Tallinn, Estonia, 2013-05-08 15:00 CEST (GLOBE NEWSWIRE) --
MANAGEMENT REPORT
Overview of the 3 months results
-- Profitability has improved: net profit in Q1 2013 was EUR 1.8 million (Q1 2012: EUR 0.2 million) indicates a positive trend arising from an increase in the number of profitable projects. However, maintaining the profitability remains a challenge. -- Revenue at the same level: Q1 2013 revenue was EUR 47.9 million (Q1 2012: EUR 47.8 million), which is at the same level compared to the previous year. -- Strong cash position: by the end of the reporting period, the group had EUR 35.8 million in cash and cash equivalents (incl EUR 2.5 million short-term deposits), equity EUR 118.6 million (52.9% of total assets). Comparable figures in 2012 were accordingly EUR 8.7 million and EUR 109.4 million (51.7% of total assets). -- Secured order book is stable: as at 31 March 2013 totalled EUR 193 million (31 March 2012: EUR 189 million). -- Changes in management structure: as at 1 May 2013 Ivars Geidans has been removed from the Supervisory Board of SIA Merks. The Supervisory Board of SIA Merks will continue with three members.
3 months 3 months Variance 2013 2012 31.03.2013 31.03.2012 Revenue million 47.9 47.8 +0.1% EUR Gross profit million 4.2 2.5 +69.2% EUR Gross profit margin % 8.8 5.2 +3.6% Net profit (equity holders of million 1.8 0.2 +1040.0% parent) EUR Net profit margin % 3.7 0.3 +3.4% EPS EUR 0.10 0.01 +1040.0%
As of period-end: ROE % 8.1 -8.7 +16.8% Equity ratio % 52.9 51.7 +1.2% Secured order book million 193 189 +2.1% EUR Total assets million 224.0 211.5 +5.9% EUR Number of employees people 869 884 -1.7%
Background information and major changes introduced in the corporate structure
AS Merko Ehitus is a holding company incorporating construction and real estate development companies offering integrated construction solutions in Estonia, Latvia and Lithuania. Major construction companies incorporated under the holding company include AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba (100%), as well as the AS Merko Ehitus Eesti group companies 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 Management Board of the holding company AS Merko Ehitus has two members: Andres Trink and Viktor Mõisja.
Changes in the management structure of SIA Merks
In conjunction with a review of the management structure and in a follow-up to the changes implemented in 2012, a change occurred in the Supervisory Board of SIA Merks, a subsidiary of AS Merko Ehitus, whereby Ivars Geidans has been removed from the Supervisory Board. The Supervisory Board of SIA Merks will continue with three Members: Andres Trink (Chairman), Tõnu Toomik and Jaan Mäe. Oskars Ozolins and Janis Å perbergs will continue on the Management Board of the company.
OPERATING RESULTS
Business activities
Key financial indicators (in millions of euros):
3m 2013 3m 2012 Variance Revenue Estonia 37.5 41.9 -10.6% Latvia 8.4 3.9 +115.0% Lithuania 2.0 2.0 +1.9% Revenue total 47.9 47.8 0.1% --------------------------- ---------------------------
Gross profit 4.2 2.5 +69.2% ---------------------------
Operating profit (EBIT) 2.3 0.6 +297.3 --------- ---------------------------
attributable to equity holders of the parent 1.8 0.2 +1040.0% attributable to non-controlling interest (0.0) (0.0) -25.8% Net profit 1.8 0.2 +1096.9% --------------------------- ---------------------------
Earnings per share (EPS), in euros 0.10 0.01 +900.0% --------------------------- ---------------------------
Pecuniary means at the end of period 35.8* 8.7 +310.7% ---------------------------
* incl short-term deposits in the amount of EUR 2.5 million
Revenue and gross profit
Merko Ehitus group generated a total of EUR 47.9 million in revenue in 3 months of 2013. 78.4% of the revenue was generated in Estonia, 17.4% in Latvia and 4.2% in Lithuania (3 months of 2012: 87.8% in Estonia, 8.1% Latvia and 4.1% in Lithuania). Compared to the 3 months of 2012 the group revenue remained the same (growth 0.1%). During the reporting period, orders from the private sector have increased, but the majority of revenue is still related to projects financed with support from the EU structural funds.
In 3 months of 2013 the group's gross profit from development and construction activities totalled EUR 4.2 million (3 months of 2012: EUR 2.5 million). The gross profit margin has increased by 3.6% year over year (3 months of 2012: 5.2%). The profit margin increase has been primarily influenced by the real estate development segment through an increased sales volume of apartments compared to the same period in 2012. Considering the tightening competition in the construction sector, maintaining the gross margin on the same level is a major challenge for our subsidiaries in the construction sector.
Net profit
In 3 months of 2013, the group's pre-tax profit totalled EUR 2.0 million and net profit was EUR 1.8 million as compared to the pre-tax profit or EUR 0.4 million and net profit of EUR 0.2 million in 3 months of 2012.
