Börsiteade

Pealkiri

2018 first quarter consolidated interim report (unaudited)

Teade

This  announcement includes Nordecon AS's  consolidated financial statements for
the  first quarter of  2018 (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                                        31 March 2018 31 December 2017
-------------------------------------------------------------------------------
 ASSETS

 Current assets

 Cash and cash equivalents                               4,995            8,915

 Trade and other receivables                            31,640           35,193

 Prepayments                                             2,372            1,641

 Inventories                                            23,868           23,230

 Total current assets                                   62,875           68,980


 Non-current assets

 Investments in equity-accounted investees               1,368            1,888

 Other investments                                          26               26

 Trade and other receivables                             9,018            8,950

 Investment property                                     3,549            4,929

 Property plant and equipment                           12,276           12,566

 Intangible assets                                      14,650           14,639

 Total non-current assets                               40,887           42,998

 TOTAL ASSETS                                          103,762          111,978



 LIABILITIES

 Current liabilities

 Borrowings                                             17,470           16,197

 Trade payables                                         31,619           35,926

 Other payables                                          7,251            5,654

 Deferred income                                         5,140            3,651

 Provisions                                                952              664

 Total current liabilities                              62,432           62,092


 Non-current liabilities

 Borrowings                                              7,841           13,955

 Trade payables                                             73               98

 Other payables                                             96               71

 Provisions                                              1,030            1,273

 Total non-current liabilities                           9,040           15,397

 TOTAL LIABILITIES                                      71,472           77,489



 EQUITY

 Share capital                                          18,263           18,263

 Own (treasury) shares                                  -1,349           -1,349

 Share premium                                             589              589

 Statutory capital reserve                               2,554            2,554

 Translation reserve                                     2,063            1,995

 Retained earnings                                       9,280           11,086

 Total equity attributable to owners of the
 parent                                                 31,400           33,138

 Non-controlling interests                                 890            1,351

 TOTAL EQUITY                                           32,290           34,489

 TOTAL LIABILITIES AND EQUITY                          103,762          111,978

Condensed consolidated interim statement of comprehensive income

 EUR '000                                              Q1 2018 Q1 2017     2017
-------------------------------------------------------------------------------

 Revenue                                                43,662  41,604  231,387

 Cost of sales                                         -43,209 -40,980 -222,692

 Gross profit                                              453     624    8,695



 Marketing and distribution expenses                      -173    -113     -623

 Administrative expenses                                -1,671  -1,457   -6,936

 Other operating income                                     17      42      107

 Other operating expenses                                  -77     -88     -141

 Operating loss/profit                                  -1,451    -992    1,102



 Finance income                                            135     103    2,901

 Finance costs                                            -304    -169   -1,570

 Net finance costs/income                                 -169     -66    1,331




 Share of loss/profit of equity-accounted investees        -63      47      485



 Loss/profit before income tax                          -1,683  -1,011    2,918

 Income tax expense                                       -200     -75   -1,193

 Loss/profit for the period                             -1,883  -1,086    1,725



 Other comprehensive income
 Items that may be reclassified subsequently to profit
 or loss

 Exchange differences on translating foreign
 operations                                                 68      51      446

 Total other comprehensive income                           68      51      446

 TOTAL COMPREHENSIVE EXPENSE/INCOME                     -1,815  -1,035    2,171



 Loss/profit attributable to:

 - Owners of the parent                                 -1,806  -1,087    1,388

 - Non-controlling interests                               -77       1      337

 Loss/profit for the period                             -1,883  -1,086    1,725



 Total comprehensive expense/income attributable to:

 - Owners of the parent                                 -1,738  -1,036    1,834

 - Non-controlling interests                               -77       1      337

 Total comprehensive expense/income for the period      -1,815  -1,035    2,171



 Earnings per share attributable to owners of the
 parent:

 Basic earnings per share (EUR)                          -0.06   -0.04     0.04

 Diluted earnings per share (EUR)                        -0.06   -0.04     0.04

Condensed consolidated interim statement of cash flows

  EUR '000                                               Q1 2018   Q1 2017
---------------------------------------------------------------------------
  Cash flows from operating activities

  Cash receipts from customers(1)                         53,004    45,609

  Cash paid to suppliers(2)                              -49,887   -46,567

  VAT paid                                                -1,350    -1,018

  Cash paid to and for employees                          -5,206    -4,596

  Income tax paid                                              0       -75

  Net cash used in operating activities                   -3,439    -6,647



  Cash flows from investing activities

  Paid on acquisition of property, plant and equipment       -66       -33

  Paid on acquisition of intangible assets                     0        -2

  Proceeds from sale of property, plant and
  equipment                                                    3         0

  Loans provided                                              -6       -21

  Repayment of loans provided                                  3        20

  Dividends received                                         245       147

  Interest received                                            3        27

  Net cash from investing activities                         182       138



  Cash flows from financing activities

  Proceeds from loans received                               534     3,430

  Repayment of loans received                               -194       -19

  Finance lease principal paid                              -450      -480

  Interest paid                                             -170      -147

  Dividends paid                                            -384      -144

  Net cash used in/from financing activities                -664     2,640



  Net cash flow                                           -3,921    -3,869



  Cash and cash equivalents at beginning of period         8,916     9,786

  Effect of movements in foreign exchange rates                0         0

  Decrease in cash and cash equivalents                   -3,921    -3,869

  Cash and cash equivalents at end of period               4,995     5,917

(1 )Line item Cash receipts from customers includes VAT paid by customers.

(2 )Line item Cash paid to suppliers includes VAT paid.

