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Merko Ehitus
Quarterly Report • May 9, 2024
2220_ir_2024-05-09_45e4c2ea-b13f-4413-8fde-93aa0cba0858.pdf
Quarterly Report
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AS MERKO EHITUS GROUP
2024 3 months 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: 01.01.2024 – 31.12.2024 Reporting period: 01.01.2024 – 31.03.2024
Supervisory Board: Toomas Annus, Indrek Neivelt, Kristina Siimar Management Board: Ivo Volkov, Tõnu Toomik, Urmas Somelar
Auditor: AS PricewaterhouseCoopers
1
| BRIEF OVERVIEW OF THE GROUP 3 | |
|---|---|
| MANAGEMENT REPORT 5 | |
| MANAGEMENT BOARD'S DECLARATION 19 | |
| INTERIM FINANCIAL STATEMENTS 20 | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 20 | |
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION 21 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY22 | |
| CONSOLIDATED CASH FLOW STATEMENT23 | |
| NOTES 24 | |
| NOTE 1 ACCOUNTING POLICIES USED24 | |
| NOTE 2 OPERATING SEGMENTS 24 | |
| NOTE 3 COST OF GOODS SOLD 27 | |
| NOTE 4 EARNINGS AND DIVIDENDS PER SHARE27 | |
| NOTE 5 CASH AND CASH EQUIVALENTS28 | |
| NOTE 6 TRADE AND OTHER RECEIVABLES28 | |
| NOTE 7 INVENTORIES 29 | |
| NOTE 8 OTHER LONG-TERM LOANS AND RECEIVABLES29 | |
| NOTE 9 INVESTMENT PROPERTY29 | |
| NOTE 10 PROPERTY, PLANT AND EQUIPMENT 30 | |
| NOTE 11 INTANGIBLE ASSETS 30 | |
| NOTE 12 BORROWINGS 31 | |
| NOTE 13 PAYABLES AND PREPAYMENTS 32 | |
| NOTE 14 SHORT-TERM PROVISIONS 32 | |
| NOTE 15 OTHER LONG-TERM PAYABLES32 | |
| NOTE 16 RELATED PARTY TRANSACTIONS 33 | |
| NOTE 17 CONTINGENT LIABILITIES36 | |
| DEFINITION OF RATIOS37 |
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%)
2023 KEY FIGURES
Revenue 466.3 million euros Net profit 46.0 million euros 635 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
Merko Ehitus revenue was EUR 81.2 million in Q1 2024, representing 7.2% growth compared to the same period a year ago. Net profit for the quarter was EUR 4.4 million. Merko delivered 59 apartments and 7 commercial units to buyers in 3 months this year.
According to the management of Merko Ehitus, the apartment market behaved as expected in the first quarter and Merko group figures for first sales reflected that and there is no basis for expecting results comparable to 2023 in real estate development. In the new and different market situation, Merko has successfully refocused its activities and been able to compensate the drop in volumes from residential development with construction service sales. Merko Ehitus net profit decreased, but the result was better than anticipated based on the changes in the proportion of our core business.
In Q1 2024, the group companies entered into new construction contracts worth EUR 10.5 million and the balance of secured order book was EUR 419 million at quarter's end. In the first three months of the year, construction service business area accounted for 83.7% of the group's revenue. Private sector clients have grown somewhat more active on the construction services market, apparently accustomed to new building price levels, and are again contemplating expansion of their business. Contracts for defence facilities and
energy infrastructure are active and hopefully the next Rail Baltica projects will come up for procurement soon. Merko's secured order book is strong and in April, a noteworthy energy infrastructure contract in Latvia and a contract for additional work on the NATO training centre in Lithuania were added.
In Q1, Merko delivered 59 apartments and 7 commercial units to buyers, invested a total of EUR 11.6 million into development projects, and launched construction and sales of 112 new apartments in three new development projects: Õielehe in Jüri, the new phase of Erminurme in Tartu and Lucavsala in Riga. As of the end of Q1, the group companies had 450 apartments under construction, 9% of which were covered by preliminary sale contracts. The largest projects in progress were Uus-Veerenni, Noblessneri and Lahekalda in Tallinn, Erminurme in Tartu, Viesturdārzs, Mežpilsēta and Magnolijas in Riga and Vilnelės Skverai in Vilnius.
In Q1 of 2024, the largest sites under construction in Estonia were Hampton by Hilton and Hyatt hotel buildings, Arter Quarter, the logistics centre for TKM Group, barracks at the Defence Forces' Ämari base, the Rail Baltica road viaducts in Harjumaa, a tram line between Old City Harbour and Rail Baltica Ülemiste passenger terminal, as well the first phase of Ülemiste terminal. 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 3 MONTHS RESULTS
PROFITABILITY
2024 3 months' pre-tax profit was EUR 5.2 million (3M 2023: EUR 6.1 million), which brought the pre-tax profit margin to 6.4% (3M 2023: 8.0%).
Net profit attributable to shareholders for 3 months 2024 was EUR 4.4 million (3M 2023: EUR 5.9 million) and 3 months net profit margin was 5.5% (3M 2023: 7.8%).
REVENUE
2024 3 months' revenue was EUR 81.2 million (3M 2023: EUR 75.8 million). 3 months' revenue increased by 7.2% compared to same period last year. The share of revenue earned outside Estonia in 3 months 2024 was 62.3% (3M 2023: 46.7%).
SECURED ORDER BOOK
As of 31 March 2024, the group's secured order book was EUR 419.0 million (31 March 2023: EUR 412.2 million). In 3 months 2024, group companies signed contracts in the amount of EUR 10.5 million (3M 2023: EUR 170.3 million).
REAL ESTATE DEVELOPMENT
In 3 months 2024, the group sold a total of 59 apartments; in 3 months 2023, the group sold 145 apartments. The group earned a revenue of EUR 10.8 million from sale of own developed apartments in 3 months 2024 and EUR 19.4 million in 3 months 2023.
CASH POSITION
At the end of the reporting period, the group had EUR 88.4 million in cash and cash equivalents, and equity of EUR 216.6 million (50.8% of total assets). Comparable figures as of 31 March 2023 were EUR 14.3 million and EUR 190.1 million (50.0% of total assets), respectively. As of 31 March 2024, the group's net debt was negative EUR 39.6 million (31 March 2023: EUR 72.8 million).
OUTLOOK OF CONSTRUCTION AND REAL ESTATE MARKET
CONSTRUCTION SERVICES
The construction prices remained stable through 2023, and also in the first quarter of 2024, the increase in the Baltics was within margin of error and mainly due to labour costs. Although statistical data for all of the Baltic states are not available yet through Eurostat, as far as we know the Estonian construction price index fell slightly and Lithuania's rose somewhat, mainly reflecting
market activity. We expect that upward pressure will remain prevalent and short-lived drops are mainly due to falling market volumes being mirrored in prices, i.e. temporary discounts provided by sellers of materials. The expectation of falling interest rate costs has been postponed more than half a year, nor is there a reason to expect labour costs to drop. The latest government announcements and actions are indicative of the expectation that energy prices – including those of renewables – will rise, which inevitably must show up in the prices of construction materials and machinery.
When it comes to statistics on construction volumes and prices, as of the 2024 half-year report, we are changing over to the 2021=100 basis, since Eurostat is phasing out the calculation and publication of values for 2015=100 indices.
With regard to construction volumes, we expect a rise of a few percentage points in the Baltics. In Lithuania, which displayed the most growth in 2023, growth is expected to be more modest since the capacity of suppliers and subcontractors limits the possibility for growth. In Latvia and Estonia, there are more preconditions for growth of construction volumes, but this will largely depend on how work on defence infrastructure and Rail Baltica progresses. The decline in housing and commercial construction caused by weakness in the real estate market will continue to pull down the total volumes. We are not forecasting a drop in overall
volumes, although the expected volume of orders in the road construction segment announced for 2024 is very modest. A situation where certain gaining segments will offset the decline in others will continue.
As to longer-term outlook, we remain conservative, proceeding from the subdued forecasts for economic growth in our region. It is very likely that construction orders for defence purposes will grow even more throughout the region, but their broader impact on the economy will pale compared to investments into production or residential and commercial units. The continuing war in Ukraine and the conflicts in the Middle East will still curtail investments that translate into construction
contracts. We believe that public sector contracts will help keep the construction sector from falling into major financial difficulty, but a budding dependency on public sector is not a good solution for any construction company.
