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MRK: Financial results 9M 2009

Spekuliantai.lt | 2009-11-13 | NASDAQ OMX biržų naujienos | perskaitė: 1540
Raktiniai žodžiai: Merko Ehitus AS, MRK
MRK: Financial results 9M 2009

Merko Ehitus Quarterly report 13.11.2009

Financial results 9M 2009

MANAGEMENT REPORT

General information

AS Merko Ehitus operates in Estonia, Latvia and Lithuania as a construction
group providing integrated construction solutions. Largest companies of the
Group are SIA Merks (100%), UAB Merko Statyba (100%), Tallinna Teede AS
(100%), AS Gustaf (75%), OÜ Gustaf Tallinn (80%), AS Merko Tartu (66%),
OÜ Woody (100%) and AS Tartu Maja Betoontooted (25%).

On 2 April 2009, AS Merko Ehitus and its 100% subsidiary OÜ Rae Tehnopark
made a merger agreement with a view of ensuring better transparency of
AS Merko Ehitus group and facilitating reporting
(http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=234355).

At 3 April 2009, a suspicion was elaborated which was earlier submitted
against AS Merko Ehitus in relation to the giving of a bribe to Ivo
Parbus. While the suspicion submitted at 17 December 2008 stated that the
bribe was given for the purpose of accelerating the proceedings with the
plans of seven properties, then according to the elaboration of 3 April,
the number of properties decreased to three. Concerning the plans for the
remaining four properties, a suspicion on the same bribe object was
submitted against OÜ Woody, OÜ Metsailu and OÜ Constancia that are
subsidiaries of AS Merko Ehitus. In addition to Estravel's gift coupon
of EEK 25 thousand, the suspected bribe of AS Merko Ehitus also includes
book "Eesti Talurahva Arhitektuur" costing EEK 410. The suspicion
submitted against the subsidiaries mentions Estravel's gift coupon of EEK
25 thousand, a book costing EEK 410 and Estravel's gift coupon of EEK 15
thousand as the bribe. The suspects consider the suspicions to be
unfounded (http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=232461).

At its 16 April 2009 session, the Government of the Republic of Estonia
approved the tender submitted by Tallinna Teede AS (100% subsidiary of
AS Merko Ehitus) as the winning tender in the privatisation auction of
the 100% holding in the state-owned company AS Vooremaa Teed. The
acquisition of AS Vooremaa Teed will significantly improve the group's
presence in the road construction and maintenance sector and will create
new opportunities for the further development of the field
(http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=233031).

The Management Board of Merko Ehitus must adhere to the following
priorities in the investment activities:
1) Participation in public sector PPP projects;
2) Provision of co-financing for public sector construction projects
funded by the EU;
3) Co-financing of development projects with good potential, by
providing up to 30% of the project cost, on the condition that the
project has an effective business plan and that external financing
has been secured;
4) Acquisition of residential properties with good potential in larger
cities. Preferred properties: those with a moderate work volume and
a valid detailed plan, located in a developed residential environment.

Capitalisation and good liquidity are competitive advantages of Merko
Ehitus upon judgement of the Supervisory Board and that should be used
daringly to achieve commercial aims.

Operating results

Group's revenue for the 2009 9 months was EEK 2333.4 million. 71.4% of the
sales originated from Estonia, 26.0% from Latvia and 2.6% from Lithuania.
As compared to with the 2008 9 months, company's sales decreased in
Lithuania by 90.7%, in Estonia by 22.8% and in Latvia by 18.6%.

Group's revenue for the III quarter 2009 was EEK 855.5 million, which
constitutes an annual decrease of EEK 294.6 million.

Continued decrease in demand in the construction sector due to the overall
economic low caused a drop in the period's revenue.

In 9 months 2009, the Group sold 201 apartments in total cost of EEK 243.0
million (without VAT). As of 30.09.2009 Group held in inventories unsold
266 completed apartments in total cost EEK 318.8 million and 392 apartments
in the construction stage in total cost EEK 262.5 million.

As at 30 September 2009, the group's backlog of construction contracts in
progress amounted to EEK 1.6 billion.

