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Merko Ehitus revenue for the first half-year grows to EUR 116.2 million

06.08.2015

Sales revenue for Merko Ehitus for H1 rose to EUR 116.2 million and the Q2 figure reached EUR 70.6 million, while the group’s net profit was EUR 2.4 million for H1 and EUR 1.6 million for Q2. The share of construction service revenue earned outside Estonia rose to 31% in the first half-year. Revenue from real estate development grew by 57% during the first six months of the year. Company expressed satisfaction with the volume of new contracts signed in Q2, yet they see maintaining and growing the contract portfolio as a continuing challenge in today’s market situation.

“We managed to increase both our quarterly and six-month revenue, which was significantly aided by the increasingly active real estate development segment and the growth in revenue from the Latvian and Lithuanian construction service. We’re also pleased about the launch of the first electrical construction project on the Latvian electrical construction market, which we entered last year; and the second quarter saw the conclusion of a first sizeable construction contract in Finland,” said Andres Trink, the Chairman of the AS Merko Ehitus Management Board.

“We’re satisfied with the volume of new construction contracts signed in the second quarter in Estonia, yet maintaining and growing the contract portfolio will continue to be a big challenge for construction companies as the competition is tight and the market is price-sensitive, due to which major risks are being taken in bidding on contracts. As our focus continues to lie on offering a comprehensive selection of design and construction services, we’re glad that most of the contracts from the last quarter are design-build contracts signed with private customers. In a number of the cases, it should be noted that the actual construction activity will start only in 2016, and the design and engineering must be tackled first,” Trink added. “At the same time we are not satisfied with the profitability during the first half of the year, which was impacted negatively by additional income tax expense and lower margin from development projects as we sold some apartments in projects with lower return that were started at a time in order to create the basis for improving future return on capital. Achieving last year’s profitability will not be easy, considering also that there are no similar volumes of civil engineering projects compared to last year,” said Trink.

Merko Ehitus had second-quarter revenue of EUR 70.6 million and a six-month figure of EUR 116.2 million (Q2 2014: EUR 64.8 million; H1 2014: EUR 113.7 million). In Q2, the group’s companies entered into new contracts totalling EUR 98.9 million and, in all of H1, EUR 121.3 million (Q2 2014: EUR 21.7 million; H1 2014: EUR 70.3 million). As of 30 June 2015, the group had a secured order book balance of EUR 217.2 million (30 June 2014: EUR 191.6 million).

The gross profit margin for Merko Ehitus in the second quarter was 7.6% and profit before taxation was EUR 2.7 million, with the respective six-month figures being 7.7% and EUR 3.6 million. The company earned EUR 1.6 million in net profit in Q2 and EUR 2.4 million in H1. Net profit was influenced by EUR 0.9 million in additional income tax expense in Estonia on dividends paid to shareholders.

“Revenue in the field of real estate development has grown according to plan. We have launched several apartment development projects this year and we’re engaged in preparations for new ones, including the Noblessner residential district to be developed in cooperation with BLRT Group. Our sales results show that even with the active supply on the Baltics’ apartment market, there is still demand for quality residential space developed, built and sold by Merko. Yet the supply of new apartments has continued to grow, above all in Tallinn and Vilnius, and thus we’re constantly monitoring the market and considering the possibility that sales periods may become longer in the future. New developers should approach with caution,” said Trink regarding the real estate development sector.

In the Baltics in H1 2015, Merko sold 168 apartments with a total price of EUR 31.7 million; and the corresponding figures for Q2 alone were106 apartments and EUR 20.9 million (excl. VAT). Revenue in the real estate development sector grew 57% in the 6 months, which was influenced by sales transactions involving apartments in a development project more exclusive than the average. This year the company has launched construction of a total of 335 apartments (H1 2014: 136 apartments), including ones in Tallinn city centre (Tartu mnt 52) in the Kalamaja district (Jahu tn 1a), Paepargi (Perepargi), Tartu rural municipality (Kaupmehe street) and downtown Vilnius, Lithuania (Krokuvos 73).

Major projects in progress in the second quarter in Estonia were the construction of Hilton Tallinn Park in Tallinn, the renovation of the Mustamäe blocks of the North Estonia Medical Centre, the design and renovation of tram line no. 4 infrastructure, design and construction of the Öpik Commercial Building, design and construction work on a logistics centre in Maardu, road maintenance work stemming from maintenance agreements with Tallinn, renovation of the Läsna-Kodasoo road on Tallinn-Narva highway and the renovation of Suur-Sõjamäe street. In Latvia and Lithuania, the construction of the concert hall in Liepaja, the construction of apartment buildings at Dzintaru 36 in Jurmala, construction on Riga and Valmiera vocational schools, and construction works on the multifunctional Magdalēna building in Riga, recultivation and construction works on Deglava street landfill in Riga, preparatory engineering and technical works on the Mežaparks development district in Riga and general construction on ABB’s high-voltage direct current converter station in Klaipeda all continued in the second quarter.