Despite the continued difficult external environment, the second quarter and
first half of 2022 were overall profitable for the group. The increase in sales
revenue also continued, which is largely based on the fulfillment of
construction contracts concluded in previous periods.
At the same time, the ongoing uncertainty of material supplies and the rapid
increase in input prices have created a situation where planning construction
works is very difficult both in terms of time and cost. This, together with the
general difficult economic environment, forces both the private and public
sector to postpone investments. It is the decrease in the volume of public
sector investments, especially in road and infrastructure construction, that in
the short and long term has a direct impact on the group's sales revenue,
profitability, and the volume of the order book.
The group's sales revenue for the first half of 2022 was 149,256 thousand euros.
Compared to the same period last year, sales revenue increased by approximately
27%. The increase in sales revenue is based on the growth of the Buildings
segment, the sales revenue of the Infrastructure segment has decreased compared
to the same period last year.
The group's gross profitability was 2.1% in the first half of 2022 and 2.5% in
the second quarter. The profit of both the first half of the year and the second
quarter was earned in the Buildings segment. While the profitability of the
Buildings segment has, despite the increase in input prices and material supply
problems, improved compared to the same period last year, it is extremely
difficult to achieve the same in the Infrastructure segment. The main customer,
the Transport Administration, has cancelled several already announced tenders
and the volume of this year's investments has been significantly reduced. This
significantly affects the result of the segment with high fixed costs.
As of 30 June 2022, the volume of the group's order book was 220,687 thousand
euros, which has decreased by 18% compared to the same period last year.
Condensed consolidated interim statement of financial position
EUR'000 30 June 2022 31 December 2021
-------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 4,967 9,031
Trade and other receivables 60,574 48,091
Prepayments 8,181 4,947
Inventories 27,560 25,637
Total current assets 101,282 87,706
Non-current assets
Other investments 76 76
Trade and other receivables 8,623 9,206
Investment property 8,233 5,599
Property, plant and equipment 17,774 17,433
Intangible assets 15,081 15,051
Total non-current assets 49,787 47,365
TOTAL ASSETS 151,069 135,071
LIABILITIES
Current liabilities
Borrowings 17,353 16,289
Trade payables 68,810 57,324
Other payables 7,944 7,459
Deferred income 15,398 11,539
Provisions 1,395 707
Total current liabilities 110,900 93,318
Non-current liabilities
Borrowings 6,824 7,405
Trade payables 3,987 4,178
Provisions 1,856 2,044
Total non-current liabilities 12,667 13,627
TOTAL LIABILITIES 123,567 106,945
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 1,689 1,948
Retained earnings 5,413 6,341
Total equity attributable to owners of the
parent 24,010 25,197
Non-controlling interests 3,492 2,929
TOTAL EQUITY 27,502 28,126
TOTAL LIABILITIES AND EQUITY 151,069 135,071
Condensed consolidated interim statement of comprehensive income
EUR'000 H1 2022 Q2 2022 H1 2021 Q2 2021 2021
-------------------------------------------------------------------------------
Revenue 149,256 80,803 117,966 68,979 288,534
Cost of sales (146,075) (78,769) (116,660) (67,580) (284,513)
Gross profit 3,181 2,034 1,306 1,399 4,021
Marketing and distribution
expenses (186) (115) (214) (108) (559)
Administrative expenses (3,118) (1,513) (2,833) (1,362) (6,053)
Other operating income 1,856 103 127 92 519
Other operating expenses (276) (2) (29) (6) (2,264)
Operating profit (loss) 1,457 507 (1,643) 15 (4,336)
Finance income 146 79 537 132 958
Finance costs (1,377) (43) (665) (376) (1,320)
Net finance income (costs) (1,231) 36 (128) (244) (362)
Profit (loss) before income
tax 226 543 (1,771) (229) (4,698)
Income tax expense (200) (200) (619) (250) (808)
Profit (loss) for the period 26 343 (2,390) (479) (5,506)
Other comprehensive income
(expense):
Items that may be reclassified
subsequently to profit or loss
Exchange differences on
translating foreign operations (259) (413) 406 587 (475)
Total other comprehensive
income (expense) (259) (413) 406 587 (475)
TOTAL COMPREHENSIVE INCOME
(EXPENSE) (233) (70) (1,984) 108 (5,981)
Profit (loss) attributable to:
- Owners of the parent (928) (10) (2,148) (584) (6,310)
- Non-controlling interests 954 353 (242) 105 804