Financial review
Financial performance
Nordecon  Group ended  the first  quarter of  2018 with a  gross profit  of 453
thousand  euros  (Q1  2017: 624 thousand  euros)  and  a  gross margin of 1% (Q1
2017: 1.5%). In an environment of stiff competition, gross margin decreased. The
Group  earned its profit for  the period in the  Buildings segment where margins
declined  slightly,  slipping  to  3.3% (Q1 2017: 4.1%).  Lower profitability is
largely  attributable to the fact that the Group continues to earn a major share
of  its revenue from the  apartment building business where  the ongoing rise in
subcontracting  prices, particularly labour costs, has the most tangible effect.
The  performance of the  Infrastructure segment was  expectedly modest. However,
the  segment's loss decreased for the second year in a row. The main reasons for
the  segment's loss were  lack of self-performed  work (major earthworks) during
the winter season and a large share of uncovered fixed costs.
Administrative expenses for the first quarter of 2018 amounted to 1,671 thousand
euros.  Compared with the  same period in  2017, administrative expenses grew by
around  15% (Q1  2017: 1,457 thousand  euros)  but  the  ratio of administrative
expenses to revenue (12 months rolling) remained practically the same, amounting
to   3.1% (Q1  2017: 3.2%). One  of  the  reasons  for  higher  expenses  is the
termination  benefits paid to a  member of the parent  company's board (see also
the  chapter Employees). However, our  cost-control measures continue to produce
good  results and we  have been able  to keep administrative  expenses below the
target ceiling of 4% of revenue.
The  Group's operating  loss for  the first  quarter of  2018 amounted to 1,451
thousand  euros (Q1 2017: a loss of  992 thousand euros). EBITDA was negative at
944 thousand euros (Q1 2017: negative at 503 thousand euros).
During  the  period,  finance  income  and  costs  continued to be influenced by
exchange  rate  fluctuations  in  the  Group's  foreign  markets.  Although  the
Ukrainian hryvnia strengthened against the euro by 2.4% and the Group recognised
relevant  exchange gain  of 62 thousand  euros (Q1  2017: a loss  of 49 thousand
euros),  the Swedish krona weakened against the  euro by around 4% and the Group
recognised  an exchange loss  of 123 thousand euros  (Q1 2017: nil euros) on the
translation of a loan provided to the Swedish subsidiary in euros.
The  Group's net loss amounted to 1,883  thousand  euros (Q1 2017: a net loss of
1,086 thousand  euros), of which net loss  attributable to owners of the parent,
Nordecon  AS, was  1,806 thousand euros  (Q1 2017: a  net loss of 1,087 thousand
euros).
Cash flows
In  the first quarter of 2018, operating  activities produced a net cash outflow
of  3,439 thousand euros (Q1 2017: an outflow of 6,647 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. In
addition, operating cash flow is influenced by a mismatch between the settlement
terms  agreed with customers and suppliers and  the fact that neither public nor
private  sector customers are required to make advance payments while we have to
make  prepayments  to  subcontractors,  materials  suppliers,  etc. We deal with
matching  customers'  and  suppliers'  payment  terms  on  a daily basis, mostly
through  factoring.  In  addition  to  factoring  accounts  receivable,  we have
concluded   a   frame   agreement   for  reverse  factoring  which  enables  our
subcontractors that do not have sufficient credit standing to obtain a factoring
limit from a financing institution to use our limit.
Investing activities produced a net cash inflow of 182 thousand euros (Q1 2017:
an  inflow of 138 thousand euros). The largest items were payments for property,
plant  and  equipment  of  66 thousand  euros  (Q1  2017: 33 thousand euros) and
dividends received of 245 thousand euros (Q1 2017: 147 thousand euros).
Financing  activities generated  a net  cash outflow  of 664 thousand  euros (Q1
2017: an  inflow of 2,640 thousand euros). The  largest items were loan, finance
lease  and  dividend  payments.  Proceeds  from  loans received amounted to 534
thousand  euros, consisting of  development loans and  overdraft facilities used
(Q1 2017: 3,430 thousand euros). Loan repayments totalled 194 thousand euros (Q1
2017: 19 thousand  euros) and  finance lease  payments amounted  to 450 thousand
euros  (Q1 2017: 480 thousand euros). Dividends paid totalled 384 thousand euros
(Q1 2017: 144 thousand euros).
At  31 March 2018, the Group's cash and cash equivalents totalled 4,995 thousand
euros   (31   March  2017: 5,917 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   for   the
 period                         Q1 2018       Q1 2017       Q1 2016        2017
-------------------------------------------------------------------------------
 Revenue (EUR '000)              43,662        41,604        27,731     231,387

 Revenue change                    4.9%         50.0%          2.3%       26.2%

 Net profit/loss (EUR
 '000)                           -1,883        -1,086          -409       1,725

 Net profit/loss
 attributable to owners
 of the parent
 (EUR '000)                      -1,806        -1,087          -570       1,388

 Weighted average number
 of shares                   30,913,031    30,756,728    30,756,728  30,913,031

 Earnings per share (EUR)         -0.06         -0.04         -0.02        0.04

 Administrative expenses
 to revenue                        3.8%          3.5%          4.7%        3.0%

 Administrative expenses
 to revenue (rolling)              3.1%          3.2%          3.6%        3.0%

 EBITDA (EUR '000)                 -944          -503           233       3,123

 EBITDA margin                    -2.2%         -1.2%          0.8%        1.3%

 Gross margin                      1.0%          1.5%          4.2%        3.8%

 Operating margin                 -3.3%         -2.4%         -0.8%        0.5%

 Operating margin
 excluding gain on asset
 sales                            -3.3%         -2.4%         -0.8%        0.5%