Companies of the Group 9M 2009 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):

9M 2009 9M 2008
EEK EUR EEK EUR
Estonian companies
AS Merko Ehitus (parent company) 1 263 801 80 772 1 390 113 88 844
AS Gustaf (75% partnership) 39 942 2 553 123 425 7 888
OÜ Gustaf Tallinn (80% partnership) 47 136 3 013 109 094 6 972
AS Merko Tartu (66% partnership) 61 730 3 945 155 907 9 964
Tallinna Teede AS (100% partnership) 216 760 13 854 368 506 23 552
OÜ Woody (100% partnership) 24 988 1 597 65 020 4 156
Latvian company
SIA Merks (100% partnership) 605 853 38 721 718 407 45 915
Lithuanian company
UAB Merko Statyba (100% partnership) 58 380 3 731 612 893 39 171


In one year, the Group's cost of goods sold decreased by 30.7% and marketing
and general administrative expenses by 18.0%. The economizing measures taken
to reduce costs helped to decrease marketing and administrative expenses, with
the EEK 13.9 million decrease in labour costs, EEK 4.8 million decrease in
office expenses and communication services, EEK 4.1 million decrease in
advertising and sponsoring and EEK 15.8 million decrease in other costs were
the most significant factors. Despite the vigorous measures, the group's
cost-cutting rate failed to keep up with the fall in revenue - thus, the cost
of goods sold in the period increased to 88.1% and marketing and administrative
costs to 6.4%.

The group's earnings before taxes in the first nine months of 2009 were
EEK 131.3 million, which means a decrease by EEK 267.0 million compared to
2008. The net profit in the period was EEK 118.9 million, representing
an EEK 225.0 million or 65.4% decrease. The fall in earnings was affected
by revenue, the reduced profitability of the construction and property
development sectors, and the extraordinary expenses resulting from changes
in the economic conditions. In the first nine months of 2009, the group
suffered an 55.3 million loss due to the depreciation of development
projects (incl. properties for sale by EEK 26.5 million; work in progress
by EEK 12.8 million, and finished goods by EEK 16.0 million); and a further
EEK 8.7 million loss from the write-off of uncollectible accounts.
The seasonality of the construction field and the cyclic nature of property
development did not have a significant impact on the financial performance.

Group's priority in 2009 is cash flow and liquidity. In 9 months 2009 Group's
total cash flows amounted to EEK -30.3 million, of which the cash flows from
operating activities totalled EEK +224.1 million, from investment activities
EEK -9,7 million and from financing activities EEK-244.7 million. The cash
flows from operating activities of the reporting period were mostly affected
by change in inventories EEK +239.5 million, change in liabilities and
prepayments related to operating activities EEK -148.4 million and operating
profit EEK +133.6 million. From investment activities cash flows EEK -22.6
million from balance of granted/received loans, EEK +24.7 million from received
interests and EEK -12.7 million from purchase of property, plant and equipment.
The cash flows from financing activities were mostly affected by repayments of
the borrowings by EEK -167.1 million and dividends paid EEK -64.7 million.
As of 30 September 2009, the Group has EEK 749.6 million of funds on the
Group's bank accounts and deposits.

The ratios and calculation methods characterizing the operating activities
of the Group
2009 9 months 2008 9 months 2008 9 months

Net profit margin 5,1 % 9,7 % 9,3 %
Profit before taxes margin 5,6 % 11,2 % 10,0 %
Operating profit margin 5,7 % 11,3 % 8,6 %
Gross profit margin 11,9 % 16,5 % 12,3 %
EBITDA margin 6,6 % 11,9 % 9,0 %
Return on equity per annum 7,5 % 22,2 % 27,9 %
Return on assets per annum 4,2 % 11,2 % 13,5 %
Equity ratio 58,1 % 50,0 % 47,0 %
Current ratio 2,4 2,0 2,1
Quick ratio 1,2 0,9 0,9
General expense ratio 6,4 % 5,2 % 3,7 %
Gross remuneration ratio 9,3 % 8,8 % 7,5 %

Net profit margin: Net profit* / Revenue
Profit before taxes margin: Profit before taxes / Revenue
Operating profit margin: Operating profit / Revenue
Gross profit margin: Gross profit / Revenue
EBITDA margin: (Operating profit + Depreciation and impairment charge) / Revenue
Return on equity: Net profit x 4/3* / Average equity during the period*
Return on assets: Net profit x 4/3* / Average assets during the period
Equity ratio: Owners equity* / Total assets
Current ratio: Current assets / Current liabilities
Quick ratio: (Current assets - Inventories) / Current liabilities
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue

*attributable to equity owners of the parent

Construction market

The key-words for the 2009 9 months are deteriorated economic conditions,
unemployment increased sharply, domestic consumption fell and the public
sector had to deal with the budgetary deficit. The Republic of Latvia has
published its GDP figures for Q3 2009 and declared an 18.4% fall in economy
from the previous year, while the same figures for Estonia and Lithuania
were 15.3% and 14.3% respectively. The crisis will probably bottom out
in Q4 and there might be a slight upturn in the economy in 2010. Due to
the recession, construction volumes in the first six months fell by 36.6%
in Estonia, by 41.5% in Latvia and by 49.9% in Lithuania, compared to the
figures in the previous year.

