In the first half of 2024, the construction market has experienced increasingly
intense competition. Public sector orders remain low, and the pre-construction
process in the private sector continues to be very lengthy. Analysts' forecasts
for economic growth in the coming quarters are cautious, and the activities of
private clients are in line with this outlook.
Despite the challenging economic conditions, the Nordecon Group has improved
three key financial indicators in the first half of this year - revenue, profit,
and the volume of order book.
The first half of 2024 for the Nordecon Group is primarily characterized by
improved profitability. The Group's gross profit margin was 6.3% (3.2% in H1
2023) and 7.4% in the second quarter (3.4% in Q2 2023). Profitability improved
in both the Buildings and Infrastructure segments, aided by better risk
management in main contracts and the completion in 2023 of long-term contracts
signed before the beginning of war in Ukraine, which were significantly affected
by the rapid increase in construction input costs. The Group's net profit
amounted to EUR1,802 thousand (a loss of EUR2,299 thousand in H1 2023).
Revenue for the first half of 2024 was EUR114,945 thousand, which is 33% higher
compared to the continuing operations revenue for the same period last year.
Revenue in the Buildings segment increased by 51%, while it decreased by 27% in
the Infrastructure segment.
As of June 30, 2024, the volume of order book of the Group's companies was
EUR178,799 thousand. Compared to the same period last year, the volume of
unfinished work has increased by 15%. In the first half of the year, new
contracts worth a total of EUR64,030 thousand were signed, with an additional
EUR33,597 thousand worth of new contracts added in July following the reporting
period.
Condensed consolidated interim statement of financial position
EUR'000 30 June 2024 31 December 2023
-------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 12,513 11,892
Trade and other receivables 41,368 37,010
Prepayments 3,576 1,789
Inventories 22,948 25,879
Total current assets 80,405 76,570
Non-current assets
Other investments 76 76
Trade and other receivables 9,519 9,113
Investment property 5,517 5,517
Property, plant and equipment 13,660 14,292
Intangible assets 14,975 14,964
Total non-current assets 43,747 43,962
TOTAL ASSETS 124,152 120,532
LIABILITIES
Current liabilities
Borrowings 11,064 10,188
Trade payables 62,115 39,855
Other payables 7,436 9,241
Deferred income 10,365 20,602
Provisions 671 1,129
Total current liabilities 91,651 81,015
Non-current liabilities
Borrowings 4,137 8,563
Trade payables 2,107 6,011
Provisions 2,413 2,405
Total non-current liabilities 8,657 16,979
TOTAL LIABILITIES 100,308 97,994
EQUITY
Share capital 14,379 14,379
Own (treasury) shares (660) (660)
Share premium 635 635
Statutory capital reserve 2,554 2,554
Translation reserve 3,951 3,786
Retained earnings 1,939 919
Total equity attributable to owners of the
parent 22,798 21,613
Non-controlling interests 1,046 925
TOTAL EQUITY 23,844 22,538
TOTAL LIABILITIES AND EQUITY 124,152 120,532
Condensed consolidated interim statement of comprehensive income
EUR'000 H1 2024 Q2 2024 H1 2023 Q2 2023 2023
-------------------------------------------------------------------------------
Continuing operations
-------------------------------------------------------------------------------
Revenue 114,945 68,700 86,526 52,977 186,464
Cost of sales (107,751) (63,644) (83,743) (51,179) (182,655)
Gross profit 7,194 5,056 2,783 1,798 3,809
Marketing and distribution
expenses (172) (104) (226) (122) (497)
Administrative expenses (3,373) (1,809) (2,984) (1,397) (6,564)
Other operating income 77 51 210 101 286
Other operating expenses (458) (312) (186) (158) (465)
Operating profit (loss) 3,268 2,882 (403) 222 (3,431)
Finance income 317 180 131 62 613
Finance costs (1,546) (841) (1,783) (898) (3,356)
Net finance costs (1,229) (661) (1,652) (836) (2,743)
