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Merko Ehitus
Quarterly Report • Nov 2, 2023
2220_ir_2023-11-02_92960c31-6a09-4469-bf07-629ccf4dd728.pdf
Quarterly Report
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AS MERKO EHITUS GROUP
2023 9 months and III quarter consolidated unaudited interim report
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
Business name: AS Merko Ehitus Main activities: Holding companies General contracting of construction Real estate development
Commercial Register No.: 11520257
Phone: +372 650 1250 Fax: +372 650 1251 Web site: group.merko.ee
Address: Järvevana tee 9G, 11314 Tallinn Postal address: Pärnu mnt 141, 11314 Tallinn E-mail: [email protected]
Financial year: 01.01.2023 – 31.12.2023 Reporting period: 01.01.2023 – 30.09.2023
Supervisory Board: Toomas Annus, Indrek Neivelt, Kristina Siimar Management Board: Andres Trink, Tõnu Toomik, Urmas Somelar
Auditor: AS PricewaterhouseCoopers
1
| BRIEF OVERVIEW OF THE GROUP 3 | |
|---|---|
| MANAGEMENT REPORT 5 | |
| MANAGEMENT BOARD'S DECLARATION 20 | |
| INTERIM FINANCIAL STATEMENTS 21 | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 21 | |
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION22 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY23 | |
| CONSOLIDATED CASH FLOW STATEMENT24 | |
| NOTES 25 | |
| NOTE 1 ACCOUNTING POLICIES USED25 | |
| NOTE 2 OPERATING SEGMENTS 25 | |
| NOTE 3 COST OF GOODS SOLD 29 | |
| NOTE 4 EARNINGS AND DIVIDENDS PER SHARE29 | |
| NOTE 5 CASH AND CASH EQUIVALENTS30 | |
| NOTE 6 TRADE AND OTHER RECEIVABLES30 | |
| NOTE 7 INVENTORIES 31 | |
| NOTE 8 OTHER LONG-TERM LOANS AND RECEIVABLES 31 | |
| NOTE 9 INVESTMENT PROPERTY 31 | |
| NOTE 10 PROPERTY, PLANT AND EQUIPMENT 32 | |
| NOTE 11 INTANGIBLE ASSETS 32 | |
| NOTE 12 BORROWINGS 33 | |
| NOTE 13 PAYABLES AND PREPAYMENTS 34 | |
| NOTE 14 SHORT-TERM PROVISIONS 34 | |
| NOTE 15 OTHER LONG-TERM PAYABLES34 | |
| NOTE 16 RELATED PARTY TRANSACTIONS 35 | |
| NOTE 17 CONTINGENT LIABILITIES38 | |
| DEFINITION OF RATIOS39 |
BRIEF OVERVIEW OF THE GROUP
Companies in the Merko Ehitus group develop real estate, construct buildings and infrastructure. We operate in the Baltic states and Norway.
We create a better living environment and build the future.
Long-term experience, a wide scope of construction services,quality and reliability have made Merko the brand of the leading construction company and apartment developer in the Baltics.
The construction company with the largest equity in the Baltics, long-term capability to self-finance its projects
A strong position on the Baltic construction market, the leading residential real estate developer
International quality, environmental protection and occupational safety certificates ISO 9001, ISO 14001, ISO 45001
SHARES
The shares are listed in the Main List of NASDAQ Tallinn since 1997. The main shareholder is AS Riverito (72%)
2022 KEY FIGURES
Revenue 409.6 million euros Net profit 34.6 million euros 661 employees
STRATEGY
AS Merko Ehitus subsidiaries provide construction services in the field of building and infrastructure construction and develop residential real estate in their home markets of Estonia, Latvia, Lithuania, and Norway. We want to be the preferred partner for those who value quality, both in the performance of construction works and in the development and sale of apartments, as well as in contributing to society. As a caring and development-oriented employer, we ensure that our employees are professional and motivated, each of whom contributes to the joint result of each company, each unit and Merko itself. By focusing on profitability, cost base efficiency and the best employees, we ensure the investor a long-term profitable investment.
MANAGEMENT REPORT COMMENTARY FROM MANAGEMENT
Q3 2023 revenue for Merko Ehitus was EUR 122 million and for the nine months was EUR 340 million. Net profit in Q3 was EUR 12.7 million and net profit for the nine months increased to EUR 32.1 million. Merko delivered 665 apartments and 22 commercial units to customers in the first nine months of 2023.
According to the management of Merko Ehitus, the Q3 and nine-month results were supported by delivery of presold apartments to customers in newly completed apartment developments. The Merko group has inventory of apartments that are under construction and presold is significantly smaller than in the past few years due to the recession and the slump in the real estate market and this will exert a negative impact on the group's results in coming years. The poor macroeconomic picture and general uncertainty did not improve in Q3 and investments into new development projects are still being curtailed. The outlook in this regard is also very weak, the economic outlook has deteriorated and the recovery has been deferred to the more distant future due to central bank interest rate policy, continuing inflation, unstable energy and tax policies and, above all, the geopolitical situation. Over nine months of 2023 the group has invested a total of EUR 73 million into ongoing development projects and acquisitions of new properties.
2023 9M REVENUE 340 MILLION EUROS PROFIT BEFORE TAX 33.8 MILLION EUROS
In the first nine months of 2023, the group companies signed new construction contracts worth EUR 379 million, which was 31% more than in the comparison period, and the balance of secured order-book grew by approximately 30% to EUR 449 million. The group's secured order-book continued growth in Q3 and is currently strong, which does partially counterbalance the impacts of the slumping apartment market on the group's construction volumes. Yet profitability of construction service is under constant strain and the risks are high, since in the medium to long term, cautious positions are predominant in markets and supply chains, and there is an extreme amount of uncertainty about the impacts of governments' economic and foreign policy measures. Therefore, the group's companies will have to devote great attention to managing the risks.
In the first nine months of the year, Merko delivered 665 apartments and 22 business premises. As of the end of Q3, the group's companies had 825 apartments on its balance sheet. About 40% of the apartments in the construction phase 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 Q3 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, the logistics centre for Tallinn Kaubamaja Group, the infrastructure along the southeastern border of the Republic of Estonia, the renovation of Vana-Kalamaja Street, a tram line between Old City Harbour and Rail Baltica Ülemiste passenger terminal, and the first phase of Ülemiste terminal. In Latvia, the Elemental Business Centre office buildings were in progress. Projects in Lithuania were wind farm infrastructure works in Kelme and Pagėgiai regions, and various buildings and infrastructure for NATO training centres.
OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS
PROFITABILITY
2023 9 months' pre-tax profit was EUR 33.8 million and Q3 2023 was EUR 13.6 million (9M 2022: EUR 18.7 million and Q3 2022 was EUR 10.3 million), which brought the pre-tax profit margin to 10.0% (9M 2022: 7.0%).
Net profit attributable to shareholders for 9 months 2023 was EUR 32.1 million (9M 2022: EUR 17.0 million) and for Q3 2023 net profit attributable to shareholders was EUR 12.7 million (Q3 2022: EUR 9.8 million). 9 months net profit margin was 9.5% (9M 2022: 6.4%).
REVENUE
Q3 2023 revenue was EUR 122.5 million (Q3 2022: EUR 110.0 million) and 9 months' revenue was EUR 339.8 million (9M 2022: EUR 266.2 million). 9 months' revenue increased by 27.7% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2023 was 34.5% (9M 2022: 53.4%).
SECURED ORDER BOOK
As of 30 September 2023, the group's secured order book was EUR 448.6 million (30 September 2022: EUR 341.0 million). In 9 months 2023, group companies signed contracts in the amount of EUR 379.4 million (9M 2022: EUR 290.4 million). In Q3 2023, new contracts were signed in the amount of EUR 124.7 million (Q3 2022: EUR 97.1 million).
REAL ESTATE DEVELOPMENT
In 9 months 2023, the group sold a total of 665 apartments; in 9 months 2022, the group sold 456 apartments. The group earned a revenue of EUR 106.1 million from sale of own developed apartments in 9 months 2023 and EUR 56.9 million in 9 months 2022. In Q3 of 2023 a total of 153 apartments were sold, compared to 242 apartments in Q3 2022, and earned a revenue of EUR 25.5 million from sale of own developed apartments (Q3 2022: EUR 29.8 million).
CASH POSITION
At the end of the reporting period, the group had EUR 31.3 million in cash and cash equivalents, and equity of EUR 198.4 million (49.7% of total assets). Comparable figures as of 30 September 2022 were EUR 22.2 million and EUR 166.6 million (40.9% of total assets), respectively. As of 30 September 2023, the group's net debt was EUR 28.4 million (30 September 2022: EUR 88.3 million).
OUTLOOK OF CONSTRUCTION AND REAL ESTATE MARKET
CONSTRUCTION SERVICES
Construction prices are stabilizing at new levels. In line with our earlier assessments, these new levels shall display for some time lateral movements within statistical error margins, without a decisive change. In the longer term, we expect that pressures driving prices up will remain prevalent. While financial markets consider the rise in interest rates to have peaked, interest expenses are
expected to remain higher, and this will push up the cost of construction machinery suppliers and material producers. The wage pressure that followed soaring inflation will also persist and the combined effect of various tax hikes and end of government relief measures with the broad-based rise in input cost will not allow construction prices to remain at current levels. Nor can we overlook the likely transformation of the effects from already launched Green Deal and expanding carbon trading into a new tidal wave of construction prices in 2026. The rise in efficiency stemming from advances in materials science and construction technology will likely not be able to offset the rise in workface expenses and operating costs.
In our previous interim report, we were excessively positive in terms of potential for growth in construction volumes. In Estonia, construction volumes fell for the fifth quarter in a row in Q2, mainly stemming from continuing decline in residential and road construction volumes. Latvia was also not able to fulfil the expectations for continuing growth: the strong growth seen at the
beginning of the year in renewable energy, military projects and Rail Baltica was not able to stave off a general downward correction in volumes in Q2. Although Q3 euro area statistics had not been published as of this writing, we have become more sceptical about growth in construction volumes. Although the public sector has been active in conducting renewable energy, military projects and Rail Baltica procurements, the actual works have started later and in a smaller volume than expected. We do not expect volumes to keep on significantly declining, but strong growth is unlikely as well, since the continued decline in residential construction volumes are holding back the overall result for the sector.
In terms of general longer-term outlooks, we have also become more sceptical, since the entire euro area has a weak economic outlook in the near future and the impacts from the Gaza war in addition to the Russian aggression against Ukraine will increase fragmentation of the world economy. Ever more obvious escalation between superpowers in dividing the spheres of influence is curtailing investments and trade; military conflicts are forcing the public sector to concentrate on ensuring vital services and defensive capability. The private sector is cautious about investing and there will be no growth in demand for housing development to be seen if the uncertainty continues.
DEVELOPMENT OF APARTMENTS
The decline in volumes of new residential units sold bottomed out in late 2022, but the hoped-for recovery has not taken place and solvent demand for new housing has remained modest. Transactions based on earlier contracts under the law of obligations
are keeping the prices of new residential units statistically high, but nor do new transactions indicate any incipient thaw in prices that will go beyond ordinary sales discounts. We believe that the price rise on the new housing market has ended, and until the end of 2024 we will expect stable prices with insignificant statistical fluctuations. The next major factor that will propel housing market prices will likely be the implementation of higher energy performance requirements and impact of the solutions for renovation of existing residential buildings on the prices of such properties. On the new housing market, developers are rather keeping a low profile, and no major projects that outpace demand are being launched; thus, the existing demand-supply balance will be maintained with the low market activity.
BUSINESS ACTIVITIES
The group business reporting is divided into two business segments:
- construction service;
- real estate development.
CONSTRUCTION SERVICE
The construction service in Baltic states consists of services in the fields of general construction, civil engineering and electrical construction, additionally in Estonia road construction and concrete works services and in Norway general construction.
| million EUR | |
|---|---|
| ------------- | -- |
| 9M 2023 | 9M 2022 | VARIANCE | Q3 2023 | Q3 2022 | VARIANCE | 12M 2022 | |
|---|---|---|---|---|---|---|---|
| Revenue | 208.7 | 185.8 | +12.3% | 87.7 | 70.8 | +23.8% | 246.9 |
| % of total revenue | 61.4% | 69.8% | 71.6% | 64.4% | 60.3% | ||
| Operating profit | 11.6 | 4.6 | +153.0% | 6.9 | 2.6 | +164.2% | 8.5 |
| Operating profit margin | 5.6% | 2.5% | 7.9% | 3.7% | 3.4% |
In the 9 months of 2023, the revenue of the construction service segment was EUR 208.7 million (9M 2022: EUR 185.8 million). The sales revenue of construction service has increased by 12.3% compared to the same period last year. The construction service segment revenue for 9 months 2023 made up 61.4% of the group's total revenue (9M 2022: 69.8%). In this segment, the group earned an operating profit of EUR 11.6 million for 9 months (9M 2022: EUR 4.6 million). The operating profit margin was 5.6% (9M 2022: 2.5%). The operating profit was mainly affected by expiration of the old fixed-price contracts, the decrease of their share in turnover of the reporting period.