Business segments
The group manages business activities in the following areas at activity:
-- General construction - includes the construction of buildings for different purposes including offices, hotels, museums, culture and business centres, social, production and service buildings as well as buildings of various industrial structures . -- Engineering construction - The engineering construction segment of Merko builds port structures, landfilling areas at landfills, various road structures (tunnels, overpasses, bridges), water and sewerage pipelines, water treatment plants and other complex engineering and environmental projects . -- Road construction - In this segment, Merko carries out road construction and builds the associated infrastructure. In addition, we carry out road maintenance works and maintenance repair. -- Real estate development - including development of apartment projects, long-term financial investments and commercial real estate projects.
General construction
General construction segment 3 months 2013 3 months 2012 Variance (million EUR) Revenue 12.6 11.4 +9.9% % of revenue 26.3% 23.9% Gross profit 0.5 0.8 -39.3% Gross profit margin 3.8% 6.8%
In the first quarter of 2013, the revenue of the general construction segment increased by 9.9% from the same period last year. At the same time, the gross profit of the segment has decreased, mainly due to the pressure on the margins exerted by tightening competition caused by the scarcity of projects. While in 2012 the market was primarily dominated by public sector projects, the beginning of 2013 has seen an increase also in private sector orders.
Our major projects in the first three months included construction work at the North Estonia Medical Centre and the production building of Tallegg.
Engineering or infrastructure construction
Civil engineering segment 3 months 2013 3 months 2012 Variance (million EUR) Revenue 20.7 25.7 -19.3% % of revenue 43.3% 53.8% Gross profit 2.4 1.6 +46.5% Gross profit margin 11.4% 6.3%
The revenue of the civil engineering segment amounted to EUR 20.7 million in the first three months (3 months of 2012: EUR 25.7 million), which is 19.3% less than in 2012. The decrease from the previous year is mainly due to a drop in the volume of pipeline projects. In the first quarter of 2013, our main projects included the reconstruction of pipelines in Vääna-Jõesuu and the construction of a 300MW power plant for Eesti Energia. The said area continues to form the largest proportion in the group's revenue (Q1 2013: 43.3%). The gross profit of the civil engineering segment amounted to EUR 2.4 million (3 months of 2012: EUR 1.6 million) and the gross profit margin was 11.4% (3 months of 2012: 6.3%). The positive shift is mainly due to the fact that the results of loss-making projects had already been recorded in the previous period.
The civil engineering segment includes many 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.
Road construction
Road construction segment 3 months 2013 3 months 2012 Variance (million EUR) Revenue 7.8 7.4 +5.3% % of revenue 16.3% 15.5% Gross profit 0.5 0.1 +275.0% Gross profit margin 6.4% 1.8%
The revenue of the road construction segment amounted to EUR 7.8 million in the first quarter of 2013, which means a 5.3% increase from 2012. In the first quarter of 2013, the segment earned a gross profit of EUR 0.5 million, which yields a gross profit margin of 6.4%, mainly on account of the volume of road maintenance works.
We continue with our largest project of constructing the Ülemiste traffic junction, the final completion of which is scheduled for the end of 2013. The road construction segment is still affected by the high volatility of the price of bitumen, which is one of the main components of asphalt and has a significant impact on the price of works.
Real estate development
Real estate development 3 months 2013 3 months 2012 Variance (million EUR) Revenue 6.5 3.2 +104.3% % of revenue 13.6% 6.7% Gross profit 0.9 0.2 +482.1% Gross profit margin 14.0% 4.9%
A total of 57 apartments were sold in 3 months of 2013 at the total value of EUR 6.2 million (excl. VAT), (3 months of 2012: 14 apartments and EUR 2.0 million, respectively). At the end of the period, Merko Ehitus group's inventory comprised 98 completed but not yet sold apartments (41 in Estonia, 22 in Latvia and 35 in Lithuania).
The following table lists the apartment projects in progress:
Project Town/Country Completion time No of apartments Räägu 9 Tallinn, Estonia 2013 summer 20 Eha 4 / Paldiski 17 Tallinn, Estonia 2013 summer 27 Vaarika 5 Tartu, Estonia 2013 summer 15 Pallasti 46, 48, 50 Tallinn, Estonia 2013 autumn 69 Grostonas 17 Riga, Latvia 2013 autumn 62 Tedre 55 Tallinn, Estonia 2014 spring 47 Total 240 -----------------
After the balance sheet date, we continued the construction of the residential and commercial building (111 apartments) at 6 Kentmanni Street, which had been suspended in 2008. The first two floors of the buildings are intended primarily as business premises and the remaining 12 floors as apartments. The building already has two underground parking floors. The planned term of completion is the end of 2014.
In addition, the construction activity on 200 apartments in Tartu from 2007 has been frozen.
One of our objectives is to keep a moderate portfolio of land plots to ensure stable implementation of property development projects considering the market conditions. At the same time 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 group. In view of the low mortgage interest rates and the limited supply on the market of new apartments over the last three years, demand and transaction activity in the apartment market has grown moderately.
Secured Order Book
As at 31 March 2013, the group's secured order book amounted to EUR 193 million as compared to EUR 189 million as at 31 March 2012. The group does not include residential building projects developed by the group and development of the investment property in the order book.
