Annual Report • Feb 11, 2021
Annual Report
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Financial report for the fourth quarter and twelve months of 2020 (unaudited)
| Business name | Nordecon AS |
|---|---|
| Registry number | 10099962 |
| Address | Toompuiestee 35, 10149 Tallinn, Estonia |
| Domicile | Republic of Estonia |
| Telephone | +372 615 4400 |
| [email protected] | |
| Corporate website | www.nordecon.com |
| Core business lines | Construction of residential and non-residential buildings (EMTAK 4120) |
| Construction of roads and motorways (EMTAK 4211) | |
| Road maintenance (EMTAK 4211) | |
| Construction of utility projects for fluids (EMTAK 4221) | |
| Construction of water projects (EMTAK 4291) | |
| Construction of other civil engineering projects (EMTAK 4299) | |
| Financial year | 1 January 2020 – 31 December 2020 |
| Reporting period | 1 January 2020 – 31 December 2020 |
| Council | Toomas Luman (chairman of the council), Andri Hõbemägi, |
| Vello Kahro, Sandor Liive, Andre Luman | |
| Board | Gerd Müller (chairman of the board), Priit Luman, Maret Tambek |
| Auditor | KPMG Baltics OÜ |
| Nordecon Group at a glance | 3 |
|---|---|
| Directors' report | 4 |
| Condensed consolidated interim financial statements | 23 |
| Consolidated statement of financial position | 23 |
| Consolidated statement of comprehensive income | 24 |
| Consolidated statement of cash flows | 25 |
| Consolidated statement of changes in equity | 26 |
| NOTE 1. Significant accounting policies | 27 |
| NOTE 2. Trade and other receivables | 27 |
| NOTE 3. Inventories | 27 |
| NOTE 4. Property, plant and equipment and intangible assets | 28 |
| NOTE 5. Borrowings | 28 |
| NOTE 6. Leases | 28 |
| NOTE 7. Earnings per share | 29 |
| NOTE 8. Segment reporting – operating segments | 29 |
| NOTE 9. Segment reporting – geographical information | 31 |
| NOTE 10. Cost of sales | 31 |
| NOTE 11. Administrative expenses | 31 |
| NOTE 12. Other operating income and expenses | 32 |
| NOTE 13. Finance income and costs | 32 |
| NOTE 14. Transactions with related parties | 32 |
| Statements and signatures | 34 |
Nordecon AS (previous names AS Eesti Ehitus and Nordecon International AS) began operating as a construction company in 1989. Since then, we have grown to become one of the leading construction groups in Estonia and a strong player in all segments of the construction market.
For years, our business strategy has been underpinned by a consistent focus on general contracting and project management and a policy of maintaining a reasonable balance between building and infrastructure construction. Our core business is supported by road maintenance, concrete works and other services that provide added value, improve our operating efficiency and help manage risks.
Nordecon's specialists offer high-quality integrated solutions in the construction of commercial, residential, industrial and public buildings as well as infrastructure – roads, utility networks and port facilities. In addition, we are involved in the construction of concrete structures, leasing out heavy construction equipment, and road maintenance.
Besides Estonia, Group entities operate in Sweden, Finland and Ukraine.
Nordecon AS is a member of the Estonian Association of Construction Entrepreneurs and the Estonian Chamber of Commerce and Industry and has been awarded international quality management certificate ISO 9001, international environmental management certificate ISO 14001 and international occupational health and safety certificate OHSAS 18001.
Nordecon AS's shares have been listed on the Nasdaq Tallinn Stock Exchange since 18 May 2006.
To be the preferred partner in the construction industry for customers, subcontractors and employees.
To offer our customers building and infrastructure construction solutions that meet their needs and fit their budget and, thus, help them maintain and increase the value of their assets.
We are professional builders – we apply appropriate construction techniques and technologies and observe generally accepted quality standards. Our people are results-oriented and go-ahead; we successfully combine our extensive industry experience with the opportunities provided by innovation.
We are reliable partners – we keep our promises and do not take risks at the expense of our customers. Together, we can overcome any construction challenge and achieve the best possible results.
We act openly and transparently. We observe best practice in the construction industry and uphold and promote it in society as a whole.
We support employee development through needs-based training and career opportunities consistent with their experience. We value our people and provide them with a modern work environment that encourages creativity and a motivation system that fosters initiative.
The Group's strategic business agenda and targets for the period 2019-2022
In Ukraine, we are mainly involved in general contracting and project management in the segment of building construction. Political and economic instability continues to restrict the adoption of business decisions but construction activity has increased in recent years. We expect that in 2021 our business volumes in Ukraine will remain at a level comparable to 2020. We assess the situation in the Ukrainian construction market regularly and are ready to restructure our operations as and when necessary. We continue to seek opportunities to exit our two real estate projects, which have been put on hold, or signing a construction contract with a prospective new owner.
In Finland, we have been offering mainly subcontracting services in the concrete work segment. The local concrete work market allows competing for projects where the customer wishes to source all concrete works from one reliable partner. However, in the past two years we have also secured some smaller general contracts. Our policy is to maintain a rational approach and avoid excessive risks, particularly in an environment of the COVID-19 pandemic, which has increased pressure on profit margins.
In the Swedish market, we offer mainly the construction of residential and non-residential buildings in the central part of the country. In gaining experience in the new market, we have prioritised quality and adherence to deadlines over profitability. The decline in real estate prices that emerged in 2018 has reduced demand for housing construction. As a result, the starting dates of many projects have been postponed. Compared to the peak in 2017, housing construction volumes have dropped by around a third. The slowdown has affected the Stockholm area the most. Even though the worst downturn seems to be over, there are no signs of growth and housing construction volumes are expected to shrink further in 2021. The trend is also influenced by the COVID-19 pandemic: there are signs that customers are postponing their investment decisions until the situation has stabilised.
The main factors which affect the Group's business volumes and profit margins are competition in the construction market and changes in the demand for construction services. The demand for construction services continues to be strongly influenced by the volume of public investment which, in turn, depends partly on the co-financing received from the EU structural funds. The construction market is also strongly affected by the COVID-19 pandemic, which has slowed down private investment.
Competition continues to be stiff in all segments of the construction market. Bidders' prices are under strong competitive pressure. Increasingly, bidders include not only rival general contractors but also former subcontractors. This is mainly attributable to the central and local governments' policy to keep the eligibility requirements for bidders for public contracts low, which sometimes results in quality and timely completion being sacrificed to the lowest price. We acknowledge the risks involved in performing contracts signed in an environment of stiff competition and the current economic uncertainties. In setting our prices in such an environment, we focus on ensuring a reasonable balance between contract performance risks and tight cost control.
Our action plan foresees flexible resource allocation aimed at finding more profitable contracts and performing them effectively. According to its business model, Nordecon operates in all segments of the construction market. Therefore, we are somewhat better positioned than companies that operate in only one narrow segment.
Our business is also influenced by seasonal changes in weather conditions, which have the strongest impact on infrastructure construction where a lot of work is done outdoors (road construction, earthworks, etc.). To mitigate the risk, we secure road maintenance contracts that generate year-round business. Our strategy is to counteract the seasonality of infrastructure operations with building construction that is less exposed to seasonal fluctuations. The Group's long-term goal is to be flexible and keep its two operating segments in relative balance. Where possible, our entities also implement different technical solutions that help them work efficiently in changing conditions.
To manage their daily construction risks, Group companies purchase contractors' all risks insurance. Depending on the nature of the project and the requests of the customer, both general frame agreements and special, projectspecific insurance contracts are used. In addition, as a rule, subcontractors are required to secure the performance of their obligations with a bank guarantee provided to a Group company or the Group retains part of the amount due until the contract has been completed. To remedy construction deficiencies which may be detected during the warranty period, Group companies create warranty provisions based on their historical experience. At 31 December 2020, the Group's warranty provisions (including current and non-current ones) totalled 1,287 thousand euros (31 December 2019: 1,321 thousand euros).
In addition to managing the risks directly related to construction operations, in the past few years we have sought to mitigate the risks inherent in pre-construction activities. In particular, we have focused on the bidding process, i.e. compliance with the procurement terms and conditions, and budgeting. The errors made in the planning stage are usually irreversible and, in a situation where the price is contractually fixed, may result in a direct financial loss.
Credit losses of the period totalled 157 thousand euros. In 2019, credit losses amounted to 63 thousand euros. The overall credit risk exposure of the portfolio of receivables is low because the solvency of prospective customers is evaluated, the share of public sector customers is large and customers' settlement behaviour is continuously monitored. The main indicator of the realisation of credit risk is settlement default that exceeds 180 days along with no activity on the part of the debtor that would confirm the intent to settle.