DEVELOPMENT OF APARTMENTS
Activity on the real estate market has started to recover, as shown by growing transaction volumes first and foremost in the cheaper segments. Still, the transaction volume remains low, clearly below the long-term average level. Persisting insecurity and weakness of the economy deals a blow to the developments aimed at the more affluent middle class who buy real estate not just to cover personal needs but as alternative investments. During the current uncertain times, they have forgone alternative investments. The price level of new developments has stabilized and in the absence of excess supply, it is not very likely that prices will fall. We maintain our current opinion that through the
end of 2024, stable prices are to be expected with insignificant statistical fluctuations. We still believe that the balance between existing demand and additional supply will be maintained during 2024 with market activity being low. Activity will likely start picking up on the aftermarket, but it is unlikely to spill over to the new developments segment this year, since interest rates will not drop all that rapidly and banks that issue home loans are maintaining a conservative profile. A number of the new developments launched during Q1 of the ongoing year will not be completed before 2025 and their developers are counting on market activity returning to growth and buyer interest recovering only in 2025 or even later.
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, through the joint venture AS Connecto Eesti also electrical construction. Additionally in Estonia road construction and concrete works services and in Norway general construction.
million EUR
| 3M 2024 | 3M 2023 | VARIANCE | 12M 2023 | |
|---|---|---|---|---|
| Revenue | 68.0 | 49.3 | +37.9% | 298.2 |
| % of total revenue | 83.7% | 65.0% | 63.9% | |
| Operating profit | 3.0 | 0.5 | +446.2% | 20.5 |
| Operating profit margin | 4.4% | 1.1% | 6.9% |
In the 3 months of 2024, the revenue of the construction service segment was EUR 68.0 million (3M 2023: EUR 49.3 million). The sales revenue of construction service has increased by 37.9% compared to the same period last year. The construction service segment revenue for 3 months 2024 made up 83.7% of the group's total revenue (3M 2023: 65.0%). In this segment, the group earned an operating profit of EUR 3.0 million for 3 months (3M 2023: EUR 0.5 million). The operating profit margin was 4.4% (3M 2023: 1.1%). 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 first quarter in construction service segment in Estonia included the logistics centre for TKM Group, Hampton by Hilton and Hyatt hotel buildings, Arter Quarter, Defence Forces' buildings in the Ämari campus, tram line connecting Old Harbour and Rail Baltic's Ülemiste passenger terminal and the first phase of Ülemiste terminal as well as Rail Baltica road viaducts in Tõdva. 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 and Latvia, the group worked with smaller-volume 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.
million EUR
| 3M 2024 | 3M 2023 | VARIANCE | 12M 2023 | |
|---|---|---|---|---|
| Revenue | 13.2 | 26.5 | -50.0% | 168.1 |
| incl. revenue from sale of apartments | 10.8 | 19.4 | 137.5 | |
| incl. construction service to joint venture projects |
1.4 | 6.2 | 24.7 | |
| % of total revenue | 16.3% | 35.0% | 36.1% | |
| Operating profit | 1.6 | 5.7 | -71.2% | 26.7 |
| Operating profit margin | 12.4% | 21.5% | 15.9% |
In 3 months 2024, the group sold a total of 59 apartments (incl. 12 apartments in a joint venture) and 7 commercial premises (incl. 6 in a joint venture); in 3 months 2023, 145 apartments (incl. 32 apartments in a joint venture) and 3 commercial premises (incl. 2 in a joint venture). The group earned a revenue of EUR 10.8 million (VAT not included) from sale of developed apartments in 3 months 2024 and EUR 19.4 million (VAT not included) in 3 months 2023. 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 property management services for earlier constructed buildings.
For 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 3 months of 2024, real estate development segment revenues decreased by 50.0% compared to the same period last year and formed 16.3% of the group's total revenue (3 months of 2023: 35.0%).
The segment's operating profit for the 3 months of 2024 amounted to EUR 1.6 million (3 months of 2023: EUR 5.7 million) and the operating profit margin was 12.4% (3 months of 2023: 21.5%). 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 3 months of 2024, the group launched the construction of a total of 112 new apartments in the Baltic states (3 months of 2023: the group did not launch apartments construction). In the 3 months, the group invested a total of EUR 11.6 million (3 months of 2023: EUR 28.0 million) in the ongoing development projects.
After the reporting date, the group has started the construction of 63 apartments in the sixth stage of the Uus-Veerenni residential development project in Tallinn.
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 31 March 2024, the group's inventories included land plots with development potential, where the construction works have not started, in the amount of EUR 88.1 million (31.03.2023: EUR 89.4 million).
ROUP'S INVENTORIES ITH DEVELOPMENT POTENTIAL B COUNTR million EUR
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Estonia | 31.5 | 32.5 | 32.5 |
| Latvia | 23.7 | 24.1 | 23.9 |
| Lithuania | 31.5 | 31.3 | 31.5 |
| Norway | 1.4 | 1.5 | 1.5 |
| Total | 88.1 | 89.4 | 89.4 |
In 3 months of 2024, the group has not acquired new land plots for real estate development purposes (3 months of 2023: in the amount of EUR 5.6 million).
SECURED ORDER BOOK
As of 31 March 2024, the group's secured order book amounted to EUR 419.0 million, compared to EUR 412.2 million as of 31 March 2023, having increased by 1.6% 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 3 months of 2024, EUR 10.5 million worth of new contracts were signed, which is decreased by 93.8% compared to the same period of the previous year (3 months of 2023: EUR 170.3 million).
After the balance sheet date, the group has concluded the following larger construction contract:
- On 15 April 2024, Tallinna Teede AS, part of AS Merko Ehitus group, and Tallinn Urban Environment and Public Works Department signed a contract for the maintenance and repair of road sections and facilities necessary for the functioning of the roads in the city of Tallinn. The value of the contract is approximately EUR 5.5 million and the duration of the contract is 24 months.
- On 15 April 2024, the addendum to the design-build contract between UAB Merko Statyba, part of AS Merko Ehitus group, and North Atlantic Treaty Organization (NATO) Support and Procurement Agency entered into force for additional works on the construction of new infrastructures of the training centre in Lithuania. The value of additional works exceeds EUR 20 million and works are scheduled to be completed by 2026.
- On 18 April 2024, PS MB.MEE, part of AS Merko Ehitus group, and SIA SP Venta, which sole shareholder and financier of the project development is UAB Ignitis Renewables, entered into a contract to for the construction of solar panel power plant located in Latvia. The value of the contract is approximately EUR 20 million and works are scheduled to be completed in August 2025.
As of 31 March 2024, the private sector orders accounted for approximately 53% of the total balance in the group's secured order book (31.03.2023: approximately 54%). 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.
CASH FLOWS
At the end of reporting period, the group had cash and cash equivalents in the amount of EUR 88.4 million (31.03.2023: EUR 14.3 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 52.9 million was unused (31.03.2023: EUR 53.0 million, of which EUR 22.4 million was unused).
The 3-month cash flow from operating activity was positive at EUR 16.6 million (3 months of 2023: positive EUR 1.8 million), cash flow from investing activity was positive at EUR 0.6 million (3 months of 2023: negative EUR 0.3 million) and the cash flow from financing activity was negative at EUR 6.2 million (3 months of 2023: negative EUR 4.9 million).
The cash flow from operating activities had positive effect from EBITDA of EUR 4.9 million (3 months of 2023: positive effect of EUR 6.4 million), from the changes in receivables and liabilities related to construction contracts of EUR 13.1 million (3 months 2023: positive effect of EUR 3.2 million) and from the changes in trade and other receivables related to operating activities of EUR 9.4 million (3 months of 2023: positive effect of EUR 23.3 million). The negative effects to cash flow from operating activities came from the change in trade and other payables related to operating activities of EUR 4.4 million (3 months of 2023: negative effect of EUR 7.7 million), from the change in the provisions of EUR 3.9 million (3 months of 2023: negative effect of EUR 2.9 million) as well from the change in inventories of EUR 1.0 million (3 months of 2023: negative effect of EUR 18.9 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. Interest was paid EUR 0.7 million (3 months of 2023: EUR 0.8 million) and corporate income tax was paid at EUR 0.4 million (3 months of 2023: EUR 0.5 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 (11.5% as of 31.03.2024; 22.9% as of 31.03.2023; 12.9% as of 31.12.2023).
