Quarterly Report • Nov 5, 2020
Quarterly Report
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Financial report for the third quarter and nine 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 – 30 September 2020 |
| Council | Toomas Luman (chairman of the council), Andri Hõbemägi, |
| Andre Luman, Vello Kahro, Sandor Liive | |
| 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 | 22 |
| Consolidated statement of financial position | 22 |
| Consolidated statement of comprehensive income | 23 |
| Consolidated statement of cash flows | 24 |
| Consolidated statement of changes in equity | 25 |
| NOTE 1. Significant accounting policies | 26 |
| NOTE 2. Trade and other receivables | 26 |
| NOTE 3. Inventories | 26 |
| NOTE 4. Property, plant and equipment and intangible assets | 27 |
| NOTE 5. Borrowings | 27 |
| NOTE 6. Leases | 27 |
| NOTE 7. Earnings per share | 28 |
| NOTE 8. Segment reporting – operating segments | 28 |
| NOTE 9. Segment reporting – geographical information | 30 |
| NOTE 10. Cost of sales | 30 |
| NOTE 11. Administrative expenses | 30 |
| NOTE 12. Other operating income and expenses | 31 |
| NOTE 13. Finance income and costs | 31 |
| NOTE 14. Transactions with related parties | 31 |
| NOTE 15. Events after the reporting period | 32 |
| Statements and signatures | 33 |
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 2020 our business volumes in Ukraine will remain at a level comparable to 2019. 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. In the past year, however, we have also secured some smaller-scale contracts as a general contractor. The local concrete work market allows competing for projects where the customer wishes to source all concrete works from one reliable partner. Our policy is to maintain a rational approach and avoid excessive risks. Finland's moderate economic growth has also had a certain positive effect on its construction sector.
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 2020. 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 lessened the volume of 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 30 September 2020, the Group's warranty provisions (including current and non-current ones) totalled 1,475 thousand euros (30 September 2019: 728 thousand euros).
In addition to managing the risks directly related to construction operations, we seek 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.
The Group's credit losses for the period amounted to 64 thousand euros. Credit losses in the comparative period amounted to 10 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 1.0 (30 September 2019: 0.93). The key factor which 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 is still complicated, we believe that the Group's Ukrainian investment properties cannot be realised in the short term. Accordingly, the Group's loan receivables from its Ukrainian associate of 8,196 thousand euros were classified as non-current assets 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 30 September 2020, the Group's short-term borrowings totalled 19,196 thousand euros (30 September 2019: 17,243 thousand euros).
The Group's cash and cash equivalents as at the reporting date amounted to 7,640 thousand euros (30 September 2019: 8,630 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 the same period in 2019, the Group's interest-bearing borrowings have increased by 1,567 thousand euros. Predominantly lease liabilities have increased. Interest-bearing borrowings totalled 27,379 thousand euros at 30 September 2020 (30 September 2019: 25,812 thousand euros). Interest expense for the first nine months of 2020 amounted to 792 thousand euros (9M 2019: 738 thousand euros).
The main source of interest rate risk is a possible rise in the base rates of floating interest rates (EURIBOR, EONIA or a base rate calculated by the creditor). 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 20% in the first nine months of 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 1,255 thousand euros (9M 2019: a gain of 1,040 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 weakened against the euro by around 1% in the first nine months of 2020. The translation of a loan provided to the Swedish subsidiary in euros into the local currency gave rise to an exchange gain of 84 thousand euros (9M 2019: a loss of 258 thousand euros). Exchange gains and losses are recognised in the statement of comprehensive income within Finance income and Finance costs, respectively.
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 30 September 2020, including interests in subsidiaries and associates*
* The structure does not include the subsidiaries OÜ Eesti Ehitus, OÜ Aspi, OÜ Linnaehitus, OÜ NOBE, 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 four 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.
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 the first nine months of 2020, our business activity in Ukraine decreased compared to the same period in 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. Besides subcontracts, we signed the first contracts as a general contractor.
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.
The revenue contribution of the Groups foreign markets increased year on year, rising to approximately 12% of the Group's total revenue for the first nine months of 2020.
| 9M 2020 | 9M 2019 | 9M 2018 | 2019 | |
|---|---|---|---|---|
| Estonia | 88% | 91% | 94% | 89% |
| Sweden | 6% | 3% | 2% | 5% |
| Finland | 5% | 4% | 1% | 4% |
| Ukraine | 1% | 2% | 3% | 2% |
The revenue contribution of the Swedish market grew significantly year on year. During the period, we provided services under three building construction contracts secured as a general contractor and one concrete works subcontract. Finnish revenues grew somewhat, underpinned by concrete works subcontracts signed in the building construction segment and two general contractor's contracts signed in the agriculture sector. Revenue generated in the Ukrainian market and its proportionate share in the Group's total revenue decreased.
Geographical diversification of the revenue base is a consciously deployed strategy by which we mitigate the risks resulting from excessive reliance on one market. However, conditions in some of our chosen foreign markets are also volatile and have a strong effect on our current results. Increasing the contribution of foreign markets is one of Nordecon's strategic targets. Our vision of the Group's foreign operations is described in the chapter Outlooks of the Group's geographical markets.
The Group ended the first nine months of 2020 with revenue of 217,664 thousand euros, a roughly 26% improvement on the 172,237 thousand euros generated in the first nine months of 2019. Revenue growth was driven by the strong performance of the Buildings segment, which increased its revenue by 38%. Based on the size of its order book, revenue growth in the Buildings segment was expected (see the chapter Order book). The Infrastructure segment's revenue, on the other hand, decreased by 2% compared to the same period last year.