The Group remains exposed to higher than usual liquidity risk. At the reporting date, the Group's current ratio was 1.01 (31 December 2019: 1.01). The key factor that influences the current ratio is the classification of the Group's loans to its Ukrainian associate as non-current assets and the banks' general policy not to refinance interest-bearing liabilities (particularly overdrafts) for a period exceeding twelve months.
Because the political and economic situation in Ukraine continues to be complicated, we believe that the Group's Ukrainian investment properties cannot be realised in the short term. Accordingly, the Group's loan receivable from its Ukrainian associate of 8,237 thousand euros was classified as a non-current asset at the reporting date.
For better cash flow management, we use overdraft facilities and factoring by which we counter the mismatch between the settlement terms agreed with customers and subcontractors. Under IFRS EU, borrowings have to be classified into current and non-current based on contract terms in force at the reporting date. At 31 December 2020, the Group's short-term borrowings totalled 18,508 thousand euros (31 December 2019: 11,058 thousand euros). A significant share of short-term borrowings is made up of bank overdrafts, of which overdrafts of 6,205 thousand euros have been extended for the next twelve months after the reporting date.
The Group's cash and cash equivalents as at the reporting date amounted to 12,576 thousand euros (31 December 2019: 7,032 thousand euros).
The Group's interest-bearing liabilities to banks have both fixed and floating interest rates. Lease liabilities have mainly floating interest rates. The base rate for most floating-rate contracts is Euribor. Compared to 2019, the Group's interest-bearing borrowings have decreased by 1,523 thousand euros. Both loan and lease liabilities have decreased. Interest-bearing borrowings totalled 25,861 thousand euros at 31 December 2020 (31 December 2019: 27,384 thousand euros). Interest expense for the year 2020 amounted to 1,078 thousand euros (2019: 1,002 thousand euros).
The main source of interest rate risk is a possible rise in the base rates of floating interest rates. In the light of the Group's relatively heavy loan burden, this would increase interest expense significantly, which would have an adverse impact on profit. We mitigate the risk by pursuing a policy of entering, where possible, into fixed-rate contracts when the market interest rates are low. As regards loan products offered by banks, observance of the policy has proved difficult and most new contracts have a floating interest rate. We have signed a derivative contract to manage the risks resulting from changes in the interest rate of the lease of an asphalt concrete plant acquired in 2016.
As a rule, the prices of construction contracts and subcontracts are fixed in the currency of the host country, i.e. in euros (EUR), Ukrainian hryvnias (UAH) and Swedish kronas (SEK).
The exchange rate of the hryvnia is unstable because the political and economic environment in Ukraine continues to be strained due to the conflict between Ukraine and Russia, which broke out at the beginning of 2014, and the discontinuance of the determination of the national currency's indicative exchange rate by the National Bank of Ukraine at the beginning of 2015. The hryvnia weakened against the euro by approximately 24% in 2020. As a result, the Group's Ukrainian subsidiaries, which have to translate their euro-denominated loans into the local currency, recognised a foreign exchange loss of 1,485 thousand euros (2019: a gain of 1,044 thousand euros). Exchange gains and losses on financial instruments are recognised in Finance income and Finance costs, respectively. The translation of receivables and liabilities from operating activities did not give rise to any exchange gains or losses.
Our Ukrainian and non-Ukrainian entities' reciprocal receivables and liabilities that are related to the construction business and denominated in hryvnias do not give rise to any exchange gains or losses. Nor do the loans provided to the Ukrainian associate in euros give rise to any exchange gains or losses in the Group's financial statements.
The Swedish krona strengthened against the euro by around 4% in 2020. Due to the change in the krona/euro exchange rate, the translation of receivables and liabilities related to operating activities resulted in an exchange loss of 48 thousand euros (2019: 16 thousand euros). The exchange loss has been recognised within Other operating expenses. The translation of a loan provided to the Swedish subsidiary in euros into the local currency gave rise to an exchange loss of 24 thousand euros (2019: 196 thousand euros). The exchange loss has been recognised within Finance costs.
We have not acquired derivatives to hedge our currency risk.
Finding a permanent quality workforce is a challenge for the entire construction sector and also one of the main factors that influences business performance. To strengthen Nordecon's reputation as an employer and make sure that we will have employees in the future, we collaborate with educational institutions. Consistent employee development is essential and one of our acknowledged priorities. We also rely on our subcontractors' ability to find personnel with the required skills and qualifications.
We strive to minimise the occupational health and safety risks of people working on our construction sites, including both our own teams and those of our subcontractors, by applying all measures required by law and our management systems. Subcontractors are responsible for ensuring occupational safety in their work and for their employees and our role is to create conditions that enable and foster compliance with safety regulations.
Construction activities have a direct impact on wildlife, soil and the physical environment. Therefore, in conducting our operations we strive to protect the surrounding environment and nature as much as possible. The Group's assets and operations which have the strongest impact on the environment and, thus, involve the highest environmental risk are asphalt plants, quarries used for the extraction of construction materials and road construction operations. The main environmental protection measures on construction sites include efficient materials utilisation and proper waste management. Excessive waste, leakage, spillage, pollution, destruction of wildlife and other damage to the environment is prevented by complying with legal requirements. All of the Group's construction entities have implemented environmental management standard ISO 14001.
Nordecon is one of the leading construction companies in the Estonian market. Therefore, it is important for us to be aware of the risks involved in breaching honest and ethical business practices. The Group has established internal procedures and policies, observes the rules of the Tallinn Stock Exchange and works with external and internal auditors as well as supervisory agencies. We make every effort to ensure that our entities' management quality, organizational culture and internal communication emphasise zero tolerance for dishonest, unethical and corrupt behaviour. Transparent decisions and open communication are underpinned by effective internal cooperation and external communication. Openness is also supported by the continuously increasing implementation of IT solutions.
The Group's structure at 31 December 2020, including interests in subsidiaries and associates *
* The structure does not include the subsidiaries OÜ Eesti Ehitus, OÜ Aspi, OÜ Linnaehitus, OÜ NOBE, OÜ Eston Ehitus, Infra Ehitus OÜ, Kalda Kodu OÜ, Kastani Kinnisvara OÜ, EE Ressursid OÜ, SweNCN OÜ, Nordecon Statyba UAB, Eurocon Bud TOV, Technopolis-2 TOV and the associate V.I. Center TOV, which currently do not engage in any significant business activities. The first five were established to protect business names. Nor does the structure include investments in entities in which the Group's interest is less than 20%.
A change in the capital structure of Nordecon AS's former associate Embach Ehitus OÜ was finalised and entered in the Commercial Registry on 5 March 2020. As a result of the transaction, Nordecon AS increased its ownership interest to 51% and Embach Ehitus OÜ became a subsidiary of Nordecon AS. The share capital of Embach Ehitus OÜ amounts to 30,000 euros of which 15,300 euros is held by Nordecon AS. Embach Ehitus OÜ has been accounted for as a subsidiary and its financial information has been consolidated in the financial statements of Nordecon AS since 1 March 2020.
Nordecon AS and its wholly-owned subsidiary Eston Ehitus AS signed a merger agreement on 2 September 2020. The purpose of the transaction was to improve the Group's internal efficiency and to streamline its management structure. Consistent with the merger agreement, the acquirer was Nordecon AS that became the legal successor to Eston Ehitus AS which was dissolved. The merger was finalised on 15 October 2020.
Nordecon AS's subsidiary Tariston AS and Tõrvatilk OÜ signed an agreement on 8 December 2020 for the disposal of Tariston AS's 49% interest in Pigipada OÜ. The purpose of the transaction was to resolve the issue of the entity's ownership and to dispose of the investment on terms favourable for Tariston AS. The total transaction price was 3,596 thousand euros. As a result of the transaction, control of Pigipada OÜ changed, which is why the completion of the transaction, including the transfer of the rights and obligations, required the consent of the Competition Authority, which was granted on 28 December 2020. The disposal of the investment in the associate Pigipada OÜ was subsequently finalised on 30 December 2020.
There were no changes in our Estonian operations during the period under review. The Group was involved in building and infrastructure construction, providing services in practically all market subsegments. A significant share of the core business was conducted by the parent, Nordecon AS, which is also a holding company for the Group's larger subsidiaries. In addition to the parent, construction management services were rendered by the subsidiaries Nordecon Betoon OÜ (brand name NOBE) and Embach Ehitus OÜ.
As regards our other main business lines, we continued to provide concrete services (Nordecon Betoon OÜ), lease out heavy construction machinery and equipment (Kaurits OÜ) and render regional road maintenance services in the Kose maintenance area in Harju county and in Järva and Hiiu counties (Tariston AS).
We did not enter any new operating segments in Estonia.
There were no changes in our Ukrainian operations during the period under review. In 2020, our business activity in Ukraine remained at a level comparable to 2019. The Group maintains a conservative approach: we sign contracts only when we are certain that the risks involved are reasonable given the circumstances.
