2019 Merko Ehitus Annual Report
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CONSOLIDATED ANNUAL REPORT 2019 AS MERKO EHITUS CONSOLIDATED ANNUAL REPORT 2019 AS MERKO EHITUS GROUP CONSOLIDATED ANNUAL REPORT 01.01.2019 – 31.12.2019 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 Supervisory Board: Toomas Annus, Teet Roopalu, Indrek Neivelt Management Board: Andres Trink, Tõnu Toomik Auditor: AS PricewaterhouseCoopers 2 AS MERKO EHITUS CONSOLIDATED ANNUAL REPORT 2019 TABLE OF CONTENTS MAIN FACTS ........................................................................................................................................................................................................................................... 4 STATEMENT OF THE CHAIRMAN OF THE MANAGEMENT BOARD ....................................................................................................................................... 5 MERKO GROUP ...................................................................................................................................................................................................................................... 6 MANAGEMENT REPORT ..................................................................................................................................................................................................................... 9 MANAGEMENT DECLARATION .......................................................................................................................................................................................................49 FINANCIAL STATEMENTS ................................................................................................................................................................................................................ 50 INDEPENDENT AUDITOR’S REPORT ........................................................................................................................................................................................... 100 PROFIT ALLOCATION PROPOSAL ................................................................................................................................................................................................. 107 OTHER NOTES TO THE ANNUAL REPORT ................................................................................................................................................................................. 108 3 AS MERKO EHITUS CONSOLIDATED ANNUAL REPORT 2019 MAIN FACTS AS MERKO EHITUS CONSISTS OF: • Estonia’s leading construction company AS Merko Ehitus Eesti • Latvian market oriented SIA Merks • UAB Merko Statyba operating on the Lithuanian market • Norwegian construction company Peritus Entreprenør AS Merko Ehitus group focuses on general contracting of construction and on providing complete solutions in professional construction and real estate development. Long-term experience in various countries, a wide scope of construction services, flexibility, reliability and meeting the deadlines and primarily quality have helped group companies to achieve a strong position in the Baltics. The largest listed construction Merko Ehitus group is also the leading apartment developer in the Baltics, having company in the Baltics developed and built more than 5,000 apartments in Estonia, Latvia and Lithuania. 2019 revenue COMPETITIVE ADVANTAGES: EUR 326.8 mln • Broad range of construction services mln and products, comprehensive solutions offered to clients • Strong quality management system • Experienced project managers and engineers • Longstanding experience on the subcontractors’ and suppliers’ market • Innovative technological approaches and construction solutions • Strong financial capability 2019 new contracts signed • Inventory of residential development EUR 169.6 mln projects and a strong brand 2019 EBITDA 2019 net profit 31 December 2019 EUR 21.9 mln EUR 16.3 mln 694 employees VALUE OFFERING AS A GENERAL CONTRACTOR, WE OVERSEE THE ENTIRE CONSTRUCTION PROCESS AND ARE RESPONSIBLE FOR THE COMPLETION OF THE CONSTRUCTION PROJECT AS A WHOLE: • Integrated project management and construction service, provision of strategic consultation to the contracting entity throughout the process • As needed, combined use of subcontractors and Merko workforce (concrete works, road construction, electrical constructions both indoor and outdoor) • Real estate investments and development, managing the entire apartment development process: design, construction, sales, warranty-period service • Co-investing, risk distribution and participation in PPP (public-private partnership) projects • International quality, environmental protection and occupational safety Estonia's leading builder of certificates ISO 9001, ISO 14001 and ISO 45001 substations 4 AS MERKO EHITUS CONSOLIDATED ANNUAL REPORT 2019 STATEMENT OF THE CHAIRMAN OF THE MANAGEMENT BOARD Dear shareholders, Developments on the Baltic construction and real estate market continued as we expected in 2019. The rapid growth in construction volumes in recent years stabilized and developers have become more cautious in launching new real estate investments. Although state investments into infrastructure remained at the same level as in years past, the share of the public sector orders on the construction market has grown. The decrease in Merko Group’s construction volumes, by more than 20% compared to the record level of 2018, was also expected. The group’s sales revenue decreased year-over-year in Estonia and Latvia but remained at the same level in Lithuania and grew in Norway. Almost one-half of the group’s revenue came from outside Estonia. In 2019, a number of outstanding major projects in all three Baltic capitals were completed, but new construction orders in the same volume did ANDRES TRINK AS MERKO EHITUS not take their place in the group’s portfolio. The reason for the decrease in construction orders CHAIRMAN OF THE was both the growth of input prices in the construction sector and the group’s strategy in MANAGEMENT BOARD selecting construction sites. On the backdrop of decrease in sales revenue, we were however able to improve the group’s profitability and profit before taxes grew by 2.8% compared to a year ago. Profitability was supported by the team’s good work and everyday contribution to simplifying processes and reducing errors. Profitability was supported by the increased investments by the group into the apartment development business segment in all three Baltic states, and the greatest growth in investments last year was seen in Lithuania. In recent years, we have put the focus on larger development areas, where we can create an integrated residential environment and launch development projects stage by stage pursuant to demand. In 2019, close to 500 customers became owners of homes built by Merko. The largest projects launched or completed include, in Tallinn, Veerenni, Lahekalda, Noblessneri and Pikaliiva developments; in Riga, Viesturdārzs and Gaiļezera nami; and in Vilnius, Vilneles Slenis and Rinktines Urban. Merko’s goal is to continue to be the preferred choice for construction service clients and apartment buyers who value quality and trustworthiness. Through the buildings and infrastructure we set up, we create a modern living environment and improve people’s quality of life. To this end, we continue giving back to society, examples of which are our long-term cooperation projects in developing the network of Estonian Health Trails, cooperation with the Estonian Tennis Association and the Art Museum of Estonia as well as with various universities. We operate based on the long-term view and put value on quality and trust. In connection with the global viral pandemic, the construction and real estate market outlook for the near future has become difficult. Risks have risen sharply in the world economy as well as financial markets, due to which near term negative developments with unforeseeable magnitude cannot be ruled out. Among other, banks’ lending policy and conditions remain very important factors in market developments, but these depend also on the decisions and cooperation of companies and governmental institutions. We believe that strong capitalization and the capabilities of our team give Merko group a relative advantage in the execution of development and construction projects as well as in emerging from difficulties in the event of negative market developments. I would like to thank all of Merko Group’s employees and partners for a productive year, also our customers and home buyers who have put their trust in Merko. Many thanks! Andres Trink 5 AS MERKO EHITUS CONSOLIDATED ANNUAL REPORT 2019 MERKO GROUP VISION VISION Our vision is reliable solutions and quality performance for customers’ ideas. VALUES RESPONSIBILITY We decide based on business thinking, awareness and ethical beliefs. We offer enduring and environmentally friendly solutions. KEEPING PROMISES We give realistic promises to the shareholders, contracting entities, cooperation partners, employees and we keep our promises. Good solutions are born in cooperation, the keeping of one's promises is mutual. COMPETENCE We value quality and professionalism. We constantly develop our professional knowledge and skills. INITIATIVE We manage