Profit (loss) before tax 2,039 2,221 (2,055) (614) (6,174)
Income tax expense (237) (237) (244) (1) (244)
Profit (loss) for the period
from continuing operations 1,802 1,984 (2,299) (615) (6,418)
Profit for the period from a
discontinued operation - - 709 699 8,474
Profit (loss) for the period 1,802 1,984 (1,590) 84 2,056
Other comprehensive income
Items that may be reclassified
subsequently to
profit or loss
Exchange differences on
translating foreign operations 165 114 254 85 470
Total other comprehensive
income 165 114 254 85 470
TOTAL COMPREHENSIVE INCOME
(EXPENSE) 1,967 2,098 (1,336) 169 2,526
Profit (loss) attributable to:
- Owners of the parent 1,020 1,613 (2,493) (619) (942)
- Non-controlling interests 782 371 903 703 2,998
Profit (loss) for the period 1,802 1,984 (1,590) 84 2,056
Comprehensive income (expense)
attributable to:
- Owners of the parent 1,185 1,727 (2,239) (534) (472)
- Non-controlling interests 782 371 903 703 2,998
Comprehensive income (expense)
for the period 1,967 2,098 (1,336) 169 2,526
Earnings per share from
continuing operations
attributable to owners of the
parent:
Basic earnings per share (EUR) 0.03 0.05 (0.10) (0.04) (0.31)
Diluted earnings per share (EUR) 0.03 0.05 (0.10) (0.04) (0.31)
Earnings per share from a
discontinued operation
attributable to owners of the
parent:
Basic earnings per share (EUR) - - 0.02 0.02 0.28
Diluted earnings per share (EUR) - - 0.02 0.02 0.28
Condensed consolidated interim statement of cash flows
EUR'000 H1 2024 H1 2023*
--------------------------------------------------------------------------
Cash flows from operating activities
Cash receipts from customers 121,573 157,087
Cash paid to suppliers (100,334) (133,900)
VAT paid (4,746) (5,531)
Cash paid to and for employees (10,142) (12,640)
Income tax paid (237) (687)
Net cash from operating activities 6,114 4,329
Cash flows from investing activities
Paid for acquisition of property, plant and equipment (257) (185)
Proceeds from sale of property, plant and equipment 78 291
Loans provided (18) (524)
Repayments of loans provided 1 10
Dividends received 6 12
Interest received 138 9
Other investments (250) 0
Net cash used in investing activities (302) (387)
Cash flows from financing activities
Proceeds from loans received 468 1,242
Repayments of loans received (3,392) (650)
Lease payments (1,091) (1,447)
Interest paid (545) (601)
Dividends paid (661) (1,355)
Other payments 50 0
Net cash used in financing activities (5,171) (2,811)
Net cash flow 641 1,131
Cash and cash equivalents at beginning of period 11,892 7,238
Effect of movements in foreign exchange rates (20) 0
Change in cash and cash equivalents 641 1,131
Cash and cash equivalents at end of period 12,513 8,369
Financial review
Financial performance
Nordecon delivered a gross profit of EUR7,194 thousand in the first half of 2024
(H1 2023: EUR2,783 thousand). The group's gross margin improved significantly year
on year, rising to 6.3% for the first half (H1 2023: 3.2%) and 7.4% for the
second quarter (Q2 2023: 3.4%). Both main operating segments earned a profit in
the first half and the second quarter of the year, showing a strong year-on-year
margin improvement. The gross margin of the Buildings segment was 7.7% for both
the first half and the second quarter (H1 2023: 4.9% and Q2 2023: 3.6%). The
Infrastructure segment's gross margin was lower, reaching 0.9% for the first
half and 8.5% for the second quarter of 2024 (H1 2023: 0.1% and Q2 2023: 4.5%).
While both segments have improved their profit margins, the volumes of the
Infrastructure segment are low and therefore most of the group's profit was
generated by the Buildings segment. The margin improvement was supported by
better mitigation of the risks associated with general contracting and by the
fact that several long-term contracts signed before the war, which were severely
affected by an earlier surge in construction input prices, expired in 2023.
