The Group's strategy and objectives
Need 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, the Ukrainian buildings construction market has hit more or
less 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- The decline in input prices has been replaced by a rise and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 2010-2012
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
sub-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 market (also in the foreign
markets).
According to the board's proposal, in 2010-2012 the Group should focus on
achieving the above. Thus, the new strategic outlook will be for a
shorter term
than the previous one (for an overview of the strategy for
2009-2013, see the
annual report for 2009). 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 economic growth
that is currently 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
2010-2012 for review and approval by the council in July 2010. The council
will
make its decisions in the first half of the third quarter.
The board's proposals for revising the strategy for 2010-2012
- 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 the division
- 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
2012
The
leitmotif of the strategy for 2010-2012 is “To respond to market changes
swiftly and flexibly and to enter the next economic growth cycle
successfully”
Changes in the Group's operations in the first half of
2010
Changes in the Group's Estonian operations
In the first half 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 and Nordecon Infra that
specialise in buildings and
infrastructure construction respectively. Nordecon
International acts mostly
as a holding company, providing the Group with
strategic management
and intra-Group support services.
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 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, the
over-rapid growth rate 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 next 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 half 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, the 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.
After the reporting date, Nordecon Infra AS
has increased its interest in the
company to 49% (see Significant
structural changes after the reporting date).
The operations of Pigipada OÜ
have not yet been launched.
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). At the
moment, the
company is not 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 established so that it could be
transferred some
of the assets and liabilities of Crislivinca OÜ (in which the
stake of Eston
Ehitus AS was also 34%) that were related to an undeveloped
property in Magasini
street, Tallinn. After the reporting date, Eston Ehitus
AS has raised its stake
in the entity to 100% (see Significant structural
changes after the reporting
date).
Eurocon Ukraine TOV
In March, Eurocon Ukraine TOV sold its
99% stake in the subsidiary Bukovina
Development TOV. The entity did not
conduct any active business operations.
After the transaction, the Group
has no ownership interest in Bukovina
Development TOV.
Significant structural
changes after the reporting date
Nordecon Infra AS
Nordecon Infra AS
has raised its 24% stake in Pigipada OÜ to 49%, paying for the
additional
interest 10 thousand kroons (0.64 thousand euros).
Eston
Ehitus AS
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. See also note 16 to the interim financial
statements.
Financial review
Margins
Nordecon International Group
ended the first half of 2010 with a gross loss of
45.2 million kroons (2.9
million euros). In the comparative period (first half
of 2009), the Group
earned a gross profit of 84.4 million kroons (5.4 million
euros). The loss
of the first half-year is mainly attributable to the combined
effect of the
seasonal nature of the construction business, unfavourable weather
conditions
and estimates of potential losses on projects secured before the
input
prices started rising.
The
following table provides an 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%
|
-----------------------------------------------------------------------------
---
The
past winter was considerably harsher for construction companies than the
previous ones. Abundance of snow and temperature fluctuations did not allow
continuing work on the majority of active projects or making preparations
for
new ones. On the other hand, regardless of the number of projects in
progress
and suspension of work, companies were incurring their fixed
costs. Moreover,
the long and snowy winter had a strong impact on road care
and maintenance
activities that are performed mostly in that period.
Performance of fixed-price
maintenance contracts in the first quarter of 2010
proved highly unprofitable
because snow clearing and de-icing operations
were much more time and labour
consuming than usual.
Excluding the effect of seasonal
factors, the decline in gross profit has
continued owing to the slump
prevailing in the external environment. Steep
shrinkage in the volume of
contracts on offer has heightened competition,
triggering a rapid (and,
to some extent, ongoing) decline in construction prices
that has not always
been in correlation with the decrease in input prices. In
such a situation,
long-term construction contracts carry the risk of loss. The
Group's second
quarter gross loss is mainly attributable to the recognition of
potential
losses that may result from increases in the prices of raw materials
(such
as bitumen, metal and others) as well as the exhaustion of opportunities
for
benefiting from stiff competition among the suppliers of subcontracting
services and goods. In line with generally accepted accounting principles,
potential contract losses have to be recognised immediately and in full,
which
concentrates their impact on a specific quarter although project work
will
continue. In view of the above, management believes that in the
second half-year
the Group's margins will start improving although this need
not ensure that the
year will end in a profit.
The Group's administrative expenses for the first
half-year totalled 35.6
million kroons (2.3 million euros). Compared
with the first half of 2009, the
Group has cut its administrative expenses
by 46%. As at the reporting date, the
ratio of administrative expenses to
revenue was 6.1% (HY1 2009: 5.3%).
Management believes that the
implementation of specific cost-cutting measures
will reduce the Group's
annual administrative expenses by at least a third
compared with 2009.
This should ensure that the annual ratio of administrative
expenses to
revenue will be at the 5% level targeted by management.
Because
of the above factors, the Group ended the first half of 2010 with an
operating loss of 85.6 million kroons (5.5 million euros) (HY1 2009:
operating
profit of 5.2 million kroons/0.3 million euros).
The Group's net loss for the period amounted to 65.3 million
kroons (4.2 million
euros). Consolidated operating loss was reduced by one-off
finance income from
the sale of the loss-generating Latvian operations (for
further information, see
note 4 to the interim financial statements). The loss
attributable to owners of
the parent Nordecon International AS amounted to
59.3 million kroons (3.8
million euros).
