COMMENTARY FROM MANAGEMENT
Q1 2023 revenue for Merko Ehitus was EUR 76 million, representing 11% growth compared to the same period a year ago. Net profit for the first quarter was EUR 5.9 million – nearly double that of Q1 2022. Merko delivered 145 apartments to new homeowners in Q1.
According to the management of Merko Ehitus, despite the good profit growth in Q1, it had entered a completely different apartment market situation than was in 2020 and 2021 when transaction volume and prices peaked. Today are drawing up the final contracts under property law for apartments pre-sold earlier, and this is also showing up in current financial results. The pace of new sales of apartments has dropped steeply compared to spring 2022 and is several times lower than before. Because of that, Merko group has launched fewer development projects in the last 12 months, which in turn means fewer apartments in the next few years. On the positive side of things, the demand for new homes has increased somewhat in Q1.
In Q1 2023, the group companies entered into new construction contracts worth EUR 170 million and the balance of secured order-book grew by approximately 10% to EUR 412 million. The secured order-book of the group companies is currently strong, which in the sense of construction volumes does counterbalance the impacts of the apartment market declining in the next few years. The project management business directly relies on the volume of construction orders, and these in turn depend on investment confidence and the general health of the economy. The outlook in this area is not good and rapid inflation will mean a number of risks on the construction contact expense side.
In Q1, Merko delivered 145 apartments to buyers and launched the fifth phase of Lahekalda apartment development in Tallinn, with the construction of the above-ground structures. The decision to build the project to completion depends on the market situation. As of the end of Q1, the group had 1,004 apartments under construction, of which more than 40% were covered by preliminary sale contracts. The largest apartment developments were Uus-Veerenni, Noblessner and Lahekalda in Tallinn, Erminurme in Tartu, Viesturdārzs, Mežpilsēta and Magnolijas in Riga and Vilneles Skverai in Vilnius.
In Q1 of 2023, the largest sites under construction in Estonia were the third phase of the Mustamäe medical campus of the North Estonia Medical Centre, Rae and Pelgulinna state gymnasiums, Arter Quarter and the infrastructure along the south-eastern border of the Republic of Estonia, Defence Forces buildings on Tapa base, a tram line between Old City Harbour and Rail Baltic’s Ülemiste passenger terminal and the renovation of Vana-Kalamaja Street. Projects in progress in Latvia were the GUSTAVS business centre, Elemental Business Centre office buildings and NATO infrastructure in Ādaži. In Lithuania, infrastructure for several wind farms and buildings and infrastructure for NATO training centres.
OVERVIEW OF THE 3 MONTHS RESULTS
PROFITABILITY
2023 3 months’ pre-tax profit was EUR 6.1 million (3M 2022: EUR 3.5 million), which brought the pre-tax profit margin to 8.0% (3M 2022: 5.1%).
Net profit attributable to shareholders for 3 months 2023 was EUR 5.9 million (3M 2022: EUR 3.0 million) and 3 months net profit margin was 7.8% (3M 2022: 4.4%).
REVENUE
2023 3 months’ revenue was EUR 75.8 million (3M 2022: EUR 68.4 million). 3 months’ revenue increased by 10.7% compared to same period last year. The share of revenue earned outside Estonia in 3 months 2023 was 46.7% (3M 2022: 56.2%).
SECURED ORDER BOOK
As of 31 March 2023, the group’s secured order book was EUR 412.2 million (31 March 2022: EUR 376.1 million). In 3 months 2023, group companies signed contracts in the amount of EUR 170.3 million (3M 2022: EUR 171.2 million).
REAL ESTATE DEVELOPMENT
In 3 months 2023, the group sold a total of 145 apartments; in 3 months 2022, the group sold 126 apartments. The group earned a revenue of EUR 19.4 million from sale of own developed apartments in 3 months 2023 and EUR 15.5 million in 3 months 2022.