The group's administrative expenses for the first half of 2024 amounted to
EUR3,373 thousand. Administrative expenses increased by around 13% compared to the
first half of 2023, when the figure was EUR2,984 thousand. The rise was
attributable to staff costs, which were strongly influenced by the recognition
of a provision for performance-related pay. The ratio of administrative expenses
to revenue (12 months rolling) increased year on year, rising to 3.2% (H1
2023: 3.0%).
The group ended the first half of 2024 with an operating profit of EUR3,268
thousand (H1 2023: an operating loss of EUR403 thousand). EBITDA for the period
was EUR4,690 thousand (H1 2023: EUR1,149 thousand).
The group's finance income and costs are affected by exchange rate fluctuations
in the group's foreign markets. During the period, the exchange rate of the
Ukrainian hryvnia weakened against the euro by around 2.7%, while the exchange
rate of the Swedish krona weakened against the euro by around 2.3%. As a result,
the translation of the loans provided to the group's Ukrainian and Swedish
subsidiaries in euros into the local currencies gave rise to an exchange loss of
EUR163 thousand (H1 2023: EUR241 thousand).
The group's net profit for the period was EUR1,802 thousand (H1 2023: a net loss
of EUR2,299 thousand). The net profit attributable to owners of the parent,
Nordecon AS, was EUR1,020 thousand (H1 2023: a net loss of EUR2,493 thousand).
Cash flows
Operating activities produced a net cash inflow of EUR6,114 thousand in the first
half of 2024 (H1 2023: an inflow of EUR4,329 thousand). Operating cash flow is
strongly influenced by the fact that the contracts signed with most public and
private sector customers do not require them to make advance payments, while the
group has to make prepayments to subcontractors and materials suppliers. Cash
inflow is also reduced by contractual retentions, which extend from 5 to 10% of
the contract price and are released at the end of the construction period only.
Investing activities of the period resulted in a net cash outflow of EUR302
thousand (H1 2023: an outflow of EUR387 thousand). Payments for the purchase of
property, plant and equipment totalled EUR257 thousand (H1 2023: EUR185 thousand)
and proceeds from the sale of property, plant and equipment totalled EUR78
thousand (H1 2023: EUR291 thousand). Loans provided amounted to EUR18 thousand (H1
2023: EUR524 thousand), interest received to EUR138 thousand (H1 2023: EUR9 thousand)
and investments in long-term deposits to EUR250 thousand (H1 2023: EURnil).
Financing activities generated a net cash outflow of EUR5,171 thousand (H1 2023:
an outflow of EUR2,811 thousand). Proceeds from loans received amounted to EUR468
thousand (H1 2023: EUR1,242 thousand), consisting of the use of development loans.
Repayments of loans received totalled EUR3,392 thousand (H1 2023: EUR650 thousand),
consisting of regular repayments of long-term investment and development loans
and the change in the overdraft balance. Lease payments amounted to EUR1,091
thousand (H1 2023: EUR1,447 thousand). Dividends paid in the first half of 2024
amounted to EUR661 thousand (H1 2023: EUR1,355 thousand).
The group's cash and cash equivalents as at 30 June 2024 amounted to EUR12,513
thousand (30 June 2023: EUR8,369 thousand).