Profit (loss) for the period 26 343 (2,390) (479) (5,506)
Comprehensive income (expense)
attributable to:
- Owners of the parent (1,187) (423) (1,742) 3 (6,785)
- Non-controlling interests 954 353 (242) 105 804
Comprehensive income (expense)
for the period (233) (70) (1,984) 108 (5,981)
Earnings per share
attributable to owners of the
parent:
Basic earnings per share (EUR) (0.03) (0.00) (0.07) (0.02) (0.20)
Diluted earnings per share (EUR) (0.03) (0.00) (0.07) (0.02) (0.20)
Condensed consolidated interim statement of cash flows
EUR'000 H1 2022 H1 2021
-------------------------------------------------------------------------------
Cash flows from operating activities
Cash receipts from customers 177,608 142,892
Cash paid to suppliers (162,328) (124,977)
VAT paid (4,447) (4,387)
Cash paid to and for employees (12,476) (13,075)
Income tax paid (312) (616)
Net cash used in operating activities (1,955) (163)
Cash flows from investing activities
Paid on acquisition of property, plant and equipment (97) (104)
Proceeds from sale of property, plant and equipment 322 158
Paid on acquisition of intangible assets 0 (16)
Loans provided (9) (25)
Repayments of loans provided 11 60
Dividends received 6 0
Interest received 6 4
Net cash from investing activities 239 77
Cash flows from financing activities
Proceeds from loans received 1,870 1,418
Repayments of loans received (1,605) (1,243)
Lease payments made (1,790) (1,574)
Interest paid (428) (545)
Dividends paid (391) (2,814)
Other payments (4) 0
Net cash used in financing activities (2,348) (4,758)
Net cash flow (4,064) (4,844)
Cash and cash equivalents at beginning of period 9,031 12,576
Effect of movements in foreign exchange rates 0 0
Decrease in cash and cash equivalents (4,064) (4,844)
Cash and cash equivalents at end of period 4,967 7,732
Financial review
Financial performance
Nordecon ended the first half of 2022 with a gross profit of EUR3,181 thousand (H1
2021: EUR1,306 thousand) and gross margins that were higher than a year earlier:
2.1% for the first half-year (H1 2021: 1.1%) and 2.5% for the second quarter (Q2
2021: 2.0%). The group's gross profit for both the first half and second quarter
of 2022 was earned in the Buildings segment, which delivered gross margins of
3.8% for the half-year and 3.4% for the second quarter (H1 2021: 2.5% and Q2
20221: 2.8%). The Infrastructure segment's performance was weaker than in the
same period last year, with negative gross margins for both the first half-year
and second quarter: (6.4)% and (0.3)%, respectively (H1 2021: (0.5)% and Q2
2021: 3.2%). The Buildings segment has been able to increase its profitability
compared with a year earlier despite growth in input prices and disruptions in
the supply of materials. For the Infrastructure segment, improvement of
profitability is much more difficult. Its largest customer, the Transport
Administration, has cancelled several announced procurements and made
significant cutbacks in its investments in 2022. This has had a significant
effect on the performance of our Infrastructure segment whose fixed costs are
high.
The group's administrative expenses for the first half of 2022 amounted to
EUR3,118 thousand. Compared with the same period last year, administrative
expenses grew by around 10% (H1 2021: EUR2,833 thousand) due to general growth in
the cost of goods and services. The ratio of administrative expenses to revenue
(12 months rolling) declined year on year, decreasing to 2.0% (H1 2021: 2.2%).
The group ended the first half of 2022 with an operating profit of EUR1,457
thousand (H1 2021: an operating loss of EUR1,643 thousand). EBITDA for the period
amounted to EUR3,158 thousand (H1 2021: EUR92 thousand). According to the
restructuring plan approved by the creditors of Swencn AB, the claims of the
entity's creditors are to be settled to the extent of 25%. As a result, the
group recognised other income of EUR1,560 thousand in the reporting period.
The group's finance costs were significantly affected by the write-down of a
loan provided to the group's Ukrainian associate V.I. Center TOV by EUR825
thousand. Due to the lack of more recent reliable data, the fair value of the
loan was measured using the inputs of the valuation reports issued at the end of
2021 by an internationally recognised independent appraiser. The asset had to be
written down due to the time factor, i.e. the deferral of the completion of the
development projects.
The group earned a net profit of EUR26 thousand (H1 2021: a net loss of EUR2,390
thousand). The net loss attributable to owners of the parent, Nordecon AS, was
EUR928 thousand (H1 2021: a net loss of EUR2,148 thousand).
