AS MERKO EHITUS CONSOLIDATED INTERIM REPORT 1 AS MERKO EHITUS GROUP 2021 6 months and II quarter consolidated unaudited interim report Business name: AS Merko Ehitus Main activities: Holding companies General contracting of construction Real estate development Commercial Register No.: 11520257 Address: Järvevana tee 9G, 11314 Tallinn Postal address: Pärnu mnt 141, 11314 Tallinn Phone: +372 650 1250 Fax: +372 650 1251 E-mail: [email protected]Web site: group.merko.ee Financial year: 01.01.2021 – 31.12.2021 Reporting period: 01.01.2021 – 30.06.2021 Supervisory Board: Toomas Annus, Teet Roopalu, Indrek Neivelt Management Board: Andres Trink, Tõnu Toomik Auditor: AS PricewaterhouseCoopers
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BRIEF OVERVIEW OF THE GROUP ................................................................................................................................................................................................ 3 MANAGEMENT REPORT ................................................................................................................................................................................................................. 5 MANAGEMENT BOARD'S DECLARATION ................................................................................................................................................................................20 INTERIM FINANCIAL STATEMENTS .......................................................................................................................................................................................... 21
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ..................................................................................................................................... 21 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................................................................................................................................................ 22 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ................................................................................................................................................. 23 CONSOLIDATED CASH FLOW STATEMENT ........................................................................................................................................................................24
NOTES ................................................................................................................................................................................................................................................ 25 NOTE 1 ACCOUNTING POLICIES USED ............................................................................................................................................................................... 25 NOTE 2 OPERATING SEGMENTS ........................................................................................................................................................................................ 25 NOTE 3 COST OF GOODS SOLD ........................................................................................................................................................................................... 29 NOTE 4 EARNINGS AND DIVIDENDS PER SHARE .......................................................................................................................................................... 29 NOTE 5 CASH AND CASH EQUIVALENTS .......................................................................................................................................................................... 30 NOTE 6 TRADE AND OTHER RECEIVABLES ..................................................................................................................................................................... 30 NOTE 7 INVENTORIES ............................................................................................................................................................................................................ 31 NOTE 8 OTHER LONG-TERM LOANS AND RECEIVABLES ........................................................................................................................................... 31 NOTE 9 INVESTMENT PROPERTY ...................................................................................................................................................................................... 31 NOTE 10 PROPERTY, PLANT AND EQUIPMENT ............................................................................................................................................................. 32 NOTE 11 INTANGIBLE ASSETS ............................................................................................................................................................................................. 32 NOTE 12 BORROWINGS ......................................................................................................................................................................................................... 33 NOTE 13 PAYABLES AND PREPAYMENTS .......................................................................................................................................................................34 NOTE 14 SHORT-TERM PROVISIONS ................................................................................................................................................................................34 NOTE 15 OTHER LONG-TERM PAYABLES ........................................................................................................................................................................34 NOTE 16 RELATED PARTY TRANSACTIONS .................................................................................................................................................................... 35 NOTE 17 CONTINGENT LIABILITIES ....................................................................................................................................................................................38
DEFINITION OF RATIOS ................................................................................................................................................................................................................. 39
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
3
BRIEF OVERVIEW OF THE GROUP
AS Merko Ehitus is a construction and real estate development group operating in Estonia, Latvia, Lithuania and Norway.
BUSINESS SEGMENTS
ESTONIA LATVIA LITHUANIA NORWAY
General construction
Civil engineering
Electrical construction
Road construction
Residential real estate
development and
investments
General construction
Civil engineering
Residential real estate
development and
investments
General construction
Residential real estate
development and
investments
General construction
The construction company with the largest equity in the Baltics, long-term capability to self-finance its projects
A strong position on the Baltic construction market, the leading residential real estate developer
International quality, environmental protection and occupational safety certificates ISO 9001, ISO 14001, ISO 45001
SHARES The shares are listed in the Main List of NASDAQ Tallinn since 1997.
The main shareholder is AS Riverito (72%)
2020 KEY FIGURES
Revenue 315.9 million euros Net profit 23.0 million euros 666 employees
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
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STRATEGY AS Merko Ehitus subsidiaries provide construction services in the field of
building and infrastructure construction and develop residential real
estate in their main home markets of Estonia, Latvia, Lithuania, and
Norway. We want to be the preferred partner for those who value quality,
both in the performance of construction works and in the development
and sale of apartments, as well as in contributing to society. As a caring
and development oriented employer, we ensure that our employees are
professional and motivated, each of whom contributes to the joint result
of each company, each unit and Merko itself. By focusing on profitability,
cost base efficiency and the best employees, we ensure the investor a
long-term profitable investment.
Purpose
We create a better living
environment.
We build the future.
Business
We construct buildings
and infrastructure and
develop real estate.
We operate in Estonia,
Latvia, Lithuania and
Norway.