Key financial figures and ratios
Figure/ratio H1 2024 H1 2023 H1 2022 2023
-------------------------------------------------------------------------------
Revenue (EUR'000)* 114,945 86,526 102,073 186,464
Revenue change* 33% (15)% 18% (15.4)%
Net profit (loss) (EUR'000)* 1,802 (2,299) (1,125) (6,418)
Net profit (loss)
attributable to owners of
the parent (EUR'000) 1,020 (2,493) (928) (942)
Weighted average number of
shares 31,528,585 31,528,585 31,528,585 31,528,585
Earnings per share (EUR) 0.03 (0.08) (0.03) (0.03)
Administrative expenses to
revenue* 2.9% 3.4% 2.5% 3.5%
Administrative expenses to
revenue (rolling)* 3.2% 3.0% 2.1% 3.5%
EBITDA (EUR'000)* 4,690 1,149 1,847 (412)
EBITDA margin* 4.1% 1.3% 1.8% (0.2)%
Gross margin* 6.3% 3.2% 1.1% 2.0%
Operating margin* 2.8% (0.5)% 0.3% (1.8)%
Operating margin excluding
gain on non-current asset
sales* 2.8% (0.7)% 0.1% (2.0)%
Net margin* 1.6% (2.7)% (1.1)% (3.4)%
Return on invested capital 6.2% (1.0)% 1.2% 8.0%
Return on equity 7.8% (6.1)% 0.1% 8.3%
Equity ratio 19.2% 17.1% 18.2% 18.7%
Return on assets 1.5% (1.1)% 0.0% (1.6)%
Gearing 6.9% 30.0% 37.2% 16.6%
Current ratio 0.88 0.89 0.91 0.95
30 June 2024 30 June 2023 30 June 2022 31 Dec 2023
-------------------------------------------------------------------------------
Order book
(EUR'000)* 178,799 155,133 184,420 216,732
-------------------------------------------------------------------------------
*Continuing operations
Due to the sale of Nordecon Betoon OÜ and NOBE Rakennus OY at the beginning of
December 2023, the business of those companies has been classified as a
discontinued operation. The discontinued operation's revenues and expenses for
comparative periods are presented separately in the consolidated statement of
comprehensive income within Profit (loss) from a discontinued operation.
Performance by geographical market
Revenue generated outside Estonia remained stable compared to the first half of
2023, accounting for around 2% of the group's total revenue for the first half
of 2024. The main foreign market was Ukraine. Despite the war, Nordecon's
construction volumes in Ukraine increased, particularly in the second quarter.
Work continued on the reconstruction of substations and the installation of
associated physical protection systems in the Poltava, Zhytomyr, Volyn and
Ivano-Frankivsk regions of Ukraine under contracts secured in 2023. The group
did not generate any revenue and had no ongoing construction contracts in the
Swedish market. With the sale of Nordecon Betoon OÜ at the beginning of December
2023, the group also withdrew from the Finnish market, where it had operated
through Nordecon Betoon OÜ's subsidiary NOBE Rakennus OY. The group operated on
a project basis in Latvia.
H1 2024 H1 2023 H1 2022 2023
-----------------------------------------------
Estonia 98% 98% 97% 97%
Ukraine 2% 1% 0% 2%
Finland - 1% 1% 1%
Latvia - 0% 2% 0%
Performance by business line
Segment revenues
We strive to maintain a balance between the revenues of our two main operating
segments (Buildings and Infrastructure) as far as market developments allow, as
this helps diversify risks and provides better opportunities to continue
construction activities in more challenging market conditions, where volumes in
one subsegment decline sharply while volumes in another subsegment start to grow
more rapidly.
The group's revenue for the first half of 2024 was EUR114,945 thousand, around
33% higher than in the same period last year, when revenue from continuing
operations amounted to EUR86,526 thousand. The Buildings segment generated revenue
of EUR100,421 thousand and the Infrastructure segment revenue of EUR14,486 thousand.
The corresponding figures for the first half of 2023 were EUR66,651 thousand and
EUR19,821 thousand. Revenue generated by the Buildings segment increased by 51%,
while revenue generated by the Infrastructure segment decreased by 27%. The
revenue growth and changes in the performance of the reportable segments were
expected and in line with the group's order book.
Revenue by operating segment H1 2024 H1 2023 H1 2022 2023
--------------------------------------------------------------------
Buildings 87% 77% 80% 74%
Infrastructure 13% 23% 20% 26%
Subsegment revenues
In the Buildings segment, the public buildings subsegment doubled its revenue
and the commercial buildings subsegment increased its revenue by 27% compared to
the same period last year. The revenue of the industrial and warehouse
facilities subsegment was also modest in previous years and therefore the
decline compared to the same period last year was not significant (6%), but the
revenue of the apartment buildings subsegment decreased considerably (38%),
particularly revenue from apartment construction contracts, which reflects the
current market situation in the subsegment.