Cash flows
Operating activities produced a net cash outflow of EUR1,955 thousand the first
half of 2022 (H1 2021: an outflow of EUR163 thousand). Operating cash flow is
increasingly affected by the need to make prepayments to materials suppliers,
which have grown due to spikes in materials prices and continuing supply
disruptions, in a situation where the contracts signed with both public and
private sector customers do not require them to make advance payments. 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 EUR239 thousand (H1 2021: an
inflow of EUR77 thousand). The largest items were payments made to acquire
property, plant and equipment of EUR97 thousand (H1 2021: EUR120 thousand) and
proceeds from the sale of property, plant and equipment of EUR322 thousand (H1
2021: EUR158 thousand).
Financing activities generated a net cash outflow of EUR2,348 thousand (H1 2021:
an outflow of EUR4,758 thousand). The largest items were cash flows related to
loans and leases. Proceeds from loans received totalled EUR1,870 thousand,
consisting of the use of the overdraft facility and development loans (H1 2021:
EUR1,418 thousand). Repayments of loans received totalled EUR1,605 thousand,
consisting of regular repayments of long-term investment and development loans
(H1 2021: EUR1,243 thousand). Lease payments totalled EUR1,790 thousand (H1 2021:
EUR1,574 thousand). Dividends paid in the first half of 2022 amounted to EUR391
thousand (H1 2021: EUR2,814 thousand).
The group's cash and cash equivalents at 30 June 2022 totalled EUR4,967 thousand
(30 June 2021: EUR7,732 thousand).
Key financial figures and ratios
Figure/ratio H1 2022 H1 2021 H1 2020 2021
-------------------------------------------------------------------------------
Revenue (EUR'000) 149,256 117,966 136,798 288,534
Revenue change 27% (14)% 36% (2.5)%
Net profit (loss) (EUR'000) 26 (2,390) 1,419 (5,506)
Net profit (loss)
attributable to owners of
the
parent (EUR'000) (928) (2,148) (156) (6,310)
Weighted average number of
shares 31,528,585 31,528,585 31,528,585 31,528,585
Earnings per share (EUR) (0.03) (0.07) 0.00 (0.20)
Administrative expenses to
revenue 2.1% 2.4% 2.8% 2.1%
Administrative expenses to
revenue (rolling) 2.0% 2.2% 2.8% 2.1%
EBITDA (EUR'000) 3,158 92 3,694 (797)
EBITDA margin 2.1% 0.1% 2.7% (0.3)%
Gross margin 2.1% 1.1% 4.4% 1.4%
Operating margin 1.0% (1.4)% 1.5% (1.5)%
Operating margin excluding
gain on asset sales 0.9% (1.4)% 1.5% (1.6)%
Net margin 0.0% (2.0)% 1.0% (1.9)%
Return on invested capital 1.2% (2.1)% 3.3% (6.5)%
Return on equity 0.1% (6.9)% 4.1% (16.8)%
Equity ratio 18.2% 22.6% 25.8% 20.8%
Return on assets 0.0% (1.7)% 1.1% (4.1)%
Gearing 37.2% 31.4% 26.8% 28.3%
Current ratio 0.91 0.97 1.00 0.94
30 June 2022 30 June 2021 30 June 2020 31Dec 2021
-------------------------------------------------------------------------------
Order book
(EUR'000) 220,687 269,448 187,018 266,856
-------------------------------------------------------------------------------
Performance by geographical market
The group's revenues from outside Estonia have decreased. In the first half of
2022, foreign markets accounted for around 3% of total revenue. Due to Russia's
military invasion of Ukraine, full-scale operations of the group's Ukrainian
subsidiary Eurocon Ukraine TOV have been temporarily suspended: in the second
quarter the subsidiary continued work on one building project in Kiev. Ukrainian
revenues for the period amounted to EUR578 thousand. The group did not generate
any revenue and had no ongoing construction contracts in the Swedish market. The
group also operates on a project basis in Latvia where it was building a wind
farm in the reporting period.
H1 2022 H1 2021 H1 2020 2021
-----------------------------------------------
Estonia 97% 96% 88% 94%
Latvia 2% 0% 0% 1%
Finland 1% 3% 5% 3%
Ukraine 0% 1% 1% 2%
Sweden 0% 0% 6% 0%
Geographical diversification of the revenue base is a consciously deployed
strategy by which we mitigate the risks resulting from excessive reliance on a
single market. However, conditions in some of our chosen foreign markets are
also volatile and noticeably affect our current results. Increasing the
contribution of foreign markets is one of Nordecon's strategic goals.