Real estate development activities which require major investments remain suspended to minimise risks until the situation in Ukraine improves (we have currently interests in two development projects that have been put on hold). To safeguard investments made and loans provided, the Group and the co-owners have privatised the property held by the associate V.I. Center TOV and created mortgages on it.
The Group's subsidiary Nordecon Betoon OÜ and its Finnish subsidiary NOBE Rakennus OY continued to provide subcontracting services in the concrete work segment in Finland. In the past two years, they have also been awarded some smaller general contracts.
There were no significant changes in our Swedish operations during the period under review. The Group's subsidiary SweNCN AB continued to deliver services under building construction contracts secured as a general contractor.
Revenue generated outside Estonia accounted for approximately 18% of the Group's total revenue, which is the highest level for recent years'.
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Estonia | 82% | 89% | 93% |
| Sweden | 11% | 5% | 2% |
| Finland | 6% | 4% | 1% |
| Ukraine | 1% | 2% | 4% |
Revenue generated in Sweden has increased year on year, driven by two new general contracts for the construction of apartment buildings and a concrete works subcontract for the construction of foundations for 73 turbines in a wind farm being built in northern Sweden, all signed in 2019. The revenue contribution of the Finnish market has increased as well: a significant share of it resulted from contracts for the construction of the Raitinkartano commercial and residential building and two farm complexes. The revenue contribution of the Ukrainian market has decreased by about a half compared to 2019.
Geographical diversification of the revenue base is a consciously deployed strategy by which we mitigate the risks resulting from excessive reliance on a single market. However, conditions in some of our chosen foreign markets are also volatile and affect our current results. Increasing the contribution of foreign markets is one of Nordecon's strategic goals. Our vision of the Group's foreign operations is described in the chapter Outlooks of the Group's geographical markets.
We strive to maintain the revenues of our operating segments (Buildings and Infrastructure) as balanced as possible because this helps us diversify risks and provides better opportunities for continuing construction operations in more challenging market conditions where the volumes of one or several sub-segments substantially decline.
The Group ended 2020 with revenue of 296,082 thousand euros, a roughly 26% improvement on the 234,071 thousand euros generated in 2019. The Buildings segment increased its revenue by around 34% and the Infrastructure segment by around 7%. In 2020, the Buildings and Infrastructure segments generated revenue of 228,515 thousand euros and 67,142 thousand euros, respectively. The corresponding figures for 2019 were 170,647 thousand euros and 63,063 thousand euros (see note 8). The current revenue structure is also reflected in the Group's order book, where the Buildings segment continues to dominate.
| Operating segments * | 2020 | 2019 | 2018 |
|---|---|---|---|
| Buildings | 72% | 70% | 72% |
| Infrastructure | 28% | 30% | 28% |
* In the directors' report, projects have been allocated to operating segments based on their nature (i.e. building or infrastructure construction). In the segment reporting presented in the consolidated financial statements, allocation is based on the subsidiaries' main field of activity (as required by IFRS 8 Operating Segments). In the consolidated financial statements, the results of a subsidiary that is primarily engaged in infrastructure construction are presented in the Infrastructure segment. In the directors' report, the revenues of such a subsidiary are presented based on their nature. The differences between the two reports are not significant because in general Group entities specialise in specific areas except for the subsidiary Nordecon Betoon OÜ that is involved in both building and infrastructure construction. The figures for the parent are allocated in both parts of the report based on the nature of the work.
In the Buildings segment, revenue generated by the commercial buildings subsegment decreased while revenue generated by other subsegments increased compared to 2019. The largest subsegment in terms of revenue was public buildings, which accounted for over a third of total segment revenue and showed 67% year-on-year revenue growth. During the year, we completed and delivered on time the buildings of the Estonian Academy of Security Sciences and the University of Tartu Learning Centre in Narva, phase I of Kindluse Kool – a basic school in Järveküla near Tallinn, the Annelinn upper secondary school in Tartu and a storage complex for the defence forces' base at Tapa. The largest projects in progress in the public buildings subsegment are the construction of a sports and health centre at Kohtla-Järve, a family health centre in Tartu, and an extension to the building of the Estonian Foreign Intelligence Service in Rahumäe tee in Tallinn, and the reconstruction of two schools in East Ukraine.
A significant share of our Estonian apartment building projects is located in Tallinn. During the period under review, the largest of them were the design and construction of the first two phases of the Kalaranna quarter, and the design and construction of the Tiskreoja residential area on the western border of Tallinn. A large share of the subsegment's revenue also came from the construction of apartment buildings in Sweden.
We continue to build our own housing development projects in Tallinn and Tartu (reported in the apartment buildings subsegment). During the period, we completed a five-floor apartment building with 24 apartments at Võidujooksu 8c in Tallinn (www.voidujooksu.ee). Revenue from our own real estate development operations amounted to 2,866 thousand euros (2019: 6,528 thousand euros). The uncertainty of the economic environment, caused by the COVID-19 pandemic, has also affected our development operations. The construction of the Mõisavahe Kodu (https://moisavahe.ee) project, which started at the beginning of the year, continued in the autumn after a break of around six months. In carrying out our own real estate development activities, we closely monitor potential risks in the housing development market.
The largest projects of the commercial buildings subsegment were in Tallinn in 2020. We completed and delivered on time the building of Terminal D in the Old City Harbour, phase I of the Porto Franco commercial and office development next to the Admiralty Basin, and a multi-storey car park at Sepapaja 1 in Tallinn. Work continues on a seven-floor commercial building in Rotermann City.
Although the amount and share of revenue generated by the industrial and warehouse facilities subsegment remained modest compared to other subsegments, its revenue grew more than two times compared to 2019. Still, the costs of projects in progress are small, amounting to 2 million euros on average.
| Revenue breakdown in the Buildings segment | 2020 | 2019 | 2018 |
|---|---|---|---|
| Public buildings | 37% | 29% | 25% |
| Apartment buildings | 28% | 27% | 25% |
| Commercial buildings | 23% | 36% | 35% |
| Industrial and warehouse facilities | 12% | 8% | 15% |
Although the largest revenue contributor in the Infrastructure segment is still road construction and maintenance, its proportionate contribution has decreased year on year. A major share of its revenue results from road rehabilitation contracts of 2 to 3 million euros each. The largest projects in progress include a contract secured in 2019 for the construction of the Kernu bypass as well as the Kernu filling station and Haiba junctions on the Tallinn-Pärnu-Ikla road, and a contract signed this year for the construction of the Väo junction on the eastern border of Tallinn. Construction of the latter will continue in 2021. In addition to road construction and maintenance, the subsegment builds infrastructure assets for the defence forces and improves forest roads under a number of small contracts signed with the State Forest Management Centre. The Group also continues to provide road maintenance services in Järva and Hiiu counties and the Kose maintenance area in Harju county.
Other engineering revenue is strongly influenced by the construction of foundations for 73 wind turbines in the Nysäter wind farm, which is being built in northern Sweden, near Sundsvall.
A significant share of specialist engineering revenue resulted from the construction of a 640-metre waterfront promenade at Sillamäe.
| Revenue breakdown in the Infrastructure segment | 2020 | 2019 | 2018 |
|---|---|---|---|
| Road construction and maintenance | 74% | 78% | 89% |
| Other engineering | 21% | 18% | 7% |
| Specialist engineering (including hydraulic engineering) | 4% | 1% | 0% |
| Environmental engineering | 1% | 3% | 4% |
Nordecon ended the year 2020 with a gross profit of 10,996 thousand euros (2019: 11,769 thousand euros). Gross margin for the financial year was 3.7% (2019: 5.0%). The gross margin of the Infrastructure segment improved, rising to 5.1% for 2020 and 6.1% for the fourth quarter (2019: 3.5%, Q4 2019: 1.9%). The gross margin of the Buildings segment, on the other hand, fell sharply, dropping to 3.6% for 2020 and 0.7% for the fourth quarter (2019: 6.3%, Q4 2019: 8.8%). The Infrastructure segment's performance was supported by an earlier start of the road construction season and a strong order book. Even though market players' capacity to produce asphalt concrete continues to exceed market demand, the Group's asphalt concrete output grew year on year, providing cover for fixed costs, the largest share of which is made up of costs related to the plant and equipment required for asphalt concrete production and laying. The low profitability of the Buildings segment, which had a strong impact on the Group's results for 2020, is attributable to some unsuccessful projects in the Swedish market. The weak performance of the Swedish market was largely due to the COVID-19 pandemic and its impacts on the economic environment. Mobility restrictions disrupted the Group's management of its Swedish operations as well as the movement of the projects' subcontractors, which were mostly from Estonia. This delayed the performance of the projects and caused the Group additional unbudgeted site costs, which customers did not cover in full.
