This announcement includes Nordecon AS's consolidated financial statements for
the first quarter of 2019 (unaudited), overview of the key events influencing
the period's financial result, outlook for the market and description of the
main risks.
Interim report is attached to the announcement and is also published on NASDAQ
Tallinn and Nordecon's web page (http://www.nordecon.com/for-investor/financial-
reports/interim-reports).
Period's investor presentation are attached to the announcement and are also
published on Nordecon's web page (http://www.nordecon.com/for-investor/investor-
presentations).
Condensed consolidated interim statement of financial position
EUR '000
As at 31 March 2019 31 December 2018
-------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 5,391 7,678
Trade and other receivables 27,904 31,627
Prepayments 1,700 1,383
Inventories 23,692 20,444
Total current assets 58,687 61,132
Non-current assets
Investments in equity-accounted investees 1,734 2,266
Other investments 26 26
Trade and other receivables 8,285 8,225
Investment property 5,526 5,526
Property, plant and equipment 16,164 12,288
Intangible assets 14,675 14,674
Total non-current assets 46,410 43,005
TOTAL ASSETS 105,097 104,137
LIABILITIES
Current liabilities
Borrowings 17,318 9,374
Trade payables 32,226 34,954
Other payables 7,013 5,187
Deferred income 3,650 3,932
Provisions 529 1,013
Total current liabilities 60,736 54,460
Non-current liabilities
Borrowings 11,203 14,830
Trade payables 98 98
Other payables 177 71
Provisions 1,111 969
Total non-current liabilities 12,589 15,968
TOTAL LIABILITIES 73,325 70,428
EQUITY
Share capital 16,321 16,321
Own (treasury) shares -693 -693
Share premium 618 618
Statutory capital reserve 2,554 2,554
Translation reserve 1,948 1,992
Retained earnings 8,934 10,896
Total equity attributable to owners of the
parent 29,682 31,688
Non-controlling interests 2,090 2,021
TOTAL EQUITY 31,772 33,709
TOTAL LIABILITIES AND EQUITY 105,097 104,137
Condensed consolidated interim statement of comprehensive income
EUR '000 Q1 2019 Q1 2018 2018
-------------------------------------------------------------------------------
Revenue 34,524 43,662 223,496
Cost of sales -34,478 -43,209 -213,463
Gross profit 46 453 10,033
Marketing and distribution expenses -346 -173 -626
Administrative expenses -1,493 -1,671 -6,725
Other operating income 56 17 1,471
Other operating expenses -13 -77 -122
Operating loss/profit -1,750 -1,451 4,031
Finance income 271 135 431
Finance costs -364 -304 -909
Net finance costs -93 -169 -478
Share of loss/profit of equity-accounted investees -50 -63 835
Loss/profit before income tax -1,893 -1,683 4,388
Income tax expense 0 -200 -567
Loss/profit for the period -1,893 -1,883 3,821
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss
Exchange differences on translating foreign
operations -44 68 -3
Total other comprehensive expense/income -44 68 -3
TOTAL COMPREHENSIVE EXPENSE/ INCOME -1,937 -1,815 3,818
Loss/profit attributable to:
- Owners of the parent -1,962 -1,806 3,381
- Non-controlling interests 69 -77 440
Loss/profit for the period -1,893 -1,883 3,821
Total comprehensive expense/income attributable to:
- Owners of the parent -2,006 -1,738 3,378
- Non-controlling interests 69 -77 440
Total comprehensive expense/income for the period -1,937 -1,815 3,818
Earnings per share attributable to owners of the
parent:
Basic earnings per share (EUR) -0.06 -0.06 0.11
Diluted earnings per share (EUR) -0.06 -0.06 0.11
Condensed consolidated interim statement of cash flows
EUR '000 Q1 2019 Q1 2018
---------------------------------------------------------------------------
Cash flows from operating activities
Cash receipts from customers 46,964 53,004
Cash paid to suppliers -43,997 -49,887
VAT paid -846 -1,350
Cash paid to and for employees -5,292 -5,206
Income tax paid -11 0
Net cash used in operating activities -3,182 -3,439
Cash flows from investing activities
Paid on acquisition of property, plant and equipment -43 -66
