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Merko Ehitus profitability improves in Q2

In Q2 of 2016, Merko Ehitus posted revenue of EUR 58.7 million, EBIDTA of EUR 3.4 million and profit before taxes of EUR 2.4 million. Gross profit margin increased to 9% in the second quarter and the group’s construction contract order book reached EUR 279 million. The Baltic construction market – in a slump with regard to new buildings and infrastructure construction contracts – continues to be supported by residential construction, and Merko is on track with its investment plan in the apartment development sector. In the 6 months of 2016, the company sold close to 160 apartments and launched the construction of 280 new flats.

“We’re satisfied with the improved profitability – the second quarter gross profit margin of 9% outperforms the expectations to some degree and is better than it was a year ago. Considering the general depressed state of construction contracts on the market, we can be satisfied with the volume of new contracts signed in the second quarter and the level of the secured order book is currently relatively strong. The integration of the Norwegian company acquired in the first quarter has also gone according to plan,” said AS Merko Ehitus management board chairman Andres Trink.

“The sales revenue in our first half-year has been kept back by the slower than planned launch of construction work on several projects due to customer-side changes either related to the project solutions or the completion timetable. The ratio of new contracts to sales revenue was also lower than expected as a result of the sluggish Baltic construction market in regard to buildings and infrastructure contracted for by the state – a trend that has lasted a couple of years now. The drop in the share of sales revenue from construction services in Latvia and Lithuania was as expected, as several large projects were completed last year in Latvia and the work volumes are lower this year. The construction market is largely supported up by residential construction, yet we are actively continuing to tender for contracts on all markets in which we operate, including road construction and other infrastructure project procurements in Estonia,” Trink added.

The group´s Q2 revenue was EUR 58.7 million, EBITDA was EUR 3.4 million, profit before taxes was EUR 2.4 and net profit was EUR 1.7 million. The respective figures for 6 months of 2016 were: revenue of EUR 105.6 million, EBITDA of EUR 4.6 million, profit before taxes of EUR 2.7 and net profit of EUR 1.8 million. The 6 months net profit was impacted by income tax expenses amounting to EUR 0.9 million, including EUR 0.6 million additional income tax paid on dividends in the second quarter.

“The development of the apartment market in the Baltic capital cities was in line with expectations in the second quarter, supply has increased and the price level has stabilised. The launch of the group’s development projects and sale of apartments has conformed to plans and we will continue fulfilling our investment plan. This year, we have launched construction of 280 new apartments, including 100 apartments in the Tallinn’s Paepargi neighbourhood and 66 apartments in the first phase of Noblessner Home Port development and, in Riga, 137 flats in the Skanstes Parks development,” said Trink in summing up the results in real estate development sector. In the first six months of 2016, Merko sold 159 apartments for a total price of EUR 17.4 million (not including VAT); including 58 apartments and EUR 6.0 million (without VAT) in Q2.

In Q2 of 2016, the group’s companies entered into new construction contracts amounting to EUR 87 million. In Estonia, these included the Juuliku traffic junction and the Viru infantry battalion equipment depot; in Lithuania, the expansion of the Radisson Blu Hotel Lietuva; and a warehouse complex in Riga, Latvia. As of 30 June 2016, the group had a secured order book of EUR 279 million. Major projects in progress for Merko in Q2 in Estonia included the Hilton Tallinn Park in Tallinn, opened in early June, Maakri Quarter, an office building at Mustamäe tee 3, the Öpiku Maja office building, the T1 shopping centre, Tallink tennis centre, the Bauhaus store in Rocca al Mare and the tram line that will serve the airport. In Latvia, the largest projects in progress were the school complex in Pinki near Riga and phase II of the passenger terminal at Riga Airport. In Lithuania, the Kauno Algirdo residential complex with office space and the Narbuto 5 office building were ongoing.