Directors' report
The Group's strategy and objectives
Reasons for adjusting the Group's strategy
The Group's development strategy for 2009-2013 was underpinned by the
assumption
that in the forthcoming years the construction market would see
shrinkage in
volumes, downward pressure on the end-price of the service,
increasing
competition and subsequent market consolidation. The
factors were interpreted
not only as threats but also as opportunities to
be exploited for reinforcing
the Group's position and facilitating its
international expansion. However, in
2009 the global financial crisis and
the ensuing economic downturn had a more
severe impact on the Group's
markets and financial performance than anticipated.
To date, the Group has
suspended the operations of its Lithuanian subsidiary
Nordecon Statyba UAB
and at the beginning of 2010 we divested our Latvian
subsidiary
Nordecon Infra SIA owing to its poor operating results. In the past
year and
a half, operations in the Ukrainian buildings construction market have
practically come to a standstill. As a result, we have had to make deep
expense
and job cuts at our Ukrainian subsidiary Eurocon Ukraine TOV. At the
reporting
date, approximately 95% of our business is conducted in Estonia.
In July 2010, the board of Nordecon International AS proposed
that the council
revise the Group's development strategy because achieving
one of the main
strategic goals (continuing internationalization) and
the ultimate strategic
goal by 2013 had become unrealistic.
The board considered revision necessary in
light of the following:
- In 2010 the construction markets of
the Baltic countries and Ukraine will
remain in a slump.
- In the next few years, economic
growth in the Baltic countries will be modest
and the construction market
cannot be expected to recover before 2012.
- The construction market
is dominated by public procurement tenders that induce
underbidding and do not
allow construction companies to operate at their average
historical profit
margins.
- The decline
in input prices has been replaced by a rise and the forthcoming
years will
reveal the extent of the risks taken/losses incurred with the intent
of
lowering prices.
The Group's revised strategy for 2010-2013
The board is of the opinion that in the next couple of years, the Group
should
focus on its core business in its main market Estonia where Nordecon
is
represented in almost all construction segments and can rely on
extensive local
experience. In order to adapt to adverse changes in the
external environment,
the Group will have to continue restructuring its
operations, improving
profitability by effective cost management, and
creating opportunities for
successfully entering the growth phase of the
construction market (also in the
target foreign markets).
According to the board's proposal, in
2010-2013 the Group will focus on
achieving the above. The strategy
for the next three years will have to support
the Group's recovery from the
slump and prepare ground for seizing the
opportunities provided by
the growth of the construction market that is
anticipated to emerge
in 2012.
The ultimate goal
of the Group's strategy for 2009-2013 was to become the
fastest growing
construction group on the Nordic and Baltic stock exchanges by
2013 in terms
of revenue growth. In the next few years, revenue growth will not
be a
priority because this would assume taking unjustified risks at margins
that
are unnaturally low for the construction market.
The board submitted its proposals for revising the Group's strategy for
review
and approval by the council in July 2010. The council approved the
suggested
changes at a meeting held on 10 September 2010.
The main objectives of the strategy for 2010-2013
- To complete adjustments to the Group's structure and
governance that were
launched in 2009 in order to secure profitable and
rapid growth in the rise
phase of the market
- To operate in Latvia, Lithuania and Belarus
on a project basis, assuming that
this is profitable
- To continue buildings construction
operations in Ukraine in 2010 in line with
the former strategy and to decide
the need for revising the strategy in light of
the economic situation in the
country in the first quarter of 2011 at the latest
- To maintain preparedness
for re-launching more active operations in foreign
markets (as a general
contractor) as soon as the situation in the construction
market has become
sufficiently supportive
- To penetrate
the Finnish concrete works market (as a contractor) through a
subsidiary
in order to support development of relevant operations
- To
become the leading construction group in Estonia that earns half of its
revenue from infrastructure and the other half from buildings construction by
the end of 2013
The leitmotif of the strategy for 2010-2013 is “To respond to market
changes
swiftly and flexibly and to enter the next economic growth cycle
successfully”
Significant changes in the Group's structure in 2011
In a meeting held on 10 September 2010, the council of
Nordecon International AS
resolved to approve the board's proposal for
combining Nordecon International
AS, Nordecon Infra AS and Nordecon Ehitus
AS and signing a corresponding merger
agreement.
The board of Nordecon International
AS made the merger proposal based on its
vision of the changes required in
the Group's strategy in 2010-2013. The board
believes that in a situation of
declining business volumes the Group should also
redesign and streamline its
management model. The merger of the three companies
will provide a shorter
and more flexible chain of command and should yield cost
savings in the
region of 15.6 million kroons (1 million euros) per year.
According to
the board's proposal, the parent Nordecon International AS will
merge with
its wholly-held subsidiaries Nordecon Infra AS and Nordecon Ehitus
AS. The
combined entity will become the holder of investments in the current
stand-alone subsidiaries of Nordecon Infra AS and Nordecon Ehitus AS. The
Nordecon International construction group will continue operating in all
its
current operating segments.
The companies signed the merger agreement on 4 October 2010. The
merger needs to
be approved, among other parties, by the shareholders of
Nordecon International
AS. An extraordinary general meeting has been called
for 19 November 2010. The
merger report, the merger agreement and the
merging entities' financial
statements for the past three years as
well as their unaudited statements of
financial position as at 30
September 2010 have been made available on the
corporate website of
Nordecon International AS (www.nordecon.com).
According to plan,
all merger procedures will be completed in 2010.
Changes in
the Group's operations in the first nine months of 2010
Changes in the Group's Estonian operations
In the first nine months of 2010, the Group's Estonian operations did not
change
significantly. By the end of 2009 all major planned restructuring
activities
were completed and since the beginning of 2010 the Group has
been conducting its
core business through two subgroups - Nordecon Ehitus AS
and Nordecon Infra AS -
specialising in buildings and infrastructure
construction respectively. Nordecon
International AS has acted mostly as a
holding company, providing the Group with
strategic management and intra-Group
support services. The Group will follow the
same model until the end of 2010.
From 2011, Nordecon Ehitus AS and Nordecon
Infra AS will merge with the
parent Nordecon International AS (for further
information, refer to the
chapter Significant changes in the Group's structure
in 2011) and the
combined entity will continue operating under a new business
name -
Nordecon AS provided the proposal is approved by the shareholders at the
extraordinary general meeting called for 19 November 2010.
Changes in the Group's foreign operations
Latvia
The Group entered the Latvian market at the beginning of 2007 when
the
acquisition of OÜ Kaurits provided it with a stake in a Latvian
company - SIA
Abagars (later renamed Nordecon Infra SIA). In order to avoid
subsequent
conflicts of interest, the Group acquired the majority
shareholding in the
Latvian entity in May 2008. The core business of the
Latvian company was
construction of water and wastewater networks.
Business volumes in Latvia grew
swiftly and the company was awarded and
delivered several large public
procurement projects. However,
over-rapid growth resulted in an accumulation of
operational risks which in
combination with drastic changes in the economic
environment caused the
company to incur losses in the second half of 2009. The
overall downturn in
the Latvian economy caused difficulties in collecting
payments from
customers including counter-parties related to state and local
governments.
As a result, in February 2010 the board of Nordecon International AS
resolved to
divest the Group's entire 56% interest in Nordecon Infra SIA
because it was
evident that in the next few years the entity would be
operating with a loss.
The stake was sold to an individual (a
non-controlling shareholder). After the
transaction, the Group does not have
any ownership interests in companies
domiciled in Latvia. The financial
aspects of the transaction are described in
greater detail in note 4 to the
interim financial statements.
In the forthcoming years, the
Group will continue operating in Latvia on a
project basis through its
Estonian subsidiaries, involving partners where
necessary. However, the
continuation of project-based operations assumes the
availability of
profitable projects.
Belarus
The Group
has signed a contract with a Finnish food industry company for the
construction of a factory in Belarus. The project is being performed through
the
Group's wholly-held Belarusian subsidiary Eurocon Stroi IOOO whose
establishment
was completed in January 2010. At the moment, this is the
Group's only project
in Belarus. The Group used a similar strategy, i.e.
contracts tendered by
well-known Nordic or Baltic companies, for
penetrating the Ukrainian market more
than twelve years ago. The Group is not
holding any negotiations regarding other
projects and according to the Group's
development strategy penetrating the
Belarusian market more extensively
in 2010 is not a priority. The current year
and the above project will serve
as a basis for getting to know the market and
conducting further analyses.
