Nordecon Group's financial results of the first half of 2020 as compared to the
same period from the last year are characterised by substantial growth in
revenue, improved gross and operating margins as well as exchange rate losses
related to Ukranian hryvnia. Also, the order book has increased year on year
with new substantial contracts signed in July adding to this figure. At the same
time, the volume of private orders has decreased significantly, which has been
directly influenced by the worldwide COVID-19 crisis and the rapid deterioration
of economic conditions. This has resulted in increased price pressure put on the
main contractors by the demand side, whereas on the other side there has still
been no expected decrease in the input prices. In these circumstances there is
strong pressure on profit margins.
Condensed consolidated interim statement of financial position
EUR '000 30 June 2020 31 December 2019
-------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 9,421 7,032
Trade and other receivables 53,272 37,563
Prepayments 3,987 1,813
Inventories 22,856 21,142
Total current assets 89,536 67,550
Non-current assets
Investments in equity-accounted investees 1,316 2,369
Other investments 26 26
Trade and other receivables 8,575 8,435
Investment property 6,301 5,530
Property, plant and equipment 18,401 19,002
Intangible assets 14,815 14,736
Total non-current assets 49,434 50,098
TOTAL ASSETS 138,970 117,648
LIABILITIES
Current liabilities
Borrowings 17,215 11,058
Trade payables 51,339 40,730
Other payables 10,492 7,954
Deferred income 9,824 6,391
Provisions 628 716
Total current liabilities 89,498 66,849
Non-current liabilities
Borrowings 8,776 16,326
Trade payables 2,889 98
Other payables 177 177
Provisions 1,731 1,425
Total non-current liabilities 13,573 18,026
TOTAL LIABILITIES 103,071 84,875
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 1,984 1,169
Retained earnings 13,723 12,383
Total equity attributable to owners of the
parent 32,615 30,460
Non-controlling interests 3,284 2,313
TOTAL EQUITY 35,899 32,773
TOTAL LIABILITIES AND EQUITY 138,970 117,648
Condensed consolidated interim statement of comprehensive income
EUR '000 H1 2020 Q2 2020 H1 2019 Q2 2019 2019
-------------------------------------------------------------------------------
Revenue 136,798 81,874 100,441 65,917 234,071
Cost of sales -130,791 -77,055 -97,147 -62,669 -222,302
Gross profit 6,007 4,819 3,294 3,248 11,769
Marketing and distribution
expenses -202 -74 -498 -152 -784
Administrative expenses -3,860 -2,061 -3,048 -1,555 -6,837
Other operating income 178 29 67 11 315
Other operating expenses -110 -57 -20 -7 -193
Operating profit/loss 2,013 2,656 -205 1,545 4,270
Finance income 249 193 495 224 1,277
Finance costs -1,241 338 -663 -299 -1,219
Net finance costs/income -992 531 -168 -75 58
Share of profit of equity-
accounted investees 479 510 252 302 585
Profit/loss before income tax 1,500 3,697 -121 1,772 4,913
Income tax expense -81 -81 -453 -453 -764
Profit/loss for the period 1,419 3,616 -574 1,319 4,149
Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss
Exchange differences on
translating foreign operations 815 -434 -262 -218 -823
Total other comprehensive
income/expense 815 -434 -262 -218 -823
TOTAL COMPREHENSIVE
INCOME/EXPENSE 2,234 3,182 -836 1,101 3,326
Profit/loss attributable to:
- Owners of the parent -156 2,513 -793 1,169 3,378
- Non-controlling interests 1,575 1,103 219 150 771
Profit/loss for the period 1,419 3,616 -574 1,319 4,149
Total comprehensive
income/expense attributable to:
- Owners of the parent 659 2,079 -1,055 951 2,555
- Non-controlling interests 1,575 1,103 219 150 771
Total comprehensive
income/expense for the period 2,234 3,182 -836 1,101 3,326
Earnings per share attributable
to owners of the parent:
Basic earnings per share (EUR) -0.01 0.08 -0.03 0.04 0.11
Diluted earnings per share (EUR) -0.01 0.08 -0.03 0.04 0.11
Condensed consolidated interim statement of cash flows
EUR '000 H1 2020 H1 2019
----------------------------------------------------------------------------
Cash flows from operating activities
