This announcement includes Nordecon AS's consolidated financial statements for
the third quarter and nine months of 2019 (unaudited) and overview of the key
events influencing the period's financial result.
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 30 September 2019 31 December 2018
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ASSETS
Current assets
Cash and cash equivalents 8,630 7,678
Trade and other receivables 42,128 31,627
Prepayments 3,656 1,383
Inventories 20,355 20,444
Total current assets 74,769 61,132
Non-current assets
Investments in equity-accounted investees 2,406 2,266
Other investments 26 26
Trade and other receivables 8,394 8,225
Investment property 5,526 5,526
Property, plant and equipment 16,114 12,288
Intangible assets 14,665 14,674
Total non-current assets 47,131 43,005
TOTAL ASSETS 121,900 104,137
LIABILITIES
Current liabilities
Borrowings 17,243 9,374
Trade payables 52,258 34,954
Other payables 8,176 5,187
Deferred income 2,577 3,932
Provisions 444 1,013
Total current liabilities 80,698 54,460
Non-current liabilities
Borrowings 8,569 14,830
Trade payables 98 98
Other payables 177 71
Provisions 812 969
Total non-current liabilities 9,656 15,968
TOTAL LIABILITIES 90,354 70,428
EQUITY
Share capital 14,379 16,321
Own (treasury) shares -660 -693
Share premium 635 618
Statutory capital reserve 2,554 2,554
Translation reserve 1,215 1,992
Retained earnings 11,537 10,896
Total equity attributable to owners of the
parent 29,660 31,688
Non-controlling interests 1,886 2,021
TOTAL EQUITY 31,546 33,709
TOTAL LIABILITIES AND EQUITY 121,900 104,137
Condensed consolidated interim statement of comprehensive income
EUR '000 9M 2019 Q3 2019 9M 2018 Q3 2018 2018
-------------------------------------------------------------------------------
Revenue 172,237 71,796 167,588 61,930 223,496
Cost of sales -164,516 -67,369 -160,900 -58,441 -213,463
Gross profit 7,721 4,427 6,688 3,489 10,033
Marketing and distribution
expenses -635 -137 -470 -139 -626
Administrative expenses -4,668 -1,620 -4,977 -1,591 -6,725
Other operating income 128 61 1,225 1,005 1,471
Other operating expenses -48 -28 -74 3 -122
Operating profit 2,498 2,703 2,392 2,767 4,031
Finance income 1,215 720 241 -144 431
Finance costs -1,006 -343 -741 -155 -909
Net finance income/costs 209 377 -500 -299 -478
Share of profit of equity-
accounted investees 622 370 844 392 835
Profit before income tax 3,329 3,450 2,736 2,860 4,388
Income tax expense -453 0 -582 -182 -567
Profit for the period 2,876 3,450 2,154 2,678 3,821
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss
Exchange differences on
translating foreign operations -777 -514 102 162 -3
Total other comprehensive
expense/income -777 -514 102 162 -3
TOTAL COMPREHENSIVE INCOME 2,099 2,936 2,256 2,840 3,818
Profit attributable to:
- Owners of the parent 2,532 3,325 1,972 2,504 3,381
- Non-controlling interests 344 125 182 174 440
Profit for the period 2,876 3,450 2,154 2,678 3,821
Total comprehensive income
attributable to:
- Owners of the parent 1,755 2,811 2,074 2,666 3,378
- Non-controlling interests 344 125 182 174 440
Total comprehensive income for
the period
2,099 2,936 2,256 2,840 3,818
Earnings per share attributable
to owners of the parent:
Basic earnings per share (EUR) 0.08 0.10 0.06 0.08 0.11
Diluted earnings per share (EUR) 0.08 0.10 0.06 0.08 0.11
Condensed consolidated interim statement of cash flows
EUR '000 9M 2019 9M 2018
-----------------------------------------------------------------------------
Cash flows from operating activities
Cash receipts from customers 193,567 201,839
Cash paid to suppliers -165,291 -171,860
VAT paid -4,606 -5,892
Cash paid to and for employees -17,332 -16,764
Income tax paid -149 -582
Net cash from operating activities 6,189 6,741
Cash flows from investing activities
Paid on acquisition of property, plant and equipment -216 -384
Proceeds from sale of property, plant and equipment 215 22
Loans provided -14 -22
Repayment of loans provided 9 10
Dividends received 489 249
Interest received 6 8
Net cash from/used in investing activities 489 -117
Cash flows from financing activities
Proceeds from loans received 3,036 1,916
Repayment of loans received -3,245 -3,513
Finance lease payments made -1,532 -1,365
Settlements of lease liability -868 0
Interest paid -744 -588
Dividends paid -2,360 -2,627
Net cash used in financing activities -5,713 -6,177
Net cash flow 965 447
Cash and cash equivalents at beginning of period 7,678 8,915
Effect of movements in foreign exchange rates -13 2
Increase in cash and cash equivalents 965 447
Cash and cash equivalents at end of period 8,630 9,364
Financial review
Financial performance