Cash flows from investing activities include negative effect from the acquisition of non-current assets in the amount of EUR 0.1 million, which is mainly related to the renewal of equipment in the field of construction (3 months of 2023: EUR 0.5 million) ant the positive effect came from the sale of non-current assets in the amount of EUR 0.3 million (3 months of 2023: EUR 0.2 million) and EUR 0.5 million interest received from banks (3 months of 2023: EUR 0).
In cash flows from financing, the larger negative factors were the repayments of lease liabilities in the amount of EUR 0.3 million (3 months of 2023: net negative cash flow of EUR 0.3 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 0.4 million (3 months of 2023: negative cash flow in the net amount of EUR 0.5 million) and as well from the net change in loans received and repaid in connection with development projects in the amount of EUR 7.2 million (3 months of 2023: net negative cash flow of EUR 9.9 million), which resulted from the repayment of loans taken for residential development projects. Positive cash flow from financing activity resulted from the change in loans related to other activities in the amount of EUR 1.7 million (3 months of 2023: net positive cash flow of EUR 5.7 million).
RATIOS
(attributable to equity holders of the parent)
| INCOME STATEMENT SUMMARY | 3M 2024 | 3M 2023 | 3M 2022 | 12M 2023 | |
|---|---|---|---|---|---|
| Revenue | million EUR | 81.2 | 75.8 | 68.4 | 466.3 |
| Gross profit | million EUR | 8.9 | 10.0 | 7.9 | 65.0 |
| Gross profit margin | % | 10.9 | 13.2 | 11.5 | 13.9 |
| Operating profit | million EUR | 4.0 | 5.7 | 3.7 | 44.5 |
| Operating profit margin | % | 5.0 | 7.5 | 5.3 | 9.5 |
| Pre-tax profit | million EUR | 5.2 | 6.1 | 3.5 | 52.0 |
| Pre-tax profit margin | % | 6.4 | 8.0 | 5.1 | 11.1 |
| Net profit | million EUR | 4.4 | 5.8 | 3.1 | 45.9 |
| attributable to equity holders of the parent |
million EUR | 4.4 | 5.9 | 3.0 | 46.0 |
| attributable to non-controlling interest |
million EUR | (0.0) | (0.1) | 0.1 | (0.1) |
| Net profit margin | % | 5.5 | 7.8 | 4.4 | 9.9 |
| Other income statement indicators |
3M 2024 | 3M 2023 | 3M 2022 | 12M 2023 | |
| EBITDA | million EUR | 4.9 | 6.4 | 4.4 | 48.1 |
| EBITDA margin | % | 6.0 | 8.5 | 6.4 | 10.3 |
| General expense ratio | % | 6.4 | 6.7 | 7.1 | 5.1 |
| Labour cost ratio | % | 14.8 | 14.9 | 15.6 | 10.8 |
| Revenue per employee | thousand EUR | 134 | 118 | 104 | 718 |
| OTHER SIGNIFICANT INDICATORS | 31.03.2024 | 31.03.2023 | 31.03.2022 | 31.12.2023 | |
|---|---|---|---|---|---|
| Return on equity | % | 21.9 | 21.5 | 18.2 | 23.4 |
| Return on assets | % | 11.1 | 9.7 | 9.3 | 11.8 |
| Return on invested capital | % | 20.5 | 15.5 | 16.0 | 20.6 |
| Assets | million EUR | 426.1 | 380.2 | 340.6 | 425.3 |
| Equity | million EUR | 216.4 | 189.5 | 170.1 | 211.9 |
| Equity attributable to equity holders of the parent |
million EUR | 216.6 | 190.1 | 170.3 | 212.1 |
| Equity ratio | % | 50.8 | 50.0 | 50.0 | 49.9 |
| Debt ratio | % | 11.5 | 22.9 | 15.7 | 12.9 |
| Current ratio | times | 2.1 | 2.0 | 2.2 | 2.0 |
| Quick ratio | times | 0.9 | 0.4 | 0.7 | 0.9 |
| Accounts receivable turnover | days | 42 | 33 | 32 | 38 |
| Accounts payable turnover | days | 40 | 54 | 45 | 40 |
| Average number of employees | people | 608 | 643 | 659 | 649 |
| Secured order book | million EUR | 419.0 | 412.2 | 376.1 | 477.5 |
Ratio definitions are provided on page 37 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 31 March 2024, a provision has been set up at the group in the amount of EUR 2.6 million for covering potential claims and legal costs (31.03.2023: EUR 1.2 million).
Below is presented an overview of the key legal disputes and proceedings, which have taken place or ended during 2024 or are ongoing as of 31 March 2024 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 2 1 , 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 2006-2015). 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. In accordance with the division agreement concluded between AS Merko Ehitus Eesti and OÜ Merko Kodud on 1 January 2 24, Merko's real estate development activities in Estonia, together with their respective assets and liabilities, transferred to the OÜ Merko Kodud. As a result, the plaintiff in the proceedings is now OÜ Merko Kodud in place of AS Merko Ehitus Eesti. In its decision of 19 April 2024, Tallinn Administrative Court rejected the complaint. The court ruled that the value of the disputed immovable properties has not significantly dropped. The decision may be appealed to Tallinn Circuit Court by 20 May 2024 at the latest. 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. In its judgement, announced on 25 January 2024, the court of appeal upheld the decision of the Competition Council. On 26 February 2024, SIA Merks and AS Merko Ehitus filed an appeal in cassation with the Supreme Court of Latvia in appeal against the decision of the Latvian Competition Council.
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 has formed a provision of 2/3 of the potential fine claim, i.e. EUR 1,800 thousand.
SIA Ostas Celtnieks
On November 2 19, SIA Merks filed an action against SIA "Ostas Celtnieks" in an amount of EUR 2 thousand EUR 23 thousand being the principal claim and EUR 21 thousand penalty interest). 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 3 % 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 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 and liquidation sale of its assets is in process. SIA Merks was recognized as a creditor in the insolvency proceeding of SIA "Ostas Celtnieks". The claim is reflected in the balance sheet with a value of approximately 54 thousand euros.
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. 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 1,892 thousand (EUR 1,304 thousand being the principal claim and EUR 588 thousand penalty interest). Salaspils County government has filed a counterclaim in the amount of 1,003 thousand euros. Disputes are still ongoing on the substance and the next hearings will take place in May-June 2024. The group has not made provisions as of the date of the report.
EMPLOYEES AND LABOUR COSTS
As of 31 March 2024, Merko Ehitus group employed 621 people (including temporary and part-time staff). Compared to the same period last year, the number of group's employees decreased by 36 (-5.5%). The number of employees decreased in Estonia, Latvia and Norway 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 3 months 2024, the labour cost was EUR 12.0 million (3 months 2023: EUR 11.3 million), which increased by 6.4% compared to the same period previous year and the labour cost ratio decreased by 0.1 pp from 14.9% to 14.8% in comparable periods.
During 3 months of 2024, AS Merko Ehitus Eesti, one of the largest Estonian construction companies, part of AS Merko Ehitus group, paid EUR 2.7 million in labour taxes in Estonia, being one of the largest labour taxpayer in the construction sector (3 months 2023: EUR 2.5 million).
ETHICAL BUSINESS PRACTICES
roup'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 31 March 2024, the company has 17,700,000 shares. The number of shares has not changed during 2024.
A total of 5,983 transactions were conducted with the shares of Merko Ehitus in 3 months of 2024, with 0.17 million shares (0.9% of total shares) traded, generating a turnover of EUR 2.7 million (comparable figures in 3 months 2023 were accordingly: 7,017 transactions with 0.23 million shares traded (1.3% of total shares), generating a turnover of EUR 3.5 million). The lowest valueper-share transaction was recorded at the price of EUR 15.10 and the highest at EUR 16.56 per share (3 months of 2023: EUR 14.14 and EUR 16.02, accordingly). On 31 March 2024, the closing price of the share was EUR 16.50 (31.03.2023: EUR 15.54). As of 31 March 2024, by the Nasdaq Baltic stock exchange, the market capitalisation of AS Merko Ehitus was EUR 292.1 million, which has increased by 6.2% compared to the end of the equivalent period of the prior year (31.03.2023: EUR 275.1 million).
| 31.03.2024 | 31.03.2023 | 31.03.2022 | 31.12.2023 | |
|---|---|---|---|---|
| Number of shares | 17,700,000 | 17,700,000 | 17,700,000 | 17,700,000 |
| Earnings per share (EPS), euros | 0.25 | 0.33 | 0.17 | 2.60 |
| Equity per share, euros | 11.48 | 9.85 | 8.95 | 11.11 |
| P/B ratio | 1.44 | 1.58 | 1.76 | 1.38 |
| P/E ratio | 6.55 | 7.33 | 9.67 | 5.88 |
| Market value, million EUR | 292.1 | 275.1 | 278.2 | 270.8 |
Ratio definitions are provided on page 37 of the report.
