AS MERKO EHITUS Annual General Meeting of Shareholders Nordic Hotel Forum, Tallinn 9 May 2018
Agenda 1. Approval of the annual report of the year 2017 and overview of the economic results and outlook 2. Decision on distribution of profits 3. Appointment of auditor for financial years of 2018-2020 2 Suur-Patarei 20 (2019)
Paepargi residential area 1. Approval of the annual report of the year 2017 and overview of the economic results and outlook 3
Group’s Markets and Business Areas 2017 Regional general contracting and real estate developing company Norway Estonia Renovation works and building • Buildings, facilities, electrical and construction • road construction, concrete works Real estate development • Among Top 3 in its business areas • Latvia Buildings, facilities, electrical • construction Real estate development • Among Top 3 in general contracting • of buildings Lithuania Building construction • Real estate development • Among Top 5 in general contracting • of buildings 4
2017 revenue increased in all home markets From revenue, 60% from Estonia and 40% from other markets DISTRIBUTION OF GROUP REVENUE BY GEOGRAPHICAL LOCATION 318 in million euros 263 252 252 251 212 191 173 171 155 80 69 65 44 45 35 28 25 13 12 6 5 4 3 2013 2014 2015 2016 2017 Total Estonia Latvia Lithuania Finland Norway Revenue growth in line with strategy adopted 2 years ago • 5
2017 profitability improved... ...but risk/benefit ratio unbalanced in building for clients NET PROFIT in million euros 2017 14,7 All markets in profit, largest share from ❑ Estonia 2016 6,1 Compared to 2016, group’s profit increased ❑ 2015 10,0 in all markets 2014 12,4 One-off sales supported increase in profit ❑ significantly. Profitability of core business 2013 10,4 lower Real estate development gave the largest ❑ RETURN ON EQUITY in percentage part of profit Overall profitability of building for clients ❑ 12% in unsatisfactory. Increase in construction 10% 9% prices faster than increase in contract 8% prices. Main contractors are between a 5% rock and a hard place Financial capability remained strong ❑ 2017 return on equity 12% ❑ 6 2013 2014 2015 2016 2017
2017 revenue and profit in 10 years’ context GROUP REVENUE AND NET PROFIT in million euros 352 318 34,8 297 263 252 251 252 300 249 30 219 203 19,1 172 200 20 14,7 12,4 10,4 10,0 7,6 7,4 100 10 6,1 1,2 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -100 -10 - 14,1 -200 -20 Net profit (right axis) Revenue Construction and real estate market has considerably changed in 10 years • 7
EUR 335m of new construction contracts Secured order book EUR 344m 2017 LARGEST CONTRACTS in million euros SECURED ORDER BOOK in million euros Multifunctional centre Akropole 100 344 in Riga 335 Construction contract 270 247 Multifunctional Z-Towers 36 214 complex completion works in 179 Riga Construction contract Extension works of Alfa 34 Shopping Centre in Riga 2013 2014 2015 2016 Construction contract Secured order book Öpiku maja second office 16 New contracts signed building in Tallinn Design and construction contract Staapli 3 apartment building in 15 Rapid growth of new contracts in Latvia • Tallinn Public sector share in secured order book 14% • Design and construction contract Volume of road and civil engineering contracts in • Residential complex in Šaltiniu 11 Estonia were below expectations Namai quarter in Vilnius Design and construction contract 8
Examples of projects completed in 2017 Narbuto 5 office building (Vilnius) Telecom office building (Tallinn) 9 Barracks of Tapa military base (Estonia) Juuliku road junction at Tallinn roundabout
In 2018, there are many large projects ongoing Akropole multifunctional centre in Riga (100m, 2019) “Öpiku maja ” second office building (16m, 2018) 10 Z-Towers multifunctional centre (44m, 2018) T1 shopping centre (70m, 2018) Extension of Alfa shopping centre (34m, 2019)