Larger projects in progress in the third quarter in construction service segment in Estonia included the Pelgulinna and Rae state gymnasiums, logistics centre for Tallinna Kaubamaja Grupp, Hampton by Hilton and Hyatt hotel buildings, Arter Quarter, construction works of the Republic of Estonia's southeast land border, Defence Forces' buildings in the Tapa campus, tram line connecting Old Harbour and Rail Baltic's Ülemiste passenger terminal and the first phase of Ülemiste terminal as well as reconstruction of Vana-Kalamaja street. In Latvia, larger ongoing project included the construction works of the Elemental Business Centre office buildings. In Lithuania, larger projects were construction of wind farm infrastructure works in Kelmė and Pagėgiai region and a substation in Kelmė as well as various NATO training centres buildings and infrastructures were underway. In Norway, the group worked on smaller scale contracts.
REAL ESTATE DEVELOPMENT
The real estate development segment includes residential real estate development and construction of joint venture projects, long-term real estate investments and commercial real estate projects in Estonia, Latvia, Lithuania and Norway. To ensure the finest quality, as well as maximum convenience and assurance for apartment buyers, Merko handles all phases of development: acquisition of the real estate, planning, design of the development project, construction, marketing and sales, and warranty-period customer service.
| 9M 2023 | 9M 2022 | VARIANCE | Q3 2023 | Q3 2022 | VARIANCE | 12M 2022 | |
|---|---|---|---|---|---|---|---|
| Revenue | 131.2 | 80.4 | +63.0% | 34.8 | 39.2 | -11.3% | 162.7 |
| incl. revenue from sale of apartments |
106.1 | 56.9 | 25.5 | 29.8 | 127.0 | ||
| incl. construction service to joint venture projects |
20.0 | 21.6 | 6.8 | 8.4 | 32.0 | ||
| % of total revenue | 38.6% | 30.2% | 28.4% | 35.6% | 39.7% | ||
| Operating profit | 20.5 | 15.9 | +28.5% | 5.7 | 7.9 | -27.5% | 30.3 |
| Operating profit margin | 15.6% | 19.8% | 16.5% | 20.2% | 18.6% |
million EUR
In 9 months 2023, the group sold a total of 665 apartments (incl. 104 apartments in a joint venture) and 22 commercial premises (incl. 8 in a joint venture); in 9 months 2022, 456 apartments and 4 commercial premises. The group earned a revenue of EUR 106.1 million (VAT not included) from sale of developed apartments in 9 months 2023 and EUR 56.9 million (VAT not included) in 9 months 2022. In the revenue and operating profit of the real estate development segment also are reflected the sales of commercial premises and parking spaces of the real estate development projects and the result of public-private-partnership contracts, based on which the group companies provide construction service and property management services.
In the case of development projects in joint venture, the real estate development business segment revenue reflects the construction services provided to the project by the group and the operating profit includes the realised construction profit for the
period. The profit from development gained from sale of those apartments to end-customers is recognised in the group's reporting based on the equity method.
In 9 months of 2023, real estate development segment revenues increased by 63.0% compared to the same period last year and formed 38.6% of the group's total revenue (9 months of 2022: 30.2%).
The segment's operating profit for the 9 months of 2023 amounted to EUR 20.5 million (9 months of 2022: EUR 15.9 million) and the operating profit margin was 15.6% (9 months of 2022: 19.8%). The profitability of the apartment development projects varies by project and depends greatly on the cost structure of the specific project, including the land acquisition price.
In 9 months of 2023, the group continued with the construction of the above-ground volumes of stage V of Lahekalda residential development project, but apartments are not accounted as ready-to-sell apartments. The decision to complete the construction will be taken depending on the market situation (9 months of 2022: launched the construction of 278 apartments). In the 9 months, the group invested a total of EUR 64.7 million (9 months of 2022: EUR 93.7 million) in the ongoing development projects.
After the reporting date, the group has started the construction of 47 apartments in the second stage of Mežpilsēta residential project in Riga and made the decision to complete the construction of Lahekalda project stage V.
One of the group's objectives is to keep a sufficient portfolio of land plots to ensure stable inventory of property development projects, which considers the market conditions. As of 30 September 2023, the group's inventories included land plots with development potential, where the construction works have not started, in the amount of EUR 89.6 million (30.09.2022: EUR 90.3 million).
GROUP'S INVENTORIES WITH DEVELOPMENT POTENTIAL BY COUNTRY
| million EUR | ||||
|---|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Estonia | 32.5 | 26.7 | 27.6 |
| Latvia | 24.1 | 27.0 | 23.6 |
| Lithuania | 31.5 | 35.0 | 31.3 |
| Norway | 1.5 | 1.6 | 1.6 |
| Total | 89.6 | 90.3 | 84.1 |
In 9 months of 2023, the group has obtained new land plots for real estate development purposes at acquisition cost of EUR 5.7 million (9 months of 2022: in the amount of EUR 24.9 million).
SECURED ORDER BOOK
As of 30 September 2023, the group's secured order book amounted to EUR 448.6 million, compared to EUR 341.0 million as of 30 September 2022, having increased by 31.5% in the annual comparison. The secured order book excludes the group's own residential development projects and construction works related to developing real estate investments.
In 9 months of 2023, EUR 379.4 million worth of new contracts were signed, which is increased by 30.6% compared to the same period of the previous year (9 months of 2022: EUR 290.4 million). The value of new contracts signed in the third quarter of 2023 amounted to EUR 124.7 million; in the third quarter of 2022 the value of new contracts signed amounted to EUR 97.1 million.
LARGEST CONSTRUCTION CONTRACTS SIGNED IN THE THIRD QUARTER OF 2023
| BRIEF DESCRIPTION OF CONTRACT | COUNTRY | COMPLETION TIME | VALUE MILLION EUR |
|---|---|---|---|
| Construction contract for the construction of foundations for 40 wind turbines, drainage and roads in a windfarm in the Pagėgiai municipality |
Lithuania | End of 2025 | 80.0 |
| Construction contract for the construction of a logistics centre in Maardu |
Estonia | Autumn of 2024 | 20.0 |
After the balance sheet date, the group has concluded the following major construction contracts:
- On 5 October 2023, AS Merko Ehitus Eesti, part of AS Merko Ehitus group, and Estma HPT OÜ entered into a contract for the construction of the second stage of hotel and office building located at Sadama 4, Tallinn. The contract value is approximately EUR 13.1 million and the construction works is scheduled to be completed in November 2025.
- On 13 October 2023 UAB Merko Statyba, part of AS Merko Ehitus group, and UAB WINDLIT entered into the contract to perform the construction of foundations for 28 wind turbines, electrical cables and roads in a windfarm located in the Kelmė district, Lithuania. The contract value exceeds EUR 45 million and the project is scheduled to be completed in the second quarter of 2025.
- On 31 October 2023, AS Merko Ehitus Eesti, part of AS Merko Ehitus group, signed a contract with the Centre for Defence Investment for the construction of barracks in the Ämari military campus of the Defence Forces in Harju county. The contract value is approximately EUR 25 million and the construction is scheduled to be completed in December 2024.
As of 30 September 2023, the private sector orders accounted for approximately 52% of the total balance in the group's secured order book (30.09.2022: approximately 65%). The private sector is rather taking a wait-and-see approach when making new
investments, assessing the profitability of investments in the environment of higher interest rates and a weaker economy. Planned high-priority investments in the public sector will continue, as the budgetary financing is less affected by the rise in interest rates.
The group is focusing on the existing home markets, keeping a diversified operating portfolio as a strategic aim, balancing construction activities with real estate development in different countries. The group has gained a strong foothold in all the Baltic states and continues a gradual growth in Norway.
CASH FLOWS
At the end of reporting period, the group had cash and cash equivalents in the amount of EUR 31.3 million (30.09.2022: EUR 22.2 million). As the group's cash position continues to be strong, the group has not utilised all its credit lines of existing overdrafts and loan agreements within reporting period. As of the end of the reporting period, the group entities had concluded overdraft contracts with banks in a total amount of EUR 57.0 million, of which EUR 50.0 million was unused (30.09.2022: EUR 49.0 million, of which EUR 21.1 million was unused).
The 9-month cash flow from operating activity was positive at EUR 63.7 million (9 months of 2022: negative EUR 55.9 million), cash flow from investing activity was positive at EUR 0.8 million (9 months of 2022: negative EUR 3.4 million) and the cash flow from financing activity was negative at EUR 50.8 million (9 months of 2022: positive EUR 36.6 million).
The cash flow from operating activities had positive effect from EBITDA of EUR 32.4 million (9 months of 2022: positive effect of EUR 20.6 million), from the changes in receivables and liabilities related to construction contracts of EUR 21.2 million (9 months 2022: negative effect of EUR 4.1 million), from the change in trade and other payables related to operating activities of EUR 7.1 million (9 months of 2022: positive effect of EUR 33.3 million), from the change in the provisions of EUR 0.9 million (9 months of 2022: negative effect of EUR 3.2 million) as well from the change in inventories of EUR 15.7 million (9 months of 2022: negative effect of EUR 80.1 million). The cash flows from inventories are mainly affected by the construction and sales cyclicality of developed apartments: the negative cash flow is due to the increase in the volume of inventories related to the construction of apartments, then the positive cash flow is due to the decrease in inventories at the sale of the apartments. The negative effects to cash flow from operating activities came from the changes in trade and other receivables related to operating activities of EUR 7.9 million (9 months of 2022: negative effect of EUR 17.8 million). Interest was paid EUR 2.6 million (9 months of 2022: EUR 1.0 million) and corporate income tax was paid at EUR 2.8 million (9 months of 2022: EUR 2.7 million).
To support cash flows from operating activities, including increased volumes in apartment development, the group has raised additional external capital. At the same time, the debt ratio has remained at a moderate level (15.0% as of 30.09.2023; 27.1% as of 30.09.2022, 23.7% as of 31.12.2022).
Cash flows from investing activities include negative effect from the acquisition of non-current assets in the amount of EUR 1.3 million, which is mainly related to the renewal of equipment in the field of construction (9 months of 2022 EUR 0.9 million) ant the positive effect came from the sale of non-current assets in the amount of EUR 1.1 million (9 months of 2022: EUR 0.4 million) and EUR 1.2 million from the dividends received from the joint venture (9 months of 2022: no dividends received).
In cash flows from financing, the larger negative factors were dividend payment of EUR 17.7 million (9 months of 2022: EUR 17.7 million), the repayments of lease liabilities in the amount of EUR 1.0 million (9 months of 2022: net negative cash flow of EUR 0.8 million) and the change in loans related to net amount of loans received and repaid of project specific loans obtained using investment property as collateral in the amount of EUR 1.2 million (9 months of 2022: negative cash flow in the net amount of EUR 1.1 million) and from the net change in loans received and repaid in connection with development projects in the amount of EUR 13.2 million (9 months of 2022: net positive cash flow of EUR 22.1 million), which resulted from the repayment of loans taken for residential development projects, as well from the change in loans related to other activities in the amount of EUR 17.8 million (9 months of 2022: net positive cash flow of EUR 35.9 million).
The Q3 2023 cash flow from operating activity was positive at EUR 40.0 million (Q3 2022: negative EUR 14.4 million), cash flow from investing activity was negative at EUR 0.2 million (Q3 2022: negative EUR 0.1 million) and the cash flow from financing activity was negative at EUR 18.3 million (Q3 2022: positive EUR 19.9 million).
