MANAGEMENT REPORT
General information
Merko Ehitus is a leading building corporation offering integrated solutions
since 1990, with branches currently in Estonia, Latvia and Lithuania. Largest
companies of the Group are SIA Merks (100%), UAB Merko Statyba (100%),
Tallinna Teede AS (100%), AS Gustaf (75%), OÜ Gustaf Tallinn (80%), AS Merko
Tartu (66%), OÜ Woody (100%) and AS Tartu Maja Betoontooted (25%).
At a joint meeting held at 14 March 2008, the Management Board and the
Supervisory Board of AS Merko Ehitus adopted a resolution to restructure
the Company and separate operating activities from the criminal proceedings
related to the land swap. The Company's management estimates that the
restructuring of the Company is the best way to ensure its sustainable
development and protect the interests of shareholders and employees in the
long-lasting criminal proceedings related to the land swap.
The delay in the process of criminal proceedings related to the land swap
launched in 2005 and the accompanying ambiguity and speculation in the media
have started to take a toll on the Company's operations and thus harming the
interests of the Company and its shareholders.
At 15 April 2008, the management of AS Merko Ehitus presented the Company's
restructuring plan (http://www.baltic.omxgroup.com/market/?pg=
etails&instrument=EE3100003559&list=2&tab=news&news_id=222602), according
to which AS Merko Ehitus will be split up/demerged so that AS Merko Ehitus,
e.g. assets (other than liquid assets in the amount of 250 million kroons),
liabilities and contracts as well as the business name will be separated and
transferred to the new company being set up (hereinafter AS Uus Merko).
The exact description of assets and the division plan have been published
in the materials announcing the general meeting of shareholders
http://www.merko.ee/eng/investor/generalmeeting/2008. As a result of the
demerger, each shareholder will receive one share of AS Uus Merko for each
share of AS Merko Ehitus and the shares of AS Uus Merko will be listed on
the Tallinn Stock Exchange as soon as possible. The business name of
AS Merko Ehitus will also be changed and the Company's shares will continue
to be listed on the Tallinn Stock Exchange. The sole member of the Management
Board of the new company will be Toomas Annus.
At May 2 2008 AS Merko Ehitus transferred the 100-percent holding in the
company OÜ Karulaugu Kinnisvara (registry code 11034491) to AS E.L.L.
Kinnisvara. The sale price of the company was 42 million kroons; from this
amount, 4.12 million kroons, the balance of company's financial obligations
and current assets, were deducted.
(http://www.baltic.omxnordicexchange.com/market/?pg=details&instrument=EE3100003
559&list=2&tab=news&news_id=223284)
At May 21 2008 AS Merko Ehitus transferred the 50-percent holding in the
company OÜ Tornimäe Apartments (registry code 11016607) to the copartner
AS EKE Invest. The sale price of the company was 58 million kroons.
(http://www.baltic.omxnordicexchange.com/market/?pg=news&news_id=223709).
Business operations
Group's revenue for the 3 months in 2008 were 1119.6 million kroons, which
constitutes an annual increase of 10.3%. 55.2% of the sales originated from
Estonia, 26.7% from Latvia and 18.1% from Lithuania. As compared with the
respective period in 2007, company's sales in Latvia increased by 94.1%,
in Lithuania by 19,7% and decreased in Estonia by -10,7%.
The warm winter jointly with the cyclic nature of residential construction
and real estate development had a positive effect on the revenue.
Companies of the Group 3M 2008 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):
3M 2008 3M 2007
EEK EUR EEK EUR
Estonian companies
Construction
AS Merko Ehitus (parent company) 458 331 29 293 464 357 29 678
AS Gustaf (75% partnership) 44 746 2 860 22 411 1 432
OÜ Gustaf Tallinn (80% partnership) 40 188 2 568 34 221 2 187
AS Merko Tartu (66% partnership) 39 940 2 553 40 030 2 558
Tallinna Teede AS (100% partnership) 33 244 2 125 20 650 1 320
OÜ Woody (100% partnership) 16 805 1 074 123 227 7 876
Latvian company
SIA Merks (100% partnership) 287 354 18 365 127 341 8 139
Lithuanian company
UAB Merko Statyba (100% partnership) 195 203 12 476 156 893 10 027
The ratios and calculation methods characterizing the operating activities
of the Group
2008 3 months 2007 3 months
Net profit margin 13,8 % 8,7 %
Operating profit margin 15,9 % 8,7 %
Return on equity per annum 29,6 % 21,6 %
Return on assets per annum 15,8 % 10,9 %
Current ratio 2,7 2,1
Equity ratio 55,5 % 51,0 %
General expense ratio 5,1 % 4,1 %
Personnel expense ratio 10,9 % 12,8 %
Average number of full-time employees 1081 907
In 31.03.2008, the number of employees in the Group's service was 1117,
including 1082 full-time employees. The number of the Group's employees
increased by 15.5% (150 new employees were recruited). The gross remuneration
paid to full-time personnel in 3 months 2008 amounted to 104.2 million kroons
an increase of 31.4% compared to previous year.