The limited volume of infrastructure construction projects, which continues to affect the entire Estonian construction market, is also reflected in our revenue structure. In in the first nine months of 2020, our Buildings and Infrastructure segments generated revenue of 169,439 thousand euros and 48,025 thousand euros, respectively. The corresponding figures for in the first nine months of 2019 were 122,825 thousand euros and 49,138 thousand euros (see note 8).
| Operating segments * | 9M 2020 | 9M 2019 | 9M 2018 | 2019 |
|---|---|---|---|---|
| Buildings | 75% | 70% | 71% | 70% |
| Infrastructure | 25% | 30% | 29% | 30% |
* 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, all subsegments delivered lesser or greater year-on-year revenue growth. The fastestgrowing subsegment was public buildings, which increased its revenue by 78%. It was also the largest revenue contributor, generating approximately a third of total segment revenue. During the period, we completed and delivered on time 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, and the Annelinn upper secondary school in Tartu. The largest projects in progress in the public buildings subsegment are the construction of a storage complex for the defence forces' base at Tapa, 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.
The largest projects of the commercial buildings subsegment that generated revenue in the reporting period are in Tallinn. The construction of a seven-floor commercial building in Rotermann City continues. 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.
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. Similarly to previous periods, a major share of the subsegment's revenue 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 2,455 thousand euros (9M 2019: 6,388 thousand euros). In carrying out our own real estate development activities, we monitor closely potential risks in the housing development market.
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 the same period in 2019. Still, the values of projects in progress are small, amounting to 2 million euros on average. Based on the order book, we thus expect that the subsegment's revenue contribution will remain modest in 2020.
| Revenue breakdown in the Buildings segment | 9M 2020 | 9M 2019 | 9M 2018 | 2019 |
|---|---|---|---|---|
| Public buildings | 36% | 28% | 27% | 29% |
| Apartment buildings | 28% | 30% | 22% | 27% |
| Commercial buildings | 25% | 35% | 36% | 36% |
| Industrial and warehouse facilities | 11% | 7% | 15% | 8% |
Although the largest revenue contributor in the Infrastructure segment is still road construction and maintenance, both the proportion and amount of its revenue have decreased year-on-year. A significant 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. 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. We also continue to provide road maintenance services in Järva and Hiiu counties and the Kose maintenance area in Harju county.
The revenue of the other engineering subsegment 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.
During the period, work continued on the construction of a 640-metre waterfront promenade at Sillamäe, which accounts for a significant share of the revenue of the specialist engineering subsegment.
| Revenue breakdown in the Infrastructure segment | 9M 2020 | 9M 2019 | 9M 2018 | 2019 |
|---|---|---|---|---|
| Road construction and maintenance | 77% | 81% | 91% | 78% |
| Other engineering | 18% | 16% | 6% | 18% |
| Specialist engineering (including hydraulic engineering) | 4% | 0% | 0% | 1% |
| Environmental engineering | 1% | 3% | 3% | 3% |
Nordecon ended the first nine months of 2020 with a gross profit of 9,515 thousand euros (9M 2019: 7,721 thousand euros). Gross margin was 4.4% for nine months (9M 2019: 4.5%) and 4.3% for the third quarter (Q3 2019: 6.2%). In the Buildings segment, gross margin decreased year on year, dropping to 4.7% for nine months and 4.0% for the third quarter (9M 2019: 5.4% and Q3 2019: 5.1%). The decline is mainly attributable to a loss-making housing development project completed in Sweden. In the Infrastructure segment, gross margin improved year on year, rising to 4.6% for nine months and 5.9% for the third quarter (9M 2019: 4.0% and Q3 2019: 9.2%). The segment's nine-month result was influenced by an earlier start of the road construction season and a strong order book. Despite the fact that market players' capacity to produce asphalt concrete considerably exceeds 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 Group's administrative expenses for the first nine months of 2020 totalled 5,312 thousand euros. Compared to the same period in 2019, administrative expenses increased by around 14% (9M 2019: 4,668 thousand euros). The rise is attributable to growth in personnel expenses and depreciation (see note 11) as well as 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 2.7, remaining virtually the same as a year earlier (9M 2019: 2.8%).
The Group's operating profit for the first nine months of 2020 was 3,952 thousand euros (9M 2019: 2,498 thousand euros). Operating margin improved year on year, rising to 1.8% for the nine months of 2020 (9M 2019: 1.5%). EBITDA amounted to 6,512 thousand euros (9M 2019: 4,732 thousand euros).
Finance income and costs of the period continued to be influenced 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 approximately 20%. In contrast to the first nine months of 2019 when the Group earned a foreign exchange gain, in the reporting period the translation of loans provided to the Ukrainian subsidiaries in euros resulted in a foreign exchange loss of 1,255 thousand euros (9M 2019: an exchange gain of 1,040 thousand euros). The Swedish krona weakened against the euro by around 1%. The foreign exchange gain recognised in finance income in connection with the translation of a loan provided to the Swedish subsidiary in euros amounted to 84 thousand euros (9M 2019: a foreign exchange loss of 258 thousand euros).
The Group's net profit amounted to 3,004 thousand euros (9M 2019: 2,876 thousand euros). The profit attributable to owners of the parent, Nordecon AS, was 1,040 thousand euros (9M 2019: 2,532 thousand euros).