In the last 3 months, EUR 45 million worth of new contracts were signed (own developments) as compared to EUR 69 million in 2012 3 months. The group signed a contract to perform general construction works pertaining to the construction of the new 300MW CFB thermal power plant of Eesti Energia Narva Elektrijaamad AS in amount of EUR 17,3 million during I quarter 2012. There were no contracts in similar size signed during I quarter 2013. The table below shows the largest construction contracts that were signed in the first quarter of 2013:
Brief description of contract Cost Country million EUR Narva-Jõesuu Noorus SPA and hotel 10.6 Estonia Jurmala, apartment buildings at Dzintaru 36 7.9 Latvia KTN Tallinn Logistic Center, II construction stage, I 7-8 Estonia phase Trade Center Peetri Selver 3.8 Estonia Elva sewage and water treatment plant 2.3 Estonia
After balance sheet date 2 contracts were signed for construction of the Tondiraba ice arena in Tallinn (contract price EUR 22.5 million) and Nurmevälja logistics center, where the exact price of the contract is not disclosed, but the contract value will remain in the range of EUR 7-8 million.
Although the share of public procurements in construction orders remains high also in 2013, the beginning of this year has seen increased activity also in the private clients segment of the construction market in all three Baltic countries. With the current EU financial framework period ending, a certain drop in the volume of public procurements can be forecast starting in the latter half of 2013. As a result, it will be a challenge in its own right to keep the volume of new construction agreements at the 2012 level.
Cash flows
The cash position of the group is stable. As at the end of the reporting period, the cash and cash equivalents of Merko Ehitus group amounted to EUR 33.3 million (as at 31 March 2012: EUR 8.7 million). The group also has EUR 2.5 million in short-term deposits with a maturity term of more than 3 months. The strategic cash position and investment capability of the holding company AS Merko Ehitus has improved considerably in a year.
The 3-month cash flow from operating activity was positive at EUR 5.1 million (3 months of 2012: negative EUR 5.9 million), cash flow from investing activity was negative at EUR 2.7 million (3 months of 2012: negative EUR 0.4 million) and the cash flow from financing activity was negative at EUR 4.3 million (3 months of 2012: negative EUR 3.4 million). The cash flow from operating activity was mostly influenced by the positive change in trade and other payables related to operating activity EUR 2.6 million, by the operating profit EUR 2.3 million and negative change in provisions EUR -1.7 million.
The share of public sector orders with a long payment term has increased as a proportion of the group's cash flows from operating activities (by contract, an average of 56 days after evaluation of the work) and there is an additional burden on working capital, including optimal management of cash flows. 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 (14.5% as at 3 months of 2013).
Cash flows from investing activities include the acquisition of short-term deposit with a maturity term of more than 3 months in the amount of EUR -2.5 million, while the balance of other investments and acquisition of PPE was EUR -0.2 million.
The balance of loans received and loans repaid contributed EUR -3.3 million, factoring EUR -0.7 million and the repayment of the finance lease principal EUR -0.3 million to the cash flow from financing activities.
Financial ratios (per share attributable to equity holders of the parent company)
3m 2013 3m 2012 3m 2011 Income statement summary Revenue million EUR 47.9 47.8 26.2 Gross profit million EUR 4.2 2.5 (1.4) Gross profit margin % 8.8 5.2 -5.5 Operating profit million EUR 2.3 0.6 (3.8) Operating profit margin % 4.8 1.2 -14.6 Profit before tax million EUR 2.0 0.4 (4.1) EBT margin % 4.1 0.9 -15.7 Net profit million EUR 1.8 0.1 (4.1) equity holders of the parent million EUR 1.8 0.2 (4.1) non-controlling interest million EUR (0.0) (0.0) 0.0 Net profit margin % 3.7 0.3 -15.7
Other key figures ROE % 8.1 -8.7 -3.1 ROA % 4.1 -4.5 -1.9 ROIC % 7.0 -5.9 -1.9
Equity ratio % 52.9 51.7 62.1 Debt ratio % 14.5 17.4 12.8
Current ratio times 2.2 2.0 2.6 Quick ratio times 1.2 0.9 0.9 Accounts receivable turnover days 58 55 51 Accounts payable turnover days 46 47 41
EBITDA margin % 6.0 2.4 -12.4 General expense ratio % 5.5 5.2 9.7 Personnel expense ratio % 10.0 8.5 14.5 Revenue per employee thousand EUR 57 54 29 Average number of employees (group) people 838 880 915
Secured Order Book million EUR 193 189 195
Employees and remuneration
The number of the group's employees decreased by 15 in the last 12 months (-1.7%) and as at 31 March 2013, the group had a total of 869 employees (including fixed-term and part-time employees).
The group's objective is to pay its employees competitive salary. The interests of employees and the company are balanced by performance-based remuneration. Gross wages and salaries paid to employees in 3 months of 2013 totalled EUR 4.8 million, of which base wages and salaries accounted for 75.7% and bonuses accounted for 24.3% (3 months of 2012: EUR 4.1 million, of which base wages and salaries were 85.5% and bonuses were 14.5%). In a year, gross wages and salaries increased by 17.1%, including a 4.4% increase in base wages and salaries and a 98.1% increase in bonuses.