Cash receipts from customers 154,207 108,300
Cash paid to suppliers -132,626 -93,163
VAT paid -6,055 -2,104
Cash paid to and for employees -13,658 -11,385
Income tax paid -81 -146
Net cash from operating activities 1,787 1,502
Cash flows from investing activities
Paid on acquisition of property, plant and equipment -102 -165
Proceeds from sale of property, plant and equipment 165 99
Acquisition of a subsidiary -2 0
Cash received on acquisition of a subsidiary 3,605 0
Loans provided -14 -14
Repayment of loans provided 21 6
Dividends received 251 244
Interest received 5 5
Net cash from investing activities 3,929 175
Cash flows from financing activities
Proceeds from loans received 1,228 3,328
Repayment of loans received -2,077 -2,265
Lease payments made -1,487 -1,574
Interest paid -508 -481
Dividends paid -472 -2,129
Net cash used in financing activities -3,316 -3,121
Net cash flow 2,400 -1,444
Cash and cash equivalents at beginning of period 7,032 7,678
Effect of movements in foreign exchange rates -11 -14
Increase/decrease in cash and cash equivalents 2,400 -1,444
Cash and cash equivalents at end of period 9,421 6,220
Financial review
Financial performance
Nordecon ended the first half of 2020 with a gross profit of 6,007 thousand
euros (H1 2019: 3,294 thousand euros). The gross margin improved noticeably year
on year, rising to 4.4% for the first half (H1 2019: 3.3%) and 5.9% for the
second quarter (Q2 2019: 4.9%). Both of our operating segments, Buildings and
Infrastructure, earned a profit in the first half and the second quarter of
2020. The gross margin of the Buildings segment, which was 5.0% for the first
half and 5.5% for the second quarter, dropped somewhat compared the same period
in 2019 (H1 2019: 5.5% and Q2 2019: 6.1%). The slight margin decrease is
attributable to a housing development project completed in Sweden, which
resulted in a loss. The Infrastructure segment, on the other hand, succeeded in
improving its gross margin substantially. This was supported by an earlier start
of the road construction season and a strong order book. Asphalt concrete
production in the second quarter grew year on year, providing cover for fixed
costs, the largest share of which is made up of costs related to plant and
equipment required for asphalt concrete production and laying. The
Infrastructure segment's gross margins were 3.4% for the first half and 8.7% for
the second quarter compared to ?1.4% and 3.5% in the corresponding periods in
2019.
The Group's administrative expenses for the first half of 2020 totalled 3,860
thousand euros. Compared to the same period in 2019, administrative expenses
increased by around 27% (H1 2019: 3,048 thousand euros). The rise is
attributable to growth in personnel expenses and depreciation as well as the
fact that Embach Ehitus OÜ became a subsidiary of the Group. The ratio of
administrative expenses to revenue (12 months rolling) decreased compared to the
same period last year and was 2.8% (H1 2019: 2.9%).
The Group ended the first half of 2020 with an operating profit of 2,013
thousand euros (H1 2019: an operating loss of 205 thousand euros). EBITDA was
positive at 3,694 thousand euros (H1 2019: 1,281 thousand euros).
Finance income and costs continued to be influenced by exchange rate
fluctuations in the Group's foreign markets. During the period, the Ukrainian
hryvnia weakened against the euro by 11.8% and the Group recognised a foreign
exchange loss of 704 thousand euros from the translation of loans provided to
the Ukrainian subsidiaries in euros (H1 2019: an exchange gain of 377 thousand
euros). The Swedish krona/euro exchange rate did not change significantly in the
first half of 2020. The exchange gain recognised in finance income in connection
with the translation of the loan provided to the Swedish subsidiary in euros
amounted to 132 thousand euros (H1 2019: an exchange loss of 206 thousand
euros). On the other hand, the movements in foreign exchange rates increased the
foreign currency translation reserve in equity by 815 thousand euros (H1 2019:
reduced by 262 thousand euros).