As volumes decreased and competition became stiffer, construction prices
fell down to the level of 2005. To win new contracts, contractors often
submit tenders with prices below the direct costs and hope to compensate
for the difference with a fall in prices in the future. This approach is
definitely not sustainable; it entails increased business risks for the
tenderer, execution risks for customers, and credit risk for potential
suppliers. According to our estimate, construction prices have now
bottomed out and there is no reserve for further price reductions.

The lack of financing and the negative expectations have reduced the
investment activity of the private sector to zero in this region. Most of
the expansion plans have been postponed indefinitely and the private sector
is focusing on cost and cash-flow management. As a result of the lower
prices, we can see increased activity on the market of small-scale works
(the so-called repair works) as the need for external financing is lower
and the works are mostly financed from savings. The majority of new
construction projects initiated concern infrastructural and environmental
facilities financed by the public sector and the EU structural funds.
A more active use of European funding is hindered by the excessive
bureaucracy involved and the inability of local governments to provide the
required self-financing. The decrease in consumption and incomes has
significantly damaged the public sector's revenue base and poses a serious
challenge for the sector's financial capacity.

In Q3, we could see the first signs of recovery on the residential
property market. Buyers who had been postponing purchasing a home for
a long time, as they waited for the prices to fall, have realised that
the fall in residential property prices is not everlasting and that if
they wait any further they will have much less choice. The fall in
prices by 40 to 50 percent in the previous 18 months stopped in Q3 2009,
meaning that banks are much more confident about financing the purchase
of homes; the loans given at the new, lower rates help to improve the
banks' revenue base and compensate the negative impact of bad loans.
Some financial institutions are also motivated by the desire to increase
their market share at the expense of more passive competitors, with the
help of these safe loans. As a result of the abovementioned trends,
financing conditions - especially the amount of self-financing required
and the interest margins for end users - have improved in recent months.
Unfortunately, consumers still lack confidence in the market and thus
there is no chance of a rapid market recovery.

There is still a limited amount of funds available to property developers;
financing is expensive and the pre-requirements for receiving a loan are
unrealistic. Thus, no new projects are likely to be launched in the near
future. The supply of new residential properties is decreasing.
The key-word in property development is still handling debt and
liquidity issues.

Employees and remuneration

In 30.09.2009, the number of employees in the Group's service was 768,
including 746 full-time employees. The Group reduced the number of its
personnel by 23.7% or 239 employees in a year. The gross remuneration paid
to employees in 9 months 2009 amounted to EEK 217.6 million a decrease of
30,4% compared to previous year. The smaller amount of performance pay, due
to the fall in the group's profitability, and the reduced staff levels also
contributed to the fall in the group's labour costs.

Share information

ISIN EE3100098328
Short name of the security MRK1T
Stock Exchange List Baltic Main List
Nominal 10.00 EEK
Total no of securities issued 17 700 000
No of listed securities 17 700 000
Listing date 11.08.2008

The shares of Merko Ehitus are listed in the main list of NASDAQ OMX Tallinn
Stock Exchange. In 2009 first 9 months 2980 transactions with the shares of
Merko Ehitus were performed in the course of which 2.4 million shares were
traded and the total monetary value of transactions was EEK 113.9 million.
The lowest share price was EEK 28.95 and the highest price was EEK 90.44 per
share. The closing share price as at 30.09.2009 was EEK 83.87.


STATEMENT OF COMPREHENSIVE INCOME 9M 2009
consolidated, unaudited, in thousand EEK and EUR

EEK EUR
9M 2009 9M 2008 9M 2009 9M 2008

Revenue 2 333 379 3 552 366 149 130 227 038
Cost of goods sold (2 055 731) (2 964 881) (131 385) (189 490)

GROSS PROFIT 277 648 587 485 17 745 37 548

Marketing expenses (32 965) (26 120) (2 107) (1 669)
Administrative and general expen. (117 355) (157 215) (7 500) (10 048)
Other operating income 10 101 8 632 646 552
Other operating expenses (3 860) (12 468) (248) (797)

OPERATING PROFIT 133 569 400 314 8 536 25 586

Financial income and expenses from stocks of
associate comp. and joint ventures (8 044) 1 185 (515) 76
Interest expense (19 123) (12 442) (1 222) (795)
Foreign exchange gain 1 265 (7 359) 81 (470)
Other financial income 24 702 17 869 1 579 1 142
Other financial expenses (1 112) (1 307) (71) (85)
Total financial income and expenses (2 312) (2 054) (148) (132)

PROFIT BEFORE TAX 131 257 398 260 8 388 25 454

Corporate income tax expense (12 662) (47 579) (809) (3 041)

NET PROFIT FOR FINANCIAL YEAR 118 595 350 681 7 579 22 413
incl equity holders of the parent 118 902 343 874 7 599 21 978
minority interest (307) 6 807 (20) 435