In the first nine months of 2020, operating activities produced a net cash outflow of 279 thousand euros (9M 2019: an inflow of 6,189 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 has 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 3,948 thousand euros (9M 2019: an inflow of 489 thousand euros). The transaction with the strongest impact was the transformation of Embach Ehitus OÜ from an associate into a subsidiary, which generated cash inflow of 3,605 thousand euros. Cash flow was also influenced by payments made for the acquisition of property, plant and equipment of 184 thousand euros (9M 2019: 216 thousand euros) and proceeds from the sale of property, plant and equipment of 246 thousand euros (9M 2019: 215 thousand euros). Dividends received amounted to 251 thousand euros (9M 2019: 489 thousand euros).
Financing activities generated a net cash outflow of 3,045 thousand euros (9M 2019: an outflow of 5,713 thousand euros). The largest items were loan and lease payments and dividends paid. Proceeds from loans received totalled 2,333 thousand euros, comprising the use of the overdraft facility and development loans (9M 2019: 3,036 thousand euros). Loan repayments totalled 1,949 thousand euros (9M 2019: 3,245 thousand euros), consisting of regular repayments of long-term investment and development loans. Lease payments totalled 2,167 thousand euros (9M 2019: 2,400 thousand euros). Dividends paid in the first nine months of 2020 amounted to 472 thousand euros (9M 2019: 2,360 thousand euros).
The Group's cash and cash equivalents totalled 7,640 thousand euros at 30 September 2020 (30 September 2019: 8,630 thousand euros). Management's commentary on liquidity risks is presented in the chapter Description of the main risks.
| Figure/ratio | 9M 2020 | 9M 2019 | 9M 2018 | 2019 |
|---|---|---|---|---|
| Revenue (EUR '000) | 217,664 | 172,237 | 167,588 | 234,071 |
| Revenue change | 26.4% | 2.8% | -4.2% | 4.7% |
| Net profit (EUR '000) | 3,004 | 2,876 | 2,154 | 4,149 |
| Net profit attributable to owners of the parent (EUR '000) |
1,040 | 2,532 | 1,972 | 3,378 |
| Weighted average number of shares | 31,528,585 | 31,528,585 | 30,986,585 | 31,528,585 |
| Earnings per share (EUR) | 0.03 | 0.08 | 0.06 | 0.11 |
| Administrative expenses to revenue | 2.4% | 2.7% | 3.0% | 2.9% |
| Administrative expenses to revenue (rolling) | 2.7% | 2.8% | 2.9% | 2.9% |
| EBITDA(EUR '000) | 6,512 | 4,732 | 3,879 | 7,311 |
| EBITDA margin | 3.0% | 2.7% | 2.3% | 3.1% |
| Gross margin | 4.4% | 4.5% | 4.0% | 5.0% |
| Operating margin | 1.8% | 1.5% | 1.4% | 1.8% |
| Operating margin excluding gain on asset sales | 1.8% | 1.4% | 0.8% | 1.7% |
| Net margin | 1.4% | 1.7% | 1.3% | 1.8% |
| Return on invested capital | 6.2% | 5.8% | 5.4% | 10.0% |
| Return on equity | 8.5% | 8.8% | 6.4% | 12.5% |
| Equity ratio | 25.8% | 25.9% | 28.6% | 27.9% |
| Return on assets | 2.3% | 2.5% | 1.9% | 3.7% |
| Gearing | 30.2% | 30.0% | 29.1% | 33.8% |
| Current ratio | 1.00 | 0.93 | 0.96 | 1.01 |
| As at | 30 Sept 2020 | 30 Sept 2019 | 30 Sept 2018 | 31 Dec 2019 |
| Order book (EUR '000) | 215,494 | 196,493 | 131,953 | 227,545 |
| Revenue change = (revenue for the reporting period / revenue for the | Net margin = (net profit or loss for the period / revenue) * 100 | ||
|---|---|---|---|
| previous period) – 1 * 100 Earnings per share (EPS) = net profit or loss attributable to owners of the parent / weighted average number of shares outstanding |
Return on invested capital = ((profit or loss before tax + interest expense) / the period's average (interest-bearing liabilities + equity)) * 100 |
||
| Administrative expenses to revenue = (administrative expenses / revenue) * 100 |
Return on equity = (net profit or loss for the period / the period's average total equity) * 100 |
||
| Administrative expenses to revenue (rolling) = (past four quarters' administrative expenses / past four quarters' 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 | Gearing = ((interest-bearing liabilities – cash and cash equivalents) / | ||
| Gross margin = (gross profit or loss / revenue) * 100 | (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 |
The Group's order book (backlog of contracts signed but not yet performed) stood at 215,494 thousand euros at 30 September 2020, a 10% increase year on year. In the third quarter, we signed new contracts of 87,751 thousand euros (Q3 2019: 69,894 thousand euros).
| As at | 30 Sept 2020 | 30 Sept 2019 | 30 Sept 2018 | 31 Dec 2019 |
|---|---|---|---|---|
| Order book (EUR '000) | 215,494 | 196,493 | 131,953 | 227,545 |
The breakdown of the order book between the two segments has not changed significantly: the volume of contracts secured by the Buildings segment is still substantially larger, accounting for 79% of the Group's total order book while contracts secured by the Infrastructure segment account for 21% (30 September 2019: 80% and 20%, respectively). Compared to 30 September 2019, the order books of both segments have increased. The order book of the Buildings segment has grown by around 7% and that of the Infrastructure segment by 20%. Around two thirds of the Group's order book is made up of projects that will continue in 2021 and 2022.