The Group's net profit amounted to 1,419 thousand euros (H1 2019: a net loss of
574 thousand euros). The amount attributable to owners of the parent, Nordecon
AS, was a loss of 156 thousand euros (H1 2019: a loss of 793 thousand euros).
Cash flows
In the first half of 2020, operating activities produced a net cash inflow of
1,787 thousand euros (H1 2019: an inflow of 1,502 thousand euros). The key
factor that affects operating cash flow is the mismatch between the settlement
terms agreed with customers and suppliers. Operating cash flow is also 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 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 3,929 thousand euros (H1
2019: an inflow of 175 thousand euros). The transaction with the strongest
impact was the transformation of Embach Ehitus OÜ from an associate into a
subsidiary, which generated cash inflow of 3,605 thousand euros. Cash flow was
also influenced by payments made for the acquisition of property, plant and
equipment of 102 thousand euros (H1 2019: 165 thousand euros), proceeds from the
sale of property, plant and equipment of 165 thousand euros (H1 2019: 99
thousand euros) and dividends received of 251 thousand euros (H1 2019: 244
thousand euros).
Financing activities generated a net cash outflow of 3,316 thousand euros (H1
2019: an outflow of 3,121 thousand euros). The largest items were loan and lease
payments and dividends paid. Proceeds from loans received totalled 1,228
thousand euros, comprising the use of the overdraft facility and development
loans (H1 2019: 3,328 thousand euros). Loan repayments totalled 2,077 thousand
euros (H1 2019: 2,265 thousand euros), consisting of regular repayments of long-
term investment and development loans. Lease payments totalled 1,487 thousand
euros (H1 2019: 1,574 thousand euros). Dividends paid in the first half of 2020
amounted to 472 thousand euros (H1 2019: 2,129 thousand euros).
The Group's cash and cash equivalents totalled 9,421 thousand euros at 30 June
2020 (30 June 2019: 6,220 thousand euros). Management's commentary on liquidity
risks is presented in the chapter Description of the main risks.
Key financial figures and ratios
Figure/ratio H1 2020 H1 2019 H1 2018 2019
-------------------------------------------------------------------------------
Revenue (EUR '000) 136,798 100,441 105,658 234,071
Revenue change 36% -5% 2% 4.7%
Net profit/loss (EUR '000) 1,419 -574 -524 4,149
Net profit/loss
attributable to owners of
the parent
(EUR '000) -156 -793 -532 3,378
Weighted average number of
shares 31,528,585 31,528,585 30,986,585 31,528,585
Earnings per share (EUR) 0.00 -0.03 -0.02 0.11
Administrative expenses to
revenue 2.8% 3.0% 3.2% 2.9%
Administrative expenses to
revenue (rolling) 2.8% 2.9% 3.1% 2.9%
EBITDA (EUR '000) 3,694 1,281 606 7,311
EBITDA margin 2.7% 1.3% 0.6% 3.1%
Gross margin 4.4% 3.3% 3.0% 5.0%
Operating margin 1.5% -0.2% -0.4% 1.8%
Operating margin excluding
gain on asset sales 1.5% -0.3% -0.4% 1.7%
Net margin 1.0% -0.6% -0.5% 1.8%
Return on invested capital 3.3% 0.6% 0.5% 10.0%
Return on equity 4.1% -1.8% -1.6% 12.5%
Equity ratio 25.8% 25.5% 25.4% 27.9%
Return on assets 1.1% -0.5% -0.4% 3.7%
Gearing 26.8% 36.7% 35.2% 33.8%
Current ratio 1.00 0.93 0.98 1.01
As at 30 June 2020 30 June 2019 30 June 2018 31 Dec 2019
-------------------------------------------------------------------------------
Order book
(EUR '000) 187,018 179,691 131,552 227,545
-------------------------------------------------------------------------------
Performance by geographical market
The revenue contribution of foreign markets continued to grow. Revenue earned
outside Estonia accounted for 12% of total revenue for in the first half of
2020 compared with 9% for the same period in 2019.
