2020 12 months and IV quarter consolidated unaudited interim report

Merko EhitusCOMMENTARY FROM MANAGEMENT

Merko Ehitus posted revenue of approximately EUR 106 million for the fourth quarter of 2020, while total revenue for the whole year was EUR 316 million. The group’s fourth quarter 2020 net profit was EUR 10 million and its annual net profit grew over 40%, amounting to EUR 23 million. In coordination with the supervisory board, the group’s management board proposes to pay shareholders one euro per share in dividends.

The management is satisfied with the results of 2020 and thanks all the group’s employees for their good work, especially considering the restrictions due to the pandemic. The group earned more than half of the profit outside Estonia and primarily from apartment development. The sale of many apartment developments that had previously been launched was realized in 2020, and as a result a total of 900 new homes were sold. A large share of the apartments currently in development will be ready for sales in 2022. Due to the influences of the pandemic, the management is not expecting growth on the Baltic construction market in the year ahead.

A major part of the group’s profit came from the area of real estate development, where 2020 revenue grew by 84% year-over-year and the number of apartments almost doubled (895 apartments in 2020 and 482 in 2019). The largest apartment development projects were Uus-Veerenni, Lahekalda and Pikaliiva in Tallinn, Gaiļezers and Viesturdārzs in Riga and Vilneles Slenis and Rinktinės Urban in Vilnius.

During 2020, the group’s companies entered into new contracts worth EUR 277 million – EUR 29.1 million of which was in Q4. The largest contracts were the construction of a commercial building in Tiskre, Estonia, and the establishment of a NATO base in Ādaži, Latvia. The group’s secured order book balance as of the end of the year was EUR 225 million.

The largest projects in progress in Q4 were the third development stage of the Mustamäe medical campus of the North Estonia Medical Centre, the Tallinn School of Music and Ballet, Tallinn Arte Gymnasium, a data centre in Harju County, the renovations of the Nordic Hotel Forum and the Tallink City Hotel, and the design and construction of infrastructure of the Republic of Estonia’s southeast land border. In Latvia, construction of the Orkla waffle and biscuit factory in Ādaži, the construction of a kindergarten in Salaspils, and the reconstruction of the Riga Technical University’s Civil Engineering Faculty building were in progress. In Lithuania, the largest works in progress were the Neringa Hotel in Vilnius, wind park infrastructure facilities in the Telšiai district and, in the Kaunas district, a police headquarters building and NATO barracks.

OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS

PROFITABILITY
2020 12 months’ profit before tax was EUR 24.5 million and Q4 2020 was EUR 10.6 million (12M 2019: EUR 20.3 million and Q4 2019 was EUR 10.0 million), which brought the profit before tax margin to 7.7% (12M 2019: 6.2%).
Net profit attributable to equity holders of the parent in 12 months 2020 was EUR 23.0 million (12M 2019: EUR 16.3 million) and Q4 2020 net profit attributable to equity holders of the parent was EUR 9.9 million (Q4 2019: EUR 9.3 million). 12 months net profit margin was 7.3% (12M 2019: 5.0%).

REVENUE
Q4 2020 revenue was EUR 106.4 million (Q4 2019: EUR 99.2 million) and 12 months’ revenue was EUR 315.9 million (12M 2019: EUR 326.8 million). 12 months’ revenue decreased by 3.3% compared to same period last year. The share of revenue earned outside Estonia in 12 months 2020 was 43.9% (12M 2019: 48.3%).

SECURED ORDER BOOK
As at 31 December 2020, the group’s secured order book was EUR 225.1 million (31 December 2019: EUR 141.4 million). In 12 months 2020, group companies signed new contracts in the amount of EUR 277.2 million (12M 2019: EUR 169.6 million). In Q4 2020, new contracts were signed in the amount of EUR 29.1 million (Q4 2019: EUR 42.0 million).