Proceeds from sale of property, plant and equipment 18 3
Loans provided -9 -6
Repayment of loans provided 2 3
Dividends received 238 245
Interest received 2 3
Net cash from investing activities 208 182
Cash flows from financing activities
Proceeds from loans received 1,737 534
Repayment of loans received -9 -194
Finance lease payments made -577 -450
Payments for lease liabilities -251 0
Interest paid -208 -170
Dividends paid 0 -384
Net cash from/used in financing activities 692 -664
Net cash flow -2,282 -3,921
Cash and cash equivalents at beginning of period 7,678 8,916
Effect of movements in foreign exchange rates -5 0
Decrease in cash and cash equivalents -2,282 -3,921
Cash and cash equivalents at end of period 5,391 4,995
Financial review
Financial performance
Nordecon ended the first quarter of 2019 with a gross profit of 46 thousand
euros (Q1 2018: 453 thousand euros). The Group's gross margin for the first
quarter was 0.1% (Q1 2018: 1%). Due to the seasonality of the construction
business, first-quarter results, particularly in the Infrastructure segment, are
affected by a large share of uncovered fixed costs. The Group's first-quarter
gross profit was earned in the Buildings segment where the margin improved year
on year, rising to 4.5% (Q1 2018: 3.3%). The loss of the Infrastructure segment
grew compared to the first quarter of 2018, mainly due to unfavourable weather
at the beginning of the year. The challenging weather conditions of the first
two months of 2019 lowered the profitability of national road maintenance
contracts: constant temperature changes and higher than average precipitation
increased the cost base of all the main inputs.
The Group's administrative expenses for the first quarter of 2019 totalled
1,493 thousand euros. Compared to the same period last year, administrative
expenses decreased by around 11% (Q1 2018: 1,671 thousand euros) but the ratio
of administrative expenses to revenue (12 months rolling) remained at the same
level as a year ago: 3.1% (Q1 2018: 3.1%).
The Group ended the first quarter of 2019 with an operating loss of 1,750
thousand euros (Q1 2018: 1,451 thousand euros). EBITDA was negative at 1,018
thousand euros (Q1 2018: negative at 944 thousand euros).
Finance income and costs of the period continued to be influenced by exchange
rate fluctuations in the Group's foreign markets. While the Ukrainian hryvnia
strengthened against the euro by 3.6% and the Group recognised an exchange gain
of 215 thousand euros (Q1 2018: 62 thousand euros), the Swedish krona weakened
against the euro by around 1.7% and the Group recognised an exchange loss of
163 thousand euros (Q1 2018: 123 thousand euros). The period's foreign exchange
gain and loss resulted from translating loans provided to the Ukrainian and
Swedish subsidiaries in euros into the local currency.
The Group's net loss amounted to 1,893 thousand euros (Q1 2018: 1,883 thousand
euros) of which the net loss attributable to owners of the parent, Nordecon AS,
was 1,962 thousand euros (Q1 2018: 1,806 thousand euros).
Cash flows
In the first quarter of 2019, operating activities produced a net cash outflow
of 3,182 thousand euros (Q1 2018: an outflow of 3,439 thousand euros). Negative
operating cash flow is typical of the first quarter and stems from the cyclical
nature of the construction business. Larger fixed costs and preparations made
for starting more active construction operations in the second quarter,
particularly in the Infrastructure segment, cause outflows to exceed inflows.
Operating cash flow continues to be 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, materials suppliers, etc. Cash inflow is also lowered by
contractual retentions, which extend from 5 to 10% of the contract price and are
released at the end of the construction period only. The Group has concluded a
frame agreement for reverse factoring which enables our subcontractors that do
not have sufficient credit standing to obtain a factoring facility from a
financing institution to use our facility.