H1 2020 H1 2019 H1 2018 2019
-----------------------------------------------
Estonia 88% 91% 93% 89%
Sweden 6% 2% 2% 5%
Finland 5% 4% 1% 4%
Ukraine 1% 3% 4% 2%
The revenue contribution of the Swedish market grew significantly year on year.
During the period, we worked in Sweden on three building construction contracts
secured as a general contractor and one concrete work subcontract. Finnish
revenues remained stable compared with the same period last year and resulted
from concrete works in the building construction segment. Revenue generated in
the Ukrainian market and its proportionate share in our total revenue decreased.
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 strong effect on our current results. Increasing the
contribution of foreign markets is one of Nordecon's strategic targets. Our
vision of the Group's foreign operations is described in the chapter Outlooks of
the Group's geographical markets.
Performance by business line
Segment revenues
The Group's revenue for in the first half of 2020 amounted to 136,798 thousand
euros, a roughly 36% improvement on the 100,441 thousand euros generated in the
first half of 2019. Based on the order book at the end of 2019, revenue growth
was entirely expected. Growth was driven by the Buildings segment which
increased revenue by 48%. The revenue of the Infrastructure segment remained
comparable to the first half of 2019.
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 half of 2020, our Buildings and Infrastructure segments
generated revenue of 112,607 thousand euros and 24,106 thousand euros,
respectively. The corresponding figures for in the first half of 2019 were
76,065 thousand euros and 24,213 thousand euros.
Operating segments H1 2020 H1 2019 H1 2018 2019
----------------------------------------------------------
Buildings 81% 74% 76% 70%
Infrastructure 19% 26% 24% 30%
Subsegment revenues
All subsegments in the Buildings segment improved their revenue year on year.
The strongest revenue contributors were the public buildings, commercial
buildings and apartment buildings subsegments while the revenue contribution of
the industrial and warehouse facilities subsegment continued to be modest.
The largest revenue source in the Buildings segment was the public buildings
subsegment, which increased its revenue more than two times compared to the
first half of 2019. The subsegment's biggest projects were the Estonian Academy
of Security Sciences and the University of Tartu Learning Centre in Narva, a
storage complex at the defence forces' base at Tapa, Kindluse Kool - a new basic
school in Järveküla near Tallinn and the Annelinn upper secondary school in
Tartu.
During the period, the largest projects of the commercial buildings subsegment
were in Tallinn: the reconstruction and extension of the building of Terminal D
in the Old City Harbour, construction works in phase I and concrete works in
phase II of the Porto Franco commercial and office development next to the
Admiralty Basin, and the construction of a seven-floor commercial building in
Rotermann City and a multi-storey car park at Sepapaja 1.
A significant share of our Estonian apartment building projects is located in
Tallinn. During the period under review, the largest of them were the design and
construction of the first two phases of the Kalaranna quarter and the design and
construction of the Tiskreoja residential area on the western border of Tallinn.
Similarly to previous periods, a major share of the subsegment's revenue came
from the construction of apartment buildings in Sweden.
We continue to build our own housing development projects in Tallinn and Tartu
(reported in the apartment buildings subsegment). During the period, we
completed a five-floor apartment building with 24 apartments at Võidujooksu 8c
in Tallinn (www.voidujooksu.ee). Revenue from our own real estate development
operations amounted to 2,354 thousand euros (H1 2019: 3,792 thousand euros). In
carrying out our own real estate development activities, we monitor closely
potential risks in the housing development market.