The period's largest projects in the public buildings subsegment were the
construction of the main building of the Estonian Internal Security Service and
Loodusmaja (Nature Hub) in Tallinn, the design and construction of warehouse
complexes for the Centre for Defence Investment in Luunja and Nõo rural
municipalities in Tartu County and in Ida-Viru County, the design and
construction of a new study and sports building for the Saku Upper Secondary
School near Tallinn, the reconstruction of the building of the Karlova School in
Tartu and the design and construction of a study building for the Centre for
Defence Investment on the Raadi campus in Tartu.
Revenue generated by the apartment buildings subsegment consisted of revenue
from the construction of the commercial and residential complex Vektor and the
group's own development projects. Revenue from our own development operations
increased year on year, rising to EUR6,174 thousand (H1 2023: EUR5,510 thousand).
The amount includes revenue from the sale of apartments in Tartu - in the
Mõisavahe Kodu housing estate and the centrally located Emajõe Residents housing
estate on the banks of the Emajõgi river (https://emajoeresidents.ee). We
continued the construction of phase 1 of the Seileri Kvartal housing estate in
Pärnu (https://seileri.ee), scheduled to be completed in spring 2025, and
started the development of the Tammepärja Kodu housing estate in the Tammelinn
district in Tartu (https://tammelinn.ee). In carrying out our own development
activities, we carefully monitor potential risks in the housing development
market.
The largest projects under construction in the commercial buildings subsegment
were the commercial and residential complex Vektor and the LEED Gold compliant
Golden Gate office building at Ahtri 6 in Tallinn and the design and
construction of a commercial building at Nõlvakaare 4 at Raadi in Tartu County.
The revenue of the industrial and warehouse facilities subsegment resulted from
small projects.
Buildings segment H1 2024 H1 2023 H1 2022 2023
---------------------------------------------------------------------------
Public buildings 68% 33% 28% 37%
Commercial buildings 20% 25% 26% 23%
Apartment buildings 9% 31% 30% 27%
Industrial and warehouse facilities 3% 11% 16% 13%
The largest revenue contributor in the Infrastructure segment was road
construction and maintenance although its revenue decreased by around 8%
compared with a year earlier. A major share of the subsegment's revenue for the
period resulted from the construction of an armoured manoeuvre shooting range
and roads in Harju County, the reconstruction of the Mäeküla-Koeru-Kapu road
section, the provision of road maintenance services in Järva County and the
construction of the Tagadi ecoduct (wildlife crossing) on the Rail Baltica
route.
Infrastructure segment H1 2024 H1 2023 H1 2022 2023
-------------------------------------------------------------------------
Road construction and maintenance 93% 65% 81% 63%
Other engineering 7% 20% 14% 30%
Environmental engineering 0% 15% 0% 7%
Specialist engineering 0% 0% 5% 0%
Order book
The group's order book (backlog of contracts signed but not yet performed) stood
at EUR178,799 thousand at 30 June 2024. Compared to the same period last year, the
order book has grown by 15%. In the first half of 2024, we signed new contracts
for EUR64,030 thousand (H1 2023: EUR100,632 thousand), of which EUR46,413 thousand in
the second quarter (Q2 2023: EUR58,771 thousand). After the reporting date, we
have signed additional new contracts for EUR33,597 thousand. The rise in
construction input prices and the increase in interest rates due to the rise in
the EURIBOR rates in recent years have caused a sharp increase in the cost of
development projects and, consequently, the postponement of new projects.
Investment by the Transport Administration has decreased significantly, which
has had a direct impact on the order book of our Infrastructure segment. The
volumes of work procured for the Rail Baltica project have increased and will
partially offset the decline in investment by the Transport Administration, but
the excessive length of the procurement processes makes it difficult to predict
the potential start dates of the work and the impact on revenue. While public
investment in building construction has also declined, we no some investment
activity at local authority level.