The order book of the public buildings subsegment accounts for roughly a half of the order book of the Buildings segment. Its growth is mainly attributable to a contract signed at the beginning of the third quarter for the construction of phase III of the Maarjamõisa Medical Campus of the Tartu University Hospital. In phase III, the building complex at L. Puusepa 8 will be added two new blocks: the M Block, which will house a children's hospital, and the C Block, which will house an ear clinic, a women's clinic, a family centre, and a day surgery. The cost of the contract is 47.3 million euros. In addition, in the third quarter we signed contracts for the construction of an academic building for an upper secondary school in Kuressaare on the island of Saaremaa and for the design and construction of a barracks for 300 people in the defence forces base at Paldiski. The order books of the apartment buildings and the industrial and warehouse facilities subsegments have remained at the same level as at 30 September 2019. 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. A significant share of the order book of the industrial and warehouse facilities subsegment is made up of contracts for the construction of a dairy complex for E-Piim in Paide and two shed complexes in Finland. The order book of the commercial buildings subsegment has decreased substantially year on year. Its largest projects in progress are the construction of a new seven-floor commercial building in Rotermann City in Tallinn and a store building for Lidl Eesti OÜ in Tartu.
Contracts secured by the road construction and maintenance subsegment account for 74% of the order book of the Infrastructure segment. The size of the order book is strongly influenced by a contract secured in the second quarter for the construction of the Väo junction on the eastern border of Tallinn. Nordecon 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 approximately 10.7 million euros. Other engineering contracts account for 15% of the order book of the Infrastructure segment. A major share of the order book of the other engineering subsegment is made up of a contract secured in 2019 for the construction of foundations for 73 wind turbines in the Nysäter wind farm in northern Sweden, near Sundsvall.
A large part of the contracts signed in the third quarter came from the public sector. The volume of work secured from the private sector has decreased sharply and the commencement of many projects that have been announced has been postponed. 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 in order to harness our professional competitive advantages.
Between the reporting date (30 September 2020) and the date of release of this report, Group companies have secured additional construction contracts in the region of 16,640 thousand euros.
People
In the first nine months of 2020, the Group (the parent and the subsidiaries) employed, on average, 703 people, including 422 engineers and technical personnel (ETP). Headcount increased by around 2% compared with the same period in 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 40 employees (see the chapter Group structure).
Average number of employees at Group entities (including the parent and the subsidiaries):
| 9M 2020 | 9M 2019 | 9M 2018 | 2019 | |
|---|---|---|---|---|
| ETP | 422 | 413 | 425 | 414 |
| Workers | 261 | 276 | 272 | 273 |
| Total average | 703 | 689 | 697 | 687 |
The Group's personnel expenses for the first nine months of 2020 including all taxes, totalled 19,476 thousand euros. The figure for the same period in 2019 was 17,772 thousand euros. Personnel expenses grew by around 10% 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 the first nine months of 2020 amounted to 135 thousand euros and associated social security charges totalled 45 thousand euros (9M 2019: 140 thousand euros and 46 thousand euros, respectively).
The service fees of the members of the board of Nordecon AS amounted to 357 thousand euros and associated social security charges totalled 118 thousand euros (9M 2019: 356 thousand euros and 117 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:
| 9M 2020 | 9M 2019 | 9M 2018 | 2019 | |
|---|---|---|---|---|
| Nominal labour productivity (rolling), (EUR '000) | 400.4 | 335.0 | 318.6 | 340.6 |
| Change against the comparative period, % | 19.5% | 5.1% | 3.4% | 4.7% |
| Nominal labour cost efficiency (rolling), (EUR) | 10.3 | 9.5 | 9.6 | 9.2 |
| Change against the comparative period, % | 8.4% | -0.6% | -6.7% | -5.0% |
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 have improved year on year, primarily through revenue growth.
| 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* | 30 September 2020 | +/- |
|---|---|---|---|
| OMX Tallinn | 1,279.70 | 1,156.86 | -9.6% |
| NCN1T | EUR 1.03 | EUR 1.09 | 5.83% |
* Closing price on the Nasdaq Tallinn Stock Exchange at 31 December 2019
| Price | 9M 2020 | 9M 2019 | 9M 2018 |
|---|---|---|---|
| Open | 1.04 | 0.91 | 1.25 |
| High | 1.21 | 1.09 | 1.29 |
| Low | 0.78 | 0.89 | 0.98 |
| Last closing price | 1.09 | 1.00 | 0.98 |
| Traded volume (number of securities traded) | 5,311,660 | 2,831,083 | 1,512,959 |
| Turnover, in EUR millions | 5.21 | 2.82 | 1.74 |
| Listed volume (30 September), in thousands | 32,375 | 32,375 | 32,375 |
| Market capitalisation (30 September), in EUR millions | 35.29 | 32.21 | 31.73 |
| Shareholder | Number of shares | Ownership interest (%) |
|---|---|---|
| AS Nordic Contractors | 17,507,464 | 54.08 |
| Luksusjaht AS | 4,288,403 | 13.25 |
| Olegs Radcenko | 516,295 | 1.59 |
| SEB Pank AS kliendid | 503,188 | 1.55 |
| Lembit Talpsepp | 350,786 | 1.08 |
| ASM Investments OÜ | 310,000 | 0.96 |
| Mati Kalme | 294,000 | 0.91 |
| SEB Life and Pension Baltic SE Estonian branch | 255,000 | 0.79 |
| Genadi Bulatov | 250,600 | 0.77 |
| Riivo Pappel | 237,500 | 0.73 |
| Number of shareholders | Ownership interest (%) | |
|---|---|---|
| Shareholders with interest exceeding 5% | 2 | 67.32 |
| Shareholders with interest from 1% to 5% | 3 | 4.23 |
| Shareholders with interest below 1% | 2,968 | 25.83 |
| Holder of own (treasury) shares | 1 | 2.62 |
| Total | 2,974 | 100 |
| Council member | Number of shares | Ownership interest (%) | |
|---|---|---|---|
| Toomas Luman (AS Nordic Contractors, OÜ Luman ja Pojad)* |
Chairman of the Council | 17,579,144 | 54.30 |
| Andri Hõbemägi | Member of the Council | 50,000 | 0.15 |
| Andre Luman | Member of the Council | 25,000 | 0.08 |
| Vello Kahro | Member of the Council | 10,000 | 0.03 |
| Sandor Liive | Member of the Council | 0 | 0.00 |
| Total | 17,664,144 | 54.56 |
* 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 30 September 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.
