2024 6 months and II quarter consolidated unaudited interim report
COMMENTARY FROM MANAGEMENT
Merko Ehitus revenue for the 6 months of 2024 was EUR 204 million and net profit was EUR 17.5 million. Second-quarter revenue was EUR 122 million; net profit, EUR 13.1 million. The lower volumes from real estate development have been compensated by higher sales of construction services, which made up nearly 90% of revenue in the first half-year.
Considering general sentiment on the construction and real estate market, Merko Ehitus management were satisfied with second quarter and first half of 2024 results. According to the management of Merko Ehitus, group has managed well in the changed market situation. Profitability for the half-year has declined compared to last year due to the decrease in the share of the real estate development business. Orders are dramatically down in road construction. In the group at large, this does not constitute a business area with too great an impact. To sum up, Merko construction service portfolio continues to be strong and apartment sales in Q2 grew somewhat. Hopefully, the market trough is behind us.
The private sector’s outlook on the future and investing has become more positive over the last year and orders for construction service have grown somewhat. Contracts for defence infrastructure and civil engineering also help offset the dearth of the usual orders from the public sector. Merko group home markets are acting in very different ways. Lithuania stands out with its clearly distinct government support for the economy and the resulting high consumer confidence and private sector appetite for investment, which towers over the others. Since the total volumes on the market are still down from the all-time peak, competition between providers is high and margins on contracts being concluded are very low. It is still a good time to order construction service. Merko decision to exit the Norwegian market also stems from our adjustments to the new circumstances. The Norwegian construction market, like that of the Nordics as a whole, is in the throes of the effects of inflation, all too familiar to us as well, and there are no grounds to expect a rapid improvement.
In the first six months of 2024, Merko entered into new contracts worth EUR 140 million and the secured order-book grew by the end of H1 to EUR 438 million. The largest new contracts in Q2 were construction of wind farm infrastructure in Telšiai and additional work on NATO training centre infrastructure in Pabrade, Lithuania; in Latvia, the establishment of Ignitis solar park; and in Estonia, additional work on the construction of Arter Quarter, construction of Putukaväil in Tallinn and Tallinn city road maintenance.
In Q2 2024, the largest projects under construction were the TKM Group’s logistics centre, and the Hampton by Hilton and Hyatt hotel buildings, Arter Quarter, Estonian Defence Forces buildings on Ämari base, a tram line between Old City Harbour and Rail Baltica Ülemiste passenger terminal and the first stage of Ülemiste multimodal transport junction and the Tõdva highway overpasses, also for Rail Baltica. In Lithuania, the largest construction projects were infrastructure works in the regions of Kelmė and Pagėgiai, a substation in Kelmė and buildings and infrastructure for various NATO training centres.
In the first six months of 2024, Merko delivered 120 apartments and 9 commercial units to buyers, invested a total of EUR 21.3 million into development projects. As of the end of H1, the group companies had 671 unsold apartments which were either ready or under construction, and 81 apartments covered by preliminary sale contracts. Merko launched construction and sales of four new projects this year: a new stage of Veerenni in Tallinn, Õielehe in Jüri, a new stage of Erminurme in Tartu, and Lucavsala in Riga. The largest development projects under construction were Uus-Veerenni, Noblessner and Lahekalda in Tallinn, Erminurme in Tartu; Viesturdarzs, Mežpilseta and Magnolijas in Riga and Vilneles Skverai in Vilnius.
OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS
PROFITABILITY
2024 6 months’ pre-tax profit was EUR 18.3 million and Q2 2024 was EUR 13.1 million (6M 2023: EUR 20.2 million and Q2 2023 was EUR 14.1 million), which brought the pre-tax profit margin to 9.0% (6M 2023: 9.3%).
Net profit attributable to shareholders for 6 months 2024 was EUR 17.5 million (6M 2023: EUR 19.4 million) and for Q2 2024 net profit attributable to shareholders was EUR 13.1 million (Q2 2023: EUR 13.6 million). 6 months net profit margin was 8.6% (6M 2023: 8.9%).
REVENUE
Q2 2024 revenue was EUR 122.4 million (Q2 2023: EUR 141.6 million) and 6 months’ revenue was EUR 203.6 million (6M 2023: EUR 217.3 million). 6 months’ revenue decreased by 6.3% compared to same period last year. The share of revenue earned outside Estonia in 6 months 2024 was 57.9% (6M 2023: 30.6%).
SECURED ORDER BOOK
As of 30 June 2024, the group’s secured order book was EUR 437.5 million (30 June 2023: EUR 418.2 million). In 6 months 2024, group companies signed contracts in the amount of EUR 139.5 million (6M 2023: EUR 254.8 million). In Q2 2024, new contracts were signed in the amount of EUR 129.0 million (Q2 2023: EUR 84.4 million).
REAL ESTATE DEVELOPMENT
In 6 months 2024, the group sold a total of 120 apartments; in 6 months 2023, the group sold 512 apartments. The group earned a revenue of EUR 21.3 million from sale of own developed apartments in 6 months 2024 and EUR 80.5 million in 6 months 2023. In Q2 of 2024 a total of 61 apartments were sold, compared to 367 apartments in Q2 2023, and earned a revenue of EUR 10.6 million from sale of own developed apartments (Q2 2023: EUR 61.2 million).