Ukraine
There have not been any
significant changes in the Group's Ukrainian operations
compared with the end
of 2009.
Finland
The Group's
subsidiary Nordecon Betoon OÜ has been seeking opportunities for
winning
concrete works contracts in Finland since the end of 2009. For this, in
the
first half of 2010 a Finnish subsidiary Estcon OY was acquired from the
parent. The Group undertook the transaction to support the development of its
concrete works operations.
The Group's structure and major structural changes
Major changes in the Group's structure in the first nine months
of 2010
Nordecon International AS
In January, the establishment proceedings of Eurocon
Stroi IOOO, a Belarusian
company founded by Nordecon International AS and
Nordecon Ehitus AS, were
completed. The shareholders' interests are 70%
and 30% respectively. The company
was established for performing project-based
construction work. Since Belarus is
one of the Group's potential target
markets, then in line with the corporate
strategy the majority
shareholding in the entity belongs to the Group's parent
company.
In February,
Nordecon International AS sold its 56% stake in the Latvian
subsidiary
Nordecon Infra SIA along with interests in its subsidiaries. The
subsidiary was sold to an external party (a non-controlling shareholder).
After
the transaction, the Group has no ownership interests in companies
registered in
Latvia.
In April, Nordecon International AS sold 100% of its shares in
the Finnish
subsidiary Estcon OY to Group company Nordecon Betoon OÜ
that is going to use
the subsidiary for performing concrete works in
Finland. Finland is not one of
the Group's target markets. Therefore,
transfer of the investment was not in
contradiction with the Group's
general investment holding strategy.
Nordecon Infra AS
In April, Nordecon Infra
AS participated in the establishment of Pigipada OÜ,
paying for a 24% stake
with a monetary contribution of 9.6 thousand kroons (0.6
thousand euros).
Pigipada OÜ will engage in the production of bitumen emulsion.
In July,
Nordecon Infra AS increased its interest in the company to 49%, paying
10
thousand kroons (0.64 thousand euros) for the additional stake.
Eston Ehitus AS
In March, Eston Ehitus AS established a subsidiary Kaasa Vara OÜ. The
share
capital of the subsidiary is 40 thousand kroons (3 thousand euros).
The entity
is not yet active. The company was established for executing the
corporate
rehabilitation plans of major debtors of Eston Ehitus AS.
In May, Eston Ehitus AS participated in the establishment of
Magasini 29 OÜ,
acquiring a 34% stake for a monetary contribution of 13.6
thousand kroons (0.9
thousand euros). The entity was transferred some of the
assets and liabilities
of Crislivinca OÜ (an existing company in which the
stake of Eston Ehitus AS was
also 34%) that were related to an undeveloped
property in Magasini street,
Tallinn.
In August, Eston Ehitus AS and AS EKE
Invest completed a transaction by which
they exchanged interests in
Crislivinca OÜ and Magasini 29 OÜ. Before the
transaction, the
respective stakes of Eston Ehitus AS and AS EKE Invest were 34%
and 66% in
both companies. After the transaction, Eston Ehitus AS holds 100% of
the
shares in Magasini 29 OÜ and has no stake in Crislivinca OÜ while AS EKE
Invest holds all the shares in Crislivinca OÜ and has no stake in Magasini 29
OÜ.
Eurocon Ukraine TOV
In March, Eurocon Ukraine TOV sold its 99% stake in the dormant
subsidiary
Bukovina Development TOV. After the transaction, the Group
has no ownership
interest in Bukovina Development TOV.
Financial review
Margins
Nordecon International Group ended the first
nine months of 2010 with a gross
loss of 8.5 million kroons (0.5 million
euros). In the comparative period (first
nine months of 2009), the Group
earned a gross profit of 165.2 million kroons
(10.6 million euros). The
first two quarters of 2010 ended in a loss triggered
by the combined effect
of seasonal fluctuations in the construction business,
unfavourable weather
conditions and the recognition of potential losses from
projects secured
before the input prices started rising. The third quarter, on
the other
hand, ended in a profit. Consolidated third quarter gross profit
amounted to 36.7 million kroons (2.3 million euros). In absolute terms, the
third quarter profit figure was affected most by the completion of the Mäo
bypass, a major project involving both design and construction
operations.
Overview of seasonal fluctuations in gross profit
development:
------------------------------------------------------------------------------
--
|
Percentage of annual | Q1 | Q2 | Q3 | Q4 | Total
|
| gross profit | | | | |
|
-----------------------------------------------------------------------------
---
|
2006 | 10% | 20% | 33% | 37% | 100%
|
-----------------------------------------------------------------------------
---
|
2007 | 13% | 30% | 26% | 31% | 100%
|
-----------------------------------------------------------------------------
---
|
2008 | 28% | 38% | 20% | 13% | 100%
|
-----------------------------------------------------------------------------
---
|
2009 | 27% | 35% | 59% | -21% | 100%
|
-----------------------------------------------------------------------------
---
According
to management's assessment, the situation in the construction market
continues to be exacerbated by fierce competition that renders the gross
margins
of secured and new contracts lower than would be expected in a stable
market. A
slow but steady rise in input prices means that long-term contracts
will remain
exposed to the risk of loss. The Group recognised all estimated
construction
contract losses in the first half-year, which had a positive
impact on the third
quarter gross profit. It should have a positive effect
also on the last quarter.
Still, we remain cautious in our estimates and do
not rule out the possibility
that ongoing changes in the construction market
may cause setbacks on certain
projects.
The Group's administrative expenses for
the first nine months totalled 52.7
million kroons (3.4 million euros).
Compared with the first nine months of 2009,
the Group has cut its
administrative expenses by 45%. As at the reporting date,
the ratio of
administrative expenses to revenue was 4.5% (9M 2009: 4.9%). Cost
saving
measures have yielded good results - we have been able to lower the ratio
of
administrative expenses to revenue below the targeted 5% and are close to
achieving the objective set at the beginning of the year according to which
we
should reduce operating expenses by a third compared with the previous
year.
In light of the above, the Group's operating loss for the first nine
months of
2010 amounted to 70.6 million kroons (4.5 million euros) (9M 2009:
operating
profit of 44.6 million kroons/2.9 million euros).
The Group's net loss for the period amounted to 98.7 million
kroons (6.3 million
euros). Its formation was significantly influenced by
non-recurring financial
items. One-off finance income on the sale of the
Latvian operations (see note 4
to the interim financial statements) amounted
to 32.6 million kroons (2.1
million euros).
During the reporting period the Group
recognised an impairment loss of 40.2
million kroons (2.6 million euros)
for loans granted to legal persons. The
write-down concerned loans
provided by group entity Eston Ehitus AS to the
owners of companies that
commissioned the construction of Pärnu Keskus - the
Pärnu Centre. To date,
it has become clear that it is not reasonable to expect
that the persons
involved will regain their solvency. The construction contract
receivables of
Eston Ehitus AS that are due from the customers of the Pärnu
Centre
contract total 42.4 million kroons (2.7 million euros). The Group will
decide the extent to which these items should be written down in the fourth
quarter, when it has become clear how the problems surrounding the
construction
of the Pärnu Centre and the adjoining parking house will be
resolved. Further
information on the project and the problems is provided
in note 39 to the
Group's financial statements for the year ended 31
December 2009.
The nine-month loss attributable to owners of
the parent Nordecon International
AS amounted to 89.5 million kroons (5.7
million euros).
Cash flows
The Group's operating activities
for the first nine months of 2010 resulted in a
net cash outflow of 39.7
million kroons (2.5 million euros). The comparative
period ended in a net
cash inflow of 71.0 million kroons (4.5 million euros).
Compared with the
first half-year where operating activities generated cash
inflow, the
nine-month period ended in an outflow mostly on account of cyclical
fluctuations in project-related cash flows. The customers' contractual
settlement terms have become longer (up to 60 days) and in the case of some
projects payments have been deferred until the next year. On the other
hand, the
Group has completed or is completing major projects whose retentions
for
warranty and similar performance will be paid after the signature
of the final
delivery documents. According to estimates, these amounts will
be settled in the
last quarter when most project-related payments to
subcontractors have already
been made. Receipts from central and local
government institutions that are
funded from the state budget should also
increase before the beginning of the
next fiscal year.