Principles
We operate as one
Merko. We see
opportunities, act upon
them and have a long-
term view. Our focus is
on profitable growth.
Values I keep
my word.
I care and take
responsibility.
I initiate and
make it happen.
I look for
new ideas.
I am
competent.
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
5
MANAGEMENT REPORT COMMENTARY FROM MANAGEMENT
Second-quarter revenue for Merko Ehitus was EUR 86 million and net profit was EUR 6.4 million. The revenue for first half
increased by 12% to EUR 146 million and net profit by 19% to EUR 9.8 million. This year, Merko has sold nearly 150 apartments this
year and launched the construction of more than 800 apartments.
According to the management of Merko Ehitus, the construction sector is more and more influenced by the rapid price rise of
materials and problems related to supply, as a result of which the risks related to on-time completion of construction objects and
staying within budget have soared. Considering the current market situation, the management is satisfied with the results of the
first half of the year. The group’s revenue and net profit grew in both Q2 and in the first half of the year. The number of new
construction contracts signed this year decreased somewhat, while the launch of new apartment development projects continued,
which are not reflected in the portfolio of contracts.
The share of the apartment development sector segment in the group’s revenue decreased in the
first half-year due to the time timing of completion of the development projects. In the first half
of the year, almost 150 apartments have been handed over to buyers and launched the
construction of more than 800 new apartments, of which the majority will be completed in 2022.
The number of apartments under construction is up significantly and apartment sales are going
according to plan – most of the finished apartments have been sold and a large part of the
apartments under construction are reserved under preliminary contracts of sale. As a whole, the
apartment market in the Baltics has been active this year. Merko’s largest apartment
development projects were Noblessner, Uus-Veerenni, Odra, Metsatuka and Lahekalda, in Tallinn;
Erminurme, in Tartu; Viesturdārzs and Mežpilsēta, in Riga; and Vilneles Skverai, in Vilnius.
In Q2, AS Merko Ehitus Eesti entered into a contract for acquiring a 35% holding in the network construction and maintenance
company Connecto Eesti AS, under which Merko Ehitus Eesti’s electrical engineering unit will merge with Connecto Eesti AS. The
management of Merko Ehitus considers that that investments into energy and communication infrastructure are continuing and
Connecto has good prospects to be a part of these developments.
In Q2 of 2021, Merko entered into new contracts worth EUR 38 million of which the largest were a contract for the design and
construction of the infrastructure of the Republic of Estonia’s southeast land border sections 4–6 and a contract for the
construction of St John’s School in Tallinn. The Merko group’s secured order book balance grew to EUR 250 million as of the end of
the second quarter.
In the second quarter, the largest objects in Estonia were the third development phase of the Mustamäe medical campus of the
North-Estonia Medical Centre, the Tallinn School of Music and Ballet, zero cycle construction works of Liivalaia business and
residential complex and the construction of infrastructure segments of the Republic of Estonia’s southeast land border. In Latvia,
the works in progress were the Orkla wafer and biscuit production plant and NATO facilities in Ādaži, and the Kauguri city park and
youth house. In Lithuania, infrastructure for a number of wind farms and the Kaunas district police headquarters building, NATO
barracks and a production building for Continental Automotive.
2021 6M
REVENUE 146 MILLION EUROS
PROFIT BEFORE TAX
10.5 MILLION EUROS
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
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OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS
PROFITABILITY
2021 6 months’ pre-tax profit was EUR 10.5 million and Q2 2021 was EUR 6.7 million (6M 2020: EUR 8.8 million and Q2 2020 was
EUR 6.7 million), which brought the pre-tax profit margin to 7.2% (6M 2020: 6.8%).
Net profit attributable to shareholders for 6 months 2021 was EUR 9.8 million (6M 2020: EUR 8.2 million) and for Q2 2021 net profit
attributable to shareholders was EUR 6.4 million (Q2 2020: EUR 6.2 million). 6 months net profit margin was 6.7% (6M 2020: 6.3%).
REVENUE
Q2 2021 revenue was EUR 85.8 million (Q2 2020: EUR 73.9 million) and 6 months’ revenue was EUR 145.9 million (6M 2020:
EUR 129.7 million). 6 months’ revenue increased by 12.4% compared to same period last year. The share of revenue earned outside
Estonia in 6 months 2021 was 38.0% (6M 2020: 50.3%).
SECURED ORDER BOOK
As of 30 June 2021, the group’s secured order book was EUR 249.8 million (30 June 2020: EUR 236.7 million). In 6 months 2021,
group companies signed new contracts in the amount of EUR 135.1 million (6M 2020: EUR 175.1 million). In Q2 2021, new contracts
were signed in the amount of EUR 37.8 million (Q2 2020: EUR 87.8 million).
