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Merko Ehitus 2017 revenue exceeded EUR 300 million, proposing to pay 1 euro in dividends per share

08.02.2018

The revenue figures of Merko Ehitus for both Q4 of 2017 and the entire 12-month period of that year outstripped the totals for the same periods of the previous year by more than a quarter – Q4 sales revenue was EUR 102.8 million and the 12-month figure EUR 317.6 million. The last time sales revenue was more than EUR 300 million was 10 years ago. The group’s net profit for the fourth quarter was EUR 8.1 million and for the 12-month period, EUR 14.7 million. In the fourth quarter, Merko companies signed new construction contracts worth EUR 31 million and during 12 months, EUR 335 million. As discussed with the Supervisory Board, the Management Board proposes to pay 120% of last year’s earnings – EUR 1.00 per share – in dividends to shareholders.

“The group’s revenue increased above all thanks to the growth of construction contracts concluded with private sector customers in the last two years. I am happy that our sales revenue increased on all our home markets – in Estonia, Latvia, Lithuania and Norway. The net profit did exceed our expectations set a year ago, but it should be noted that such a strong quarterly result is not usual. A number of positive factors supported the growth of profit, including real estate transactions concluded in Q4, the preparations for which spanned a longer period. Also, a large share of the profits from sales of apartments coincided with the last quarter, as did an improvement in the profitability of couple of projects,” said Andres Trink, chairman of the management board of AS Merko Ehitus, commenting on the results. “If we look behind the figures, then the profitability of providing construction services to customers is still under pressure, as the construction market continues to face challenges in the rise of input prices and the lack of design development and subcontracting resources. Above all, this has an effect on profitability of the general contracting construction companies, increases contractual risks and forces us to further seek greater internal efficiency.  In 2017, the volume of new orders for road and engineering works fell short of expectations and as a whole, we were unable to compete with the prices bid at public procurements,” added Andres Trink.

In fourth quarter, Merko Ehitus sold 106 apartments for a total of EUR 13.3 million; the 12-month figures being 392 apartments and EUR 47.1 million, respectively (figures do not include VAT). In 2017, Merko companies launched the construction of around 500 new apartments and invested EUR 48 million into the development projects launched this year and projects already in progress. In addition, the group acquired new immovable properties worth approximately EUR 9 million. “The apartment market in the Baltics has generally been good, although the supply of new apartments on the market has grown and a stabilisation of the number of sales transactions has been seen for some time now. As we have noted earlier as well, we cannot be satisfied with the pace at which building permits and planning documents are processed, as this is keeping us from bringing more development projects to market faster. Demand for Merko apartments is strong. Apartment development is our central business line and depending on obtaining building permits, we plan to invest more than EUR 50 million into this area in 2018,” said Andres Trink.

In Q4 of 2017, Merko Ehitus posted revenue of EUR 103 million, EBITDA of EUR 11.2 million, profit before taxes of EUR 10.6 million and net profit of EUR 8.1 million. 2017 sales revenue was EUR 317.6 million, EBITDA was EUR 22.2 million, profit before taxes was EUR 18.8 million and net profit was EUR 14.7 million. In the 12 months of 2017, the group entered into new contracts with a total volume of EUR 335 million and EUR 31 million in Q4, including, in Estonia, Toom-Kuninga 21 apartment building, Viimsi State Gymnasium and Tallink office building, as well as performance of additional works on the Z‑Towers complex in Latvia.

As of 31 December 2017, Merko Ehitus had a secured order-book of EUR 344.4 million compared to EUR 269.6 million in the same period in the previous year. Among larger projects in progress in Q4 in Estonia were the construction of T1 Mall of Tallinn shopping centre, Maakri Kvartal business complex, Öpiku Maja’s building B, Noblessner residential quarter, Pärnu mnt 22 office building, expansion of Wendre production facility, and the Embassy of the People’s Republic of China. In Latvia, the larger projects in progress were Akropole and Alfa shopping centres, Z-Towers complex, as well as Ventspils music school and concert hall; and in Lithuania, Radisson Blu Hotel Lietuva expansion, Philip Morris plant, and Rinktines Urban development project. In Norway, the biggest projects in progress in Q4 were the addition to the Blakstad hospital building and Akersgata 8 office building in Oslo.

As discussed with the Supervisory Board, the Management Board proposes to pay EUR 17.7 million (EUR 1.0 per share) in dividends to shareholders at the expense of retained earnings; with the dividend rate for 2017 thus amounting to 120%. “The proposal to pay dividends more than the last year’s earnings and above that of the dividend policy rate derives mainly from the rather high equity level of the group, and modest debt level,” explained Andres Trink. “In the light of low margins in the construction services segment, which limits the group’s profitability and return on equity, one of our goals is to make the usage of shareholders’ capital more efficient. The group continues to invest in apartment development.”

„We have decided not to increase the equity of Merko Ehitus, but instead decrease it moderately, as the company, in the current market situation, is too highly capitalized. In apartment construction, we plan to increase investments by 10-12% and at the same time decrease the amount of contractual works, which are not producing profit, but are unnecessarily tying up both human and financial capital of the company,” commented Toomas Annus, the Chairman of the Supervisory Board, the Management Board’s proposal on dividends.