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Published: 2020-02-06 08:00:00 CET
Quarterly report

2019 IV quarter and 12 months consolidated interim report (unaudited)

This announcement includes Nordecon AS’s consolidated financial statements for the fourth quarter and twelve months of 2019 (unaudited) and overview of the key events influencing the period’s financial result.
Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Nordecon’s web page (http://www.nordecon.com/for-investor/financial-reports/interim-reports).
Period’s investor presentation are attached to the announcement and are also published on Nordecon’s web page (http://www.nordecon.com/for-investor/investor-presentations).

Condensed consolidated interim statement of financial position

EUR ‘00031 December 201931 December 2018
Current assets  
Cash and cash equivalents7,0327,678
Trade and other receivables37,00331,627
Total current assets68,50361,132
Non-current assets
Investments in equity-accounted investees2,3692,266
Other investments2626
Trade and other receivables8,4358,225
Investment property5,5305,526
Property, plant and equipment19,00212,288
Intangible assets14,73614,674
Total non-current assets50,09843,005
TOTAL ASSETS118,601104,137
Current liabilities  
Trade payables40,72634,954
Other payables7,9665,187
Deferred income7,3553,932
Total current liabilities67,82154,460
Non-current liabilities
Trade payables9898
Other payables17771
Total non-current liabilities18,02615,968
Share capital14,37916,321
Own (treasury) shares -660-693
Share premium635618
Statutory capital reserve2,5542,554
Translation reserve1,1691,992
Retained earnings12,37210,896
Total equity attributable to owners of the parent30,44931,688
Non-controlling interests2,3052,021
TOTAL EQUITY32,75433,709

Condensed consolidated interim statement of comprehensive income

EUR ‘000 Q4 20192019Q4 20182018
Cost of sales -57,229-221,745-52,563-213,463
Gross profit 4,04211,7633,34510,033
Marketing and distribution expenses -149-784-156-626
Administrative expenses -2,169-6,837-1,748-6,725
Other operating income 1873152471,471
Other operating expenses -145-193-49-122
Operating profit 1,7664,2641,6394,031
Finance income 621,277190431
Finance costs -213-1,219-168-909
Net finance costs/income -1515822-478
Share of loss/profit of equity-accounted investees  -37585-9 835
Profit before income tax 1,5784,9071,6524,388
Income tax expense -324-77715-567
Profit for the period 1,2544,1301,6673,821
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations -42-823-105-3
Total other comprehensive expense -42-823-105-4
Profit attributable to:     
- Owners of the parent 8353,3671,4093,381
- Non-controlling interests 419763258440
Profit for the period 1,2544,1301,6673,821
Total comprehensive income attributable to:     
- Owners of the parent 7932,5441,3043,378
- Non-controlling interests 419763258440
Total comprehensive income for the period 1,2123,3071,5623,818
Earnings per share attributable to owners of the parent:     
Basic earnings per share (EUR)
Diluted earnings per share (EUR)

Condensed consolidated interim statement of cash flows

EUR ‘00020192018
Cash flows from operating activities  
Cash receipts from customers277,941269,292
Cash paid to suppliers-239,901-232,669
VAT paid-6,816-8,269
Cash paid to and for employees-22,989-22,593
Income tax paid-232-596
Net cash from operating activities8,0034,692
Cash flows from investing activities  
Paid on acquisition of property, plant and equipment-594-534
Paid on acquisition of intangible assets00
Proceeds from sale of property, plant and equipment3771,784
Paid on acquisition of investment property0-88
Proceeds from sale of investment property01,300
Loans provided-74-12
Repayment of loans provided1314
Dividends received489460
Interest received910
Net cash from investing activities2202,934
Cash flows from financing activities  
Proceeds from loans received3,7052,898
Repayment of loans received-4,032-4,671
Lease payments made-3,276-1,879
Interest paid-1,004-737
Dividends paid-2,360-2,627
Reduction of share capital-1,892-1,847
Other payments-40
Net cash used in financing activities-8,863-8,863
Net cash flow-638-1,237
Cash and cash equivalents at beginning of period7,6788,915
Effect of movements in foreign exchange rates-80
Increase in cash and cash equivalents-638-1,237
Cash and cash equivalents at end of period7,0327,678

Proposals for a dividend distribution and the reduction of share capital

Having agreed it with the council, the board proposes that the shareholders distribute in 2020 a dividend of 0.06 euros per share (1,892 thousand euros in total) for 2019. Own (treasury) shares do not give the company any shareholder rights.
In addition, the Group’s ultimate controlling party has notified the board of its intention to propose at the annual general meeting a motion for reducing the share capital of Nordecon AS by 1,943 thousand euros (0.06 euros per share). If the motion is approved, share capital will decrease from 14,379 thousand euros to 12,436 thousand euros. According to the motion, share capital will be reduced by reducing the book value of the shares so that the number of the shares will remain the same, i.e. 32,375,483 shares, including the 846,898 own (treasury) shares held at 31 December 2019.