Share and shareholders
Information on security
Issuer AS Merko Ehitus Name of security Share of Merko Ehitus Residency of issuer Estonia Stock Exchange List Main List ISIN EE3100098328 Nominal value without nominal value No of securities 17,700,000 Volume of issue 12,000,000 Currency EUR Date of listing 11 August 2008
The shares of Merko Ehitus have been listed in the main list of NASDAQ OMX Tallinn. A total of 480 transactions were conducted with the shares of Merko Ehitus in 3 months of 2013, with 0.13 million shares traded, generating a turnover of EUR 0.85 million. The lowest share price amounted to EUR 5.71 and the highest to EUR 7.48 per share. The closing price of the share was EUR 7.18 on 31 March 2013. As at 31 March 2013, the market value of AS Merko Ehitus amounted to EUR 127 million.
31.03.2013 31.03.2012 31.03.2011 No of shares 17,700,000 17,700,000 17,700,000 Earnings per share (EPS), in euros 0.10 0.01 -0.23 Equity per share, in euros 6.47 6.35 7.08 P/B (price to book ratio) 1.11 0.94 1.31 P/E (price / earnings ratio) 13.76 -10.81 -41.82 Market value, million EUR 127 106 165
Main shareholders of AS Merko Ehitus as of 31 March 2013 and the change compared to the previous quarter:
No of % of total % of total Varian shares 31.03.2013 31.12.2012 ce AS Riverito 12,742,6 71.99% 71.99% - 86 ING Luxembourg S.A., clients 974,126 5.50% 5.50% - Skandinaviska Enskilda Banken 867,568 4.90% 5.07% -29,29 Ab, clients 6 Firebird Republics Fund Ltd 302,395 1.71% 1.71% - Gamma Holding OÜ 177,700 1.00% 0.92% +14,44 4 State Street Bank and Trust 153,018 0.86% 0.86% - Omnibus Account a Fund No OM01 Skandinaviska Enskilda Banken 135,191 0.76% 0.71% +10,00 Finnish clients 0 SEB Elu- ja Pensionikindlustus 128,020 0.72% 0.71% +2,500 AS Andersson Investeeringud OÜ 120,015 0.68% 0.68% - AS Midas Invest 118,555 0.67% 0.66% +1,500 Clearstream Banking Luxembourg 102,497 0.58% 0.58% - S.A. clients
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.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME in thousand euros, unaudited
2013 2012 3 months 3 months
Revenue 47,859 47,791 Cost of goods sold (43,624) (45,288) Gross profit (loss) 4,235 2,503
Marketing expenses (656) (428) Administrative and general expenses (1,956) (2,048) Other operating income 708 571 Other operating expenses (44) (23) Operating profit (loss) 2,287 575
Finance income/costs (333) (159) incl. finance income/costs from investments in (34) 105 associates and joint ventures finance income/costs from other long-term investments 13 - interest expense (210) (313) foreign exchange gain (110) (63) other financial income (expenses) 8 112 Profit (loss) before tax 1,954 416 Corporate income tax expense (194) (269) Net profit (loss) for current period 1,760 147 ------------------- incl. net profit (loss) attributable to equity holders of 1,766 155 the parent net profit (loss) attributable to non-controlling interest (6) (8)
Other comprehensive income (loss) Currency translation differences of foreign entities (141) (23) Comprehensive income (loss) for the period 1,619 124 ------------------- ------------------- incl. net profit (loss) attributable to equity holders of 1,625 132 the parent net profit (loss) attributable to non-controlling interest (6) (8)
Earnings per share for profit (loss) attributable to 0.10 0.01 equity holders of the parent (basic and diluted, in euros)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION in thousand euros, unaudited
31.03.2013 31.12.2012 ASSETS
Current assets Cash and cash equivalents 33,349 35,316 Short-term deposits 2,500 - Trade and other receivables 58,853 60,343 Prepaid corporate income tax 480 478 Inventories 82,127 82,830 Total current assets 177,309 178,967
Non-current assets Long-term financial assets 25,124 24,378 Deferred income tax assets 1,818 1,919 Investment property 3,546 3,566 Property, plant and equipment 14,826 14,853 Intangible assets 1,346 1,365 Total non-current assets 46,660 46,081
TOTAL ASSETS 223,969 225,048 ----------------------- -----------------------
LIABILITIES AND EQUITY
Current liabilities Borrowings 12,590 16,299 Payables and prepayments 64,378 63,209 Income tax liability 47 - Short-term provisions 5,268 6,165 Total current liabilities 82,283 85,673
Non-current liabilities Long-term borrowings 19,813 19,205 Long-term interest liabilities 4 3 Long-term trade payables 1,686 1,553 Deferred corporate income tax liability 380 327 Long-term provisions 15 20 Total non-current liabilities 21,898 21,108
Total liabilities 104,181 106,781 ----------------------- -----------------------
Equity
Non-controlling interest 1,232 1,342 Equity attributable to equity holders of the parent Share capital 12,000 12,000 Statutory reserve capital 1,200 1,200 Currency translation differences (653) (512) Retained earnings 106,009 104,237 Total equity attributable to equity holders of parent 118,556 116,925
Total equity 119,788 118,267 ----------------------- -----------------------
TOTAL LIABILITIES AND EQUITY 223,969 225,048 -----------------------
Signe Kukin Group CFO +372 650 1250 signe.kukin@merko.ee
Attachment:
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MANAGEMENT REPORT
Overview of the 3 months results
-- Profitability has improved: net profit in Q1 2013 was EUR 1.8 million (Q1 2012: EUR 0.2 million) indicates a positive trend arising from an increase in the number of profitable projects. However, maintaining the profitability remains a challenge. -- Revenue at the same level: Q1 2013 revenue was EUR 47.9 million (Q1 2012: EUR 47.8 million), which is at the same level compared to the previous year. -- Strong cash position: by the end of the reporting period, the group had EUR 35.8 million in cash and cash equivalents (incl EUR 2.5 million short-term deposits), equity EUR 118.6 million (52.9% of total assets). Comparable figures in 2012 were accordingly EUR 8.7 million and EUR 109.4 million (51.7% of total assets). -- Secured order book is stable: as at 31 March 2013 totalled EUR 193 million (31 March 2012: EUR 189 million). -- Changes in management structure: as at 1 May 2013 Ivars Geidans has been removed from the Supervisory Board of SIA Merks. The Supervisory Board of SIA Merks will continue with three members.