The amount and share of revenue generated by the industrial and warehouse
facilities subsegment grew year on year. However, the values of projects in
progress have decreased, amounting to 2 million euros on average. Based on the
order book, we expect that the subsegment's revenue contribution will remain
modest in 2020.
Revenue breakdown in the Buildings segment H1 2020 H1 2019 H1 2018 2019
------------------------------------------------------------------------
Public buildings 34% 24% 26% 29%
Commercial buildings 30% 35% 36% 36%
Apartment buildings 27% 33% 23% 27%
Industrial and warehouse facilities 9% 8% 15% 8%
Similarly to previous periods, the main revenue source in the Infrastructure
segment was road construction and maintenance. A significant share of revenue
resulted from the performance of construction contracts secured in 2019: the
construction of the Kernu bypass and the Kernu filling station and Haiba
junctions on the Tallinn-Pärnu-Ikla road, the reconstruction of the Vinso-Kirmsi
section of the Võru-Räpina road and the construction of roads in the northern
and southern parts of the defence forces' central training area. We also
continued to provide road maintenance services in Järva and Hiiu counties and
the Kose maintenance area in Harju county.
The revenue of the other engineering subsegment is strongly influenced by the
construction of foundations for 73 wind turbines in the Nysäter wind farm, which
being built in northern Sweden, near Sundsvall.
Work continued on the construction of a 640-metre waterfront promenade at
Sillamäe, which accounted for a significant share of the revenue of the
specialist engineering subsegment.
Revenue breakdown in the Infrastructure segment H1 2020 H1 2019 H1 2018 2019
-----------------------------------------------------------------------------
Road construction and maintenance 80% 77% 90% 78%
Other engineering 14% 20% 7% 18%
Specialist engineering (incl. hydraulic) 5% 0% 0% 1%
Environmental engineering 1% 3% 3% 3%
Order book
The Group's order book (backlog of contracts signed but not yet performed) stood
at 187,018 thousand euros at 30 June 2020, a 4% increase year on year. In the
second quarter, we signed new contracts of 47,850 thousand euros (Q2
2019: 65,901 thousand euros). Between the reporting date (30 June 2020) and the
date of release of this report, Group companies have secured additional
construction contracts in the region of 62,679 thousand euros, the largest of
which are the contracts for the construction of a new academic building for the
Saaremaa Upper Secondary School and phase III of the Maarjamõisa Medical Campus
of the Tartu University Hospital (Tartu Ülikooli Kliinikum).
As at 30 June 2020 30 June 2019 30 June 2018 31 Dec 2019
-------------------------------------------------------------------------
Order book (EUR '000) 187,018 179,691 131,552 227,545
At the reporting date, contracts secured by the Buildings segment and the
Infrastructure segment accounted for 76% and 24% of the Group's total order
book, respectively (30 June 2019: 81% and 19%, respectively). Compared to 30
June 2019, the order book of the Buildings segment has decreased by around 3%
and the order book of the Infrastructure segment has increased by 33%.
Both the apartment buildings and the public buildings subsegment account for a
third of the order book of the Buildings segment: 32% and 30%, respectively. A
significant share of the order book of the apartment buildings subsegment is
made up of a contract of around 40 million euros for the design and construction
of the first two phases of the Kalaranna quarter in Tallinn. The subsegment's
order book also includes the work secured but not yet performed in Sweden where
the Group continues to build two apartment buildings: one near Uppsala city
centre and the other in the Bromma district in Stockholm. A major share of the
order book of the public buildings subsegment is made up of contracts signed in
2019 for the construction of the Kohtla-Järve sports and health centre, a
storage complex at the defence forces' base at Tapa and Kindluse Kool - a basic
school in Järveküla near Tallinn. In 2020, the portfolio has increased by
contracts for the extension of the office building of the Estonian Foreign
Intelligence Service in Rahumäe tee in Tallinn and the construction of a family
health centre and multi-storey car park for Tartu Kesklinna Perearstikeskus in
Tartu and two contracts for the reconstruction of two schools in East Ukraine
with the total value of 3.5 million euros. A significant share of the order book
of the industrial and warehouse facilities subsegment is made up of contracts
for the construction of a dairy complex for E?Piim in Paide and two shed
complexes in Finland. The order book of the commercial buildings subsegment has
decreased substantially year on year. The largest project in progress is in
Tallinn: the construction of a new seven-floor commercial building in Rotermann
City.