 Net margin                       -4.3%         -2.6%         -1.5%        0.7%

 Return on invested
 capital                          -2.6%         -1.5%         -0.5%        5.9%

 Return on equity                 -5.0%         -2.9%         -1.1%        4.8%

 Equity ratio                     31.1%         35.6%         40.5%       30.8%

 Return on assets                 -1.9%         -1.1%         -0.5%        1.6%

 Gearing                          35.3%         29.3%         28.8%       32.7%

 Current ratio                     1.01          1.01          1.02        1.11

 As at                    31 March 2018 31 March 2017 31 March 2016 31 Dec 2017
-------------------------------------------------------------------------------
 Order book (EUR '000)          143,589       130,109       120,702     144,122
-------------------------------------------------------------------------------


+---------------------------------------+--------------------------------------+
|                                       |Operating  margin  excluding  gain  on|
|                                       |asset  sales  =  ((operating profit or|
|Revenue   change  =  (revenue  for  the|loss  - gain  on sales  of non-current|
|reporting  period  /  revenue  for  the|assets   -   gain  on  sales  of  real|
|previous period) - 1 * 100             |estate) / revenue) * 100              |
|                                       |                                      |
|Earnings  per share (EPS)  = net profit|Net  margin = (net  profit or loss for|
|or  loss attributable to  owners of the|the period / revenue) * 100           |
|parent  /  weighted  average  number of|                                      |
|shares outstanding                     |Return  on invested capital = ((profit|
|                                       |or   loss   before   tax   +  interest|
|Administrative  expenses  to  revenue =|expense) /    the   period's   average|
|(administrative  expenses /  revenue) *|(interest-bearing     liabilities    +|
|100                                    |equity)) * 100                        |
|                                       |                                      |
|Administrative   expenses   to  revenue|Return on equity = (net profit or loss|
|(rolling)   =   (past   four  quarters'|for  the period / the period's average|
|administrative  expenses  /  past  four|total equity) * 100                   |
|quarters' revenue) * 100               |                                      |
|                                       |Equity  ratio = (total  equity / total|
|EBITDA  =  operating  profit  or loss +|liabilities and equity) * 100         |
|depreciation    and    amortisation   +|Return on assets = (net profit or loss|
|impairment losses on goodwill          |for  the period / the period's average|
|EBITDA  margin =  (EBITDA /  revenue) *|total assets) * 100                   |
|100                                    |Gearing      =      ((interest-bearing|
|                                       |liabilities    -    cash    and   cash|
|Gross  margin = (gross profit or loss /|equivalents) /       (interest-bearing|
|revenue) * 100                         |liabilities + equity)) * 100          |
|Operating margin = (operating profit or|Current ratio = total current assets /|
|loss / revenue) * 100                  |total current liabilities             |
+---------------------------------------+--------------------------------------+

Performance by geographical market
The  contributions of the  Group's foreign markets  have remained stable. In the
first quarter of 2018, Nordecon earned around 8% of its revenue outside Estonia,
compared with 9% in the first quarter of 2017.

            Q1 2018   Q1 2017   Q1 2016   2017
-----------------------------------------------
  Estonia       92%       91%       93%    94%

  Sweden         4%        6%        3%     3%

  Finland        1%        2%        1%     1%

  Ukraine        3%        1%        3%     2%

The  share of Ukrainian revenues has  grown substantially compared with the same
period  last year.  In Ukraine,  we are  providing general contractor's services
under  three building construction contracts and one infrastructure construction
contract.  The share  of concrete  works performed  in the building construction
segment  has also  increased significantly.  The share  of Swedish  revenues has
decreased  year on  year. During  the period,  we provided  general contractor's
services  under one  construction contract.  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  strong  impact  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
Where  possible, we  strive to  maintain the  revenues of our operating segments
(Buildings  and Infrastructure)  in balance  as this  helps diversify  risks and
provides  better opportunities  for continuing  construction operations  in more
challenging  circumstances  where  the  volumes  of  one or several sub-segments
decline substantially.
Nordecon's  revenues  for  the  first  quarter  of 2018 totalled 43,662 thousand
euros,  a roughly  4.9% increase on  the 41,604 thousand  euros generated in the
first  quarter of  2017. Both building  and infrastructure construction revenues
improved.  The  scarcity  of  infrastructure  projects,  which  has affected the
Estonian  construction market in  general, has also  left its mark on Nordecon's
revenue structure.
In  the  first  quarter  of  2018, our  Buildings  and  Infrastructure  segments
generated   revenue   of   37,616 thousand   euros   and   5,941 thousand  euros
respectively.  The  corresponding  figures  for  the  first quarter of 2017 were
36,711 thousand  euros and 4,487 thousand euros (see note 8). Our order book has
a  similar structure. Although the share of infrastructure construction projects
in  the  Group's  order  book  has  increased  to  32% (Q1  2017: 23%), building
construction contracts continue to prevail.

  Operating segments*   Q1 2018   Q1 2017   Q1 2016   2017
-----------------------------------------------------------
  Buildings                 86%       89%       88%    74%

  Infrastructure            14%       11%       12%    26%

*  In the Directors' report, projects  have been allocated to operating segments
based  on their  nature (i.e.  building or  infrastructure construction). In the
segment reporting presented in the consolidated financial statements, allocation
is  based on the  subsidiaries' main field  of activity (as  required by IFRS 8
Operating  Segments). In the consolidated financial statements, the results of a
subsidiary   that  is  primarily  engaged  in  infrastructure  construction  are
presented  in the Infrastructure segment. In the Directors' report, the revenues
of  such  a  subsidiary  are  presented  based  on their nature. The differences
between  the two reports  are not significant  because in general Group entities
specialise  in specific areas except for  the subsidiary Nordecon Betoon OÜ that
is  involved in both  building and infrastructure  construction. The figures for
the  parent company are allocated  in both parts of  the interim report based on
the nature of the work.