OTHER COMPREHENSIVE INCOME
Exchange differences on
translating foreign subsidiaries (1 032) (9 161) (66) (585)

COMPREHENSIVE INCOME 117 563 341 520 7 513 21 828
incl equity holders of the parent 117 870 334 713 7 533 21 393
minority interest (307) 6 807 (20) 435

Earnings per share for profit attributable
to the equity holders of the parent (basic
and diluted, in EEK and EUR) 6,72 19,43 0,43 1,24


STATEMENT OF COMPREHENSIVE INCOME Q3 2009
consolidated, unaudited, in thousand EEK and EUR

EEK EUR
Q3 2009 Q3 2008 Q3 2009 Q3 2008

Revenue 885 492 1 180 062 56 593 75 420
Cost of goods sold (775 170) (1 051 633) (49 542) (67 212)

GROSS PROFIT 110 322 128 429 7 051 8 208

Marketing expenses (12 830) (8 629) (820) (551)
Administrative and general expenses(40 867) (56 195) (2 612) (3 592)
Other operating income 3 141 2 747 201 176
Other operating expenses (2 128) (4 911) (137) (314)

OPERATING PROFIT 57 638 61 441 3 683 3 927

Financial income and expenses from stocks of
associate comp. and joint ventures (2 080) (18) (134) (1)
Interest expense (4 440) (4 763) (284) (304)
Foreign exchange gain (2 619) (1 489) (167) (95)
Other financial income 4 830 9 346 309 597
Other financial expenses (0) (10) (0) (1)
Total financial income and expenses (4 309) 3 066 (276) 196

PROFIT BEFORE TAX 53 329 64 507 3 407 4 123

Corporate income tax expense (7 724) (6 956) (493) (445)

NET PROFIT FOR FINANCIAL YEAR 45 605 57 551 2 914 3 678
incl. equity holders of the parent 45 711 53 696 2 921 3 432
minority interest (106) 3 855 (7) 246

OTHER COMPREHENSIVE INCOME
Exchange differences on
translating foreign subsidiaries (4 962) (3 019) (317) (192)

COMPREHENSIVE INCOME 40 643 54 532 2 597 3 486
incl. equity holders of the parent 40 749 50 677 2 604 3 240
minority interest (106) 3 855 (7) 246

Earnings per share for profit attributable
to the equity holders of the parent (basic
and diluted, in EEK and EUR) 2,58 3,03 0,17 0,19


STATEMENT OF FINANCIAL POSITION AS OF 30.09.2009
consolidated, unaudited, in thousand EEK and EUR

EEK EUR
30.09.2009 31.12.2008 30.09.2009 31.12.2008
ASSETS
Current assets
Cash and cash equivalents 485 460 515 191 31 027 32 927
Shortterm financial investments 264 162 262 759 16 883 16 793
Trade and other receivables 879 283 784 540 56 196 50 141
Inventories 1 580 994 1 817 486 101 044 116 158
Assets held for sale - 173 - 11
Total current assets 3 209 899 3 380 149 205 150 216 030

Non-current assets
Long-term financial investments 243 824 260 036 15 584 16 619
Investment property 12 420 12 002 793 767
Property, plant and equipment 191 117 197 094 12 214 12 597
Intangible assets 10 763 11 807 688 755
Total non-current assets 458 124 480 939 29 279 30 738

TOTAL ASSETS 3 668 023 3 861 088 234 429 246 768

LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings 420 335 206 657 26 864 13 208
Trade and other payables 911 650 972 330 58 266 62 144
Short-term provisions 27 324 32 317 1 746 2 065
Total current liabilities 1 359 309 1 211 304 86 876 77 417

Non-current liabilities
Long-term borrowings 138 241 531 396 8 835 33 962
Long-term payables to suppliers 7 996 8 824 511 564
Total non-current liabilities 146 237 540 220 9 346 34 526

Total liabilities 1 505 546 1 751 524 96 222 111 943

Equity
Minority interest 31 626 34 633 2 021 2 213
Equity attributable to equity holders of the parent company
Share capital 177 000 177 000 11 312 11 312
Statutory reserve capital 17 700 17 700 1 131 1 131
Currency translation differences(13 582) (12 550) (868) (802)
Retained earnings 1 949 733 1 892 781 124 611 120 971
Total equity attributable to
equity holders of the parent 2 130 851 2 074 931 136 186 132 612
Total equity 2 162 477 2 109 564 138 207 134 825

TOTAL LIABILITIES AND EQUITY 3 668 023 3 861 088 234 429 246 768


Alar Lagus
Member of Board
+372 6 805 109
[email protected]



1. iii kv 09 aruanne eng - merko ehitus.pdf
(https://newsclient.omxgroup.com/cds/DisclosureAttachmentServlet?messageAttachmentId=282485)

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