Investing activities generated a
net inflow of 9.9 million kroons (0.6 million
euros) compared with a net
outflow of 45.9 million kroons (2.9 million euros)
for the first nine
months of 2009. A significant proportion of cash outflows
from investing
activities (9.6 million kroons/0.6 million euros) is attributable
to the
disposal of the subsidiary Nordecon Infra SIA and the discontinuance of
its
consolidation (see note 4 to the interim financial statements). A
significant proportion of cash inflows resulted from the disposal of
property,
plant and equipment and investment properties that generated
receipts of 20.2
million kroons (1.3 million euros).
Financing activities resulted in a net cash outflow of
78.5 million kroons (5.0
million euros) compared with an outflow of 79.8
million kroons (5.0 million
euros) in the first nine months of 2009. The
internal structure of financing
cash flows has remained stable. The Group
is raising less debt capital than is
required for settling its existing loan
liabilities on a timely basis.
Key financial figures and ratios
------------------------------------------------------------------------------
--
|
Figure / ratio | 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Weighted average number | 30,756,72 | 30,756,728 | 30,756,728 | 30,756,728
|
| of shares | 8 | | |
|
-----------------------------------------------------------------------------
---
|
Earnings per share (in | -2.91 | 2.13 | 5.06 | -1.49
|
| kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
Earnings per share (in | -0.19 | 0.14 | 0.32 | -0.09
|
| euros) | | | |
|
-----------------------------------------------------------------------------
---
|
Revenue growth | -40.2% | -32.7% | 9.9% | -37.5%
|
-----------------------------------------------------------------------------
---
|
Average number of | 808 | 1,110 | 1,267 | 1,128
|
| employees | | | |
|
-----------------------------------------------------------------------------
---
|
Revenue per employee (in | 1,457 | 1,773 | 2,306 | 2,144
|
| thousands of kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
Revenue per employee (in | 93 | 113 | 147 | 137
|
| thousands of euros) | | | |
|
-----------------------------------------------------------------------------
---
|
Personnel expenses to | 14.0% | 14.2% | 12.4% | 15.0%
|
| revenue | | | |
|
-----------------------------------------------------------------------------
---
|
Administrative expenses | 4.5% | 4.9% | 4.7% | 5.2%
|
| to revenue | | | |
|
-----------------------------------------------------------------------------
---
|
EBITDA* (in thousands of | -32,109 | 97,471 | 234,230 | 4,308
|
| kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
EBITDA* (in thousands of | -2,052 | 6,230 | 14,970 | 275
|
| euros) | | | |
|
-----------------------------------------------------------------------------
---
|
EBITDA margin | -2.7% | 5.0% | 8.0% | 0.2%
|
-----------------------------------------------------------------------------
---
|
Gross margin | -0.7% | 8.4% | 10.7% | 5.6%
|
-----------------------------------------------------------------------------
---
|
Operating margin | -6.0% | 2.3% | 6.1% | -5.2%
|
-----------------------------------------------------------------------------
---
|
Operating margin | -6.3% | 2.1% | 6.0% | -5.4%
|
| excluding gains on asset | | | |
|
| sales | | | |
|
-----------------------------------------------------------------------------
---
|
Net margin | -8.3% | 2.4% | 6.3% | -3.7%
|
-----------------------------------------------------------------------------
---
|
Return on invested | -7.4% | 5.3% | 18.9% | -4.1%
|
| capital | | | |
|
-----------------------------------------------------------------------------
---
|
Return on assets | -3.9% | 1.9% | 7.7% | -6.0%
|
-----------------------------------------------------------------------------
---
|
Return on equity | -14.7% | 5.5% | 21.7% | -11.4%
|
-----------------------------------------------------------------------------
---
|
Equity ratio | 36.7% | 36.9% | 35.5% | 37.1%
|
-----------------------------------------------------------------------------
---
|
Gearing | 33.0% | 25.7% | 28.7% | 26.4%
|
-----------------------------------------------------------------------------
---
|
Current ratio | 1.56 | 1.43 | 1.42 | 1.47
|
-----------------------------------------------------------------------------
---
|
| 30 Sept | 30 Sept | 30 Sept | 31 Dec
|
| | 2010 | 2009 | 2008 |
2009
|
-----------------------------------------------------------------------------
---
|
Order book (in thousands | 1,399,269 | 1,612,160 | 3,042,654 | 1,530,661
|
| of kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
Order book (in thousands | 89,430 | 103,036 | 194,461 | 97,827
|
| of euros) | | | |
|
-----------------------------------------------------------------------------
---
*
On calculating EBITDA, non-cash expenses include depreciation and
amortisation
as well as impairment losses on goodwill.
------------------------------------------------------------------------------
--
|
Earnings per share (EPS) = net | Operating margin excluding gains on
|
| profit attributable to equity | asset sales = (operating profit -
gains |
| holders of the parent / weighted | on sale of property, plant and
|
| average number of shares | equipment - gains on sale of
real |
| outstanding | estate) / revenue
|
| Revenue per employee = revenue / | Net margin = net profit
for the period |
| average number of employees | / revenue
|
| Personnel expenses to revenue = | Return on invested
capital = (profit |
| personnel expenses / revenue | before tax +
interest expense) / the |
| Administrative expenses to revenue | period's
average (interest-bearing |
| = administrative expenses / |
liabilities + equity) |
| revenue
| Return on assets = operating profit / |
| EBITDA = earnings before
interest, | the period's average total assets |
| taxes, depreciation
and | Return on equity = net profit for the |
| amortisation
| period /the period's average total |
| EBITDA margin =
EBITDA / revenue | equity |
| Gross margin
= gross profit / | Equity ratio = total equity / total |
| revenue
| equity and liabilities |
|
Operating margin = operating | Gearing = (interest-bearing liabilities
|
| profit / revenue | - cash and cash equivalents) /
|
| | (interest bearing liabilities +
equity) |
| | Current ratio = total current
assets / |
| | total current liabilities
|
-----------------------------------------------------------------------------
---
Performance
by geographical market
In the
first nine months of 2010, revenue earned outside Estonia accounted for
around 4% of the Group's total revenue. A year ago, the contribution of
foreign
markets was around 15%. The decrease results from the Group's
decision to sell
its Latvian operations in 2010 (see also the chapter Major
changes in the
Group's structure in the first nine months of 2010). In
addition, in contrast to
the first nine months of 2009 the Group did not earn
any revenue in Lithuania.
The proportion of the Group's Ukrainian revenues
has increased somewhat but
mainly on account of a decrease in its
Estonian revenues. The Group's vision of
its further operations in the
Latvian, Lithuanian and Ukrainian markets is
presented in the chapter
Outlooks of the Group's geographical markets.
------------------------------------------------------------------------------
--
|
| 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Estonia | 95.8% | 84.9% | 80.1% | 86%
|
-----------------------------------------------------------------------------
---
|
Ukraine | 3.0% | 2.2% | 13.4% | 3%
|
-----------------------------------------------------------------------------
---
|
Lithuania | 0% | 0.5% | 2.4% | 0%
|
-----------------------------------------------------------------------------
---
|
Latvia | 0% | 12.3% | 4.1% | 11%
|
-----------------------------------------------------------------------------
---
|
Belarus | 1.2% | 0% | 0% | 0%
|
-----------------------------------------------------------------------------
---
In
the reporting period, the Group started performing a project-based
construction contract in Belarus and at the end of the nine-month period
related
revenues accounted for around 1% of the Group's total revenue. The
project in
Belarus will continue until the end of the first half of 2011.
Concrete works in
Finland do not yet account for a percentage of consolidated
revenue.
Revenue distribution between different geographical
segments is a consciously
deployed strategy by which the Group avoids
excessive reliance on a single
market. Although in the long-term
perspective the Group's strategy foresees
increasing foreign operations,
in the short-term perspective the Group will
focus on the Estonian market
and seizing opportunities in an environment that it
knows best and that
entails comparatively fewer identified market risks.
