COMMENTARY FROM MANAGEMENT

Merko Ehitus revenue for the 9 months of 2024 was EUR 379 million and net profit was EUR 44.8 million. Third-quarter revenue was EUR 175 million; net profit EUR 27.3 million. Sales of construction services made up about 90% of the 9-month revenue.

According to the management of Merko Ehitus, the construction of some projects was accelerated at the request of the clients, which increased current construction volumes, helped reduce costs and increase efficiency.  As a result, Merko ended the 9 months with a stronger result than planned. Group companies reached the home stretch for several large and complex projects, including the largest construction project in Merko's history, Arter quarter, with close to 80% of its 150-million-euro volume now completed. One of the Arter buildings is finished, interior works on the second building are being completed and work on the interior of the highest building is continuing. According to the management of Merko Ehitus, the group's companies had been conservative in cost forecasting and assessment of risks, managed to avoid realisation of the latter during the long construction period. Thus,  the sales revenue and profit of several ongoing projects budgeted for next year materialised in the current year. Merko secured order-book is at a good level, remaining above more than EUR 400 million throughout this year. The market is still tight and competition is intense, and there is a significant increase in risk appetite in the bid prices of some construction service providers.

The company's strong financial position and the launch of fewer new development projects have helped Merko keep interest costs low during high-interest-rate period. The rapid growth of construction prices has subsided and been supplanted by a moderate annual 1-2% growth as per earlier forecast. Until there is no foreseeable drop in energy prices and wages, there is no reason to expect the construction price index to decrease. An increasingly stronger contribution to the group's results comes from the joint enterprise Connecto Eesti, dealing in energy infrastructure construction and maintenance. Connecto's business volumes are high due to major investments being channelled into this field.

The results in the real estate development business area are, as expected, significantly more modest than last year, but still clearly more positive than expected in the start of this year. A livelier market can be noticed in all of home markets; with Lithuania clearly standing out with its long-lasting positive economic sentiment. Success in apartment sales in Estonia, Latvia and Lithuania is quite clearly linked to consumer confidence. The group's management is moderately optimistic about the future and assesses Merko's inventory of finished apartments as appropriate to market needs - besides apartments under construction, ready-to-move-in homes can also be purchased.

In the nine months of 2024, the group companies entered into new construction contracts worth EUR 292 million and the secured order-book as of the end of September stood at EUR 431 million. The largest contracts signed in Q3 were for the Tartu mnt 1 office building (the future headquarters of LHV Group) and the fourth stage of the mainline of Rail Baltica in Harju County in Estonia; a student hotel in Riga, Latvia; and additional work on a wind farm in Pagėgiai, Lithuania.

The largest sites under construction in Q3 were, in Estonia, the TKM Group logistics centre, 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 Rail Baltica's Tõdva highway overpasses. In Lithuania, the largest construction sites were wind farm infrastructure in Kelmė, Pagėgiai and Telšiai regions, a substation in Kelmė and various national defence buildings and infrastructure.  In Latvia, a solar farm in Vārme Municipality was under construction.

In the first nine months of current year, Merko has delivered 194 apartments and 11 commercial units to buyers and invested EUR 31  million into the real estate business. As of the end of September, the group companies had 591 unsold apartments which were either ready or under construction, and 87 apartments covered by preliminary sale contracts. Merko launched the construction of 175 apartments and sales in four projects this year: a new phase of Veerenni in Tallinn, Õielehe in Jüri, a new phase of Erminurme in Tartu and the first phase of Lucavsala in Riga. The largest development projects under construction were Uus-Veerenni, Noblessner and Lahekalda in Tallinn, Erminurme in Tartu; Viesturdārzs, Mežpilsēta and Magnolijas in Riga; and Vilnelės Skverai in Vilnius.

OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS

PROFITABILITY

2024 9 months' pre-tax profit was EUR 49.6 million and Q3 2024 was EUR 31.3 million (9M 2023: EUR 33.8 million and Q3 2023 was EUR 13.6 million), which brought the pre-tax profit margin to 13.1% (9M 2023: 10.0%).

Net profit attributable to shareholders for 9 months 2024 was EUR 44.8 million (9M 2023: EUR 32.1 million) and for Q3 2024 net profit attributable to shareholders was EUR 27.3 million (Q3 2023: EUR 12.7 million). 9 months net profit margin was 11.8% (9M 2023: 9.5%).

REVENUE

Q3 2024 revenue was EUR 175.1 million (Q3 2023: EUR 122.5 million) and 9 months' revenue was EUR 378.7 million (9M 2023: EUR 339.8 million). 9 months' revenue increased by 11.4% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2024 was 60.1% (9M 2023: 34.5%).