CHANGE IN THE PRICE AND TRANSACTION VOLUME OF MERKO EHITUS SHARE AT NASDAQ TALLINN STOCK EXCHANGE IN 2024
volume of transactions
| 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% | 1,304,628 | 7.37% |
| 10,001 – 100,000 | 45 | 0.34% | 935,244 | 5.28% |
| 1,001-10,000 | 550 | 4.19% | 1,491,216 | 8.43% |
| 101-1,000 | 2,924 | 22.25% | 972,839 | 5.50% |
| 1-100 | 9,612 | 73.16% | 253,387 | 1.43% |
| Total | 13,138 | 100% | 17,700,000 | 100% |
SHAREHOLDERS OF AS MERKO EHITUS AS OF 31.03.2024 AND CHANGE COMPARED TO THE PREVIOUS QUARTER
| NUMBER OF SHARES |
% OF TOTAL 31.03.2024 |
% OF TOTAL 31.12.2023 |
CHANGE | |
|---|---|---|---|---|
| AS Riverito | 12,742,686 | 71.99% | 71.99% | - |
| OÜ Midas Invest | 428,500 | 2.42% | 2.42% | - |
| Firebird Republics Fund Ltd | 327,859 | 1.85% | 1.81% | 8,273 |
| Firebird Avrora Fund Ltd | 194,768 | 1.10% | 1.07% | 4,651 |
| OÜ Alar Invest | 136,000 | 0.77% | 0.77% | - |
| Clearstream Banking AG | 112,404 | 0.64% | 0.64% | (1,227) |
| Firebird Fund L.P. | 105,097 | 0.59% | 0.59% | 1,376 |
| Siseinfo OÜ | 100,000 | 0.56% | 0.56% | - |
| Hans Palla | 61,000 | 0.34% | 0.34% | - |
| Alforme OÜ | 50,000 | 0.28% | 0.28% | - |
| Total largest shareholders | 14,258,314 | 80.56% | 80.47% | 13,073 |
| Total other shareholders | 3,441,686 | 19.44% | 19.53% | (13,073) |
| Total | 17,700,000 | 100% | 100% | - |
PERFORMANCE OF THE SHARE OF MERKO EHITUS AND COMPARISON INDEX OMX BALTIC BENCHMARK PRICE INDEX IN 2024
OM BBPI change %)
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 8 May 2024, the shareholders of AS Merko Ehitus approved the Supervisory Board's proposal to the shareholders to pay out the total amount of EUR 23.0 million (EUR 1.30 per share) as dividends from net profit brought forward, which is equivalent to a 50% dividend rate and an 8.5% dividend yield for the year 2023 (using the share price as of 31 December 2023). Comparable figures in 2023 were accordingly: EUR 17.7 million (EUR 1.00 per share) as dividends, which is equivalent to a 51% dividend rate and a 7.1% dividend yield for the year 2022 (using the share price as at 31 December 2022).
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%), OÜ Merko Kodud 1 %), Tallinna Teede AS (100%), SIA Merks Mājas (100%), UAB Merko Statyba (100%) and UAB Merko Bustas (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: Ivo Volkov, Tõnu Toomik and Urmas Somelar.
The overview of the Management Board and Supervisory Board have been presented on pages 17-18 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 31 March 2024, 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 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. The Commercial Register made the final entry in its registers on 11 January 2024.
On October 2 23 AS Merko Ehitus' 1 % 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 entered into force on 29 February 2024 with an entry in the commercial register.
On March 2 , Merko Ehitus group's 1 % subsidiary OÜ Merko Investments signed a division plan, according to which real estate development activities along with the corresponding assets and liabilities will be transferred to OÜ Merko Residential
Investments, which is established as a result of the division. The balance sheet date of the division shall be 1 April 2024. The division will take effect with an entry in the commercial register, which is expected to take place in the second quarter.
On March 21, 2024, the joint venture PS MB.MEE was registered in the Latvian Commercial Register, founded by SIA Merko Būve as the lead partner and AS Merko Ehitus Eesti, both being 100% subsidiaries of AS Merko Ehitus group.
After the balance sheet date, on 1 April 2024 was sold 100% share in SIA Industrialais Parks, a company belonging to AS Merko Ehitus group.
GENERAL MEETING OF SHAREHOLDERS
The company's highest governing body is the eneral 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 8 May 2024. The general meeting resolved to approve the annual report and the profit allocation proposal for 2023. The dividends in the sum of EUR 23.0 million (EUR 1.30 per share) will be paid out to the shareholders on 21 June 2024.
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 reside abroad, while ensuring the privacy of participating shareholders, would be too complicated and costly.
Annual and extraordinary general meeting of shareholders shall be chaired by an independent person. In 2024, the general meeting was chaired by groups' Head of Finance Urmas Somelar 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 2024 was attended by Ivo Volkov (Chairman of the Management Board), Tõnu Toomik Member of the Management Board), Urmas Somelar (Head of Finance) and Janno Hermanson (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.
As of 31 March 2024, 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 appointed current Chairman of the Management Board of group's subsidiary AS Merko Ehitus Eesti Mr. Ivo Volkov as the Chairman of the Management Board of AS Merko Ehitus for the three-year period, starting from 1 January 2024. As of 1 January 2024, the Management Board of AS Merko Ehitus will continue with three members: Mr. Ivo Volkov Chairman), Mr. Tõnu Toomik and Mr. Urmas Somelar.
The responsibilities of Ivo Volkov, 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.
| COMPANY | SUPERVISORY BOARD | MANAGEMENT BOARD |
|---|---|---|
| AS Merko Ehitus Eesti | Ivo Volkov, Tõnu Toomik, Martin Rebane, Urmas Somelar |
Jaan Mäe (Chairman), Veljo Viitmann |
| OÜ Merko Kodud | - | Indrek Tarto |
| OÜ Merko Investments | - | Ivo Volkov, Urmas Somelar |
| SIA Merks Mājas | - | Andris Bišmeistars (Chairman), Mikus Freimanis |
| UAB Merko Statyba | Ivo Volkov (Chairman), Tõnu Toomik, Urmas Somelar |
Saulius Putrimas (Chairman) Jaanus Rästas |
| UAB Merko Bustas | Ivo Volkov (Chairman), Tõnu Toomik, Urmas Somelar |
Saulius Putrimas (Manager) |
Below are the supervisory boards and management boards of the significant subsidiaries that are wholly-owned by AS Merko Ehitus as of 31 March 2024:
Changes in the management of group subsidiaries
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 2 24 for three years. As of 1 January 2024, the Management Board of AS Merko Ehitus Eesti will continue with two members: Mr. Jaan Mäe Chairman) and Mr. Veljo Viitmann.
AS Merko Ehitus appointed Mr. Ivo Volkov as a Member of the Supervisory Board of AS Merko Ehitus Eesti for the three-year period, starting from 1 January 2 24. ith the same decision, the powers of the current council member Tõnu Toomik were extended until December 31, 2026. The Supervisory Board of AS Merko Ehitus Eesti will continue with four members: Mr. Ivo Volkov (Chairman), Mr. Tõnu Toomik, Mr. Martin Rebane and Mr. Urmas Somelar.
With the 21.03.2024 decisions of AS Merko Ehitus, the powers of Ivo Volkov, Tõnu Toomik and Urmas Somelar, the current Supervisory Board members of UAB Merko Statyba and UAB Merko Bustas, were extended for the next three years.
The Management Board of AS Merko Ehitus decided to appoint Ms. Egija Smila as the country head for the group's Latvian subsidiaries for a period of three years, with the term of authority beginning on 1 May 2024. In addition, Ms. Egija Smila was appointed as a Member of the Management Board of SIA Merks Mājas, with the term of authority beginning on 15 May 2024. Mr. Mikus Freimanis' term as a Member of the Management Board of SIA Merks Mājas will end on 22 July 2 24.
