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Merko Ehitus increases revenue from foreign sales

08.05.2014

Merko Ehitus posted sales of EUR 48.9 million in the first quarter, representing growth of 2% compared to the same period last year. Over one-third of the revenue came from sales outside of Estonia. The company’s net profit in the first quarter was EUR 0.7 million and the gross margin was 8.1%. The company signed new agreements worth EUR 48.6 million, while the secured order book balance at the end of the quarter was EUR 224 million. This year Merko plans to invest EUR 45-50 million into residential real estate development in the Baltics.

“The first-quarter results met our expectations. What is noteworthy is that more than one-third of the group’s sales revenue came from sales outside Estonia, and our Latvian subsidiary’s construction agreements signed last year provided a major input in this area. We expect construction contract volume to decrease by 10-15 percent this year in the Baltics, which is partly due to a drop in the public procurement volumes. The Ukraine crisis has also increased uncertainty, which is likely to make some of the private sector customers more cautious and this will have a knock-on effect on construction order volumes. Thus the next 12 months don’t look like the brightest days for the construction sector,” said AS Merko Ehitus management board chairman Andres Trink.

“Based on the growth prospects in the Baltics, and above all those of Estonia, we are keeping an eye on developments and looking for opportunities on other regional markets besides our home market. Our subsidiary AS Merko Ehitus Eesti has started participating on a project basis and is bidding on selected construction procurements in Sweden, Finland and Norway. We can’t speak of a market entry, but we’re building experience in the tender qualification process and expectations of contracting authorities in these countries, we’re looking for cooperation partners for operating on the foreign markets and communicating our potential competitive advantages,” Trink added.

The company’s gross margin in the first quarter was 8.1% and net profit was EUR 0.7 million. Net profit was impacted by a one-time occurrence – EUR 0.3 million in income tax expense from dividends in the OÜ Gustaf Tallinn sale transaction.

“The first quarter saw continued stable development in the apartment market in Baltic capitals, we launched development of more than 100 apartments and sold approximately 100 apartments. Provided that the market development stays on course, this year we plan to invest EUR 45-50 million in residential real estate development in the three Baltics States combined. As part of this, we will continue building 475 apartments already in progress and we will launch construction of 500-550 new apartments. The launch of every specific development project depends on the assessment of the market situation,” added Trink. “Merko’s strength is long experience and consistent quality, which we guarantee by managing all phases of the development: planning, design development, construction, sales and service during the warranty period. In addition, we draw a certain competitive edge from the fact that banks require a high level of preliminary agreements and self-financing, which smaller developers often have a hard time coming up with.”

In the first quarter, Merko sold a total of 99 apartments with a total value of EUR 9 million (not including VAT), last year’s Q1 figure was 57 apartments worth EUR 6.2 million. At the end of the quarter, the Merko group had 304 apartments actively on sale, which includes apartments with no preliminary agreements. Construction of a total of 108 apartments was launched in the Baltics in the first quarter. In 2013, construction of 409 apartment units was launched.

Major projects in progress in the first quarter included the construction of Tondiraba Ice Rink and Hilton Park Hotel and the renovation of the Mustamäe blocks of the North Estonia Medical Centre, construction of the Polipaks NT manufacturing and logistics centre in Marupe and the construction of a multipurpose concert centre in Liepaja. In the engineering field, work continued on the renovation of the water and sewerage pipes in Vääna-Jõesuu and Narva-Jõesuu, as well as the work to close the industrial waste and semi-coke dump in Kohtla-Järve.

In the first quarter, Merko Ehitus signed EUR 48.6 million in new construction contracts (not including Merko’s own developments) compared to EUR 44.6 million in the same period last year. The largest construction contracts were the tram line no. 4 design and track re-laying project in Tallinn, the Riga State Technical College complex construction and the re-cultivation and construction at a Riga-based landfill.