Investing activities resulted in a net cash inflow of 208 thousand euros (Q1
2018: an inflow of 182 thousand euros). The largest items were payments for the
acquisition of property, plant and equipment of 43 thousand euros (Q1 2018: 66
thousand euros) and dividends received of 238 thousand euros (Q1 2018: 245
thousand euros).
Financing activities generated a net cash inflow of 692 thousand euros (Q1
2018: an outflow of 664 thousand euros). The largest items were loan, right of
use and finance lease payments. Proceeds from loans received amounted to 1,737
thousand euros, consisting of development loans and overdrafts used (Q1
2018: 534 thousand euros). Loan repayments totalled 9 thousand euros (Q1
2018: 194 thousand euros) and finance lease payments amounted to 577 thousand
euros (Q1 2018: 450 thousand euros). In connection with a change in lease
accounting policies according to which operating lease liabilities that used to
be accounted for off the statement of financial position are recognised as
borrowings as from 1 January 2019, payments related to such leases are reported
in cash flows from financing activities. Relevant right of use payments of the
period totalled 251 thousand euros (see also note 1 Significant accounting
policies). Interest payments of the period amounted to 208 thousand euros (Q1
2018: 170 thousand euros). Interest payments have grown in connection with the
same change in accounting policies.
At 31 March 2019, the Group's cash and cash equivalents totalled 5,391 thousand
euros (31 March 2018: 4,995 thousand euros).
Key financial figures and ratios
Figure/ratio for the
period Q1 2019 Q1 2018 Q1 2017 2018
-------------------------------------------------------------------------------
Revenue (EUR '000) 34,524 43,662 41,604 223,496
Revenue change -20.9% 4.9% 50.0% -3.4%
Net loss/profit (EUR
'000) -1,893 -1,883 -1,086 3,821
Net loss/profit
attributable to owners
of the parent
(EUR '000) -1,962 -1,806 -1,087 3,381
Average number of shares 31,528,585 30,913,031 30,756,728 31,528,585
Earnings per share (EUR) -0.06 -0.06 -0.04 0.11
Administrative expenses
to revenue 4.3% 3.8% 3.5% 3.0%
Administrative expenses
to revenue (rolling) 3.1% 3.1% 3.2% 3.0%
EBITDA (EUR '000) -1,018 -944 -503 6,021
EBITDA margin -2.9% -2.2% -1.2% 2.7%
Gross margin 0.1% 1.0% 1.5% 4.5%
Operating margin -5.1% -3.3% -2.4% 1.8%
Operating margin
excluding gain on asset
sales -5.2% -3.3% -2.4% 1.3%
Net margin -5.5% -4.3% -2.6% 1.7%
Return on invested
capital -2.9% -2.6% -1.5% 8.4%
Return on equity -5.8% -5.0% -2.9% 11.2%
Equity ratio 30.2% 31.1% 35.6% 32.4%
Return on assets -1.8% -1.9% -1.1% 3.5%
Gearing 38.4% 35.3% 29.3% 28.5%
Current ratio 0.97 1.01 1.01 11.2
As at 31 March 2019 31 March 2018 31 March 2017 31 Dec 2018
-------------------------------------------------------------------------------
Order book (EUR '000) 170,509 143,589 130,109 100,352
-------------------------------------------------------------------------------
Performance by geographical market
The contribution of the Group's foreign markets has remained stable. In the
first quarter of 2019, revenue earned outside Estonia accounted for 10% (Q1
2018: 8%) of our total revenue.
Q1 2019 Q1 2018 Q1 2017 2018
-----------------------------------------------
Estonia 90% 92% 91% 93%
Ukraine 5% 3% 1% 4%
Finland 4% 1% 2% 1%
Sweden 1% 4% 6% 2%
The share of the Group's Ukrainian revenues grew compared to the same period
last year. In Ukraine, we are providing general contractor's services under two
building construction contracts. The share of Swedish revenues decreased year
on year. During the period, we provided services under one construction contract
secured as a general contractor. Our Finnish revenues resulted from concrete
works in the building construction segment.