REAL ESTATE DEVELOPMENT
In 6 months 2021, the group sold a total of 145 apartments; in 6 months 2020, the group sold 369 apartments. The group earned a
revenue of EUR 25.8 million from sale of own developed apartments in 6 months 2021 and EUR 46.0 million in 6 months 2020. In
Q2 of 2021 a total of 55 apartments were sold, compared to 236 apartments in Q2 2020, and earned a revenue of EUR 11.0 million
from sale of own developed apartments (Q2 2020: EUR 27.4 million).
CASH POSITION
At the end of the reporting period, the group had EUR 21.7 million in cash and cash equivalents, and equity of EUR 145.3 million
(52.5% of total assets). Comparable figures as of 30 June 2020 were EUR 23.7 million and EUR 138.4 million (50.3% of total assets),
respectively. As of 30 June 2021, the group’s net debt was EUR 16.1 million (30 June 2020: EUR 34.2 million).
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
7
OUTLOOK OF CONSTRUCTION AND REAL ESTATE MARKET
CONSTRUCTION SERVICES
Construction volumes in the Baltic states have been rising from the end of 2016 to Q1 of 2020. The pandemic and related
restrictions had a clear impact on the first three quarters of 2020 but from Q4 of 2020 on, construction volumes began making up
the lost ground. It would be difficult and unrewarding to try to forecast what the second half of 2021 will be like as long as
information on potential restrictions is lacking or remains purely speculative.
The dramatic growth in the prices of construction services
that emerged in Q2 of 2021 and the still unclear reliability
of materials supply chain will surely have an impact,
leading customers to postpone planned investments and to
take a another look at their profitability calculations. On the
other hand, there has been a massive increase of money
supply worldwide, which is guiding market participants to
make capital investments and has led to a broad-based
inflation expectation, perhaps created the fear that in a few
years from now, construction will cost even more. Thus, it
continues to be hard to say which factor will outweigh the
other at the given point in time. Uncertainty and volatility
on the markets is bound to continue for some time before
new stability-instilling experiences make it possible to find a new equilibrium. In this environment, demand from the public sector
will remain important for the construction sector, offering relative stability.
The stability seen in construction cost from 2018 to 2020 came to a clear end in Q2 of 2021. Although the actual numbers from June
are not yet reflected in the official statistics on all Merko Group’s home markets, based on the data for May we can see 5.5 to 6.5
percentage point quarterly cost growth. All of the major components in the price index (materials, labour, machinery) have
increased, with materials making the biggest leap. At the same time, the deadlines for delivery of materials and intermediate
products have become longer due to commodities shortages, leading to continuing cost pressure for construction contractors
trying to stay on schedule. In this situation, it is impossible to say whether and when increased reliability of supply chain might
reduce the upward pressure on prices of materials.
DEVELOPMENT OF APARTMENTS
In H1, high level of activity on the new apartments
market continued across the Baltics. Only in June
could signs of easing be seen, but it is unknown
whether this was because of the unusually nice
summer weather or if the demand accumulated
during the lockdown had been satisfied by then.
Apartments in new projects launched since H2 of
2020 will be reflected in official statistics on deeds
of sale only in 2022, so we can expect statistics
show increasing sales volumes and prices of new
developments to continue for some time.
Unfortunately, it is no known for how long the
heightened demand will last and whether potential
restrictions in the view of next waves of the
pandemic will push people to continue improving
their living conditions to make new lockdowns
more tolerable.
Prices of apartments in 2018-2020 generally
continued on the same growth trajectory, with fluctuations within the brackets of statistical error. The sudden rise in cost of
construction in Q2 of 2021 will undoubtedly lead to a rise in prices of yet unsold apartments in new developments, although the
price elasticity of demand is unknown – the adaptation of housing loan providers to new price levels. The question for all market
participants is whether and to what extent the current rise in construction cost stemming from materials will push sales prices of
newly developed properties upwards ahead of the curve and whether the new price levels will be sustainable even in case the
inflationary pressure from materials, energy sources and labour slackens off.
1
11
12
1
14
15
16
2 1 2 1 2 1 2 2 2 21
QUARTERL CONSTRUCTION VOLUME IN E , seasonally adjusted
2 15 1 Eurostat
Estonia Latvia Lithuania Norway Euro area 1 countries
1
11
12
1
14
15
16
2 1 2 1 2 1 2 2 2 21
NE ELLIN S QUARTERL OUSE RICE IN E
2 15 1 Eurostat
Estonia Latvia Lithuania Norway
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
8
BUSINESS ACTIVITIES
The group business reporting is divided into two business segments:
• construction service;
• real estate development.
CONSTRUCTION SERVICE
The construction service in Estonia consists of services in the field of general construction, civil engineering, electricity, external
networks and road construction, as well as concrete works: in Latvia general construction and provision of civil engineering
services; and in Lithuania and Norway general construction works.
Stock Exchange List Nasdaq Tallinn, Baltic Main List
Industry Construction
ISIN EE3100098328
Nominal value Without nominal value
Number of issued securities 17,700,000
Number of listed securities 17,700,000
Currency EUR
Listing date 11 August 2008
The shares of Merko Ehitus are listed in the Main List of Nasdaq Tallinn. As of 30 June 2021, the company has 17,700,000 shares.