SECURED ORDER BOOK

As of 30 September 2024, the group's secured order book was EUR 430.9 million (30 September 2023: EUR 448.6 million). In 9 months 2024, group companies signed contracts in the amount of EUR 292.1 million (9M 2023: EUR 379.4 million). In Q3 2024, new contracts were signed in the amount of EUR 152.6 million (Q3 2023: EUR 124.7 million).

REAL ESTATE DEVELOPMENT

In 9 months 2024, the group sold a total of 194 apartments; in 9 months 2023, the group sold 665 apartments. The group earned a revenue of EUR 36.0 million from sale of own developed apartments in 9 months 2024 and EUR 106.1 million in 9 months 2023. In Q3 of 2024 a total of 74 apartments were sold, compared to 153 apartments in Q3 2023, and earned a revenue of EUR 14.6 million from sale of own developed apartments (Q3 2023: EUR 25.5 million).

CASH POSITION

At the end of the reporting period, the group had EUR 61.1 million in cash and cash equivalents, and equity of EUR 234.6 million (51.3% of total assets). Comparable figures as of 30 September 2023 were EUR 31.3 million and EUR 198.4 million (49.7% of total assets), respectively. As of 30 September 2024, the group's net debt was negative EUR 22.2 million (30 September 2023: positive EUR 28.4 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

unaudited

in thousand euros

  2024

9 months 2023

9 months 2024

 III quarter 2023

 III quarter 2023

12 months Revenue 378,676 339,838 175,108 122,491 466,304 Cost of goods sold (315,597) (296,642) (135,738) (105,114) (401,267) Gross profit 63,079 43,196 39,370 17,377 65,037             Marketing expenses (3,366) (3,013) (1,073) (918) (4,312) General and administrative expenses (15,115) (12,896) (6,485) (4,635) (19,423) Other operating income 4,965 3,399 572 621 4,171 Other operating expenses (2,512) (614) (46) (467) (991) Operating profit 47,051 30,072 32,338 11,978 44,482             Finance income/costs 2,524 3,765 (1,071) 1,639 7,500 incl. finance income/costs from investments in subsidiaries (3,119) - (3,119) - - finance income/costs from joint ventures 6,634 6,061 2,979 2,242 10,220 interest expense (1,469) (2,011) (353) (674) (2,697) foreign exchange gain (loss) (931) (192) (875) 98 (153) other financial income (expenses) 1,409 (93) 297 (27) 130 Profit before tax 49,575 33,837 31,267 13,617 51,982             Corporate income tax expense (4,867) (1,827) (4,004) (898) (6,081)             Net profit for financial year 44,708 32,010 27,263 12,719 45,901 incl. net profit attributable to equity holders of the parent 44,781 32,148 27,302 12,698 46,048 net profit attributable to non-controlling interest (73) (138) (39) 21 (147)             Other comprehensive income, which can subsequently be classified in the income statement           Currency translation differences of foreign entities 129 (16) 105 (88) (41) Comprehensive income for the period 44,837 31,994 27,368 12,631 45,860 incl. net profit attributable to equity holders of the parent 44,902 32,116 27,401 12,626 45,993 net profit attributable to non-controlling interest (65) (122) (33) 5 (133) Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) 2.53 1.82 1.54 0.72 2.60  

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

unaudited

in thousand euros

  30.09.2024 30.09.2023 31.12.2023 ASSETS       Current assets       Cash and cash equivalents 61,115 31,282 77,330 Short-term deposits 5,000 - - Trade and other receivables 108,930 86,895 68,754 Prepaid corporate income tax 377 2 2 Inventories 199,628 206,603 195,435   375,050 324,782 341,521 Non-current assets       Investments in joint ventures 25,549 17,756 21,915 Other shares and securities 80 80 80 Other long-term loans and receivables 21,580 21,104 24,490 Deferred income tax assets 5,849 1,852 3,298 Investment property 12,645 15,534 16,823 Property, plant and equipment 16,609 17,238 16,613 Intangible assets 466 508 520   82,778 74,072 83,739         TOTAL ASSETS 457,828 398,854 425,260         LIABILITIES       Current liabilities       Borrowings 11,541 23,325 19,673 Payables and prepayments 161,699 124,285 133,898 Income tax liability 6,838 1,846 4,260 Short-term provisions 7,325 10,268 10,451   187,403 159,724 168,282 Non-current liabilities       Long-term borrowings 27,357 36,377 35,142 Deferred income tax liability 1,715 1,878 4,441 Other long-term payables 6,925 2,841 5,495   35,997 41,096 45,078         TOTAL LIABILITIES 223,400 200,820 213,360         EQUITY       Non-controlling interests (220) (380) (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 (16) (815) (838) Retained earnings 225,942 190,507 204,171   234,648 198,414 212,055 TOTAL EQUITY 234,428 198,034 211,900         TOTAL LIABILITIES AND EQUITY 457,828 398,854 425,260 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 construct buildings and infrastructure and develop real estate. 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.

Attachment

Merko_Ehitus_2024_9M_interim_report