COMMENTARY FROM MANAGEMENT
Q3 2023 revenue for Merko Ehitus was EUR 122 million and for the nine months was EUR 340 million. Net profit in Q3 was EUR 12.7 million and net profit for the nine months increased to EUR 32.1 million. Merko delivered 665 apartments and 22 commercial units to customers in the first nine months of 2023.
According to the management of Merko Ehitus, the Q3 and nine-month results were supported by delivery of presold apartments to customers in newly completed apartment developments. The Merko group has inventory of apartments that are under construction and presold is significantly smaller than in the past few years due to the recession and the slump in the real estate market and this will exert a negative impact on the group’s results in coming years. The poor macroeconomic picture and general uncertainty did not improve in Q3 and investments into new development projects are still being curtailed. The outlook in this regard is also very weak, the economic outlook has deteriorated and the recovery has been deferred to the more distant future due to central bank interest rate policy, continuing inflation, unstable energy and tax policies and, above all, the geopolitical situation. Over nine months of 2023 the group has invested a total of EUR 73 million into ongoing development projects and acquisitions of new properties.
In the first nine months of 2023, the group companies signed new construction contracts worth EUR 379 million, which was 31% more than in the comparison period, and the balance of secured order-book grew by approximately 30% to EUR 449 million. The group’s secured order-book continued growth in Q3 and is currently strong, which does partially counterbalance the impacts of the slumping apartment market on the group’s construction volumes. Yet profitability of construction service is under constant strain and the risks are high, since in the medium to long term, cautious positions are predominant in markets and supply chains, and there is an extreme amount of uncertainty about the impacts of governments’ economic and foreign policy measures. Therefore, the group’s companies will have to devote great attention to managing the risks.
In the first nine months of the year, Merko delivered 665 apartments and 22 business premises. As of the end of Q3, the group’s companies had 825 apartments on its balance sheet. About 40% of the apartments in the construction phase were covered by preliminary sale contracts. The largest apartment developments were Uus-Veerenni, Noblessner and Lahekalda in Tallinn, Erminurme in Tartu, Viesturdarzs, Mežpilseta and Magnolijas in Riga, and Vilneles Skverai in Vilnius.
In Q3 of 2023, the largest sites under construction in Estonia were the Rae and Pelgulinna state gymnasiums, Hampton by Hilton and Hyatt hotel buildings, Arter Quarter, the logistics centre for Tallinn Kaubamaja Group, the infrastructure along the south-eastern border of the Republic of Estonia, the renovation of Vana-Kalamaja Street, a tram line between Old City Harbour and Rail Baltica Ülemiste passenger terminal, and the first phase of Ülemiste terminal. In Latvia, the Elemental Business Centre office buildings were in progress. Projects in Lithuania were wind farm infrastructure works in Kelme and Pagėgiai regions, and various buildings and infrastructure for NATO training centres.
OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS
PROFITABILITY
2023 9 months’ pre-tax profit was EUR 33.8 million and Q3 2023 was EUR 13.6 million (9M 2022: EUR 18.7 million and Q3 2022 was EUR 10.3 million), which brought the pre-tax profit margin to 10.0% (9M 2022: 7.0%).
Net profit attributable to shareholders for 9 months 2023 was EUR 32.1 million (9M 2022: EUR 17.0 million) and for Q3 2023 net profit attributable to shareholders was EUR 12.7 million (Q3 2022: EUR 9.8 million). 9 months net profit margin was 9.5% (9M 2022: 6.4%).
REVENUE
Q3 2023 revenue was EUR 122.5 million (Q3 2022: EUR 110.0 million) and 9 months’ revenue was EUR 339.8 million (9M 2022: EUR 266.2 million). 9 months’ revenue increased by 27.7% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2023 was 34.5% (9M 2022: 53.4%).
SECURED ORDER BOOK
As of 30 September 2023, the group’s secured order book was EUR 448.6 million (30 September 2022: EUR 341.0 million). In 9 months 2023, group companies signed contracts in the amount of EUR 379.4 million (9M 2022: EUR 290.4 million). In Q3 2023, new contracts were signed in the amount of EUR 124.7 million (Q3 2022: EUR 97.1 million).
REAL ESTATE DEVELOPMENT
In 9 months 2023, the group sold a total of 665 apartments; in 9 months 2022, the group sold 456 apartments. The group earned a revenue of EUR 106.1 million from sale of own developed apartments in 9 months 2023 and EUR 56.9 million in 9 months 2022. In Q3 of 2023 a total of 153 apartments were sold, compared to 242 apartments in Q3 2022, and earned a revenue of EUR 25.5 million from sale of own developed apartments (Q3 2022: EUR 29.8 million).