MANAGEMENT BOARD'S DECLARATION
Members of the Management Board of AS Merko Ehitus declare and confirm that the consolidated unaudited interim report for the 3 months of 2024, 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.
| Ivo Volkov | Chairman of the Management Board | 09.05.2024 |
|---|---|---|
| Tõnu Toomik | Member of the Management Board | 09.05.2024 |
Urmas Somelar Member of the Management Board 09.05.2024
19
INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| Note | 2024 3 months |
2023 3 months |
2023 12 months |
|
|---|---|---|---|---|
| Revenue | 2 | 81,185 | 75,751 | 466,304 |
| Cost of goods sold | 3 | (72,301) | (65,776) | (401,267) |
| Gross profit | 8,884 | 9,975 | 65,037 | |
| Marketing expenses | (1,068) | (1,077) | (4,312) | |
| General and administrative expenses | (4,142) | (3,965) | (19,423) | |
| Other operating income | 1,324 | 817 | 4,171 | |
| Other operating expenses | (953) | (62) | (991) | |
| Operating profit | 4,045 | 5,688 | 44,482 | |
| Finance income/costs | 1,157 | 391 | 7,500 | |
| incl. finance income/costs from joint ventures | 1,568 | 1,280 | 10,220 | |
| interest expense | (655) | (655) | (2,697) | |
| foreign exchange gain (loss) | (190) | (210) | (153) | |
| other financial income (expenses) | 434 | (24) | 130 | |
| Profit before tax | 5,202 | 6,079 | 51,982 | |
| Corporate income tax expense | (818) | (292) | (6,081) | |
| Net profit for financial year | 4,384 | 5,787 | 45,901 | |
| incl. net profit attributable to equity holders of the parent | 4,427 | 5,880 | 46,048 | |
| net profit attributable to non-controlling interest | (43) | (93) | (147) | |
| Other comprehensive income, which can subsequently be classified in the income statement |
||||
| Currency translation differences of foreign entities | 106 | 53 | (41) | |
| Comprehensive income for the period | 4,490 | 5,840 | 45,860 | |
| incl. net profit attributable to equity holders of the parent | 4,526 | 5,910 | 45,993 | |
| net profit attributable to non-controlling interest | (36) | (70) | (133) | |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) |
4 | 0.25 | 0.33 | 2.60 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| Note | 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | 5 | 88,353 | 14,295 | 77,330 |
| Trade and other receivables | 6 | 58,929 | 54,206 | 68,754 |
| Prepaid corporate income tax | 6 | 89 | 2 | |
| Inventories | 7 | 196,518 | 244,549 | 195,435 |
| 343,806 | 313,139 | 341,521 | ||
| Non-current assets | ||||
| Investments in joint ventures | 23,483 | 14,175 | 21,915 | |
| Other shares and securities | 80 | - | 80 | |
| Other long-term loans and receivables | 8 | 20,427 | 22,685 | 24,490 |
| Deferred income tax assets | 4,998 | 873 | 3,298 | |
| Investment property | 9 | 16,740 | 11,460 | 16,823 |
| Property, plant and equipment | 10 | 16,093 | 17,287 | 16,613 |
| Intangible assets | 11 | 487 | 564 | 520 |
| 82,308 | 67,044 | 83,739 | ||
| TOTAL ASSETS | 426,114 | 380,183 | 425,260 | |
| LIABILITIES | ||||
| Current liabilities | ||||
| Borrowings | 12 | 12,909 | 59,753 | 19,673 |
| Payables and prepayments | 13 | 134,216 | 88,907 | 133,898 |
| Income tax liability | 6,335 | 1,290 | 4,260 | |
| Short-term provisions | 14 | 10,551 | 8,973 | 10,451 |
| 164,011 | 158,923 | 168,282 | ||
| Non-current liabilities | ||||
| Long-term borrowings | 12 | 35,882 | 27,347 | 35,142 |
| Deferred income tax liability | 4,489 | 2,327 | 4,441 | |
| Other long-term payables | 15 | 5,342 | 2,054 | 5,495 |
| 45,713 | 31,728 | 45,078 | ||
| TOTAL LIABILITIES | 209,724 | 190,651 | 213,360 | |
| EQUITY | ||||
| Non-controlling interests | (191) | (565) | (155) | |
| Equity attributable to equity holders of the parent | ||||
| Share capital | 7,929 | 7,929 | 7,929 | |
| Statutory reserve capital | 793 | 793 | 793 | |
| Currency translation differences | (739) | (753) | (838) | |
| Retained earnings | 208,598 | 182,128 | 204,171 | |
| 216,581 | 190,097 | 212,055 | ||
| TOTAL EQUITY | 216,390 | 189,532 | 211,900 | |
| TOTAL LIABILITIES AND EQUITY | 426,114 | 380,183 | 425,260 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
unaudited
in thousand euros
| Equity attributable to equity holders of the parent | |||||||
|---|---|---|---|---|---|---|---|
| Share capital |
Statuto ry reserve capital |
Currency translation differences |
Retained earnings |
Total | Non control ling interest |
Total | |
| Balance as at 31.12.2022 | 7,929 | 793 | (783) | 176,248 | 184,187 | (495) | 183,692 |
| Profit (loss) for the reporting period | - | - | - | 5,880 | 5,880 | (93) | 5,787 |
| Other comprehensive income | - | - | 30 | - | 30 | 23 | 53 |
| Total comprehensive income (loss) for the reporting period |
- | - | 30 | 5,880 | 5,910 | (70) | 5,840 |
| Balance as of 31.03.2023 | 7,929 | 793 | (753) | 182,128 | 190,097 | (565) | 189,532 |
| Balance as at 31.12.2023 | 7,929 | 793 | (838) | 204,171 | 212,055 | (155) | 211,900 |
| Profit (loss) for the reporting period | - | - | - | 4,427 | 4,427 | (43) | 4,384 |
| Other comprehensive income | - | - | 99 | - | 99 | 7 | 106 |
| Total comprehensive income (loss) for the reporting period |
- | - | 99 | 4,427 | 4,526 | (36) | 4,490 |
| Balance as at 31.03.2024 | 7,929 | 793 | (739) | 208,598 | 216,581 | (191) | 216,390 |
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 | 2024 3 months |
2023 3 months |
2023 12 months |
|
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Operating profit | 4,045 | 5,688 | 44,482 | |
| Adjustments: | ||||
| Depreciation and impairment | 826 | 728 | 3,658 | |
| (Profit)/loss from sale of non-current assets | (186) | (169) | (960) | |
| Change in receivables and liabilities related to construction contracts |
13,065 | 3,238 | 35,359 | |
| Interest income from operating activities | (475) | (571) | (2,146) | |
| Change in provisions | (3,928) | (2,907) | 3,878 | |
| Change in trade and other receivables related to operating activities |
9,384 | 23,310 | 777 | |
| Change in inventories | (1,033) | (18,876) | 25,713 | |
| Change in trade and other payables related to operating activities |
(4,378) | (7,730) | 9,379 | |
| Interest received | 475 | 496 | 2,145 | |
| Interest paid | (749) | (833) | (3,524) | |
| Other finance income (costs) | (43) | (24) | (268) | |
| Corporate income tax paid | (400) | (506) | (3,550) | |
| Total cash flows from operating activities | 16,603 | 1,844 | 114,943 | |
| Cash flows from investing activities | ||||
| Purchase of investment property | - | - | (357) | |
| Purchase of property, plant and equipment (excl. leased assets) |
(89) | (415) | (1,204) | |
| Proceeds from sale of property, plant and equipment | 261 | 164 | 1,232 | |
| Purchase of intangible assets | (10) | (41) | (194) | |
| Interest received | 476 | - | 297 | |
| Dividends received | - | - | 1,200 | |
| Total cash flows from investing activities | 638 | (292) | 974 | |
| Cash flows from financing activities | ||||
| Proceeds from borrowings | 2,406 | 33,870 | 48,160 | |
| Repayments of borrowings | (8,269) | (38,453) | (85,364) | |
| Repayments of lease liabilities | (324) | (302) | (1,312) | |
| Dividends paid | - | - | (17,679) | |
| Total cash flows from financing activities | (6,187) | (4,885) | (56,195) | |
| Net increase/decrease in cash and cash equivalents | 11,054 | (3,333) | 59,722 | |
| Cash and cash equivalents at the beginning of the period | 5 | 77,330 | 17,665 | 17,665 |
| Effect of exchange rate changes | (31) | (37) | (57) | |