REAL ESTATE DEVELOPMENT
In 12 months 2020, the group sold a total of 895 apartments (incl. 3 apartments in a joint venture); in 12 months 2019, the group sold 482 apartments (incl. 47 apartments in a joint venture). The group earned a revenue of EUR 116.6 million from sale of own developed apartments in 12 months 2020 and EUR 63.8 million in 12 months 2019. In Q4 of 2020 a total of 361 apartments (all own developed apartments) were sold, compared to 276 apartments (incl. 11 apartments in a joint venture) in Q4 2019, and earned a revenue of EUR 49.6 million from sale of own developed apartments (Q4 2019: EUR 43.6 million).

CASH POSITION
At the end of the reporting period, the group had EUR 47.5 million in cash and cash equivalents, and equity of EUR 153.2 million (59.6% of total assets). Comparable figures as at 31 December 2019 were EUR 24.7 million and EUR 130.3 million (46.2% of total assets), respectively. As at 31 December 2020, the group’s net debt was EUR -18.4 million (negative) (31 December 2019: EUR 39.0 million).

PROPOSAL FOR DISTRIBUTION OF PROFITS
In coordination with the Supervisory Board, the Management Board proposes to distribute to shareholders EUR 17.7 million in dividends (1 euro per share) from retained earnings in 2021. This is equivalent to a 77% dividend rate for 2020.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

2020
12 months
2019
12 months
2020
 IV quarter
2019
 IV quarter
Revenue 315,918 326,779 106,438 99,159
Cost of goods sold (272,169) (291,958) (87,901) (85,235)
Gross profit 43,749 34,821 18,537 13,924
 
Marketing expenses (4,212) (4,260) (1,055) (1,634)
General and administrative expenses (13,412) (12,988) (5,264) (4,147)
Other operating income 2,320 2,983 606 1,243
Other operating expenses (2,979) (1,318) (1,663) (96)
Operating profit 25,466 19,238 11,161 9,290
Finance income/costs (1,009) 1,085 (577) 722
incl. finance income/costs from joint venture (144) 1,766 (348) 921
interest expense (719) (656) (189) (185)
foreign exchange gain (loss) (7) 5
other financial income (expenses) (139) (25) (45) (14)
Profit before tax 24,457 20,323 10,584 10,012
Corporate income tax expense (1,954) (3,833) (727) (850)
Net profit for financial year 22,503 16,490 9,857 9,162
incl. net profit attributable to equity holders of the parent 22,994 16,270 9,923 9,267
net profit attributable to non-controlling interest (491) 220 (66) (105)
Other comprehensive income, which can subsequently be classified in the income statement
Currency translation differences of foreign entities (115) 13 2 23
Comprehensive income for the period 22,388 16,503 9,859 9,185
incl. net profit attributable to equity holders of the parent 22,890 16,281 9,951 9,279
net profit attributable to non-controlling interest (502) 222 (92) (94)
Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) 1.30 0.92 0.56 0.52

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

31.12.2020 31.12.2019
ASSETS
Current assets
Cash and cash equivalents 47,480 24,749
Trade and other receivables 32,657 50,413
Prepaid corporate income tax 306 104
Inventories 126,332 166,226
206,775 241,492
Non-current assets
Investments in joint venture 2,354 2,498
Other long-term loans and receivables 17,979 11,094
Deferred income tax assets 653
Investment property 13,922 14,047
Property, plant and equipment 14,521 11,919
Intangible assets 711 777
50,140 40,335
TOTAL ASSETS 256,915 281,827
LIABILITIES
Current liabilities
Borrowings 13,649 20,725
Payables and prepayments 55,846 69,585
Income tax liability 1,202 812
Short-term provisions 6,347 7,976
77,044 99,098
Non-current liabilities
Long-term borrowings 15,409 43,001
Deferred income tax liability 3,001 1,682
Other long-term payables 4,026 3,491
22,436 48,174
TOTAL LIABILITIES 99,480 147,272
EQUITY
Non-controlling interests 4,207 4,217
Equity attributable to equity holders of the parent
Share capital 7,929 7,929
Statutory reserve capital 793 793
Currency translation differences (814) (710)
Retained earnings 145,320 122,326
153,228 130,338
TOTAL EQUITY 157,435 134,555
TOTAL LIABILITIES AND EQUITY 256,915 281,827

Interim report is attached to the announcement and are also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).

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