CASH POSITION
At the end of the reporting period, the group had EUR 31.3 million in cash and cash equivalents, and equity of EUR 198.4 million (49.7% of total assets). Comparable figures as of 30 September 2022 were EUR 22.2 million and EUR 166.6 million (40.9% of total assets), respectively. As of 30 September 2023, the group’s net debt was EUR 28.4 million (30 September 2022: EUR 88.3 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2023 9 months | 2022 9 months | 2023 III quarter | 2022 III quarter | 2022 12 months | |
| Revenue | 339,838 | 266,206 | 122,491 | 110,008 | 409,633 |
| Cost of goods sold | (296,642) | (235,123) | (105,114) | (96,206) | (355,975) |
| Gross profit | 43,196 | 31,083 | 17,377 | 13,802 | 53,658 |
| Marketing expenses | (3,013) | (2,945) | (918) | (776) | (4,077) |
| General and administrative expenses | (12,896) | (11,411) | (4,635) | (3,889) | (15,860) |
| Other operating income | 3,399 | 2,426 | 621 | 1,004 | 3,144 |
| Other operating expenses | (614) | (647) | (467) | (192) | (1,834) |
| Operating profit | 30,072 | 18,506 | 11,978 | 9,949 | 35,031 |
| Finance income/costs | 3,765 | 168 | 1,639 | 361 | 2,067 |
| incl. finance income/costs from joint ventures | 6,061 | 1,093 | 2,242 | 765 | 3,516 |
| interest expense | (2,011) | (670) | (674) | (296) | (1,180) |
| foreign exchange gain (loss) | (192) | (152) | 98 | (85) | (138) |
| other financial income (expenses) | (93) | (103) | (27) | (23) | (131) |
| Profit before tax | 33,837 | 18,674 | 13,617 | 10,310 | 37,098 |
| Corporate income tax expense | (1,827) | (1,911) | (898) | (735) | (2,995) |
| Net profit for financial year | 32,010 | 16,763 | 12,719 | 9,575 | 34,103 |
| incl. net profit attributable to equity holders of the parent | 32,148 | 17,023 | 12,698 | 9,821 | 34,640 |
| net profit attributable to non-controlling interest | (138) | (260) | 21 | (246) | (537) |
| Other comprehensive income, which can subsequently be classified in the income statement | |||||
| Currency translation differences of foreign entities | (16) | 11 | (88) | 23 | 30 |
| Comprehensive income for the period | 31,994 | 16,774 | 12,631 | 9,598 | 34,133 |
| incl. net profit attributable to equity holders of the parent | 32,116 | 17,020 | 12,626 | 9,831 | 34,648 |
| net profit attributable to non-controlling interest | (122) | (246) | 5 | (233) | (515) |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 1.82 | 0.96 | 0.72 | 0.55 | 1.96 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 30.09.2023 | 30.09.2022 | 31.12.2022 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 31,282 | 22,200 | 17,665 |
| Trade and other receivables | 86,895 | 72,295 | 77,959 |
| Prepaid corporate income tax | 2 | 5 | 38 |
| Inventories | 206,603 | 243,222 | 225,661 |
| 324,782 | 337,722 | 321,323 | |
| Non-current assets | |||
| Investments in joint ventures | 17,756 | 10,472 | 12,895 |
| Other shares and securities | 80 | – | – |
| Other long-term loans and receivables | 21,104 | 28,323 | 22,982 |
| Deferred income tax assets | 1,852 | 1,155 | 693 |
| Investment property | 15,534 | 11,511 | 11,485 |
| Property, plant and equipment | 17,238 | 17,527 | 17,452 |
| Intangible assets | 508 | 592 | 582 |
| 74,072 | 69,580 | 66,089 | |
| TOTAL ASSETS | 398,854 | 407,302 | 387,412 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 23,325 | 60,034 | 49,687 |
| Payables and prepayments | 124,285 | 119,251 | 96,248 |
| Income tax liability | 1,846 | 1,830 | 1,241 |
| Short-term provisions | 10,268 | 5,584 | 9,820 |
| 159,724 | 186,699 | 156,996 | |
| Non-current liabilities | |||
| Long-term borrowings | 36,377 | 50,469 | 42,236 |
| Deferred income tax liability | 1,878 | 1,671 | 2,355 |
| Other long-term payables | 2,841 | 2,377 | 2,133 |
| 41,096 | 54,517 | 46,724 | |
| TOTAL LIABILITIES | 200,820 | 241,216 | 203,720 |
| EQUITY | |||
| Non-controlling interests | (380) | (473) | (495) |
| Equity attributable to equity holders of the parent | |||
| Share capital | 7,929 | 7,929 | 7,929 |
| Statutory reserve capital | 793 | 793 | 793 |
| Currency translation differences | (815) | (794) | (783) |
| Retained earnings | 190,507 | 158,631 | 176,248 |
| 198,414 | 166,559 | 184,187 | |
| TOTAL EQUITY | 198,034 | 166,086 | 183,692 |
| TOTAL LIABILITIES AND EQUITY | 398,854 | 407,302 | 387,412 |
Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).