Sub-segment revenues
In  the period under review, the largest revenue source in the Buildings segment
was  the commercial  buildings sub-segment.  Compared with  the same period last
year, the revenue of the commercial buildings sub-segment grew significantly, by
around 49%. The period's largest projects were in Tallinn: an office building at
Lõõtsa  12, the Öpiku  B building  and a  multi-storey car  park at Lõõtsa 11 in
Ülemiste  City, and a  14-floor commercial and  residential building in the WoHo
quarter  at Mustamäe tee 3. We also  continued to build Omiva's logistics centre
in  Rae parish near Tallinn. Based on the  Group's order book, we expect that in
2018 the  revenue of the commercial buildings sub-segment will increase compared
with 2017.
The  share of revenue generated by the apartment buildings sub-segment decreased
compared  with a  year ago.  In Estonia,  a substantial  share of  our apartment
building projects is located in Tallinn. In the period under review, the largest
of  them were the  Meerhof 2.0 apartment building  complex at Pirita tee 20a and
apartment  buildings at Sõjakooli  12 (phases II and  III) and Lesta 10. Foreign
markets  continue  to  contribute  a  major  share of the sub-segment's revenue.
During the period, we continued the construction of a residential quarter in the
city of Brovary in the Kiev region in Ukraine and the design and construction of
an 8-floor apartment building in the city of Stockholm in Sweden.
We  continue  work  in  our  own  housing  development projects (reported in the
apartment  buildings sub-segment)  in Tartu  and Tallinn.  During the period, we
continued  the construction of the  last two phases of  the Tammelinn project in
Tartu   (www.tammelinn.ee   (http://www.tammelinn.ee)).  In  Tallinn,  we  began
preparatory work in a new development project at Nõmme tee 97 where we are going
to  build  a  4-floor  apartment  building  with  21 apartments (www.nommetee.ee
(http://www.nommetee.ee)).   We   continue  to  sell  apartments  in  the  above
development  projects in Tartu and Tallinn as  well as the projects completed in
2017 at  Magasini 29 (www.magasini.ee  (http://www.magasini.ee)) and  Hane 2 and
2a (www.hane.ee   (http://www.hane.ee))   in   Tallinn.   The  period's  housing
development   revenues  totalled  1,638 thousand  euros  (Q1  2017: 196 thousand
euros).  In  carrying  out  our  own  development activities, we monitor closely
potential risks in the housing development market that stem from rapid growth in
the supply of new housing and relative growth in input prices.
The  revenue  contribution  of  the  public  buildings sub-segment has decreased
compared  with the same  period last year.  However, based on  the order book we
expect  that in 2018 the sub-segment's revenue will  remain at the same level as
in  2017. The results of this sub-segment  continue to be strongly influenced by
the  state's investment in national defence.  During the period, we continued to
build infrastructure for armoured vehicles and two barracks at the military base
at Tapa and an academic building of the Estonian Academy of Security Sciences in
Tallinn.
The  largest projects in the industrial and warehouse facilities sub-segment are
the  construction of the Metsä Wood plywood factory in Pärnu and a co-generation
plant  at Kehra and the  reconstruction (phase IV) of  the fattening unit of the
pig farm of Rakvere Farmid AS (EKSEKO).

 Revenue breakdown in the Buildings segment Q1 2018 Q1 2017 Q1 2016 2017
------------------------------------------------------------------------
 Commercial buildings                           38%     26%     20%  25%

 Apartment buildings                            25%     33%     28%  30%

 Public buildings                               23%     28%     35%  19%

 Industrial and warehouse facilities            14%     13%     17%  26%

For  a long  time, the  Infrastructure segment  has been  dominated by  the road
construction  and  maintenance  sub-segment.  In  the first quarter of 2018, its
share  of the revenue of the  Infrastructure segment grew even further (compared
with  Q1 2017). A significant  portion of the  period's revenue was generated by
two  large  contracts  secured  in  2017: the  reconstruction  of  the Haabersti
intersection  in Tallinn and a section of  the Tallinn ring road (km 0.6-2.8). A
substantial  share  of  the  period's  revenues  also  resulted from 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  expect that road construction will
remain the main revenue source in the Infrastructure segment through 2018.
The  contracts of the  environmental engineering and  other engineering (utility
network  construction) sub-segments  are small  and significant  growth of their
revenues is unlikely.

 Revenue breakdown in the Infrastructure segment Q1 2018 Q1 2017 Q1 2016 2017
------------------------------------------------------------------------------
 Road construction and maintenance                   85%     82%     65%  86%

 Other engineering                                   12%     10%     30%   8%

 Environmental engineering                            3%      8%      5%   6%



Order book
At  31 March 2018, the Group's  order book (backlog  of contracts signed but not
yet  performed)  stood  at  143,589 thousand  euros,  an increase of around 10%
compared with the end of the same period in 2017.