The Group's administrative expenses for 2020 totalled 7,073 thousand euros. Compared to 2019, administrative expenses increased by around 3.5% (2019: 6,837 thousand euros). The rise is attributable to the fact that Embach Ehitus OÜ became a subsidiary (see the chapter Group structure). The ratio of administrative expenses to revenue (12 months rolling) was 2.4% (2019: 2.9%).
The Group's operating profit 2020 was 3,575 thousand euros (2019: 4,270 thousand euros). EBITDA amounted to 7,003 thousand euros and EBITDA margin was 2.4% (2019: 7,311 thousand euros and 3.1%).
Finance income for 2020 was influenced by the sale of the Group's investment in the associate Pigipada OÜ at the end of the year (see the chapter Group structure). Gain on the transaction amounted to 2,749 thousand euros (see note 13). Finance income and expenses for the year were also strongly affected by exchange rate fluctuations in the Group's foreign markets, particularly the movements in the exchange rate of the Ukrainian hryvnia, which weakened against the euro by around 24%. Translation of the loans provided to the Group's Ukrainian subsidiaries in euros gave rise to an exchange loss of 1,485 thousand euros in 2020 (2019: a gain of 1,044 thousand euros). The Group's total exchange loss for the year was 1,509 thousand euros (2019: 196 thousand euros). The movements in foreign exchange rates also increased the translation reserve in equity by 1,254 thousand euros (2019: reduced by 823 thousand euros).
The Group earned a net profit of 4,118 thousand euros (2019: 4,149 thousand euros). The profit attributable to owners of the parent, Nordecon AS, was 2,466 thousand euros (2019: 3,378 thousand euros).
Operating activities produced a net cash inflow of 2,464 thousand euros in 2020 (2019: an inflow of 8,003 thousand euros). The key factor that affects operating cash flow is the mismatch between the settlement terms agreed with customers and suppliers. Operating cash flow is also strongly influenced by the fact that the contracts signed with most public and private sector customers do not require them to make advance payments while the Group has to make prepayments to subcontractors and materials suppliers. In 2020, the share of prepayments increased due to the COVID-19 pandemic. Cash inflow is also reduced by contractual retentions, which extend from 5 to 10% of the contract price and are released at the end of the construction period only.
Investing activities resulted in a net cash inflow of 8,274 thousand euros (2019: an inflow of 220 thousand euros). Transactions with the strongest impact were the transformation of Embach Ehitus OÜ from an associate into a subsidiary, which generated cash inflow of 3,605 thousand euros, and the sale of the investment in the associate Pigipada OÜ, which generated inflow of 3,596 thousand euros. Investments in the acquisition of property, plant and equipment and intangible assets totalled 271 thousand euros (2019: 594 thousand euros) and proceeds from the sale of property, plant and equipment amounted to 332 thousand euros (2019: 377 thousand euros). Dividends received amounted to 974 thousand euros (2019: 489 thousand euros.
Financing activities generated a net cash outflow of 5,174 thousand euros (2019: an outflow of 8,863 thousand euros). The largest items were loan and lease payments. Proceeds from loans received totalled 2,026 thousand euros, comprising the use of overdrafts and development loans (2019: 3,705 thousand euros). Loan repayments totalled 2,629 thousand euros (2019: 4,032 thousand euros), consisting of regular repayments of long-term investment and development loans. Lease payments totalled 3,086 thousand euros (2019: 3,276 thousand euros). Dividends paid in 2020 amounted to 472 thousand euros (2019: 2,360 thousand euros). Cash flows of the comparative period, 2019, were also influenced by payments of 1,892 thousand euros made in connection with the reduction of share capital.
The Group's cash and cash equivalents totalled 12,576 thousand euros at 31 December 2020 (31 December 2019: 7,032 thousand euros). Management's commentary on liquidity risks is presented in the chapter Description of the main risks.
| Figure/ratio | 2020 | 2019 | 2018 |
|---|---|---|---|
| Revenue (EUR '000) | 296,082 | 234,071 | 223,496 |
| Revenue change | 26.5% | 4.7% | -3.4% |
| Net profit (EUR '000) | 4,118 | 4,149 | 3,821 |
| Net profit attributable to owners of the parent (EUR '000) | 2,466 | 3,378 | 3,381 |
| Average number of shares | 31,528,585 | 31,528,585 | 31,528,585 |
| Earnings per share (EUR) | 0.08 | 0.11 | 0.11 |
| Administrative expenses to revenue | 2.4% | 2.9% | 3.0% |
| EBITDA(EUR '000) | 7,003 | 7,311 | 6,021 |
| EBITDA margin | 2.4% | 3.1% | 2.7% |
| Gross margin | 3.7% | 5.0% | 4.5% |
| Operating margin | 1.2% | 1.8% | 1.8% |
| Operating margin excluding gain on asset sales | 1.1% | 1.7% | 1.3% |
| Net margin | 1.4% | 1.8% | 1.7% |
| Return on invested capital | 9.3% | 10.0% | 8.4% |
| Return on equity | 11.8% | 12.5% | 11.2% |
| Equity ratio | 27.6% | 27.9% | 32.4% |
| Return on assets | 3.3% | 3.7% | 3.5% |
| Gearing | 21.1% | 33.8% | 28.5% |
| Current ratio | 1.01 | 1.01 | 1.12 |
| As at 31 December | 2020 | 2019 | 2018 |
| Order book (EUR '000) | 215,796 | 227,545 | 100,352 |
| Revenue change = (revenue for the reporting period / revenue for the previous period) – 1 * 100 |
Return on invested capital = ((profit or loss before tax + interest expense) / the period's average (interest-bearing liabilities + |
|---|---|
| Earnings per share (EPS) = net profit or loss attributable to owners of | equity)) * 100 |
| the parent / weighted average number of shares outstanding | Return on equity = (net profit or loss for the period / the period's |
| Administrative expenses to revenue = (administrative expenses / | average total equity) * 100 |
| revenue) * 100 | Equity ratio = (total equity / total liabilities and equity) * 100 |
| EBITDA = operating profit or loss + depreciation and amortisation + impairment losses on goodwill |
Return on assets = (net profit or loss for the period / the period's average total assets) * 100 |
| EBITDA margin = (EBITDA / revenue) * 100 | |
| Gross margin = (gross profit or loss / revenue) * 100 | Gearing = ((interest-bearing liabilities – cash and cash equivalents) / (interest-bearing liabilities + equity)) * 100 |
| Operating margin = (operating profit or loss / revenue) * 100 | Current ratio = total current assets / total current liabilities |
| Operating margin excluding gain on asset sales = ((operating profit or loss – gain on sales of non-current assets – gain on sales of real estate) / revenue) * 100 |
|
| Net margin = (net profit or loss for the period / revenue) * 100 |
The Group's order book (backlog of contracts signed but not yet performed) stood at 215,796 thousand euros at 31 December 2020, a 5% decrease year on year. In 2020, we signed new contracts of 236,577 thousand euros, of which contracts of 55,511 thousand euros in the fourth quarter. The corresponding figures for 2019 were 305,695 thousand euros and 75,083 thousand euros. The Group was equally successful in winning both public and private contracts.
| As at 31 December | 2020 | 2019 | 2018 |
|---|---|---|---|
| Order book (EUR '000) | 215,796 | 227,545 | 100,352 |
At 31 December 2020, the order books of the Buildings segment and the Infrastructure segment accounted for 81% and 19% of the Group's total order book, respectively (31 December 2019: 85% and 15%, respectively). Compared to 31 December 2019, the order book of the Infrastructure segment has grown by around 19% while the order book of the Buildings segment has decreased by around 10% due to an almost twofold decline in the order book of the apartment buildings subsegment.
The order book of the public buildings subsegment accounts for roughly 40% of the order book of the Buildings segment. The subsegment's order book is strongly influenced by the contracts secured in the third quarter for the construction of phase III of the Maarjamõisa Medical Campus of the Tartu University Hospital with a cost of 47.3 million euros, the construction of an academic building for an upper secondary school in Kuressaare on the island of Saaremaa and the design and construction of a barracks for 300 people in the defence forces base at Paldiski. The order books of the commercial buildings and the industrial and warehouse facilities subsegments have remained at the same level as at 31 December 2019. A significant share of the order book of the industrial and warehouse facilities subsegment is made up of a contract for the construction of a dairy complex for E-Piim in Paide. The order book of the commercial buildings subsegment is dominated by the construction of a new seven-floor commercial building in Rotermann City in Tallinn and a contract of over 22 million euros secured in the fourth quarter for the construction of the Alma Tomingas office building in conformity with the requirements of the LEED Gold certificate at Sepise 7 in Ülemiste City in Tallinn. A major share of the order book of the apartment buildings subsegment is made up of a contract of around 40 million euros for the design and construction of the first two phases of the Kalaranna quarter in Tallinn and the construction of the next phases of the Tiskreoja residential area on the western border of Tallinn.