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 5 November 2020 Priit Luman Member of the Board 5 November 2020 Maret Tambek Member of the Board 5 November 2020
| EUR '000 | Note | 30 September 2020 | 31 December 2019 |
|---|---|---|---|
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 7,640 | 7,032 | |
| Trade and other receivables | 2 | 61,532 | 37,563 |
| Prepayments | 4,208 | 1,813 | |
| Inventories | 3 | 24,080 | 21,142 |
| Total current assets | 97,460 | 67,550 | |
| Non-current assets | |||
| Investments in equity-accounted investees | 1,802 | 2,369 | |
| Other investments | 26 | 26 | |
| Trade and other receivables | 2 | 8,615 | 8,435 |
| Investment property | 6,301 | 5,530 | |
| Property, plant and equipment | 18,451 | 19,002 | |
| Intangible assets | 14,924 | 14,736 | |
| Total non-current assets | 50,119 | 50,098 | |
| TOTAL ASSETS | 147,579 | 117,648 | |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 5, 6 | 19,196 | 11,058 |
| Trade payables | 60,286 | 40,730 | |
| Other payables | 9,440 | 7,954 | |
| Deferred income | 7,550 | 6,391 | |
| Provisions | 1,156 | 716 | |
| Total current liabilities | 97,628 | 66,849 | |
| Non-current liabilities | |||
| Borrowings | 5, 6 | 8,187 | 16,326 |
| Trade payables | 98 | 98 | |
| Other payables | 2,283 | 177 | |
| Provisions | 1,339 | 1,425 | |
| Total non-current liabilities | 11,907 | 18,026 | |
| TOTAL LIABILITIES | 109,535 | 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 | 2,544 | 1,169 | |
| Retained earnings | 14,919 | 12,383 | |
| Total equity attributable to owners of the parent | 34,371 | 30,460 | |
| Non-controlling interests | 3,673 | 2,313 | |
| TOTAL EQUITY | 38,044 | 32,773 | |
| TOTAL LIABILITIES AND EQUITY | 147,579 | 117,648 |
| EUR '000 | Note | 9M 2020 | Q3 2020 | 9M 2019 | Q3 2019 | 2019 |
|---|---|---|---|---|---|---|
| Revenue | 8, 9 | 217,664 | 80,866 | 172,237 | 71,796 | 234,071 |
| Cost of sales | 10 | -208,149 | -77,358 | -164,516 | -67,369 | -222,302 |
| Gross profit | 9,515 | 3,508 | 7,721 | 4,427 | 11,769 | |
| Marketing and distribution expenses | -386 | -184 | -635 | -137 | -784 | |
| Administrative expenses | 11 | -5,312 | -1,452 | -4,668 | -1,620 | -6,837 |
| Other operating income | 12 | 273 | 95 | 128 | 61 | 315 |
| Other operating expenses | 12 | -138 | -28 | -48 | -28 | -193 |
| Operating profit | 3,952 | 1,939 | 2,498 | 2,703 | 4,270 | |
| Finance income | 13 | 270 | 21 | 1,215 | 720 | 1,277 |
| Finance costs | 13 | -2,102 | -861 | -1,006 | -343 | -1,219 |
| Net finance costs/income | -1,832 | -840 | 209 | 377 | -58 | |
| Share of profit of equity-accounted investees | 966 | 487 | 622 | 370 | 585 | |
| Profit before income tax | 3,086 | 1,586 | 3,329 | 3,450 | 4,913 | |
| Income tax expense | -82 | 0 | -453 | 0 | -764 | |
| Profit for the period | 3,004 | 1,586 | 2,876 | 3,450 | 4,149 | |
| Other comprehensive income: | ||||||
| Items that may be reclassified subsequently to | ||||||
| profit or loss | ||||||
| Exchange differences on translating foreign operations |
1,375 | 557 | -777 | -514 | -823 | |
| Total other comprehensive income/expense | 1,375 | 557 | -777 | -514 | -823 | |
| TOTAL COMPREHENSIVE INCOME | 4,379 | 2,143 | 2,099 | 2,936 | 3,326 | |
| Profit attributable to: | ||||||
| - Owners of the parent | 1,040 | 1,197 | 2,532 | 3,325 | 3,378 | |
| - Non-controlling interests | 1,964 | 389 | 344 | 125 | 771 | |
| Profit for the period | 3,004 | 1,586 | 2,876 | 3,450 | 4,149 | |
| Total comprehensive income attributable to: | ||||||
| - Owners of the parent | 2,415 | 1,754 | 1,755 | 2,811 | 2,555 | |
| - Non-controlling interests | 1,964 | 389 | 344 | 125 | 771 | |
| Total comprehensive income for the period | 4,379 | 2,143 | 2,099 | 2,936 | 3,326 | |
| Earnings per share attributable to owners of the parent: |
||||||
| Basic earnings per share (EUR) | 7 | 0.03 | 0.04 | 0.08 | 0.10 | 0.11 |
| Diluted earnings per share (EUR) | 7 | 0.03 | 0.04 | 0.08 | 0.10 | 0.11 |
| EUR '000 | Note | 9M 2020 | 9M 2019 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Cash receipts from customers1 | 267,488 | 193,567 | |
| Cash paid to suppliers2 | -238,592 | -165,291 | |
| VAT paid | -8,245 | -4,606 | |
| Cash paid to and for employees | -20,849 | -17,332 | |
| Income tax paid | -81 | -149 | |