The number of shares has not changed during 2021.
A total of 26,825 transactions were conducted with the shares of Merko Ehitus in 6 months of 2021, with 1.41 million shares (8.0%
of total shares) traded, generating a turnover of EUR 19.8 million (comparable figures in 6 months 2020 were accordingly: 13,115
transactions with 1.09 million shares traded (6.1% of total shares), generating a turnover of EUR 9.2 million). The lowest value-
per-share transaction was recorded at the price of EUR 9.48 and the highest at EUR 17.14 per share (6 months of 2020: EUR 6.56
and EUR 10.60, accordingly). On 30 June 2021, the closing price of the share was EUR 15.10 (30.06.2020: EUR 8.48). As of 30 June
2021, by the Nasdaq Baltic stock exchange, the market capitalisation of AS Merko Ehitus was EUR 267.3 million, up 78.1% compared
to the end of the equivalent period of the prior year (30.06.2020: EUR 150.1 million).
30.06.2021 30.06.2020 30.06.2019 31.12.2020
Number of shares 17,700,000 17,700,000 17,700,000 17,700,000
Earnings per share (EPS), euros 0.55 0.46 0.25 1.30
Equity per share, euros 8.45 7.37 7.20 8.01
P/B ratio 1.79 1.15 1.27 1.18
P/E ratio 10.87 7.51 9.47 7.28
Market value, million EUR 267.3 150.1 162.1 167.4
Ratio definitions are provided on page 39 of the report.
CHANGE IN THE PRICE AND TRANSACTION VOLUME OF MERKO EHITUS SHARE AT NASDAQ TALLINN STOCK EXCHANGE IN 2021
2
4
6
1
2
4
6
1
12
14
16
1
12 2 1 21 2 21 21 4 21 5 21 6 21
volume of transactions, thousand EUR
share price in EUR
share price
volume of transactions
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
16
STRUCTURE OF SHAREHOLDERS ACCORDING TO NUMBER OF SHARES AS OF 30.06.2021
NUMBER OF SHARES NUMBER OF SHAREHOLDERS % OF SHAREHOLDERS NUMBER OF SHARES % OF SHARES
1,000,001 - … 1 0.01% 12,742,686 71.99%
100,001 – 1,000,000 7 0.09% 1,357,605 7.67%
10,001 – 100,000 49 0.63% 1,096,725 6.20%
1,001-10,000 532 6.79% 1,509,721 8.53%
101-1,000 2,334 29.80% 840,240 4.75%
1-100 4,909 62.68% 153,023 0.86%
Total 7,832 100% 17,700,000 100%
SHAREHOLDERS OF AS MERKO EHITUS AS OF 30.06.2021 AND CHANGE COMPARED TO THE PREVIOUS QUARTER
NUMBER OF
SHARES
% OF TOTAL
30.06.2021
% OF TOTAL
31.03.2021 CHANGE
AS Riverito 12,742,686 71.99% 71.99% -
OÜ Midas Invest 366,000 2.07% 1.99% 14,500
Firebird Republics Fund Ltd 317,000 1.79% 1.83% (6,300)
Firebird Avrora Fund Ltd 178,067 1.01% 1.01% -
SEB Life and Pension Baltic SE Estonian Branch 148,787 0.84% 0.84% -
Siseinfo OÜ 130,000 0.73% 0.73% -
Clearstream Banking AG 114,030 0.64% 0.63% 1,800
Firebird Fund L.P. 103,721 0.59% 0.59% -
Seitse Samuraid OÜ 100,000 0.56% 0.56% -
Sven Einar Stefan Andersson 80,000 0.45% 0.54% (16,410)
Total largest shareholders 14,280,291 80.67% 80.71% (6,410)
Total other shareholders 3,419,709 19.33% 19.29% 6,410
Total 17,700,000 100% 100% -
PERFORMANCE OF THE SHARE OF MERKO EHITUS AND COMPARISON INDEX OMX TALLINN IN 2021
1 %
11 %
12 %
1 %
14 %
15 %
16 %
1 %
1 %
1 %
12 2 1 21 2 21 21 4 21 5 21 6 21
MRK1T change %
OM T change %
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
17
DIVIDENDS AND DIVIDEND POLICY The distribution of dividends to the shareholders of the company is recorded as a liability in the financial statements as of the
moment when the payment of dividends is approved by the company’s shareholders.
According to the current dividends policy the objective is paying the shareholders 50-70% of the annual profit.
On 5 May 2021, the shareholders of AS Merko Ehitus approved the Supervisory Board’s proposal to the shareholders to pay out the
total amount of EUR 17.7 million (EUR 1.00 per share) as dividends from net profit brought forward, which is equivalent to a 77%
dividend rate and a 10.6% dividend yield for the year 2020 (using the share price as of 31 December 2020). No comparable data for
2020 were available since the general meeting of shareholders held on 6 May 2020 confirmed the Supervisory Board’s proposal
not to pay dividends from net profit brought forward to shareholders.
