COMMENTARY FROM MANAGEMENT
Merko Ehitus revenue was EUR 110 million in Q3 2022 and the revenue for the first nine months of the year amounted to EUR 266 million, while the respective figures for net profit were EUR 9.8 million and EUR 17 million. Merko has delivered more than 450 apartments to buyers in 9 months this year.
According to the management of Merko Ehitus, the results for Q3 reflect the growth of investments made into apartment development in recent years, and balanced management of the construction projects portfolio in a complicated market situation.
The outlook of the next 12 months and the years ahead for the construction sector have worsened sharply during the current year. The slowing of inflation and the expected adjustment by companies and households to the high prices of energy has not yet taken place. In addition, interest rates continue rising rapidly. Both customers for major construction projects and the apartment market are gripped by great uncertainty. In conditions of high inflation, pressure on prices continues despite of the fact that demand has decreased. Since processes in construction and real estate development take time, the impact of the current economic and market situation will manifest fully in the financial results for our sectors in 12–24 months.
In the nine months of the current year, the group companies entered into new construction contracts worth EUR 290 million and the balance of secured order book stood at EUR 341 million as of the end of September (respectively EUR 273 million and EUR 314 million in 2021). Merko secured order book is currently strong, which will help to get through the recessionary period of the next few years with a bit less pain. The outlook for new construction orders on the market as a whole is extremely unclear, but at the same time, we are well-positioned for investments into the energy sector.
In the first nine months of this year, Merko delivered 456 new apartments and four commercial units to buyers (first 9 months of 2021: 197 apartments and 7 commercial units). Despite the exceedingly complicated situation in the economy, Merko has continued investments into apartment development and launched new development projects, albeit at a more moderate pace than years past. According to the management of Merko Ehitus, in conditions of rapid inflation the construction will not become cheaper in the future.
During the first nine months of this year, the group launched four new development projects with approximately 280 apartments. As of the end of Q3, there were 1,617 apartments under construction by the group, of which more than half have preliminary sale contracts. The largest apartment developments were Uus-Veerenni, Noblessneri and Lahekalda in Tallinn; Erminurme in Tartu; Viesturdarzs, Mežpilseta and Magnolijas in Riga, and Vilneles Skverai in Vilnius.
In Q3 of 2022, the largest objects under construction in Estonia were the third phase of the Mustamäe medical campus of the North-Estonia Medical Centre, Pelgulinna and Rae state gymnasiums, the Arter quarter, construction of infrastructure segments of the Republic of Estonia’s southeast land border, the tram line between Old City Harbour and Rail Baltic’s Ülemiste passenger terminal, and renovation of Rannamõisa tee and Vana-Kalamaja street in Tallinn. In Latvia, projects in progress included the Orkla wafer and biscuit production plant, GUSTAVS business centre, Elemental Skanste office buildings, NATO facilities in Adaži; in Lithuania, several wind farm infrastructures and a car service centre in Vilnius.
OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS
PROFITABILITY
2022 9 months’ pre-tax profit was EUR 18.7 million and Q3 2022 was EUR 10.3 million (9M 2021: EUR 16.6 million and Q3 2021 was EUR 6.1 million), which brought the pre-tax profit margin to 7.0% (9M 2021: 7.3%).
Net profit attributable to shareholders for 9 months 2022 was EUR 17.0 million (9M 2021: EUR 15.3 million) and for Q3 2022 net profit attributable to shareholders was EUR 9.8 million (Q3 2021: EUR 5.5 million). 9 months net profit margin was 6.4% (9M 2021: 6.7%).
REVENUE
Q3 2022 revenue was EUR 110.0 million (Q3 2021: EUR 80.7 million) and 9 months’ revenue was EUR 266.2 million (9M 2021: EUR 226.5 million). 9 months’ revenue increased by 17.5% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2022 was 53.4% (9M 2021: 38.8%).
SECURED ORDER BOOK
As of 30 September 2022, the group’s secured order book was EUR 341.0 million (30 September 2021: EUR 314.4 million). In 9 months 2022, group companies signed contracts in the amount of EUR 290.4 million (9M 2021: EUR 272.9 million). In Q3 2022, new contracts were signed in the amount of EUR 97.1 million (Q3 2021: EUR 137.7 million).
REAL ESTATE DEVELOPMENT
In 9 months 2022, the group sold a total of 456 apartments; in 9 months 2021, the group sold 197 apartments. The group earned a revenue of EUR 56.9 million from sale of own developed apartments in 9 months 2022 and EUR 33.3 million in 9 months 2021. In Q3 of 2022 a total of 242 apartments were sold, compared to 52 apartments in Q3 2021, and earned a revenue of EUR 29.8 million from sale of own developed apartments (Q3 2021: EUR 7.5 million).
