COMMENTARY FROM MANAGEMENT
Q2 2023 revenue for Merko Ehitus was EUR 142 million and the H1 figure was EUR 217 million. Net profit in Q2 was EUR 13.6 million and net profit for the last six months was EUR 19.4 million. Merko delivered 512 apartments to new homeowners and 15 commercial units to businesses in H1.
According to the management of Merko Ehitus, the profit for the first half of the year was strong, as expected, since a number of apartment developments were completed, and pre-sold apartments were delivered to home-buyers. At the same time, the backstock of pre-sold apartments is nearing exhaustion and the market situation today is very different compared to 2020 and 2021. The pace of new apartment sales has dropped significantly, due to which also the launch of new developments by Merko group and on the Baltic market as a whole has slowed greatly. This in turn will mean fewer developments reaching completion and fewer apartments sold in the coming years. On the positive side, the situation on the apartment market has stabilized in the first half of the year, adjustment to the changes in the economic environment continues and market is seeing slightly more relaxed sentiment. Although there are currently fewer apartment buyers purchasing as an investment, new home purchase transactions are still being closed. However, a rapid change in demand is not seen in the near future and the launch of new projects is viewed cautiously. In the first half of the year, the group invested a total of EUR 56.5 million into developments in progress and new immovables.
In the first six months of 2023, the group companies entered into new construction contracts worth EUR 255 million, which was 32% more than in the comparison period, and the balance of secured order-book grew by approximately 29% as compared to the last year to EUR 418 million. In the sense of construction volumes, the group’s secured order-book will to a certain extent counterbalance the impacts of the apartment market decline in the next few years. At the same time, the operating environment in the construction sector remains unstable. Risk management is extremely important, as much as is possible given the high inflation and high interest rates, new regulations and administrative practices as well as the geopolitical situation.
In the first six months of the year, Merko delivered 512 apartments to new homeowners and 15 commercial units to businesses. As of the end of Q2, the group companies had 978 apartments on their balance sheets. Of apartments under construction, approximately 40% were covered by preliminary sale contracts. The largest apartment developments were Uus-Veerenni, Noblessner and Lahekalda in Tallinn, Erminurme in Tartu, Viesturdarzs, Mežpilseta and Magnolijas in Riga and Vilneles Skverai in Vilnius.
In Q2 of 2023, the largest sites under construction in Estonia were the Rae and Pelgulinna state gymnasiums, Hampton by Hilton and Hyatt hotel buildings, 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 Baltica Ülemiste passenger terminal and the first phase of Ülemiste terminal as well the renovation of Vana-Kalamaja Street. Projects in progress in Latvia were the GUSTAVS business centre and Elemental Business Centre office buildings. In Lithuania, wind farm infrastructure works and a substation in Kelmė region, and various buildings and infrastructure for NATO training centres.
OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS
PROFITABILITY
2023 6 months’ pre-tax profit was EUR 20.2 million and Q2 2023 was EUR 14.1 million (6M 2022: EUR 8.4 million and Q2 2022 was EUR 4.9 million), which brought the pre-tax profit margin to 9.3% (6M 2022: 5.4%).
Net profit attributable to shareholders for 6 months 2023 was EUR 19.4 million (6M 2022: EUR 7.2 million) and for Q2 2023 net profit attributable to shareholders was EUR 13.6 million (Q2 2022: EUR 4.2 million). 6 months net profit margin was 8.9% (6M 2022: 4.6%).
REVENUE
Q2 2023 revenue was EUR 141.6 million (Q2 2022: EUR 87.8 million) and 6 months’ revenue was EUR 217.3 million (6M 2022: EUR 156.2 million). 6 months’ revenue increased by 39.1% compared to same period last year. The share of revenue earned outside Estonia in 6 months 2023 was 30.6% (6M 2022: 53.8%).
SECURED ORDER BOOK
As of 30 June 2023, the group’s secured order book was EUR 418.2 million (30 June 2022: EUR 322.9 million). In 6 months 2023, group companies signed contracts in the amount of EUR 254.8 million (6M 2022: EUR 193.3 million). In Q2 2023, new contracts were signed in the amount of EUR 84.4 million (Q2 2022: EUR 22.1 million).
REAL ESTATE DEVELOPMENT
In 6 months 2023, the group sold a total of 512 apartments; in 6 months 2022, the group sold 214 apartments. The group earned a revenue of EUR 80.5 million from sale of own developed apartments in 6 months 2023 and EUR 27.1 million in 6 months 2022. In Q2 of 2023 a total of 367 apartments were sold, compared to 88 apartments in Q2 2022, and earned a revenue of EUR 61.2 million from sale of own developed apartments (Q2 2022: EUR 11.6 million).