RATIOS
(attributable to equity holders of the parent)
| INCOME STATEMENT SUMMARY |
9M 2023 | 9M 2022 | 9M 2021 | Q3 2023 | Q3 2022 | Q3 2021 | 12M 2022 | |
|---|---|---|---|---|---|---|---|---|
| Revenue | million EUR | 339.8 | 266.2 | 226.5 | 122.5 | 110.0 | 80.7 | 409.6 |
| Gross profit | million EUR | 43.2 | 31.1 | 26.5 | 17.4 | 13.8 | 9.2 | 53.7 |
| Gross profit margin | % | 12.7 | 11.7 | 11.7 | 14.2 | 12.5 | 11.4 | 13.1 |
| Operating profit | million EUR | 30.1 | 18.5 | 16.9 | 12.0 | 9.9 | 6.0 | 35.0 |
| Operating profit margin | % | 8.8 | 7.0 | 7.5 | 9.8 | 9.0 | 7.4 | 8.6 |
| Pre-tax profit | million EUR | 33.8 | 18.7 | 16.6 | 13.6 | 10.3 | 6.1 | 37.1 |
| Pre-tax profit margin | % | 10.0 | 7.0 | 7.3 | 11.1 | 9.4 | 7.5 | 9.1 |
| Net profit | million EUR | 32.0 | 16.8 | 15.2 | 12.7 | 9.6 | 5.5 | 34.1 |
| attributable to equity holders of the parent |
million EUR | 32.1 | 17.0 | 15.3 | 12.7 | 9.8 | 5.5 | 34.6 |
| attributable to non controlling interest |
million EUR | (0.1) | (0.3) | (0.1) | 0.0 | (0.2) | 0.0 | (0.5) |
| Net profit margin | % | 9.5 | 6.4 | 6.7 | 10.4 | 8.9 | 6.8 | 8.5 |
| Other income statement indicators |
9M 2023 | 9M 2022 | 9M 2021 | Q3 2023 | Q3 2022 | Q3 2021 | 12M 2022 | |
|---|---|---|---|---|---|---|---|---|
| EBITDA | million EUR | 32.4 | 20.6 | 18.8 | 12.8 | 10.7 | 6.6 | 37.9 |
| EBITDA margin | % | 9.5 | 7.8 | 8.3 | 10.5 | 9.7 | 8.2 | 9.3 |
| General expense ratio | % | 4.7 | 5.4 | 5.2 | 4.5 | 4.2 | 5.2 | 4.9 |
| Labour cost ratio | % | 10.2 | 11.6 | 11.8 | 9.5 | 9.2 | 11.3 | 10.3 |
| Revenue per employee | thousand EUR | 521 | 404 | 347 | 188 | 167 | 124 | 623 |
| OTHER SIGNIFICANT INDICATORS |
30.09.2023 | 30.09.2022 | 30.09.2021 | 31.12.2022 | |
|---|---|---|---|---|---|
| Return on equity | % | 26.2 | 18.7 | 16.6 | 20.4 |
| Return on assets | % | 13.0 | 8.5 | 9.2 | 9.2 |
| Return on invested capital | % | 20.5 | 14.6 | 15.1 | 15.1 |
| Assets | million EUR | 398.9 | 407.3 | 296.3 | 387.4 |
| Equity | million EUR | 198.0 | 166.1 | 154.9 | 183.7 |
| Equity attributable to equity holders of the parent |
million EUR | 198.4 | 166.6 | 150.8 | 184.2 |
| Equity ratio | % | 49.7 | 40.9 | 50.9 | 47.5 |
| Debt ratio | % | 15.0 | 27.1 | 13.6 | 23.7 |
| Current ratio | times | 2.0 | 1.8 | 2.2 | 2.0 |
| Quick ratio | times | 0.7 | 0.5 | 0.8 | 0.6 |
| Accounts receivable turnover | days | 36 | 31 | 29 | 33 |
| Accounts payable turnover | days | 39 | 56 | 37 | 55 |
| Average number of employees | people | 652 | 659 | 652 | 657 |
| Secured order book | million EUR | 448.6 | 341.0 | 314.4 | 297.2 |
Ratio definitions are provided on page 39 of the report.
RISK MANAGEMENT
Risk management is part of strategic management and is inseparable from daily operations of the group. In managing risks, the main objective of the group is to determine most significant risks and to manage these risks in a balanced way so that the group achieves its strategic and financial objectives.
Merko Ehitus divides risks into four main categories: business risk, market risk (incl. interest risk and foreign exchange risk), financial risk (incl. credit risk and liquidity risk) and operational risk (incl. health and safety risk and environmental risk). The topic of risk management has been thoroughly covered on the group's website: group.merko.ee/en/investors/risk-management/.
Legal risk
Due to different interpretations of contracts, regulations and laws related to group's principal activities, there is a risk that some buyers, contractors or supervisory authorities evaluate the company's activities from the perspective of laws or contracts from a different position and dispute the legitimacy of the company's activities.
As of 30 September 2023, a provision has been set up at the group in the amount of EUR 2.1 million for covering potential claims and legal costs (30.09.2022: no provision has been formed).
Below is presented an overview of the key legal disputes and proceedings, which have taken place or ended during 2023 or are ongoing as of 30 September 2023 and which concern group entities is presented:
Estonia
Appeal for the revocation of the order of the Minister of the Environment
The court cases in connection with Minister of the Environment regulation No 22 of 27 March 2015, which redrew the boundaries of species protection sites to exclude properties on Paekalda street owned by AS Merko Ehitus subsidiaries Suur-Paekalda OÜ and Väike-Paekalda OÜ (now merged with AS Merko Ehitus Eesti, part of AS Merko Ehitus group). On 2 February 2016, AS Merko Ehitus group companies filed a complaint in Tallinn Administrative Court for compensation of damage. The claims consist of direct patrimonial damage (reduction in the value of immovable property and expenditures made on development activity) and claims for revenue foregone (failed development activity in 2005-2007). On 22 April 2019 the Tallinn Administrative Court partially satisfied the appeal and ordered the Republic of Estonia to pay AS Merko Ehitus Eesti EUR 760 thousand and late interest until the principal claim is duly discharged. The court also ordered that procedural costs of EUR 12 thousand be paid to AS Merko Ehitus Eesti. Both sides filed an appeal to the Tallinn District Court, which partially annulled the decision of the Tallinn Administrative Court and sent the case back to Administrative Court to determine the amount of compensation. Both parties to the dispute filed cassation appeals with the Supreme Court. By a decision of 5 March 2021, the Supreme Court dismissed the cassation appeal of AS Merko Ehitus Eesti, but sent the appeal regarding the claim for compensation for direct property damage caused by the lawful activities of the Republic of Estonia to the Tallinn Administrative Court for reconsideration. The Tallinn Administrative Court suspended the proceedings in the administrative case until the procedure for the detailed planning of the properties has been completed. The impact of this claim has not been taken into account in the group's reporting.
Latvia
Latvian Competition Council administrative proceeding
On 9 August 2021, SIA Merks, a subsidiary of AS Merko Ehitus, received the decision of the Latvian Competition Council in the administrative proceedings initiated with regard to the company in 2019. The Group has disclosed information about the proceedings on an ongoing basis in stock market notices, annual and interim reports and in the relevant subsection of the website.
On 13 September 2021, SIA Merks and AS Merko Ehitus contested the decision of the Latvian Competition Council in the Latvian administrative court. Before the court decision comes into effect, the fine of EUR 2.7 million levied by the Competition Council will not become payable and the possible claims for damages of third persons will not be subject to review nor other possible consequences arising from law will be applicable before the court decision enters into force. Currently it has not been possible to assess reliably the impact of potential damage claims on the company due to the large number of inputs open to change, the lack of practice of implementing joint and several liability and the ambiguity of other legal aspects.
The last court session to discuss the content of the appeal claim took place on 26 September 2023. The court is expected to announce its judgement within 2023. Regardless of in whose favour the appeal court judges, there is a high probability that the decision will be appealed again at the cassation level, as there are several principled positions from all parties of the dispute.
AS Merko Ehitus continues to hold the conclusions of the Latvian Competition Council with regard to the business activities of SIA Merks both factually and legally unjustified and will use all the possibilities granted under the rule of law to overturn such conclusions.
Considering that judicial proceedings have reached the stage of substantive discussions and based on the principle of conservatism, the group formed in fiscal year 2022 a provision of 1/3 of the potential fine claim, i.e. EUR 900 thousand. This does not reflect the group's assessment of the expected outcome; it reflects the conservative principles applied in the group.
SIA Ostas Celtnieks
On 6 November 2019, SIA Merks filed an action against SIA "Ostas Celtnieks" in an amount of EUR 230 thousand and additional EUR 21 thousand for late interests. The basis for this claim is the loss incurred from the construction of Ventspils music school and concert hall carried out as per consortium contract of which 35% is to be covered by SIA "Ostas Celtnieks" according to its share in the consortium. So far, SIA "Ostas Celtnieks" has not covered its share of the loss. In July 2022, the court dismissed the claim on the ground that the claim had been submitted by an incorrect person (a formal legal person of the consortium). On 25 October 2022, SIA Merks lodged an appeal which was accepted. In July 2023, SIA Merks received a positive judgment from the regional
court, and it has entered into force. Simultaneously SIA "Ostas Celtnieks" has been declared insolvent, SIA Merks was recognized as a creditor in the insolvency proceeding of SIA "Ostas Celtnieks". The impact of this requirement has not been taken into account in the group's reporting.
Salaspils County Council
On 29 July 2022, SIA Merks filed a lawsuit against the Salaspils County Government in the Court of Economic Affairs in order to find a solution to the disagreements arising from the interpretation of the Salaspils kindergarten construction contract. Salaspils county government filed a counterclaim. At the end of 2022, SIA Merks signed the Delivery-acceptance deed and based on the expert decision, submitted a claim to the court against the Salaspils county government in the amount of EUR 1,635 thousand (EUR 1,304 thousand being the principal claim and EUR 331 thousand late interest). The next court hearing is scheduled for 6 November 2023. The group has not made any provisions as of the date of the report.
SIA Hanza 14
In August 2022, the Arbitration Institute of the Stockholm Chamber of Commerce (Stockholm Arbitration) accepted SIA Hanza 14's application for annulment of the non-entry into force of the construction contract signed on 16 June 2020 and for SIA Merks to fulfil its contractual obligations. The non-entry into force of the construction contract was announced by Merko Ehitus with a stock exchange announcement on 28 August 2020. SIA Merks received a statement of claim from SIA Hanza 14 to which SIA Merks filed a defence statement to the court. SIA Merks continues to maintain that the contract became null and void as a result of the preconditions set forth in the construction contract not being met. The imperative condition which constituted grounds for rendering the contract null and void provided for the expiry of the contract without legal consequences or obligations for parties, much as if it had not been signed in the first place. Accordingly, the group has not made any provision to cover theoretical claims. The arbitration court is expected to declare its judgement in December 2023.
Impact of the war in Ukraine
More than a year and a half has passed since the start of Russia's war of aggression in Ukraine. Merko Ehitus Group has assessed the direct effects of the war to remain below the threshold of significance. However, in the absence of direct effects, indirect effects continue to occur. Sanctions, inflation triggered by the price increase of energy carriers and logistics chains led to a general increase in input prices by approximately 30-35% in the last 7 quarters. It should be noted that a complete distinction between the effects of the Covid pandemic and the effects of war is not possible. At the same time, the group has been able to transfer this price increase to the buyers of services and products for the most part, and no permanent impact on the group's business activities or pre-tax profit has been observed.
The war continues to have a negative impact on the group's economic environment, both through the permanent uncertainty of customers and the decrease in the pace of apartment sales. The negative effect caused by the market contraction cannot be passed on to anyone. However, it is not correct to present a negative overall economic effect as an effect of the war in Ukraine.
EMPLOYEES AND LABOUR COSTS
As of 30 September 2023, Merko Ehitus group employed 663 people (including temporary and part-time staff). Compared to the same period last year, the number of group's employees decreased by 12 (-1.8%). The number of employees decreased in Latvia and Estonia and increased in Lithuania.
Professionals with longstanding experience are the company's key value. The group's objective is to pay its employees competitive salary. The interests of employees and the company are balanced by performance-based remuneration.
The group defines labour cost as salary (incl. fixed salary, additional pay, holiday pay, and performance pay), taxes based on salary, fringe benefits and taxes on fringe benefits. In 9 months 2023, the labour cost was EUR 34.6 million (9 months 2022: EUR 30.8 million), which increased by 12.3% compared to the same period previous year, while the labour cost ratio decreased by 1.4 pp from 11.6% to 10.2% in comparable periods.
During 9 months of 2023, AS Merko Ehitus Eesti, one of the largest Estonian construction companies, part of AS Merko Ehitus group, paid EUR 7.7 million in labour taxes in Estonia, being one ofthe largestlabour tax payer in the construction sector (9 months 2022: EUR 7.0 million).
ETHICAL BUSINESS PRACTICES
Group's core values include ethical business practices, considered a long-term important success factor. By following highly ethical principles, we promote profitable growth, gain the trust of our stakeholders, and support fair competition and equal treatment.
We conduct business honestly, follow ethical principles in our activities and make sure our employees know and follow business ethics standards in their everyday work. To embed the principles the Group has established a Code of Business Ethics.
The topic of business ethics has been thoroughly covered on the group's website: group.merko.ee/en/corporate-responsibility/.
SHARE AND SHAREHOLDERS
| Issuer | AS Merko Ehitus |
|---|---|
| Name of security | Share of Merko Ehitus |
| Ticker | MRK1T |
| Residency of issuer | Estonia |
| Stock Exchange List | Nasdaq Tallinn, Baltic Main List |
| Industry | Construction |
| ISIN | EE3100098328 |
| Nominal value | Without nominal value |
| Number of issued securities | 17,700,000 |
| Number of listed securities | 17,700,000 |
| Currency | EUR |
| Listing date | 11 August 2008 |
INFORMATION ON SECURITY
The shares of Merko Ehitus are listed in the Main List of Nasdaq Tallinn. As of 30 September 2023, the company has 17,700,000 shares. The number of shares has not changed during 2023.
A total of 23,673 transactions were conducted with the shares of Merko Ehitus in 9 months of 2023, with 0.68 million shares (3.9% of total shares) traded, generating a turnover of EUR 10.5 million (comparable figures in 9 months 2022 were accordingly: 35,003 transactions with 1.09 million shares traded (6.2% of total shares), generating a turnover of EUR 16.4 million). The lowest valueper-share transaction was recorded at the price of EUR 14.14 and the highest at EUR 16.36 per share (9 months of 2022: EUR 11.60 and EUR 16.96, accordingly). On 30 September 2023, the closing price of the share was EUR 14.70 (30.09.2022: EUR 12.30). As of 30 September 2023, by the Nasdaq Baltic stock exchange, the market capitalisation of AS Merko Ehitus was EUR 260.2 million, which has increased by 19.5% compared to the end of the equivalent period of the prior year (30.09.2022: EUR 217.7 million).
| 30.09.2023 | 30.09.2022 | 30.09.2021 | 31.12.2022 | |
|---|---|---|---|---|
| Number of shares | 17,700,000 | 17,700,000 | 17,700,000 | 17,700,000 |
| Earnings per share (EPS), euros | 1.82 | 0.96 | 0.86 | 1.96 |
| Equity per share, euros | 10.72 | 9.33 | 8.56 | 9.57 |
| P/B ratio | 1.37 | 1.32 | 1.73 | 1.48 |
| P/E ratio | 5.23 | 7.05 | 10.40 | 7.24 |
| Market value, million EUR | 260.2 | 217.7 | 262.0 | 250.6 |
Ratio definitions are provided on page 39 of the report.