Nordecon ended the first nine months of 2019 with a gross profit of 7,721
thousand euros (9M 2018: 6,688 thousand euros). The Group's gross margin was
4.5% for nine months (9M 2018: 4%) and 6.2% for the third quarter (Q3
2018: 5.6%). In contrast to the gross margin of the Buildings segment, which
improved significantly, rising to 5.4% for nine months (9M 2018: 3.4%) and 5.1%
for the third quarter (Q3 2018: 3.7%), the gross margin of the Infrastructure
segment moved in the opposite direction, decreasing substantially. The
Infrastructure segment's nine-month gross margin was 4.0% (9M 2018: 6.7%) and
third-quarter gross margin was 9.2% (Q3 2018: 10.1%). The Infrastructure segment
is mainly involved in the performance of road construction and maintenance
contracts. Road construction, which is capital intensive, requires a certain
critical amount of work to cover its fixed costs, the largest share of which is
made up of expenses related to asphalt production and laying equipment. The road
maintenance result is mainly influenced by the weather. Exceptionally
challenging weather conditions in the first two months of 2019 had an adverse
impact on the profitability of national road maintenance contracts. The average
cost of new road construction projects put out to tender in 2019 has decreased
compared to 2018, which, in turn, has increased the number of bidders. Also, the
gap between contractors' asphalt concrete production capacity and market demand
has widened: according to estimates, production capacity exceeds demand by at
least 25%. All this has had a negative impact on bid prices and the Group has
not been sufficiently successful in winning public road construction contracts.
The Group's administrative expenses for the first nine months of 2019 totalled
4,668 thousand euros. Compared to the same period last year, administrative
expenses decreased by around 6% (9M 2018: 4,977 thousand euros) and the ratio
of administrative expenses to revenue (12 months rolling) dropped to 2.8% (9M
2018: 2.9%).
The Group ended the first nine months of 2019 with an operating profit of 2,498
thousand euros (9M 2018: 2,392 thousand euros). EBITDA amounted to 4,732
thousand euros (9M 2018: 3,879 thousand euros).
Finance income and costs of the period continued to be influenced by exchange
rate fluctuations in the Group's foreign markets. The Ukrainian hryvnia
strengthened against the euro by around 20% and the Group recognised an exchange
gain of 1,040 thousand euros (9M 2018: 29 thousand euros) on the translation of
the loans provided to the Ukrainian subsidiaries in euros. The Swedish krona, on
the other hand, weakened against the euro by around 4% and the Group recognised
an exchange loss of 258 thousand euros (9M 2018: 124 thousand euros) on the
translation of a loan provided to the Swedish subsidiary in euros.
The Group earned a net profit of2,876 thousand euros (9M 2018: 2,154 thousand
euros) of which the net profit attributable to owners of the parent, Nordecon
AS, was 2,532 thousand euros (9M 2018: 1,972 thousand euros).
Cash flows
Operating activities of the first nine months of 2019 produced a net cash inflow
of 6,189 thousand euros (9M 2018: 6,741 thousand euros). The key factor that
affects operating cash flow is the mismatch between customers' and suppliers'
settlement terms. Cash flow is also strongly influenced by the fact that the
contracts signed with both public- and private-sector customers do not require
the customer to make advance payments while the Group has to make prepayments to
subcontractors, materials suppliers, etc. 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 resulted in a net cash inflow of 489 thousand euros (9M
2018: an outflow 117 thousand euros). The largest items were amounts paid for
the acquisition of property, plant and equipment of 216 thousand euros (9M
2018: 384 thousand euros) and proceeds from sales of property, plant and
equipment of 215 thousand euros (9M 2018: 22 thousand euros). Dividends received
amounted to 489 thousand euros (9M 2018: 249 thousand euros).
Financing activities generated a net cash outflow of 5,713 thousand euros (9M
2018: 6,177 thousand euros). The largest items were loan, finance lease and
dividend payments. Proceeds from loans received totalled 3,036 thousand euros,
comprising development loans and overdrafts used (9M 2018: 1,916 thousand
euros). Loan repayments totalled 3,245 thousand euros (9M 2018: 3,513 thousand
euros), consisting of scheduled repayments of long-term investment and
development loans. Finance lease payments totalled 1,532 thousand euros (9M
2018: 1,365 thousand euros). Dividends paid amounted to 2,360 thousand euros
(9M 2018: 2,627 thousand euros).