 As at                 31 March 2018 31 March 2017 31 March 2016 31 Dec 2017
----------------------------------------------------------------------------
 Order book (EUR '000)       143,589       130,109       120,702     144,122

At  the  reporting  date,  contracts  secured  by  the Buildings segment and the
Infrastructure segment accounted for 68% and 32% of the Group's total order book
respectively  (31 March 2017: 77% and  23% respectively). Compared with 31 March
2017, the  order book of  the Buildings segment  has shrunk by  2% and the order
book of the Infrastructure segment has grown by 52%.
The  order book of the Buildings segment  has decreased year on year because the
order  books  of  the  industrial  and  warehouse  facilities  and the apartment
buildings  sub-segments have shrunk by 76% and 23% respectively. The order books
of the commercial and the public buildings sub-segments, on the other hand, have
increased  considerably. The largest, around 70%, year-on-year order book growth
was  posted by  the commercial  buildings sub-segment.  Growth is  driven by the
construction  of a multi-storey  car park at  Sepise 8 in Ülemiste  City and the
design  and construction  of a  14-floor commercial  and residential building at
Mustamäe  tee 3 in the  WoHo quarter in  Tallinn as well  as the construction of
Omniva's  logistics centre in  Rae parish near  Tallinn. The sub-segment's order
book  has also grown  through two large  contracts signed in  the second half of
2017 in  Ukraine: one for the  construction of a 7-floor  office building in the
Unit  City innovation park  in Kiev and  the other for  the construction of a 6-
floor   office  building  in  the  LvivTech.City  innovation  park  in  Lviv.  A
significant  share of the order book  of the public buildings sub-segment, which
has  grown by 51% year on year, is made  up of contracts for the construction of
an  academic building for  the Estonian Academy  of Security Sciences in Tallinn
and  infrastructure for armoured vehicles and  two barracks at the Tapa military
base that were secured in the second half of 2017.
The order book of the Infrastructure segment is supported by growth in contracts
signed  by the  road construction  and maintenance  sub-segment whose order book
accounts for around 89% of the segment's total order book. The road construction
order  book comprises the remaining portions of contracts signed in 2017 as well
as two new contracts secured in 2018: one for the reconstruction of two sections
(km  195.6-205.8 and 207.8-209.2) of the Riga-Pskov road (the Tsiiruli-Missoküla
road  section) and the other for the construction of the Veskitammi intersection
in  Laagri, near  the border  of Tallinn.  The Group  continues to  provide road
maintenance  services in  three road  maintenance areas:  Järva, Hiiu  and Kose.
Although  according  to  our  projections  in  2018 public  investments will not
increase  substantially, our order  book as at  the reporting date  allows us to
expect that in 2018 the revenue of the Infrastructure segment will grow slightly
compared  with 2017 (for further information, see  the Business risks section of
the chapter Description of the main risks).
Based on the Group's order book and known developments in our chosen markets, we
expect  that the Group's  revenue for 2018 will  remain at the  same level as in
2017. In  an environment of stiff competition, we avoid taking unjustified risks
whose realisation in the contract performance phase would have an adverse impact
on  our results. Despite this, where  suitable opportunities arise, we strive to
increase the portfolio to counteract the pressure on margins, which is caused by
the  market situation. Our preferred policy is to keep fixed costs under control
and monitor market developments.
Between  the reporting  date (31  March 2018) and  the date  of release  of this
report,  Group companies have  secured additional construction  contracts in the
region of 8,110 thousand euros.

People
Employees and personnel expenses
In  the  first  quarter  of  2018, the  Group  (the parent and the subsidiaries)
employed, on average, 691 people including 427 engineers and technical personnel
(ETP).  The number of  employees, particularly workers,  has decreased by around
3% year  on year because the contract for providing road maintenance services in
the Keila maintenance area expired.
Average number of the Group's employees (at the parent and the subsidiaries)

                  Q1 2018   Q1 2017   Q1 2016   2017
-----------------------------------------------------
  ETP                 427       413       353    426

  Workers             264       303       299    309

  Total average       691       716       652    735

The  Group's personnel  expenses for  the first  quarter of  2018, including all
taxes,  totalled  4,943 thousand  euros.  In  the same period of 2017, personnel
expenses  amounted to 4,479 thousand euros.  The roughly 10% growth in personnel
expenses is mainly attributable to pay rises.
The  service fees  of the  members of  the council  of Nordecon AS for the first
quarter  of 2018 amounted  to 47 thousand  euros and  associated social security
charges  totalled 15 thousand euros (Q1  2017: 34 thousand euros and 11 thousand
euros respectively).
The  service fees of  the members of  the board of  Nordecon AS amounted to 232
thousand euros and associated social security charges totalled 77 thousand euros
(Q1  2017: 94 thousand euros  and 31 thousand  euros respectively).  The figures
include  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 2018 Q1 2017 Q1 2016  2017
-------------------------------------------------------------------------------
 Nominal labour productivity (rolling), (EUR
 '000)                                              320.4   281.9   216.4 314.9

 Change against the comparative period              13.7%   30.4%   -3.6% 17.6%



 Nominal labour cost efficiency (rolling), (EUR)     10.0     9.5     8.0  10.1

 Change against the comparative period               5.4%   20.7%   -4.4% 12.6%


+------------------------------------------------------------------------------+
|Nominal  labour productivity (rolling) = (past four quarters' revenue) / (past|
|four quarters' average number of employees)                                   |
|Nominal  labour cost  efficiency (rolling)  = (past  four quarters' revenue) /|
|(past four quarters' personnel expenses)                                      |
+------------------------------------------------------------------------------+

The  Group's nominal  labour productivity  and labour  cost efficiency increased
year on year, mainly through revenue growth.