The order book of the road construction and maintenance subsegment accounts for 87% of the order book of the Infrastructure segment. In the fourth quarter, the Group signed a contract of around 9.5 million euros for the performance of earthworks at the Võõbu-Mäo road construction site on the Võõbu-Anna section of Tartu road and a contract for the reconstruction of the Sillamäe city section of national road no. 1 Tallinn-Narva (km 184.7-187.5). The subsegment's order book is also strongly influenced by a contract secured in the second quarter for the construction of the Väo junction on the eastern border of Tallinn. The Group continues to provide road maintenance services in three road maintenance areas: Järva, Hiiu and Kose. We have signed a new five-year contract for maintaining national roads in the Järva maintenance area. The contract involves year-round maintenance of around 950 km of national roads in Järva county. Based on the rates for 2020, the total cost of the contract is around 10.7 million euros.
Based on the size of the Group's order book, including the share of work to be performed in 2022, and fierce competition in the general contracting market, the Group's management expects that in 2021 the Group's revenue will decline somewhat compared to 2020. Customers are increasingly expecting that general contractors should lower their prices but the input prices charged by subcontractors have not decreased as anticipated. This has put profit margins under strong pressure. In an environment of stiff competition, we have avoided taking unjustified risks whose realisation in the contract performance phase would have an adverse impact on the Group's results. Our main focus is on cost control and pre-construction and design activities where we can harness our professional competitive advantages.
In 2020, the Group (the parent and the subsidiaries) employed, on average, 708 people, including 450 engineers and technical personnel (ETP). Headcount increased by around 3% compared to 2019. The number of engineers and technical personnel grew due to a change in the Group's structure: Embach Ehitus OÜ became a subsidiary, which increased the group's workforce by 43 employees (see the chapter Group structure):
Average number of employees at Group entities (including the parent and the subsidiaries):
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| ETP | 450 | 414 | 419 |
| Workers | 258 | 273 | 268 |
| Total average | 708 | 687 | 687 |
The Group's personnel expenses for 2020, including all taxes, totalled 27,130 thousand euros. The figure for 2019 was 25,323 thousand euros. Personnel expenses grew by around 7% year on year, mainly in connection with Embach Ehitus OÜ becoming a subsidiary and the payment of project-based performance bonuses.
The service fees of the members of the council of Nordecon AS for 2020 amounted to 165 thousand euros and associated social security charges totalled 54 thousand euros (2019: 187 thousand euros and 62 thousand euros, respectively).
The service fees of the members of the board of Nordecon AS amounted to 432 thousand euros and associated social security charges totalled 143 thousand euros (2019: 480 thousand euros and 158 thousand euros, respectively).
We measure the efficiency of our operating activities using the following productivity and efficiency indicators, which are based on the number of employees and personnel expenses incurred:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Nominal labour productivity (rolling), (EUR '000) | 422.2 | 340.6 | 325.4 |
| Change against the comparative period, % | 24.0% | 4.7% | 3.3% |
| Nominal labour cost efficiency (rolling), (EUR) | 10.9 | 9.2 | 9.7 |
| Change against the comparative period, % | 17.9% | -5.0% | -3.8% |
Nominal labour productivity (rolling) = (past four quarters' revenue) / (past four quarters' average number of employees) Nominal labour cost efficiency (rolling) = (past four quarters' revenue) / (past four quarters' personnel expenses)
The Group's nominal labour productivity and nominal labour cost efficiency improved significantly year on year. The rise is attributable to revenue growth.
| Share information | ||
|---|---|---|
| -- | ------------------- | -- |
| Name of security | Nordecon AS ordinary share |
|---|---|
| Issuer | Nordecon AS |
| ISIN code | EE3100039496 |
| Ticker symbol | NCN1T |
| Nominal value | No par value* |
| Total number of securities issued | 32,375,483 |
| Number of listed securities | 32,375,483 |
| Listing date | 18 May 2006 |
| Market | Nasdaq Tallinn, Baltic Main List |
| Industry | Construction and engineering |
| Indexes | OMX Baltic Industrials GI; OMX Baltic Industrials PI; OMX Baltic Construction & Materials GI; OMX Baltic Construction & Materials PI; OMX_Baltic_GI; OMX_Baltic_PI; OMX Tallinn_GI |
*In connection with Estonia's accession to the euro area on 1 January 2011 and based on amendments to the Estonian Commercial Code which took effect on 1 July 2010 as well as a resolution adopted by the annual general meeting of Nordecon AS in May 2011, the company's share capital was converted from 307,567,280 Estonian kroons to 19,657,131.9 euros. Concurrently with the conversion, the company adopted shares with no par value.
In July 2014, Nordecon AS issued 1,618,755 new shares with a total cost of 1,581,523.64 euros, increasing share capital by 1,034,573.01 euros to 20,691,704.91 euros, and acquired the same number of own (treasury) shares for the same price. The share capital of Nordecon AS consists of 32,375,483 ordinary registered shares with no par value.
Owners of ordinary shares are entitled to dividends as distributed from time to time. Each share carries one vote at the general meeting of Nordecon AS.
Movements in the share price are in euros and daily turnover in the bar chart is in thousands of euros.
| Index/equity | 1 January 2020* | 31 December 2020 | +/- |
|---|---|---|---|
| OMX Tallinn | 1,279.70 | 1,343.72 | 5.00% |
| NCN1T | EUR 1.03 | EUR 1.14 | 10.68% |
* Closing price on the Nasdaq Tallinn Stock Exchange at 31 December 2019
| Price | 2020 | 2019 | 2018 |
|---|---|---|---|
| Open | 1.04 | 0.91 | 1.25 |
| High | 1.21 | 1.09 | 1.29 |
| Low | 0.78 | 0.89 | 0.89 |
| Last closing price | 1.14 | 1.03 | 0.89 |
| Traded volume (number of securities traded) | 6,021,881 | 3,254,930 | 1,707,399 |
| Turnover, in EUR millions | 5.99 | 3.24 | 1.93 |
| Listed volume (31 December), in thousands | 32,375 | 32,375 | 32,375 |
| Market capitalisation (31 December), in EUR millions | 36.91 | 33.35 | 28.81 |
| Shareholder | Number of shares | Ownership interest (%) |
|---|---|---|
| AS Nordic Contractors | 17,607,464 | 54.39 |
| Luksusjaht AS | 4,288,403 | 13.25 |
| Olegs Radcenko | 583,404 | 1.80 |
| SEB Pank AS clients | 503,188 | 1.55 |
| Lembit Talpsepp | 350,786 | 1.08 |
| Mati Kalme | 280,000 | 0.86 |
| SEB Life and Pension Baltic SE Estonian branch | 255,000 | 0.79 |
| Genadi Bulaton | 250,600 | 0.77 |
| Swenska Handelsbanken clients | 211,112 | 0.65 |
| Ain Tromp | 203,960 | 0.63 |
| Number of shareholders | Ownership interest (%) | |
|---|---|---|
| Shareholders with interest exceeding 5% | 2 | 67.63 |
| Shareholders with interest from 1% to 5% | 3 | 4.44 |
| Shareholders with interest below 1% | 3,107 | 25.31 |
| Holder of own (treasury) shares | 1 | 2.62 |
| Total | 3,113 | 100 |
| Council member | Number of shares | Ownership interest (%) | |
|---|---|---|---|
| Toomas Luman (AS Nordic Contractors, OÜ Luman ja Pojad)* |
Chairman of the Council | 17,679,144 | 54.61 |
| Andri Hõbemägi | Member of the Council | 50,000 | 0.15 |
| Vello Kahro | Member of the Council | 10,000 | 0.03 |
| Sandor Liive | Member of the Council | 0 | 0.00 |
| Andre Luman | Member of the Council | 25,000 | 0.08 |
| Total | 17,764,144 | 54.87 |
* Companies controlled by the individual
| Board member | Number of shares | Ownership interest (%) | |
|---|---|---|---|
| Gerd Müller | Chairman of the Board | 0 | 0.00 |
| Priit Luman | Member of the Board | 7,000 | 0.02 |
| Maret Tambek | Member of the Board | 0 | 0.00 |
| Total | 7,000 | 0.02 |
The annual general meeting that convened on 27 May 2014 approved a share option plan aimed at motivating the executive management of Nordecon AS by including them among the company's shareholders to ensure consistency in the company's management and improvement of the company's performance, and enable the executive management to benefit from their contribution to growth in the value of the company's share. Under the share option plan, the company granted options for acquiring up to 1,618 thousand shares in Nordecon AS. An option could be exercised when three years had passed since the signature of the option agreement but not before the general meeting had approved the company's annual report for 2016.
To satisfy the terms and conditions of the option plan, in July 2014 Nordecon AS issued a total of 1,618 thousand new shares with a total cost of 1,582 thousand euros, increasing share capital by 1,035 thousand euros to 20,692 thousand euros, and acquired the same number of own (treasury) shares at the same price.