Financial review

Financial performance

In an environment of continuously stiff competition, Nordecon’s gross profit and gross margin  improved. The Group ended the year with a gross profit of 11,763 thousand euros (2018: 10,033 thousand euros) and a gross margin of 5.0% (2018: 4.5%). The gross margin of the Buildings segment increased considerably, rising to 6.3% for 2019 (2018: 4.7%) and 8.8% for the fourth quarter (Q4 2018: 8.3%). The gross margin of the Infrastructure segment, on the other hand, weakened noticeably, dropping to 3.5% for 2019 (2018: 5.6%) and 1.9% for the fourth quarter (Q4 2018: 1.9%), which is certainly less than satisfactory. The Infrastructure segment is mainly involved in the performance of road construction and maintenance contracts. Road construction, which is capital intensive, requires a certain critical amount of work to cover its fixed costs, the largest share of which is made up of costs related to asphalt production and laying equipment. The road maintenance result is mainly influenced by the weather. Exceptionally challenging weather conditions in the first two months of 2019 had an adverse impact on the profitability of national road maintenance contracts. The average cost of new road construction projects put out to tender in 2019 decreased compared to 2018, which, in turn, increased the number of bidders. Also, the gap between contractors’ asphalt concrete production capacity and market demand has widened: according to estimates, production capacity exceeds demand by at least 25%. All this has had a negative impact on bid prices and the Group has not been sufficiently successful in winning public road construction contracts. Input costs continue to rise, which has a particularly strong effect on the profitability of general contractors. According to Statistics Estonia, in 2019 the construction price index increased by 1.9% compared to the average figure for 2018. Labour costs increased by 4.3%, plant and equipment costs by 2.0% and materials costs by 0.7% (also compared to the average figures for 2018). 
The Group’s administrative expenses for 2019 totalled 6,837 thousand euros. Compared to 2018, administrative expenses increased by around 2.0% (2018: 6,725 thousand euros) and the ratio of administrative expenses to revenue (12 months rolling) was 2.9% (2018: 3.0%).
The Group ended 2019 with an operating profit of 4,264 thousand euros (2018: 4,031 thousand euros). EBITDA amounted to 7,300 thousand euros (2018: 6,021 thousand euros) and EBITDA margin was 3.1% (2018: 2.7%).
Finance income and costs of the period continued to be influenced by exchange rate fluctuations in the Group’s foreign markets. During the period, the Ukrainian hryvnia strengthened against the euro by around 20% and the Group recognised an exchange gain of 1,044 thousand euros (2018: 147 thousand euros) on the translation of loans provided to the Ukrainian subsidiary in euros. The Swedish krona, on the other hand, weakened against the euro by around 2% and the Group recognised an exchange loss of 196 thousand euros (2018: 121 thousand euros) on the translation of a loan provided to the Swedish subsidiary in euros. In addition, interest expense increased by 221 thousand euros year on year due to changes in lease accounting policies.
The Group earned a net profit of 4,130  thousand euros (2018: 3,821 thousand euros) of which the net profit attributable to owners of the parent, Nordecon AS, was 3,367 thousand euros (2018: 3,381 thousand euros).

