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Merko maintained profitability in Q3 despite complicated market situation

07.11.2014

Merko Ehitus reported revenue of EUR 182.2 million for the first nine months of 2014 and EUR 68.5 million in the third quarter. Compared to the first nine months of 2013, revenue from general construction activities has increased by 43.3% and that from real estate development activities by 36.3%. The share of total revenue earned in real estate development has increased to 14.5% and the revenue earned outside of Estonia made up 31.5% of sales. Despite decreasing revenues in from engineering and road construction sector, the company has succeeded in maintaining its profitability and in improving its profit margins. The net profit for the first nine months stood at EUR 7.6 million and in the third quarter at EUR 3.3 million.

“The fall in revenue due to the overall decrease in the volumes of the construction market was expected. As the market anticipates a further decline in construction volumes over the next 12 months, companies continue to make low bids in the expectation of a decrease in input prices, but this might not happen. This increases the risks for both construction companies and customers, and therefore we don’t think that underbidding would be sustainable,” said chairman of the board of AS Merko Ehitus, Andres Trink. “We cannot be satisfied with the number of new contracts we have concluded, especially considering the prospects for 2015. At the same time, we are delighted by the fact that to date, we generate more than a third of our revenue outside Estonia.”

In the first nine months of 2014, the group’s companies signed new contracts for a total value of EUR 107.5 million and in the third quarter for EUR 37.2 million (in 2013: EUR 205.7 and EUR 109.8 million respectively). As of the end of September, the group had a secured order book balance of EUR 166.4 million (30 September 2013: EUR 218.1 million).

“We are glad that we have managed to maintain our profitability despite decreased sales revenue. To this end, we have invested in more effective operations, more efficient risk management and cost control. The challenge in terms of profitability is the general construction sector, where volumes are growing. The road construction sector was a positive surprise and the increase in the profit margin was also supported by growing volumes in real estate development. We have increased investments in different new real estate development projects and to succeed with our projects, we have managed to take advantage of favorable trends in the apartment markets in the Baltic states,” Andres Trink added.

The group’s gross profit margin for the nine months was 8.9% and the net profit margin stood at 4.2% – both have shown improvement year over year. The net profit of the company for the nine months stood at EUR 7.6 million and for the third quarter at EUR 3.3 million.

In the first nine months of 2014, Merko sold 235 apartments, at a total value of EUR 23.8 million (excluding VAT), and in the third quarter, 37 apartments at a total value of EUR 5.2 million. In 2013, the during the first nine months, 165 apartments were sold at a total value of EUR 17.4 million; for the third quarter, 71 apartments sold at a value of EUR 6.6 million. As at the end of the period, the group has a total of 366 apartments on active sale (30 September 2013: 385 apartments), for which preliminary contracts have not been signed and a majority are under construction.

The largest projects for Merko in the third quarter were the construction of the Hilton Tallinn Park Hotel and the reconstruction of the complex of The North Estonia Medical Centre in Mustamäe, the design and construction work of the infrastructure of tramway No. 4 in Tallinn and also the construction work of Polipaks NT’s production and logistics centre in Marupe and a multifunctional concert centre in Liepāja.