The annual general meeting which convened on 24 May 2017 approved some changes to the option plan. The term for exercising a share option was extended. An option could be exercised within 15 months after the general meeting had approved Nordecon AS's annual report for 2016. In addition, the conditions for exercising the options granted to persons who at the grant date were members of the board were amended.
The annual general meeting which convened on 23 May 2018 adopted some amendments to the share option plan which grant Nordecon AS's chairman of the board the right to acquire up to 200,000 shares and each member of the board the right to acquire up to 129,500 shares in Nordecon AS. An option may be exercised when three years have passed since the signature of the option agreement but not before the general meeting has approved the company's annual report for 2020. Exercise of the options is linked to the achievement of the Group's EBITDA target for 2020 (from 6,083 thousand euros to 12,167 thousand euros).
At 31 December 2020, options for the acquisition of 229,857 shares had been exercised, options for the acquisition of 800,398 shares had expired and options for the acquisition of 588,500 shares were still exercisable.
Having agreed it with the council, the board proposes that the shareholders distribute in 2021 a dividend of 0.06 euros per share (1,892 thousand euros in total) for 2020. Own (treasury) shares do not give the company any shareholder rights.
In addition, the Group's ultimate controlling party has notified the board of its intention to propose at the annual general meeting a motion for reducing the share capital of Nordecon AS by 972 thousand euros (0.03 euros per share). If the motion is approved, share capital will decrease from 14,379 thousand euros to 13,407 thousand euros. According to the motion, share capital will be reduced by reducing the book value of the shares so that the number of the shares will remain the same, i.e. 32,375,483 shares, including the 846,898 own (treasury) shares held at 31 December 2020.
The board confirms that the Directors' report presents fairly all significant events that occurred during the reporting period as well as their impact on the condensed consolidated interim financial statements, contains a description of the main risks and uncertainties and provides an overview of significant transactions with related parties.
Gerd Müller Chairman of the Board 11 February 2021 Priit Luman Member of the Board 11 February 2021 Maret Tambek Member of the Board 11 February 2021
| EUR '000 | Note | 31 December 2020 | 31 December 2019 |
|---|---|---|---|
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 12,576 | 7,032 | |
| Trade and other receivables | 2 | 50,029 | 37,563 |
| Prepayments | 2,638 | 1,813 | |
| Inventories | 3 | 22,454 | 21,142 |
| Total current assets | 87,697 | 67,550 | |
| Non-current assets | |||
| Investments in equity-accounted investees | 0 | 2,369 | |
| Other investments | 26 | 26 | |
| Trade and other receivables | 2 | 8,654 | 8,435 |
| Investment property | 5,639 | 5,530 | |
| Property, plant and equipment | 18,053 | 19,002 | |
| Intangible assets | 14,966 | 14,736 | |
| Total non-current assets | 47,338 | 50,098 | |
| TOTAL ASSETS | 135,035 | 117,648 | |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 5, 6 | 18,508 | 11,058 |
| Trade payables | 46,932 | 40,730 | |
| Other payables | 12,232 | 7,954 | |
| Deferred income | 7,738 | 6,391 | |
| Provisions | 1,059 | 716 | |
| Total current liabilities | 86,469 | 66,849 | |
| Non-current liabilities | |||
| Borrowings | 5, 6 | 7,353 | 16,326 |
| Trade payables | 98 | 98 | |
| Other payables | 2,233 | 177 | |
| Provisions | 1,647 | 1,425 | |
| Total non-current liabilities | 11,331 | 18,026 | |
| TOTAL LIABILITIES | 97,800 | 84,875 | |
| EQUITY | |||
| Share capital | 14,379 | 14,379 | |
| Own (treasury) shares | -660 | -660 | |
| Share premium | 635 | 635 | |
| Statutory capital reserve | 2,554 | 2,554 | |
| Translation reserve | 2,423 | 1,169 | |
| Retained earnings | 14,543 | 12,383 | |
| Total equity attributable to owners of the parent | 33,874 | 30,460 | |
| Non-controlling interests | 3,361 | 2,313 | |
| TOTAL EQUITY | 37,235 | 32,773 | |
| TOTAL LIABILITIES AND EQUITY | 135,035 | 117,648 |
| EUR '000 | Note | Q4 2020 | 12M 2020 | Q4 2019 | 12M 2019 |
|---|---|---|---|---|---|
| Revenue | 8, 9 | 78,418 | 296,082 | 61,271 | 234,071 |
| Cost of sales | 10 | -76,937 | -285,086 | -57,229 | -222,302 |
| Gross profit | 1,481 | 10,996 | 4,042 | 11,769 | |
| Marketing and distribution expenses | -142 | -528 | -149 | -784 | |
| Administrative expenses | 11 | -1,761 | -7,073 | -2,169 | -6,837 |
| Other operating income | 12 | 180 | 453 | 187 | 315 |
| Other operating expenses | 12 | -135 | -273 | -145 | -193 |
| Operating profit | -377 | 3,575 | 1,766 | 4,270 | |
| Finance income | 13 | 2,725 | 2,995 | 62 | 1,277 |
| Finance costs | 13 | -576 | -2,678 | -213 | -1,219 |
| Net finance income | 2,149 | 317 | 151 | 58 | |
| Share of profit/loss of equity-accounted investees | -232 | 734 | -37 | 585 | |
| Profit before income tax | 1,540 | 4,626 | 1,578 | 4,913 | |
| Income tax expense | -426 | -508 | -324 | -764 | |
| Profit for the period | 1,114 | 4,118 | 1,254 | 4,149 | |
| Other comprehensive income: | |||||
| Items that may be reclassified subsequently to profit or | |||||
| loss Exchange differences on translating foreign operations |
-121 | 1,254 | -42 | -823 | |
| Total other comprehensive income/expense | -121 | 1,254 | -42 | -823 | |
| TOTAL COMPREHENSIVE INCOME | 993 | 5,372 | 1,212 | 3,326 | |
| Profit attributable to: | |||||
| - Owners of the parent | 1,426 | 2,466 | 835 | 3,378 | |
| - Non-controlling interests | -312 | 1,652 | 419 | 771 | |
| Profit for the period | 1,114 | 4,118 | 1,254 | 4,149 | |
| Total comprehensive income attributable to: | |||||
| - Owners of the parent | 1,305 | 3,720 | 793 | 2,555 | |
| - Non-controlling interests | -312 | 1,652 | 419 | 771 | |
| Total comprehensive income for the period | 993 | 5,372 | 1,212 | 3,326 | |
| Earnings per share attributable to owners of the | |||||
| parent: | |||||
| Basic earnings per share (EUR) Diluted earnings per share (EUR) |
7 7 |
0.05 0.05 |
0.08 0.08 |
0.03 0.03 |
0.11 0.11 |
| EUR '000 | Note | 12M 2020 | 12M 2019 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Cash receipts from customers1 | 345,967 | 277,941 | |
| Cash paid to suppliers2 | -305,894 | -239,901 | |
| VAT paid | -9,9090 | -6,816 | |
| Cash paid to and for employees | -27,409 | -22,989 | |
| Income tax paid | -291 | -232 | |
| Net cash from operating activities | 2,464 | 8,003 | |
| Cash flows from investing activities | |||
| Paid on acquisition of property, plant and | |||
| equipment | -254 | -594 | |
| Acquisition of intangible assets | -17 | 0 | |
| Proceeds from sale of property, plant and | 4 | ||
| equipment | 332 | 377 | |
| Cash received on acquisition of a subsidiary | 3,605 | 0 | |
| Proceeds from sale of an investment in an associate | 3,596 | 0 | |
| Loans provided | -17 | -74 | |
| Repayment of loans provided | 44 | 13 | |
| Dividends received | 974 | 489 | |
| Interest received | 11 | 9 | |
| Net cash from investing activities | 8,274 | 220 | |
| Cash flows from financing activities | |||
| Proceeds from loans received | 2,026 | 3,705 | |
| Repayment of loans received | -2,629 | -4,032 | |
| Lease payments made | -3,086 | -3,276 | |
| Interest paid | -936 | -1,004 | |
| Dividends paid | -472 | -2,360 | |
| Reduction of share capital | 0 | -1,892 | |
| Other payments | -77 | -4 | |
| Net cash used in financing activities | -5,174 | -8,863 | |
| Net cash flow | 5,564 | -638 | |
| Cash and cash equivalents at beginning of period | 7,032 | 7,678 | |
| Effect of movements in foreign exchange rates | -20 | -8 | |
| Increase in cash and cash equivalents | 5,563 | -638 | |
| Cash and cash equivalents at end of period | 12,576 | 7,032 |
1Line item Cash receipts from customers includes VAT paid by customers.
