MANAGEMENT REPORT
General information
AS Merko Ehitus operates in Estonia, Latvia and Lithuania as a construction
group providing integrated construction solutions. 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 3 April 2009, a suspicion was elaborated which was earlier submitted
against AS Merko Ehitus in relation to the giving of a bribe to Ivo Parbus.
While the suspicion submitted at 17 December 2008 stated that the bribe was
given for the purpose of accelerating the proceedings with the plans of
seven properties, then according to the elaboration of 3 April, the number
of properties decreased to three. Concerning the plans for the remaining
four properties, a suspicion on the same bribe object was submitted against
OÜ Woody, OÜ Metsailu and OÜ Constancia that are subsidiaries of AS Merko
hitus. In addition to Estravel's gift coupon of EEK 25 thousand, the
suspected bribe of AS Merko Ehitus also includes book "Eesti Talurahva
Arhitektuur" costing EEK 410. The suspicion submitted against the
subsidiaries mentions Estravel's gift coupon of EEK 25 thousand, a book
costing EEK 410 and Estravel's gift coupon of EEK 15 thousand as the bribe.
The suspects consider the suspicions to be unfounded
(http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=232461).
At its 16 April 2009 session, the Government of the Republic of Estonia
approved the tender submitted by Tallinna Teede AS (100% subsidiary of
AS Merko Ehitus) as the winning tender in the privatisation auction of
the 100% holding in the state-owned company AS Vooremaa Teed. The
acquisition of AS Vooremaa Teed will significantly improve the group's
presence in the road construction and maintenance sector and will create
new opportunities for the further development of the field.
Operating results
Group's revenue for the 2009 3 months was EEK 609.2 million, which
constitutes an annual decrease of 45.6%. 73.5% of the sales originated
from Estonia, 23.5% from Latvia and 3.0% from Lithuania. As compared to
with the 2008 3 months, company's sales decreased in Lithuania by 91.1%,
in Latvia by 52.1% and in Estonia by 27.5%.
As at 31 March 2009, the group's backlog of construction contracts in
progress amounted to EEK 2886 million.
Companies of the Group 3M 2009 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):
3M 2009 3M 2008
EEK EUR EEK EUR
Estonian companies
AS Merko Ehitus (parent company) 358 256 22 897 458 331 29 293
AS Gustaf (75% partnership) 12 732 814 44 746 2 860
OÜ Gustaf Tallinn (80% partnership) 17 048 1 090 40 188 2 568
AS Merko Tartu (66% partnership) 36 657 2 343 39 940 2 553
Tallinna Teede AS (100% partnership) 19 397 1 240 33 244 2 125
OÜ Woody (100% partnership) 4 096 262 16 805 1 074
Latvian company
SIA Merks (100% partnership) 143 192 9 152 287 354 18 365
Lithuanian company
UAB Merko Statyba (100% partnership) 17 070 1 091 195 203 12 476
In one year, the Group's cost of goods sold decreased by 40.9% and marketing
and general administrative expenses by 23.1%. The economizing measures taken
to reduce costs helped to decrease marketing and administrative expenses,
with the EEK 4.7 million decrease in labour costs, EEK 2.6 million decrease
in consultation and legal aid and EEK 1.4 million decrease in advertising and
sponsoring being the most significant factors. Despite the vigorous measures,
the group's cost-cutting rate failed to keep up with the fall in revenue -
thus, the cost of goods sold in the period increased to 85.8% and marketing
and administrative costs to 7.2%.
The Group's profit before taxes for 3 months 2009 amounted to EEK 36.9
million, having decreased by EEK 139.2 million compared to 2008 3 months
and net profit amounted to EEK 32.7 million, having decreased by EEK 122.2
million or 78.9% correspondingly. The slump in profit was influenced both
by the decreased profitability of the construction and development fields
and the general fall in construction volumes. The seasonality of the
construction business and the cyclic nature of development activities did
not have a significant influence on the results of the quarter.
In Q1 2009, the Group sold 70 apartments in total cost of EEK 87.4 million
(without VAT). As at 31.03.2009 Group held in inventories unsold 344
completed apartments in total cost EEK 422.1 million and 444 apartments
in the construction stage, of which construction progress was frozen for
433 apartments until a recovery in demand. Group's revenue from development
activities for Q1 2009 amounted to EEK 100.4 million, having decreased by
EEK 314.9 million compared to Q1 2008.
In 3 months 2009 Group's total cash flows amounted to EEK -261.6 million,
of which the cash flows from operating activities totalled EEK +4.5
million, from investment activities EEK -199.5 million and from financing
activities EEK -66.6 million. The cash flows from operating activities of
the reporting period were mostly affected by change in liabilities and
prepayments related to operating activities EEK -170,4 million, change in
receivables and prepayments related to operating activities EEK +107.3
million, change in inventories EEK +54.7 million and operating profit
EEK +41,2 million. From investment activities cash flows EEK -170.9 million
constituted from pecuniary means applied to deposits, EEK -32.9 million
from balance of granted/received loans and EEK +6.4 million from received
interests.
As at 31 March 2009, the Group has EEK 688.1 million of funds on the
Group's bank accounts and deposits.