Geographical diversification of the revenue base is a consciously deployed
strategy by which we mitigate the risks resulting from excessive reliance on one
market. However, conditions in some of our chosen foreign markets are also
volatile and have a noticeable impact on our current results. Increasing the
contribution of foreign markets is one of Nordecon's strategic targets.
Performance by business line
Segment revenues
We strive to maintain the revenues of our operating segments (Buildings and
Infrastructure) as balanced as possible because this helps to diversify risks
and provides better opportunities for continuing construction operations in more
challenging market conditions where the volumes of one or several sub-segments
decline substantially.
In the first quarter of 2019, Nordecon generated revenue of 34,524 thousand
euros, roughly 20.9% less than in the same period last year when revenue
amounted to 43,662 thousand euros. The decline was sharper in the Buildings
segment where revenue dropped by 24%. The fall in first-quarter revenue is
attributable to longer than usual decision-making processes between the
submission of bids and signature of contracts in public procurements carried out
in the second half of 2018 and longer than expected preparatory processes of
some contracts signed with private sector customers. We highlighted the matters
already in our annual report for 2018. However, based on the Group's order book
and known developments in our chosen markets, we expect that in 2019 the Group's
business volumes will grow somewhat compared to 2018.
The limited volume of infrastructure construction projects, which is affecting
the entire Estonian construction market, is also reflected in our revenue
structure. In the first quarter of 2019, our Buildings and Infrastructure
segments generated revenue of 28,638 thousand euros and 5,791 thousand euros
respectively. In the same period last year, the corresponding figures were
37,616 thousand euros and 5,941 thousand euros.
Operating segments Q1 2019 Q1 2018 Q1 2017 2018
----------------------------------------------------------
Buildings 82% 86% 89% 72%
Infrastructure 18% 14% 11% 28%
Sub-segment revenues
Due to the overall revenue decline, the revenues of all sub-segments decreased
year on year.
Similarly to previous periods, the largest revenue source in the Buildings
segment was the commercial buildings sub-segment. The period's largest projects
in progress included the reconstruction and extension of the building of
Terminal D in the Old City harbour, the construction of a multi-storey car park
at Sepapaja 1 and the design and construction of an eight-floor accommodation
building at Liimi 1B in Tallinn.
A significant share of the Group's Estonian apartment building construction
projects is located in Tallinn. During the period, the largest of them were
located at Lesta 10, Sammu 6 and Valge 16. Sweden, where we are delivering
construction services in a housing development project and have started the
design work in two new projects, continues to make a strong contribution to the
sub-segment's revenue. An apartment building in phase III of the Sõjakooli
project was delivered to the customer on schedule.
We continued work on our own housing development projects in Tallinn and Tartu
(reported in the apartment buildings sub-segment). In Tallinn, we completed a
four-floor apartment building with 21 apartments at Nõmme tee 97
(www.nommetee.ee (http://www.nommetee.ee)) and began preparing for the
construction of a new five-floor apartment building with 24 apartments at
Võidujooksu 8c (www.voidujooksu.ee). In Tartu, we continued to build three
apartment buildings with 10 apartments each at Aruküla tee (www.kaldakodu.ee
(http://www.kaldakodu.ee)). Our own housing developments did not generate
revenue in the period under review (Q1 2018: 1,638 thousand euros). The delivery
of apartments in the development in Nõmme tee will begin in the second quarter
of 2019. In carrying out development activities, we monitor closely potential
risks in the housing development market.
Based on the Group's order book, we expect that in 2019 as a whole the revenue
of the public buildings sub-segment will increase compared to 2018. During the
period, the sub-segment's revenue was strongly influenced by the construction of
the Peetri sports and leisure centre in Rae parish and an assembly area at the
Defence Forces' base at Tapa. The Estonian Academy of Security Sciences building
in Tallinn was delivered to the customer on schedule.