Cash flows
The Group's operating activities for the
first half of 2010 generated a net
inflow of 10.8 million kroons (0.7
million euros), a significant improvement on
the net outflow of 57.1 million
kroons (3.7 million euros) posted for the first
half of 2009. The positive
operating cash flow is mainly attributable to the
work done with contract
partners and suppliers in extending the Group's
settlement terms in
line with market conditions, a decrease in employee bonuses
(the gross loss
did not allow making bonus payments) and the deferral of the
settlement
terms of some projects started in 2009 to 2010 (e.g. those of
institutions funded from the state budget). On the other hand, the customers'
contractual settlement terms have also become longer (particularly in the
case
of public sector entities) and owing to the ongoing economic downturn
there
occur significant settlement delays that give rise to overdue
accounts. The
Group's ability to maintain a positive operating cash flow
depends on how well
we can adapt to our operating environment and whether we
are able to sustain the
work done to reduce our operating expenses.
The Group's investing activities generated a net
inflow of 7.2 million kroons
(0.5 million euros) compared with a net
outflow of 41.1 million kroons (2.6
million euros) for the first half of
2009. A significant proportion of cash
outflows from investing activities
(9.9 million kroons/0.6 million euros) are
attributable to outflows related
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 16.0 million kroons (1.0 million euros).
Financing activities for the first half of 2010 resulted in a net cash
outflow
of 79.6 million kroons (5.1 million euros) compared with an outflow
of 39.9
million kroons (2.6 million euros) in the first half of 2009. The
structure of
financing cash flows has changed because the Group has reduced
borrowing and is
settling its existing loan liabilities on a timely basis.
Key financial figures and ratios
------------------------------------------------------------------------------
--
|
Figure / ratio | 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Weighted average number of |30,756,728 |30,756,728 | 30,756,728 | 30,756,728
|
| shares (1) | | | |
|
-----------------------------------------------------------------------------
---
|
Earnings per share (in | -1.93 | 0.69 | 3.39 | -1.49
|
| kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
Earnings per share (in | -0.12 | 0.04 | 0.22 | -0.09
|
| euros) | | | |
|
-----------------------------------------------------------------------------
---
|
Revenue growth | -52.2% | -34.5% | 23.1% | -37.5%
|
-----------------------------------------------------------------------------
---
|
Average number of | 797 | 1,187 | 1,209 | 1,128
|
| employees | | | |
|
-----------------------------------------------------------------------------
---
|
Revenue per employee (in | 734 | 1,032 | 1,547 | 2,144
|
| thousands of kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
Revenue per employee (in | 47 | 66 | 99 | 137
|
| thousands of euros) | | | |
|
-----------------------------------------------------------------------------
---
|
Personnel expenses to | 18.6% | 15.4% | 12.4% | 15.0%
|
| revenue | | | |
|
-----------------------------------------------------------------------------
---
|
Administrative expenses to | 6.1% | 5.3% | 5.0% | 5.2%
|
| revenue | | | |
|
-----------------------------------------------------------------------------
---
|
EBITDA (in thousands of | -58,170 | 41,125 | 179,579 | 4,308
|
| kroons) (2) | | | |
|
-----------------------------------------------------------------------------
---
|
EBITDA (in thousands of | -3,718 | 2,628 | 11,477 | 275
|
| euros) (2) | | | |
|
-----------------------------------------------------------------------------
---
|
EBITDA margin | -9.9% | 3.4% | 9.6% | 0.2%
|
-----------------------------------------------------------------------------
---
|
Gross margin | -7.7% | 6.9% | 12.8% | 5.6%
|
-----------------------------------------------------------------------------
---
|
Operating margin | -14.6% | 0.4% | 7.8% | -5.2%
|
-----------------------------------------------------------------------------
---
|
Operating margin excluding | -14.6% | 0.3% | 7.6% | -5.4%
|
| gains on asset sales | | | |
|
-----------------------------------------------------------------------------
---
|
Net margin | -11.2% | 0.4% | 5.9% | -3.7%
|
-----------------------------------------------------------------------------
---
|
Return on invested capital | -5.0% | 1.9% | 11.7% | -4.1%
|
-----------------------------------------------------------------------------
---
|
Return on assets | -4.7% | 0.2% | 6.3% | -6.0%
|
-----------------------------------------------------------------------------
---
|
Return on equity | -9.6% | 0.6% | 13.7% | -11.4%
|
-----------------------------------------------------------------------------
---
|
Equity ratio | 38.2% | 35.8% | 33.0% | 37.1%
|
-----------------------------------------------------------------------------
---
|
Gearing | 25.2% | 31.7% | 27.4% | 26.4%
|
-----------------------------------------------------------------------------
---
|
Current ratio | 1.53 | 1.36 | 1.45 | 1.47
|
-----------------------------------------------------------------------------
---
|
| 30 June | 30 June | 30 June | 31 Dec
|
| | 2010 | 2009 | 2008 |
2009
|
-----------------------------------------------------------------------------
---
|
Order book (in thousands | 1,399,433 | 1,568,004 | 3,196,937 | 1,530,661
|
| of kroons) | | | |
|
-----------------------------------------------------------------------------
---
|
Order book (in thousands | 89,440 | 100,214 | 204,322 | 97,827
|
| of euros) | | | |
|
-----------------------------------------------------------------------------
---
(1)
For comparability, the weighted average number of shares is the number of
shares after the bonus issues.