| Cash and cash equivalents at the end of the period | 5 | 88,353 | 14,295 | 77,330 |
NOTES NOTE 1 ACCOUNTING POLICIES USED
The consolidated interim financial statements of the AS Merko Ehitus group for 3 months 2024 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 2023 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. 2023 audited annual report and 2023 3 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 3 months 2024 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
| 2024 3 months | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 68,189 | 18,555 | 86,744 |
| Inter-segment revenue | (232) | (5,327) | (5,559) |
| Revenue from clients | 67,957 | 13,228 | 81,185 |
| incl. timing of revenue recognition at a point in time | 105 | 11,084 | 11,189 |
| timing of revenue recognition over time | 67,852 | 2,144 | 69,996 |
| Operating profit (loss) | 2,997 | 1,634 | 4,631 |
| Profit (loss) before tax | 4,523 | 1,424 | 5,947 |
| incl. interest income from operating activities | - | 475 | 475 |
| depreciation | (655) | (171) | (826) |
| impairment of inventories | - | - | - |
| recognition of provisions | (1,273) | (212) | (1,485) |
| reversal of provisions | 145 | - | 145 |
| profit from joint ventures | 1,293 | 275 | 1,568 |
| other finance income (costs) | 118 | (477) | (359) |
| incl. interest income | 207 | 1 | 208 |
| interest expenses | (28) | (373) | (401) |
| Assets 31.03.2024 | 91,494 | 246,988 | 338,482 |
| incl. joint ventures | 15,531 | 7,952 | 23,483 |
| 2023 3 months | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 49,487 | 38,947 | 88,434 |
| Inter-segment revenue | (216) | (12,467) | (12,683) |
| Revenue from clients | 49,271 | 26,480 | 75,751 |
| incl. timing of revenue recognition at a point in time | 207 | 19,727 | 19,934 |
| timing of revenue recognition over time | 49,064 | 6,753 | 55,817 |
| Operating profit (loss) | 549 | 5,683 | 6,232 |
| Profit (loss) before tax | 784 | 6,023 | 6,807 |
| incl. interest income from operating activities | - | 571 | 571 |
| depreciation | (582) | (146) | (728) |
| recognition of provisions | (1,012) | (64) | (1,076) |
| profit from joint ventures | 366 | 914 | 1,280 |
| other finance income (costs) | (70) | (552) | (622) |
| incl. interest expenses | (20) | (382) | (402) |
| Assets 31.03.2023 | 69,408 | 284,062 | 353,470 |
| incl. joint ventures | 10,033 | 4,142 | 14,175 |
| 2023 12 months | Construction service | Real estate development |
Total segments |
|---|---|---|---|
| Revenue | 299,338 | 208,332 | 507,670 |
| Inter-segment revenue | (1,168) | (40,198) | (41,366) |
| Revenue from clients | 298,170 | 168,134 | 466,304 |
| incl. timing of revenue recognition at a point in time | 2,418 | 141,098 | 143,516 |
| timing of revenue recognition over time | 295,752 | 27,036 | 322,788 |
| 2023 12 months | Construction service | Real estate development |
Total segments |
|
|---|---|---|---|---|
| Operating profit (loss) | 20,504 | 26,731 | 47,235 | |
| Profit (loss) before tax | 26,200 | 29,344 | 55,544 | |
| incl. interest income from operating activities | - | 2,146 | 2,146 | |
| depreciation | (2,805) | (853) | (3,658) | |
| impairment of inventories | - | (2,200) | (2,200) | |
| recognition of provisions | (5,659) | (1,128) | (6,787) | |
| reversal of provisions | 144 | 156 | 300 | |
| profit from joint ventures | 5,771 | 4,449 | 10,220 | |
| other finance income (costs) | 113 | (1,743) | (1,630) | |
| incl. interest income | 259 | - | 259 | |
| interest expenses | (101) | (1,531) | (1,632) | |
| Assets 31.12.2023 | 96,111 | 249,513 | 345,624 | |
| incl. joint ventures | 14,238 | 7,677 | 21,915 |
In addition to the segment assets, as at 31.03.2024 the group holds assets in the amount of EUR 87,632 thousand (31.03.2023: EUR 26,713 thousand; 31.12.2023: EUR 79,636 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 | |||
|---|---|---|---|
| 2024 | 2023 | 2023 | |
| 3 months | 3 months | 12 months | |
| Pre-tax profit from reporting segments | 5,947 | 6,807 | 55,544 |
| Other operating profit (loss) | (587) | (544) | (2,752) |
| incl. recognition of provisions | - | - | (238) |
| reversal of provisions | - | - | 900 |
| finance income (costs) | (158) | (184) | (810) |
| incl. interest expenses | (142) | (175) | (735) |
| Total profit before tax | 5,202 | 6,079 | 51,982 |
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
| 2024 3 months | 2023 3 months | 2023 12 months | ||||
|---|---|---|---|---|---|---|
| Estonia | 30,643 | 38% | 40,358 | 53% | 283,147 | 61% |
| Latvia | 2,394 | 3% | 22,480 | 30% | 61,843 | 13% |
| Lithuania | 47,931 | 59% | 11,878 | 16% | 115,232 | 25% |
| Norway | 217 | 0% | 1,035 | 1% | 6,082 | 1% |
| Total | 81,185 | 100% | 75,751 | 100% | 466,304 | 100% |
CONTRACT ASSETS AND LIABILITIES
in thousand euros
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Accrued income from construction services (Note 6) | 4,524 | 14,571 | 8,305 |
| Prepayments for construction services (Note 13) | (43,876) | (8,743) | (34,584) |
| Advance payments received for construction contract works (Notes 13, 15) | (28,719) | (6,373) | (33,727) |
| Recognised provision for onerous construction contracts (Note 14) | (8) | (8) | (8) |
NON-CURRENT ASSETS (EXCEPT FOR FINANCIAL ASSETS) BY LOCATION OF ASSETS
in thousand euros
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Estonia | 43,484 | 31,458 | 42,317 |
| Latvia | 10,717 | 10,730 | 10,837 |
| Lithuania | 2,653 | 1,187 | 2,762 |
| Norway | 29 | 111 | 35 |
| Total | 56,883 | 43,486 | 55,951 |
NOTE 3 COST OF GOODS SOLD
| in thousand euros | |||
|---|---|---|---|
| 2024 | 2023 | 2023 | |
| 3 months | 3 months | 12 months | |
| Construction services and properties purchased for resale | 52,114 | 38,764 | 279,421 |
| Materials | 4,741 | 10,323 | 47,970 |
| Labour costs | 8,256 | 7,705 | 32,999 |
| Construction mechanisms and transport | 1,134 | 1,846 | 8,881 |
| Design | 1,417 | 1,806 | 7,703 |
| Real estate management costs | 359 | 283 | 1,105 |
| Depreciation | 587 | 510 | 2,599 |
| Impairment of inventories | - | - | 2,200 |
| Provisions | 487 | 1,076 | 5,296 |
| Other expenses | 3,206 | 3,463 | 13,093 |
| Total cost of goods sold | 72,301 | 65,776 | 401,267 |
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.
| 2024 3 months |
2023 3 months |
2023 12 months |
|
|---|---|---|---|
| Net profit (loss) attributable to shareholders (in thousand EUR) | 4,427 | 5,880 | 46,048 |
| Weighted average number of ordinary shares (thousand pcs) | 17,700 | 17,700 | 17,700 |
| Earnings (loss) per share (in euros) | 0.25 | 0.33 | 2.60 |
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 2024 the parent company AS Merko Ehitus will pay dividends of EUR 23,010 thousand, i.e. EUR 1.30 per share (in 2023 were paid EUR 17,700 thousand). The income tax expense of EUR 2,894 thousand related to the payment of dividends is due in 2024, of which EUR 2,894 thousand was recognised as deferred tax expense in the group in 2023.
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 31.03.2024 the balance of deferred income tax liability includes deferred income tax on dividends in the amount of 2,950 thousand euros (31.03.2023: EUR 761 thousand euros; 31.12.2023: EUR 2,894 thousand euros).
As of 31.03.2024, the parent company AS Merko Ehitus has EUR 1,513 thousand (31.03.2023: EUR 1,660 thousand; 31.12.2023: EUR 1,513 thousand) in dividends received from subsidiaries in previous periods and income from abroad, on which the income tax has been withheld.