The largest projects in the industrial and warehouse facilities sub-segment were
the construction of a warehouse and office building at Kaldase tee in Maardu and
the reconstruction (phase V) of the fattening unit of a pig farm of Rakvere
Farmid AS (EKSEKO). Compared to earlier periods, the share of orders placed by
the agricultural sector has decreased significantly, which is one of the reasons
for the sub-segment's revenue decline.
Revenue breakdown in the Buildings segment Q1 2019 Q1 2018 Q1 2017 2018
------------------------------------------------------------------------
Commercial buildings 39% 38% 26% 35%
Apartment buildings 30% 25% 33% 25%
Public buildings 21% 23% 28% 25%
Industrial and warehouse facilities 10% 14% 13% 15%
We do not expect any major changes in the revenue breakdown of the
Infrastructure segment in 2019. The segment will continue to be dominated by
road construction and maintenance despite the fact that in the first quarter the
contribution of other engineering grew. During the period, a major share of the
revenue of the road construction and maintenance sub-segment resulted from
construction contracts secured in 2018: the construction of roads and bridges
for the Defence Forces' central training area in Kuusalu parish and different
smaller-scale forest road improvement services provided to the State Forest
Management Centre. We continued to render road maintenance services in Järva and
Hiiu counties and the Kose maintenance area in Harju county.
We continued earthworks on the Kiili-Paldiski section of the onshore part of the
Balticconnector gas pipeline that accounted for a significant share of the
revenue of the other engineering sub-segment.
Revenue breakdown in the Infrastructure segment Q1 2019 Q1 2018 Q1 2017 2018
-----------------------------------------------------------------------------
Road construction and maintenance 65% 85% 82% 89%
Other engineering 33% 12% 10% 7%
Environmental engineering 2% 3% 8% 4%
Order book
At 31 March 2019, the Group's order book (backlog of contracts signed but not
yet performed) stood at 170,509 thousand euros, an increase of roughly 18%
compared to a year ago. In the first quarter of 2019, we signed new contracts of
92,556 thousand euros (Q1 2018: 22,275 thousand euros).
31 March 2019 31 March 2018 31 March 2017 31 Dec 2018
----------------------------------------------------------------------------
Order book (EUR '000) 170,509 143,589 130,109 100,352
At the reporting date, contracts secured by the Buildings segment and the
Infrastructure segment accounted for 86% and 14% of the Group's total order book
respectively (31 March 2018: 68% and 32% respectively). Compared to 31 March
2018, the order book of the Buildings segment has increased by 50% and the order
book of the Infrastructure segment has decreased by 49%.
The order books of the commercial buildings, public buildings and apartment
buildings sub-segments account for an equal share, approximately a third each,
of the order book of the Buildings segment. The order books of those sub-
segments have grown significantly compared to the same period last year. In the
commercial buildings sub-segment, the largest projects in progress are in
Tallinn: the reconstruction and extension of the building of Terminal D in the
Old City Harbour and the construction of an office complex consisting of a
three- and a five-floor building on the corner of Suur-Patarei and Jahu streets,
a multi-storey car park at Sepapaja 1 and a new seven-floor commercial building
in Rotermann City. In addition, we have signed a contract for the design and
construction of a multi-storey car park for Tartu University Hospital in Tartu.
The order book of the apartment buildings sub-segment includes contracts for the
construction of apartment buildings in Tallinn, and contracts for the
construction of two apartment buildings in Sweden that were signed during the
reporting period. A major share of the order book of the public buildings sub-
segment is made up of contracts signed at the beginning of 2019 for the
construction of the Estonian Academy of Security Sciences and the University of
Tartu Training Centre in Narva, a sports and health centre at Kohtla-Järve and
an assembly area at the Defence Forces' base at Tapa. The order book of the
industrial and warehouse facilities sub-segment has decreased substantially.
