Merko’s Q3 revenue stays at last year’s level

Merko Ehitus posted revenue of EUR 67.8 million in Q3 2016, remaining on par with the same quarter in 2015. As of the nine-month mark, revenue has been held back by the slower than planned launch of large-scale projects. In the first 9 months of 2016, the company sold close to 270 apartments and launched the construction of 280 new apartments. Real estate development continues to make up a quarter of the group’s revenue.

“On one hand, it’s positive that in spite of the slump on the Baltic states’ construction market, we were able to keep Q3 revenue at last year’s levels. Yet the results for the nine months are clearly below expectations, above all because of the fact that the potential of our fairly strong secured order book has not been fully realised. The delays in the preparation for construction of a number of large sites and obtaining permits has kept us from starting construction work at the desired pace and the work will be postponed to next year. Sales revenue for apartment development in 2016 is also underperforming as the formalities for sales in two completed apartment buildings are mired in delays in local government department. For that reason, the delivery of the apartments already covered with preliminary sales contracts and planned for Q4 will be delayed and the corresponding part of the revenue will likely shift to next year and influence the results for this year,” said Andres Trink, chairman of the management board of AS Merko Ehitus.

“The Baltic construction market is characterized by the continued relatively active residential construction activity, extremely stiff price competition for new commercial, manufacturing and public building contracts and the low number of infrastructure projects among the procurements. Still, in the years ahead, we expect various larger procurements in road construction, where we will be participating in Estonia. The group’s revenue has expectedly increased this year on the Estonian market, and declined somewhat in Latvia and Lithuania, where our secured order book was lower at the beginning of the year. In Latvia, we have achieved a strong position among leading general contractors and we are competitive at most major procurements. In Lithuania, we are continuing our strategy of focusing our construction activity first and foremost on foreign customers and our own apartment development projects where we have made a number of investments in recent years. In Norway, our focus lies on setting up a project management system with the aim of laying the groundwork for concluding larger general contracting agreements in the coming years. As a whole, we will stay on track with our strategic plan,” added Trink.

In Q3 of 2016, the group posted revenue of EUR 67.8 million, net profit of EUR 2.9 million, profit before taxes of EUR 3.0 million and operating profit of EUR 3.0 million. In the first 9 months of 2016, the group posted revenue of EUR 173.4 million, net profit of EUR 4.7 million, profit before taxes of EUR 5.7 million and operating profit of EUR 6.1 million.

“According to our estimation, the Tallinn and Vilnius apartment market continue to be in good shape, but the market in Riga has not yet achieved the expected level of activity. As of the end of Q3, we have invested EUR 39 million into new development projects, which meets our long-term investment plan. This year, we have launched construction of 280 new apartments, of which the biggest ones are Noblessner in Tallinn, the second phase of Tartu mnt 52 and the Paepargi projects; and in Riga, the Skanstes Parks development,” said Trink in summing up the results in the real estate development sector. In the first 9 months of 2016, Merko sold 268 apartments for a total price of EUR 31.7 million; in Q3, it sold 109 apartments with a total price of EUR 14.3 million (both figures not including VAT). In the first 9 months of 2016, Merko has launched construction of 284 apartments in the Baltics.

In Q3 2016, the group companies entered into new construction contracts amounting to EUR 31.5 million, including the Pärnu mnt 22 office building design and construction in Tallinn and the residential complex of four buildings in Jurmala. As at 30 September 2016, the group had a secured order book balance of EUR 256.4 million. Major projects in progress in Q3 included, in Estonia, Maakri Kvartal, an office building at Mustamäe tee 3, the Öpiku Maja building, the T1 shopping centre, Tallink Tennis Centre, the Bauhaus store in Rocca al Mare and the tram line that will serve the airport, the buildings and infrastructure at Viru Infantry Battalion’s technical base and the Juuliku junction on Tallinn ring road. In Latvia, the largest projects in progress were the second phase of the passenger terminal at Riga airport, which was completed in late September, and the school complex in Pinki near Riga and phase II of the passenger terminal at Riga Airport and construction on the Magdalēnas nami apartment development project; in Lithuania, the Kauno/Algirdo residential complex with office space and the Narbuto 5 office building were ongoing.