Other long-term payables 23 277 22 726 1 488 1 452
Long-term provisions 0 11 385 0 728
Total non-current liabilities 182 612 236 935 11 671 15 143
Total liabilities 1 601 683 1 107 928 102 367 70 810
Equity
Minority interest 18 904 10 552 1 208 674
Equity attributable to equity holders of the parent company
Share capital 177 000 177 000 11 312 11 312
Statutory reserve capital 17 700 8 850 1 131 566
Currency translation adjustment (5 751) (5 059) (368) (323)
Retained earnings 1 404 993 920 605 89 796 58 837
Total equity attributable to equity
holders of the parent company 1 593 942 1 101 396 101 871 70 392
Total equity 1 612 846 1 111 948 103 079 71 066
TOTAL LIABILITIES AND EQUITY 3 214 529 2 219 876 205 446 141 876
Alar Lagus
Member of Board
+372 6 805 109