The ratios and calculation methods characterizing the operating activities
of the Group
2009 3 months 2008 3 months
Net profit margin 5,4 % 13,8 %
EBT margin 6,1 % 15,7%
Operating profit margin 6,8 % 15,9 %
Return on equity per annum 6,3 % 29,6 %
Return on assets per annum 3,5 % 15,8 %
Current ratio 3,1 2,7
Equity ratio 57,7 % 55,5 %
General expense ratio 7,2 % 5,1 %
Gross remuneration ratio 12,0 % 9,3 %
Net profit margin: Net profit* / Revenue
EBT margin: Profit before tax / Revenue
Operating profit margin: Operating profit / Revenue
Return on equity: Net profit x 4* / Average equity during the period*
Return on assets: Net profit x 4* / Average assets during the period
Current ratio: Current assets / Current liabilities
Equity ratio: Owners equity* / Total assets
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue
*attributable to equity owners of the parent
Employees and remuneration
In 31.03.2009, the number of employees in the Group's service was 845,
including 822 full-time employees. The Group reduced the number of its
personnel by 24.4% or 252 employees in a year. The gross remuneration paid
to employees in 3 months 2009 amounted to EEK 72.8 million a decrease of
30,1% compared to previous year. The smaller amount of performance pay, due
to the fall in the group's profitability, and the reduced staff levels also
contributed to the fall in the group's labour costs.
STATEMENT OF COMPREHENSIVE INCOME 3M 2009
consolidated, unaudited, in thousand EEK and EUR
EEK EUR
3M 2009 3M 2008 3M 2009 3M 2008
Revenue 609 191 1 119 572 38 934 71 554
Cost of goods sold (522 383) (884 377) (33 386) (56 522)
GROSS PROFIT 86 808 235 195 5 548 15 032
Marketing expenses (7 050) (7 888) (451) (504)
Administrative and general expenses(37 009) (49 373) (2 365) (3 156)
Other operating income 1 910 1 704 122 109
Other operating expenses (3 430) (1 738) (219) (111)
OPERATING PROFIT 41 229 177 900 2 635 11 370
Financial income and expenses from stocks of
associate comp. and joint ventures (3 323) 2 280 (213) 145
Interest expense (7 839) (5 584) (501) (357)
Foreign exchange gain 170 (1 692) 11 (108)
Other financial income 7 779 3 240 497 207
Other financial expenses (1 112) (6) (70) (0)
Total financial income and expenses (4 325) (1 762) (276) (113)
PROFIT BEFORE TAX 36 904 176 138 2 359 11 257
Corporate income tax expense (4 653) (20 138) (297) (1 287)
NET PROFIT FOR FINANCIAL YEAR 32 251 156 000 2 062 9 970
incl. equity holders
of the parent 32 726 154 881 2 092 9 898
minority interest (475) 1 119 (30) 72
OTHER COMPREHENSIVE INCOME
Exchange differences on
translating foreign subsidiaries (1 006) (891) (64) (57)
COMPREHENSIVE INCOME 31 245 155 109 1 998 9 913
incl. equity holders
of the parent 31 720 153 990 2 028 9 841
minority interest (475) 1 119 (30) 72
Earnings per share for profit attributable
to the equity holders of the parent
(basic and diluted, in EEK and EUR) 1,85 8,75 0,12 0,56
STATEMENT OF FINANCIAL POSITION AS OF 31.03.2009
consolidated, unaudited, in thousand EEK and EUR
EEK EUR
31.03.2009 31.12.2008 31.03.2009 31.12.2008
ASSETS
Current assets
Cash and cash equivalents 254 371 515 191 16 257 32 927
Shortterm financial investments 433 707 262 759 27 719 16 793
Trade and other receivables 727 795 784 540 46 515 50 141
Inventories 1 763 610 1 817 486 112 714 116 158
Assets held for sale - 173 - 11
Total current assets 3 179 483 3 380 149 203 205 216 030
Non-current assets
Long-term financial investments 255 857 260 036 16 353 16 619
Investment property 12 581 12 002 804 767
Property, plant and equipment 193 992 197 094 12 398 12 597
Intangible assets 11 820 11 807 755 755
Total non-current assets 474 250 480 939 30 310 30 738
TOTAL ASSETS 3 653 733 3 861 088 233 515 246 768
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings 184 458 206 657 11 789 13 208
Trade and other payables 800 700 972 330 51 172 62 144
Short-term provisions 33 058 32 317 2 113 2 065
Total current liabilities 1 018 216 1 211 304 65 074 77 417
Non-current liabilities
Long-term borrowings 486 356 531 396 31 084 33 962
Long-term payables to suppliers 11 042 8 824 706 564
Long-term suppliers advance payments 10 - 1 -
Total non-current liabilities 497 408 540 220 31 791 34 526
Total liabilities 1 515 624 1 751 524 96 865 111 943
Equity
Minority interest 31 458 34 633 2 010 2 213
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 differences(13 556) (12 550) (866) (802)
Retained earnings 1 925 507 1 892 781 123 063 120 971
Total equity attributable to
equity holders of the parent 2 106 651 2 074 931 134 640 132 612
Total equity 2 138 109 2 109 564 136 650 134 825
TOTAL LIABILITIES AND EQUITY 3 653 733 3 861 088 233 515 246 768
Alar Lagus
Member of Board
+372 6 805 109
alar.lagus@merko.ee
