OREANDA-NEWS. 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.

The group’s management is 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, the management also appreciates the volume of new contracts signed in the second quarter and the level of the secured order book. According to the management the integration of the Norwegian company acquired in the first quarter has also gone according to plan.

The sales revenue in the 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 design 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 by residential construction, yet the group companies are actively continuing to tender for contracts on all markets in which the group operates, including road construction and other infrastructure project procurements in Estonia.

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 expense 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 the group will continue fulfilling it’s investment plan. This year, Merko has launched construction of more than 280 new apartments, including 100 apartments in the Tallinn’s Paepargi neighbourhood and 66 apartments in the first phase of Noblessner Homeport development and, in Riga, 137 flats in the Skanstes Parks development. In the six months of 2016, Merko sold 159 apartments for a total price of EUR 17.4 million (without 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 at 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 Mustam?e tee 3, the ?piku Maja office building, the T1 shopping centre, Tallink Tennis Centre, the Bauhaus DIY store in Rocca al Mare and the tram line that will serve the airport. In Latvia, the largest projects in progress were the kindergarten and 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.

OVERVIEW OF THE 6 MONTHS AND II QUARTER RESULTS

PROFITABILITY

Q2 2016 profitability improved and the gross margin increased to 9.3% (comparable figure in Q2 2015: 7.6%). Q2 net profit was EUR 1.7 million (Q2 2015: EUR 1.6 million) and net profit margin increased to 2.9% (Q2 2015: 2.3%). Q2 net profit was influenced by additional income tax expense on dividends in the amount of EUR 0.6 million (Q2 2015: EUR 0.9 million). Profit before tax in 6M 2016 was EUR 2.7 million (6M 2015: EUR 3.6 million), which is equivalent to a profit before tax margin of 2.6% (6M 2015: 3.1%). Gross margin in 6M was 8.0% (6M 2015: 7.7%), which has increased by 4.6% compared to the same period last year. Q2 2016 profit before tax was EUR 2.4 million (Q2 2015: EUR 2.7 million). Net margin in 6M 2016 decreased to 1.7% (6M 2015: 2.1%) and net profit was EUR 1.8 million (6M 2015: EUR 2.4 million), having decreased by 24.6% compared to the same period last year.

REVENUE

Revenue in 6M 2016 was EUR 105.6 million (6M 2015: EUR 116.2 million), which has decreased by 9.2% compared to last year. Q2 revenue was EUR 58.7 million (Q2 2015: EUR 70.6 million). The share of revenue earned outside Estonia has expectedly decreased in 6M 2016 to 32% (6M 2015: 38%) in connection with the slump in orders on the Latvian and Lithuanian construction market and the share of revenue earned in Estonia has accordingly increased to 68% (3M 2015: 62%). The number of apartments (159 units) sold in 6 months of 2016 has decreased by 5.4% and the revenue from apartment sales (EUR 17.4 million) by 45.2% (6 months of 2015: 168 units, revenues of EUR 31.7 million).

CASH POSITION

At the end of the reporting period, the group had EUR 21.7 million in cash and cash equivalents and equity EUR 118.5 million (54.8% of total assets). Comparable figures as at 30 June 2015 were accordingly EUR 24.4 million and EUR 122.2 million (54.3% of total assets). As at 30 June 2016 the group had net debt of EUR 13.3 million (30 June 2015: EUR 10.7 million).

SECURED ORDER BOOK

As at 30 June 2016, the group’s secured order book had grown to EUR 279.4 million (30 June 2015: EUR 217.2 million). In 6M 2016, group companies signed new contracts in the amount of EUR 109.0 million (6M 2015: EUR 121.3 million). Q2 2016 new contracts signed in amount of EUR 86.6 million (Q2 2015: EUR 98.9 million).