Merko Ehitus reported 60% YoY revenue growth to €118.2M in Q3. However, this was partly driven by a low comparison base, as revenue had declined sharply a year earlier. Over the first nine months, growth was more moderate at 11% YoY.

Revenue

Despite higher revenue, the quarterly gross profit margin fell from 24.3% a year earlier to 13.4% this year. However, margins had been exceptionally high over the previous two years, while the current level is closer to historical norms. 

9 months gross margin

The decline in gross margin was largely driven by the construction segment, where operating profit plunged 82% YoY despite revenue growing 55% YoY in Q3. The real estate development segment delivered much stronger results, with operating profit increasing almost fourfold YoY, supported by higher revenue and improved margins. However, nine-month operating profit growth was more modest at 19%, with nearly half of the apartments handed over to buyers this year (118 out of 238) delivered in Q3 alone.

At the group level, operating expenses declined 13% YoY, partially offsetting weaker gross profitability. Still, operating profit fell 9% YoY to €11.8M, while net profit declined 16% to €12.6M.

Net profit

The order book stood at €769M at the end of Q3, up 58% YoY. However, it declined by €67M during the quarter, with just €22M in new contracts signed.

Cash flow trends also remained under pressure. Funds from operations fell 31% YoY to €12.4M, while significant capital remained tied up in working capital, primarily inventories, keeping TTM free cash flow negative.

Funds from operations