Performance
by business line
The core
business of Nordecon International Group is general contracting and
project management in buildings and infrastructure construction. The Group is
involved, among other things, in the construction of commercial and
industrial
buildings and facilities, road construction and maintenance,
environmental
engineering, concrete works and real estate development.
Consolidated revenue for the first nine months of 2010
amounted to 1,177.5
million kroons (75.3 million euros), a 40% decrease
from the 1,967.6 million
kroons (125.8 million euros) generated in the
first nine months of 2009. Above
all, the downturn is attributable to a
significant decline in the demand for
construction services in all of the
Group's markets and, in the first quarter,
an exceptionally snowy and cold
winter that had the strongest impact on the
Infrastructure segment where
most of the work is done outdoors. In addition, the
absolute revenue figure
has been influenced by stiff competition that lowers the
construction prices.
The Group aims to
maintain the revenues generated by its business segments
(Buildings and
Infrastructure) in balance as this helps disperse risks and
provides a
more solid foundation under stressed circumstances when one segment
experiences shrinkage. In view of estimated demand for apartments, in
subsequent
years the proportion of housing construction revenue will remain
within the
strategic 20% limit.
Segment revenue
At the end of the first nine months of 2010, the Group's
infrastructure
construction revenues exceeded those of buildings
construction. Considering that
for some time most of the construction market
tenders have been related to
infrastructure (primarily projects financed
with the support of the state and
the EU structural funds) and that the
Infrastructure segment accounts for
roughly two thirds of the Group's
order book, this was to be expected. However,
the difference is not great
because the current buildings construction contracts
have a shorter term than
those of infrastructure construction. It is quite clear
that in the
foreseeable future the contribution of the Infrastructure segment
will
dominate over that of Buildings.
During the first nine months of 2010 the Buildings and Infrastructure
segments
generated revenue of 545.4 million kroons (34.9 million euros) and
612.6 million
kroons (39.2 million euros) respectively. The corresponding
figures for nine
months of 2009 were 872.1 million kroons (55.7 million
euros) and 1,075.9
million kroons (68.8 million euros).
Revenue distribution between segments*
------------------------------------------------------------------------------
--
|
Business segments | 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Buildings | 47% | 44% | 64% | 45%
|
-----------------------------------------------------------------------------
---
|
Infrastructure | 53% | 56% | 36% | 55%
|
-----------------------------------------------------------------------------
---
Revenue
distribution within segments
Distribution of projects within the Buildings segment has changed
significantly
compared with a year ago as well as with historical annual
averages. There are
two main reasons for this. The scarcity of projects
forces companies to compete
in all market segments and the number of
contracts awarded is small compared
with bids made. Such a situation does
not allow concentrating on a specific
business area. Another important
factor is the general economic environment.
During the past year, private
companies' investments in commercial and
industrial buildings and
facilities have been almost nonexistent while local
governments'
investments in schools, nurseries and public buildings have
increased,
partly thanks to the support received from the EU structural funds.
The
proportion of industrial buildings in the Group's portfolio is large mainly
because of the ongoing construction of the Ahtme peak load boiler plant. The
Group builds apartment buildings for external customers as a general
contractor,
not a developer. Revenue distribution within the segment should
remain similar
also in the last quarter.
------------------------------------------------------------------------------
--
|
Revenue distribution within the | 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
| Buildings segment | | | |
|
-----------------------------------------------------------------------------
---
|
Commercial buildings | 24% | 64% | 59% | 66%
|
-----------------------------------------------------------------------------
---
|
Industrial and warehouse | 31% | 9% | 16% | 10%
|
| facilities | | | |
|
-----------------------------------------------------------------------------
---
|
Public buildings | 33% | 23% | 14% | 18%
|
-----------------------------------------------------------------------------
---
|
Apartment buildings | 12% | 4% | 11% | 6%
|
-----------------------------------------------------------------------------
---
As
anticipated, as at the end of the first nine months over two thirds of the
revenue generated by the Infrastructure segment is attributable to road
construction and maintenance. The construction of other engineering
facilities
(mostly water and wastewater networks) is an area where the Group
has won many
tenders. Therefore, the contribution of other engineering
projects will remain
relatively large until the end of the year. The
contribution of environmental
engineering projects (e.g. the closure of
landfills) has remained stable
compared with 2009. Hydraulic
engineering that depends heavily on the ports'
investment policies has
plummeted to an all-time low and its recovery at the end
of the year is not
likely.
------------------------------------------------------------------------------
--
|
Revenue distribution within the | 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
| Infrastructure segment | | | |
|
-----------------------------------------------------------------------------
---
|
Road construction and | 69% | 43% | 52% | 49%
|
| maintenance | | | |
|
-----------------------------------------------------------------------------
---
|
Specialist engineering | 1% | 16% | 19% | 12%
|
| (including hydraulic | | | |
|
| engineering) | | | |
|
-----------------------------------------------------------------------------
---
|
Other engineering | 22% | 31% | 23% | 31%
|
-----------------------------------------------------------------------------
---
|
Environmental engineering | 8% | 10% | 6% | 8%
|
-----------------------------------------------------------------------------
---
Order
book
At
30 September 2010, the Group's order book stood at 1,399.3 million kroons
(89.4 million euros), 13% down from the 1,612.2 million kroons (103.0 million
euros) posted a year ago. Over the past quarters, the decline in the
Group's
order book has notably decelerated and the forward order book has
levelled off
at around 1,350 to 1,500 million kroons (86 to 95 million
euros).
----------------------------------------------------------------------------
----
|
| 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Order book, in thousands of |1,399,269 | 1,612,160 | 3,042,654 | 1,530,661
|
| kroons | | | |
|
-----------------------------------------------------------------------------
---
|
Order book, in thousands of | 89,430 | 103,036 | 194,461 | 97,827
|
| euros | | | |
|
-----------------------------------------------------------------------------
---
At
72% the Infrastructure segment continues to account for a significant
proportion of the Group's total order book (9M 2009: 66%).
The value of the order portfolio has decreased due to the downturn in the
construction market. In absolute terms, the order book figures have also
been
influenced by the year-over-year decrease in construction prices. In
many
segments of the construction market the decrease in input prices
has ceased or
turned to a rise. Therefore, in the near future the Group's
management will
focus on improving the profitability of the contract
portfolio rather than
increasing its size or growth rate.
Between the reporting date (30 September 2010)
and the date of release of this
report, Group companies have been awarded
additional construction contracts of
approximately 50 million kroons (3.2
million euros).
People
Staff and personnel expenses
In the first nine months of
2010, the Group (including the parent and the
subsidiaries) employed,
on average, 808 people including around 380 engineers
and technical
personnel (ETP). A significant one-off decrease in the number of
staff is
attributable to the divestment of the Latvian subsidiary Nordecon Infra
SIA in
the first quarter of 2010. At the end of 2009, the Nordecon Infra SIA
subgroup employed over 160 people. In addition to disposals of companies, the
number of staff has decreased on account of downsizing (lay-offs and
termination
of contracts). In a situation where construction volumes are
expected to
continue shrinking throughout the year, the headcount may
decrease even further.
In connection with the seasonal nature of the
construction business, in the
second and third quarters the number of
staff increased through fixed-term
contracts but at the end of the year
the impact of temporary hires will
disappear.
Average number of the Group's
employees (including the parent and its
subsidiaries:
------------------------------------------------------------------------------
--
|
| 9M 2010 | 9M 2009 | 9M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
ETP | 380 | 456 | 525 | 467
|
-----------------------------------------------------------------------------
---
|
Workers | 428 | 654 | 742 | 661
|
-----------------------------------------------------------------------------
---
|
Total average | 808 | 1,110 | 1,267 | 1,128
|
-----------------------------------------------------------------------------
---
The
Group's personnel expenses for the first nine months of 2010 including all
associated taxes totalled 165.1 million kroons (10.6 million euros), a 33%
decrease compared with the 247.2 million kroons (15.8 million euros)
incurred in
the first nine months of 2009.
Personnel expenses have declined on account of downsizing and
the cutting of
basic salaries. In 2009, employee salaries were lowered at
all Group entities;
the average pay-cut for engineers and technical
personnel was 15%. The
performance pay of project staff that is
linked to the projects' profit margins
has also dropped.