Description of the main risks
Business risks
The  main factors which  affect the Group's  business volumes and profit margins
are  competition  in  the  construction  market  and  changes  in the demand for
construction services.
Competition continues to be stiff in all segments of the construction market and
in  2018 public investment is  not expected to  grow substantially compared with
2017. Thus,  builders' bid  prices are  under strong  competitive pressure  in a
situation  where the  prices of  construction inputs  have been trending upwards
moderately  but consistently for several quarters. Bidders for contracts include
not  only  rival  general  contractors  but  also former subcontractors. This is
mainly  attributable  to  the  state  and  local governments' policy to keep the
qualification  requirements of  public procurement  tenders low, which sometimes
results  in the sacrifice  of quality and  adherence to deadlines  to the lowest
possible  price.  We  acknowledge  the  risks  inherent  in  the  performance of
contracts signed in an environment of stiff competition and rising input prices.
Securing  a long-term  construction contract  at an  unreasonably low price in a
situation  where input  prices cannot  be lowered  noticeably and competition is
tough  is risky because negative developments  in the economy may quickly render
the  contract onerous. In setting our prices in such an environment, we focus on
ensuring  a reasonable balance between contract performance risks and tight cost
control.
Demand  for construction  services continues  to be  strongly influenced  by the
volume  of public investment, which in turn depends on the co-financing received
from  the EU  structural funds.  Total support  allocated to  Estonia during the
current  EU budget period (2014-2020) amounts to 5.9 billion euros. Although the
amount  exceeds  the  figure  of  the  previous financial framework, the amounts
earmarked  for construction work are substantially  smaller than in the previous
budget period.
In  the  light  of  the  above  factors,  we  expect that in 2018 as a whole our
business  volumes will  remain at  the same  level as  in 2017. Our  action plan
foresees flexible resource allocation aimed at finding more profitable contracts
and  performing  them  effectively.  According  to  its business model, Nordecon
operates  in all segments of the construction market. Therefore, we are somewhat
better  positioned than companies that operate in one narrow (and in the current
market situation particularly some infrastructure) segment.
Our business is also influenced by seasonal changes in weather conditions, which
have  the strongest impact on infrastructure construction where a lot of work is
done  outdoors (road construction,  earthworks, etc.). To  disperse the risk, we
secure  road  maintenance  contracts  that  generate  year-round  business.  Our
strategy  is  to  counteract  the  seasonality of infrastructure operations with
building  construction that is less exposed  to seasonal fluctuations. Our long-
term  goal is  to be  flexible and  keep our  two operating segments in relative
balance (see also the chapter Performance by business line). Where possible, our
entities  implement different technical solutions that allow working efficiently
also in changeable conditions.
Operational risks
To  manage their daily construction risks, Group companies purchase contractors'
all  risks insurance. Depending on the nature of the project and the requests of
the  customer,  both  general  frame  agreements  and  special, project-specific
insurance  contracts  are  used.  In  addition,  as  a  rule, subcontractors are
required  to  secure  performance  of  their  obligations  with a bank guarantee
provided  to a Group company  or the Group retains  part of the amount due until
the  contract has been completed. To  remedy construction deficiencies which may
be  detected  during  the  warranty  period,  Group  companies  create  warranty
provisions  based on their historical  experience. At 31 March 2018, the Group's
warranty  provisions (including  current and  non-current ones)  totalled 1,011
thousand euros (31 March 2017: 1,176 thousand euros).
In  addition to managing the risks  directly related to construction operations,
in  recent  years  we  have  also  sought  to  mitigate  the  risks  inherent in
preliminary  activities. In particular, we have  focused on the bidding process,
i.e.  compliance with the  procurement terms and  conditions, and budgeting. The
errors  made in the planning stage are  usually irreversible and, in a situation
where the price is contractually fixed, may result in a direct financial loss.
Financial risks
Credit risk
During the period, the Group did not incur any credit losses. In the comparative
period  in 2017, credit  losses totalled  30 thousand euros.  The overall credit
risk  exposure of the  portfolio of receivables  is low because  the solvency of
prospective  customers is  evaluated, the  share of  public sector  customers is
large,  and customers' settlement behaviour  is continuously monitored. The main
indicator  of the realisation of credit  risk is settlement default that exceeds
180 days along with no activity on the part of the debtor that would confirm the
intent to settle.
Liquidity risk
The  Group remains exposed to higher than usual liquidity risk. At the reporting
date,  the Group's current assets exceeded its current liabilities 1.01-fold (31
March 2017: 1.01-fold). The key factor which influences the current ratio is the
classification  of the Group's loans to  its Ukrainian associates as non-current
assets   and  the  banks'  general  policy  not  to  refinance  interest-bearing
liabilities (particularly overdrafts) for a period exceeding twelve months.
Because the political and economic situation in Ukraine is still complicated, we
believe  that the Group's Ukrainian investment  properties cannot be realised in
the  short term.  Accordingly, at  the reporting  date the  Group's loans to its
Ukrainian  associates  of  8,564 thousand  euros  were classified as non-current
assets.
For  better cash flow  management, we use  overdraft facilities and factoring by