CASH POSITION
At the end of the reporting period, the group had EUR 44.2 million in cash and cash equivalents, and equity of EUR 206.5 million (49.4% of total assets). Comparable figures as of 30 June 2023 were EUR 9.8 million and EUR 186.0 million (51.3% of total assets), respectively. As of 30 June 2024, the group’s net debt was negative EUR 10.9 million (30 June 2023: positive EUR 68.0 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2024 6 months | 2023 6 months | 2024 II quarter | 2023 II quarter | 2023 12 months | |
| Revenue | 203,568 | 217,347 | 122,383 | 141,596 | 466,304 |
| Cost of goods sold | (179,859) | (191,528) | (107,558) | (125,752) | (401,267) |
| Gross profit | 23,709 | 25,819 | 14,825 | 15,844 | 65,037 |
| Marketing expenses | (2,293) | (2,095) | (1,225) | (1,018) | (4,312) |
| General and administrative expenses | (8,630) | (8,261) | (4,488) | (4,296) | (19,423) |
| Other operating income | 4,393 | 2,778 | 3,069 | 1,961 | 4,171 |
| Other operating expenses | (2,466) | (147) | (1,513) | (85) | (991) |
| Operating profit | 14,713 | 18,094 | 10,668 | 12,406 | 44,482 |
| Finance income/costs | 3,595 | 2,126 | 2,438 | 1,735 | 7,500 |
| incl. finance income/costs from joint ventures | 3,655 | 3,819 | 2,087 | 2,539 | 10,220 |
| interest expense | (1,116) | (1,337) | (461) | (682) | (2,697) |
| foreign exchange gain (loss) | (56) | (290) | 134 | (80) | (153) |
| other financial income (expenses) | 1,112 | (66) | 678 | (42) | 130 |
| Profit before tax | 18,308 | 20,220 | 13,106 | 14,141 | 51,982 |
| Corporate income tax expense | (863) | (929) | (45) | (637) | (6,081) |
| Net profit for financial year | 17,445 | 19,291 | 13,061 | 13,504 | 45,901 |
| incl. net profit attributable to equity holders of the parent | 17,479 | 19,450 | 13,052 | 13,570 | 46,048 |
| net profit attributable to non-controlling interest | (34) | (159) | 9 | (66) | (147) |
| Other comprehensive income, which can subsequently be classified in the income statement | |||||
| Currency translation differences of foreign entities | 24 | 72 | (82) | 19 | (41) |
| Comprehensive income for the period | 17,469 | 19,363 | 12,979 | 13,523 | 45,860 |
| incl. net profit attributable to equity holders of the parent | 17,501 | 19,490 | 12,975 | 13,580 | 45,993 |
| net profit attributable to non-controlling interest | (32) | (127) | 4 | (57) | (133) |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.99 | 1.10 | 0.74 | 0.77 | 2.60 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 30.06.2024 | 30.06.2023 | 31.12.2023 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 44,180 | 9,795 | 77,330 |
| Trade and other receivables | 94,401 | 68,627 | 68,754 |
| Prepaid corporate income tax | 310 | 146 | 2 |
| Inventories | 200,768 | 216,142 | 195,435 |
| 339,659 | 294,710 | 341,521 | |
| Non-current assets | |||
| Investments in joint ventures | 22,570 | 15,514 | 21,915 |
| Other shares and securities | 80 | 80 | 80 |
| Other long-term loans and receivables | 20,057 | 21,457 | 24,490 |
| Deferred income tax assets | 6,077 | 1,044 | 3,298 |
| Investment property | 12,674 | 11,435 | 16,823 |
| Property, plant and equipment | 16,648 | 17,640 | 16,613 |
| Intangible assets | 488 | 582 | 520 |
| 78,594 | 67,752 | 83,739 | |
| TOTAL ASSETS | 418,253 | 362,462 | 425,260 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 5,840 | 39,783 | 19,673 |
| Payables and prepayments | 153,595 | 83,889 | 133,898 |
| Income tax liability | 5,971 | 1,419 | 4,260 |
| Short-term provisions | 12,301 | 9,805 | 10,451 |
| 177,707 | 134,896 | 168,282 | |
| Non-current liabilities | |||
| Long-term borrowings | 27,426 | 37,965 | 35,142 |
| Deferred income tax liability | 1,626 | 1,774 | 4,441 |
| Other long-term payables | 5,135 | 2,472 | 5,495 |
| 34,187 | 42,211 | 45,078 | |
| TOTAL LIABILITIES | 211,894 | 177,107 | 213,360 |
| EQUITY | |||
| Non-controlling interests | (187) | (622) | (155) |
| 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 | (816) | (743) | (838) |
| Retained earnings | 198,640 | 177,998 | 204,171 |
| 206,546 | 185,977 | 212,055 | |
| TOTAL EQUITY | 206,359 | 185,355 | 211,900 |
| TOTAL LIABILITIES AND EQUITY | 418,253 | 362,462 | 425,260 |
Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).
Urmas Somelar
Head of Finance
AS Merko Ehitus
+372 650 1250
urmas.somelar@merko.ee
AS Merko Ehitus (group.merko.ee) group companies develop real estate and construct buildings and infrastructure. We create a better living environment and build the future. We operate in Estonia, Latvia and Lithuania. As at the end of 2023, the group employed 635 people, and the group’s revenue for 2023 was EUR 466 million.
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