COMMENTARY FROM MANAGEMENT
Merko Ehitus revenue was EUR 143 million in Q4 2022, and the revenue for 12 months amounted to EUR 410 million, while the respective figures for net profit were EUR 17.6 million and 12 months was EUR 34.6 million. Merko has delivered more than 900 apartments to buyers in 12 months this year.
According to the management of Merko Ehitus, the group’s results for 2022 reflect the increase of investments in previous years into apartment development business area, the choice of the right development projects and successful sale of apartments on all three Baltic markets. The greatest share of Merko’s profit came from the real estate development business area.
The outlook for the residential real estate market worsened last year rapidly in connection with soaring inflation and interest rates, as well as due to the uncertainty from the Ukraine war. The volume of preliminary sales of new apartments dropped to all-time lows in November, which made the group to slow down the tempo of launching new developments. Although the sales volume will also decrease in the years ahead along with the construction volume, our long-term position and development potential on the residential real estate market of the Baltic capitals remain solid.
In the 12 months of 2022, the group companies signed new construction contracts worth EUR 318 million and the balance of secured order book stood at EUR 297 million as of the end of December (respectively EUR 288 million and EUR 257 million in 2021). There was much ambiguity in the construction service field last year in connection with the rapid growth of energy prices and other construction input prices. Both customers and construction enterprises spent much time and energy to find the best balance in sharing price and supply risks. Few new business real estate projects came on to the market, a number of public procurements were postponed to future periods and road construction investment volumes were downsized significantly. According to the management, in this sort of complicated market situation, the volume of construction contracts concluded last year and the portfolio of orders can be considered a fairly good footing for supporting the construction service business area for the next 12-24 months. Since a certain stabilization has been seen in construction process and an adaptation to inflation is also under way, hopefully new construction sites will come to the market in future. The management hopes that the group companies’ capabilities will support continued investment into the energy sector. According to management, the group must continue to adapt quickly to market changes, being in the project management business and directly dependent on orders.
In the 12 months of this year, the group delivered 923 new apartments and nine commercial units to buyers (12 months of 2021: 496 apartments and 7 commercial units). According to the management, there is still hope that in the next 12 months, confidence will recover and demand for new housing will improve, supported by growing need for homes with higher energy-efficient.
During the 12 months, the group launched five new development projects with a total 581 apartments. As of year’s end, there were 1,207 apartments under construction by the group, of which almost half were covered by preliminary sale contracts. The largest apartment developments were Uus-Veerenni, Noblessneri and Lahekalda in Tallinn; Erminurme in Tartu; Viesturdārzs, Mežpilsēta and Magnolijas in Riga, and Vilneles Skverai in Vilnius.
In Q4 of 2022, the largest objects under construction in Estonia were the third phase of the Mustamäe medical campus of the North-Estonia Medical Centre, Pelgulinna and Rae state gymnasiums, the Arter Quarter, construction of infrastructure segments of the Republic of Estonia’s southeast land border, the tram line between Old City Harbour and Rail Baltic’s Ülemiste passenger terminal, and renovation of Rannamõisa tee and Vana-Kalamaja street in Tallinn. In Latvia, projects in progress included the GUSTAVS business centre, Elemental Skanste office buildings and NATO facilities in Adaži; in Lithuania, several wind farm infrastructures as well as a car service building and NATO training centre buildings in Vilnius.
OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS
PROFITABILITY
2022 12 months’ pre-tax profit was EUR 37.1 million and Q4 2022 was EUR 18.4 million (12M 2021: EUR 32.1 million and Q4 2021 was EUR 15.6 million), which brought the pre-tax profit margin to 9.1% (12M 2021: 9.5%).
Net profit attributable to shareholders for 12 months 2022 was EUR 34.6 million (12M 2021: EUR 29.1 million) and for Q4 2022 net profit attributable to shareholders was EUR 17.6 million (Q4 2021: EUR 13.9 million). 12 months net profit margin was 8.5% (12M 2021: 8.6%).
REVENUE
Q4 2022 revenue was EUR 143.4 million (Q4 2021: EUR 112.8 million) and 12 months’ revenue was EUR 409.6 million (12M 2021: EUR 339.4 million). 12 months’ revenue increased by 20.7% compared to same period last year. The share of revenue earned outside Estonia in 12 months 2022 was 50.1% (12M 2021: 37.4%).
SECURED ORDER BOOK
As of 31 December 2022, the group’s secured order book was EUR 297.2 million (31 December 2021: EUR 257.3 million). In 12 months 2022, group companies signed contracts in the amount of EUR 317.9 million (12M 2021: EUR 288.1 million). In Q4 2022, new contracts were signed in the amount of EUR 27.5 million (Q4 2021: EUR 15.2 million).