The order book of the Infrastructure segment continues to be underpinned by
contracts of the road construction and maintenance sub-segment which account for
around 72% of the Infrastructure segment's order book. The largest projects in
the road construction order book are the construction of the Veskitammi
intersection in Laagri, near Tallinn, passing lanes for a 2+1 road on the
Pikknurme-Puurmani section (km 142.2-146.9) of the Tallinn-Tartu-Võru-Luhamaa
road, and roads and bridges for the Defence Forces' central training area in
Kuusalu parish. The Group continues to provide road maintenance services in
three road maintenance areas: Järva, Hiiu and Kose. We also continue to provide
earthwork services on the Kiili-Paldiski section of the onshore part of the
Balticconnector gas pipeline.
Based on the size of the Group's order book and known developments in our chosen
markets, we expect that in 2019 the Group's revenue will grow slightly compared
to 2018. In an environment of exceptionally stiff competition, we avoid taking
unjustified risks whose realisation in the contract performance phase would have
an adverse impact on the Group's results. Despite this, where suitable
opportunities arise, we strive to increase the portfolio to counteract the
pressure on margins that is caused by the market situation. Our preferred policy
is to keep fixed costs under control and monitor market developments closely.
Between the reporting date (31 March 2019) and the date of release of this
report, Group companies have secured additional construction contracts in the
region of 20,552 thousand euros, a major share of which is made up of contracts
of the Infrastructure segment.
People
Employees and personnel expenses
In Q1 2019, the Group (the parent and the subsidiaries) employed, on average,
662 people including 391 engineers and technical personnel (ETP). Headcount
dropped by around 4% compared to the first quarter of 2018.
Average number of employees at Group entities
Q1 2019 Q1 2018 Q1 2017 2018
-----------------------------------------------------
ETP 391 427 413 419
Workers 271 264 303 268
Total average 662 691 716 687
The Group's personnel expenses for the first quarter of 2019, including all
taxes, totalled 5,363 thousand euros. In the first quarter of 2018, personnel
expenses amounted to 4,943 thousand euros. Personnel expenses grew by around 8%
through a rise in wages and salaries.
The service fees of the members of the council of Nordecon AS for the first
quarter of 2019 amounted to 47 thousand euros and associated social security
charges totalled 15 thousand euros (Q1 2018: 47 thousand euros and 15 thousand
euros respectively).
The service fees of the members of the board of Nordecon AS amounted to 123
thousand euros and associated social security charges totalled 42 thousand euros
(Q1 2018: 232 thousand euros and 77 thousand euros respectively). The figures
for the first quarter of 2018 included termination benefits of 93 thousand euros
paid to a member of the board and associated social security charges of 31
thousand euros.
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 personnel expenses incurred:
Q1 2019 Q1 2018 Q1 2017 2018
-------------------------------------------------------------------------------
Nominal labour productivity (rolling), (EUR
'000) 315.5 320.4 281.9 325.4
Change against the comparative period, % -1.5% 13.7% 30.4% 3.3%
Nominal labour cost efficiency (rolling), (EUR) 9.2 10.0 9.5 9.7
Change against the comparative period, % -8.4% 5.4% 20.7% -3.8%
The Group's nominal labour productivity and labour cost efficiency declined
compared to the first quarter of 2018 due to a decrease in revenue and growth in
personnel expenses.
Nordecon (www.nordecon.com (http://www.nordecon.com)) is a group of construction
companies whose core business is construction project management and general
contracting in the buildings and infrastructures segment. Geographically the
Group operates in Estonia, Ukraine, Finland and Sweden. The parent of the Group
is Nordecon AS, a company registered and located in Tallinn, Estonia. The
consolidated revenue of the Group in 2018 was 223 million euros. Currently
Nordecon Group employs close to 660 people. Since 18 May 2006 the company's
shares have been quoted in the main list of the NASDAQ Tallinn Stock Exchange.
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)
|