In the first nine months of 2010,
the remuneration of the members of the council
of Nordecon International AS
including associated social security charges
amounted to 1,077 thousand
kroons (69 thousand euros). The corresponding figure
for the first nine
months of 2009 was also 1,077 thousand kroons (69 thousand
euros). The
remuneration and benefits of the members of the board of Nordecon
International AS including social security charges totalled 1,493 thousand
kroons (95 thousand euros) compared with 2,701 thousand kroons (173
thousand
euros) for the first nine months of 2009. The remuneration of the
board has
decreased because in the comparative period the board had three
members whereas
in the reporting period the number was two.
Changes in the board of Nordecon International AS
Due to the contraction of the Group's foreign
operations, Priit Tiru who was
responsible for coordinating the Group's
foreign operations and strategic
management of the buildings
construction division was removed from the board of
Nordecon International AS
early based on a council resolution effective as of 1
November 2010.
In connection with
the plan to merge Nordecon International AS with its
subsidiaries
Nordecon Infra AS and Nordecon Ehitus AS (see the chapter
Significant changes in the Group's structure in 2011), the council appointed
to
the board of the entity that will form after the merger new members who
will
take office in January 2011. Jaano Vink will continue as chairman of
the board.
Members of the board will be Avo Ambur, Marko Raudsik and Erkki
Suurorg who all
have long-term experience in the construction sector as well
as in the Nordecon
International Group.
Outlooks of the Group's geographical markets
Estonia
The Group's management believes that in the
last quarter of 2010 the Estonian
construction market will be characterised
by the following features:
- Total demand in the construction
market will remain heavily dependent on
public procurement tenders and
projects performed with the support of the
European Union funds.
Project initiation success depends on the administrative
capabilities of the
central and local government which have improved compared
with previous
periods. However, the demand resulting from public sector projects
will not be
able to compensate for the steep contraction of the buildings
construction market that remains abandoned by most private sector companies
and
individuals. Accordingly, the Group's management forecasts that by the
end of
2010 the total volume of the construction market will have decreased
by over 50%
compared with 2008.
- The number of residential and general buildings construction
companies is
decreasing. Companies engaged in the sector are seeking
opportunities for
penetrating also other market segments such as
infrastructure. This has
heightened competition which, in turn, has
increased the number of companies
going bankrupt or needing corporate
rehabilitation. The trend will continue
through 2010. The Group does not
forecast a significant number of mergers or
takeovers because in the
current market situation this would not have sufficient
business rationale.
- Compared with 2008
and 2009, the decrease in construction prices has ceased in
2010 and input
prises will continue rising also in subsequent periods. In such a
situation,
performance of long-term construction contracts undertaken at
unreasonably low margins or below cost may have extremely adverse
consequences
and may cause serious financial difficulties for companies that
have not noticed
the trend or have decided to ignore it due to cash flow
problems.
- Banks have divided companies operating in the
construction market into
different risk categories. The banks' risk
exposures still include the real
estate and investment loans granted to
companies engaged in real estate
development. In 2010, the survival
of a number of companies will depend on the
banks' risk management
principles. On the other hand, the banks have indicated
that they are again
willing to start financing the construction sector although
to a limited
extent
- Because
of the increasing importance of infrastructure projects, the key
competitive advantages will include industry-specific (engineering and
technical) expertise, experience and references as well as the availability
of
relevant resources.
- Construction projects' financing principles have changed. There are
now
additional requirements to the co-funding to be provided by the
builder during
the construction period. Moreover, contractual settlement
terms have lengthened
and there are settlement defaults. All this will
increase the companies'
liquidity risks.
Latvia and Lithuania
In February 2010, the Group sold its
loss-generating Latvian subsidiary Nordecon
Infra SIA whose core business was
construction of water and wastewater networks.
According to the Group's
assessment, the Latvian construction market will be
undergoing extensive
adjustment to the recessionary environment through
2010-2011.
Therefore, in the next few years the Group will continue operating in
Latvia
on a project basis, through its Estonian subsidiaries, involving
partners
where necessary. Continuation of project-based business assumes that
the
projects can be performed profitably. The decision does not change
the Group's
long-term strategic objectives in the Latvian market, i.e. the
objective of
operating there in the future through local subsidiaries.
Recent economic developments in Lithuania have been
similar to the ones in the
other Baltic countries. Slowdown in investment,
both in the public and private
sectors, and similar factors have had a
direct impact on the construction
market. The commercial and
residential construction markets (the Group company
as a general contractor
not a developer) have contracted visibly and the launch
of any new private
sector projects in the near future is unlikely.
In response to
this, the operations of the Group's Lithuanian subsidiary
Nordecon
Statyba UAB have been suspended and the Group is monitoring the market
situation. The temporary suspension of operations does not cause any major
costs
for the Group. The Group's management does not rule out the possibility
that the
Lithuanian operations will remain suspended also after 2010. The
decision does
not change the Group's long-term strategic objectives in the
Lithuanian
construction market, i.e. the objective of operating there
in the future through
local subsidiaries.
Ukraine
In Ukraine, the Group will continue mainly as a
general contractor and project
manager in the construction of commercial
buildings and production facilities.
In 2009, the number of projects started
in the buildings construction market
decreased substantially. The
situation in the sector is not expected to improve
until after the second
half of 2010. This implies, above all, the need for tight
cost control.
Activities on
development projects that require major investment have been
suspended
to minimise the risks until the situation in the Ukrainian and global
financial markets eases up (the Group has currently interests in two
development
projects that have been conserved)
The main risks in the Ukrainian market are connected with the
low administrative
efficiency of the central and local government and the
judicial system,
inflation, and the availability of quality
construction inputs. Demand is mainly
undermined by the customers' lack of
financing. To date, the weakening of the
local currency that began in 2008
has stopped and the Group's exposure to
market-based currency risk has
decreased considerably. It is also clear that the
political climate has
stabilised after the presidential elections, which should
pave the way for an
improvement in the general economic climate. This, in turn,
would revive
investment by local and foreign companies who account for a
significant proportion of the Group's customers in the Ukrainian market.
Notwithstanding the above, the Group believes that the construction market
of a
country with a population of 46 million will offer excellent business
opportunities also in the future. The Group's key success factor is
relatively
little competition among project management companies (the Group
offers flexible
construction management in combination with European practices
and competencies)
compared with the real needs of a normally functioning
construction market. The
Group's management is confident that the current
crisis in the Ukrainian
construction market and economy as a whole
will transform the local
understanding and expectations of
general contracting and project management in
the construction business,
which will improve the Group's position significantly
in the long-term
perspective.
Description of the main risks
Business risks
Management believes that in the near future the main business risk
will be stiff
competition that induces construction companies to bid
unreasonably low prices
in a situation where input prices have started
rising and may cause steep
losses. The situation is aggravated by the
fact that the need for winning
contracts that would cover fixed costs
and overheads at a level ensuring normal
operating capacities is increasing.
The Group's management expects to mitigate
the risks by tight cost control
and effective cost cutting as well as thorough
analyses of new projects.
To mitigate the risks
arising from the seasonal nature of the construction
business (primarily
the weather conditions during the winter months), the Group
has acquired road
maintenance contracts that generate year-round business. In
addition, Group
companies are constantly seeking new technical solutions that
would allow
working more efficiently under changeable weather conditions.
To manage
their daily construction risks, Group companies purchase Contractors'
All
Risks insurance. Depending on the nature of the project, both general frame
agreements and special project-specific contracts are used. In addition, as a
rule, subcontractors are required to secure the performance of their
obligations
with a bank guarantee issued for the benefit of a Group company.
To remedy
builder-caused deficiencies which may be detected during the
warranty period,
all Group companies create warranties provisions. At 30
September 2010, the
provisions (including current and non-current ones)
totalled 20.8 million kroons
(1.3 million euros). At 30 September 2009, the
corresponding figure was 17.4
million kroons (1.1 million euros).
Credit risk
For credit risk management, a
potential customer's settlement behaviour and
creditworthiness are
analysed already in the tendering stage. Subsequent to the
signature of a
contract, the customer's settlement behaviour is monitored on an
ongoing
basis from the making of an advance payment to adherence to the
contractual settlement schedule, which usually depends on the documentation
of
the delivery of work performed. We believe that the system in place
allows us to
respond to customers' settlement difficulties with sufficient
speed. At the end
of the reporting period, our customers' settlement
behaviour was good in the
current economic situation; however, there were
also some large problem
customers. The proportion of overdue
receivables has increased, which heightens
the risk of future credit losses.