CASH POSITION
At the end of the reporting period, the group had EUR 9.8 million in cash and cash equivalents, and equity of EUR 186.0 million (51.3% of total assets). Comparable figures as of 30 June 2022 were EUR 16.8 million and EUR 156.7 million (41.5% of total assets), respectively. As of 30 June 2023, the group’s net debt was EUR 68.0 million (30 June 2022: EUR 73.2 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2023 6 months |
2022 6 months |
2023 II quarter |
2022 II quarter |
2022 12 months |
|
| Revenue | 217,347 | 156,198 | 141,596 | 87,772 | 409,633 |
| Cost of goods sold | (191,528) | (138,917) | (125,752) | (78,363) | (355,975) |
| Gross profit | 25,819 | 17,281 | 15,844 | 9,409 | 53,658 |
| Marketing expenses | (2,095) | (2,169) | (1,018) | (1,054) | (4,077) |
| General and administrative expenses | (8,261) | (7,522) | (4,296) | (3,799) | (15,860) |
| Other operating income | 2,778 | 1,422 | 1,961 | 736 | 3,144 |
| Other operating expenses | (147) | (455) | (85) | (394) | (1,834) |
| Operating profit | 18,094 | 8,557 | 12,406 | 4,898 | 35,031 |
| Finance income/costs | 2,126 | (193) | 1,735 | (33) | 2,067 |
| incl. finance income/costs from joint ventures | 3,819 | 328 | 2,539 | 330 | 3,516 |
| interest expense | (1,337) | (374) | (682) | (212) | (1,180) |
| foreign exchange gain (loss) | (290) | (67) | (80) | (119) | (138) |
| other financial income (expenses) | (66) | (80) | (42) | (32) | (131) |
| Profit before tax | 20,220 | 8,364 | 14,141 | 4,865 | 37,098 |
| Corporate income tax expense | (929) | (1,176) | (637) | (755) | (2,995) |
| Net profit for financial year | 19,291 | 7,188 | 13,504 | 4,110 | 34,103 |
| incl. net profit attributable to equity holders of the parent | 19,450 | 7,202 | 13,570 | 4,196 | 34,640 |
| net profit attributable to non-controlling interest | (159) | (14) | (66) | (86) | (537) |
| Other comprehensive income, which can subsequently be classified in the income statement | |||||
| Currency translation differences of foreign entities | 72 | (12) | 19 | (28) | 30 |
| Comprehensive income for the period | 19,363 | 7,176 | 13,523 | 4,082 | 34,133 |
| incl. net profit attributable to equity holders of the parent | 19,490 | 7,189 | 13,580 | 4,169 | 34,648 |
| net profit attributable to non-controlling interest | (127) | (13) | (57) | (87) | (515) |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 1.10 | 0.41 | 0.77 | 0.24 | 1.96 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 30.06.2023 | 30.06.2022 | 31.12.2022 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 9,795 | 16,773 | 17,665 |
| Trade and other receivables | 68,627 | 68,317 | 77,959 |
| Prepaid corporate income tax | 146 | 36 | 38 |
| Inventories | 216,142 | 228,240 | 225,661 |
| 294,710 | 313,366 | 321,323 | |
| Non-current assets | |||
| Investments in joint ventures | 15,514 | 9,707 | 12,895 |
| Other shares and securities | 80 | – | – |
| Other long-term loans and receivables | 21,457 | 23,616 | 22,982 |
| Deferred income tax assets | 1,044 | 1,115 | 693 |
| Investment property | 11,435 | 11,536 | 11,485 |
| Property, plant and equipment | 17,640 | 17,347 | 17,452 |
| Intangible assets | 582 | 635 | 582 |
| 67,752 | 63,956 | 66,089 | |
| TOTAL ASSETS | 362,462 | 377,322 | 387,412 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 39,783 | 48,854 | 49,687 |
| Payables and prepayments | 83,889 | 117,702 | 96,248 |
| Income tax liability | 1,419 | 2,275 | 1,241 |
| Short-term provisions | 9,805 | 6,879 | 9,820 |
| 134,896 | 175,710 | 156,996 | |
| Non-current liabilities | |||
| Long-term borrowings | 37,965 | 41,153 | 42,236 |
| Deferred income tax liability | 1,774 | 1,649 | 2,355 |
| Other long-term payables | 2,472 | 2,322 | 2,133 |
| 42,211 | 45,124 | 46,724 | |
| TOTAL LIABILITIES | 177,107 | 220,834 | 203,720 |
| EQUITY | |||
| Non-controlling interests | (622) | (240) | (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 | (743) | (804) | (783) |
| Retained earnings | 177,998 | 148,810 | 176,248 |
| 185,977 | 156,728 | 184,187 | |
| TOTAL EQUITY | 185,355 | 156,488 | 183,692 |
| TOTAL LIABILITIES AND EQUITY | 362,462 | 377,322 | 387,412 |
