Merko Ehitus

Earnings Release • Nov 7, 2024

2024 9 months and III quarter consolidated unaudited interim report

COMMENTARY FROM MANAGEMENT

Merko Ehitus revenue for the 9 months of 2024 was EUR 379 million and net profit
was EUR 44.8 million. Third-quarter revenue was EUR 175 million; net profit EUR
27.3 million. Sales of construction services made up about 90% of the 9-month
revenue.

According to the management of Merko Ehitus, the construction of some projects
was accelerated at the request of the clients, which increased current
construction volumes, helped reduce costs and increase efficiency. As a result,
Merko ended the 9 months with a stronger result than planned. Group companies
reached the home stretch for several large and complex projects, including the
largest construction project in Merko's history, Arter quarter, with close to
80% of its 150-million-euro volume now completed. One of the Arter buildings is
finished, interior works on the second building are being completed and work on
the interior of the highest building is continuing. According to the management
of Merko Ehitus, the group's companies had been conservative in cost forecasting
and assessment of risks, managed to avoid realisation of the latter during the
long construction period. Thus, the sales revenue and profit of several ongoing
projects budgeted for next year materialised in the current year. Merko secured
order-book is at a good level, remaining above more than EUR 400 million
throughout this year. The market is still tight and competition is intense, and
there is a significant increase in risk appetite in the bid prices of some
construction service providers.

The company's strong financial position and the launch of fewer new development
projects have helped Merko keep interest costs low during high-interest-rate
period. The rapid growth of construction prices has subsided and been supplanted
by a moderate annual 1-2% growth as per earlier forecast. Until there is no
foreseeable drop in energy prices and wages, there is no reason to expect the
construction price index to decrease. An increasingly stronger contribution to
the group's results comes from the joint enterprise Connecto Eesti, dealing in
energy infrastructure construction and maintenance. Connecto's business volumes
are high due to major investments being channelled into this field.

The results in the real estate development business area are, as expected,
significantly more modest than last year, but still clearly more positive than
expected in the start of this year. A livelier market can be noticed in all of
home markets; with Lithuania clearly standing out with its long-lasting positive
economic sentiment. Success in apartment sales in Estonia, Latvia and Lithuania
is quite clearly linked to consumer confidence. The group's management is
moderately optimistic about the future and assesses Merko's inventory of
finished apartments as appropriate to market needs - besides apartments under
construction, ready-to-move-in homes can also be purchased.

In the nine months of 2024, the group companies entered into new construction
contracts worth EUR 292 million and the secured order-book as of the end of
September stood at EUR 431 million. The largest contracts signed in Q3 were for
the Tartu mnt 1 office building (the future headquarters of LHV Group) and the
fourth stage of the mainline of Rail Baltica in Harju County in Estonia; a
student hotel in Riga, Latvia; and additional work on a wind farm in Pag?giai,
Lithuania.

The largest sites under construction in Q3 were, in Estonia, the TKM Group
logistics centre, the Hampton by Hilton and Hyatt hotel buildings, Arter
Quarter, Estonian Defence Forces buildings on Ämari base, a tram line between
Old City Harbour and Rail Baltica Ülemiste passenger terminal and the first
stage of Ülemiste multimodal transport junction and the Rail Baltica's Tõdva
highway overpasses. In Lithuania, the largest construction sites were wind farm
infrastructure in Kelm?, Pag?giai and Telshiai regions, a substation in Kelm? and
various national defence buildings and infrastructure. In Latvia, a solar farm
in V?rme Municipality was under construction.

In the first nine months of current year, Merko has delivered 194 apartments and
11 commercial units to buyers and invested EUR 31 million into the real estate
business. As of the end of September, the group companies had 591 unsold
apartments which were either ready or under construction, and 87 apartments
covered by preliminary sale contracts. Merko launched the construction of 175
apartments and sales in four projects this year: a new phase of Veerenni in
Tallinn, Õielehe in Jüri, a new phase of Erminurme in Tartu and the first phase
of Lucavsala in Riga. The largest development projects under construction were
Uus-Veerenni, Noblessner and Lahekalda in Tallinn, Erminurme in Tartu;
Viesturd?rzs, Mezhpils?ta and Magnolijas in Riga; and Vilnel?s Skverai in
Vilnius.

OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS

PROFITABILITY
2024 9 months' pre-tax profit was EUR 49.6 million and Q3 2024 was EUR 31.3
million (9M 2023: EUR 33.8 million and Q3 2023 was EUR 13.6 million), which
brought the pre-tax profit margin to 13.1% (9M 2023: 10.0%).
Net profit attributable to shareholders for 9 months 2024 was EUR 44.8 million
(9M 2023: EUR 32.1 million) and for Q3 2024 net profit attributable to
shareholders was EUR 27.3 million (Q3 2023: EUR 12.7 million). 9 months net
profit margin was 11.8% (9M 2023: 9.5%).

REVENUE
Q3 2024 revenue was EUR 175.1 million (Q3 2023: EUR 122.5 million) and 9 months'
revenue was EUR 378.7 million (9M 2023: EUR 339.8 million). 9 months' revenue
increased by 11.4% compared to same period last year. The share of revenue
earned outside Estonia in 9 months 2024 was 60.1% (9M 2023: 34.5%).

SECURED ORDER BOOK
As of 30 September 2024, the group's secured order book was EUR 430.9 million
(30 September 2023: EUR 448.6 million). In 9 months 2024, group companies signed
contracts in the amount of EUR 292.1 million (9M 2023: EUR 379.4 million). In Q3
2024, new contracts were signed in the amount of EUR 152.6 million (Q3 2023: EUR
124.7 million).