In accordance with the Group's accounting
policies, all receivables that
are more than 180 days overdue or in respect of
which no additional
settlement agreements have been reached are recognised as an
expense.
At the end of
nine months, expenses from the write-down of receivables and
income from
the recovery of expensed items were practically in balance. In the
comparative period, expenses from the write-down of receivables totalled 18.6
million kroons (1.2 million euros). In the fourth quarter, the Group's
management will analyse to what extent the receivables related to the
construction of the Pärnu Centre should be written down. The
receivables total
42.4 million kroons (2.7 million euros). In the reporting
period, the Group
wrote down loans granted to legal persons that were
related to the same project
by 40.2 million kroons (2.6 million euros).
Liquidity risk
Free funds are placed in overnight or
fixed-interest term deposits with the
largest banks in the markets where
the Group operates. To ensure timely
settlement of liabilities,
approximately two weeks' working capital is kept in
current accounts or
overnight deposits. Where necessary, overdraft facilities
are used. At the
reporting date, the Group's current assets exceeded its current
liabilities
1.56-fold (30 Sept 2009: 1.43-fold) and available cash funds
totalled
116.9 million kroons (7.5 million euros) (30 Sept 2009: 241.4 million
kroons
/ 15.4 million euros).
Interest rate risk
The Group's interest-bearing liabilities to banks have mainly fixed
interest
rates. Finance lease liabilities have floating interest rates and
are linked to
EURIBOR. At 30 September 2010, the Group's interest-bearing
loans and borrowings
totalled 481.7 million kroons (30.8 million euros), a
128.7 million kroon (8.2
million euro) decrease year-over-year. Interest
expense for the first nine
months of 2010 amounted to 11.5 million
kroons (0.7 million euros). Compared
with the first nine months of 2009,
interest expense has contracted by 8.5
million kroons (0.5 million
euros), primarily on account of a decrease in loans
and borrowings.
The Group's interest
rate risk results mainly from two factors: an increase in
the base rate for
floating interest rates (EURIBOR) and insufficient operating
cash flow that
may render the Group unable to settle its interest expense. The
first factor
is mitigated by fixing, where possible, the interest rates of
liabilities during the period of low market interest rates. The realisation
of
the cash flow risk depends on the success of operating activities. The
Group
does not use derivatives to hedge the interest rate risk.
Currency risk
As a rule, construction contracts and subcontractors' service
contracts are made
in the currency of the host country: in Estonia in Estonian
kroons (EEK) and in
Ukraine in Ukrainian hryvnas (UAH). In connection with
shrinkage in operations
in Latvia and Lithuania, the currency risks of those
countries are no longer
relevant. Services purchased from other countries
are mostly priced in euros,
which does not constitute a currency risk for
the Group's Estonian entities.
The Group's foreign exchange gains and
losses result mainly from its Ukrainian
operations because the Ukrainian
national currency floats against the euro and,
consequently, against the
Estonian kroon. To date, the weakening of the
Ukrainian hryvna
against the euro that began in the last quarter of 2008 has
ceased.
The Group's
exchange gains and losses for the first nine months of 2010 resulted
in a net
exchange loss of 5.7 million kroons (0.4 million euros). In the
comparative period, exchange differences resulted in a net exchange gain of
6.9
million kroons (0.4 million euros).
Condensed consolidated interim statement of financial position
------------------------------------------------------------------------------
--
|
EEK`000 | 30 Sept 2010 | 31 Dec 2009
|
-----------------------------------------------------------------------------
---
|
ASSETS | |
|
-----------------------------------------------------------------------------
---
|
Current assets | |
|
-----------------------------------------------------------------------------
---
|
Cash and cash equivalents | 116,933 | 225,191
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 667,157 | 644,704
|
-----------------------------------------------------------------------------
---
|
Prepayments | 33,425 | 30,595
|
-----------------------------------------------------------------------------
---
|
Inventories | 374,323 | 389,328
|
-----------------------------------------------------------------------------
---
|
Non-current assets held for sale | 4,948 | 4,617
|
-----------------------------------------------------------------------------
---
|
Total current assets | 1,196,786 | 1,294,435
|
-----------------------------------------------------------------------------
---
|
Non-current assets | |
|
-----------------------------------------------------------------------------
---
|
Investments in equity accounted | 1,955 | 2,191
|
| investees | |
|
-----------------------------------------------------------------------------
---
|
Other investments | 414 | 414
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 26,740 | 33,329
|
-----------------------------------------------------------------------------
---
|
Investment property | 77,135 | 87,975
|
-----------------------------------------------------------------------------
---
|
Property, plant and equipment | 150,288 | 204,115
|
-----------------------------------------------------------------------------
---
|
Intangible assets | 248,028 | 268,233
|
-----------------------------------------------------------------------------
---
|
Total non-current assets | 504,560 | 596,257
|
-----------------------------------------------------------------------------
---
|
TOTAL ASSETS | 1,701,346 | 1,890,692
|
-----------------------------------------------------------------------------
---
|
LIABILITIES | |
|
-----------------------------------------------------------------------------
---
|
Current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 187,056 | 262,959
|
-----------------------------------------------------------------------------
---
|
Trade payables | 434,050 | 377,925
|
-----------------------------------------------------------------------------
---
|
Other payables | 74,268 | 94,580
|
-----------------------------------------------------------------------------
---
|
Deferred income | 60,577 | 136,438
|
-----------------------------------------------------------------------------
---
|
Provisions | 12,413 | 10,364
|
-----------------------------------------------------------------------------
---
|
Total current liabilities | 768,364 | 882,266
|
-----------------------------------------------------------------------------
---
|
Non-current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 294,691 | 294,328
|
-----------------------------------------------------------------------------
---
|
Trade payables | 3,276 | 4,846
|
-----------------------------------------------------------------------------
---
|
Other payables | 1,500 | 1,500
|
-----------------------------------------------------------------------------
---
|
Provisions | 8,428 | 7,041
|
-----------------------------------------------------------------------------
---
|
Total non-current liabilities | 307,895 | 307,715
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES | 1,076,259 | 1,189,981
|
-----------------------------------------------------------------------------
---
|
EQUITY | |
|
-----------------------------------------------------------------------------
---
|
Share capital | 307,567 | 307,567
|
-----------------------------------------------------------------------------
---
|
Statutory capital reserve | 40,024 | 40,012
|
-----------------------------------------------------------------------------
---
|
Translation reserve | -3,573 | -3,201
|
-----------------------------------------------------------------------------
---
|
Retained earnings | 255,749 | 345,280
|
-----------------------------------------------------------------------------
---
|
Total equity attributable to equity | 599,767 | 689,658
|
| holders of the parent | |
|
-----------------------------------------------------------------------------
---
|
Non-controlling interest | 25,320 | 11,053
|
-----------------------------------------------------------------------------
---
|
TOTAL EQUITY | 625,087 | 700,711
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES AND EQUITY | 1,701,346 | 1,890,692
|
-----------------------------------------------------------------------------
---
-----------------------------------------------------------------------
---------
|
EUR`000 | 30 Sept 2010 | 31 Dec 2009
|
-----------------------------------------------------------------------------
---
|
ASSETS | |
|
-----------------------------------------------------------------------------
---
|
Current assets | |
|
-----------------------------------------------------------------------------
---
|
Cash and cash equivalents | 7,473 | 14,392
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 42,639 | 41,204
|
-----------------------------------------------------------------------------
---
|
Prepayments | 2,136 | 1,955
|
-----------------------------------------------------------------------------
---
|
Inventories | 23,924 | 24,883
|
-----------------------------------------------------------------------------
---
|
Non-current assets held for sale | 316 | 295
|
-----------------------------------------------------------------------------
---
|
Total current assets | 76,489 | 82,729
|