Apartment development – group’s central business line In 2017, nearly 500 new apartments launched APARTMENTS LAUNCHED BY GEOGRAPHICAL LOCATION NUMBER OF APARTMENTS SOLD AND LAUNCHED pcs pcs 574 574 496 98 496 120 409 344 369 344 96 86 493 424 403 395 392 280 263 258 12M 2013 12M 2014 12M 2015 12M 2016 12M 2017 2015 2016 2017 Estonia Apartments sold Latvia Apartments launched Lithuania INVESTMENTS IN APARTMENT DEVELOPMENT PROJECTS Ca 400 new apartments sold ❑ AND LAND PLOT ACQUISITIONS in million euros Construction of nearly 500 new apartments ❑ was launched and EUR 48m was invested in 19,1 development projects 15,8 9,2 53,6 Processing of building permits and plans 48,4 ❑ 42,4 slower than expected EUR 9m invested in new land plots in ❑ Estonian and Latvia. Volumes of building rights increased 2015 2016 2017 As at 31.12.2017, approx. EUR 64m worth of New land plots (purchase price) ❑ land plots on balance sheet Investments in apartment developments 11
Residential development projects in construction Noblessner Home Port Basteja Life Rinktines Urban stage 1 Tallinn: 220 apartments (2018) Vilnius: 77 apartments (2019) Vilnius: 1120 apartments (2018) 12 Suur-Patarei 20, Tallinn: 31 apartments (2019) Tähepargi stage 1, Tartu: 26 apartments (2019)
How do we see the construction market? Construction market to remain rather active. Last year’s trends to continue. Reallocation of risks in construction value chain. ❑ Economic growth forecast ca 3- 4% CONSTRUCTION MARKET VOLUMES (WITH OWN FORCES) IN THE BALTIC STATES in million euros ❑ Stabilisation of 8 185 7 858 residential construction 6 402 6 170 5 919 ❑ Stabilisation of 5 840 5 643 5 450 commercial real 5 076 estate 4 488 4 311 4 297 3 617 3 612 ❑ Tenders for road and 3 189 other facilities 2 564 2 522 2 475 2 501 2 295 2 279 2 305 1 716 2 110 2 163 1 898 1 821 1 815 1 972 1 673 1 489 2 406 ❑ Increase in 2 169 1 847 1 482 1 372 construction prices 1 676 1 629 1 556 1 534 1 534 1 398 1 324 1 252 1 114 1 099 981 ❑ Limitations to sub- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 contracting capabilities Estonia Latvia Lithuania ❑ Nearly zero energy requirements 2019-2020 13
How do we see the residential real estate market? Towards stabilisation NEW AND ALL (dotted line) DWELLINGS HOUSE PRICE INDEX ❑ Overall sentiment of real estate (2013=100) market is good 140 ❑ Salaries and prices of apartments grown at similar pace 120 ❑ In Tallinn and Vilnius, stabilisation of demand, the phase of rapid increase in prices is ending 100 ❑ Transfer of increase in construction 80 prices to sales prices? Limits to 2013 2014 2015 2016 2017 purchase power? Estonia Estonia Latvia Latvia Lithuania Lithuania ❑ Good quality and integral residential environment with affordable price ❑ Still large potential in Riga’s real estate market, but growth is slow ❑ Nearly zero energy requirements 2020 14
Merko Ehitus 2018 Strategic Directions Focus on construction activity profitability and apartment development Construction for client : Managing risks of large objects ❑ Preferred partner for private customers who value reliability ❑ and quality Clearer focus on construction tenders, efficiency of bidding ❑ resources Internal efficiency and cost savings, incl. with the help of ❑ technology. Expanding the usage area of building information modeling (BIM). Flexibility also to construct smaller objects ❑ Construction tenders for infrastructure facilities ❑ Development of residential real estate: Selling the best apartments of their price range: to cover ❑ different segments. Product development, based on pricing Focus on the capitals of the Baltic states ❑ Integral development concept for large development areas ❑ Goal for 2018 to launch 650-700 new apartments and invest ❑ nearly EUR 60m, depending on receiving building permits To retain liquidity: increase in construction volumes, investment capability ❑ 15
Thank you!
Telecom office building 2. Decision on distribution of profits 17
Z-Towers (Riga) 3. Appointment of auditor for financial years of 2018-2020 18
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