3 months 3 months Variance 2013 2012 31.03.2013 31.03.2012 Revenue million 47.9 47.8 +0.1% EUR Gross profit million 4.2 2.5 +69.2% EUR Gross profit margin % 8.8 5.2 +3.6% Net profit (equity holders of million 1.8 0.2 +1040.0% parent) EUR Net profit margin % 3.7 0.3 +3.4% EPS EUR 0.10 0.01 +1040.0%
As of period-end: ROE % 8.1 -8.7 +16.8% Equity ratio % 52.9 51.7 +1.2% Secured order book million 193 189 +2.1% EUR Total assets million 224.0 211.5 +5.9% EUR Number of employees people 869 884 -1.7%
Background information and major changes introduced in the corporate structure
AS Merko Ehitus is a holding company incorporating construction and real estate development companies offering integrated construction solutions in Estonia, Latvia and Lithuania. Major construction companies incorporated under the holding company include AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba (100%), as well as the AS Merko Ehitus Eesti group companies 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 Management Board of the holding company AS Merko Ehitus has two members: Andres Trink and Viktor Mõisja.
Changes in the management structure of SIA Merks
In conjunction with a review of the management structure and in a follow-up to the changes implemented in 2012, a change occurred in the Supervisory Board of SIA Merks, a subsidiary of AS Merko Ehitus, whereby Ivars Geidans has been removed from the Supervisory Board. The Supervisory Board of SIA Merks will continue with three Members: Andres Trink (Chairman), Tõnu Toomik and Jaan Mäe. Oskars Ozolins and Janis Å perbergs will continue on the Management Board of the company.
OPERATING RESULTS
Business activities
Key financial indicators (in millions of euros):
3m 2013 3m 2012 Variance Revenue Estonia 37.5 41.9 -10.6% Latvia 8.4 3.9 +115.0% Lithuania 2.0 2.0 +1.9% Revenue total 47.9 47.8 0.1% --------------------------- ---------------------------
Gross profit 4.2 2.5 +69.2% ---------------------------
Operating profit (EBIT) 2.3 0.6 +297.3 --------- ---------------------------
attributable to equity holders of the parent 1.8 0.2 +1040.0% attributable to non-controlling interest (0.0) (0.0) -25.8% Net profit 1.8 0.2 +1096.9% --------------------------- ---------------------------
Earnings per share (EPS), in euros 0.10 0.01 +900.0% --------------------------- ---------------------------
Pecuniary means at the end of period 35.8* 8.7 +310.7% ---------------------------
* incl short-term deposits in the amount of EUR 2.5 million
Revenue and gross profit
Merko Ehitus group generated a total of EUR 47.9 million in revenue in 3 months of 2013. 78.4% of the revenue was generated in Estonia, 17.4% in Latvia and 4.2% in Lithuania (3 months of 2012: 87.8% in Estonia, 8.1% Latvia and 4.1% in Lithuania). Compared to the 3 months of 2012 the group revenue remained the same (growth 0.1%). During the reporting period, orders from the private sector have increased, but the majority of revenue is still related to projects financed with support from the EU structural funds.
In 3 months of 2013 the group's gross profit from development and construction activities totalled EUR 4.2 million (3 months of 2012: EUR 2.5 million). The gross profit margin has increased by 3.6% year over year (3 months of 2012: 5.2%). The profit margin increase has been primarily influenced by the real estate development segment through an increased sales volume of apartments compared to the same period in 2012. Considering the tightening competition in the construction sector, maintaining the gross margin on the same level is a major challenge for our subsidiaries in the construction sector.
Net profit
In 3 months of 2013, the group's pre-tax profit totalled EUR 2.0 million and net profit was EUR 1.8 million as compared to the pre-tax profit or EUR 0.4 million and net profit of EUR 0.2 million in 3 months of 2012.