CASH POSITION
At the end of the reporting period, the group had EUR 14.3 million in cash and cash equivalents, and equity of EUR 190.1 million (50.0% of total assets). Comparable figures as of 31 March 2022 were EUR 29.9 million and EUR 170.3 million (50.0% of total assets), respectively. As of 31 March 2023, the group’s net debt was EUR 72.8 million (31 March 2022: EUR 23.6 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2023 3 months |
2022 3 months |
2022 12 months |
|
| Revenue | 75,751 | 68,426 | 409,633 |
| Cost of goods sold | (65,776) | (60,554) | (355,975) |
| Gross profit | 9,975 | 7,872 | 53,658 |
| Marketing expenses | (1,077) | (1,115) | (4,077) |
| General and administrative expenses | (3,965) | (3,723) | (15,860) |
| Other operating income | 817 | 686 | 3,144 |
| Other operating expenses | (62) | (61) | (1,834) |
| Operating profit | 5,688 | 3,659 | 35,031 |
| Finance income/costs | 391 | (160) | 2,067 |
| incl. finance income/costs from joint ventures | 1,280 | (2) | 3,516 |
| interest expense | (655) | (162) | (1,180) |
| foreign exchange gain (loss) | (210) | 52 | (138) |
| other financial income (expenses) | (24) | (48) | (131) |
| Profit before tax | 6,079 | 3,499 | 37,098 |
| Corporate income tax expense | (292) | (421) | (2,995) |
| Net profit for financial year | 5,787 | 3,078 | 34,103 |
| incl. net profit attributable to equity holders of the parent | 5,880 | 3,006 | 34,640 |
| net profit attributable to non-controlling interest | (93) | 72 | (537) |
| Other comprehensive income, which can subsequently be classified in the income statement | |||
| Currency translation differences of foreign entities | 53 | 16 | 30 |
| Comprehensive income for the period | 5,840 | 3,094 | 34,133 |
| incl. net profit attributable to equity holders of the parent | 5,910 | 3,020 | 34,648 |
| net profit attributable to non-controlling interest | (70) | 74 | (515) |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.33 | 0.17 | 1.96 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 31.03.2023 | 31.03.2022 | 31.12.2022 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 14,295 | 29,881 | 17,665 |
| Trade and other receivables | 54,206 | 57,331 | 77,959 |
| Prepaid corporate income tax | 89 | 53 | 38 |
| Inventories | 244,549 | 187,848 | 225,661 |
| 313,139 | 275,113 | 321,323 | |
| Non-current assets | |||
| Investments in joint ventures | 14,175 | 9,377 | 12,895 |
| Other long-term loans and receivables | 22,685 | 23,878 | 22,982 |
| Deferred income tax assets | 873 | 793 | 693 |
| Investment property | 11,460 | 13,803 | 11,485 |
| Property, plant and equipment | 17,287 | 16,966 | 17,452 |
| Intangible assets | 564 | 653 | 582 |
| 67,044 | 65,470 | 66,089 | |
| TOTAL ASSETS | 380,183 | 340,583 | 387,412 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 59,753 | 11,554 | 49,687 |
| Payables and prepayments | 88,907 | 103,801 | 96,248 |
| Income tax liability | 1,290 | 956 | 1,241 |
| Short-term provisions | 8,973 | 6,825 | 9,820 |
| 158,923 | 123,136 | 156,996 | |
| Non-current liabilities | |||
| Long-term borrowings | 27,347 | 41,938 | 42,236 |
| Deferred income tax liability | 2,327 | 3,159 | 2,355 |
| Other long-term payables | 2,054 | 2,244 | 2,133 |
| 31,728 | 47,341 | 46,724 | |
| TOTAL LIABILITIES | 190,651 | 170,477 | 203,720 |
| EQUITY | |||
| Non-controlling interests | (565) | (153) | (495) |
| 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 | (753) | (777) | (783) |
| Retained earnings | 182,128 | 162,314 | 176,248 |
| 190,097 | 170,259 | 184,187 | |
| TOTAL EQUITY | 189,532 | 170,106 | 183,692 |
| TOTAL LIABILITIES AND EQUITY | 380,183 | 340,583 | 387,412 |
Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).
