Merko Ehitus posted a profit of two million euros in the first quarter
In Q1 of 2020, Merko Ehitus posted revenue of EUR 56 million and a net profit of EUR 2.0 million. Construction services made up 62% and real estate development 38% of the group’s revenue. New construction contracts worth EUR 87 million in total were signed, and the volume of the secured orderbook at the end of the quarter was EUR 193 million, of which close to three-quarters were public sector contracts. In Q1, 133 apartments were handed over to apartment buyers.
“The decrease in revenue by approximately a quarter compared to the same period last year was to be expected – we had fewer major projects in progress and the construction market was seeing a cooling trend. Starting from March, business activity began to be affected by pandemic related restrictions, but the impact of the pandemic on the group’s operations and financial results will start to show up more extensively in the quarters ahead,” said the chairman of AS Merko Ehitus management board, Andres Trink.
“The outlook for the construction and real estate sector in all of our home markets became negative in March, and we are assuming that the impact of the economic crisis will be long in duration. Due to that, we cancelled our initial dividend proposal and halted the launch of new apartment developments at first for three months until we have greater clarity on further developments. Therefore, the supply of our apartments will decrease from the planned level for both 2020 and 2021. The group’s companies have started gradually implementing cost control measures to ensure efficient functioning and strong capability for operating both during and after the crisis,” added Andres Trink.
“Most of the commercial real estate projects have been placed on hold. Private sector clients have practically disappeared from the construction market and public sector procurements will play a commanding role in new construction tenders. It will definitely take time for private sector clients’ confidence to recover and adjust to the new conditions. We hope that state investments into buildings and infrastructure will continue and project preparations will speed up to support the vitality of the construction sector and prevent job losses. Due to the projected drop in construction volumes, price competition in construction tenders has become even more aggressive. A positive aspect is that work is continuing on our construction sites and in Q1 we signed new construction contracts worth EUR 87 million, thanks to which the volume of our secured order-book at the end of the quarter was even slightly greater than a year ago,” Trink said in his comments on the construction market.
Merko Ehitus posted revenue of EUR 56 million in Q1 2020 (Q1 2019: EUR 77 million), an EBITDA of EUR 2.8 million (Q1 2019: EUR 3.5 million), and net profit of EUR 2.0 million (Q1 2019: EUR 2.8 million). In the first quarter of this year, new construction contracts worth EUR 87 million were signed (Q1 2019: EUR 32 million), the largest of these being the construction of Tallinn Music and Ballet School, Tallinn Arte Gymnasium, new public water supply and sewerage pipeline in Kohila Parish and a data centre in Harju County.
“In connection with the pandemic, the sales of new apartments slowed down starting in March in Estonia, Latvia and Lithuania. The number of applications for home loans is down; the number of apartments to rent is up, and unemployment has increased in the economic sectors hit hardest by the pandemic. As the apartment market was fairly well balanced before the beginning of the crisis – supply, price level, purchasing power and loan burden were at a reasonable level – going through the current crisis may turn out to be less of an ordeal than the one that started in 2008. Considering the nature of the current economic crisis, it is essential not only that government support measures arrive quickly, but that banks do not overreact in terms of tightening financing conditions, including issuing home loans,“ said Trink in commenting on the real estate market.
“People and companies must quickly learn to operate in conditions of higher health risks and restrictions on everyday activities. We are taking the necessary safety measures in the apartment sale process and use digital channels to execute transactions. We believe that in current situation home buyers put even more importance on a trustworthy developer and integrally developed living environments. We will complete the developments in progress and assess possibilities of launching new projects based on the market situation. We will also analyse how the current crisis could impact the real estate market in the future,” added Andres Trink.
In Q1 of 2020, Merko Ehitus handed over 133 apartments to home buyers (Q1 2019: 63 apartments) and 3 commercial premises. Merko’s biggest projects in Tallinn are Uus-Veerenni and Pikaliiva residential projects, Gaiļezers and Viesturdārzs developments in Riga and Vilneles slenis and Rinktinės Urban developments in Vilnius.
The largest projects in progress for Merko in Q1 in Estonia were the construction of the parking house at D-terminal of the Tallinn passenger port, Türi Basic School, the commercial building at Pärnu mnt 186 and high-voltage power cables in Tallinn, and the reconstruction of Aaspere-Haljala road section. In Latvia, the largest projects in progress were the construction of the school building and dormitory in Pinki, Lidl logistics centre and Laima chocolate factory as well as the renovation of the Riga Technical University Civil Engineering Faculty building. In Lithuania, projects in progress were the construction of Hotel Neringa and Kaunas district police headquarter building.