Business segments
The group manages business activities in the following areas at activity:
-- General construction - includes the construction of buildings for different purposes including offices, hotels, museums, culture and business centres, social, production and service buildings as well as buildings of various industrial structures . -- Engineering construction - The engineering construction segment of Merko builds port structures, landfilling areas at landfills, various road structures (tunnels, overpasses, bridges), water and sewerage pipelines, water treatment plants and other complex engineering and environmental projects . -- Road construction - In this segment, Merko carries out road construction and builds the associated infrastructure. In addition, we carry out road maintenance works and maintenance repair. -- Real estate development - including development of apartment projects, long-term financial investments and commercial real estate projects.
General construction
General construction segment 3 months 2013 3 months 2012 Variance (million EUR) Revenue 12.6 11.4 +9.9% % of revenue 26.3% 23.9% Gross profit 0.5 0.8 -39.3% Gross profit margin 3.8% 6.8%
In the first quarter of 2013, the revenue of the general construction segment increased by 9.9% from the same period last year. At the same time, the gross profit of the segment has decreased, mainly due to the pressure on the margins exerted by tightening competition caused by the scarcity of projects. While in 2012 the market was primarily dominated by public sector projects, the beginning of 2013 has seen an increase also in private sector orders.
Our major projects in the first three months included construction work at the North Estonia Medical Centre and the production building of Tallegg.
Engineering or infrastructure construction
Civil engineering segment 3 months 2013 3 months 2012 Variance (million EUR) Revenue 20.7 25.7 -19.3% % of revenue 43.3% 53.8% Gross profit 2.4 1.6 +46.5% Gross profit margin 11.4% 6.3%
The revenue of the civil engineering segment amounted to EUR 20.7 million in the first three months (3 months of 2012: EUR 25.7 million), which is 19.3% less than in 2012. The decrease from the previous year is mainly due to a drop in the volume of pipeline projects. In the first quarter of 2013, our main projects included the reconstruction of pipelines in Vääna-Jõesuu and the construction of a 300MW power plant for Eesti Energia. The said area continues to form the largest proportion in the group's revenue (Q1 2013: 43.3%). The gross profit of the civil engineering segment amounted to EUR 2.4 million (3 months of 2012: EUR 1.6 million) and the gross profit margin was 11.4% (3 months of 2012: 6.3%). The positive shift is mainly due to the fact that the results of loss-making projects had already been recorded in the previous period.
The civil engineering segment includes many 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.
Road construction
Road construction segment 3 months 2013 3 months 2012 Variance (million EUR) Revenue 7.8 7.4 +5.3% % of revenue 16.3% 15.5% Gross profit 0.5 0.1 +275.0% Gross profit margin 6.4% 1.8%
The revenue of the road construction segment amounted to EUR 7.8 million in the first quarter of 2013, which means a 5.3% increase from 2012. In the first quarter of 2013, the segment earned a gross profit of EUR 0.5 million, which yields a gross profit margin of 6.4%, mainly on account of the volume of road maintenance works.
We continue with our largest project of constructing the Ülemiste traffic junction, the final completion of which is scheduled for the end of 2013. The road construction segment is still affected by the high volatility of the price of bitumen, which is one of the main components of asphalt and has a significant impact on the price of works.
Real estate development
Real estate development 3 months 2013 3 months 2012 Variance (million EUR) Revenue 6.5 3.2 +104.3% % of revenue 13.6% 6.7% Gross profit 0.9 0.2 +482.1% Gross profit margin 14.0% 4.9%
A total of 57 apartments were sold in 3 months of 2013 at the total value of EUR 6.2 million (excl. VAT), (3 months of 2012: 14 apartments and EUR 2.0 million, respectively). At the end of the period, Merko Ehitus group's inventory comprised 98 completed but not yet sold apartments (41 in Estonia, 22 in Latvia and 35 in Lithuania).
The following table lists the apartment projects in progress:
Project Town/Country Completion time No of apartments Räägu 9 Tallinn, Estonia 2013 summer 20 Eha 4 / Paldiski 17 Tallinn, Estonia 2013 summer 27 Vaarika 5 Tartu, Estonia 2013 summer 15 Pallasti 46, 48, 50 Tallinn, Estonia 2013 autumn 69 Grostonas 17 Riga, Latvia 2013 autumn 62 Tedre 55 Tallinn, Estonia 2014 spring 47 Total 240 -----------------
After the balance sheet date, we continued the construction of the residential and commercial building (111 apartments) at 6 Kentmanni Street, which had been suspended in 2008. The first two floors of the buildings are intended primarily as business premises and the remaining 12 floors as apartments. The building already has two underground parking floors. The planned term of completion is the end of 2014.
In addition, the construction activity on 200 apartments in Tartu from 2007 has been frozen.
One of our objectives is to keep a moderate portfolio of land plots to ensure stable implementation of property development projects considering the market conditions. At the same time 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 group. In view of the low mortgage interest rates and the limited supply on the market of new apartments over the last three years, demand and transaction activity in the apartment market has grown moderately.
Secured Order Book
As at 31 March 2013, the group's secured order book amounted to EUR 193 million as compared to EUR 189 million as at 31 March 2012. The group does not include residential building projects developed by the group and development of the investment property in the order book.