CHANGE IN THE PRICE AND TRANSACTION VOLUME OF MERKO EHITUS SHARE AT NASDAQ TALLINN STOCK EXCHANGE IN 2023
STRUCTURE OF SHAREHOLDERS ACCORDING TO NUMBER OF SHARES AS OF 30.09.2023
| NUMBER OF SHARES | NUMBER OF SHAREHOLDERS | % OF SHAREHOLDERS | NUMBER OF SHARES | % OF SHARES |
|---|---|---|---|---|
| 1,000,001 - … | 1 | 0.01% | 12,742,686 | 71.99% |
| 100,001 – 1,000,000 | 6 | 0.05% | 1,289,634 | 7.29% |
| 10,001 – 100,000 | 47 | 0.37% | 939,534 | 5.31% |
| 1,001-10,000 | 551 | 4.29% | 1,493,837 | 8.44% |
| 101-1,000 | 2,960 | 23.06% | 983,931 | 5.56% |
| 1-100 | 9,268 | 72.22% | 250,378 | 1.41% |
| Total | 12,833 | 100% | 17,700,000 | 100% |
SHAREHOLDERS OF AS MERKO EHITUS AS OF 30.09.2023 AND CHANGE COMPARED TO THE PREVIOUS QUARTER
| NUMBER OF SHARES |
% OF TOTAL 30.09.2023 |
% OF TOTAL 30.06.2023 |
CHANGE | |
|---|---|---|---|---|
| AS Riverito | 12,742,686 | 71.99% | 71.99% | - |
| OÜ Midas Invest | 427,250 | 2.41% | 2.41% | 1,000 |
| Firebird Republics Fund Ltd | 319,586 | 1.81% | 1.81% | - |
| Firebird Avrora Fund Ltd | 190,117 | 1.07% | 1.05% | 3,756 |
| OÜ Alar Invest | 136,000 | 0.77% | 0.00% | 136,000 |
| Clearstream Banking AG | 112,960 | 0.64% | 0.64% | 109 |
| Firebird Fund L.P. | 103,721 | 0.59% | 0.59% | - |
| Siseinfo OÜ | 100,000 | 0.56% | 0.56% | - |
| Hans Palla | 54,000 | 0.31% | 0.31% | - |
| Alforme OÜ | 50,000 | 0.28% | 0.28% | - |
| Total largest shareholders | 14,236,320 | 80.43% | 79.64% | 140,865 |
| Total other shareholders | 3,463,680 | 19.57% | 20.36% | (140,865) |
| Total | 17,700,000 | 100% | 100% | - |
PERFORMANCE OF THE SHARE OF MERKO EHITUS AND COMPARISON INDEX OMX BALTIC BENCHMARK PRICE INDEX IN 2023
DIVIDENDS AND 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.
According to the current dividends policy the objective is paying the shareholders 50-70% of the annual profit.
On 4 May 2023, the shareholders of AS Merko Ehitus approved the Supervisory Board's proposal to the shareholders to pay out the total amount of EUR 17.7 million (EUR 1.00 per share) as dividends from net profit brought forward, which is equivalent to a 51% dividend rate and a 7.1% dividend yield for the year 2022 (using the share price as of 31 December 2022). Comparable figures in 2022 were accordingly: EUR 17.7 million (EUR 1.00 per share) as dividends, which is equivalent to a 61% dividend rate and a 6.6% dividend yield for the year 2021 (using the share price as at 31 December 2021).
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE AND STRUCTURE
AS Merko Ehitus operates as a holding company for group of companies in Estonia, Latvia, Lithuania and Norway that offer complete solutions in the field of construction and real estate development. The group's largest companies are AS Merko Ehitus Eesti (100%), Tallinna Teede AS (100%), SIA Merks (100%), SIA Merks Mājas (100%), UAB Merko Statyba (100%), UAB Merko Bustas (100%), Merko Bygg AS (100%).
The main area of activity of the holding company is developing and implementing strategies for the Merko Ehitus group's various business segments by way of planning resources, deciding on major investments, targeting and overseeing the activity of subsidiaries and coordinating partner relations. The holding company AS Merko Ehitus has a three-member Management Board: Andres Trink, Tõnu Toomik and Urmas Somelar.
The overview of the Management Board and Supervisory Board have been presented on page 18 and in Note 16 of the interim financial statements, and published, together with the track record and photographs, on the company's website at group.merko.ee/en/corporate-governance-2/.
It is important to maintain a simple organisational structure in the group and in management to be guided primarily by the group's objectives and requirements. For the purposes of maximum efficiency in the group management, we in some cases differentiate the management structure and legal structure. Management of the group's operating activity takes place in a country-specific manner and is coordinated at the level of the holding company.
As of 30 September 2023, the management structure is as follows:
*In Estonia, the sister companies Merko Ehitus Eesti AS and Tallinna Teede AS are from the group's point of view managed based on the same principles, but have their executive management formed completely independent from each other.
GROUP'S LEGAL STRUCTURE
The group's legal structure is predominantly based on economic and legal rationality and does not in all cases conform one-toone to the group's management structure. The detailed list of group companies is provided in Note 16 of the interim financial statements.
Changes in the legal structure of the group
On 22 December 2022, AS Merko Ehitus management board decided to start liquidation procedures of 100% owned subsidiaries OY Merko Finland (Finland, construction and development) and PS "Merko Merks" (Latvia, joint offers for construction), due to the lack of activity in those companies. PS "Merko Merks" was liquidated and deleted from the Latvian business register on 10 March 2023. OY Merko Finland liquidated on 29 September 2023.
At the same time, it was decided to establish construction company Merko Būve in Latvia, a subsidiary owned 100% by the group, in order to strengthen specialisation and brand unification. On 13 January 2023, SIA Merko Būve was registered in Latvian Business Register.
On 26 April 2023, UAB Merko Bustas, fully owned subsidiary of AS Merko Ehitus in Lithuania, established a 100% subsidiary UAB MB 4 Projektas.
On 28 April 2023, UAB MN Projektas, fully owned subsidiary of AS Merko Ehitus in Lithuania, established a 100% subsidiary UAB MN 2 Projektas.
On 1 July 2023, OÜ Merko Investments, fully owned subsidiary of AS Merko Ehitus, acquired a 100% stake in the company SIA Merks Mājas from the Latvian subsidiary SIA Merks through intra-group transactions. The change of ownership was registered on 19 July 2023.
On 1 July 2023, OÜ Merko Investments, fully owned subsidiary of AS Merko Ehitus, acquired a 100% stake in the company SIA SK Viesturdārzs from the Latvian subsidiary SIA Merks through intra-group transaction. The change of ownership was registered on 14 July 2023.
On 14 July 2023, Merko Investments AS, fully owned subsidiary of AS Merko Ehitus, acquired a 100% stake in Merko Bygg AS through recapitalization, in which the minority shareholders renounced their participation. The corresponding entry was made in the register on 6 October 2023.
On 27 July 2023, OÜ Merko Kaevandused and OÜ Metsara-Metspere Kinnisvara, both belonging to AS Merko Ehitus group, signed a merger agreement. The merging company is OÜ Merko Kaevandused, as a result of the merger, the merged company OÜ Metsara-Metspere Kinnisvara ends without liquidation proceedings. The merger date is 1st of January 2024, after which all transactions of the acquired company will be deemed to be made on the account of OÜ Merko Kaevandused.
On 14 August 2023, AS Merko Ehitus established a 100% subsidiary OÜ Merko Kodud in apartment development segment.
TRANSACTIONS AFTER THE BALANCE SHEET DATE
On 5 October 2023 AS Merko Ehitus' 100% subsidiaries AS Merko Ehitus Eesti and OÜ Merko Kodud signed a notarised division agreement, according to which AS Merko Ehitus Eesti transfers the assets and liabilities related to property development activities to OÜ Merko Kodud. The purpose of the division is to align legal structure with structure of the business segments of the AS Merko Ehitus group and harmonize the structure across the home markets of Merko Ehitus. The balance sheet date of the division is 1 January 2024. The division enters into force during 2024 with an entry in the business register.
GENERAL MEETING OF SHAREHOLDERS
The company's highest governing body is the General Meeting of Shareholders, the competencies of which are established by legislation and the articles of association of the company.
The annual general meeting of shareholders was held on 4 May 2023. The general meeting resolved to approve the annual report and the profit allocation proposal for 2022. The dividends in the sum of EUR 17.7 million (EUR 1 per share) was paid out to the shareholders on 16 June 2023.
The general meeting confirmed three-member Supervisory Board until 06.05.2025 and elected Toomas Annus and Indrek Neivelt as the members of the Supervisory Board, for a term of office from 5 May 2023 to 6 May 2026 (inclusive), i.e. for three years. In addition, the shareholders decided to appoint the audit firm AS PricewaterhouseCoopers as the auditor of AS Merko Ehitus for the financial years of 2023 through 2025 and to remunerate the audit firm for auditing as per contract to be entered into with AS PricewaterhouseCoopers.
The Management Board made a presentation on the company's financial results and future prospects.
In accordance with the Commercial Code, its Articles of Association and Good Governance Code, AS Merko Ehitus calls the annual and extraordinary general meeting of shareholders by notifying the shareholders through the Tallinn Stock Exchange and by publishing a meeting call in one national daily newspaper at least 3 weeks in advance. The general meeting shall be held at the place shown in the notice, on a working day and between 9 a.m. and 6 p.m., enabling most of the shareholders to participate in the General Meeting of Shareholders.
Before their publication, agendas of annual and extraordinary general meetings of the company's shareholders are approved by the Supervisory Board that shall also present to the general meeting subjects for discussion and voting. Agenda items of the general meeting, recommendations of the Supervisory Board with relevant explanations, procedural guidance for participation in the general meeting and how and when new agenda items can be proposed are published together with the notice on calling the general meeting.
General meetings can be attended by any shareholder or their authorised representative. AS Merko Ehitus does not allow participation in general meetings by electronic means of communication equipment, since the deployment of reliable solutions for the identification of shareholders, some of whom live abroad, while ensuring the privacy of participating shareholders, would be too complicated and costly. No picture taking or filming is allowed at the general meeting, because it may disturb the privacy of shareholders.
Annual and extraordinary general meeting of shareholders shall be chaired by an independent person. In 2023, the general meeting was chaired by attorney-at-law Vesse Võhma who introduced the procedure for conducting the general meeting and the procedure of asking questions from the Management Board and Supervisory Board about the company's activities.
On behalf of the company, usually the Chairman of the Management Board shall participate in the General Meeting of AS Merko Ehitus, and if necessary, other members of the Management and Supervisory Boards shall be involved. The company's auditor also participates.
The annual general meeting of shareholders of AS Merko Ehitus held in 2023 was attended by Andres Trink (Chairman of the Management Board), Tõnu Toomik (Member of the Management Board), Urmas Somelar (Head of Finance) and Kristiina Veermäe (Auditor).
SUPERVISORY BOARD
The Supervisory Board plans the activities of the company, organises the management of the company and supervises the activities of the Management Board. The Supervisory Board notifies the general meeting of shareholders of the results of a review. The Chairman of the Supervisory Board organises the work of the Supervisory Board. The main duties of the Supervisory Board are to approve the group's material strategic and tactical decisions and to supervise the activities of the group's Management Board. The Supervisory Board's actions are guided by the company's articles of association, guidelines of the general meeting, and law.
According to the Articles of Association of AS Merko Ehitus, the Supervisory Board has 3 to 5 members who shall be elected for the term of three years.
By the resolution of the general meeting of 04.05.2023, Toomas Annus and Indrek Neivelt were elected the members of the Supervisory Board with a term of office of up to 6 May 2026 (inclusive). According to the same resolution, the Supervisory Board AS Merko Ehitus has three-member at least until 06.05.2025. The Supervisory Board of AS Merko Ehitus will continue with three members: Toomas Annus (The Chairman), Indrek Neivelt and Kristina Siimar.
As of 30 September 2023, the Supervisory Board of AS Merko Ehitus had three members, of whom, in accordance with the requirements of the Corporate Governance Recommendations, Kristina Siimar and Indrek Neivelt were independent members.
MANAGEMENT BOARD
The Management Board is a governing body, which represents and manages AS Merko Ehitus in its daily activities in accordance with the law and the Articles of Association. The Management Board has to act in the most economically purposeful manner, taking into consideration the best interests of the company and all shareholders, while ensuring the company's sustainable development in accordance with set objectives and strategy. To ensure that the company's interests are met in the best way possible, the Management and Supervisory Boards shall extensively collaborate. At least once a quarter, a joint meeting of the Supervisory and Management Boards shall take place, in which the Management Board shall inform the Supervisory Board of significant issues regarding the company's business operations, the fulfilment of the company's short and long-term goals and the risks possibly influencing it. For every meeting of the Supervisory Board, the Management Board shall prepare a management report and submit it well in advance of the meeting so that the Supervisory Board can study it. The Management Board prepares reports for the Supervisory Board also in between the meetings, if it is considered necessary by the Supervisory Board or its Chairperson.