which we counter the mismatch between the settlement terms agreed with customers
and subcontractors. Under IFRS EU, borrowings have to be classified into current
and  non-current based on contract terms in  force at the reporting date. At 31
March 2018, the Group's short-term borrowings totalled 17,470 thousand euros.
At  the reporting  date, the  Group's cash  and cash equivalents totalled 4,995
thousand euros (31 March 2017: 5,917 thousand euros).
Interest rate risk
Our  interest-bearing liabilities to banks have both fixed and floating interest
rates.  Finance lease liabilities have mainly  floating interest rates. The base
rate  for most floating-rate contracts is  EURIBOR. During the period, interest-
bearing borrowings grew by 1,652 thousand euros year on year. Factoring and loan
liabilities  increased whereas finance lease liabilities decreased (see also the
section  Liquidity risk). At 31 March 2018, interest-bearing borrowings totalled
25,311 thousand  euros (31 March  2017: 23,659 thousand euros). Interest expense
for  the first  quarter of  2018 amounted to  174 thousand euros  (Q1 2017: 128
thousand euros).
The  main  source  of  interest  rate  risk  is  a possible rise in the variable
component  of floating interest rates (EURIBOR, EONIA or the creditor's own base
rate).  In the  light of  the Group's  relatively heavy  loan burden, this would
cause a significant rise in interest expense, which would have an adverse impact
on  profit.  We  mitigate  the  risk  by  pursuing  a  policy of entering, where
possible,  into fixed-rate contracts when the  market interest rates are low. As
regards  loan products  offered by  banks, observance  of the  policy has proved
difficult and most new contracts have a floating interest rate. We have signed a
derivative  contract to manage the risks  resulting from changes in the interest
rate  of the finance lease contract of  a new asphalt concrete plant acquired in
2016.
Currency risk
As  a rule, the prices  of construction contracts and  subcontracts are fixed in
the currency of the host country, i.e. in euros (EUR), Ukrainian hryvnias (UAH),
and Swedish kronas (SEK).
The  exchange rate of  the hryvnia has  been unstable because  the political and
economic  environment in Ukraine continues to be complicated due to the conflict
between  Ukraine and Russia which broke  out at the beginning of 2014. Moreover,
at  the beginning  of 2015 the  National Bank  of Ukraine decided to discontinue
determining  the  national  currency's  indicative  exchange  rate. In the first
quarter of 2018, the hryvnia strengthened against the euro by around 2.4%. For a
Ukrainian  subsidiary,  this  meant  additional  foreign  exchange  gain  on the
translation  of  its  euro-denominated  loans  into the local currency. Relevant
exchange  gain amounted  to 62 thousand  euros (Q1  2017: a loss  of 49 thousand
euros).  Exchange gains  and losses  on financial  instruments are recognised in
Finance  income and Finance  costs respectively. Translation  of receivables and
liabilities from operating activities did not give rise to any exchange gains or
losses.
Our Ukrainian and non-Ukrainian entities' reciprocal receivables and liabilities
which  are related to  the construction business  and denominated in hryvnias do
not  give rise to any exchange gains or losses. Nor do the loans provided to the
Ukrainian  associates in euros give  rise to any exchange  gains or losses to be
recognised in the Group's accounts.
In  the first quarter  of 2018, the Swedish  krona weakened against  the euro by
around  4%. Due  to  adverse  movements  in  the  krona/euro  exchange rate, the
translation  of operating receivables and payables  resulted in an exchange loss
of  74 thousand euros. The exchange loss  has been recognised in Other operating
expenses.  The translation of a loan provided to the Swedish subsidiary in euros
into  the local currency  gave rise to  an exchange loss  of 123 thousand euros.
This  exchange loss  has been  recognised in  Finance costs.  In the comparative
period, there were no exchange losses.
We have not acquired derivatives to hedge our currency risk.
Employee and work environment risks
Finding  permanent labour  is a  serious challenge  for the  entire construction
sector  and one of the main factors  that influences business results. The Group
depends extensively on its subcontractors' ability to ensure the availability of
skilled labour. To strengthen Nordecon's reputation as an employer and make sure
that  we can find employees also in  the future, we collaborate with educational
institutions.
As  a construction  company, we  strive to  minimise the occupational health and
safety  risks of  people working  on our  construction sites  including both own
employees  and those of  our subcontractors. The  goal is to  make sure that all
measures  required by law are  applied in full. In  addition, the parent company
follows  the  requirements  of  international  occupational  health  and  safety
management standard OHSAS 18001. Subcontractors must ensure that their employees
follow  applicable work  safety requirements;  the Group's  role is to work with
them and create appropriate conditions.
Environmental risks
Construction activities change landscapes and the physical environment of cities
and settlements. The Group's goal is to do its work and at the same time protect
the  natural environment  as much  as possible.  Our assets and operations which
have  the strongest  impact on  the environment  and, thus,  involve the highest
environmental   risk   are   asphalt  plants,  quarries  and  road  construction
operations.  To prevent  leaks, spills,  pollution, destruction  of wildlife and
other  damage to the environment, we comply  with legal requirements. All of our
largest construction entities have implemented environmental management standard
ISO 14001.
Corruption and ethical risks
As  one of the leading construction companies  in Estonia, we realise that it is
important  to be aware of the risks involved in the breach of honest and ethical
business  practices  and  to  make  sure  that our entities' management quality,
organisational  culture and internal communication  emphasise zero tolerance for
dishonest, unethical and corrupt behaviour.

