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The sales revenue from the real estate development of Merko Ehitus has grown by 73% within 9 months to nearly 46 million euros

05.11.2015

The sales revenue of Merko Ehitus in Q3 stood at 68.4 million euros and for the first 9 months at 184.6 million euros and has stayed at the level of the previous year. The net profit of the Group for Q3 stood at 3.1 million euros and for the first 9 months at 5.6 million euros, and it includes the additional income tax expenses arising from the payment of dividends. The decrease in the sales revenue from construction services in Estonia has been compensated by the growth of the sales revenue in Latvia and Lithuania, and also by active real estate development, where the sales revenue has grown by 73% in the first 9 months and accounts for a quarter of the Group’s sales revenue.

“In this challenging year, we have managed to maintain the sales revenue at a level comparable to the previous year, which has not been easy, given the situation in the Baltic construction market and the relatively weak position of our portfolio of construction contracts at the beginning of the year. As expected, the volume of construction service in Estonia has decreased, because the number of orders by the government has decreased in construction engineering and the company has sought to avoid excess risks in price competitions within the general construction segment. Group-wide, the growth of sales revenue in Latvia and Lithuania and more active real estate development throughout the Baltic states has helped to balance the sales revenue,“ said Andres Trink, Chairman of the Management Board of AS Merko Ehitus.

Andres Trink says that even though the Group’s portfolio of new contracts has increased in comparison with the corresponding 9 months of the previous year, its volume cannot be deemed satisfying. “As the public sector has recently placed only a few orders and only a few procurements have been large, the price war at these tenders is very fierce. We are very glad that private customers have nevertheless had the courage to invest and several private customers have had trust in us – to date, the majority of new contracts in the portfolio have been entered into with private customers. But as the market is small and many buildings have already been built, the growth will at one point also stop,” Trink added. Within the first 9 months of the year, the Group has entered into new contracts to the value of 152.2 million euros. As of 30 September 2015, the Group had a secured an order book balance of 193.6 million euros (30 September 2014: 166.4 million euros).

“2016 will definitely be challenging as well, particularly due to the fact that the launch of the projects co-funded by the EU has been postponed longer than expected and the growth in the Baltic states remains at only a few percentage points. In Latvia, we have completed the construction of several large-scale projects, but this year we have not succeeded in entering into new contracts in the same volume, which may affect the volume of construction work in Latvia next year. The results of the Group are also substantially affected by the trends in the Baltic apartment market, where developments have so far been positive for us, although the rapid growth in the last three years has begun to stabilise. We believe that the long-term outlooks of the construction market will remain good in our home markets despite the current challenges as investments in infrastructure and housing construction are still essential, and the yield on commercial property remains at a competitive level for investors. But this will in turn depend on the development of the economy as a whole,” said Andres Trink.

The sales revenue of Merko Ehitus in Q3 of 2015 stood at 68.4 million euros and for the first 9 months at 184.6 million euros (Q3 in 2014: 68.5 million euros and the first 9 months in 2014: 182.2 million euros). The Q3 gross margin of the Group was 9.3% and the profit before taxes was 3.5 million euros; the performance for the first 9 months was 8.3% and 7.0 million euros, respectively. The net profit of the company in Q3 stood at 3.1 million euros and for the first 9 months at 5.6 million euros. The net profit for the first 9 months was influenced by additional income tax expenses in Estonia in the amount of 0.9 million euros, which resulted from the payment of dividends to the shareholders in Q2.

“The real estate development projects we launched in Q3 have progressed as planned and although the apartment markets in Tallinn and Vilnius have begun to stabilise, potential customers are still interested in purchasing our apartments. In order to maintain and strengthen our longstanding market position, we have also acquired new land plots and the largest of these is the 1.3-hectare Rinktines development area in the city centre of Vilnius, where more than 300 new apartments can be built. Here it relevant to note that we have purchased the new land plots for the company’s resources without drawing on external funding this year,” stated Andres Trink in connection with real estate development. Over the first 9 months, the Group has invested 30.1 million euros into the construction of apartments and 11.7 million euros into the acquisition of different land plots. During the first 9 months, the share of the sales revenue from real estate development has increased to about 25% of the total revenues of the Group (the first 9 months in 2014: 14.5%).

In the first 9 months, the Group sold 248 apartments at the total cost of 42.6 million euros, and in Q3 it sold 80 apartments at the total cost of 10.9 million euros (figures exclusive of VAT). The sales revenue from real estate development has increases by 72.7% over the first 9 months (the first 9 months in 2014: 235 apartments, sales revenue 23.5 million euros). This year, the company has launched the construction of a total of 386 apartments in the Baltic states (the first 9 months in 2014: 310 apartments), including apartment buildings in the city centre of Tallinn at 52 Tartu mnt, at 33 Sõpruse pst in Kristiine district, at 1a Jahu Street in Kalamaja district, in Paepargi Perepark, Kaupmehe Street in Tartu rural municipality and at 73 Krokuvos Street in the city centre of Vilnius.

The largest projects in progress in Q3 in Estonia included the Hilton Tallinn Park Hotel, the reconstruction of the Mustamäe complex of the North Estonia Medical Centre, the design-work and reconstruction of the tram tracks of tram line no. 4 in Tallinn, the design and construction work of the Öpik Building, the design and construction work of the logistics centre in Maardu and the reconstruction of Läsna-Kodasoo road sections on the Tallinn-Narva highway. In Helsinki, Merko Ehitus AS performed the pile works at Tripla development project. In Latvia and Lithuania, the projects in progress included the construction work of the Concert Hall in Liepaja, apartment building at 28 Dzintaru Street in Jurmala and vocational schools in Riga and Valmiera, the re-cultivation and construction work of the landfill in A. Deglava Street in Riga, the construction of the foundation of wind turbines in the Šilute wind warm, the construction of the Kauno/Algirdo residential block with office spaces in Vilnius and the general construction work of the ABB’s high voltage direct current converter/sub-station in Klaipeda.