(2) On calculating EBITDA, non-cash expenses included 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 -
|
| holders of the parent / weighted | gains on sale of property, plant
and |
| average number of shares outstanding | equipment - gains on sale of
real |
| Revenue per employee = revenue / | estate) / revenue
|
| average number of employees | Net margin = net profit
for the |
| Personnel expenses to revenue = | period / revenue
|
| personnel expenses / revenue | Return on invested
capital = (profit |
| Administrative expenses to revenue = | before tax +
interest expense) / the |
| administrative expenses / revenue | period's
average (interest-bearing |
| EBITDA = earnings before interest, |
liabilities + equity) |
| taxes, depreciation and
| Return on assets = operating profit / |
| amortisation
| the period's average total assets |
| EBITDA margin = EBITDA / revenue
| Return on equity = net profit for the |
| Gross margin = gross profit /
| period /the period's average total |
| revenue
| equity |
| Operating margin =
operating profit | Equity ratio = total equity / total |
| / revenue
| equity and liabilities |
|
| Gearing = (interest-bearing |
|
| liabilities - cash and cash |
|
| equivalents) / (interest bearing |
|
| liabilities + equity) |
|
| Current ratio = total current assets |
|
| / total current liabilities
|
-----------------------------------------------------------------------------
---
Performance
by geographical market
In the
first half of 2010, revenue earned outside Estonia accounted for around
6%
of the Group's total revenue. A year ago, the contribution of foreign
markets
was around 16%. The decrease results from the Group's decision to sell
its
Latvian operations in 2010 (see also the chapter Changes in the
Group's
operations in the first half of 2010). In addition, in
contrast to the first
half 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 operations in the
Latvian, Lithuanian and Ukrainian
markets is presented in the chapter Outlooks
of the Group's geographical
markets.
------------------------------------------------------------------------------
--
|
| 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Estonia | 94% | 84% | 80% | 86%
|
-----------------------------------------------------------------------------
---
|
Ukraine | 6% | 2% | 15% | 3%
|
-----------------------------------------------------------------------------
---
|
Lithuania | 0% | 1% | 2% | 0%
|
-----------------------------------------------------------------------------
---
|
Latvia | 0% | 13% | 3% | 11%
|
-----------------------------------------------------------------------------
---
In
the reporting period, we started performing a project-based construction
contract in Belarus but the period's revenue was not significant. The work
will
continue in the second half-year. Concrete works in Finland did not yet
account
for a percentage of consolidated revenue either.
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 half of 2010
amounted to 585.2 million kroons
(37.4 million euros), a 52% decrease from the
1,225.1 million kroons (78.3
million euros) generated in the first half
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 has lowered 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
By the end of the first half-year, 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 by the state and with the support of the EU
structural funds)
and that the Infrastructure segment accounts for roughly two
thirds of the
Group's order book, this was an expected development. According
to
management's estimates, in the second half-year the relative importance of
the
Infrastructure segment will increase even further.
In the first half of 2010, the Buildings and Infrastructure segments
generated
revenue of 273.0 million kroons (17.4 million euros) and 305.0
million kroons
(19.5 million euros) respectively. The corresponding figures
for the first half
of 2009 were 600.8 million kroons (38.4 million euros) and
616.4 million kroons
(39.4 million euros).
Revenue distribution between segments *
------------------------------------------------------------------------------
--
|
Business segments | 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Buildings | 46% | 49% | 72% | 45%
|
-----------------------------------------------------------------------------
---
|
Infrastructure | 54% | 51% | 28% | 55%
|
-----------------------------------------------------------------------------
---
*
In connection with the entry into force of IFRS 8 Operating Segments, the
Group has changed segment reporting in its financial statements. In
Directors'
report the Ukrainian and EU Buildings segments which are
disclosed separately in
the financial statements are presented as a single
segment. In addition, the
segment information presented in Directors'
report does not include the
disclosures on “other segments” that are
presented in the financial statements.
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
throughout the rest of the year.
------------------------------------------------------------------------------
--
|
Revenue distribution in the | 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
| Buildings segment | | | |
|
-----------------------------------------------------------------------------
---
|
Commercial buildings | 26% | 71% | 59% | 66%
|
-----------------------------------------------------------------------------
---
|
Industrial and warehouse | 21% | 11% | 20% | 10%
|
| facilities | | | |
|
-----------------------------------------------------------------------------
---
|
Public buildings | 38% | 16% | 13% | 18%
|
-----------------------------------------------------------------------------
---
|
Apartment buildings | 15% | 1% | 8% | 6%
|
-----------------------------------------------------------------------------
---
As
anticipated, at the end of the first half-year roughly 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 throughout 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 in the
second half-year is not likely.