As at 31.03.2023, it is possible to pay out dividends to shareholders from retained earnings in the amount of EUR 166,590 thousand (31.03.2023: EUR 145,776 thousand; 31.12.2023: EUR 162,969 thousand). Considering the dividends received and income tax withheld on foreign income totalling EUR 378 thousand (31.03.2023: EUR 415 thousand; 31.12.2023: EUR 378 thousand), the corresponding income tax on dividends would amount to EUR 41,269 thousand (31.03.2023: EUR 35,599 thousand; 31.12.2023: EUR 40,364 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
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Bank accounts | 75,580 | 9,931 | 61,545 |
| Overnight deposits | 2,773 | 4,364 | 785 |
| Term deposits with maturities of 3 months of less | 10,000 | - | 15,000 |
| Total cash and cash equivalents | 88,353 | 14,295 | 77,330 |
NOTE 6 TRADE AND OTHER RECEIVABLES
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Trade receivables | |||
| Accounts receivable | 48,515 | 30,644 | 54,692 |
| Allowance for doubtful receivables | (134) | (3,276) | (134) |
| 48,381 | 27,368 | 54,558 | |
| Tax prepayments excluding corporate income tax | |||
| Value added tax | 542 | 900 | 661 |
| Other taxes | 15 | 42 | - |
| 557 | 942 | 661 | |
| Accrued income form construction services | 4,524 | 14,571 | 8,305 |
| Other short-term receivables | |||
| Short-term loans | - | 5,000 | - |
| Interest receivables | - | 75 | - |
| Other short-term receivables | 1,017 | 1,188 | 1,029 |
| 1,017 | 6,263 | 1,029 | |
| Prepayments for services | |||
| Prepayments for construction services | 3,286 | 3,977 | 2,922 |
| Prepaid insurance | 1,012 | 936 | 1,137 |
| Other prepaid expenses | 152 | 149 | 142 |
| 4,450 | 5,062 | 4,201 | |
| Total trade and other receivables | 58,929 | 54,206 | 68,754 |
| incl. short-term loan receivables from related parties (Note 16) | - | 5,000 | - |
| other short-term receivables and prepayments to related parties (Note 16) |
3,723 | 7,131 | 10,743 |
NOTE 7 INVENTORIES
| in thousand euros | |
|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Materials | 379 | 744 | 358 |
| Work-in-progress | 56,738 | 91,596 | 60,244 |
| Finished goods | 49,088 | 58,226 | 43,357 |
| Goods for resale | |||
| Registered immovables purchased for resale/development | 88,120 | 89,409 | 89,434 |
| Other goods purchased for resale | 1,160 | 3,730 | 1,558 |
| 89,280 | 93,139 | 90,992 | |
| Prepayments for inventories | |||
| Prepayments for real estate properties | - | - | - |
| Prepayments for other inventories | 1,033 | 844 | 484 |
| Total inventories | 196,518 | 244,549 | 195,435 |
NOTE 8 OTHER LONG-TERM LOANS AND RECEIVABLES
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Long-term receivables from customers of construction services | 20,427 | 22,685 | 24,490 |
| Total other long-term loans and receivables | 20,427 | 22,685 | 24,490 |
NOTE 9 INVESTMENT PROPERTY
in thousand euros
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Land | 10,172 | 10,172 | 10,172 |
| Right of superficies at carrying amount | |||
| Cost | 29 | 29 | 29 |
| Accumulated depreciation | (15) | (15) | (15) |
| 14 | 14 | 14 | |
| Buildings at carrying amount | |||
| Cost | 8,012 | 2,455 | 8,012 |
| Accumulated depreciation | (1,458) | (1,181) | (1,375) |
| 6,554 | 1,274 | 6,637 | |
| Total investment property | 16,740 | 11,460 | 16,823 |
NOTE 10 PROPERTY, PLANT AND EQUIPMENT
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Land | 1,266 | 1,266 | 1,266 |
| Buildings at carrying amount* | |||
| Cost | 8,322 | 8,251 | 8,322 |
| Accumulated depreciation | (4,087) | (3,304) | (3,997) |
| 4,235 | 4,947 | 4,325 | |
| Machinery and equipment at carrying amount* | |||
| Cost | 18,610 | 18,995 | 18,588 |
| Accumulated depreciation | (9,965) | (10,472) | (9,639) |
| 8,645 | 8,523 | 8,949 | |
| Other fixtures at carrying amount | |||
| Cost | 4,527 | 4,810 | 4,526 |
| Accumulated depreciation | (3,120) | (3,266) | (3,085) |
| 1,407 | 1,544 | 1,441 | |
| Prepayments for property, plant and equipment | 540 | 1,007 | 632 |
| Total property, plant and equipment | 16,093 | 17,287 | 16,613 |
* As of 31 March 2024,the balance of buildings at carrying amount includes leased assets in a sum of EUR 515 thousand (31.03.2023: EUR 621 thousand; 31.12.2023: EUR 561 thousand). The balance of machinery and equipment at carrying amount includes leased assets in a sum of EUR 3,606 thousand (31.03.2023: EUR 3,280 thousand; 31.12.2023: EUR 3,708 thousand).
NOTE 11 INTANGIBLE ASSETS
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Goodwill | |||
| Cost | 62 | 64 | 65 |
| Impairment | (61) | - | (64) |
| 1 | 64 | 1 | |
| Software at carrying amount | |||
| Cost | 1,428 | 1,356 | 1,431 |
| Accumulated depreciation | (1,137) | (1,003) | (1,097) |
| 291 | 353 | 334 | |
| Prepayments for intangible assets | 195 | 147 | 185 |
| Total intangible assets | 487 | 564 | 520 |
NOTE 12 BORROWINGS
| in thousand euros | ||||
|---|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | ||
| Lease liabilities* | ||||
| Lease liabilities balance | 4,244 | 4,067 | 4,402 | |
| incl. current portion | 1,089 | 1,121 | 1,092 | |
| non-current portion 25 years | 3,155 | 2,946 | 3,310 | |
| Bank loans | ||||
| Loan balance | 38,493 | 76,977 | 44,356 | |
| incl. current portion | 5,766 | 58,576 | 12,524 | |
| non-current portion 25 years | 32,727 | 18,401 | 31,832 | |
| Loans from entities under common control | ||||
| Loan balance (Note 16) | 6,000 | 6,000 | 6,000 | |
| incl. current portion | 6,000 | - | 6,000 | |
| non-current portion 25 years | - | 6,000 | - | |
| Loans from other related parties | ||||
| Loan balance (Note 16) | - | 56 | - | |
| incl. current portion | - | 56 | - | |
| Loans from other entities | ||||
| Loan balance | 54 | - | 57 | |
| incl. current portion | 54 | - | 57 | |
| Total loans | ||||
| Loans balance | 44,547 | 83,033 | 50,413 | |
| incl. current portion | 11,820 | 58,632 | 18,581 | |
| non-current portion 2… years | 32,727 | 24,401 | 31,832 | |
| Total borrowings | 48,791 | 87,100 | 54,815 | |
| incl. current portion | 12,909 | 59,753 | 19,673 | |
| non-current portion 25 years | 35,882 | 27,347 | 35,142 |
* As of 31 March 2024,the lease liabilities include a balance of EUR 201 thousand to related parties (31.03.2023: EUR 240 thousand; 31.12.2023: EUR 216 thousand) (Note 16).
NOTE 13 PAYABLES AND PREPAYMENTS
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Trade payables | 43,549 | 43,439 | 42,472 |
| Payables to employees | 11,555 | 10,214 | 14,846 |
| Tax liabilities, except for corporate income tax | |||
| Value added tax | 2,349 | 911 | 4,258 |
| Personal income tax | 1,351 | 763 | 769 |
| Social security tax | 2,452 | 1,981 | 2,075 |
| Unemployment insurance tax | 93 | 76 | 70 |
| Contributions to mandatory funded pension | 62 | 50 | 48 |
| Other taxes | 144 | 114 | 113 |
| 6,451 | 3,895 | 7,333 | |
| Prepayments for construction services | 43,876 | 8,743 | 34,584 |
| Other liabilities | |||
| Interest liabilities | 131 | 93 | 98 |
| Other liabilities | 514 | 480 | 537 |
| 645 | 573 | 635 | |
| Prepayments received * | 28,140 | 22,043 | 34,028 |
| Total payables and prepayments | 134,216 | 88,907 | 133,898 |
| incl. payables to related parties (Note 16) | 58 | 2,532 | 173 |
* As of 31 March 2024, 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 26,352 thousand (31.03.2023: EUR 6,373; 31.12.2023: EUR 31,360 thousand) and of prepayments received in connection with residential properties (apartment buyers) in a sum of EUR 1,788 thousand (31.03.2023: EUR 15,670 thousand; 31.12.2023: EUR 2,668 thousand) (Note 2).