-----------------------------------------------------------------------------
---
|
Non-current assets | |
|
-----------------------------------------------------------------------------
---
|
Investments in equity accounted | 125 | 140
|
| investees | |
|
-----------------------------------------------------------------------------
---
|
Other investments | 26 | 26
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 1,709 | 2,130
|
-----------------------------------------------------------------------------
---
|
Investment property | 4,930 | 5,623
|
-----------------------------------------------------------------------------
---
|
Property, plant and equipment | 9,605 | 13,045
|
-----------------------------------------------------------------------------
---
|
Intangible assets | 15,852 | 17,143
|
-----------------------------------------------------------------------------
---
|
Total non-current assets | 32,247 | 38,108
|
-----------------------------------------------------------------------------
---
|
TOTAL ASSETS | 108,736 | 120,837
|
-----------------------------------------------------------------------------
---
|
LIABILITIES | |
|
-----------------------------------------------------------------------------
---
|
Current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 11,955 | 16,806
|
-----------------------------------------------------------------------------
---
|
Trade payables | 27,741 | 24,154
|
-----------------------------------------------------------------------------
---
|
Other payables | 4,747 | 6,045
|
-----------------------------------------------------------------------------
---
|
Deferred income | 3,872 | 8,720
|
-----------------------------------------------------------------------------
---
|
Provisions | 793 | 662
|
-----------------------------------------------------------------------------
---
|
Total current liabilities | 49,107 | 56,387
|
-----------------------------------------------------------------------------
---
|
Non-current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 18,834 | 18,811
|
-----------------------------------------------------------------------------
---
|
Trade payables | 209 | 310
|
-----------------------------------------------------------------------------
---
|
Other payables | 96 | 96
|
-----------------------------------------------------------------------------
---
|
Provisions | 539 | 450
|
-----------------------------------------------------------------------------
---
|
Total non-current liabilities | 19,678 | 19,667
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES | 68,785 | 76,054
|
-----------------------------------------------------------------------------
---
|
EQUITY | |
|
-----------------------------------------------------------------------------
---
|
Share capital | 19,657 | 19,657
|
-----------------------------------------------------------------------------
---
|
Statutory capital reserve | 2,558 | 2,557
|
-----------------------------------------------------------------------------
---
|
Translation reserve | -228 | -205
|
-----------------------------------------------------------------------------
---
|
Retained earnings | 16,345 | 22,067
|
-----------------------------------------------------------------------------
---
|
Total equity attributable to equity | 38,332 | 44,077
|
| holders of the parent | |
|
-----------------------------------------------------------------------------
---
|
Non-controlling interest | 1,618 | 706
|
-----------------------------------------------------------------------------
---
|
TOTAL EQUITY | 39,950 | 44,784
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES AND EQUITY | 108,736 | 120,837
|
-----------------------------------------------------------------------------
---
Condensed
consolidated interim statement of comprehensive income
------------------------------------------------------------------------------
--
|
EEK`000 | Q3 2010 | Q3 2009 | 9M 2010 | 9M 2009 | 2009
|
-----------------------------------------------------------------------------
---
|
Revenue | 592,311 | 742,546 | 1,177,511 | 1,967,640 | 2,418,880
|
-----------------------------------------------------------------------------
---
|
Cost of sales | -555,651 | -661,677 | -1,186,05 |-1,802,418 |-2,282,575
|
| | | | 5 | |
|
-----------------------------------------------------------------------------
---
|
Gross profit / | 36,660 | 80,869 | -8,544 | 165,222 | 136,305
|
| loss | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Distribution | -1,316 | -2,427 | -4,442 | -6,790 | -9,416
|
| expenses | | | | |
|
-----------------------------------------------------------------------------
---
|
Administrative | -17,143 | -30,532 | -52,700 | -95,882 | -125,206
|
| expenses | | | | |
|
-----------------------------------------------------------------------------
---
|
Other operating | 2,116 | 2,279 | 7,774 | 22,177 | 25,592
|
| income | | | | |
|
-----------------------------------------------------------------------------
---
|
Other operating | -5,387 | -10,745 | -12,720 | -40,118 | -154,014
|
| expenses | | | | |
|
-----------------------------------------------------------------------------
---
|
Operating profit | 14,930 | 39,444 | -70,632 | 44,609 | -126,739
|
| / loss | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Finance income | 1,790 | 4,907 | 44,070 | 35,809 | 86,513
|
-----------------------------------------------------------------------------
---
|
Finance expenses | -44,547 | -3,933 | -67,773 | -26,845 | -33,934
|
-----------------------------------------------------------------------------
---
|
Net finance | -42,757 | 974 | -23,703 | 8,964 | 52,579
|
| income / expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Share of profit / | -3,736 | 583 | -4,367 | -1,523 | -7,666
|
| loss of equity | | | | |
|
| accounted | | | | |
|
| investees | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Profit / loss | -31,563 | 41,001 | -98,702 | 52,050 | -81,826
|
| before income tax | | | | |
|
-----------------------------------------------------------------------------
---
|
Income tax | -635 | -578 | 1,177 | 5,317 | -7,618
|
| expense / income | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for | -32,198 | 41,579 | -97,525 | 46,733 | -89,444
|
| the period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Other | | | | |
|
| comprehensive | | | | |
|
| income / expense: | | | | |
|
-----------------------------------------------------------------------------
---
|
Exchange | 1,113 | -769 | -372 | -2,480 | 905
|
| differences on | | | | |
|
| translating | | | | |
|
| foreign | | | | |
|
| operations | | | | |
|
-----------------------------------------------------------------------------
---
|
Total other | 1,113 | -769 | -372 | -2,480 | 905
|
| comprehensive | | | | |
|
| income / expense | | | | |
|
| for the period | | | | |
|
-----------------------------------------------------------------------------
---
|
TOTAL | -31,085 | 40,810 | -97,897 | 44,253 | -88,539
|
| COMPREHENSIVE | | | | |
|
| INCOME / EXPENSE | | | | |
|
| FOR THE PERIOD | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
-------------------------------------------------------------------------
-------
|
Profit / loss | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the | -30,257 | 42,260 | -89,531 | 65,436 | -45,740
|
| parent | | | | |
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -1,941 | -2,681 | -7,994 | -18,703 | -43,704
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for | -32,198 | 41,579 | -97,525 | 46,733 | -89,444
|
| the period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Total | | | | |
|
| comprehensive | | | | |
|
| income / expense | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the | -29,144 | 42,776 | -89,903 | 65,245 | -44,835
|
| parent | | | | |
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -1,941 | -1,966 | -7,994 | -20,992 | -43,704
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Total | -31,085 | 40,810 | -97,897 | 44,253 | -88,539
|
| comprehensive | | | | |
|
| income / expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Earnings per | | | | |
|
| share | | | | |
|
| attributable to | | | | |
|
| owners of the | | | | |
|
| parent: | | | | |
|
-----------------------------------------------------------------------------
---
|
Basic earnings | -0.98 | 1.37 | -2.91 | 2.13 | -1.49
|
| per share (EEK) | | | | |
|
-----------------------------------------------------------------------------
---
|
Diluted earnings | -0.98 | 1.37 | -2.91 | 2.13 | -1.49
|
| per share (EEK) | | | | |
|
-----------------------------------------------------------------------------
---
-----------------------------------------------------------------------
---------
|
EUR`000 | Q3 2010 | Q3 2009 | 9M 2010 | 9M 2009 | 2009
|
-----------------------------------------------------------------------------
---
|
Revenue | 37,856 | 47,457 | 75,257 | 125,755 | 154,595
|
-----------------------------------------------------------------------------
---
|
Cost of sales | -35,512 | -42,289 | -75,803 | -115,196 | -145,883
|
-----------------------------------------------------------------------------
---
|
Gross profit / | 2,344 | 5,168 | -546 | 10,560 | 8,711
|
| loss | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Distribution | -84 | -155 | -284 | -434 | -602
|
| expenses | | | | |
|
-----------------------------------------------------------------------------
---
|
Administrative | -1,096 | -1,951 | -3,368 | -6,128 | -8,002
|
| expenses | | | | |
|
-----------------------------------------------------------------------------
---
|
Other operating | 135 | 146 | 497 | 1417 | 1,636