In the last 3 months, EUR 45 million worth of new contracts were signed (own developments) as compared to EUR 69 million in 2012 3 months. The group signed a contract to perform general construction works pertaining to the construction of the new 300MW CFB thermal power plant of Eesti Energia Narva Elektrijaamad AS in amount of EUR 17,3 million during I quarter 2012. There were no contracts in similar size signed during I quarter 2013. The table below shows the largest construction contracts that were signed in the first quarter of 2013:
Brief description of contract Cost Country million EUR Narva-Jõesuu Noorus SPA and hotel 10.6 Estonia Jurmala, apartment buildings at Dzintaru 36 7.9 Latvia KTN Tallinn Logistic Center, II construction stage, I 7-8 Estonia phase Trade Center Peetri Selver 3.8 Estonia Elva sewage and water treatment plant 2.3 Estonia
After balance sheet date 2 contracts were signed for construction of the Tondiraba ice arena in Tallinn (contract price EUR 22.5 million) and Nurmevälja logistics center, where the exact price of the contract is not disclosed, but the contract value will remain in the range of EUR 7-8 million.
Although the share of public procurements in construction orders remains high also in 2013, the beginning of this year has seen increased activity also in the private clients segment of the construction market in all three Baltic countries. With the current EU financial framework period ending, a certain drop in the volume of public procurements can be forecast starting in the latter half of 2013. As a result, it will be a challenge in its own right to keep the volume of new construction agreements at the 2012 level.
Cash flows
The cash position of the group is stable. As at the end of the reporting period, the cash and cash equivalents of Merko Ehitus group amounted to EUR 33.3 million (as at 31 March 2012: EUR 8.7 million). The group also has EUR 2.5 million in short-term deposits with a maturity term of more than 3 months. The strategic cash position and investment capability of the holding company AS Merko Ehitus has improved considerably in a year.
The 3-month cash flow from operating activity was positive at EUR 5.1 million (3 months of 2012: negative EUR 5.9 million), cash flow from investing activity was negative at EUR 2.7 million (3 months of 2012: negative EUR 0.4 million) and the cash flow from financing activity was negative at EUR 4.3 million (3 months of 2012: negative EUR 3.4 million). The cash flow from operating activity was mostly influenced by the positive change in trade and other payables related to operating activity EUR 2.6 million, by the operating profit EUR 2.3 million and negative change in provisions EUR -1.7 million.
The share of public sector orders with a long payment term has increased as a proportion of the group's cash flows from operating activities (by contract, an average of 56 days after evaluation of the work) and there is an additional burden on working capital, including optimal management of cash flows. 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 (14.5% as at 3 months of 2013).
Cash flows from investing activities include the acquisition of short-term deposit with a maturity term of more than 3 months in the amount of EUR -2.5 million, while the balance of other investments and acquisition of PPE was EUR -0.2 million.
The balance of loans received and loans repaid contributed EUR -3.3 million, factoring EUR -0.7 million and the repayment of the finance lease principal EUR -0.3 million to the cash flow from financing activities.
Financial ratios (per share attributable to equity holders of the parent company)
3m 2013 3m 2012 3m 2011 Income statement summary Revenue million EUR 47.9 47.8 26.2 Gross profit million EUR 4.2 2.5 (1.4) Gross profit margin % 8.8 5.2 -5.5 Operating profit million EUR 2.3 0.6 (3.8) Operating profit margin % 4.8 1.2 -14.6 Profit before tax million EUR 2.0 0.4 (4.1) EBT margin % 4.1 0.9 -15.7 Net profit million EUR 1.8 0.1 (4.1) equity holders of the parent million EUR 1.8 0.2 (4.1) non-controlling interest million EUR (0.0) (0.0) 0.0 Net profit margin % 3.7 0.3 -15.7
Other key figures ROE % 8.1 -8.7 -3.1 ROA % 4.1 -4.5 -1.9 ROIC % 7.0 -5.9 -1.9
Equity ratio % 52.9 51.7 62.1 Debt ratio % 14.5 17.4 12.8
Current ratio times 2.2 2.0 2.6 Quick ratio times 1.2 0.9 0.9 Accounts receivable turnover days 58 55 51 Accounts payable turnover days 46 47 41
EBITDA margin % 6.0 2.4 -12.4 General expense ratio % 5.5 5.2 9.7 Personnel expense ratio % 10.0 8.5 14.5 Revenue per employee thousand EUR 57 54 29 Average number of employees (group) people 838 880 915
Secured Order Book million EUR 193 189 195
Employees and remuneration
The number of the group's employees decreased by 15 in the last 12 months (-1.7%) and as at 31 March 2013, the group had a total of 869 employees (including fixed-term and part-time employees).
The group's objective is to pay its employees competitive salary. The interests of employees and the company are balanced by performance-based remuneration. Gross wages and salaries paid to employees in 3 months of 2013 totalled EUR 4.8 million, of which base wages and salaries accounted for 75.7% and bonuses accounted for 24.3% (3 months of 2012: EUR 4.1 million, of which base wages and salaries were 85.5% and bonuses were 14.5%). In a year, gross wages and salaries increased by 17.1%, including a 4.4% increase in base wages and salaries and a 98.1% increase in bonuses.