Pursuant to the Articles of Association approved at the general meeting of shareholders in 2012, the Management Board may have up to three members.
The Supervisory Board of AS Merko Ehitus decided to appoint Mr. Urmas Somelar as a Member of the Management Board of the company for the three-year period, starting from 1 June 2023. The Management Board of AS Merko Ehitus will continue with three members: Mr. Andres Trink (Chairman), Mr. Tõnu Toomik and Mr. Urmas Somelar.
The responsibilities of Andres Trink, Chairman of the Management Board, include, among others, fulfilling daily obligations of the CEO of AS Merko Ehitus, managing and representing the company, ensuring compliance with the Articles of Association, legal acts, organising the work of the Management Board and supervisory boards of the more important subsidiaries, coordinating the development of strategies and providing for their implementation, being responsible for business development and finance. Tõnu Toomik is responsible for the management of the portfolio of properties and coordination of construction segment development activities across the whole group. Urmas Somelar is responsible for the financial management, investor relations and compliance.
SUPERVISORY AND MANAGEMENT BOARDS OF SUBSIDIARIES
Authorisation and responsibility of supervisory boards of subsidiaries of AS Merko Ehitus are based on their Articles of Association and intergroup rules. Generally, Supervisory Boards of subsidiaries consist of members of the Management Board and Supervisory Board of the company that is the main shareholder of the specific subsidiary. Supervisory Board meetings of the most significant subsidiaries are held usually once a month, otherwise according to the group's needs, Articles of Association of subsidiaries and legal provisions. Generally, no separate fee is paid to members of the Supervisory Board of subsidiaries. Members of the Supervisory Board will also receive no termination benefit in case their contract of service is terminated before due date or not extended. The chairman or member of the Management Board of the subsidiary shall be named by the subsidiary's Supervisory Board.
Below are the supervisory boards and management boards of the significant subsidiaries that are wholly-owned by AS Merko Ehitus as of 30 September 2023:
| COMPANY | SUPERVISORY BOARD | MANAGEMENT BOARD |
|---|---|---|
| AS Merko Ehitus Eesti | Andres Trink (Chairman), Tõnu Toomik, Martin Rebane, Urmas Somelar |
Ivo Volkov (Chairman), Jaan Mäe, Veljo Viitmann |
| OÜ Merko Investments | - | Andres Trink, Urmas Somelar |
| SIA Merks | Andres Trink (Chairman), Tõnu Toomik, Urmas Somelar |
Andris Bišmeistars (Chairman), Jānis Zilgme |
| SIA Merks Mājas | - | Andris Bišmeistars (Chairman), Mikus Freimanis |
| UAB Merko Statyba | Andres Trink (Chairman), Tõnu Toomik, Urmas Somelar |
Saulius Putrimas (Chairman) Jaanus Rästas |
| UAB Merko Bustas | Andres Trink (Chairman), Tõnu Toomik, Urmas Somelar |
Saulius Putrimas (Manager) |
Changes in the management of group subsidiaries
The sole shareholder of AS Merko Ehitus Eesti decided to appoint Mr. Urmas Somelar as a Member of the Supervisory Board of the company for the three-year period, starting from 1 June 2023. The Supervisory Board of AS Merko Ehitus Eesti will continue with four members: Mr. Andres Trink (Chairman), Mr. Tõnu Toomik, Mr. Martin Rebane and Mr. Urmas Somelar.
The sole shareholder of SIA Merks, part of AS Merko Ehitus group, decided to appoint Mr. Jānis Zilgme as a Member of the Management Board of the company, starting from 4 July 2023, with the areas of responsibility in management, planning and control of construction projects in SIA Merks. The Management Board of SIA Merks will continue with two members: Mr. Andris Bišmeistars and Mr. Jānis Zilgme.
The Supervisory Board of AS Merko Ehitus Eesti, part of AS Merko Ehitus group, decided to extend the powers of the Members of the Management Board, Mr. Jaan Mäe and Mr. Veljo Viitmann from 1 January 2024 for three years. The Management Board of AS Merko Ehitus Eesti will continue in a three-member composition: Mr. Ivo Volkov (The Chairman), Mr. Jaan Mäe and Mr. Veljo Viitmann.
MANAGEMENT BOARD'S DECLARATION
Members of the Management Board of AS Merko Ehitus declare and confirm that the consolidated unaudited interim report for the 9 months of 2023, which consists of the management report and the interim financial statements, prepared according to the current International Financial Reporting Standards as adopted by the European Union, provides, to the best of their knowledge, a true and fair view of the development of business operations, assets, liabilities, financial position, results of the operations, cash flows, and profit or loss of AS Merko Ehitus and the consolidated undertakings as a whole, includes a description of the principal risks and uncertainties, and reflects transactions with related parties. The parent company and the companies, which are part of the consolidation group, are going concerns.
| Andres Trink | Chairman of the Management Board | 02.11.2023 |
|---|---|---|
| Tõnu Toomik | Member of the Management Board | 02.11.2023 |
| Urmas Somelar | Member of the Management Board | 02.11.2023 |
20
INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| Note | 2023 9 months |
2022 9 months |
2023 III quarter |
2022 III quarter |
2022 12 months |
|---|---|---|---|---|---|
| Revenue 2 |
339,838 | 266,206 | 122,491 | 110,008 | 409,633 |
| Cost of goods sold 3 |
(296,642) | (235,123) | (105,114) | (96,206) | (355,975) |
| Gross profit | 43,196 | 31,083 | 17,377 | 13,802 | 53,658 |
| Marketing expenses | (3,013) | (2,945) | (918) | (776) | (4,077) |
| General and administrative expenses | (12,896) | (11,411) | (4,635) | (3,889) | (15,860) |
| Other operating income | 3,399 | 2,426 | 621 | 1,004 | 3,144 |
| Other operating expenses | (614) | (647) | (467) | (192) | (1,834) |
| Operating profit | 30,072 | 18,506 | 11,978 | 9,949 | 35,031 |
| Finance income/costs | 3,765 | 168 | 1,639 | 361 | 2,067 |
| incl. finance income/costs from joint ventures | 6,061 | 1,093 | 2,242 | 765 | 3,516 |
| interest expense | (2,011) | (670) | (674) | (296) | (1,180) |
| foreign exchange gain (loss) | (192) | (152) | 98 | (85) | (138) |
| other financial income (expenses) | (93) | (103) | (27) | (23) | (131) |
| Profit before tax | 33,837 | 18,674 | 13,617 | 10,310 | 37,098 |
| Corporate income tax expense | (1,827) | (1,911) | (898) | (735) | (2,995) |
| Net profit for financial year | 32,010 | 16,763 | 12,719 | 9,575 | 34,103 |
| incl. net profit attributable to equity holders of the parent | 32,148 | 17,023 | 12,698 | 9,821 | 34,640 |
| net profit attributable to non-controlling interest | (138) | (260) | 21 | (246) | (537) |
| Other comprehensive income, which can subsequently be classified in the income statement |
|||||
| Currency translation differences of foreign entities | (16) | 11 | (88) | 23 | 30 |
| Comprehensive income for the period | 31,994 | 16,774 | 12,631 | 9,598 | 34,133 |
| incl. net profit attributable to equity holders of the parent | 32,116 | 17,020 | 12,626 | 9,831 | 34,648 |
| net profit attributable to non-controlling interest | (122) | (246) | 5 | (233) | (515) |
| Earnings per share for profit attributable to equity 4 holders of the parent (basic and diluted, in EUR) |
1.82 | 0.96 | 0.72 | 0.55 | 1.96 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| Note | 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | 5 | 31,282 | 22,200 | 17,665 |
| Trade and other receivables | 6 | 86,895 | 72,295 | 77,959 |
| Prepaid corporate income tax | 2 | 5 | 38 | |
| Inventories | 7 | 206,603 | 243,222 | 225,661 |
| 324,782 | 337,722 | 321,323 | ||
| Non-current assets | ||||
| Investments in joint ventures | 17,756 | 10,472 | 12,895 | |
| Other shares and securities | 80 | - | - | |
| Other long-term loans and receivables | 8 | 21,104 | 28,323 | 22,982 |
| Deferred income tax assets | 1,852 | 1,155 | 693 | |
| Investment property | 9 | 15,534 | 11,511 | 11,485 |
| Property, plant and equipment | 10 | 17,238 | 17,527 | 17,452 |
| Intangible assets | 11 | 508 | 592 | 582 |
| 74,072 | 69,580 | 66,089 | ||
| TOTAL ASSETS | 398,854 | 407,302 | 387,412 | |
| LIABILITIES | ||||
| Current liabilities | ||||
| Borrowings | 12 | 23,325 | 60,034 | 49,687 |
| Payables and prepayments | 13 | 124,285 | 119,251 | 96,248 |
| Income tax liability | 1,846 | 1,830 | 1,241 | |
| Short-term provisions | 14 | 10,268 | 5,584 | 9,820 |
| 159,724 | 186,699 | 156,996 | ||
| Non-current liabilities | ||||
| Long-term borrowings | 12 | 36,377 | 50,469 | 42,236 |
| Deferred income tax liability | 1,878 | 1,671 | 2,355 | |
| Other long-term payables | 15 | 2,841 | 2,377 | 2,133 |
| 41,096 | 54,517 | 46,724 | ||
| TOTAL LIABILITIES | 200,820 | 241,216 | 203,720 | |
| EQUITY | ||||
| Non-controlling interests | (380) | (473) | (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 | (815) | (794) | (783) | |
| Retained earnings | 190,507 | 158,631 | 176,248 | |
| 198,414 | 166,559 | 184,187 | ||
| TOTAL EQUITY | 198,034 | 166,086 | 183,692 | |
| TOTAL LIABILITIES AND EQUITY | 398,854 | 407,302 | 387,412 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
unaudited
in thousand euros
| Equity attributable to equity holders of the parent | Non | ||||||
|---|---|---|---|---|---|---|---|
| Share capital |
Statutory reserve capital |
Currency translation differences |
Retained earnings |
Total | control ling interest |
Total | |
| Balance as at 31.12.2021 | 7,929 | 793 | (791) | 159,308 | 167,239 | (227) | 167,012 |
| Profit (loss) for the reporting period | - | - | - | 17,023 | 17,023 | (260) | 16,763 |
| Other comprehensive income | - | - | (3) | - | (3) | 14 | 11 |
| Total comprehensive income (loss) for the reporting period |
- | - | (3) | 17,023 | 17,020 | (246) | 16,774 |
| Dividends (Note 4) | - | - | - | (17,700) | (17,700) | - | (17,700) |
| Total transactions with owners | - | - | - | (17,700) | (17,700) | - | (17,700) |
| Balance as of 30.09.2022 | 7,929 | 793 | (794) | 158,631 | 166,559 | (473) | 166,086 |
| Balance as at 31.12.2022 | 7,929 | 793 | (783) | 176,248 | 184,187 | (495) | 183,692 |
| Profit (loss) for the reporting period | - | - | - | 32,148 | 32,148 | (138) | 32,010 |
| Other comprehensive income | - | - | (32) | - | (32) | 16 | (16) |
| Total comprehensive income (loss) for the reporting period |
- | - | (32) | 32,148 | 32,116 | (122) | 31,994 |
| Increase of share capital by non monetary contribution and buyout of non-controlling interest (Note 16) |
- | - | - | (189) | (189) | 237 | 48 |
| Dividends (Note 4) | - | - | - | (17,700) | (17,700) | - | (17,700) |
| Total transactions with owners | - | - | - | (17,889) | (17,889) | 237 | (17,652) |
| Balance as at 30.09.2023 | 7,929 | 793 | (815) | 190,507 | 198,414 | (380) | 198,034 |
The share capital of AS Merko Ehitus consists of 17,700,000 shares without nominal value.