Cash flows

Operating activities of 2019 produced a net cash inflow of 8,003 thousand euros (2018: 4,692 thousand euros). The key factor that affects operating cash flow is the mismatch between customers’ and suppliers’ settlement terms. Cash flow is also strongly influenced by the fact that the contracts signed with both public- and private-sector customers do not require the customer to make advance payments while the Group has to make prepayments to subcontractors, materials suppliers, etc. Cash inflow is also reduced by contractual retentions, which extend from 5 to 10% of the contract price and are released at the end of the construction period only.
Investing activities resulted in a net cash inflow of 220 thousand euros (2018: 2,934 thousand euros). The largest items were amounts paid for property, plant and equipment of 594 thousand euros (2018: 534 thousand euros) and proceeds from sales of property, plant and equipment of 377 thousand euros (2018: 1,784 thousand euros). Dividends received amounted to 489 thousand euros (2018: 460 thousand euros). In 2018, cash flows from investing activities were also influenced by the sale of investment property for 1,300 thousand euros.
Financing activities generated a net cash outflow of 8,863 thousand euros (2018: an outflow of 8,863 thousand euros). The largest items in financing cash flows were loan and finance lease payments. Proceeds from loans received totalled 3,705 thousand euros, comprising development loans and overdrafts used (2018: 2,898 thousand euros).
Loan repayments totalled 4,032 thousand euros (2018: 4,671 thousand euros), consisting of scheduled repayments of long-term investment and development loans. Lease payments totalled 3,276 thousand euros (2018: 1,879 thousand euros). Lease payments increased in connection with changes in lease accounting policies. Dividends paid amounted to 2,360 thousand euros (2018: 2,627 thousand euros). Payments made on the reduction of share capital amounted to 1,892 thousand euros (2018: 1,847 thousand euros).
At 31 December 2019, the Group’s cash and cash equivalents totalled 7,032 thousand euros (31 December 2018: 7,678 thousand euros).

Key financial figures and ratios

Figure/ratio for the period201920182017
Revenue (EUR ‘000)233,508223,496231,387
Revenue change4.5%-3.4%26.2%
Net profit (EUR ‘000)4,1303,8211,725
Net profit attributable to owners of the parent (EUR ‘000)3,3673,3811,388
Average number of shares31,528,58531,528,58530,913,031
Earnings per share (EUR)
Administrative expenses to revenue2.9%3.0%3.0%
EBITDA (EUR ‘000)7,3006,0213,123
EBITDA margin3.1%2.7%1.3%
Gross margin5.0%4.5%3.8%
Operating margin1.8%1.8%0.5%
Operating margin excluding gain on asset sales1.7%1.3%0.5%
Net margin1.8%1.7%0.7%
Return on invested capital10.0%8.4%5.9%
Return on equity12.4%11.2%4.8%
Equity ratio27.6%32.4%30.8%
Return on assets3.7%3.5%1.6%
Current ratio
As at 31 December201920182017
Order book (EUR ‘000)227,568100,352144,122

Performance by geographical market

In 2019, revenue generated outside Estonia accounted for around 11% of the Group’s total revenue, rising to recent years’ highest level. 


In 2019, the Group brought in its largest-ever Finnish revenue. Our biggest project in the Finnish market is a subcontract for building concrete constructions for the Raitinkartano commercial and residential building. The Group’s Swedish revenue also grew year on year, underpinned by two new apartment building contracts secured as a general contractor and a concrete works contract secured as a subcontractor for building foundations for 73 wind turbines in a wind farm being built in northern Sweden (all signed in 2019).  The contribution of the Ukrainian market, on the other hand, decreased by almost a half compared to 2018.

Geographical diversification of the revenue base is a consciously deployed strategy by which we mitigate the risks resulting from excessive reliance on one market. However, conditions in some of our chosen foreign markets are also volatile and affect our current results. Increasing the contribution of foreign markets is one of Nordecon’s strategic targets.

Performance by business line

Segment revenues

We strive to keep the revenues of our operating segments (Buildings and Infrastructure) as balanced as possible because this helps to diversify risks and provides better opportunities for continuing construction operations in more challenging market conditions, for example when the volumes of a subsegment decline sharply.

The Group’s revenue for 2019 amounted to 233,508 thousand euros, 4.5% up on the 223,496 thousand euros generated in 2018. Revenue grew by 4% in the Buildings segment and 7% in the Infrastructure segment. Buildings and Infrastructure generated revenue of 169,124 thousand euros and 64,023 thousand euros, respectively. The corresponding figures for 2018 were 162,909 thousand euros and 60,086 thousand euros. The period’s revenue structure is also reflected in the Group’s order book, where the Buildings segment continues to dominate.