CASH POSITION
At the end of the reporting period, the group had EUR 22.2 million in cash and cash equivalents, and equity of EUR 166.6 million (40.9% of total assets). Comparable figures as of 30 September 2021 were EUR 19.6 million and EUR 150.8 million (50.9% of total assets), respectively. As of 30 September 2022, the group’s net debt was EUR 88.3 million (30 September 2021: EUR 20.6 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2022 9 months |
2021 9 months |
2022 III quarter |
2021 III quarter |
2021 12 months |
|
| Revenue | 266,206 | 226,533 | 110,008 | 80,673 | 339,375 |
| Cost of goods sold | (235,123) | (200,064) | (96,206) | (71,442) | (292,563) |
| Gross profit | 31,083 | 26,469 | 13,802 | 9,231 | 46,812 |
| Marketing expenses | (2,945) | (2,632) | (776) | (802) | (3,611) |
| General and administrative expenses | (11,411) | (9,098) | (3,889) | (3,392) | (13,925) |
| Other operating income | 2,426 | 2,511 | 1,004 | 1,197 | 3,508 |
| Other operating expenses | (647) | (328) | (192) | (235) | (582) |
| Operating profit | 18,506 | 16,922 | 9,949 | 5,999 | 32,202 |
| Finance income/costs | 168 | (351) | 361 | 90 | (75) |
| incl. finance income/costs from associates and joint ventures | 1,093 | 384 | 765 | 381 | 799 |
| interest expense | (670) | (548) | (296) | (232) | (681) |
| foreign exchange gain (loss) | (152) | (39) | (85) | – | (8) |
| other financial income (expenses) | (103) | (148) | (23) | (59) | (185) |
| Profit before tax | 18,674 | 16,571 | 10,310 | 6,089 | 32,127 |
| Corporate income tax expense | (1,911) | (1,426) | (735) | (570) | (3,104) |
| Net profit for financial year | 16,763 | 15,145 | 9,575 | 5,519 | 29,023 |
| incl. net profit attributable to equity holders of the parent | 17,023 | 15,277 | 9,821 | 5,514 | 29,140 |
| net profit attributable to non-controlling interest | (260) | (132) | (246) | 5 | (117) |
| Other comprehensive income, which can subsequently be classified in the income statement | |||||
| Currency translation differences of foreign entities | 11 | 14 | 23 | (2) | 33 |
| Comprehensive income for the period | 16,774 | 15,159 | 9,598 | 5,517 | 29,056 |
| incl. net profit attributable to equity holders of the parent | 17,020 | 15,292 | 9,831 | 5,513 | 29,163 |
| net profit attributable to non-controlling interest | (246) | (133) | (233) | 4 | (107) |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.96 | 0.86 | 0.55 | 0.31 | 1.65 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 30.09.2022 | 30.09.2021 | 31.12.2021 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 22,200 | 19,581 | 44,930 |
| Trade and other receivables | 72,295 | 59,665 | 55,484 |
| Prepaid corporate income tax | 5 | 3 | 114 |
| Inventories | 243,222 | 154,688 | 160,593 |
| 337,722 | 233,937 | 261,121 | |
| Non-current assets | |||
| Investments in associates and joint ventures | 10,472 | 7,288 | 7,703 |
| Other long-term loans and receivables | 28,323 | 23,832 | 24,079 |
| Deferred income tax assets | 1,155 | 1,120 | 622 |
| Investment property | 11,511 | 13,847 | 13,828 |
| Property, plant and equipment | 17,527 | 15,624 | 16,350 |
| Intangible assets | 592 | 684 | 669 |
| 69,580 | 62,395 | 63,251 | |
| TOTAL ASSETS | 407,302 | 296,332 | 324,372 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 60,034 | 9,355 | 11,636 |
| Payables and prepayments | 119,251 | 88,394 | 90,054 |
| Income tax liability | 1,830 | 997 | 681 |
| Short-term provisions | 5,584 | 6,318 | 7,976 |
| 186,699 | 105,064 | 110,347 | |
| Non-current liabilities | |||
| Long-term borrowings | 50,469 | 30,826 | 41,001 |
| Deferred income tax liability | 1,671 | 1,986 | 3,112 |
| Other long-term payables | 2,377 | 3,553 | 2,900 |
| 54,517 | 36,365 | 47,013 | |
| TOTAL LIABILITIES | 241,216 | 141,429 | 157,360 |
| EQUITY | |||
| Non-controlling interests | (473) | 4,083 | (227) |
| Equity attributable to equity holders of the parent | |||
| Share capital | 7,929 | 7,929 | 7,929 |
| Statutory reserve capital | 793 | 793 | 793 |
| Currency translation differences | (794) | (799) | (791) |
| Retained earnings | 158,631 | 142,897 | 159,308 |
| 166,559 | 150,820 | 167,239 | |
| TOTAL EQUITY | 166,086 | 154,903 | 167,012 |
| TOTAL LIABILITIES AND EQUITY | 407,302 | 296,332 | 324,372 |
Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).