|
| income | | | | |
|
-----------------------------------------------------------------------------
---
|
Other operating | -345 | -687 | -813 | -2,564 | -9,843
|
| expenses | | | | |
|
-----------------------------------------------------------------------------
---
|
Operating profit | 954 | 2,521 | -4,514 | 2,851 | -8,100
|
| / loss | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Finance income | 114 | 314 | 2,817 | 2,289 | 5,529
|
-----------------------------------------------------------------------------
---
|
Finance expenses | -2,847 | -251 | -4,332 | -1,716 | -2,169
|
-----------------------------------------------------------------------------
---
|
Net finance | -2,733 | 62 | -1,515 | 573 | 3,360
|
| income / expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Share of profit / | -239 | 37 | -279 | -97 | -490
|
| loss of equity | | | | |
|
| accounted | | | | |
|
| investees | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Profit / loss | -2,017 | 2,620 | -6,308 | 3,326 | -5,230
|
| before income tax | | | | |
|
-----------------------------------------------------------------------------
---
|
Income tax | -41 | -37 | 75 | 340 | -487
|
| expense / income | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for | -2,058 | 2,657 | -6,233 | 2,986 | -5,717
|
| the period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Other | | | | |
|
| comprehensive | | | | |
|
| income / expense: | | | | |
|
-----------------------------------------------------------------------------
---
|
Exchange | 71 | -49 | -24 | -159 | 58
|
| differences on | | | | |
|
| translating | | | | |
|
| foreign | | | | |
|
| operations | | | | |
|
-----------------------------------------------------------------------------
---
|
Total other | 71 | -49 | -24 | -159 | 58
|
| comprehensive | | | | |
|
| income / expense | | | | |
|
| for the period | | | | |
|
-----------------------------------------------------------------------------
---
|
TOTAL | -1,987 | 2,608 | -6,257 | 2,828 | -5,659
|
| COMPREHENSIVE | | | | |
|
| INCOME / EXPENSE | | | | |
|
| FOR THE PERIOD | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Profit / loss | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the | -1,934 | 2,828 | -5,722 | 4,182 | -2,923
|
| parent | | | | |
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -124 | -171 | -511 | -1,195 | -2,793
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for | -2,058 | 2,657 | -6,233 | 2,986 | -5,717
|
| the period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Total | | | | |
|
| comprehensive | | | | |
|
| income / expense | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the | -1,863 | 2,734 | -5,746 | 4,170 | -2,865
|
| parent | | | | |
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -124 | -126 | -511 | -1,342 | -2,793
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Total | -1,987 | 2,608 | -6,257 | 2,828 | -5,659
|
| comprehensive | | | | |
|
| income / expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Earnings per | | | | |
|
| share | | | | |
|
| attributable to | | | | |
|
| owners of the | | | | |
|
| parent: | | | | |
|
-----------------------------------------------------------------------------
---
|
Basic earnings | -0.06 | 0.09 | -0.19 | 0.14 | -0.10
|
| per share (EUR) | | | | |
|
-----------------------------------------------------------------------------
---
|
Diluted earnings | -0.06 | 0.09 | -0.19 | 0.14 | -0.10
|
| per share (EUR) | | | | |
|
-----------------------------------------------------------------------------
---
Condensed
consolidated interim statement of cash flows
------------------------------------------------------------------------------
--
|
| EEK`000 | EUR`000
|
-----------------------------------------------------------------------------
---
|
| 9M 2010 | 9M 2009 | 9M 2010 | 9M 2009
|
-----------------------------------------------------------------------------
---
|
Cash flows from | | | |
|
| operating activities | | | |
|
-----------------------------------------------------------------------------
---
|
Cash receipts from | 1,245,679 | 2,581,192 | 79,613 | 164,968
|
| customers | | | |
|
-----------------------------------------------------------------------------
---
|
Cash paid to suppliers | -1,066,956 | -2,089,618 | -68,191 | -133,551
|
-----------------------------------------------------------------------------
---
|
VAT paid | -46,600 | -79,100 | -2,978 | -5,055
|
-----------------------------------------------------------------------------
---
|
Cash paid to and for | -170,672 | -331,652 | -10,908 | -21,196
|
| employees | | | |
|
-----------------------------------------------------------------------------
---
|
Income tax paid | -1,188 | -9,867 | -76 | -631
|
-----------------------------------------------------------------------------
---
|
Net cash from/used in | -39,737 | 70,955 | -2,540 | 4,535
|
| operating activities | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Cash flows from | | | |
|
| investing activities | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of | -1,359 | -1,317 | -87 | -84
|
| property, plant and | | | |
|
| equipment | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of | 0 | -7,588 | 0 | -485
|
| intangible assets | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from sale of | 9,635 | 5,118 | 616 | 327
|
| property, plant and | | | |
|
| equipment and | | | |
|
| intangible assets | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from sale of | 10,600 | -200 | 677 | -13
|
| investment property | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of | 27 | -11,688 | 1 | -747
|
| subsidiaries, net of | | | |
|
| cash acquired | | | |
|
-----------------------------------------------------------------------------
---
|
Disposal of | -9,675 | 0 | -618 | 0
|
| subsidiaries, net of | | | |
|
| cash transferred | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of | -5,020 | -6,000 | -321 | -383
|
| associates | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from disposal | 0 | 7,024 | 0 | 449
|
| of associates | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of | 0 | -20,000 | 0 | -1,278
|
| interests in joint | | | |
|
| ventures | | | |
|
-----------------------------------------------------------------------------
---
|
Loans granted | -7,772 | -84,843 | -497 | -5,422
|
-----------------------------------------------------------------------------
---
|
Repayment of loans | 8,750 | 61,040 | 559 | 3,901
|
| granted | | | |
|
-----------------------------------------------------------------------------
---
|
Dividends received | 61 | 61 | 4 | 4
|
-----------------------------------------------------------------------------
---
|
Interest received | 4,608 | 12,524 | 295 | 800
|
-----------------------------------------------------------------------------
---
|
Net cash from / used in | 9,855 | -45,869 | 630 | -2,931
|
| investing activities | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Cash flows from | | | |
|
| financing activities | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from loans | 83,012 | 193,432 | 5,305 | 12,427
|
| received | | | |
|
-----------------------------------------------------------------------------
---
|
Repayment of loans | -116,143 | -179,952 | -7,423 | -11,501
|
| received | | | |
|
-----------------------------------------------------------------------------
---
|
Dividends paid | 0 | -31,933 | 0 | -2,041
|
-----------------------------------------------------------------------------
---
|
Payment of finance | -30,507 | -37,648 | -1,950 | -2,406
|
| lease liabilities | | | |
|
-----------------------------------------------------------------------------
---
|
Interest paid | -14,629 | -23,344 | -935 | -1,492
|
-----------------------------------------------------------------------------
---
|
Other payments made | -248 | -307 | -16 | -20
|
-----------------------------------------------------------------------------
---
|
Net cash used in | -78,515 | -79,752 | -5,017 | -5,033
|
| financing activities | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Net cash flow | -108,397 | -54,666 | -6,928 | -3,494
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Cash and cash | 225,191 | 296,184 | 14,392 | 18,930
|
| equivalents at | | | |
|
| beginning of period | | | |
|
-----------------------------------------------------------------------------
---
|
Effect of exchange rate | 139 | -92 | 9 | -6
|
| fluctuations | | | |
|
-----------------------------------------------------------------------------
---
|
Decrease in cash and | -108,397 | -54,666 | -6,928 | -3,494
|
| cash equivalents | | | |
|
-----------------------------------------------------------------------------
---
|
Cash and cash | 116,933 | 241,426 | 7,473 | 15,430
|
| equivalents at end of | | | |
|
| period | | | |
|
-----------------------------------------------------------------------------
---
Nordecon
International 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
and Finland. The parent of the Group is Nordecon International AS, a
company
registered and located in Tallinn, Estonia. In addition to the parent
company,
there are more than 15 subsidiaries in the Group. The consolidated
revenue of
the Group in 2009 was 2.4 billion kroons (155 million euros).
Currently
Nordecon International Group employs nearly 750 people. Since 18 May
2006, the
company's shares have been quoted in the main list of the NASDAQ OMX
Tallinn
Stock Exchange.
1 euro = 15.6466 kroons
Raimo
Talviste
Nordecon International AS
Head of Finance and Investor
Relations
Tel: +372 615 4445
Email: raimo.talviste@nordecon.com
www.nordecon.com
|