INCOME STATEMENT 3M 2008
consolidated, in thousand EEK and EUR
EEK EUR
3M 2008 3M 2007 3M 2008 3M 2007
Revenue 1 119 572 1 014 864 71 554 64 862
Cost of goods sold (884 377) (886 352) (56 522) (56 648)
GROSS PROFIT 235 195 128 512 15 032 8 214
Marketing expenses (7 888) (5 605) (504) (358)
Administrative and general expenses(49 373) (35 610) (3 156) (2 276)
Other operating income 1 704 2 102 109 134
Other operating expenses (1 738) (1 038) (111) (66)
OPERATING PROFIT 177 900 88 361 11 370 5 648
Financial income and expenses from stocks
of associate com. and joint ventures 2 280 6 831 145 437
Interest expense (5 584) (2 733) (357) (175)
Foreign exchange gain (1 692) (3 447) (108) (220)
Other financial income 3 240 3 257 207 208
Other financial expenses (6) (1) (0) (0)
Total financial income and expenses (1 762) 3 907 (113) 250
PROFIT BEFORE TAX 176 138 92 268 11 257 5 898
Corporate income tax expense (20 138) (881) (1 287) (57)
NET PROFIT FOR FINANCIAL YEAR 156 000 91 387 9 970 5 841
incl. net profit attributable
to equity holders of
the parent company 154 881 88 450 9 898 5 653
minority interest 1 119 2 937 72 188
Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR) 8,75 5,00 0,56 0,32
BALANCE SHEET AS OF 31.03.2008
consolidated, in thousand EEK and EUR
EEK EUR
31.03.2008 31.12.2007 31.03.2008 31.12.2007
ASSETS
Current assets
Cash and cash equivalents 356 863 205 564 22 808 13 138
Trade and other receivables 1 004 399 1 201 942 64 191 76 818
Inventories 2 047 829 2 025 426 130 880 129 448
Total current assets 3 409 091 3 432 932 217 879 219 404
Non-current assets
Long-term financial investments 303 589 290 852 19 403 18 589
Investment property 12 946 7 361 828 470
Property, plant and equipment 172 134 172 912 11 001 11 051
Intangible assets 12 675 12 574 810 804
Total non-current assets 501 344 483 699 32 042 30 914
TOTAL ASSETS 3 910 435 3 916 631 249 921 250 318
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings 192 924 304 879 12 330 19 485
Trade and other payables 975 752 1 032 210 62 361 65 970
Government grants 1 498 1 498 96 96
Short-term provisions 81 495 73 212 5 208 4 680
Total current liabilities 1 251 669 1 411 799 79 995 90 231
Non-current liabilities
Long-term borrowings 399 165 397 713 25 512 25 418
Long-term payables to suppliers 7 655 11 091 489 709
Long-term suppliers adv. payments47 141 46 332 3 013 2 961
Total non-current liabilities 453 961 455 136 29 014 29 088
Total liabilities 1 705 630 1 866 935 109 009 119 319
Equity
Minority interest 35 058 33 939 2 241 2 169
Equity attributable to equity holders of the parent company
Share capital 177 000 177 000 11 312 11 312
Statutory reserve capital 17 700 17 700 1 131 1 131
Currency translation adjustment (5 976) (5 085) (382) (325)
Retained earnings 1 981 023 1 826 142 126 610 116 712
Total equity attributable to equity
holders of the parent company 2 169 747 2 015 757 138 671 128 830
Total equity 2 204 805 2 049 696 140 912 130 999
TOTAL LIABILITIES AND EQUITY 3 910 435 3 916 631 249 921 250 318
Alar Lagus
Member of Board
+372 6 805 109
alar.lagus@merko.ee