| Net cash used in/from operating activities | -279 | 6,189 | |
| Cash flows from investing activities | |||
| Paid on acquisition of property, plant and equipment | -184 | -216 | |
| Proceeds from sale of property, plant and equipment | 4 | 246 | 215 |
| Acquisition of intangible assets | -2 | 0 | |
| Acquisition of a subsidiary | -2 | 0 | |
| Cash received on acquisition of a subsidiary | 3,605 | 0 | |
| Loans provided | -17 | -14 | |
| Repayment of loans provided | 43 | 9 | |
| Dividends received | 251 | 489 | |
| Interest received | 8 | 6 | |
| Net cash from investing activities | 3,948 | 489 | |
| Cash flows from financing activities | |||
| Proceeds from loans received | 2,333 | 3,036 | |
| Repayment of loans received | -1,949 | -3,245 | |
| Lease payments made | 6 | -2,167 | -2,400 |
| Interest paid | -790 | -744 | |
| Dividends paid | -472 | -2,360 | |
| Net cash used in financing activities | -3,045 | -5,713 | |
| Net cash flow | 624 | 965 | |
| Cash and cash equivalents at beginning of period | 7,032 | 7,678 | |
| Effect of movements in foreign exchange rates | -16 | -13 | |
| Increase in cash and cash equivalents | 624 | 965 | |
| Cash and cash equivalents at end of period | 7,640 | 8,630 |
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 |
0 | 0 | 0 | 0 | 0 | 2,532 | 2,532 | 344 | 2,876 |
| comprehensive | |||||||||
| expense Transactions with owners |
0 | 0 | 0 | 0 | -777 | 0 | -777 | 0 | -777 |
| Dividend distribution Reduction of share |
0 | 0 | 0 | 0 | 0 | -1,891 | -1,891 | -479 | -2,370 |
| capital Total transactions |
-1,942 | 33 | 0 | 17 | 0 | 0 | -1,892 | 0 | -1,892 |
| with owners | -1,942 | 33 | 0 | 17 | 0 | -1,891 | -3,783 | -479 | -4,262 |
| Balance at | |||||||||
| 30 September 2019 | 14,379 | -660 | 2,554 | 635 | 1,215 | 11,537 | 29,660 | 1,886 | 31,546 |
| 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 Other |
0 | 0 | 0 | 0 | 0 | 1,040 | 1,040 | 1,964 | 3,004 |
| comprehensive | |||||||||
| income Changes in non |
0 | 0 | 0 | 0 | 1,375 | 0 | 1,375 | 0 | 1,375 |
| controlling interests Balance at |
0 | 0 | 0 | 0 | 0 | 1,496 | 1,496 | -604 | 815 |
| 30 September 2020 | 14,379 | -660 | 2,554 | 635 | 2,544 | 14,919 | 34,371 | 3,673 | 38,044 |
Nordecon AS is a company incorporated and domiciled in Estonia. The address of the company's registered office is Toompuiestee 35, 10149 Tallinn, Estonia. Nordecon AS's majority shareholder and the party controlling Nordecon Group is AS Nordic Contractors that holds 54.08% 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 30 September 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 third quarter and first nine 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 | 30 September 2020 | 31 December 2019 |
|---|---|---|---|
| Current items | |||
| Trade receivables | 38,006 | 29,141 | |
| Retentions receivable | 1,106 | 763 | |
| Receivables from related parties | 14 | 500 | 739 |
| Other receivables | 87 | 46 | |
| Total receivables | 39,699 | 30,689 | |
| Due from customers for contract work | 21,833 | 6,874 | |
| Total current trade and other receivables | 61,532 | 37,563 | |
| EUR '000 | Note | 30 September 2020 | 31 December 2019 |
| Non-current items | |||
| Loans to related parties | 14 | 8,196 | 8,015 |
| Other non-current receivables | 419 | 420 | |
| Total non-current trade and other receivables | 8,615 | 8,435 |
| EUR '000 | 30 September 2020 | 31 December 2019 |
|---|---|---|
| Raw materials and consumables | 3,715 | 3,149 |
| Work in progress | 6,719 | 6,964 |
| Apartments for sale | 230 | 230 |
| Properties purchased for development and pre-development costs | 13,416 | 10,799 |
| Total inventories | 24,080 | 21,142 |
In the first nine months of 2020, additions to property, plant and equipment totalled 1,678 thousand euros (9M 2019: 1,543 thousand euros) and comprised equipment and construction machinery required for the Group's business.
Proceeds from sales of property, plant and equipment amounted to 246 thousand euros (see the statement of cash flows) and sales gain on the transactions amounted to 102 thousand euros (note 12). In the comparative period, proceeds from sales of property, plant and equipment amounted to 215 thousand euros and sales gain on the transactions amounted to 101 thousand euros.