At 30 September 2019, the Group's cash and cash equivalents totalled 8,630
thousand euros (30 September 2018: 9,364 thousand euros).
Key financial figures and ratios
Figure/ratio for the
period 9M 2019 9M 2018 9M 2017 2018
-------------------------------------------------------------------------------
Revenue (EUR '000) 172,237 167,588 174,909 223,496
Revenue change 2.8% -4.2% 30.9% -3.4%
Net profit (EUR '000) 2,876 2,154 2,716 3,821
Net profit attributable to
owners of the parent (EUR
'000) 2,532 1,972 2,978 3,381
Weighted average number of
shares 30,986,585 30,986,585 30,913,031 31,528,585
Earnings per share (EUR) 0.08 0.06 0.10 0.11
Administrative expenses to
revenue 2.7% 3.0% 3.1% 3.0%
Administrative expenses to
revenue (rolling) 2.8% 2.9% 3.0% 3.0%
EBITDA (EUR '000) 4,732 3,879 2,419 6,021
EBITDA margin 2.7% 2.3% 1.4% 2.7%
Gross margin 4.5% 4.0% 3.9% 4.5%
Operating margin 1.5% 1.4% 0.5% 1.8%
Operating margin excluding
gain on asset sales 1.4% 0.8% 0.5% 1.3%
Net margin 1.7% 1.3% 1.6% 1.7%
Return on invested capital 5.8% 5.4% 6.5% 8.4%
Return on equity 8.8% 6.4% 7.2% 11.2%
Equity ratio 25.9% 28.6% 29.3% 32.4%
Return on assets 2.5% 1.9% 2.4% 3.5%
Gearing 30% 29.1% 31.6% 28.5%
Current ratio 0.93 0.96 1.04 1.12
As at 30 Sept 2019 30 Sept 2018 30 Sept 2017 31 Dec 2018
-------------------------------------------------------------------------------
Order book
(EUR '000) 196,493 131,953 142,553 100,352
-------------------------------------------------------------------------------
Performance by geographical market
In the first nine months of 2019, the contribution of the Group's foreign
markets increased compared to the same period last year, rising to around 9% of
total revenue.
9M 2019 9M 2018 9M 2017 2018
-----------------------------------------------
Estonia 91% 94% 95% 93%
Finland 4% 1% 1% 1%
Sweden 3% 2% 3% 2%
Ukraine 2% 3% 1% 4%
It is worth noting that the share of revenue earned in Finland has increased.
Based on nine-month results and our Finnish order book, where the largest
project is a subcontract for supplying concrete constructions for the
Raitinkartano commercial and residential building, in 2019 our Finnish revenues
will be the largest ever. The Group's Swedish revenue has also grown year on
year, underpinned by two new general construction contracts secured in 2019. The
contribution of the Ukrainian market where we are currently providing general
contractor's services under two building construction contracts has decreased
compared to the same period last year.
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 affect our current results. Increasing the contribution of foreign
markets is one of Nordecon's strategic targets.
Performance by business line
Segment revenues
In the first nine months of 2019, Nordecon generated revenue of 172,237 thousand
euros, roughly 3% more than in the same period last year when revenue amounted
to 167,588 thousand euros. Revenue grew in both the Buildings and the
Infrastructure segment, by 2% and 6% respectively. In the light of the Group's
order book, revenue growth met expectations.
The limited volume of infrastructure projects, which is affecting the entire
Estonian construction market, is also reflected in our revenue structure. In the
first nine months of 2019, our Buildings and Infrastructure segments generated
revenue of 122,825 thousand euros and 49,138 thousand euros respectively. In the
same period last year, the corresponding figures were 120,766 thousand euros and
46,454 thousand euros (see note 8).
Operating segments 9M 2019 9M 2018 9M 2017 2018
----------------------------------------------------------
Buildings 70% 71% 75% 72%
Infrastructure 30% 29% 25% 28%
Sub-segment revenues
The largest revenue source in the Buildings segment continues to be the
commercial buildings sub-segment. The period's largest projects were the
reconstruction and extension of the building of Terminal D in the Old City
Harbour, the construction of phase I of the Porto Franco commercial and office
development next to the Admiralty Basin and a multi-storey car park at Sepapaja
1, and the design and construction of an eight-floor accommodation building at
Liimi 1B and a concrete frame for an eight-floor car park and commercial
building at Tammsaare tee 92 in Tallinn.