------------------------------------------------------------------------------
--
|
Revenue distribution in the | 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
| Infrastructure segment | | | |
|
-----------------------------------------------------------------------------
---
|
Road construction and | 65% | 32% | 51% | 49%
|
| maintenance | | | |
|
-----------------------------------------------------------------------------
---
|
Specialist engineering | 1% | 17% | 26% | 12%
|
| (including hydraulic | | | |
|
| engineering) | | | |
|
-----------------------------------------------------------------------------
---
|
Other engineering | 26% | 38% | 19% | 31%
|
-----------------------------------------------------------------------------
---
|
Environmental engineering | 8% | 14% | 4% | 8%
|
-----------------------------------------------------------------------------
---
Order
book
At
30 June 2010, the Group's order book stood at 1,399.4 million kroons (89.4
million euros), approximately 11% down from the 1,568.0 million kroons (100.2
million euros) posted a year ago. Over the past quarters, the decline in
the
Group's order book has decelerated and levelled off at around 1,350 to
1,500
million kroons (86 to 95 million euros).
------------------------------------------------------------------------------
--
|
| 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
Order book, in thousands of | 1,399,433 | 1,568,004 | 3,196,937 | 1,530,661
|
| kroons | | | |
|
-----------------------------------------------------------------------------
---
|
Order book, in thousands of | 89,440 | 100,214 | 204,322 | 97,827
|
| euros | | | |
|
-----------------------------------------------------------------------------
---
At
66% the Infrastructure segment continues to account for a significant
proportion of the Group's total order book (HY1 2009: 68%).
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 mainly on improving the profitability of
the contract portfolio rather
than increasing its size or growth rate.
Between the reporting date (30 June
2010) and the date of release of this
report, Group companies have been
awarded additional construction contracts of
approximately 95 million kroons
(6 million euros).
People
Staff and personnel
expenses
In the first half
of 2010, the Group (including the parent and the subsidiaries)
employed, on
average, 797 people including around 360 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. However,
due to the seasonal nature of the business, in
the second and third quarters the
number of staff should increase through
fixed-term contracts.
Average number of the Group's
employees (including the parent and its
subsidiaries):
------------------------------------------------------------------------------
--
|
| 6M 2010 | 6M 2009 | 6M 2008 | 2009
|
-----------------------------------------------------------------------------
---
|
ETP | 362 | 480 | 493 | 467
|
-----------------------------------------------------------------------------
---
|
Workers | 435 | 707 | 716 | 661
|
-----------------------------------------------------------------------------
---
|
Total average | 797 | 1,187 | 1,209 | 1,128
|
-----------------------------------------------------------------------------
---
The
Group's personnel expenses for the first half of 2010 including associated
taxes totalled 108.7 million kroons (6.9 million euros), a 42% decrease
compared
with the 188.4 million kroons (12.0 million euros) incurred in the
first half 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 half of 2010, the
remuneration of the members of the council of
Nordecon International AS
including social security charges amounted to 783
thousand kroons (50
thousand euros). The corresponding figure for the first half
of 2009 was also
718 thousand kroons (46 thousand euros). The remuneration and
benefits of
the members of the board of Nordecon International AS including
social
security charges totalled 1,128 thousand kroons (72 thousand euros)
compared with 1,674 thousand kroons (107 thousand euros) for the first half
of
2009. The remuneration of the board has decreased because in the
comparative
period the board had three members whereas the current number
is two.
Outlooks of the Group's geographical markets
Estonia
According to the assessment of the Group's
management, in 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.
- In 2010 the
decrease in construction prices is expected to cease after which
the prices
are expected to start rising compared with 2008-2009. In such a
situation,
performance of construction contracts concluded 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 been forced to ignore it due to cash flow problems.
- Banks have divided companies operating in the construction market
into
different risk categories. Banks' risk exposures still include the real
estate
and investment loans granted to companies that were 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 announced
that they are again ready to start financing the
construction sector although to
a limited extent.
- In 2009 building materials manufacturers
that had significantly increased
their output during the growth phase of the
market experienced continuing
shrinkage in demand and, consequently, greater
strain in meeting the
obligations taken for increasing their capacities. To
date, the decline in
building materials prices
has halted and in 2010 prices
are expected to start rising.
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.
-
Shrinkage in construction volumes has caused continuously rising unemployment
among construction workers. The ensuing growth in the supply of labour will
help
construction companies control their personnel expenses.
- Construction projects' financing principles have changed. There are
now
additional requirements to the 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 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 exclude 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 may
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 next few years 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 detailed
and precise
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 specially tailored
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 June
2010,
the provisions (including current and non-current ones) totalled 13.4
million kroons (0.9 million euros). At 30 June 2009, the corresponding figure
was 15.1 million kroons (1.0 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.
In the first half of 2010, net gain on doubtful receivables (recoveries
of items
written down in previous periods exceeded the amount of items written
down in
the reporting period) amounted to 0.1 million kroons (0 million
euros). In the
first half of 2009, net loss on doubtful receivables amounted
to 9.2 million
kroons (0.6 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 1.53-fold
(30 June 2009: 1.36-fold) and available cash funds
totalled 163.9
million kroons (10.5 million euros) (30 June 2009: 158.1 million
kroons /
10.1 million euros), providing a sufficient liquidity buffer for
operating in conditions that are more complicated than in the previous year.
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 June 2010, the Group's interest-bearing loans
and borrowings
totalled 440.7 million kroons (28.2 million euros), a
179.0 million kroon (11.4
million euro) decrease year-over-year. Interest
expense for the first half of
2010 amounted to 7.7 million kroons (0.5
million euros). Compared with the first
half of 2009, interest expense has
contracted by 8.0 million kroons (0.5 million
euros) in connection with a
decline in the EURIBOR base rate and 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 half of 2010
resulted
in a net exchange loss of 0.9 million kroons (0.1 million euros). In
the
first half of 2009, exchange differences resulted in a gain of 0.3 million
kroons (0 million euros).