There were no significant transactions with intangible assets in the first nine months of 2020.
| EUR '000 | Note | 30 September 2020 | 31 December 2019 |
|---|---|---|---|
| Short-term portion of long-term loans | 9,140 | 3 | |
| Lease liabilities | 6 | 3,300 | 2,670 |
| Short-term bank loans | 6,756 | 8,385 | |
| Total current borrowings | 19,196 | 11,058 |
| EUR '000 | Note | 30 September 2020 | 31 December 2019 |
|---|---|---|---|
| Long-term portion of long-term bank loans | 1,295 | 8,418 | |
| Derivative financial instruments | 4 | 6 | |
| Lease liabilities | 6 | 6,888 | 7,902 |
| Total non-current borrowings | 8,187 | 16,326 |
| EUR '000 | 30 September 2020 | 31 December 2019 |
|---|---|---|
| Lease liabilities at end of period, of which | 10,188 | 10,572 |
| Not later than 1 year | 3,300 | 2,670 |
| Later than 1 year and not later than 5 years | 6,888 | 7,902 |
| Base currency EUR | 4,722 | 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
Lease payments EUR '000 9M 2020 9M 2019 Principal payments made during the period 2,167 2,400 Interest payments made during the period 255 177
Short-term leases and leases for which the underlying asset is of low value are recognised as an expense on a straight-line basis over the lease term. Short-term leases are leases with a lease term of twelve months or less.
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 | 9M 2020 | 9M 2019 |
|---|---|---|
| Profit for the period attributable to owners of the parent (EUR '000) | 1,040 | 2,532 |
| Weighted average number of shares (in thousands) | 31,521 | 31,521 |
| Basic earnings per share (EUR) | 0.03 | 0.08 |
| Diluted earnings per share (EUR) | 0.03 | 0.08 |
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 Q3 2020 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 56,832 | 24,427 | 81,259 |
| Of which: General contracting services | 52,781 | 22,569 | 75,350 |
| Subcontracting services | 3,950 | 525 | 4,475 |
| Own development activities | 101 | 0 | 101 |
| Road maintenance services | 0 | 800 | 800 |
| Rental services | 0 | 533 | 533 |
| Inter-segment revenue | 0 | -508 | -508 |
| Revenue from external customers | 56,832 | 23,919 | 80,751 |
| Gross profit of the segment | 2,247 | 1,400 | 3,647 |
| EUR '000 Q3 2019 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 46,760 | 24,979 | 71,739 |
| Of which: General contracting services | 40,507 | 22,845 | 63,352 |
| Subcontracting services | 3,657 | 1,095 | 4,752 |
| Own development activities | 2,596 | 0 | 2,596 |
| Road maintenance services | 0 | 627 | 627 |
| Rental services | 0 | 358 | 358 |
| Inter-segment revenue | 0 | -54 | -54 |
| Revenue from external customers | 46,760 | 24,925 | 71,685 |
| Gross profit of the segment | 2,399 | 2,295 | 4,694 |
| EUR '000 9M 2020 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 169,439 | 48,601 | 218,040 |
| Of which: General contracting services | 155,402 | 43,486 | 198,888 |
| Subcontracting services | 10,232 | 1,098 | 11,330 |
| Own development activities | 2,455 | 0 | 2,455 |
| Road maintenance services | 0 | 2,839 | 2,839 |
| Rental services | 0 | 1,178 | 1,178 |
| Sale of a property | 1,350 | 0 | 1,350 |
| Inter-segment revenue | 0 | -576 | -576 |
| Revenue from external customers | 169,439 | 48,025 | 217,464 |
| Gross profit of the segment | 7,908 | 2,221 | 10,129 |
| EUR '000 9M 2019 |
Buildings | Infrastructure | Total |
|---|---|---|---|
| Total revenue | 122,831 | 49,241 | 172,072 |
| Of which: General contracting services | 108,755 | 40,138 | 148,893 |
| Subcontracting services | 7,682 | 5,646 | 13,328 |
| Own development activities | 6,388 | 0 | 6,388 |
| Road maintenance services | 0 | 2,550 | 2,550 |
| Rental services | 0 | 804 | 804 |
| Inter-segment revenue | -6 | -103 | -109 |
| Revenue from external customers | 122,825 | 49,138 | 171,963 |
| Gross profit of the segment | 6,582 | 1,945 | 8,527 |
| EUR '000 | 9M 2020 | Q3 2020 | 9M 2019 | Q3 2019 |
|---|---|---|---|---|
| Total revenues for reportable segments | 218,040 | 81,259 | 172,072 | 71,739 |
| Elimination of inter-segment revenues | -576 | -508 | -109 | -54 |
| Other revenue | 200 | 115 | 274 | 111 |
| Total revenue | 217,664 | 80,866 | 172,237 | 71,796 |
| EUR '000 | 9M 2020 | Q3 2020 | 9M 2019 | Q3 2019 |
|---|---|---|---|---|
| Total profit for reportable segments | 10,129 | 3,647 | 8,527 | 4,694 |
| Unallocated loss | -614 | -139 | -806 | -267 |
| Gross profit | 9,515 | 3,508 | 7,721 | 4,427 |
| Unallocated expenses: | ||||
| Marketing and distribution expenses | -386 | -184 | -635 | -137 |
| Administrative expenses | -5,312 | -1,452 | -4,668 | -1,620 |
| Other operating income and expenses | 135 | 67 | 80 | 33 |
| Operating profit | 3,952 | 1,939 | 2,498 | 2,703 |