Based on the Group's order book, we expect that in 2019 the revenue of the
public buildings sub-segment will increase compared to 2018. The sub-segment's
revenue for the period was influenced the most by the construction of the Peetri
sports and leisure centre in Rae parish and a state upper secondary school at
Kohtla-Järve. The state's investments in national defence also continue to play
an important role. During the period, we continued to build an assembly area at
the defence forces' base at Tapa and a barracks for 300 people at the defence
forces' base at Jõhvi. The buildings of the Estonian Academy of Security
Sciences in Tallinn and Kohtla-Järve state upper secondary school were delivered
to the customer on schedule.
A significant share of the Group's Estonian apartment building projects is
located in Tallinn and its immediate vicinity. During the period, the largest of
them were located at Lesta 10, Sammu 6 and Valge 16. Sweden, where we are
providing services under three housing development contracts, also continues to
influence the sub-segment's revenue. Apartment buildings in phases III and IV of
the Sõjakooli project and at Lesta 10 were delivered to the customer on
schedule.
We continue to carry out our own housing development projects in Tallinn and
Tartu (reported in the apartment buildings sub-segment). During the period, we
completed a four-floor apartment building with 21 apartments at Nõmme tee 97 in
Tallinn and three apartment buildings with 10 apartments each at Aruküla tee in
Tartu. Work continues on a five-floor apartment building with 24 apartments at
Võidujooksu 8c in Tallinn (www.voidujooksu.ee (http://www.voidujooksu.ee/)).
During the period, our own housing developments generated revenue of 6,388
thousand euros (9M 2018: 5,566 thousand euros). In conducting real estate
development activities, we monitor closely potential risks in the housing
development market.
The largest projects in the industrial and warehouse facilities sub-segment are
the construction of a warehouse and office building at Kaldase tee in Maardu,
the reconstruction (phase V) of the fattening unit of a pig farm of Rakvere
Farmid AS (EKSEKO) and the construction of micro-warehouses in Betooni street in
Tallinn. Compared to previous periods, the share of contracts signed with 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 9M 2019 9M 2018 9M 2017 2018
-------------------------------------------------------------------------
Commercial buildings 35% 36% 24% 35%
Apartment buildings 30% 22% 31% 25%
Public buildings 28% 27% 22% 25%
Industrial and warehouse facilities 7% 15% 23% 15%
We do not expect revenue breakdown in the Infrastructure segment to change
significantly in 2019. The segment will continue to be dominated by road
construction and maintenance despite the fact that the contribution of other
engineering work has grown. During the period, a major share of the revenue of
the road construction and maintenance sub-segment resulted from contracts
secured in 2018: the construction of passing lanes on the Pikknurme-Puurmani
section of the Tallinn-Tartu-Võru-Luhamaa road (a 2+1 road section) and roads
and bridges for the defence forces' central training area in Kuusalu parish. The
strongest revenue contributors among contracts secured in 2019 were two large
projects: one for the construction of the Missokülä-Hindsa section (8 km) and
the Misso small town section (2 km) of main road no. 7 (Riga-Pskov) and the
other for the construction of the Kernu bypass, and the Kernu filling station
and Haiba junctions. A significant share of the sub-segment's revenue results
from forest road improvement services provided to the State Forest Management
Centre. The Group also continues to provide road maintenance services in Järva
and Hiiu counties and the Kose maintenance area in Harju county.
During the period, the Group continued earthworks on the Kiili-Paldiski section
of the onshore part of Balticconnector (a gas pipeline between Estonia and
Finland) that generated a major share of other engineering revenue. The sub-
segment's revenue is also influenced by the construction of foundations for 73
wind turbines in the Nysäter wind farm being built in northern Sweden, near
Sundsvall.
Revenue breakdown in the Infrastructure segment 9M 2019 9M 2018 9M 2017 2018
-----------------------------------------------------------------------------
Road construction and maintenance 81% 91% 84% 89%
Other engineering 16% 6% 12% 7%
Environmental engineering 3% 3% 4% 4%
Order book
At 30 September 2019, the Group's order book (backlog of contracts signed but
not yet performed) stood at 196,493 thousand euros, an increase of 49% year on
year. In the third quarter of 2019, we signed new contracts of 69,894 thousand
euros (Q3 2018: 61,761 thousand euros).