CONSOLIDATED CASH FLOW STATEMENT
unaudited
in thousand euros
| Note | 2023 9 months |
2022 9 months |
2022 12 months |
|
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Operating profit | 30,072 | 18,506 | 35,031 | |
| Adjustments: | ||||
| Depreciation and impairment | 2,322 | 2,141 | 2,880 | |
| (Profit)/loss from sale of non-current assets | (838) | (279) | (313) | |
| Change in receivables and liabilities related to construction | ||||
| contracts | 21,200 | (4,091) | (1,066) | |
| Interest income from operating activities | (1,642) | (1,679) | (2,260) | |
| Change in provisions | 899 | (3,199) | 1,540 | |
| Change in trade and other receivables related to operating activities |
(7,937) | (17,847) | (22,024) | |
| Change in inventories | 15,653 | (80,098) | (62,360) | |
| Change in trade and other payables related to operating activities | 7,136 | 33,308 | 8,911 | |
| Interest received | 2,505 | 1,215 | 2,188 | |
| Interest paid | (2,648) | (1,024) | (1,652) | |
| Other finance income (costs) | (219) | (143) | (133) | |
| Corporate income tax paid | (2,831) | (2,734) | (2,529) | |
| Total cash flows from operating activities | 63,672 | (55,924) | (41,787) | |
| Cash flows from investing activities | ||||
| Acquisition of subsidiaries | - | (695) | (695) | |
| Acquisition of joint venture | - | (2,236) | (2,236) | |
| Purchase of investment property | (216) | - | - | |
| Purchase of property, plant and equipment (excl. leased assets) | (1,128) | (763) | (1,117) | |
| Proceeds from sale of property, plant and equipment | 1,083 | 425 | 343 | |
| Purchase of intangible assets | (142) | (99) | (141) | |
| Interest received | 24 | - | 1 | |
| Dividends received | 1,200 | - | 560 | |
| Total cash flows from investing activities | 821 | (3,368) | (3,285) | |
| - | ||||
| Cash flows from financing activities | ||||
| Proceeds from borrowings | 46,027 | 117,561 | 147,990 | |
| Repayments of borrowings | (78,196) | (60,667) | (109,484) | |
| Repayments of lease liabilities | (962) | (792) | (1,108) | |
| Buyout of non-controlling interest | - | (1,886) | (1,886) | |
| Dividends paid | (17,679) | (17,661) | (17,661) | |
| Total cash flows from financing activities | (50,810) | 36,555 | 17,851 | |
| Net increase/decrease in cash and cash equivalents | 13,683 | (22,737) | (27,221) | |
| Cash and cash equivalents at the beginning of the period | 5 | 17,665 | 44,930 | 44,930 |
| Effect of exchange rate changes | (66) | 7 | (44) | |
| Cash and cash equivalents at the end of the period | 5 | 31,282 | 22,200 | 17,665 |
NOTES NOTE 1 ACCOUNTING POLICIES USED
The consolidated interim financial statements of the AS Merko Ehitus group for 9 months 2023 were prepared in accordance with the requirements of IAS 34 "Interim Financial Reporting" for condensed interim financial statements. The interim financial statements follow the same accounting principles and methods used in the 2022 financial statements. The accounting methods used to prepare the interim financial statements are in conformity with the International Financial Reporting Standards as they were adopted by the European Union. 2022 audited annual report and 2022 9 months unaudited interim report comparative figures are presented in the present financial report.
According to the best knowledge of the Management Board, the consolidated interim financial statements for the 9 months 2023 presents a true and fair view of the group's economic results based on the principle of going concern. The influence of seasonality of construction and the influence of the cyclical nature of development activity on the period's results can be considered insignificant.
NOTE 2 OPERATING SEGMENTS
in thousand euros
The top operating decision-maker, i.e. the Management Board of parent company AS Merko Ehitus, monitors the business operations of the group by operating segments and countries.
Reporting of the group's operations are segmented as:
- construction service,
- real estate development.
Construction service segment includes in Baltic states the services in the fields of general construction, civil engineering and electrical construction, additionally in Estonia road construction and concrete works services and in Norway general construction. Other operating areas (managerial services, supervision service, etc.) are insignificant to the group and they are reported within the construction service segment. The real estate development segment primarily consists of the group's own real estate development – construction and sale; to a lesser degree, it also includes real estate maintenance and leasing.
The business result of a segment is assessed based on external revenue, operating profit and profit before tax of the business segment. The operating profit and profit before tax of the segment is composed of the income and expenditure related to the segment. Other income and expenses not related to the segments are attributable to the activities of holding companies and are monitored at group level.
Additional information on the segments is provided in the Business activities chapter of the Management report.
In the segment reporting, all inter-segment income and expenses have been eliminated from the pre-tax profit of the segments and all unrealised internal profits have been eliminated from the segment assets.
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
| 2023 9 months | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 209,530 | 163,757 | 373,287 |
| Inter-segment revenue | (858) | (32,591) | (33,449) |
| Revenue from clients | 208,672 | 131,166 | 339,838 |
| incl. timing of revenue recognition at a point in time | 730 | 109,492 | 110,222 |
| timing of revenue recognition over time | 207,942 | 21,674 | 229,616 |
| Operating profit (loss) | 11,618 | 20,500 | 32,118 |
| Profit (loss) before tax | 14,447 | 22,072 | 36,519 |
| incl. interest income from operating activities | - | 1,642 | 1,642 |
| depreciation | (1,778) | (544) | (2,322) |
| impairment of inventories | - | (2,200) | (2,200) |
| recognition of provisions | (3,437) | (635) | (4,072) |
| profit from joint ventures | 3,155 | 2,906 | 6,061 |
| other finance income (costs) | (134) | (1,280) | (1,414) |
| incl. interest income | 17 | - | 17 |
| interest expenses | (73) | (1,093) | (1,166) |
| Assets 30.09.2023 | 107,196 | 257,498 | 364,694 |
| incl. joint ventures | 11,621 | 6,135 | 17,756 |
| 2022 9 months | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 186,548 | 123,835 | 310,383 |
| Inter-segment revenue | (789) | (43,388) | (44,177) |
| Revenue from clients | 185,759 | 80,447 | 266,206 |
| incl. timing of revenue recognition at a point in time | 883 | 57,573 | 58,456 |
| timing of revenue recognition over time | 184,876 | 22,874 | 207,750 |
| Operating profit (loss) | 4,592 | 15,950 | 20,542 |
| Profit (loss) before tax | 5,555 | 15,380 | 20,935 |
| incl. interest income from operating activities | 21 | 1,658 | 1,679 |
| depreciation | (1,710) | (431) | (2,141) |
| recognition of provisions | (5,701) | (296) | (5,997) |
| profit (loss) from joint ventures | 1,127 | (34) | 1,093 |
| other finance income (costs) | (73) | (517) | (590) |
| incl. interest expenses | (36) | (343) | (379) |
| Assets 30.09.2022 | 80,170 | 289,310 | 369,480 |
| incl. joint ventures | 8,179 | 2,293 | 10,472 |
| 2023 III quarter | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 88,040 | 43,923 | 131,963 |
| Inter-segment revenue | (316) | (9,156) | (9,472) |
| Revenue from clients | 87,724 | 34,767 | 122,491 |
| incl. timing of revenue recognition at a point in time | 346 | 27,369 | 27,715 |
| timing of revenue recognition over time | 87,378 | 7,398 | 94,776 |
| Operating profit (loss) | 6,941 | 5,729 | 12,670 |
| 2023 III quarter | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Profit (loss) before tax | 8,519 | 6,032 | 14,551 |
| incl. interest income from operating activities | - | 523 | 523 |
| depreciation | (658) | (196) | (854) |
| recognition of provisions | (1,603) | 393 | (1,210) |
| profit from joint ventures | 1,659 | 583 | 2,242 |
| other finance income (costs) | (12) | (269) | (281) |
| incl. interest income | 17 | - | 17 |
| interest expenses | (30) | (317) | (347) |
| Assets' change in III quarter | 19,924 | 4,947 | 24,871 |
| incl. joint ventures | 1,658 | 584 | 2,242 |
| 2022 III quarter | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 71,192 | 57,024 | 128,216 |
| Inter-segment revenue | (360) | (17,848) | (18,208) |
| Revenue from clients | 70,832 | 39,176 | 110,008 |
| incl. timing of revenue recognition at a point in time | 258 | 30,341 | 30,599 |
| timing of revenue recognition over time | 70,574 | 8,835 | 79,409 |
| Operating profit (loss) | 2,626 | 7,898 | 10,524 |
| Profit (loss) before tax | 3,338 | 7,651 | 10,989 |
| incl. interest income from operating activities | - | 574 | 574 |
| depreciation | (588) | (150) | (738) |
| recognition of provisions | (1,544) | (171) | (1,715) |
| profit from joint ventures | 774 | (9) | 765 |
| other finance income (costs) | (50) | (224) | (274) |
| incl. interest expenses | (13) | (167) | (180) |
| Assets' change in III quarter | 3,221 | 21,076 | 24,297 |
| incl. joint ventures | 773 | (8) | 765 |
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
| 2022 12 months | Construction service | Real estate development |
Total segments |
|
|---|---|---|---|---|
| Revenue | 248,052 | 221,537 | 469,589 | |
| Inter-segment revenue | (1,112) | (58,844) | (59,956) | |
| Revenue from clients | 246,940 | 162,693 | 409,633 | |
| incl. timing of revenue recognition at a point in time | 1,118 | 129,022 | 130,140 | |
| timing of revenue recognition over time | 245,822 | 33,671 | 279,493 | |
| Operating profit (loss) | 8,496 | 30,338 | 38,834 | |
| Profit (loss) before tax | 10,904 | 30,386 | 41,290 | |
| incl. interest income from operating activities | 21 | 2,239 | 2,260 | |
| depreciation | (2,229) | (651) | (2,880) | |
| impairment of inventories | (8) | (3,400) | (3,408) | |
| recognition of provisions | (6,616) | (4,833) | (11,449) | |
| reversal of provisions | 26 | 56 | 82 | |
| profit from joint ventures | 2,614 | 902 | 3,516 | |
| other finance income (costs) | (89) | (787) | (876) | |
| incl. interest expenses | (51) | (607) | (658) | |
| Assets 31.12.2022 | 73,579 | 283,687 | 357,266 | |
| incl. joint ventures | 9,667 | 3,228 | 12,895 |
In addition to the segment assets, as at 30.09.2023 the group holds assets in the amount of EUR 34,160 thousand (30.09.2022: EUR 37,822 thousand; 31.12.2022: EUR 30,146 thousand) that cannot be associated with a specific segment or the allocation of which to segments would be impracticable. The unallocated assets of the group comprise cash and cash equivalents, deposits, tax prepayments, other receivables and an unallocated portion of property, plant and equipment.
RECONCILIATION OF THE PRE-TAX PROFIT OF SEGMENTS AND THE GROUP
in thousand euros
| 2023 9 months |
2022 9 months |
2023 III quarter |
2022 III quarter |
2022 12 months |
|
|---|---|---|---|---|---|
| Pre-tax profit from reporting segments | 36,519 | 20,935 | 14,551 | 10,989 | 41,290 |
| Other operating profit (loss) | (2,046) | (2,036) | (691) | (575) | (3,801) |
| incl. recognition of provisions | - | - | - | - | (925) |
| finance income (costs) | (636) | (225) | (243) | (104) | (391) |
| incl. interest expenses | (581) | (185) | (225) | (94) | (341) |
| Total profit before tax | 33,837 | 18,674 | 13,617 | 10,310 | 37,098 |
Other income and expenses, which are not directly associated with segments, are associated with holding companies.
REVENUE BY CLIENT LOCATION
| in thousand euros and percentages | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 9 months | 2022 9 months | 2023 III quarter |
2022 III quarter |
2022 12 months | ||||||
| Estonia | 222,651 | 65% | 124,131 | 47% | 71,868 | 78% | 51,990 | 47% | 204,480 | 50% |
| Latvia | 48,081 | 14% | 62,667 | 24% | 10,657 | 11% | 25,687 | 23% | 113,163 | 27% |
| Lithuania | 63,835 | 19% | 72,782 | 27% | 37,472 | 10% | 31,423 | 29% | 84,564 | 21% |
| Norway | 5,271 | 2% | 6,626 | 2% | 2,494 | 1% | 908 | 1% | 7,426 | 2% |
| Total | 339,838 | 100% | 266,206 | 100% | 122,491 | 100% | 110,008 | 100% | 409,633 | 100% |
CONTRACT ASSETS AND LIABILITIES
| in thousand euros | |||
|---|---|---|---|
| -- | -- | ------------------- | -- |
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Accrued income from construction services (Note 6) | 9,829 | 18,569 | 15,378 |
| Prepayments for construction services (Note 13) | (21,945) | (6,492) | (6,298) |
| Advance payments received for construction contract works (Notes 13, 15) | (30,038) | (7,257) | (5,184) |
| Recognised provision for onerous construction contracts (Note 14) | (10) | (101) | (8) |
NON-CURRENT ASSETS (EXCEPT FOR FINANCIAL ASSETS) BY LOCATION OF ASSETS
in thousand euros
| 30.09.2023 | 30.09.2022 | 31.12.2022 |
|---|---|---|
| 38,975 | 27,843 | 30,314 |
| 10,862 | 10,848 | 10,786 |
| 1,238 | 1,285 | 1,199 |
| 41 | 126 | 115 |
| 51,116 | 40,102 | 42,414 |
NOTE 3 COST OF GOODS SOLD
| in thousand euros | |||||
|---|---|---|---|---|---|
| 2023 9 months |
2022 9 months |
2023 III quarter |
2022 III quarter |
2022 12 months |
|
| Construction services and properties purchased for resale |
202,230 | 136,311 | 76,469 | 59,888 | 215,323 |
| Materials | 40,699 | 48,191 | 12,229 | 19,503 | 63,665 |
| Labour costs | 23,224 | 20,488 | 7,573 | 6,707 | 28,652 |
| Construction mechanisms and transport |
7,245 | 6,950 | 2,531 | 2,703 | 9,199 |
| Design | 5,220 | 5,704 | 1,453 | 1,831 | 8,561 |
| Real estate management costs | 802 | 565 | 302 | 201 | 827 |
| Depreciation | 1,653 | 1,468 | 624 | 508 | 1,973 |
| Impairment of inventories | 2,200 | - | - | - | 3,408 |
| Provisions | 3,500 | 5,997 | 638 | 1,715 | 11,291 |
| Other expenses | 9,869 | 9,449 | 3,295 | 3,150 | 13,076 |
| Total cost of goods sold | 296,642 | 235,123 | 105,114 | 96,206 | 355,975 |
NOTE 4 EARNINGS AND DIVIDENDS PER SHARE
Basic earnings per share for profit attributable to equity holders of the parent have been derived by dividing the net profit attributable to shareholders by the weighted average number of shares.
| 2023 9 months |
2022 9 months |
2023 III quarter |
2022 III quarter |
2022 12 months |
|
|---|---|---|---|---|---|
| Net profit (loss) attributable to shareholders (in thousand EUR) | 32,148 | 17,023 | 12,698 | 9,821 | 34,640 |
| Weighted average number of ordinary shares (thousand pcs) | 17,700 | 17,700 | 17,700 | 17,700 | 17,700 |
| Earnings (loss) per share (in euros) | 1.82 | 0.96 | 0.72 | 0.55 | 1.96 |
The group did not have any potential ordinary shares to be issued,therefore the diluted earnings per share equal the basic earnings per share.