Share and shareholders
Information on security
Issuer AS Merko Ehitus Name of security Share of Merko Ehitus Residency of issuer Estonia Stock Exchange List Main List ISIN EE3100098328 Nominal value without nominal value No of securities 17,700,000 Volume of issue 12,000,000 Currency EUR Date of listing 11 August 2008
The shares of Merko Ehitus have been listed in the main list of NASDAQ OMX Tallinn. A total of 480 transactions were conducted with the shares of Merko Ehitus in 3 months of 2013, with 0.13 million shares traded, generating a turnover of EUR 0.85 million. The lowest share price amounted to EUR 5.71 and the highest to EUR 7.48 per share. The closing price of the share was EUR 7.18 on 31 March 2013. As at 31 March 2013, the market value of AS Merko Ehitus amounted to EUR 127 million.
31.03.2013 31.03.2012 31.03.2011 No of shares 17,700,000 17,700,000 17,700,000 Earnings per share (EPS), in euros 0.10 0.01 -0.23 Equity per share, in euros 6.47 6.35 7.08 P/B (price to book ratio) 1.11 0.94 1.31 P/E (price / earnings ratio) 13.76 -10.81 -41.82 Market value, million EUR 127 106 165
Main shareholders of AS Merko Ehitus as of 31 March 2013 and the change compared to the previous quarter:
No of % of total % of total Varian shares 31.03.2013 31.12.2012 ce AS Riverito 12,742,6 71.99% 71.99% - 86 ING Luxembourg S.A., clients 974,126 5.50% 5.50% - Skandinaviska Enskilda Banken 867,568 4.90% 5.07% -29,29 Ab, clients 6 Firebird Republics Fund Ltd 302,395 1.71% 1.71% - Gamma Holding OÜ 177,700 1.00% 0.92% +14,44 4 State Street Bank and Trust 153,018 0.86% 0.86% - Omnibus Account a Fund No OM01 Skandinaviska Enskilda Banken 135,191 0.76% 0.71% +10,00 Finnish clients 0 SEB Elu- ja Pensionikindlustus 128,020 0.72% 0.71% +2,500 AS Andersson Investeeringud OÜ 120,015 0.68% 0.68% - AS Midas Invest 118,555 0.67% 0.66% +1,500 Clearstream Banking Luxembourg 102,497 0.58% 0.58% - S.A. clients
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.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME in thousand euros, unaudited
2013 2012 3 months 3 months
Revenue 47,859 47,791 Cost of goods sold (43,624) (45,288) Gross profit (loss) 4,235 2,503
Marketing expenses (656) (428) Administrative and general expenses (1,956) (2,048) Other operating income 708 571 Other operating expenses (44) (23) Operating profit (loss) 2,287 575
Finance income/costs (333) (159) incl. finance income/costs from investments in (34) 105 associates and joint ventures finance income/costs from other long-term investments 13 - interest expense (210) (313) foreign exchange gain (110) (63) other financial income (expenses) 8 112 Profit (loss) before tax 1,954 416 Corporate income tax expense (194) (269) Net profit (loss) for current period 1,760 147 ------------------- incl. net profit (loss) attributable to equity holders of 1,766 155 the parent net profit (loss) attributable to non-controlling interest (6) (8)
Other comprehensive income (loss) Currency translation differences of foreign entities (141) (23) Comprehensive income (loss) for the period 1,619 124 ------------------- ------------------- incl. net profit (loss) attributable to equity holders of 1,625 132 the parent net profit (loss) attributable to non-controlling interest (6) (8)
Earnings per share for profit (loss) attributable to 0.10 0.01 equity holders of the parent (basic and diluted, in euros)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION in thousand euros, unaudited
31.03.2013 31.12.2012 ASSETS
Current assets Cash and cash equivalents 33,349 35,316 Short-term deposits 2,500 - Trade and other receivables 58,853 60,343 Prepaid corporate income tax 480 478 Inventories 82,127 82,830 Total current assets 177,309 178,967
Non-current assets Long-term financial assets 25,124 24,378 Deferred income tax assets 1,818 1,919 Investment property 3,546 3,566 Property, plant and equipment 14,826 14,853 Intangible assets 1,346 1,365 Total non-current assets 46,660 46,081
TOTAL ASSETS 223,969 225,048 ----------------------- -----------------------
LIABILITIES AND EQUITY
Current liabilities Borrowings 12,590 16,299 Payables and prepayments 64,378 63,209 Income tax liability 47 - Short-term provisions 5,268 6,165 Total current liabilities 82,283 85,673
Non-current liabilities Long-term borrowings 19,813 19,205 Long-term interest liabilities 4 3 Long-term trade payables 1,686 1,553 Deferred corporate income tax liability 380 327 Long-term provisions 15 20 Total non-current liabilities 21,898 21,108
Total liabilities 104,181 106,781 ----------------------- -----------------------
Equity
Non-controlling interest 1,232 1,342 Equity attributable to equity holders of the parent Share capital 12,000 12,000 Statutory reserve capital 1,200 1,200 Currency translation differences (653) (512) Retained earnings 106,009 104,237 Total equity attributable to equity holders of parent 118,556 116,925
Total equity 119,788 118,267 ----------------------- -----------------------
TOTAL LIABILITIES AND EQUITY 223,969 225,048 -----------------------
Signe Kukin Group CFO +372 650 1250 signe.kukin@merko.ee
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