REAL ESTATE DEVELOPMENT
In 12 months 2022, the group sold a total of 923 apartments (incl. 46 apartments in a joint venture); in 12 months 2021, the group sold 496 apartments (incl. 1 apartment in a joint venture). The group earned a revenue of EUR 127.0 million from sale of own developed apartments in 12 months 2022 and EUR 72.7 million in 12 months 2021. In Q4 of 2022 a total of 467 apartments were sold, compared to 299 apartments in Q4 2021, and earned a revenue of EUR 70.2 million from sale of own developed apartments (Q4 2021: EUR 39.4 million).
CASH POSITION
At the end of the reporting period, the group had EUR 17.7 million in cash and cash equivalents, and equity of EUR 184.2 million (47.5% of total assets). Comparable figures as of 31 December 2021 were EUR 44.9 million and EUR 167.2 million (51.6% of total assets), respectively. As of 31 December 2022, the group’s net debt was EUR 74.3 million (31 December 2021: EUR 7.7 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 2023. This is equivalent to a 51% dividend rate for 2022.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2022 12 months |
2021 12 months |
2022 IV quarter |
2021 IV quarter |
|
| Revenue | 409,633 | 339,375 | 143,427 | 112,842 |
| Cost of goods sold | (355,975) | (292,563) | (120,852) | (92,499) |
| Gross profit | 53,658 | 46,812 | 22,575 | 20,343 |
| Marketing expenses | (4,077) | (3,611) | (1,132) | (979) |
| General and administrative expenses | (15,860) | (13,925) | (4,449) | (4,827) |
| Other operating income | 3,144 | 3,508 | 718 | 997 |
| Other operating expenses | (1,834) | (582) | (1,187) | (254) |
| Operating profit | 35,031 | 32,202 | 16,525 | 15,280 |
| Finance income/costs | 2,067 | (75) | 1,899 | 276 |
| incl. finance income/costs from associates and joint ventures | 3,516 | 799 | 2,423 | 415 |
| interest expense | (1,180) | (681) | (510) | (133) |
| foreign exchange gain (loss) | (138) | (8) | 14 | 31 |
| other financial income (expenses) | (131) | (185) | (28) | (37) |
| Profit before tax | 37,098 | 32,127 | 18,424 | 15,556 |
| Corporate income tax expense | (2,995) | (3,104) | (1,084) | (1,678) |
| Net profit for financial year | 34,103 | 29,023 | 17,340 | 13,878 |
| incl. net profit attributable to equity holders of the parent | 34,640 | 29,140 | 17,617 | 13,863 |
| net profit attributable to non-controlling interest | (537) | (117) | (277) | 15 |
| Other comprehensive income, which can subsequently be classified in the income statement | ||||
| Currency translation differences of foreign entities | 30 | 33 | 19 | 19 |
| Comprehensive income for the period | 34,133 | 29,056 | 17,359 | 13,897 |
| incl. net profit attributable to equity holders of the parent | 34,648 | 29,163 | 17,628 | 13,871 |
| net profit attributable to non-controlling interest | (515) | (107) | (269) | 26 |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 1.96 | 1.65 | 1.00 | 0.78 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 31.12.2022 | 31.12.2021 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 17,665 | 44,930 |
| Trade and other receivables | 77,959 | 55,484 |
| Prepaid corporate income tax | 38 | 114 |
| Inventories | 225,661 | 160,593 |
| 321,323 | 261,121 | |
| Non-current assets | ||
| Investments in associates and joint ventures | 12,895 | 7,703 |
| Other long-term loans and receivables | 22,982 | 24,079 |
| Deferred income tax assets | 693 | 622 |
| Investment property | 11,485 | 13,828 |
| Property, plant and equipment | 17,452 | 16,350 |
| Intangible assets | 582 | 669 |
| 66,089 | 63,251 | |
| TOTAL ASSETS | 387,412 | 324,372 |
| LIABILITIES | ||
| Current liabilities | ||
| Borrowings | 49,687 | 11,636 |
| Payables and prepayments | 96,248 | 90,054 |
| Income tax liability | 1,241 | 681 |
| Short-term provisions | 9,820 | 7,976 |
| 156,996 | 110,347 | |
| Non-current liabilities | ||
| Long-term borrowings | 42,236 | 41,001 |
| Deferred income tax liability | 2,355 | 3,112 |
| Other long-term payables | 2,133 | 2,900 |
| 46,724 | 47,013 | |
| TOTAL LIABILITIES | 203,720 | 157,360 |
| EQUITY | ||
| Non-controlling interests | (495) | (227) |
| Equity attributable to equity holders of the parent | ||
| Share capital | 7,929 | 7,929 |
| Statutory reserve capital | 793 | 793 |
| Currency translation differences | (783) | (791) |
| Retained earnings | 176,248 | 159,308 |
| 184,187 | 167,239 | |
| TOTAL EQUITY | 183,692 | 167,012 |
| TOTAL LIABILITIES AND EQUITY | 387,412 | 324,372 |
Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).