2Line item Cash paid to suppliers includes VAT paid.
| Equity attributable to owners of the parent | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| EUR '000 | Share capital |
Treasury shares |
Capital reserve |
Share premium |
Translation reserve |
Retained earnings |
Total | Non controlling interests |
Total |
| Balance at | |||||||||
| 31 December 2018 | 16,321 | -693 | 2,554 | 618 | 1,992 | 10,896 | 31,688 | 2,021 | 33,709 |
| Profit for the period Other comprehensive |
0 | 0 | 0 | 0 | 0 | 3,378 | 3,378 | 771 | 4,149 |
| expense | 0 | 0 | 0 | 0 | -823 | 0 | -823 | 0 | -823 |
| Transactions with | |||||||||
| owners | |||||||||
| Dividend distribution Reduction of share |
0 | 0 | 0 | 0 | 0 | -1,891 | -1,891 | -479 | -2,370 |
| capital | -1,942 | 33 | 0 | 17 | 0 | 0 | -1,892 | 0 | -1,892 |
| Total transactions | |||||||||
| with owners | -1,942 | 33 | 0 | 17 | 0 | -1,891 | -3,783 | -479 | -4,262 |
| Balance at | |||||||||
| 31 December 2019 | 14,379 | -660 | 2,554 | 635 | 1,169 | 12,383 | 30,460 | 2,313 | 32,773 |
| Profit for the period | 0 | 0 | 0 | 0 | 0 | 2,466 | 2,466 | 1,652 | 4,118 |
| Other comprehensive | |||||||||
| income | 0 | 0 | 0 | 0 | 1,254 | 0 | 1,254 | 0 | 1,254 |
| Changes in non | |||||||||
| controlling interests | 0 | 0 | 0 | 0 | 0 | 1,496 | 1,496 | -604 | 892 |
| Transactions with | |||||||||
| owners | |||||||||
| Declaration of | |||||||||
| dividend | 0 | 0 | 0 | 0 | 0 | -1,891 | -1,891 | 0 | -1,891 |
| Cancellation of | |||||||||
| dividend | 0 | 0 | 0 | 0 | 0 | 89 | 89 | 0 | 89 |
| Total transactions | |||||||||
| with owners | 0 | 0 | 0 | 0 | 0 | -1,802 | -1,802 | 0 | -1,802 |
| Balance at | |||||||||
| 31 December 2020 | 14,379 | -660 | 2,554 | 635 | 2,423 | 14,543 | 33,874 | 3,361 | 37,235 |
Nordecon AS is a company incorporated and domiciled in Estonia. The address of the company's registered office is Toompuiestee 35, Tallinn 10149, Estonia. Nordecon AS's majority shareholder and the party controlling Nordecon Group is AS Nordic Contractors that holds 54.39% of the shares in Nordecon AS. The Nordecon AS shares have been listed on the Nasdaq Tallinn Stock Exchange since 18 May 2006.
The condensed consolidated interim financial statements as at and for the period ended 31 December 2020 have been prepared in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting as adopted by the European Union. The condensed interim financial statements do not contain all the information presented in the annual financial statements and should be read in conjunction with the Group's latest published annual financial statements as at and for the year ended 31 December 2019.
According to management's assessment, the condensed consolidated interim financial statements of Nordecon AS for the fourth quarter and twelve months of 2020 give a true and fair view of the Group's financial performance and the parent and all its subsidiaries that are included in the financial statements are going concerns. The condensed consolidated interim financial statements have not been audited or otherwise checked by auditors and contain only the consolidated financial statements of the Group.
| EUR '000 | Note | 31 December 2020 | 31 December 2019 |
|---|---|---|---|
| Current items | |||
| Trade receivables | 32,331 | 29,141 | |
| Retentions receivable | 2,117 | 763 | |
| Receivables from related parties | 494 | 739 | |
| Other receivables | 113 | 46 | |
| Total receivables and loans provided | 35,055 | 30,689 | |
| Due from customers for contract work | 14,974 | 6,874 | |
| Total current trade and other receivables | 50,029 | 37,563 | |
| EUR '000 | Note | 31 December 2020 | 31 December 2019 |
| Non-current items | |||
| Loans to related parties | 14 | 8,237 | 8,015 |
| Receivables from related parties | 299 | 0 | |
| Other non-current receivables | 118 | 420 | |
| Total non-current trade and other receivables | 8,654 | 8,435 |
| EUR '000 | 31 December 2020 | 31 December 2019 |
|---|---|---|
| Raw materials and consumables | 3,007 | 3,149 |
| Work in progress | 6,232 | 6,964 |
| Apartments for sale | 230 | 230 |
| Properties purchased for development and pre-development costs | 12,985 | 10,799 |
| Total inventories | 22,454 | 21,142 |
Additions to property, plant and equipment totalled 2,116 thousand euros in 2020 (2019: 2,961 thousand euros) and comprised equipment and construction machinery required for the Group's operating activities.
Proceeds from the sale of property, plant and equipment amounted to 332 thousand euros (see the statement of cash flows). In 2019, proceeds from the sale of property, plant and equipment were 377 thousand euros. Gain on the sale of property, plant and equipment amounted to 199 thousand euros (2019: 258 thousand euros) (note 12).
There were no significant transactions with intangible assets in 2020.
| EUR '000 | Note | 31 December 2020 | 31 December 2019 |
|---|---|---|---|
| Short-term portion of long-term loans | 9,640 | 3 | |
| Lease liabilities | 6 | 3,131 | 2,670 |
| Short-term bank loans | 5,737 | 8,385 | |
| Total current borrowings | 18,508 | 11,058 |
| EUR '000 | Note | 31 December 2020 | 31 December 2019 |
|---|---|---|---|
| Long-term portion of long-term bank loans | 827 | 8,418 | |
| Derivative financial instruments | 2 | 6 | |
| Lease liabilities | 6 | 6,524 | 7,902 |
| Total non-current borrowings | 7,353 | 16,326 |
| EUR '000 | 31 December 2020 | 31 December 2019 |
|---|---|---|
| Lease liabilities at end of period, of which | 9,655 | 10,572 |
| Not later than 1 year | 3,131 | 2,670 |
| Later than 1 year and not later than 5 years | 6,524 | 7,902 |
| Base currency EUR | 9,655 | 10,572 |
| Interest rate for contracts denominated in EUR1 | 2.0%-4.0% | 2.0%-4.0% |
| Frequency of payments | Monthly | Monthly |
1 Includes leases with floating interest rates
| Settlement of lease liabilities | ||
|---|---|---|
| EUR '000 | 12M 2020 | 12M 2019 |
| Principal payments made during the period | 3,086 | 3,276 |
| Interest payments made during the period | 203 | 268 |
Basic earnings per share are calculated by dividing the profit attributable to owners of the parent by the weighted average number of shares outstanding during the period. Diluted earnings per share are calculated by dividing the profit attributable to owners of the parent by the average number of shares outstanding during the period, both adjusted for the effects of all dilutive equity instruments.
| EUR '000 | 12M 2020 | 12M 2019 |
|---|---|---|
| Profit for the period attributable to owners of the parent (EUR '000) | 2,466 | 3,378 |
| Weighted average number of shares (in thousands) | 31,521 | 31,521 |
| Basic earnings per share (EUR) | 0.08 | 0.11 |
| Diluted earnings per share (EUR) | 0.08 | 0.11 |
At the reporting date, Nordecon AS had no dilutive share options. Therefore, diluted earnings per share equal basic earnings per share.
The Group's chief operating decision maker is the board of the parent company Nordecon AS. This group of persons monitors the Group's internally generated financial information on a regular basis to better allocate the resources and assess their utilisation. Reportable operating segments are identified by reference to monitored information.
The Group's reportable operating segments are:
Reportable operating segments are engaged in the provision of construction services in the buildings and infrastructure segments.
The prices applied in inter-segment transactions do not differ significantly from market prices. The chief operating decision maker reviews inter-segment transactions separately and analyses their proportion in segment revenue. Respective figures are separately outlined in segment reporting.
The chief operating decision maker assesses the performance of an operating segment and utilisation of the resources allocated to it through the segment's profit. The profit of an operating segment is its gross profit, which does not include major exceptional expenses (such as non-recurring asset write-downs). Items after the gross profit of an operating segment (including marketing and distribution expenses, administrative expenses, interest expense and income tax expense) are not used by the chief operating decision maker to assess the performance of the segment.