While the group did not incur income tax expenses arising in connection with disbursement of dividends in Estonia in 2018 and
2020, it did incur these in 2019 in the case of EUR 10.3 million of paid dividends. Due to that, in 2021, the group will apply the 14/86
income tax rate on regularly payable dividends on one third of the EUR 10.3 million, i.e. EUR 3.4 million of the (net) dividends paid.
The group will withhold additional 7% income tax from dividends paid to shareholders that are natural persons and on which the
14/86 income tax rate has been applied.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE AND STRUCTURE
AS Merko Ehitus operates as a holding company to a group, the companies of which in Estonia, Latvia, Lithuania and Norway offer
complete solutions in the field of construction and real estate development. The group’s largest companies are AS Merko Ehitus
Eesti (100%), Tallinna Teede AS (100%), SIA Merks (100%), UAB Merko Statyba (100%), UAB Merko Bustas (100%), Peritus
Entreprenør AS 56% and the company belonging to the AS Merko Ehitus Eesti group: AS Merko Infra (100%).
The main area of activity of the holding company is developing and implementing strategies for the Merko Ehitus group’s various
business segments by way of planning resources, deciding on major investments, targeting and overseeing the activity of
subsidiaries and coordinating partner relations. The holding company AS Merko Ehitus has a two-member Management Board:
Andres Trink and Tõnu Toomik.
The overview of the Management Board and Supervisory Board have been presented on page 18 and in Note 16 of the interim
financial statements, and published, together with the track record and photographs, on the company’s website at
group.merko.ee/en/corporate-governance-2/.
It is important to maintain a simple organisational structure in the group and in management to be guided primarily by the group's
objectives and requirements. For the purposes of maximum efficiency in the group management, we in some cases differentiate
the management structure and legal structure. Management of the group’s operating activity takes place in a country-specific
manner and is coordinated at the level of the holding company.
As of 30 June 2021, the management structure is as follows:
GROUP'S LEGAL STRUCTURE
As of 30 June 2021, in addition to AS Merko Ehitus, the group comprises 32 companies (30.06.2020: 31). The group's legal structure
is predominantly based on economic and legal rationality and does not in all cases conform one-to-one to the group's
management structure. The detailed list of group companies is provided in Note 16 of the interim financial statements.
Changes in the legal structure of the group
On 6 November 2020, AS Merko Ehitus launched a process for restructuring its 100% subsidiary in Lithuania, UAB Merko Bustas.
Under the restructuring plan, UAB Merko Bustas’s 1 % owned subsidiary UAB Jurininku Aikštele was merged into its parent. It is
planned to complete the restructuring and make the respective entry into the Commercial Register during the 2021.
In connection with the change in the structure of the AS Merko Ehitus group, a contract for the sale of shares of Tallinna Teede AS
was concluded on 15 December 2020 between AS Merko Ehitus and AS Merko Ehitus Eesti, where under the latter transferred its
100% stock holding to AS Merko Ehitus on 1 January 2021.
On 18 February 2021, Merko Investments AS, a fully owned subsidiary of AS Merko Ehitus, acquired a 56% holding in a Norwegian
company Løkenskogen Bolig AS with a share capital of NOK 30 thousand (EUR 2,884) at the purchase price of EUR 2 thousand for
Total transactions with owners - - - (17,700) (17,700) 8 (17,700)
Balance as of 30.06.2021 7,929 793 (798) 137,383 145 307 4,078 149,385
The share capital of AS Merko Ehitus consists of 17,700,000 shares without nominal value.
The notes set out on pages 25-38 are an integral part of these interim financial statements.