Operating segments201920182017

Subsegment revenues

The largest revenue source in the Buildings segment is still the commercial buildings subsegment whose revenue for 2019 remained comparable to 2018. The largest projects of the period were the reconstruction and extension of the building of Terminal D in the Old City Harbour, the construction of phase I of the Porto Franco commercial and office development next to the Admiralty Basin and a multi-storey car park at Sepapaja 1 and the design and construction of an eight-floor accommodation building at Liimi 1B and a concrete frame for an eight-floor car park and commercial building at Tammsaare tee 92 in Tallinn as well as the design and construction of a multi-storey car park for Tartu University Hospital in Tartu. 
The strongest-growing subsegments were public buildings and apartment buildings, which increased their revenue by 14% and 16% year on year, respectively. Major public buildings completed and delivered in 2019 were an academic building of the Estonian Academy of Security Sciences in Tallinn, the building of a state upper secondary school at Kohtla-Järve, the Peetri sports and leisure centre in Rae parish, an assembly area for the defence forces’ base at Tapa and a barracks for 300 people at the defence forces’ base at Jõhvi. 
A significant share of our Estonian apartment building projects is located in or near Tallinn. Large projects completed in Tallinn in 2019 included phases III and IV of the Sõjakooli project and apartment buildings at Lesta 10, Sammu 6 and Valge 16. The subsegment’s revenue is also strengthened by contracts signed in Sweden, where the Group continues to provide services under three housing development contracts.
We continue to build our own housing development projects in Tallinn and Tartu (reported in the apartment buildings subsegment). During the period, we completed the construction and sale of a four-floor apartment building with 21 apartments at Nõmme tee 97 in Tallinn and three apartment buildings with 10 apartments each at Aruküla tee in Tartu. Work continues on a five-floor apartment building with 24 apartments at Võidujooksu 8c in Tallinn (www.voidujooksu.ee). Our own housing development revenue amounted to 6,528 thousand euros in 2019 (2018: 9,369 thousand euros). In carrying out real estate development activities, we monitor closely potential risks in the housing development market.
The largest projects in the industrial and warehouse facilities subsegment were the construction of a warehouse and office building at Kaldase tee in Maardu, the reconstruction (phase V) of the fattening unit of a pig farm of Rakvere Farmid AS (EKSEKO), the construction of micro-warehouses in Betooni street in Tallinn and the construction of a commercial and warehouse building in Savi street in Pärnu. Compared to previous periods, the contribution of contracts signed with the agricultural sector has decreased significantly, which is one of the reasons for the subsegment’s revenue decline. In 2019, the subsegment’s revenue decreased by around 48% year on year.

Revenue breakdown in the Buildings segment201920182017
Commercial buildings36%35%25%
Public buildings29%25%19%
Apartment buildings27%25%30%
Industrial and warehouse facilities8%15%26%

In the Infrastructure segment, the share of revenue generated by the road construction and maintenance subsegment decreased for the first time in several years. However, this was mostly due to a few large other engineering projects. There is no general trend indicating a rise in investments in subsegments other than road construction and maintenance. During the period, a major share of the revenue of the road construction and maintenance subsegment resulted from contracts secured in 2018: the construction of passing lanes on the Pikknurme-Puurmani section of the Tallinn–Tartu–Võru–Luhamaa road (a 2+1 road section) and roads and bridges for the defence forces’ central training area in Kuusalu parish. The strongest revenue contributors among contracts secured in 2019 were two large projects: one for the construction of the Missoküla-Hindsa section (8 km) and the Misso small town section (2 km) of main road no. 7 (Riga-Pskov) and the other for the construction of the Kernu bypass and the Kernu filling station and Haiba junctions. A significant share of the subsegment’s revenue results from forest road improvement services provided to the State Forest Management Centre. The Group also continues to provide road maintenance services in Järva and Hiiu counties and the Kose maintenance area in Harju county.
In 2019, the Group completed the construction of the Kiili-Paldiski section of the onshore part of Balticconnector (a gas pipeline between Estonia and Finland), which made a strong contribution to other engineering revenue. The subsegment’s revenue was also influenced by the construction of foundations for 73 wind turbines in the Nysäter wind farm being built in northern Sweden, near Sundsvall, which will continue in 2020.

Revenue breakdown in the Infrastructure segment201920182017
Road construction and maintenance80%89%86%
Other engineering16%7%8%
Environmental engineering3%4%6%
Specialist engineering (including hydraulic engineering)1%0%0%

Order book

At 31 December 2019, the Group’s order book (backlog of contracts signed but not yet performed) stood at 227,568 thousand euros. Compared to the end of 2018, the order book has increased more than two times. In 2019, the Group signed new contracts of 305,695 thousand euros (2018: 134,419 thousand euros). The Group has been equally successful in winning both public and private contracts.