NOTE 14 SHORT-TERM PROVISIONS
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Provision for warranty obligation for construction | 5,827 | 4,362 | 5,954 |
| Provision for costs of projects sold and work-in-progress projects |
1,910 | 3,384 | 2,460 |
| Provision for onerous construction contracts | 8 | 8 | 8 |
| Provision for legal costs and claims filed | 2,560 | 1,200 | 1,706 |
| Other provisions | 246 | 19 | 323 |
| Total short-term provisions | 10,551 | 8,973 | 10,451 |
NOTE 15 OTHER LONG-TERM PAYABLES
| Other long-term payables total | 5,342 | 2,054 | 5,495 |
|---|---|---|---|
| Prepayments received * | 2,367 | - | 2,367 |
| Trade payables | 2,975 | 2,054 | 3,128 |
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| in thousand euros |
* As of 31 March 2024, 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 2,367 thousand (31.03.2023: EUR 0; 31.12.2023: EUR 2,367 thousand) (Note 2).
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 31.03.2024, 31.03.2023 and 31.12.2024, 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 | |||
|---|---|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |||
| 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 | Estonia, Tallinn | Mining |
| Tallinna Teede AS | 100 | 100 | 100 | Estonia, Tallinn | Road construction |
| OÜ Merko Kodud | 100 | - | 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 | - | 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 | - | 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 | - | Latvia, Riga | Real estate |
| SIA Industrialais Parks | 100 | 100 | 100 | Latvia, Riga | Real estate |
| SIA Merks Mājas | - | 100 | - | Latvia, Riga | Real estate |
| SIA Ropažu Priedes | - | 100 | - | Latvia, Riga | Real estate |
| SIA Zakusala Estates | - | 100 | - | Latvia, Riga | Real estate |
| PS Merks-Ostas Celtnieks | 65 | 65 | 65 | Latvia, Riga | Construction |
| PS Merks Merko Infra | 100 | 100 | 100 | Latvia, Riga | Construction |
| 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 |
| SIA Merko Būve | 100 | 100 | 100 | Latvia, Riga | Construction |
| PS MB.MEE | 100 | - | - | Latvia, Riga | Construction |
| SIA Merko Management Latvia (ex- SIA SK Viesturdarzs) |
100 | - | 100 | Latvia, Riga | Real estate |
| Merko Finland Oy | - | 100 | - | Finland, Helsinki | Construction |
| Merko Investments AS | 100 | 100 | 100 | Norway, Sofiemyr | Holding |
| Peritus Entreprenør AS (ex Merko Bygg AS) |
100 | 56 | 100 | Norway, Sofiemyr | Construction |
| Ownership and voting rights % | Location | Area of operation | |||
|---|---|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |||
| 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 | |||
|---|---|---|---|
| 2024 3 months | 2023 3 months | 2023 12 months | |
| Provided services and goods sold | |||
| Parent company | - | 4 | 6 |
| Joint ventures | 2,634 | 7,285 | 26,708 |
| Entities under common control | 8,636 | 20,920 | 82,058 |
| Members of the management | - | - | 161 |
| Total services provided and goods sold | 11,270 | 28,209 | 108,933 |
| Interest income | |||
| Joint ventures | 13 | 75 | 215 |
| Purchased services and goods | |||
| Parent company | - | 30 | 49 |
| Joint ventures | - | 23 | 268 |
| Entities under common control | 16 | 19 | 75 |
| Total purchased services and goods | 16 | 72 | 392 |
| Interest expense | |||
| Parent company | - | 30 | 30 |
| Entities under common control | 99 | 80 | 362 |
| Other related parties | - | 1 | 1 |
| Total interest expense | 99 | 111 | 393 |
BALANCES WITH RELATED PARTIES
| in thousand euros | |||
|---|---|---|---|
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
| Receivables from related parties | |||
| Loans granted (Notes 6,8) | |||
| Joint venture | - | 5,000 | - |
| Receivables and prepayments (Note 6) | |||
| Parent company | - | 5 | - |
| Joint ventures | 569 | 2,235 | 1,852 |
| Entities under common control | 3,154 | 4,891 | 8,862 |
| Members of the management | - | - | 29 |
| Total receivables and prepayments | 3,723 | 7,131 | 10,743 |
| Total receivables from related parties | 3,723 | 12,131 | 10,743 |
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Payables to related parties | |||
| Lease liabilities (Note 12) | |||
| Entities under common control | 201 | 240 | 216 |
| Short-term loans received (Note 12) | |||
| Entities under common control | 6,000 | - | 6,000 |
| Other related parties | - | 56 | - |
| Total Short-term loans received | 6,000 | 56 | 6,000 |
| Payables and prepayments (Note 13) | |||
| Parent company | - | 12 | - |
| Joint ventures | - | 9 | 142 |
| Entities under common control | 58 | 2,471 | 31 |
| Members of the management | - | 40 | - |
| Total payables and prepayments | 58 | 2,532 | 173 |
| Long-term loans received (Note 12) | |||
| Entities under common control | - | 6,000 | - |
| Total payables to related parties | 6,259 | 8,828 | 6,389 |
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 3 months of 2024 were EUR 431 thousand (3 months of 2023: EUR 216 thousand; 12 months of 2023: EUR 1,843 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 3 months of 2024, the Management Board members of AS Merko Ehitus did not receive benefits (3 months of 2023: EUR 0; 12 months of 2023: EUR 120 thousand).
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 31.03.2024:
| 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: Ivo Volkov Tõnu Toomik and Urmas Somelar.
Shares held by members of the Management Board of AS Merko Ehitus as of 31.03.2024:
| NO OF SHARES | % OF SHARES | ||
|---|---|---|---|
| Ivo Volkov | Chairman of the Management Board | 4,137 | 0.02% |
| Tõnu Toomik | Member of the Management Board | - | - |
| Urmas Somelar | Member of the Management Board | - | - |
| 4,137 | 0.02% |
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.
| 31.03.2024 | 31.03.2023 | 31.12.2023 | |
|---|---|---|---|
| Performance period's warranty to the customer | 35,843 | 26,314 | 39,359 |
| Tender warranty | - | 10 | 32 |
| Guarantee for warranty period | 26,905 | 22,810 | 27,194 |
| Prepayment guarantee | 31,466 | 540 | 31,466 |
| Payment guarantee | 57 | 51 | - |
| Letter of credit | - | 1,071 | - |
| Contracts of surety | 500 | 500 | 500 |
| Total contingent liabilities | 94,771 | 51,296 | 98,551 |
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.
Payment guarantee – guarantee provider guarantees repayments of the customer's developer's loan and or guarantee provider guarantees to the customer payment for goods or services.
Letter of credit – a letter of credit is the obligation of the buyer (i.e. the bank opening the letter of credit) to pay the seller (i.e. the receiver of the letter of credit) the amount of the letter of credit, if the seller fulfils and presents documentation to the bank regarding the fulfilment of the conditions fixed with the letter of credit.
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 |
| Pre-tax profit | ||
| EBT margin (%) | = | Revenue |
| Net profit (attributable to equity holders of the parent) | ||
| Net profit margin (%) | = | Revenue |
| Net profit (attributable to equity holders of the parent) of the current 4 quarters | ||
| Return on equity, ROE (%) | = | Shareholders equity (average of the current 4 quarters) |
| = | Net profit (attributable to equity holders of the parent) of the current 4 quarters | |
| Return on assets, ROA (%) | Total assets (average of the current 4 quarters) | |
| (Profit before tax + interest expense - foreign exchange gain (loss) + other financial income) of the current 4 quarters | ||
| Return on invested capital, ROIC (%) | = | (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) |
| Net profit (attributable to equity holders of the parent) | ||
| Earnings per share, EPS (EUR) | = | Number of shares |
| Shareholders equity (average of the current 4 quarters) | ||
| Equity/share (EUR) | = | Number of shares |
| Payable dividends | ||
| Dividend per share (EUR) | = | Number of shares |
| Payable dividends x 100 | ||
| Dividend rate (%) | = | Net profit (attributable to equity holders of the parent) |
| Dividends payable per share | ||
| Dividend yield (%) | = | Share price 31.12 |
| Share price 31.03 | ||
| P/E | = | Earnings per share of the current 4 quarters |
| Share price 31.03 | ||
| P/B | = | Equity per share (average of the current 4 quarters) |
Market value = Share price 31.03 x Number of shares