As at 30 Sept 2019 30 Sept 2018 30 Sept 2017 31 Dec 2018
-------------------------------------------------------------------------
Order book (EUR '000) 196,493 131,953 142,553 100,352
At the reporting date, contracts secured by the Buildings segment and the
Infrastructure segment accounted for 80% and 20% of the Group's total order book
respectively (30 September 2018: 73% and 27% respectively). Compared to 30
September 2018, the order book of the Buildings segment has increased by around
65% and that of the Infrastructure segment by around 6%.
In the Buildings segment, the largest order books are those of the commercial
and the public buildings sub-segments, which account for 29% and 27% of the of
the segment's order book respectively. Besides the above, the order book of the
industrial and warehouse facilities sub-segment has also grown considerably
compared to the same period last year. The order book of the apartment buildings
sub-segment has decreased slightly year on year. In the commercial buildings
sub-segment, the largest projects in progress are mostly in Tallinn: the
construction of a new seven-floor commercial building in Rotermann City and
phase I of the Porto Franco development as well as the design and construction
of a concrete load-bearing structure for an office building and multi-storey car
park at Veskiposti 2. A large part 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 a
storage area at the defence forces' base at Tapa, and the reconstruction and
extension of a research and academic building of Tallinn University of
Technology at Mäepealse 3. The order book of the apartment buildings sub-segment
includes contracts for the construction of apartment buildings in Tallinn and
its immediate vicinity. At the beginning of 2019 we were also awarded contracts
for the construction of two apartment buildings in Sweden: one near Uppsala city
centre and the other in the Bromma district in Stockholm.
For a long time, the order book of the Infrastructure segment was dominated by
contracts secured by the road construction and maintenance sub-segment. However,
in the reporting period the structure of the segment's order book changed
significantly. At the reporting date, other engineering contracts accounted for
roughly a half of the order book of the Infrastructure segment. A major share of
the order book of the other engineering sub-segment is made up of a contract
secured in the third quarter for the construction of foundations for 73 wind
turbines in the Nysäter wind farm in northern Sweden, near Sundsvall. The other
half of the Infrastructure order book is made up of contracts awarded to the
road construction and maintenance sub-segment whose largest projects include a
contract secured in the second quarter of 2019 for building the Kernu bypass and
the Kernu filling station and Haiba junctions on the Tallinn-Pärnu-Ikla road and
roads in the target area of the defence forces' central training area. The Group
continues to provide road maintenance services in three road maintenance areas:
Järva, Hiiu and Kose.
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 (30 September 2019) and the date of release of this
report, Group companies have secured additional construction contracts in the
region of 58,238 thousand euros.
People
Employees and personnel expenses
In the first nine months of 2019, the Group (the parent and the subsidiaries)
employed, on average, 689 people including 413 engineers and technical personnel
(ETP). Headcount decreased by around 1% compared to the same period last year.
Average number of employees at Group entities (including the parent and the
subsidiaries)
9M 2019 9M 2018 9M 2017 2018
-----------------------------------------------------
ETP 413 425 425 419
Workers 276 272 314 268
Total average 689 697 739 687
The Group's personnel expenses for the first nine months of 2019, including all
taxes, totalled 17,772 thousand euros. In the same period last year, personnel
expenses amounted to 16,820 thousand euros. Despite a decline in the number of
staff, personnel expenses grew by around 5.7% year on year. Due to a persisting
shortage of qualified and experienced labour, employers are under strong
pressure to increase wages and salaries.
The service fees of the members of the council of Nordecon AS for the first nine
months of 2019 amounted to 140 thousand euros and associated social security
charges totalled 46 thousand euros (9M 2018: 140 thousand euros and 46 thousand
euros respectively).
The service fees of the members of the board of Nordecon AS amounted to 356
thousand euros and associated social security charges totalled 117 thousand
euros (9M 2018: 536 thousand euros and 177 thousand euros respectively). The
figures for the first nine months of 2018 include termination benefits of 180
thousand euros paid to a member of the board and associated social security
charges of 60 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:
9M 2019 9M 2018 9M 2017 2018
-------------------------------------------------------------------------------
Nominal labour productivity (rolling), (EUR
'000) 335.0 318.6 308.1 325.4
Change against the comparative period, % 5.1% 3.4% 25.7% 3.3%
Nominal labour cost efficiency (rolling), (EUR) 9.5 9.6 10.3 9.7
Change against the comparative period, % -0.6% -6.7% 24.8% -3.8%
The Group's nominal labour productivity increased year on year, mostly in
connection with revenue growth. At the same time, nominal labour cost efficiency
decreased because the rise in personnel expenses outpaced revenue growth.
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 690 people. Since 18 May 2006 the
company's shares have been quoted in the main list of the NASDAQ Tallinn Stock
Exchange.
Andri Hõbemägi
NordeconAS
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/)
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