Condensed consolidated interim statement of financial position
------------------------------------------------------------------------------
--
|
EEK`000 | 30 June 2010 | 31 December
|
| | |
2009
|
-----------------------------------------------------------------------------
---
|
ASSETS | |
|
-----------------------------------------------------------------------------
---
|
Current assets | |
|
-----------------------------------------------------------------------------
---
|
Cash and cash equivalents | 163,911 | 225,191
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 593,601 | 644,704
|
-----------------------------------------------------------------------------
---
|
Prepayments | 36,198 | 30,595
|
-----------------------------------------------------------------------------
---
|
Inventories | 395,293 | 389,328
|
-----------------------------------------------------------------------------
---
|
Non-current assets held for sale | 5,542 | 4,617
|
-----------------------------------------------------------------------------
---
|
Total current assets | 1,194,545 | 1,294,435
|
-----------------------------------------------------------------------------
---
|
Non-current assets | |
|
-----------------------------------------------------------------------------
---
|
Investments in equity accounted investees | 1,584 | 2,191
|
-----------------------------------------------------------------------------
---
|
Other investments | 414 | 414
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 34,696 | 33,329
|
-----------------------------------------------------------------------------
---
|
Investment property | 77,135 | 87,975
|
-----------------------------------------------------------------------------
---
|
Property, plant and equipment | 164,275 | 204,115
|
-----------------------------------------------------------------------------
---
|
Intangible assets | 244,036 | 268,233
|
-----------------------------------------------------------------------------
---
|
Total non-current assets | 522,140 | 596,257
|
-----------------------------------------------------------------------------
---
|
TOTAL ASSETS | 1,716,685 | 1,890,692
|
-----------------------------------------------------------------------------
---
|
LIABILITIES | |
|
-----------------------------------------------------------------------------
---
|
Current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 170,855 | 262,959
|
-----------------------------------------------------------------------------
---
|
Trade payables | 406,945 | 377,925
|
-----------------------------------------------------------------------------
---
|
Other payables | 79,358 | 94,580
|
-----------------------------------------------------------------------------
---
|
Deferred income | 116,210 | 136,438
|
-----------------------------------------------------------------------------
---
|
Provisions | 6,368 | 10,364
|
-----------------------------------------------------------------------------
---
|
Total current liabilities | 779,736 | 882,266
|
-----------------------------------------------------------------------------
---
|
Non-current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 269,856 | 294,328
|
-----------------------------------------------------------------------------
---
|
Trade payables | 3,023 | 4,846
|
-----------------------------------------------------------------------------
---
|
Other payables | 1,500 | 1,500
|
-----------------------------------------------------------------------------
---
|
Provisions | 7,041 | 7,041
|
-----------------------------------------------------------------------------
---
|
Total non-current liabilities | 281,420 | 307,715
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES | 1,061,156 | 1,189,981
|
-----------------------------------------------------------------------------
---
|
EQUITY | |
|
-----------------------------------------------------------------------------
---
|
Share capital | 307,567 | 307,567
|
-----------------------------------------------------------------------------
---
|
Statutory capital reserve | 40,024 | 40,012
|
-----------------------------------------------------------------------------
---
|
Translation reserve | -4,686 | -3,201
|
-----------------------------------------------------------------------------
---
|
Retained earnings | 286,006 | 345,280
|
-----------------------------------------------------------------------------
---
|
Total equity attributable to equity | 628,911 | 689,658
|
| holders of the parent | |
|
-----------------------------------------------------------------------------
---
|
Non-controlling interest | 26,617 | 11,053
|
-----------------------------------------------------------------------------
---
|
TOTAL EQUITY | 655,528 | 700,711
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES AND EQUITY | 1,716,685 | 1,890,692
|
-----------------------------------------------------------------------------
---
-----------------------------------------------------------------------
---------
|
EUR`000 | 30 June 2010 | 31 December
|
| | |
2009
|
-----------------------------------------------------------------------------
---
|
ASSETS | |
|
-----------------------------------------------------------------------------
---
|
Current assets | |
|
-----------------------------------------------------------------------------
---
|
Cash and cash equivalents | 10,476 | 14,392
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 37,938 | 41,204
|
-----------------------------------------------------------------------------
---
|
Prepayments | 2,313 | 1,955
|
-----------------------------------------------------------------------------
---
|
Inventories | 25,264 | 24,883
|
-----------------------------------------------------------------------------
---
|
Non-current assets held for sale | 354 | 295
|
-----------------------------------------------------------------------------
---
|
Total current assets | 76,345 | 82,729
|
-----------------------------------------------------------------------------
---
|
Non-current assets | |
|
-----------------------------------------------------------------------------
---
|
Investments in equity accounted investees | 101 | 140
|
-----------------------------------------------------------------------------