Performance by business line
Segment revenues
The group's revenue for the first half of 2022 was EUR149,256 thousand, roughly
27% larger than a year earlier when revenue amounted to EUR117,966 thousand.
Revenue growth was attributable to the revenue of the Buildings segment, which
grew by 40%. The revenue of the Infrastructure segment decreased by 21%. The
decline in revenue generated by the Infrastructure segment is attributable to
the cutback in investments made by the largest customer, the Transport
Administration, due to the spike in input prices triggered by the impacts of the
war in Ukraine.
The low volumes of infrastructure construction that are affecting the entire
construction market also influence the group's revenue structure. In the first
half of 2022, the Buildings and the Infrastructure segment generated revenue of
EUR128,430 thousand and EUR20,703 thousand, respectively. The corresponding figures
for the first half of 2021 were EUR91,557 thousand and EUR26,217 thousand.
Revenue by operating segment H1 2022 H1 2021 H1 2020 2021
--------------------------------------------------------------------
Buildings 84% 78% 81% 75%
Infrastructure 16% 22% 19% 25%
Subsegment revenues
In the Buildings segment, the revenues of all subsegments grew compared with the
same period last year. The revenue contributions of the apartment, the
commercial and the public buildings subsegments were practically equal while the
revenue contribution of the industrial and warehouse facilities subsegment was
somewhat smaller.
The largest projects under construction in the commercial buildings subsegment
were the LEED Gold compliant Alma Tomingas office building in Ülemiste City in
Tallinn and an IKEA store in Rae rural municipality near Tallinn.
The revenue of the public buildings subsegment has increased significantly year
on year. The largest projects in progress during the period were construction
works in the Medical Campus of the Tartu University Hospital in Tartu, the
construction of the main building of the Estonian Internal Security Service in
Tallinn and the design and construction of storage facilities and utility
networks for the Centre for Defence Investment in Harju county.
The apartment buildings subsegment earns most of its revenue from the
construction of apartment buildings for third parties. During the period under
review, the largest of them were the design and construction of the first two
phases of the Kalaranna quarter in Tallinn and the design and the construction
of the Tiskreoja and Luccaranna housing estates on the western border of
Tallinn.
The volume of our own development operations (reported in the apartment
buildings subsegment), however, continues to grow as well. We have development
projects in both Tallinn and Tartu. During the period, work continued on the
construction of the Mõisavahe Kodu housing estate in Tartu
(https://moisavahe.ee) and the development of plots for Kivimäe Süda, a new
housing estate in the Nõmme district in Tallinn, where we have started
preparations for phase 2 - the construction of an apartment building
(https://www.kivimaesuda.ee/en). We also started the design of the Seiler
Quarter housing estate in Pärnu (https://seileri.ee). The period's revenue from
own development projects amounted to EUR6,335 thousand (H1 2021: EUR0). In carrying
out our own development activities, we carefully monitor potential risks in the
housing development market.
The revenue contribution of the industrial and warehouse facilities subsegment
has grown compared with the first half of 2021. The subsegment's largest ongoing
project is the construction of a factory complex for the dairy company E-Piim in
Paide but there are also numerous smaller projects such as the construction of a
production building at Kurna tee in Harju county.
Buildings segment H1 2022 H1 2021 H1 2020 2021
---------------------------------------------------------------------------
Apartment buildings 30% 30% 27% 29%
Public buildings 28% 30% 34% 28%
Commercial buildings 26% 31% 30% 29%
Industrial and warehouse facilities 16% 9% 9% 14%
In the Infrastructure segment, the largest revenue contributor is still road
construction and maintenance although its revenue and proportionate contribution
have decreased year on year. During the period, the subsegment's revenue
resulted from the performance of contracts secured in 2021, the largest of which
were the construction of 2+2 passing lanes on the Kärevere-Kardla section of the
Tallinn-Tartu-Võru-Luhamaa road and the design and construction of the outdoor
space around Terminal D in Old City Harbour in Tallinn, as well as smaller
contracts of EUR2-3 million each signed in 2022. We also continued to deliver road
maintenance services in Järva county.
The group has won several contracts for the construction of small harbours.
During the period, work was done on the expansion of quays in Roomassaare
harbour and the construction of the Kalana yacht harbour, which accounted for a
major share of the specialist engineering revenue. The revenue of the other
engineering subsegment resulted mostly from the construction of the Vanessa wind
farm in Latvia.
