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Merko Ehitus sales revenue and profit continued growth in Q3

Merko Ehitus Group posted revenue of EUR 115 million in Q3 and the nine-month figure was EUR 299 million. The group’s net profit in Q3 increased to 5.6 million and the nine-month net profit amounted to EUR 12.3 million. This year, Merko Ehitus has launched nine new residential development projects with a total of 840 apartments, of which 550 are in Vilnius.

“The growth of the group’s revenue in both Q3 and in the first nine months of the year meets expectations, considering the volume of construction contracts signed in the past few years and the major construction projects in progress. Input prices have continued to increase on the Baltic construction market and it is difficult to find the necessary workforce capacity for meeting rapid construction schedules. In the current market situation, the growth of construction volumes is not a goal unto itself, if it worsens our risk profile. It is important to operate profitably,” said chairman of the AS Merko Ehitus management board Andres Trink in commenting on the group’s results.

The volume of new construction contracts concluded by the group’s companies in the first nine months is lower than the volume of works performed, and the secured order-book as a whole has decreased for four quarters in a row. This will also likely impact the group’s future construction volumes. ”The construction market is impacted significantly by the price rise and the shortage of construction capacity. This postpones the launch of customers’ new construction projects, as there are no resources for this in their budget or they are not able to ask higher prices from their end clients,” noted Andres Trink. In the first nine months of 2018, the group signed new contracts worth a total of EUR 157.0 million, including for the construction of Lidl logistics centre in Riga, the Quadrum office building and two school buildings in Vilnius and the Kiini and Harku substations in Estonia. As of 30 September 2018, Merko Ehitus Group’s secured order book amounted to EUR 239.4 million.

Merko Ehitus continues to invest into the apartment development field. In the nine months of this year, the group has delivered 255 new apartments to buyers in the Baltics and launched nine new development projects with a total of 840 apartments, including 550 in Vilnius. The biggest projects that should be highlighted are the Uus-Veerenni and Pikaliiva residential environments in Tallinn as well as the Vilneles slenis and Rinktinės Urban developments in Vilnius. As some of the developments will be completed in 2020, the sale of the apartments in question will also be recognized in the group’s results in the year after the next.

“The apartment market in the Baltic states is supported by economic growth, rapid rise in wages and low interest rates. In Tallinn and Vilnius, the prices of new apartments have risen while the total number of recently and soon to be completed units is high and buyers have a wider selection to choose from. The quality of development projects, the living environment to be established and the strength and reliability of the developer have become more and more important in the case of all developments, especially in the premium price segment. Considering the low transaction activity on the Riga apartment market in recent years and the improving macroeconomic indicators, the growth potential there is good,” said Andres Trink.

Q3 sales revenue for Merko Ehitus was EUR 115.1 million (Q3 2017: EUR 86.0 million) and the nine-month revenue amounted to EUR 298.8 million (9 months of 2017: EUR 214.8 million, growth of 39.1%). The share of revenue earned outside Estonia as of the nine-month mark was 51.5% (nine months of 2017: 35.8%). The group’s EBITDA was EUR 6.2 million for Q3 and EUR 14.3 million for the first nine months of 2018. Net profit in Q3 was EUR 5.6 million (Q3 2017: EUR 3.4 million) and the nine-month net profit was EUR 12.3 million (9 months of 2017: EUR 6.6 million, growth of 87.6 %).

In the first nine months of 2018, the group sold 255 apartments, including 47 apartments in a joint venture. In Q3, the group sold 87 apartments, including 13 apartments in a joint venture. This year, the group has invested EUR 22 million into development projects launched and those already in progress.

In Q3, Merko’s largest works in progress were, in Estonia, the T1 Mall of Tallinn shopping centre, Maakri Kvartal business complex, Öpiku Office Building tower B, Tallink office building, the residence of the Embassy of the People’s Republic of China, the Viimsi state upper secondary school, Toom-Kuninga 21 apartment building, the first phase of the office building at Tartu mnt 80, renovation works on the Tsirguliina 330kV substation and the renovation and dredging of the Port of Hundipea. In Latvia, the largest sites in Q3 were the construction of Akropol multifunctional centre, Alfa shopping centre, Z-Towers complex and Lidl logistics centre in Riga as well as Ventspils music school and concert hall. In Vilnius, the largest sites in progress were Hotel Neringa, Quadrum office building, the apartment building complex in the “Š” altiniu Namai Quarter and two school buildings.