Baltic, Construction, Estonia, Financial Services, Real Estate

The management board of Merko has proposed to pay out 119% of retained earnings – or 41 cents per share – in dividends for 2016. The payout by Merko last year was 51 cents per share, and 90% of retained earnings was paid out then.

The management board described 2016 as a difficult year, as despite active residential construction in the Baltic capitals the construction market as a whole failed to show any growth. Public investments in infrastructure have also remained low for several years. As a result, the group's infrastructure construction volumes were lagging behind expectations.

"The management estimates that in the current market situation, in order to cover expenditures, the prices bid in procurements are very low and do not endorse any growth in the construction capacity of civil engineering projects on the construction market in general.

The growth in residential development and private sector orders allowed Merko Ehitus to maintain revenue on last year's level, yet the management is not satisfied with the profitability on the construction service segment," Andres Trink, CEO of Merko Ehitus, said in a disclosure to the stock exchange.

"Price competition in buildings construction procurements is extremely tight, slimming down the margins and forcing both main contractors and contracting entities to take huge risks. The management considers that efficiency and management of contractual risks is becoming increasingly important. The group's results for 2016 were also affected by the delay in the launch of construction on several major objects. We were only able to actively continue with these projects at the end of the year," Trink added.

The CEO said that even though the construction service revenue posted in the Latvian and Lithuanian market in 2016 decreased to some extent compared to the previous period – a circumstance attributable to the completion of several major projects at the end of 2015 – Merko has gradually enhanced its capacity and improved its position on the main contracting markets of these countries.  

The net profit margin of Merko Ehitus dropped to 2.4% in 2016 from 4% in 2015. Net profit in the fourth quarter totaled 1.4 mln euro, a year on year drop of 68.3%.

As at Dec. 31, 2016, the value of the group's secured order book was 269.6 mln euros. The major projects still in progress in the final quarter of the year included the T1 shopping center, Maakri Quarter, Telia's head office in WoHo Quarter and the Tallinn Airport tram route in Tallinn, the passenger terminal of Riga International Airport in Riga and the Kauno/Algirdo residential and office complex in Vilnius.