Merko Ehitus Q1 profit grew to EUR 2.8 million

In Q1 of 2019, Merko Ehitus posted revenue of EUR 77 million and net profit of EUR 2.8 million. The number of apartments delivered to buyers in Q1 of this year grew more than 20% year-over-year.

“Nearly 4% decrease in revenue in the first quarter was expected, considering the trend of decreasing construction orders on the market and the fact that exceptionally large construction projects in the group’s portfolio in recent years were completed. In the first quarter, we entered into more new construction contracts than we did a year ago during the same period, but as the profit margins on construction contracts are low due to high price competition, the growth in revenue is not a goal unto itself. It was positive that we were able to improve net profitability in the first quarter,” commented AS Merko Ehitus management board chairman, Andres Trink, on the results. “In the construction market, the share of government contracts is increasing and the volume of public procurements is significantly influencing the outlook on the construction market in the years to come regarding buildings and especially infrastructure.“

In Q1 of 2019, Merko Ehitus posted revenue of EUR 77 million (Q1 2018: EUR 80 million), EBITDA was EUR 3.5 million (Q1 2018: 1.8 million) and net profit EUR 2.8 million (Q1 2018: EUR 1.1 million). In Q1, new construction contracts worth EUR 32 million were signed, the largest of these being the construction of a support warehouse and the expansion of a medical centre in Tapa armed forces campus, public water supply and sewerage pipe renovation in Harju County and the extension of the Sindi 330 kV substation.

“For Merko Ehitus apartment development is a strategic business area, and this year’s planned investment into that area is around EUR 100 million. At the moment, we have more than 1,000 apartments in development in Estonia, Latvia and Lithuania, of which more than half will be completed in 2020,” said Andres Trink.

“No significant changes took place on the apartment market in the Baltic capitals in Q1. The price level is stabilizing in Tallinn and Vilnius due to an increased supply of new apartments: quality, integral residential environment and the developer’s professionalism have become increasingly important. Considering the low transaction volumes on the Riga apartment market and improving macroeconomic indicators, the growth potential is good there. In 2018, we launched two development projects in Riga with about 200 apartments, which will be completed in 2020,” commented Andres Trink on apartment development business segment.

In Q1 of 2019, Merko Ehitus handed over 63 apartments to buyers, which is more than 20% above the level shown a year ago during the same period. Merko’s largest projects include Uus-Veerenni and Pikaliiva residential communities in Tallinn, Gaiļezers and Viesturdārzs developments in Riga and Vilnelės slėnis and Rinktinės Urban developments in Vilnius.

“One area of concern is the situation on the Baltic banking market, where decreased competition is worsening companies’ access to credit. The tightening requirements on acceptance of bank customers as well as on their transactions can have a negative impact on economic activity in the Baltics. This may, gradually, also manifest itself in a decline of real estate market activity,” cautioned Andres Trink.

As of 31 March 2019, the secured order book of Merko Ehitus group amounted to EUR 190 million, compared to EUR 292 million as at the same date last year. In Q1, the largest projects in progress in Estonia were Pärnu mnt 186 commercial building, student home of Rakvere Vocational School, the Maakri Kvartal business complex, expansion and construction work on the logistics building and medical centre at the Defence Forces Tapa base, dredging and reconstruction works of Hundipea port, and laying undersea cables under the Suur Väin and Väike Väin straits; in Latvia, construction on the Akropole multifunctional centre, Alfa shopping centre and Lidl logistics centre; and in Lithuania, Hotel Neringa, Quadrum office building and two school buildings. In Norway, the largest projects in progress included design and construction of Tesla service centre and renovation of an office building at Møllergata 23-25, Oslo.