Outlooks of the Group's geographical markets
Estonia
Processes and developments characterising the Estonian construction market

  * In 2018, public investment should grow slightly. However, it is still
    unclear for companies in which segments of the construction market and to
    what extent the state will be able to realise its investment plans. Although
    in the 2014-2020 EU budget period the support allocated to Estonia will
    increase to 5.9 billion euros (2007-2013: 4.6 billion euros), the portion
    that will influence the construction market will not increase. Instead,
    compared with the previous period, there will be a rise in allocations to
    intangible areas.
  * In terms of the market in general, investments made by the largest public
    sector customers (e.g. the state-owned real estate company Riigi
    Kinnisvara AS and the National Road Administration) which will reach
    signature of a construction contract in 2018 will not increase
    substantially. The Ministry of Defence has been a positive exception for
    builders as its needs and activity in carrying out new procurement tenders
    and placing orders through a single agency, the centre for defence
    investment, have made a major contribution to market revival. Hence, the
    Estonian construction market as a whole (particularly infrastructure
    construction segments) will remain relatively stable.
  * The long and painful process of construction market consolidation will
    continue, albeit slowly. In particular, this applies to general contracting
    in building construction where the number of medium-sized general
    contractors (annual turnover of around 15-40 million euros) is too large.
    Based on the experience of the last major crisis it is likely that in an
    environment of stiff competition and rising input prices some general
    contractors may run into difficulties which will be passed on to several
    other market participants.
  * Competition remains stiff across the construction market, intensifying in
    different segments in line with market developments. The rise in the average
    number of bidders for a contract reflects this. It is clear that in the new
    environment of rising input prices that has emerged in the past year,
    efficiency is the key to success.
  * In new housing development, the success of a project depends on the
    developer's ability to control the input prices included in its business
    plan and set sales prices that are affordable for prospective buyers.
    Despite the market situation it is expected that the housing market, which
    accounts for a somewhat disproportionately large share of the total
    construction market and thus amplifies associated risks, will also sustain
    growth in 2018.
  * There is a growing contrast between the stringent terms of public contracts,
    which require the builder to agree to extensive obligations, strict
    sanctions, various financial guarantees, long settlement terms, etc., and
    the modest participation requirements. Lenient qualification requirements
    and the precondition of making a low bid have made it relatively easy for an
    increasing number of builders to win a contract but have heightened the
    risks taken by customers in terms of funding, deadlines and quality during
    the contract performance phase and the subsequent warranty period.
  * Recent years have brought a rise in the prices of construction inputs,
    particularly in building construction. At first, general contractors tried
    to absorb the cost increase by making margin concessions but their capacity
    for doing this has been practically exhausted. The construction market
    includes an increasing number of areas where changes in the environment
    (including materials producers' rapid and successful entry into foreign
    markets) may trigger a sharp price increase. The rise in housing
    construction has lengthened the supply terms of various essential materials
    and services considerably, making it impossible to carry out all processes
    in the former optimistic timeframes. As a result, activities require more
    extensive planning or may need to be postponed.
  * The persisting shortage of skilled labour (including project and site
    managers) is restricting companies' performance capacities, affecting
    different aspects of the construction process, including quality. Labour
    migration to the Nordic countries will remain steady and the number of job
    seekers who return to the Estonian construction market is not likely to
    increase considerably. All of the above sustains pressure for a wage
    increase, particularly in the category of the younger and less experienced
    workforce whose mobility and willingness to change jobs is naturally higher.

Ukraine
In  Ukraine, we mainly offer general contracting and project management services
to  private sector customers in the  segment of building construction. Political
and  economic  instability  continues  to  restrict  the  adoption  of  business
decisions  but construction activity in Kiev and the surrounding area has picked
up in recent years. In 2018, we will continue our Ukrainian operations primarily
in  the Kiev region but  the long-term preparations made  in western Ukraine are
also  bearing fruit. Based  on our order  book, it is  possible that in 2018 our
Ukrainian  business  volumes  will  increase  compared  with  2017. Despite  the
military  conflict in  eastern Ukraine,  for Nordecon  the market  situation has
improved  compared with a year or two ago. Hard times have reduced the number of
inefficient  local (construction) companies  and when the  economy normalises we
will  have  considerably  better  prospects  for  increasing  our operations and
profitability.  The Ukrainian government's recent crackdown on cash-in-hand work
is  definitely a  step in  the right  direction, which  in the  long term should
improve  our  position  in  the  Ukrainian  construction  market.  We assess the
situation  in the  Ukrainian market  regularly and  critically and  are ready to
restructure  our operations as and when  necessary. Should the crisis in eastern
Ukraine spread (which at the date of release of this report is highly unlikely),
we can suspend our operations immediately. We continue to seek opportunities for
exiting  our two real estate projects, which have been put on hold, or signing a
construction contract with a prospective new owner.
Finland
In Finland, we have provided mainly subcontracting services in the concrete work
segment but, based on experience gained, have started preparations for expanding
into  the  general  contracting  market.  The  local concrete work market allows
competing  for projects where  the customer wishes  to source all concrete works
from  one reliable partner.  Our policy is  to maintain a  rational approach and
avoid taking excessive risks.
Sweden
We  have been  operating in  Sweden since  July 2015. In  the Swedish market, we
offer  mainly  the  construction  of  residential and non-residential buildings,
particularly in central Sweden. On gaining experience in the new market, we have
prioritised quality and adherence to deadlines and have therefore accepted lower
profitability.  As regards our longer-term goals and  the plan to build a viable
and  strong organisation that would compete  successfully in the Swedish market,
we  are positive about the developments so  far and see potential for sustaining
business  growth and operating  profitably in a  large market when  we have been
able to stabilise order book growth at the desired level.

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  2017 was 231 million euros. Currently
Nordecon  Group  employs  close  to  700 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: [email protected] (mailto:[email protected])
www.nordecon.com (http://www.nordecon.com)

Attachments

  * Nordecon_Interim_report_Q1_2018 (https://prlibrary-
    eu.nasdaq.com/Resource/Download/63239fa2-67ec-44e8-969a-f267b5e571cb)
  * Nordecon_investor presentation Q1_2018 (https://prlibrary-
    eu.nasdaq.com/Resource/Download/bd70f63d-0d30-4a79-a982-54500b59f193)