---
|
Other investments | 26 | 26
|
-----------------------------------------------------------------------------
---
|
Trade and other receivables | 2,218 | 2,130
|
-----------------------------------------------------------------------------
---
|
Investment property | 4,930 | 5,623
|
-----------------------------------------------------------------------------
---
|
Property, plant and equipment | 10,499 | 13,045
|
-----------------------------------------------------------------------------
---
|
Intangible assets | 15,597 | 17,143
|
-----------------------------------------------------------------------------
---
|
Total non-current assets | 33,371 | 38,108
|
-----------------------------------------------------------------------------
---
|
TOTAL ASSETS | 109,716 | 120,837
|
-----------------------------------------------------------------------------
---
|
LIABILITIES | |
|
-----------------------------------------------------------------------------
---
|
Current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 10,920 | 16,806
|
-----------------------------------------------------------------------------
---
|
Trade payables | 26,008 | 24,154
|
-----------------------------------------------------------------------------
---
|
Other payables | 5,072 | 6,045
|
-----------------------------------------------------------------------------
---
|
Deferred income | 7,427 | 8,720
|
-----------------------------------------------------------------------------
---
|
Provisions | 407 | 662
|
-----------------------------------------------------------------------------
---
|
Total current liabilities | 49,834 | 56,387
|
-----------------------------------------------------------------------------
---
|
Non-current liabilities | |
|
-----------------------------------------------------------------------------
---
|
Loans and borrowings | 17,246 | 18,811
|
-----------------------------------------------------------------------------
---
|
Trade payables | 194 | 310
|
-----------------------------------------------------------------------------
---
|
Other payables | 96 | 96
|
-----------------------------------------------------------------------------
---
|
Provisions | 450 | 450
|
-----------------------------------------------------------------------------
---
|
Total non-current liabilities | 17,986 | 19,667
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES | 67,820 | 76,054
|
-----------------------------------------------------------------------------
---
|
EQUITY | |
|
-----------------------------------------------------------------------------
---
|
Share capital | 19,657 | 19,657
|
-----------------------------------------------------------------------------
---
|
Statutory capital reserve | 2,558 | 2,557
|
-----------------------------------------------------------------------------
---
|
Translation reserve | -299 | -205
|
-----------------------------------------------------------------------------
---
|
Retained earnings | 18,279 | 22,067
|
-----------------------------------------------------------------------------
---
|
Total equity attributable to equity | 40,195 | 44,077
|
| holders of the parent | |
|
-----------------------------------------------------------------------------
---
|
Non-controlling interest | 1,701 | 706
|
-----------------------------------------------------------------------------
---
|
TOTAL EQUITY | 41,896 | 44,784
|
-----------------------------------------------------------------------------
---
|
TOTAL LIABILITIES AND EQUITY | 109,716 | 120,837
|
-----------------------------------------------------------------------------
---
-----------------------------------------------------------------------
---------
|
EEK`000 | Q2 2010 | Q2 2009 | 6M | 6M 2009 | 2009
|
| | | | 2010 | |
|
-----------------------------------------------------------------------------
---
|
Revenue | 409,202 | 634,430 | 585,200 | 1,225,094|
2,418,880|
| | | | |
|
|
-----------------------------------------------------------------------------
---
|
Cost of sales |-430,677 |-586,932 |-630,404
|-1,140,741|-2,282,575|
| | | |
| |
|
-----------------------------------------------------------------------------
---
|
Gross profit / loss | -21,475 | 47,498 | -45,206 | 84,353 | 136,305
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Distribution expenses | -1,129 | -2,140 | -3,126 | -4,363 | -9,416
|
-----------------------------------------------------------------------------
---
|
Administrative expenses | -17,289 | -27,946 | -35,557 | -65,350 | -125,206
|
-----------------------------------------------------------------------------
---
|
Other operating income | 4,982 | 18,209 | 5,658 | 19,898 | 25,592
|
-----------------------------------------------------------------------------
---
|
Other operating expenses | -5,088 | -26,950 | -7,333 | -29,373 | -154,014
|
-----------------------------------------------------------------------------
---
|
Operating profit / loss | -39,999 | 8,671 | -85,564 | 5,165 | -126,739
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Finance income | 3,047 | 12,128 | 42,281 | 30,903 | 86,513
|
-----------------------------------------------------------------------------
---
|
Finance expenses | -4,437 | -9,131 | -23,227 | -22,913 | -33,934
|
-----------------------------------------------------------------------------
---
|
Net finance income / | -1,390 | 2,997 | 19,054 | 7,990 | 52,579
|
| expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Share of profit / loss | -621 | 538 | -631 | -2,106 | -7,666
|
| of equity accounted | | | | |
|
| investees | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Profit / loss before | -42,010 | 12,206 | -67,141 | 11,049 | -81,826
|
| income tax | | | | |
|
-----------------------------------------------------------------------------
---
|
Income tax expense / | 1,814 | -6,513 | 1,814 | -5,895 | -7,618
|
| income | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for the | -40,196 | 5,693 | -65,327 | 5,154 | -89,444
|
| period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Other comprehensive | | | | |
|
| income / expense: | | | | |
|
-----------------------------------------------------------------------------
---
|