REAL ESTATE DEVELOPMENT
In 9 months 2024, the group sold a total of 194 apartments; in 9 months 2023,
the group sold 665 apartments. The group earned a revenue of EUR 36.0 million
from sale of own developed apartments in 9 months 2024 and EUR 106.1 million in
9 months 2023. In Q3 of 2024 a total of 74 apartments were sold, compared to
153 apartments in Q3 2023, and earned a revenue of EUR 14.6 million from sale of
own developed apartments (Q3 2023: EUR 25.5 million).

CASH POSITION
At the end of the reporting period, the group had EUR 61.1 million in cash and
cash equivalents, and equity of EUR 234.6 million (51.3% of total assets).
Comparable figures as of 30 September 2023 were EUR 31.3 million and EUR 198.4
million (49.7% of total assets), respectively. As of 30 September 2024, the
group's net debt was negative EUR 22.2 million (30 September 2023: positive EUR
28.4 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                         2024      2023         2024         2023      2023
                     9 months  9 months  III quarter  III quarter 12 months

Revenue 378,676 339,838 175,108 122,491 466,304

Cost of goods sold (315,597) (296,642) (135,738) (105,114) (401,267)

Gross profit 63,079 43,196 39,370 17,377 65,037

Marketing expenses (3,366) (3,013) (1,073) (918) (4,312)

General and
administrative
expenses (15,115) (12,896) (6,485) (4,635) (19,423)

Other operating income 4,965 3,399 572 621 4,171

Other operating
expenses (2,512) (614) (46) (467) (991)

Operating profit 47,051 30,072 32,338 11,978 44,482

Finance income/costs 2,524 3,765 (1,071) 1,639 7,500

incl. finance
income/costs from
investments in
subsidiaries (3,119) - (3,119) - -

finance income/costs
from joint ventures 6,634 6,061 2,979 2,242 10,220

interest expense (1,469) (2,011) (353) (674) (2,697)

foreign exchange gain
(loss) (931) (192) (875) 98 (153)

other financial income
(expenses) 1,409 (93) 297 (27) 130

Profit before tax 49,575 33,837 31,267 13,617 51,982

Corporate income tax
expense (4,867) (1,827) (4,004) (898) (6,081)

Net profit for
financial year 44,708 32,010 27,263 12,719 45,901

incl. net profit
attributable to equity
holders of the parent 44,781 32,148 27,302 12,698 46,048

net profit
attributable to non-
controlling interest (73) (138) (39) 21 (147)

Other comprehensive
income, which can
subsequently be
classified in the
income statement

Currency translation
differences of foreign
entities 129 (16) 105 (88) (41)

Comprehensive income
for the period 44,837 31,994 27,368 12,631 45,860

incl. net profit
attributable to equity
holders of the parent 44,902 32,116 27,401 12,626 45,993

net profit
attributable to non-
controlling interest (65) (122) (33) 5 (133)

Earnings per share for
profit attributable to
equity holders of the
parent (basic and
diluted, in EUR) 2.53 1.82 1.54 0.72 2.60

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                           30.09.2024 30.09.2023 31.12.2023

ASSETS

Current assets

Cash and cash equivalents 61,115 31,282 77,330

Short-term deposits 5,000 - -

Trade and other receivables 108,930 86,895 68,754

Prepaid corporate income tax 377 2 2

Inventories 199,628 206,603 195,435

                                              375,050    324,782    341,521

Non-current assets

Investments in joint ventures 25,549 17,756 21,915

Other shares and securities 80 80 80

Other long-term loans and receivables 21,580 21,104 24,490

Deferred income tax assets 5,849 1,852 3,298

Investment property 12,645 15,534 16,823

Property, plant and equipment 16,609 17,238 16,613

Intangible assets 466 508 520

                                               82,778     74,072     83,739

TOTAL ASSETS 457,828 398,854 425,260

LIABILITIES

Current liabilities

Borrowings 11,541 23,325 19,673

Payables and prepayments 161,699 124,285 133,898

Income tax liability 6,838 1,846 4,260

Short-term provisions 7,325 10,268 10,451

                                              187,403    159,724    168,282

Non-current liabilities

Long-term borrowings 27,357 36,377 35,142

Deferred income tax liability 1,715 1,878 4,441

Other long-term payables 6,925 2,841 5,495

                                               35,997     41,096     45,078

TOTAL LIABILITIES 223,400 200,820 213,360

EQUITY

Non-controlling interests (220) (380) (155)

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 (16) (815) (838)

Retained earnings 225,942 190,507 204,171

                                              234,648    198,414    212,055

TOTAL EQUITY 234,428 198,034 211,900

TOTAL LIABILITIES AND EQUITY 457,828 398,854 425,260

Interim report is attached to the announcement and is also published on NASDAQ
Tallinn and Merko's web page (group.merko.ee (https://group.merko.ee/en/)).

Urmas Somelar
Head of Finance
AS Merko Ehitus
+372 650 1250
[email protected] (mailto:[email protected])

AS Merko Ehitus (group.merko.ee (https://group.merko.ee/en/)) group companies
construct buildings and infrastructure and develop real estate. We create a
better living environment and build the future. We operate in Estonia, Latvia
and Lithuania. As at the end of 2023, the group employed 635 people, and the
group's revenue for 2023 was EUR 466 million.