Dividends payable are recognised after the approval of profit allocation by the shareholders. In accordance with the profit allocation decision, in 2023 the parent company AS Merko Ehitus will pay dividends of EUR 17,700 thousand, i.e. EUR 1.00 per share (in 2022 were paid EUR 17,700 thousand). The income tax expense related to the payment of dividends, 496 thousand euros, which was recognised as deferred tax expense in the group in 2022, paid in third quarter. The group withheld an additional 7% income tax, 21 thousand euros, on the part of the dividends paid to private shareholders taxable at 14/86 income tax rate.
Pursuant to IAS 12, the deferred income tax expense and liability will be recognized in AS Merko Ehitus group consolidated financial statements based on the share of net profit in the year ended that is planned to be paid out as dividends in the foreseeable future.
As at 30.09.2023 the balance of deferred income tax liability includes deferred income tax on dividends in the amount of 328 thousand euros (30.09.2022: EUR 54 thousand euros; 31.12.2022: EUR 742 thousand euros).
As of 30.09.2023, the parent company AS Merko Ehitus has EUR 313 thousand (30.09.2022: EUR 0; 31.12.2022: EUR 1660 thousand) in dividends received from subsidiaries in previous periods and income from abroad, on which the income tax has been withheld.
As at 30.09.2023, it is possible to pay out dividends to shareholders from retained earnings in the amount of EUR 151,943 thousand (30.09.2022: EUR 126,270 thousand; 31.12.2022: EUR 140,704 thousand). Considering the dividends received and income tax withheld on foreign income totalling EUR 78 thousand (30.09.2022: EUR 0; 31.12.2022: EUR 415 thousand), the corresponding income tax on dividends would amount to EUR 37,749 thousand (30.09.2022: EUR 31,567 thousand; 31.12.2022: EUR 34,761 thousand). Regarding the additional income tax on dividends, the 14% tax rate on regularly payable dividends (14/86 on net dividends), which is applied on the average amount of the paid dividends taxed in Estonia during the previous 3 years, has been taken into consideration. Above that amount, a regular 20% tax rate is applied to the dividends (i.e. a 20/80 tax rate applied to the sum paid out as net dividends). The income tax related to disbursement of dividends is recognised as a liability and income tax expense upon the announcement of dividends.
NOTE 5 CASH AND CASH EQUIVALENTS
in thousand euros
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Bank accounts | 28,826 | 22,200 | 17,665 |
| Overnight deposits | 2,456 | - | - |
| Total cash and cash equivalents | 31,282 | 22,200 | 17,665 |
NOTE 6 TRADE AND OTHER RECEIVABLES
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Trade receivables | |||
| Accounts receivable | 69,497 | 41,078 | 52,746 |
| Allowance for doubtful receivables | (109) | (3,167) | (3,285) |
| 69,388 | 37,911 | 49,461 | |
| Tax prepayments excluding corporate income tax | |||
| Value added tax | 888 | 3,289 | 795 |
| Other taxes | 64 | 40 | 3 |
| 952 | 3,329 | 798 | |
| Accrued income form construction services | 9,829 | 18,569 | 15,378 |
| Other short-term receivables | |||
| Short-term loans | 2,000 | - | 5,000 |
| Interest receivables | 176 | 111 | - |
| Dividends receivables | - | 560 | - |
| Other short-term receivables | 117 | 35 | 124 |
| 2,293 | 706 | 5,124 | |
| Prepayments for services | |||
| Prepayments for construction services | 3,296 | 11,232 | 6,386 |
| Prepaid insurance | 1,003 | 357 | 642 |
| Other prepaid expenses | 134 | 191 | 170 |
| 4,433 | 11,780 | 7,198 | |
| Total trade and other receivables | 86,895 | 72,295 | 77,959 |
| incl. short-term loan receivables from related parties (Note 16) | 2,000 | - | 5,000 |
| other short-term receivables and prepayments to related parties (Note 16) |
12,749 | 9,898 | 8,049 |
NOTE 7 INVENTORIES
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Materials | 505 | 842 | 503 |
| Work-in-progress | 69,918 | 136,614 | 92,049 |
| Finished goods | 42,850 | 8,876 | 43,414 |
| Goods for resale | |||
| Registered immovables purchased for resale/development | 89,578 | 90,296 | 84,133 |
| Other goods purchased for resale | 3,078 | 5,241 | 4,249 |
| 92,656 | 95,537 | 88,382 | |
| Prepayments for inventories | |||
| Prepayments for real estate properties | - | - | 517 |
| Prepayments for other inventories | 674 | 1,353 | 796 |
| Total inventories | 206,603 | 243,222 | 225,661 |
NOTE 8 OTHER LONG-TERM LOANS AND RECEIVABLES
in thousand euros
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Long-term loans | - | 5,000 | - |
| Long-term bank deposit | - | 5 | - |
| Long-term receivables from customers of construction services | 21,104 | 23,318 | 22,982 |
| Total other long-term loans and receivables | 21,104 | 28,323 | 22,982 |
| incl. long-term loan receivables from related parties (Note 16) | - | 5,000 | - |
NOTE 9 INVESTMENT PROPERTY
in thousand euros
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Land | 10,172 | 10,172 | 10,172 |
| Right of superficies at carrying amount | |||
| Cost | 29 | 29 | 29 |
| Accumulated depreciation | (15) | (14) | (15) |
| 14 | 15 | 14 | |
| Buildings at carrying amount | |||
| Cost | 6,606 | 2,631 | 2,455 |
| Accumulated depreciation | (1,258) | (1,307) | (1,156) |
| 5,348 | 1,324 | 1,299 | |
| Total investment property | 15,534 | 11,511 | 11,485 |
NOTE 10 PROPERTY, PLANT AND EQUIPMENT
| 30.09.2023 | 30.09.2022 | 31.12.2022 |
|---|---|---|
| 1,266 | 1,266 | 1,266 |
| 8,322 | 8,293 | 8,251 |
| (3,494) | (3,171) | (3,211) |
| 4,828 | 5,122 | 5,040 |
| 18,404 | 19,012 | 19,177 |
| (9,379) | (10,117) | (10,521) |
| 9,025 | 8,895 | 8,656 |
| 4,551 | 4,831 | 4,814 |
| (3,047) | (3,201) | (3,230) |
| 1,504 | 1,630 | 1,584 |
| 615 | 614 | 906 |
| 17,238 | 17,527 | 17,452 |
* As of 30 September 2023, the balance of buildings at carrying amount includes leased assets in a sum of EUR 606 thousand (30.09.2022: 690 thousand; 31.12.2022: EUR 662 thousand). The balance of machinery and equipment at carrying amount includes leased assets in a sum of EUR 3,494 thousand (30.09.2022: EUR 3,657 thousand; 31.12.2022: EUR 3,459 thousand).
NOTE 11 INTANGIBLE ASSETS
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Goodwill | |||
| Cost | 65 | 69 | 69 |
| Impairment | (64) | - | - |
| 1 | 69 | 69 | |
| Software at carrying amount | |||
| Cost | 1,356 | 1,403 | 1,500 |
| Accumulated depreciation | (1,097) | (1,047) | (1,099) |
| 259 | 356 | 401 | |
| Prepayments for intangible assets | 248 | 167 | 112 |
| Total intangible assets | 508 | 592 | 582 |
NOTE 12 BORROWINGS
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Lease liabilities* | |||
| Lease liabilities balance | 4,254 | 4,492 | 4,302 |
| incl. current portion | 1,147 | 1,159 | 1,198 |
| non-current portion 25 years | 3,107 | 3,333 | 3,104 |
| Bank loans | |||
| Loan balance | 49,391 | 91,989 | 73,560 |
| incl. current portion | 16,121 | 50,853 | 40,428 |
| non-current portion 25 years | 33,270 | 41,136 | 33,132 |
| Loan from parent company | |||
| Loan balance (Note 16) | - | 8,000 | 8,000 |
| incl. current portion | - | 8,000 | 8,000 |
| Loans from entities under common control | |||
| Loan balance (Note 16) | 6,000 | 6,000 | 6,000 |
| incl. current portion | 6,000 | - | - |
| non-current portion 25 years | - | 6,000 | 6,000 |
| Loans from other related parties | |||
| Loan balance (Note 16) | - | 22 | 61 |
| incl. current portion | - | 22 | 61 |
| Loans from other entities | |||
| Loan balance | 57 | - | - |
| incl. current portion | 57 | - | - |
| Total loans | |||
| Loans balance | 55,448 | 106,011 | 87,621 |
| incl. current portion | 22,178 | 58,875 | 48,489 |
| non-current portion 2…5 years | 33,270 | 47,136 | 39,132 |
| Total borrowings | 59,702 | 110,503 | 91,923 |
| incl. current portion | 23,325 | 60,034 | 49,687 |
| non-current portion 25 years | 36,377 | 50,469 | 42,236 |
* As of 30 September 2023, the lease liabilities include a balance of EUR 230 thousand to related parties (30.09.2022: EUR 267 thousand; 31.12.2022: EUR 254 thousand) (Note 16).
NOTE 13 PAYABLES AND PREPAYMENTS
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Trade payables | 47,798 | 62,959 | 46,020 |
| Payables to employees | 12,200 | 11,142 | 11,638 |
| Tax liabilities, except for corporate income tax | |||
| Value added tax | 4,398 | 3,040 | 6,587 |
| Personal income tax | 479 | 446 | 615 |
| Social security tax | 1,295 | 1,099 | 1,680 |
| Unemployment insurance tax | 53 | 48 | 65 |
| Contributions to mandatory funded pension | 27 | 28 | 33 |
| Other taxes | 123 | 120 | 143 |
| 6,375 | 4,781 | 9,123 | |
| Prepayments for construction services | 21,945 | 6,492 | 6,298 |
| Other liabilities | |||
| Interest liabilities | 134 | 59 | 113 |
| Other liabilities | 508 | 458 | 961 |
| 642 | 517 | 1,074 | |
| Prepayments received * | 35,325 | 33,360 | 22,095 |
| Total payables and prepayments | 124,285 | 119,251 | 96,248 |
| incl. payables to related parties (Note 16) | 1,260 | 2,592 | 2,519 |
* As of 30 September 2023,the balance of prepayments received consists of prepayments received in connection with construction contracts (advance payments received for construction contract works) in a sum of EUR 30,038 thousand (30.09.2022: EUR 7,257 thousand; 31.12.2022: EUR 5,184 thousand) and of prepayments received in connection with residential properties (apartment buyers) in a sum of EUR 5,287 thousand (30.09.2022: EUR 26,103 thousand; 31.12.2022: EUR 16,911 thousand) (Note 2).
NOTE 14 SHORT-TERM PROVISIONS
| in thousand euros | |||||
|---|---|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |||
| Provision for warranty obligation for construction | 4,936 | 3,792 | 4,425 | ||
| Provision for costs of projects sold and work-in-progress projects |
3,250 | 1,691 | 4,086 | ||
| Provision for onerous construction contracts | 10 | 101 | 8 | ||
| Provision for legal costs and claims filed | 2,072 | - | 1,200 | ||
| Other provisions | - | - | 101 | ||
| Total short-term provisions | 10,268 | 5,584 | 9,820 |
NOTE 15 OTHER LONG-TERM PAYABLES
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Trade payables | 2,841 | 2,130 | 2,133 |
| Other long-term liabilities | - | 247 | - |
| Other long-term payables total | 2,841 | 2,377 | 2,133 |
| incl. other long-term payables to related parties (Note 16) | - | 247 | - |
NOTE 16 RELATED PARTY TRANSACTIONS
In compiling the group report, the following entities have been considered as related parties:
- parent company AS Riverito;
- shareholders of AS Riverito with significant influence over AS Merko Ehitus through AS Riverito;
- other shareholders with significant influence;
- other subsidiaries under control of AS Riverito shareholders or so-called sister companies, in the Note 'Entities under common control';
- associates and joint ventures;
- key members of the management (supervisory and management board), their close relatives and entities under their control or significant influence.
Significant influence is presumed to exist when the person has more than 20% of the voting power.
The parent of AS Merko Ehitus is AS Riverito. As at 30.09.2023, 30.09.2022 and 31.12.2022, AS Riverito owned 71.99% of the shares of AS Merko Ehitus. The ultimate controlling party of the group is Mr. Toomas Annus.