Exchange differences on | -919 | -231 | -1,485 | -1,711 | 905
|
| translating foreign | | | | |
|
| operations | | | | |
|
-----------------------------------------------------------------------------
---
|
Total other | -919 | -231 | -1,485 | -1,711 | 905
|
| comprehensive income / | | | | |
|
| expense for the period | | | | |
|
-----------------------------------------------------------------------------
---
|
TOTAL COMPREHENSIVE | -41,115 | 5,462 | -66,812 | 3,443 | -88,539
|
| INCOME / EXPENSE FOR THE | | | | |
|
| PERIOD | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
-------------------------------------------------------------------------
-------
|
Profit / loss | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the parent | -38,679 | 14,130 | -59,274 | 21,176 | -45,740
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -1,517 | -8,437 | -6,053 | -16,022 | -43,704
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for the | -40,196 | 5,693 | -65,327 | 5,154 | -89,444
|
| period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Total comprehensive | | | | |
|
| income / expense | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the parent | -39,598 | 14,031 | -60,759 | 22,469 | -44,835
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -1,517 | -8,569 | -6,053 | -19,026 | -43,704
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Total comprehensive | -41,115 | 5,462 | -66,812 | 3,443 | -88,539
|
| income / expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Earnings per share | | | | |
|
| attributable to owners | | | | |
|
| of the parent: | | | | |
|
-----------------------------------------------------------------------------
---
|
Basic earnings per share | -1.26 | 0.46 | -1.93 | 0.69 | -1.49
|
| (EEK) | | | | |
|
-----------------------------------------------------------------------------
---
|
Diluted earnings per | -1.26 | 0.46 | -1.93 | 0.69 | -1.49
|
| share (EEK) | | | | |
|
-----------------------------------------------------------------------------
---
-----------------------------------------------------------------------
---------
|
EUR`000 | Q2 2010 | Q2 2009 | 6M 2010 | 6M 2009 | 2009
|
-----------------------------------------------------------------------------
---
|
Revenue | 26,153 | 40,547 | 37,401 | 78,298 | 154,595
|
-----------------------------------------------------------------------------
---
|
Cost of sales | -27,525 | -37,512 | -40,290 | -72,907 | -145,883
|
-----------------------------------------------------------------------------
---
|
Gross profit / loss | -1,372 | 3,036 | -2,889 | 5,391 | 8,711
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Distribution expenses | -72 | -137 | -200 | -279 | -602
|
-----------------------------------------------------------------------------
---
|
Administrative expenses | -1,105 | -1,786 | -2,273 | -4,177 | -8,002
|
-----------------------------------------------------------------------------
---
|
Other operating income | 319 | 1,164 | 362 | 1,272 | 1,636
|
-----------------------------------------------------------------------------
---
|
Other operating expenses | -325 | -1,722 | -469 | -1,877 | -9,843
|
-----------------------------------------------------------------------------
---
|
Operating profit / loss | -2,555 | 554 | -5,469 | 330 | -8,100
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Finance income | 195 | 775, | 2,702 | 1,975 | 5,529
|
-----------------------------------------------------------------------------
---
|
Finance expenses | -284 | -584 | -1,484 | -1,464 | -2,169
|
-----------------------------------------------------------------------------
---
|
Net finance income / | -89 | 192 | 1,218 | 511 | 3,360
|
| expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Share of profit / loss | -40 | 34 | -40 | -135 | -490
|
| of equity accounted | | | | |
|
| investees | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Profit / loss before | -2,684 | 780 | -4,291 | 706 | -5,230
|
| income tax | | | | |
|
-----------------------------------------------------------------------------
---
|
Income tax expense / | 116 | -416, | 116 | -377 | -487
|
| income | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for the | -2,568 | 364 | -4,175 | 329 | -5,717
|
| period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Other comprehensive | | | | |
|
| income / expense: | | | | |
|
-----------------------------------------------------------------------------
---
|
Exchange differences on | -59 | -15 | -95 | -109 | 58
|
| translating foreign | | | | |
|
| operations | | | | |
|
-----------------------------------------------------------------------------
---
|
Total other | -59 | -15 | -95 | -109 | 58
|
| comprehensive income / | | | | |
|
| expense for the period | | | | |
|
-----------------------------------------------------------------------------
---
|
TOTAL COMPREHENSIVE | -2,627 | 349 | -4,270 | 220 | -5,659
|
| INCOME / EXPENSE FOR THE | | | | |
|
| PERIOD | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Profit / loss | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the parent | -2,471 | 903 | -3,788 | 1,353 | -2,923
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -97 | -539 | -387 | -1,024 | -2,793
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Profit / loss for the | -2,568 | 364 | -4,175 | 329 | -5,717
|
| period | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Total comprehensive | | | | |
|
| income / expense | | | | |
|
| attributable to: | | | | |
|
-----------------------------------------------------------------------------
---
|
- Owners of the parent | -2,530 | 897 | -3,883 | 1,436 | -2,865
|
-----------------------------------------------------------------------------
---
|
- Non-controlling | -97 | -548 | -387 | -1,216 | -2,793
|
| interests | | | | |
|
-----------------------------------------------------------------------------
---
|
Total comprehensive | -2,627 | 349 | -4,270 | 220 | -5,659
|
| income / expense | | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Earnings per share | | | | |
|
| attributable to owners | | | | |
|
| of the parent: | | | | |
|
-----------------------------------------------------------------------------
---
|
Basic earnings per share | -0.08 | 0.03 | -0.12 | 0.04 | -0.10
|
| (EUR) | | | | |