Infrastructure segment H1 2022 H1 2021 H1 2020 2021
-------------------------------------------------------------------------
Road construction and maintenance 81% 86% 80% 87%
Other engineering 14% 4% 14% 6%
Specialist engineering 5% 5% 5% 4%
Environmental engineering 0% 5% 1% 3%
Order book
The group's order book (backlog of contracts signed but not yet performed) stood
at EUR220,687 thousand at 30 June 2022, reflecting an 18% decrease year on year.
In the first half and second quarter of 2022, we signed new contracts of
EUR89,661 thousand and EUR26,494 thousand, respectively (H1 2021: EUR174,820 thousand
and Q2 2021: EUR69,938 thousand). Russia's military invasion of Ukraine and the
consequent sanctions on Russia and Belarus have disrupted the supply of building
materials, particularly metal, wood and oil-based products, which is also
affecting the prices of relevant materials. The surge in materials prices has
caused a sharp increase in the costs of development projects as well as the
postponement of new projects. As mentioned in the previous chapters, the volume
of investments made by the Transport Administration has decreased substantially.
This has affected the group's order book through a decline in the order book of
the Infrastructure segment.
30 June 2022 30 June 2021 30 June 2020 31 Dec 2021
----------------------------------------------------------------------
Order book (EUR'000) 220,687 269,448 187,018 266,856
The proportions of the two main operating segments in the group's order book
have not changed substantially: the Buildings segment still dominates,
accounting for 85%, while the Infrastructure accounts for 15% of the total order
book (30 June 2021: Buildings: 79% and Infrastructure: 21%). Compared with 30
June 2021, the order books of the Buildings and the Infrastructure segment have
decreased by 9% and 21%, respectively.
The largest contracts secured in the second quarter were:
* the design and construction of storage facilities and associated utility
networks for the Centre for Defence Investment in Harju county, Estonia,
with an approximate cost of EUR14,600 thousand;
* the design and construction of the Männiku commercial building in Kandiküla
in Tartu, Estonia, with an approximate cost of EUR5,900 thousand.
* the construction of foundations for turbines in a wind farm being built
near the city of Telshiai, Lithuania, with an approximate cost of EUR3,000
thousand.
Based on the size of the group's order book, including the share of work to be
performed in 2023, management expects that in 2022 the group's revenue will grow
compared with 2021. The uptrend in the prices of materials, energy carriers and
labour costs will continue to increase input prices and pressure on profit
margins. 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. To mitigate input price risk, we have
been signing cost-plus contracts with private sector customers (contracts with
an open book arrangement under which we can invoice the customer based on the
actual costs incurred plus an agreed margin). Our focus remains on cost control
as well as pre-construction and design activities, where we can harness our
professional competitive advantages.
People
Employees and personnel expenses
The group's average number of employees in the first half of 2022 was 671,
including 437 engineers and technical personnel (ETP). Headcount decreased by
around 1% year on year.
Average number of employees at group entities (including the parent and the
subsidiaries):
H1 2022 H1 2021 H1 2020 2021
-----------------------------------------------------
ETP 437 426 442 434
Workers 234 254 265 251
Total average 671 680 707 685
The group's personnel expenses for the first half of 2022, including all taxes,
totalled EUR12,936 thousand compared with EUR12,020 thousand in the same period last
year. Personnel expense have increased by around 8% in connection with growth in
wages and salaries.
The service fees of the members of the council of Nordecon AS for the first half
of 2022 amounted to EUR75 thousand and associated social security charges totalled
EUR25 thousand (H1 2021: EUR75 thousand and EUR25 thousand, respectively).
The service fees of the members of the board of Nordecon AS amounted to EUR202
thousand and associated social security charges totalled EUR67 thousand (H1 2021:
EUR182 thousand and EUR60 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 personnel expenses incurred:
H1 2022 H1 2021 H1 2020 2021
-------------------------------------------------------------------------------
Nominal labour productivity (rolling), (EUR '000) 470.0 403.3 385.7 420.8
Change against the comparative period, % 16.5% 4.6% 20.0% (0.5)%
Nominal labour cost efficiency (rolling), (EUR) 12.8 10.9 9.7 11.5
Change against the comparative period, % 17.6% 12.7% 3.7% 5.5%
The group's nominal labour productivity and nominal labour cost efficiency
improved year on year, mainly due to revenue growth.
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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