As at 31 December201920182017
Order book (EUR ‘000)227,568 100,352 144,122

At the reporting date, contracts secured by the Buildings segment and the Infrastructure segment accounted for 85% and 15% of the Group’s total order book, respectively (31 December 2018: 72% and 28%, respectively). Compared to 31 December 2018, the order books of both segments have grown. The order book of the Buildings segment has increased more than 2.5 times and that of the Infrastructure segment by 21%.
In the Buildings segment, the order books of all subsegments have increased year on year. Growth has been the strongest in the apartment buildings subsegment whose order book is the largest in the Buildings segment, accounting for 39% of the total. A major share of the order book of the apartment buildings subsegment is made up of the 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. The order books of the public buildings and the commercial buildings subsegments account for 23% and 20% of the of the segment’s order book, respectively. A large share of the order book of the public buildings subsegment is made up of contracts for the construction of the Estonian Academy of Security Sciences and the University of Tartu Training Centre in Narva, a sports and health centre at Kohtla-Järve, a storage complex at the defence forces’ base at Tapa and a new basic school, Kindluse Kool, in Järveküla, near Tallinn. In the commercial buildings subsegment, the largest projects in progress are in Tallinn: the construction of a new seven-floor commercial building in Rotermann City and phase I of the Porto Franco development as well as the design and construction of phase II of a multi-storey car park in Ülemiste City. The order book of the industrial and warehouse facilities subsegment has grown through a contract for the construction of a dairy complex for E‑Piim in Paide. 
For a long time, the order book of the Infrastructure segment has been dominated by contracts secured by the road construction and maintenance subsegment. However, in the reporting period the structure of the segment’s order book changed significantly. At the reporting date, other engineering contracts accounted for roughly a half of the order book of the Infrastructure segment. A major share of the order book of the other engineering subsegment is made up of a contract secured in the third quarter for the construction of foundations for 73 wind turbines in the Nysäter wind farm in northern Sweden, near Sundsvall. The other half of the Infrastructure order book is made up of contracts awarded to the road construction and maintenance subsegment whose largest projects include a contract secured in the second quarter of 2019 for building the Kernu bypass and the Kernu filling station and Haiba junctions on the Tallinn-Pärnu-Ikla road and a contract secured at the end of the financial year for the reconstruction of the Vinso-Kirmsi section of the  Võru-Räpina road. The Group continues to provide road maintenance services in three road maintenance areas: Järva, Hiiu and Kose.
Although the Group’s order book includes a considerable amount of work that will continue into 2021, we expect that in 2020 the Group’s revenue will grow compared to 2019. In an environment of exceptionally 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. Despite this, where suitable opportunities arise, we strive to increase the portfolio to counteract the pressure on margins that is caused by the market situation. Our preferred policy is to keep fixed costs under control and monitor market developments closely.


Employees and personnel expenses

In 2019, the Group (the parent and the subsidiaries) employed, on average, 687 people, including 414 engineers and technical personnel (ETP). Total headcount remained stable compared to 2018.

Average number of employees at Group entities (including the parent and the subsidiaries)

Total average687687735

The Group’s personnel expenses increased by around 10%. In 2019, personnel expenses, including all taxes, totalled 25,323 thousand euros. In 2018, the figure was 22,964 thousand euros. The main factors that underpin growth in personnel expenses are the general pressure for a wage increase, the shortage of qualified labour and improvements in the Group’s performance, which have increased the share of performance-related pay.
The service fees of the members of the council of Nordecon AS for 2019 amounted to 187 thousand euros and associated social security charges totalled 62 thousand euros (2018: 187 thousand euros and 62 thousand euros, respectively).
The service fees of the members of the board of Nordecon AS amounted to 480 thousand euros and associated social security charges totalled 158 thousand euros (2018: 656 thousand euros and 217 thousand euros, respectively). The figures for 2018 include termination benefits of 180 thousand euros paid to a member of the board and associated social security charges of 60 thousand euros.

Labour productivity and labour cost efficiency

We measure the efficiency of our operating activities using the following productivity and efficiency indicators, which are based on the number of employees and personnel expenses incurred:

Nominal labour productivity (rolling), (EUR ‘000)339.8325.4314.9
Change against the comparative period, % 4.4%3.3%17.6%
Nominal labour cost efficiency (rolling), (EUR)9.29.710.1
Change against the comparative period, %-5.3%-3.8%12.6%

The Group’s nominal labour productivity increased year on year through revenue growth. Nominal labour cost efficiency, on the other hand, decreased because the rise in personnel expenses exceeded revenue growth.

Nordecon (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 unaudited revenue of the Group in 2019 was 234 million euros. Currently Nordecon Group employs close to 690 people. Since 18 May 2006 the company's shares have been quoted in the main list of the NASDAQ Tallinn Stock Exchange.

Andri Hõbemägi
Nordecon AS
Head of Investor Relations
Tel: +372 6272 022
Email: andri.hobemagi@nordecon.com


NCN investor presentation 4Q 2019.pdf