AS MERKO EHITUS SUBSIDIARIES AND JOINT VENTURES
| Ownership and voting rights % | Location | Area of operation | ||||
|---|---|---|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | ||||
| Subsidiaries | ||||||
| AS Merko Ehitus Eesti | 100 | 100 | 100 | Estonia, Tallinn | Construction | |
| OÜ Tähelinna Kinnisvara | 100 | 100 | 100 | Estonia, Tallinn | Real estate | |
| OÜ Vahi Lastehoid | 100 | 100 | 100 | Estonia, Tallinn | Real estate | |
| OÜ Merko Kaevandused | 100 | 100 | 100 | Estonia, Tallinn | Mining | |
| OÜ Metsara-Metspere Kinnisvara |
100 | 100 | 100 | Estonia, Tallinn | Mining | |
| Tallinna Teede AS | 100 | 100 | 100 | Estonia, Tallinn | Road construction | |
| OÜ Merko Kodud | 100 | - | - | Estonia, Tallinn | Real estate | |
| UAB Merko Statyba | 100 | 100 | 100 | Lithuania, Vilnius |
Construction | |
| UAB Timana | 100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| UAB VPSP 2 | 100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| UAB VPSP Projektai | 100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| OÜ Merko Property | 100 | 100 | 100 | Estonia, Tallinn | Real estate | |
| UAB Balsiu Mokyklos SPV | 100 | 100 | 100 | Lithuania, Vilnius |
Real estate | |
| UAB Merko Bustas | 100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| UAB MN Projektas | 100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| UAB MN 2 Projektas | 100 | - | - | Lithuania, Vilnius | Real estate | |
| UAB MB Projektas | 100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| UAB Statinių Priežiūra ir Administravimas |
100 | 100 | 100 | Lithuania, Vilnius | Real estate | |
| UAB MB 4 Projektas | 100 | - | - | Lithuania, Vilnius | Real estate | |
| OÜ Merko Investments | 100 | 100 | 100 | Estonia, Tallinn | Holding | |
| SIA Merks | 100 | 100 | 100 | Latvia, Riga | Construction | |
| SIA Merko Management Latvia (ex-SIA SK Viesturdarzs) |
- | 100 | 100 | Latvia, Riga | Real estate | |
| SIA Industrialais Parks | 100 | 100 | 100 | Latvia, Riga | Real estate | |
| SIA Merks Mājas | - | 100 | 100 | Latvia, Riga | Real estate | |
| SIA Ropažu Priedes | - | 100 | 100 | Latvia, Riga | Real estate | |
| SIA Zakusala Estates | - | 100 | 100 | Latvia, Riga | Real estate | |
| PS Merko-Merks | - | 100 | 100 | Latvia, Riga | Construction | |
| PS Merks-Ostas Celtnieks | 65 | 65 | 65 | Latvia, Riga | Construction | |
| PS Merks Merko Infra | 100 | 100 | 100 | Latvia, Riga | Construction | |
| SIA Merks Mājas | 100 | - | - | Latvia, Riga | Real estate | |
| SIA Ropažu Priedes | 100 | - | - | Latvia, Riga | Real estate | |
| SIA Zakusala Estates | 100 | - | - | Latvia, Riga | Real estate | |
| SIA Merko Būve | 100 | - | 100 | Latvia, Riga | Construction | |
| SIA Merko Management Latvia (ex- SIA SK Viesturdarzs) |
100 | - | - | Latvia, Riga | Real estate | |
| Merko Finland Oy | - | 100 | 100 | Finland, Helsinki |
Construction | |
| Merko Investments AS | 100 | 100 | 100 | Norway, Sofiemyr Holding |
| Ownership and voting rights % | Location | Area of operation | |||
|---|---|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |||
| Merko Bygg AS | 100 | 56 | 56 | Norway, Sofiemyr Construction | |
| Løkenskogen Bolig AS | 62 | 62 | 62 | Norway, Sofiemyr Real estate | |
| Joint ventures | |||||
| Kodusadam OÜ | 50 | 50 | 50 | Estonia, Tallinn | Real estate |
| AS Connecto Eesti | 50 | 50 | 50 | Estonia, Tallinn | Construction |
Additional information on the changes during the reported period is provided in chapter Corporate Governance in Management report.
GOODS AND SERVICES
| in thousand euros | |||
|---|---|---|---|
| 2023 9 months | 2022 9 months | 2022 12 months | |
| Provided services and goods sold | |||
| Parent company | 6 | 10 | 15 |
| Joint ventures | 21,692 | 20,150 | 30,116 |
| Entities under common control | 67,705 | 26,215 | 44,941 |
| Members of the management | 109 | - | 186 |
| Total services provided and goods sold | 89,512 | 46,375 | 75,258 |
| Interest income | |||
| Joint ventures | 189 | 119 | 196 |
| Purchased services and goods | |||
| Parent company | 49 | 76 | 104 |
| Joint ventures | 88 | 122 | 203 |
| Entities under common control | 55 | 53 | 73 |
| Total purchased services and goods | 192 | 251 | 380 |
| Interest expense | |||
| Parent company | 30 | 42 | 73 |
| Entities under common control | 262 | 108 | 153 |
| Other related parties | 1 | 1 | 1 |
| Total interest expense | 293 | 151 | 227 |
BALANCES WITH RELATED PARTIES
| in thousand euros | |||
|---|---|---|---|
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| Receivables from related parties | |||
| Loans granted (Notes 6,8) | |||
| Joint venture | 2,000 | 5,000 | 5,000 |
| Receivables and prepayments (Note 6) | |||
| Parent company | - | 4 | 5 |
| Joint ventures | 2,815 | 3,848 | 3,239 |
| Entities under common control | 9,934 | 6,046 | 4,805 |
| Total receivables and prepayments | 12,749 | 9,898 | 8,049 |
| Total receivables from related parties | 14,749 | 14,898 | 13,049 |
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Payables to related parties | |||
| Lease liabilities (Note 12) | |||
| Entities under common control | 230 | 267 | 254 |
| Short-term loans received (Note 12) | |||
| Parent company | - | 8,000 | 8,000 |
| Entities under common control | 6,000 | - | - |
| Other related parties | - | 22 | 61 |
| Total Short-term loans received | 6,000 | 8,022 | 8,061 |
| Payables and prepayments (Note 13) | |||
| Parent company | - | 39 | - |
| Joint ventures | 1 | 32 | 35 |
| Entities under common control | 1,259 | 2,458 | 2,444 |
| Members of the management | - | 63 | 40 |
| Total payables and prepayments | 1,260 | 2,592 | 2,519 |
| Long-term loans received (Note 12) | |||
| Entities under common control | - | 6,000 | 6,000 |
| Other long-term payables (Note 15) | |||
| Other related parties | - | 247 | - |
| Total payables to related parties | 7,490 | 17,128 | 16,834 |
REMUNERATION OF THE MEMBERS OF THE SUPERVISORY AND MANAGEMENT BOARDS
The cost of remuneration to members of the Supervisory Board and Management Board of AS Merko Ehitus incl. basic salaries and performance pay, as well as taxes and changes in reserves for the 9 months of 2023 were EUR 1,058 thousand (9 months of 2022: EUR 924 thousand; 12 months of 2022: EUR 1,363 thousand).
TERMINATION BENEFITS OF MEMBERS OF THE SUPERVISORY AND MANAGEMENT BOARDS
Authorization agreements have been concluded with the Supervisory Board members, according to which no termination benefits are paid to them upon termination of the contract. In the 9 months of 2023, the Management Board members of AS Merko Ehitus did not receive benefits (9 months of 2022: EUR 0; 12 months of 2022: EUR 0).
MEMBERS OF THE SUPERVISORY AND MANAGEMENT BOARD
Track record and photographs of the members of the Supervisory Board can be found on AS Merko Ehitus website at group.merko.ee/en/management-and-supervisory-board/.
Shares held by members of the Supervisory Board of AS Merko Ehitus as of 30.09.2023:
| NO OF SHARES | % OF SHARES | ||
|---|---|---|---|
| Toomas Annus (AS Riverito) * | Chairman of the Supervisory Board | 12,742,686 | 71.99% |
| Indrek Neivelt (OÜ Trust IN) | Member of the Supervisory Board | 31,635 | 0.18% |
| Kristina Siimar | Member of the Supervisory Board | - | - |
| 12,774,321 | 72.17% |
* Toomas Annus controls through a holding company the majority of the votes determined by shares in AS Riverito. Thus the shares of AS Riverito and the votes determined by it in AS Merko Ehitus (12,742,686 shares) are considered to be under the control of Toomas Annus.
The Management Board of the holding company AS Merko Ehitus has three members: Andres Trink, Tõnu Toomik and Urmas Somelar.
Shares held by members of the Management Board of AS Merko Ehitus as of 30.09.2023:
| NO OF SHARES | % OF SHARES | ||
|---|---|---|---|
| Andres Trink | Chairman of the Management Board | 1,100 | 0.01% |
| Tõnu Toomik | Member of the Management Board | - | - |
| Urmas Somelar | Member of the Management Board | - | - |
| 1,100 | 0.01% |
NOTE 17 CONTINGENT LIABILITIES
in thousand euros
The group has obtained the following guarantees from financial institutions and issued sureties to guarantee the group's obligations to third parties. These amounts represent the maximum right of claim by third persons against the group in case the group is unable to meet its contractual obligations. Management estimates that additional expenses related to these guarantees are unlikely.
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
|---|---|---|---|
| Performance period's warranty to the customer | 32,310 | 19,513 | 28,235 |
| Tender warranty | 17 | 11,957 | 10 |
| Guarantee for warranty period | 25,014 | 22,973 | 22,796 |
| Prepayment guarantee | 27,135 | 9,851 | 4,504 |
| Contracts of surety | 500 | 500 | 500 |
| Total contingent liabilities | 84,976 | 64,794 | 56,045 |
Performance period's warranty to the customer – warranty provider guarantees to the customer that the contractor's obligations arising from construction contract will be adequately fulfilled.
Tender warranty – warranty provider guarantees to the customer arranging the tender process that the tenderer will sign a contract as per tender conditions.
Guarantee for warranty period – guarantee provider guarantees to the customer that the construction defects discovered during the warranty period will be eliminated.
Prepayment guarantee – guarantee provider guarantees to the customer that advances will be reimbursed, if contractor fails to deliver goods or services agreed.
Contracts of surety – the group guarantees the timely fulfilment of group member's liabilities towards a third party (e.g. providing services by a certain date in the agreed amount).
DEFINITION OF RATIOS
| Gross profit | ||
|---|---|---|
| Gross profit margin (%) | = | Revenue |
| Operating profit | ||
| Operating profit margin (%) | = | Revenue |
| EBT margin (%) | = | Pre-tax profit |
| Revenue | ||
| Net profit margin (%) | = | Net profit (attributable to equity holders of the parent) |
| Revenue | ||
| Return on equity, ROE (%) | = | Net profit (attributable to equity holders of the parent) of the current 4 quarters |
| Shareholders equity (average of the current 4 quarters) | ||
| Return on assets, ROA (%) | = | Net profit (attributable to equity holders of the parent) of the current 4 quarters |
| Total assets (average of the current 4 quarters) | ||
| Return on invested capital, ROIC (%) | = | (Profit before tax + interest expense - foreign exchange gain (loss) + other financial income) of the current 4 quarters |
| (Shareholders equity (average) + interest-bearing liabilities (average)) of the current 4 quarters | ||
| Equity ratio (%) | = | Shareholders' equity |
| Total assets | ||
| Debt ratio (%) | = | Interest-bearing liabilities |
| Total assets | ||
| Current ratio | = | Current assets |
| Current liabilities | ||
| Quick ratio | = | Current assets - inventories |
| Current liabilities | ||
| Accounts receivable turnover(days) | = | Trade receivables of the current 4 quarters (average) x 365 |
| Revenue of the current 4 quarters | ||
| Accounts payable turnover (days) | = | Payables to suppliers of the current 4 quarters (average) x 365 |
| Cost of goods sold of the current 4 quarters | ||
| EBITDA (million EUR) | = | Operating profit + depreciation |
| EBITDA margin (%) | = | Operating profit + depreciation |
| Revenue | ||
| General expense ratio (%) | = | Marketing expenses + General and administrative expenses |
| Revenue | ||
| Labour cost ratio (%) | = | Labour costs |
| Revenue | ||
| Revenue per employee (EUR) | = | Revenue |
| Number of employees (average) | ||
| Earnings per share, EPS (EUR) | = | Net profit (attributable to equity holders of the parent) |
| Number of shares | ||
| Equity/share (EUR) | = | Shareholders equity (average of the current 4 quarters) |
| Number of shares | ||
| Dividend per share (EUR) | = | Payable dividends Number of shares |
| Dividend rate (%) | = | Payable dividends x 100 Net profit (attributable to equity holders of the parent) |
| Dividend yield (%) | = | Dividends payable per share Share price 31.12 |
| P/E | = | Share price 30.09 Earnings per share of the current 4 quarters |
| P/B | = | Share price 30.09 Equity per share (average of the current 4 quarters) |
Market value = Share price 30.09 x Number of shares