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
24
CONSOLIDATED CASH FLOW STATEMENT unaudited
in thousand euros
Note 2021
6 months
2020
6 months
2020
12 months
Cash flows from operating activities
Operating profit 10,923 9,087 25,466
Adjustments:
Depreciation and impairment 1,262 1,413 2,751
(Profit)/loss from sale of non-current assets (60) (113) (250)
Change in receivables and liabilities related to construction
contracts (10,672) 6,835 2,794
Interest income from operating activities (1,004) (709) (1,499)
Change in provisions (3,055) (5,130) (1,072)
Change in trade and other receivables related to operating
activities (24,405) (1,686) 7,017
Change in inventories (10,250) 4,976 40,231
Change in trade and other payables related to operating activities 24,275 (6,814) (11,937)
Interest received 660 666 1 349
Interest paid (327) (603) (1,068)
Other finance income (costs) (106) (69) (139)
Corporate income tax paid (2,782) (648) (1,132)
Total cash flows from operating activities (15 541) 7,205 62,511
Cash flows from investing activities
Acquisition of subsidiaries (1) - -
Purchase of investment property (1) (7) (7)
Purchase of property, plant and equipment (excl. leased assets) (755) (1,802) (4,321)
Proceeds from sale of property, plant and equipment 65 147 289
Purchase of intangible assets (125) (20) (143)
Interest received 10 - 1
Total cash flows from investing activities (807) (1,682) (4,181)
Cash flows from financing activities
Proceeds from borrowings 10,501 27,465 20,433
Repayments of borrowings (1,809) (33,345) (54,911)
Repayments of lease liabilities (426) (486) (922)
Contributions to the subsidiary’s share capital from non-
controlling shareholder 9 - -
Dividends paid (17,686) (66) (133)
Total cash flows from financing activities (9,411) (6,432) (35,533)
Net increase/decrease in cash and cash equivalents (25,759) (909) 22,797
Cash and cash equivalents at the beginning of the period 5 47,480 24,749 24,749
Effect of exchange rate changes (8) (112) (66)
Cash and cash equivalents at the end of the period 5 21,713 23,728 47,480
The notes set out on pages 25-38 are an integral part of these interim financial statements.
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
25
NOTES
NOTE 1 ACCOUNTING POLICIES USED The consolidated interim financial statements of the AS Merko Ehitus group for 6 months 2021 were prepared in accordance with
the requirements of IAS 4 “Interim Financial Reporting” for condensed interim financial statements. The interim financial
statements follow the same accounting principles and methods used in the 2020 financial statements. The accounting methods
used to prepare the interim financial statements are in conformity with the International Financial Reporting Standards as they
were adopted by the European Union. 2020 audited annual report and 2020 6 months unaudited interim report comparative figures
are presented in the present financial report.
According to the best knowledge of the Management Board, the consolidated interim financial statements for the 6 months 2021
presents a true and fair view of the group’s economic results based on the principle of going concern. The influence of seasonality
of construction and the influence of the cyclical nature of development activity on the period’s results can be considered
insignificant.
NOTE 2 OPERATING SEGMENTS in thousand euros
The chief operating decision-maker, i.e. the Management Board of parent company AS Merko Ehitus, monitors the business
operations of the group by operating segments and countries.
Reporting of the group’s operations are segmented as:
- construction service,
- real estate development.
Construction service segment includes all projects of the home markets in general construction, civil engineering and road
construction. Other operating areas (managerial services, supervision service, etc.) are insignificant to the group and they are
reported within the construction service segment. The real estate development segment primarily consists of the group’s own
real estate development – construction and sale; to a lesser degree, it also includes real estate maintenance and leasing.
The business result of a segment is assessed based on external revenue, operating profit and profit before tax of the business
segment. The operating profit and profit before tax of the segment is composed of the income and expenditure related to the
segment. Other income and expenses not related to the segments are attributable to the activities of holding companies and are
monitored at group level.
Additional information on the segments is provided in the Business activities chapter of the Management report.
In the segment reporting, all inter-segment income and expenses have been eliminated from the pre-tax profit of the segments
and all unrealised internal profits have been eliminated from the segment assets.
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
26
2021 6 months Construction service Real estate
development
Total
segments
Revenue 107,156 60,283 167,439
Inter-segment revenue (1,686) (19,893) (21,579)
Revenue from clients 105,470 40,390 145,860
incl. timing of revenue recognition at a point in time 919 32,044 32,963
timing of revenue recognition over time 104,551 8,346 112,897
Operating profit (loss) 2,778 9,141 11,919
Profit (loss) before tax 2,710 8,879 11,589
incl. interest income from operating activities 53 952 1,005
depreciation (1,046) (216) (1,262)
recognition of provisions (1,771) (8) (1,779)
reversal of provisions 101 101 202
profit (loss) from joint venture - 3 3
other finance income (costs) (15) (237) (252)
incl. interest expenses (9) (151) (160)
Assets 30.06.2021 69,389 178,011 247,400
incl. joint venture - 2,357 2,357
2020 6 months Construction service Real estate
development
Total
segments
Revenue 77,713 68,013 140,726
Inter-segment revenue (11) (10,982) (10,993)