According to management's assessment, inter-segment transactions are conducted on regular market terms, which do not differ significantly from the terms applied in transactions with third parties.
| EUR '000 Q4 2020 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 59,077 | 19,131 | 78,208 |
| Of which: General contracting services | 56,451 | 15,192 | 71,643 |
| Subcontracting services | 2,215 | 3,224 | 5,439 |
| Own development activities | 411 | 0 | 411 |
| Investment property | 0 | 0 | 0 |
| Road maintenance services | 0 | 493 | 493 |
| Rental services | 0 | 222 | 222 |
| Inter-segment revenue | 0 | -15 | -15 |
| Revenue from external customers | 59,077 | 19,116 | 78,193 |
| Gross profit of the segment | 419 | 1,175 | 1,594 |
| EUR '000 Q4 2019 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 46,299 | 15,044 | 61,343 |
| Of which: General contracting services | 43,579 | 10,765 | 54,344 |
| Subcontracting services | 2,576 | 3,021 | 5,597 |
| Own development activities | 140 | 0 | 140 |
| Investment property | 4 | 0 | 4 |
| Road maintenance services | 0 | 973 | 973 |
| Rental services | 0 | 285 | 285 |
| Inter-segment revenue | 0 | -159 | -159 |
| Revenue from external customers | 46,299 | 14,885 | 61,184 |
| Gross profit of the segment | 4,091 | 286 | 4,377 |
| EUR '000 | Buildings | Infrastructure | Total |
|---|---|---|---|
| 12M 2020 | |||
| Total revenue | 228,516 | 67,733 | 296,248 |
| Of which: General contracting services | 211,852 | 58,679 | 270,531 |
| Subcontracting services | 12,447 | 4,322 | 16,769 |
| Own development activities | 2,866 | 0 | 2,866 |
| Investment property | 1,350 | 0 | 1,350 |
| Road maintenance services | 0 | 3,332 | 3,332 |
| Rental services | 0 | 1,400 | 1,400 |
| Inter-segment revenue | 0 | -591 | -591 |
| Revenue from external customers | 228,515 | 67,142 | 295,657 |
| Gross profit of the segment | 8,327 | 3,396 | 11,723 |
| EUR '000 12M 2019 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 170,653 | 63,325 | 233,978 |
| Of which: General contracting services | 153,862 | 50,047 | 203,909 |
| Subcontracting services | 10,258 | 8,667 | 18,925 |
| Own development activities | 6,528 | 0 | 6,528 |
| Investment property | 4 | 0 | 4 |
| Road maintenance services | 0 | 3,523 | 3,523 |
| Rental services | 0 | 1,089 | 1,089 |
| Inter-segment revenue | -6 | -262 | -268 |
| Revenue from external customers | 170,647 | 63,063 | 233,710 |
| Gross profit of the segment | 10,679 | 2,231 | 12,910 |
| EUR '000 | 12M 2020 | Q4 2020 | 12M 2019 | Q4 2019 |
|---|---|---|---|---|
| Total revenues for reportable segments | 296,248 | 78,208 | 233,978 | 61,343 |
| Elimination of inter-segment revenues | -591 | -15 | -268 | -159 |
| Other revenue | 425 | 225 | 361 | 8.7 |
| Total revenue | 296,082 | 78,418 | 234,071 | 61,271 |
| EUR '000 | 12M 2020 | Q4 2020 | 12M 2019 | Q4 2019 |
|---|---|---|---|---|
| Total profit for reportable segments | 11,723 | 1,594 | 12,910 | 4,377 |
| Unallocated loss | -727 | -113 | -1,141 | -335 |
| Gross profit | 10,996 | 1,481 | 11,769 | 4,042 |
| Unallocated expenses: | ||||
| Marketing and distribution expenses | -528 | -142 | -784 | -149 |
| Administrative expenses | -7,073 | -1,761 | -6,837 | -2,169 |
| Other operating income and expenses | 180 | 45 | 122 | 42 |
| Operating profit | 3,575 | -377 | 4,270 | 1,766 |
| Finance income | 2,995 | 2,725 | 1,277 | 62 |
| Finance costs | -2,678 | -576 | -1,219 | -213 |
| Share of profit/loss of equity-accounted investees | 734 | -232 | 585 | -37 |
| Profit before tax | 4,626 | 1,540 | 4,913 | 1,578 |
| EUR '000 | 12M 2020 | Q4 2020 | 12M 2019 | Q4 2019 |
|---|---|---|---|---|
| Estonia | 241,674 | 50,625 | 213,300 | 53,164 |
| Ukraine | 4,283 | 1,771 | 4,008 | 696 |
| Finland | 17,359 | 7,127 | 10,258 | 2,575 |
| Sweden | 32,766 | 18,895 | 11,060 | 6,301 |
| Elimination of inter-segment revenues | 0 | 0 | -4,555 | -1,465 |
| Total revenue | 296,082 | 78,418 | 234,071 | 61,271 |
| EUR '000 | 12M 2020 | 12M 2019 |
|---|---|---|
| Cost of materials, goods and services | 258,920 | 197,831 |
| Personnel expenses | 23,062 | 21,496 |
| Depreciation expense | 2,520 | 2,713 |
| Other expenses | 584 | 262 |
| Total cost of sales | 285,086 | 222,302 |
| EUR '000 | 12M 2020 | 12M 2019 |
|---|---|---|
| Personnel expenses | 3,995 | 3,717 |
| Cost of materials, goods and services | 1,947 | 2,523 |
| Depreciation and amortisation expense | 908 | 328 |
| Other expenses | 223 | 269 |
| Total administrative expenses | 7,073 | 6,837 |
| EUR '000 | 12M 2020 | 12M 2019 |
|---|---|---|
| Other operating income Gain on sale of property, plant and equipment Gain on sale of real estate Gain on a bargain purchase |
199 19 139 |
258 0 0 |
| Other income Total other operating income |
96 453 |
57 315 |
| 12M 2019 | |
|---|---|
| 16 | |
| 63 | |
| 9 | |
| 105 | |
| 273 | 193 |
| 12M 2020 48 157 7 61 |
| EUR '000 | 12M 2020 | 12M 2019 |
|---|---|---|
| Finance income Interest income on loans Gain on sale of an investment in an associate Foreign exchange gain Other finance income Total finance income |
225 2,749 1 20 2,995 |
225 0 1,044 8 1,277 |
| EUR '000 | 12M 2020 | 12M 2019 |
| Finance costs Interest expense Foreign exchange loss Other finance costs Total finance costs |
1,078 1,509 91 2,678 |
1,002 196 21 1,219 |
The Group considers parties to be related if one controls the other or exerts significant influence on the other's operating decisions (assumes holding more than 20% of the voting power). Related parties include:
| EUR '000 | 12M 2020 | 12M 2019 | ||
|---|---|---|---|---|
| Counterparty | Purchases | Sales | Purchases | Sales |
| AS Nordic Contractors | 253 | 0 | 291 | 0 |
| Companies of AS Nordic Contractors group | 2,147 | 11 | 1,344 | 419 |
| Companies related to owners of AS Nordic Contractors | 321 | 0 | 576 | 0 |
| Equity-accounted investees | 1,201 | 313 | 2,677 | 309 |
| Companies related to members of the council and board | 89 | 0 | 88 | 0 |
| Total | 4,011 | 324 | 4,976 | 728 |
| EUR '000 | 12M 2020 | 12M 2019 | ||
|---|---|---|---|---|
| Nature of transactions | Purchases | Sales | Purchases | Sales |
| Construction services | 1,201 | 21 | 2,677 | 2 |
| Transactions with goods | 321 | 0 | 1,876 | 307 |
| Lease and other services | 406 | 11 | 340 | 410 |
| Other transactions | 2,083 | 292 | 83 | 9 |
| Total | 4,011 | 324 | 4,976 | 728 |
During the period, the Group recognised interest income on loans to an associate of 216 thousand euros (2019: 269 thousand euros).
| 31 December 2020 | 31 December 2019 | |||
|---|---|---|---|---|
| EUR '000 | Receivables | Liabilities | Receivables | Liabilities |
| AS Nordic Contractors | 0 | 15 | 0 | 10 |
| Companies of AS Nordic Contractors group | 492 | 411 | 495 | 660 |
| Companies related to owners of AS Nordic Contractors |
0 | 58 | 0 | 316 |
| Associates – receivables and liabilities | 2 | 32 | 244 | 1 |
| Associate – loans and interest | 8,237 | 0 | 8,015 | 0 |
| Total | 8,731 | 516 | 8,754 | 987 |
The service fees of the members of the council of Nordecon AS for 2020 amounted to 165 thousand euros and associated social security charges totalled 54 thousand euros (2019: 187 thousand euros and 62 thousand euros, respectively).
The service fees of the members of the board of Nordecon AS for 2020 amounted to 432 thousand euros and associated social security charges totalled 143 thousand euros (2019: 480 thousand euros and 158 thousand euros, respectively).
The board of Nordecon AS acknowledges its responsibility for the preparation of the Group's condensed consolidated interim financial statements for the fourth quarter and twelve months of 2020 and confirms that:
Gerd Müller Chairman of the Board 11 February 2021 Priit Luman Member of the Board 11 February 2021 Maret Tambek Member of the Board 11 February 2021
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