|
-----------------------------------------------------------------------------
---
|
Diluted earnings per | -0.08 | 0.03 | -0.12 | 0.04 | -0.10
|
| share (EUR) | | | | |
|
-----------------------------------------------------------------------------
---
Condensed
consolidated interim statement of cash flows
------------------------------------------------------------------------------
--
|
| EEK`000 | EUR`000
|
-----------------------------------------------------------------------------
---
|
| 6M 2010 | 6M 2009 | 6M 2010 | 6M 2009
|
-----------------------------------------------------------------------------
---
|
Cash flows from operating | | | |
|
| activities | | | |
|
-----------------------------------------------------------------------------
---
|
Cash receipts from | 720,137 | 1,448,843 | 46,025 | 92,598
|
| customers | | | |
|
-----------------------------------------------------------------------------
---
|
Cash paid to suppliers | -559,476 |-1,234,214 | -35,757 | -78,880
|
| | | | |
|
-----------------------------------------------------------------------------
---
|
VAT paid | -31,452 | -37,767 | -2,010 | -2,414
|
-----------------------------------------------------------------------------
---
|
Cash paid to and for | -117,850 | -225,462 | -7,532 | -14,410
|
| employees | | | |
|
-----------------------------------------------------------------------------
---
|
Income tax paid | -558 | -8,538 | -36 | -546
|
-----------------------------------------------------------------------------
---
|
Net cash from / used in | 10,801 | -57,138 | 690 | -3,652
|
| operating activities | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Cash flows from investing | | | |
|
| activities | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of property, | -1,217 | -839 | -78 | -54
|
| plant and equipment | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of intangible | 0 | -7,530 | 0 | -481
|
| assets | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from sale of | 5,371 | 4,762 | 343 | 304
|
| property, plant and | | | |
|
| equipment and intangible | | | |
|
| assets | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from sale of | 10,600 | -200 | 677 | -13
|
| investment property | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of | 0 | -11,720 | 0 | -749
|
| subsidiaries, net of cash | | | |
|
| acquired | | | |
|
-----------------------------------------------------------------------------
---
|
Disposal of subsidiaries, | -9,648 | 0 | -617 | 0
|
| net of cash transferred | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of associates | -24 | -6,000 | -2 | -383
|
-----------------------------------------------------------------------------
---
|
Proceeds from disposal of | 0 | 7,465 | 0 | 477
|
| associates | | | |
|
-----------------------------------------------------------------------------
---
|
Acquisition of interests in | 0 | -20,000 | 0 | -1,278
|
| joint ventures | | | |
|
-----------------------------------------------------------------------------
---
|
Loans granted | -2,788 | -54,803 | -178 | -3,502
|
-----------------------------------------------------------------------------
---
|
Repayment of loans granted | 2,763 | 38,094 | 177 | 2,435
|
-----------------------------------------------------------------------------
---
|
Dividends received | 61 | 0 | 4 | 0
|
-----------------------------------------------------------------------------
---
|
Interest received | 2,102 | 9,707 | 134 | 620
|
-----------------------------------------------------------------------------
---
|
Net cash from / used in | 7,220 | -41,064 | 461 | -2,624
|
| investing activities | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Cash flows from financing | | | |
|
| activities | | | |
|
-----------------------------------------------------------------------------
---
|
Proceeds from loans | 36,669 | 141,095 | 2,344 | 9,018
|
| received | | | |
|
-----------------------------------------------------------------------------
---
|
Repayment of loans received | -88,798 | -108,970 | -5,675 | -6,965
|
-----------------------------------------------------------------------------
---
|
Dividends paid | 0 | -31,933 | 0 | -2,041
|
-----------------------------------------------------------------------------
---
|
Payment of finance lease | -21,145 | -25,305 | -1,351 | -1,618
|
| liabilities | | | |
|
-----------------------------------------------------------------------------
---
|
Interest paid | -6,361 | -14,444 | -407 | -923
|
-----------------------------------------------------------------------------
---
|
Other payments made | 56 | -381 | 4 | -24
|
-----------------------------------------------------------------------------
---
|
Net cash used in financing | -79,579 | -39,938 | -5,085 | -2,553
|
| activities | | | |
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Net cash flow | -61,558 | -138,140 | -3,934 | -8,829
|
-----------------------------------------------------------------------------
---
---------------------------------------------------------------------------
-----
|
Cash and cash equivalents | 225,191 | 296,184 | 14,392 | 18,930
|
| at beginning of period | | | |
|
-----------------------------------------------------------------------------
---
|
Effect of exchange rate | 278 | 45 | 18 | 3
|
| fluctuations | | | |
|
-----------------------------------------------------------------------------
---
|
Decrease in cash and cash | -61,558 | -138,140 | -3,934 | -8,829
|
| equivalents | | | |
|
-----------------------------------------------------------------------------
---
|
Cash and cash equivalents | 163,911 | 158,089 | 10,476 | 10,104
|
| at end of period | | | |
|
-----------------------------------------------------------------------------
---
Nordecon
International is a group of construction companies whose core business
is
general contracting and construction management in the construction
of
buildings and infrastructures in Estonia, Lithuania and Ukraine. In
addition,
in Estonia our companies act as independent contractors in road
construction
and maintenance, environmental engineering, the assembly of
reinforced concrete
elements, and the performance of cast-on-site concrete
works. 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