Revenue from clients 77,702 52,031 129,733
incl. timing of revenue recognition at a point in time 666 48,268 48,934
timing of revenue recognition over time 77,036 3,763 80,799
Operating profit (loss) 993 8,889 9,882
Profit (loss) before tax 862 8,830 9,692
incl. interest income from operating activities 13 696 709
depreciation (1,164) (249) (1,413)
recognition of provisions (608) (271) (879)
reversal of provisions 3 - 3
profit from joint venture - 92 92
other finance income (costs) (10) (106) (116)
incl. interest expenses (10) (89) (99)
Assets 30.06.2020 58,869 193,445 252,314
incl. joint venture - 2,590 2,590
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
27
2021 II quarter Construction service Real estate
development
Total
segments
Revenue 67,912 36,493 104,405
Inter-segment revenue (1,415) (17,237) (18,652)
Revenue from clients 66,497 19,256 85,753
incl. timing of revenue recognition at a point in time 657 13,894 14,551
timing of revenue recognition over time 65,840 5,362 71,202
Operating profit (loss) 2,750 4,797 7,547
Profit (loss) before tax 2,718 4,633 7,351
incl. interest income from operating activities 38 494 532
depreciation (545) (98) (643)
recognition of provisions (1,317) (5) (1,322)
reversal of provisions 101 101 202
profit from joint venture - (4) (4)
other finance income (costs) (9) (146) (155)
incl. interest expenses (3) (86) (89)
’ II 15,836 10,867 26,703
incl. joint venture - (4) (4)
2020 II quarter Construction service Real estate
development
Total
segments
Revenue 42,801 35,283 78,084
Inter-segment revenue (6) (4,217) (4,223)
Revenue from clients 42,795 31,066 73,861
incl. timing of revenue recognition at a point in time 230 28,093 28,323
timing of revenue recognition over time 42,565 2,973 45,538
Operating profit (loss) 1,346 6,007 7,353
Profit (loss) before tax 1,283 5,935 7,218
incl. interest income from operating activities 6 333 339
depreciation (617) (124) (741)
recognition of provisions 366 (109) 257
reversal of provisions 3 - 3
profit from joint venture - 2 2
other finance income (costs) (4) (53) (57)
incl. interest expenses (4) (44) (48)
’ II 5,829 (5,030) 799
incl. joint venture - 2 2
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
28
2020 12 months Construction service Real estate
development
Total
segments
Revenue 188,735 147,891 336,626
Inter-segment revenue (1,888) (18,820) (20,708)
Revenue from clients 186,847 129,071 315,918
incl. timing of revenue recognition at a point in time 1,381 119,915 121,296
timing of revenue recognition over time 185,466 9,156 194,622
Operating profit (loss) 4,561 23,710 28,271
Profit (loss) before tax 4,385 23,122 27,507
incl. interest income from operating activities 23 1,476 1,499
depreciation (2,245) (506) (2,751)
impairment of inventories (382) (222) (604)
recognition of provisions (1,806) (1,430) (3,236)
reversal of provisions 79 - 79
profit (loss) from joint venture - (144) (144)
other finance income (costs) (27) (353) (380)
incl. interest expenses (29) (288) (317)
Assets 31.12.2020 52,239 163,083 215,322
incl. joint venture - 2,354 2,354
In addition to the segment assets, as of 30.06.2021 the group holds assets in the amount of EUR 29,347 thousand (30.06.2020: EUR
22,593 thousand; 31.12.2020: EUR 41,593 thousand) that cannot be associated with a specific segment or the allocation of which
to segments would be impracticable. The unallocated assets of the group comprise cash and cash equivalents, deposits, tax
prepayments, other receivables and an unallocated portion of property, plant and equipment.
RECONCILIATION OF THE PRE-TAX PROFIT OF SEGMENTS AND THE GROUP
in thousand euros
2021
6 months
2020
6 months
2021
II quarter
2020
II quarter
2020
12 months
Pre-tax profit from reporting segments 11,589 9,692 7,351 7,218 27,507
Other operating profit (loss) (996) (794) (558) (431) (2,805)
incl. recognition of provisions - - - - (9)
finance income (costs) (111) (121) (60) (77) (245)
incl. interest expenses (65) (91) (33) (47) (176)
Total profit before tax 10,482 8,777 6,733 6,710 24,457
Other income and expenses, which are not directly associated with segments, are associated with holding companies.
REVENUE BY CLIENT LOCATION
in thousand euros and percentages
2021 6 months 2020 6 months 2020 II quarter 2020 II quarter 2020 12 months
Accrued income from construction services (Note 6) 18,019 8,005 7,741
Prepayments for construction services (Note 13) (6,502) (11,265) (6,926)
Advance payments received for construction contract works (Notes 13, 15) (9,948) (3,280) (8,576)
Recognised provision for onerous construction contracts (Note 14) (324) (1,011) (312)
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
29
NON-CURRENT ASSETS (EXCEPT FOR FINANCIAL ASSETS) BY LOCATION OF ASSETS
in thousand euros
30.06.2021 30.06.2020 31.12.2020
Estonia 17,866 16,488 17,896
Latvia 13,187 13,177 13,096
Lithuania 383 472 383
Norway 137 123 133
Total 31,573 30,260 31,508
NOTE 3 COST OF GOODS SOLD in thousand euros
2021
6 months
2020
6 months
2021
II quarter
2020
II quarter
2020
12 months
Construction services and
properties purchased for resale 77,709 69,365 45,756 39,332 174,208
Materials 24,481 19,183 15,007 11,230 42,526
Labour costs 12,341 10,701 6,227 5,243 24,509
Construction mechanisms and
transport 4,446 5,217 2,962 3,507 11,687
Design 2,128 2,460 1,244 1,317 5,103
Real estate management costs 168 151 78 66 323
Depreciation 847 945 432 505 1,815
Impairment of inventories - - - - 604
Provisions 1,779 876 1,323 (260) 3,100
Other expenses 4,723 4,352 2,460 1,912 8,294
Total cost of goods sold 128,622 113,250 75,489 62,852 272,169
NOTE 4 EARNINGS AND DIVIDENDS PER SHARE Basic earnings per share for profit attributable to equity holders of the parent have been derived by dividing the net profit
attributable to shareholders by the weighted average number of shares.
