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Merko building more than 1,100 apartments in the Baltics

Merko Ehitus posted revenue of EUR 73 million in Q3 and EUR 228 million for the first nine months of 2019. The group’s net profit for Q3 was EUR 2.5 million, and the nine-month net profit was EUR 7 million. The decline in the group’s revenue stems from the completion of major construction projects in progress in the last two years, the cooling off of construction markets and greater focus on residential development. This year, Merko has invested EUR 83 million into real estate development business segment and over 1,100 apartments are in development in Tallinn, Riga and Vilnius.

Merko Ehitus’s revenue has decreased by 24% compared to last year: going by country, revenue has declined in Estonia and Latvia while enjoying significant growth in Norway; Lithuanian revenue staying at the same level as last year. “The decline in the group’s revenue stems from the completion of major construction projects in progress in the last two years in Latvia and Estonia and the cooling of the construction market. Considering the declining trend in the secured order book in the last 1.5 years, a drop in volumes was to be expected this year. Yet the civil engineering services area has fallen short of management expectations this year. We have taken a clearer direction toward apartment development and providing main contracting services for construction on projects where the group’s subsidiaries have competitive advantages, such as in the form of engineering and technical knowhow, construction and financial capability and long-term cooperative relations. Public-private partnership (PPP) projects also continue to be in the group’s focus, and the greatest market activity in this area has thus far been seen in Lithuania,” said the chairman of the management board of AS Merko Ehitus, Andres Trink.

“The volume of construction orders in the Baltics is seeing a declining trend due to developments in the economy and real estate market, the increasing caution exercised by banks when it comes to choosing customers and projects to finance, and the increase in loan margins. The orders from the public sector have not managed to compensate for the decrease in the activity of private sector customers. Current market conditions are putting general contractors in an increasingly complicated competitive situation and increasing pressure on them to reduce costs. The decreasing level of construction activity may at some point also mean concessions in terms of input prices, though it hasn’t come to that yet,” added Andres Trink about the construction market.

Q3 revenue for Merko Ehitus was EUR 73 million and the nine-month revenue was EUR 228 million, representing a decrease of 24% compared to the year before. Earnings before taxes in Q3 were EUR 2.8 million and for the first nine months, EUR 10.3 million; while net profit was EUR 2.5 million in Q3 and EUR 7 million for the first nine months of the year.

During 2019, Merko Ehitus has invested EUR 83 million into the real estate development business segment, of which close to EUR 65 million into building apartments and nearly EUR 19 million into acquiring new land for development in Lithuania and Estonia to ensure development capability in years to come. In Estonia, Latvia and Lithuania, the group currently has a total of more than 1,100 apartments in development. “The sale and pre-sale of apartments are going according to plan. We see the new apartment markets remaining active at current levels in Tallinn and Vilnius, while in Riga, general activity continues to be lower. Investments will start yielding results to a greater extent in the form of apartment sales starting in Q4 of this year and even more so next year,” added Andres Trink.

Merko’s biggest projects in Tallinn are the Uus-Veerenni, Lahekalda and Pikaliiva residential projects; in Riga, the Gaiļezers and Viesturdārzs developments; and, in Vilnius, the Vilneles slenis and Rinktinės Urban developments. In Q3, the group sold 106 apartments compared to 87 in the third quarter last year. At the end of September, there were a total of 123 apartments in the three Baltic states ready to be sold and not covered by pre-sale agreements.

Merko Ehitus posted revenue of EUR 73 million in Q3 of 2019 (Q3 of 2018: EUR 115 million), an EBITDA of EUR 2.9 million (Q3 of 2018: 6.2 million), and net profit of EUR 2.5 million (Q3 of 2018: EUR 5.6 million). The group’s secured order book decreased by end of September 2019 to EUR 152 million, decreasing 36% compared to the level at the same time last year (EUR 239 million).

EUR 128 million in new contracts were signed in the first nine months, this being 19% less than in the same period last year (EUR 157 million). The largest contracts in Q3 were signed for the reconstruction of the Riga Technical University Civil Engineering Faculty building, and also in Latvia, the construction of college building and dormitory in Pinki, and, in Tallinn, the construction of Terminal D parking house at the Tallinn passenger port. In addition to the abovementioned ones, the largest projects in progress were, in Estonia, reconstruction of the Aaspere-Haljala road section, construction of Türi Basic School, student home for Rakvere Vocational School and the commercial building at Pärnu mnt 186, establishing water supply and sewerage piping for the Metsanurme, Kasemetsa and Üksnurme area, construction of undersea electric power cables of Suur Väin and Väike Väin straits, reconstruction and dredging of the Port of Hundipea; in Latvia, construction of Lidl’s logistics centre, Alfa shopping centre and Laima chocolate factory; and in Lithuania, Neringa Hotel, Quadrum office building, and a private school in Vilnius.

AS Merko Ehitus ( group consists of Estonia’s leading construction company AS Merko Ehitus Eesti, the Latvian-market-oriented SIA Merks, UAB Merko Statyba operating on the Lithuanian market, and the Norwegian construction company Peritus Entreprenør AS. Besides provision of construction service as a main contractor, the group’s other major area of activity is apartment development. As at the end of 2018, the group employed 764 people, and the group’s revenue for 2018 was EUR 418 million.