| Finance income | 270 | 21 | 1,215 | 720 |
| Finance costs | -2,102 | -861 | -1,006 | -343 |
| Share of profit of equity-accounted investees | 966 | 487 | 622 | 370 |
| Profit before tax | 3,086 | 1,586 | 3,329 | 3,450 |
| EUR '000 | 9M 2020 | Q3 2020 | 9M 2019 | Q3 2019 |
|---|---|---|---|---|
| Estonia | 191,049 | 70,453 | 159,573 | 66,551 |
| Ukraine | 2,512 | 1,377 | 3,312 | 562 |
| Finland | 10,232 | 3,951 | 7,683 | 3,658 |
| Sweden | 13,871 | 5,085 | 4,758 | 2,583 |
| Elimination of inter-segment revenues | 0 | 0 | -3,089 | -1,558 |
| Total revenue | 217,664 | 80,866 | 172,237 | 71,796 |
| EUR '000 | 9M 2020 | 9M 2019 |
|---|---|---|
| Cost of materials, goods and services | 189,346 | 147,012 |
| Personnel expenses | 16,502 | 15,259 |
| Depreciation expense | 1,909 | 2,053 |
| Other expenses | 392 | 192 |
| Total cost of sales | 208,149 | 164,516 |
| EUR '000 | 9M 2020 | 9M 2019 |
|---|---|---|
| Personnel expenses | 2,917 | 2,450 |
| Cost of materials, goods and services | 1,609 | 1,910 |
| Depreciation and amortisation expense | 651 | 181 |
| Other expenses | 135 | 127 |
| Total administrative expenses | 5,312 | 4,668 |
| EUR '000 | 9M 2020 | 9M 2019 |
|---|---|---|
| Other operating income | ||
| Gain on a bargain purchase | 139 | 0 |
| Gain on sale of property, plant and equipment | 102 | 101 |
| Other income | 32 | 27 |
| Total other operating income | 273 | 128 |
| EUR '000 | 9M 2020 | 9M 2019 |
|---|---|---|
| Other operating expenses | ||
| Foreign exchange loss | 0 | 10 |
| Loss on write-off of property, plant and equipment | 7 | 0 |
| Net loss on impairment losses and reversals of impairment losses on | ||
| receivables | 64 | 10 |
| Other expenses | 67 | 28 |
| Total other operating expenses | 138 | 48 |
| EUR '000 | 9M 2020 | 9M 2019 |
|---|---|---|
| Finance income | ||
| Interest income on loans | 168 | 175 |
| Foreign exchange gain | 84 | 1,040 |
| Other finance income | 18 | 0 |
| Total finance income | 270 | 1,215 |
| EUR '000 | 9M 2020 | 9M 2019 |
| Finance costs | ||
| Interest expense | 792 | 738 |
| Foreign exchange loss Other finance costs |
1,255 55 |
258 10 |
| Total finance costs | 2,102 | 1,006 |
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 | 9M 2020 | 9M 2019 | ||
|---|---|---|---|---|
| Counterparty | Purchases | Sales | Purchases | Sales |
| AS Nordic Contractors | 196 | 0 | 216 | 0 |
| Companies of AS Nordic Contractors group | 2,111 | 7 | 15 | 7 |
| Companies related to owners of AS Nordic Contractors | 86 | 0 | 369 | 0 |
| Equity-accounted investees | 1,140 | 1,368 | 2,457 | 17 |
| Companies related to members of the council | 88 | 0 | 67 | 0 |
| Total | 3,621 | 1,375 | 3,124 | 24 |
| EUR '000 | 9M 2020 | 9M 2019 | ||
|---|---|---|---|---|
| Nature of transactions | Purchases | Sales | Purchases | Sales |
| Construction services | 1,140 | 0 | 2,457 | 0 |
| Transactions with goods | 86 | 0 | 369 | 0 |
| Lease and other services | 307 | 315 | 231 | 24 |
| Other transactions | 2,088 | 1,350 | 67 | 0 |
| Total | 3,621 | 1,375 | 3,124 | 24 |
During the period, the Group recognised interest income on loans to associates of 163 thousand euros (9M 2019: 162 thousand euros).
| 30 September 2020 | 31 December 2019 | |||
|---|---|---|---|---|
| EUR '000 | Receivables | Liabilities | Receivables | Liabilities |
| AS Nordic Contractors | 0 | 15 | 0 | 10 |
| Companies of AS Nordic Contractors group – receivables |
496 | 1,211 | 495 | 660 |
| Companies related to owners of AS Nordic Contractors |
0 | 49 | 0 | 316 |
| Associates – receivables and liabilities | 4 | 473 | 244 | 1 |
| Associate – loans and interest | 8,196 | 0 | 8,015 | 0 |
| Total | 8,696 | 1,748 | 8,754 | 987 |
The service fees of the members of the council of Nordecon AS for the first nine months of 2020 amounted to 135 thousand euros and associated social security charges totalled 45 thousand euros (9M 2019: 140 thousand euros and 46 thousand euros, respectively).
The service fees of the members of the board of Nordecon AS for the first nine months of 2020 amounted to 357 thousand euros and associated social security charges totalled 118 thousand euros (9M 2019: 356 thousand euros and 117 thousand euros, respectively).
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 the Group's 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.
The board of Nordecon AS acknowledges its responsibility for the preparation of the Group's condensed consolidated interim financial statements for the third quarter and first nine months of 2020 and confirms that:
| Gerd Müller | Chairman of the Board | 5 November 2020 |
|---|---|---|
| Priit Luman | Member of the Board | 5 November 2020 |
| Maret Tambek | Member of the Board | 5 November 2020 |
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