30 June 2024 30 June 2023 30 June 2022 31 December 2023
----------------------------------------------------------------------------
Order book (EUR'000)* 178,799 155,133 184,420 216,732
*Continuing operations
The share of the Buildings segment in the group's order book has increased: at
30 June 2024, the Buildings segment accounted for 90% and the Infrastructure
segment for 10% of the group's total order book (30 June 2023: 83% and 17%,
respectively). Compared to 30 June 2023, the order book of the Buildings segment
has increased by 26%, with the strongest increase in the order book of the
public buildings subsegment. The order book of the Infrastructure segment has
decreased by 35%, mainly due a decrease in the order book of the road
construction and maintenance subsegment.
Major contracts secured during the period include:
* the construction of an armoured manoeuvre shooting range and roads for the
Centre for Defence Investment in Harju County with an approximate cost of
EUR5,450 thousand;
* the construction of a modern war and disaster medicine centre for the Centre
for Defence Investment in Tartu with an approximate cost of EUR15,000 thousand
(the group is one of the joint bidders);
* the construction of a Lidl store in Võru with an approximate cost of EUR3,900
thousand;
* the construction of a platform area for Class E aircraft at Tallinn Airport
with an approximate cost of EUR7,500 thousand;
* the construction of a building complex in the Port Athena quarter at Väike-
Turu 7 in Tartu. The complex consists of four six-storey buildings, one
seven-storey building and a common basement level used mainly for parking.
The approximate cost of the contract is EUR26,000 thousand.
Management expects the group's revenue to increase slightly in 2024 compared to
the revenue generated by continuing operations in 2023. In a highly competitive
environment, we will avoid taking unjustified risks that could materialise
during the contract execution phase and have an adverse impact on the group's
results. We will focus on cost management and pre-construction and design
activities where we can leverage our professional competitive advantages.
People
Employees and staff costs
The average number of the group's employees (at the parent and the subsidiaries)
in the first half of 2024 was 430, including 282 engineers and technical
professionals (ETP). Headcount decreased by around 25% year on year, due to the
restructuring of the group's Infrastructure segment and the sale of Nordecon
Betoon OÜ and NOBE Rakennus OY at the beginning of December 2023.
Average number of employees at group companies (the parent and the
subsidiaries):
H1 2024 H1 2023 H1 2022 2023
-----------------------------------------------------
ETP 282 384 437 374
Workers 148 188 234 184
Total average 430 572 671 558
The group's staff costs from continuing operations, including all taxes, were
EUR10,127 thousand in the first half of 2024, compared with EUR9,361 thousand in the
same period last year. Staff costs have increased by around 8%, driven by
general wage pressures and the recognition of a provision for performance pay.
The service fees of the members of the council of Nordecon AS for the first half
of 2024 totalled EUR100 thousand and the related social security charges amounted
to EUR33 thousand (H1 2023: EUR79 thousand and EUR26 thousand, respectively).
The service fees of the members of the board of Nordecon AS totalled EUR264
thousand and the related social security charges amounted to EUR87 thousand (H1
2023: EUR253 thousand and EUR83 thousand, respectively).
Labour productivity and labour cost efficiency
We measure the efficiency of our operating activities using the following
productivity and efficiency indicators, which are based on the number of
employees and the staff costs incurred:
H1 2024 H1 2023 H1 2022 2023
-------------------------------------------------------------------------------
Nominal labour productivity (rolling), (EUR'000) 553.9 488.3 470.0 499.3
Change against the comparative period, % 13.4% 3.9% 16.5% 1.8%
Nominal labour cost efficiency (rolling), (EUR) 11.0 11.0 12.3 10.3
Change against the comparative period, % 0.4% (11.0)% 13.0% (13.4)%
The group's nominal labour productivity for the period increased year on year
due to a decrease in the average number of employees.
Andri Hõbemägi
Nordecon AS
Head of Investor Relations
Tel: +372 6272 022
Email: andri.hobemagi@nordecon.com (mailto:andri.hobemagi@nordecon.com)
www.nordecon.com (http://www.nordecon.com)
|