2021
6 months
2020
6 months
2021
II quarter
2020
II quarter
2020
12 months
Net profit (loss) attributable to shareholders (in thousand EUR) 9,763 8,175 6,395 6,156 22,994
Weighted average number of ordinary shares (thousand pcs) 17,700 17,700 17,700 17,700 17,700
Earnings (loss) per share (in euros) 0.55 0.46 0.36 0.35 1.30
The group did not have any potential ordinary shares to be issued; therefore the diluted earnings per share equal the basic earnings
per share.
Dividends payable are recognised after the approval of profit allocation by the shareholders. In accordance with the profit
allocation decision, in 2021 the parent company AS Merko Ehitus paid dividends of EUR 17,700 thousand, i.e. EUR 1.00 per share (no
dividends were paid in 2020). The income tax expense related to payment of dividends, 1,334 thousand euros, of which 1,368
thousand euros was recognized as the group’s deferred tax expense in 2 2 , will be paid in third quarter. The group withheld an
additional 7% income tax, 14 thousand euros, on the part of the dividends paid to private shareholders taxable at 14/86 income
tax rate.
Pursuant to IAS 12, the deferred income tax expense and liability will be recognized in AS Merko Ehitus group consolidated financial
statements based on the share of net profit in the year ended that is planned to be paid out as dividends in the foreseeable future.
As of 30.06.2021 the balance of deferred income tax liability includes deferred income tax on dividends in the amount of
The group has obtained the following guarantees from financial institutions and issued sureties to guarantee the group’s
obligations to third parties. These amounts represent the maximum right of claim by third persons against the group in case the
group is unable to meet its contractual obligations. Management estimates that additional expenses related to these guarantees
are unlikely.
30.06.2021 30.06.2020 31.12.2020
erformance period’s warranty to the customer 26,910 30,163 24,901
Tender warranty 640 752 669
Guarantee for warranty period 22,148 21,193 22,253
Prepayment guarantee 13,187 7,332 11,589
Payment guarantee 817 - 516
Contracts of surety 1,689 1,993 1,834
Total contingent liabilities 65,391 61,433 61,762
’ – warranty provider guarantees to the customer that the contractor’s
obligations arising from construction contract will be adequately fulfilled.
Tender warranty – warranty provider guarantees to the customer arranging the tender process that the tenderer will sign a
contract as per tender conditions.
Guarantee for warranty period – guarantee provider guarantees to the customer that the construction defects discovered during
the warranty period will be eliminated.
Prepayment guarantee – guarantee provider guarantees to the customer that advances will be reimbursed, if contractor fails to
deliver goods or services agreed.
Payment guarantee – guarantee provider guarantees repayments of the customer’s developer’s loan and/or guarantee provider
guarantees to the customer payment for goods or services.
Contracts of surety – the group guarantees the timely fulfilment of group member’s liabilities towards a third party e.g. providing
services by a certain date in the agreed amount).
AS MERKO EHITUS CONSOLIDATED INTERIM REPORT
39
DEFINITION OF RATIOS
Gross profit margin (%) = Gross profit
Revenue
Operating profit margin (%) = Operating profit
Revenue
EBT margin (%) = Pre-tax profit
Revenue
Net profit margin (%) = Net profit (attributable to equity holders of the parent)
Revenue
Return on equity, ROE (%) = Net profit (attributable to equity holders of the parent) of the current 4 quarters
Shareholders equity (average of the current 4 quarters)
Return on assets, ROA (%) = Net profit (attributable to equity holders of the parent) of the current 4 quarters
Total assets (average of the current 4 quarters)
Return on invested capital, ROIC (%) = (Profit before tax + interest expense - foreign exchange gain (loss) + other financial income) of the current 4 quarters
(Shareholders equity (average) + interest-bearing liabilities (average)) of the current 4 quarters
Equity ratio (%) = Shareholders’ equity
Total assets
Debt ratio (%) = Interest-bearing liabilities
Total assets
Current ratio = Current assets
Current liabilities
Quick ratio = Current assets - inventories
Current liabilities
Accounts receivable turnover(days) = Trade receivables of the current 4 quarters (average) x 365
Revenue of the current 4 quarters
Accounts payable turnover (days) = Payables to suppliers of the current 4 quarters (average) x 365