Contracts secured by the road construction and maintenance subsegment account
for 65% of the order book of the Infrastructure segment. The size of the order
book is strongly influenced by the contract secured in the second quarter for
the construction of the Väo junction on the eastern border of Tallinn. In 2020,
we have also signed five contracts of 2-3 million euros each and 12 million
euros in total with the National Road Administration. Nordecon Group continues
to provide road maintenance services in three road maintenance areas: Järva,
Hiiu and Kose. Other engineering contracts account for 24% of the order book of
the Infrastructure segment. A major share of the order book of the other
engineering subsegment is made up of a contract secured in 2019 for the
construction of foundations for 73 wind turbines in the Nysäter wind farm in
northern Sweden, near Sundsvall.
Based on our order book where around half is made up of contracts that will
continue into 2021 and 2022, we expect that in 2020 the Group's revenue will
increase compared with 2019. However, the volume of orders placed by private
sector customers has dropped significantly. Customers' pressure on general
contractors for lowering prices has increased while the input prices offered by
subcontractors have not decreased as expected. This has put profit margins under
strong pressure. In an environment of stiff competition, we have avoided taking
unjustified risks whose realisation in the contract performance phase would have
an adverse impact on the Group's results. Our preferred policy is to keep fixed
costs under control and monitor market developments closely.
People
Employees and personnel expenses
In the first half of 2020, the Group (the parent and the subsidiaries) employed,
on average, 707 people, including 442 engineers and technical personnel (ETP).
Headcount increased by around 4% compared with the same period in 2019. The
number of engineers and technical personnel grew, partly due to a change in the
Group's structure: Embach Ehitus OÜ became a subsidiary.
Average number of employees at Group entities (including the parent and the
subsidiaries):
H1 2020 H1 2019 H1 2018 2019
-----------------------------------------------------
ETP 442 405 426 414
Workers 265 273 268 273
Total average 707 678 694 687
The Group's personnel expenses for the first half of 2020 including all taxes,
totalled 13,703 thousand euros. The figure for the first half of 2019 was
11,036 thousand euros. Personnel expenses grew by around 24% year on year due to
the payment of performance bonuses as well as the fact that Emabch Ehitus OÜ
became a subsidiary as described above.
The service fees of the members of the council of Nordecon AS for the first half
of 2020 amounted to 93 thousand euros and associated social security charges
totalled 31 thousand euros (H1 2019: 94 thousand euros and 31 thousand euros,
respectively).
The service fees of the members of the board of Nordecon AS amounted to 266
thousand euros and associated social security charges totalled 88 thousand euros
(H1 2019: 278 thousand euros and 93 thousand euros, 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 personnel expenses incurred:
H1 2020 H1 2019 H1 2018 2019
-------------------------------------------------------------------------------
Nominal labour productivity (rolling), (EUR
'000) 385.4 321.5 327.4 340.6
Change against the comparative period, % 19.9% -1.8% 10.4% 4.7%
Nominal labour cost efficiency (rolling), (EUR) 9.7 9.3 9.9 9.2
Change against the comparative period, % 3.7% -6.3% -2.1% -5.0%
The Group's nominal labour productivity and nominal labour cost efficiency
increased year on year in connection with 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, Sweden, Finland and Ukraine. The parent of the Group
is Nordecon AS, a company registered and located in Tallinn, Estonia. The
consolidated revenue of the Group in 2019 was 234 million euros. Currently
Nordecon Group employs close to 710 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)
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