2023 first quarter consolidated interim report (unaudited)
Uncertainty in the economy has not disappeared
with the arrival of the new year, and the dynamics of the
construction market is a direct reflection of this. Many private
developments are frozen or on hold, public construction
procurements have not yet adjusted to the increase in construction
prices that have occurred in the last two years, and the start
dates of several planned projects are postponed indefinitely. Road
construction segment has essentially not recovered from the shock
of the war in Ukraine and has not restarted. Competition in the
general contracting market is therefore even tighter compared to
previous years.The financial results of the group for the first
quarter of 2023 correlate with what is happening in the external
environment. The sales revenue for the first quarter of 2023 was
€47,653 thousand, which compared to the same period last year
decreased by approximately 30%. Sales revenue decreased in both
segments, in the Buildings segment by 29% and in the Infrastructure
segment by 49%, which was expected and is due to the decrease in
construction volumes in the market. The decrease in sales revenue
of the Infrastructure segment to essentially the lowest level in
history is directly related to the significant reduction of
investments by the main customer, Estonian Transport
Administration.Although the group has been successful in concluding
new contracts in the first quarter of this year, they have not yet
had a significant impact on the sales revenue of the reporting
period. As of 31 March 2023, the group's order book decreased by
21% compared to the same period last year, amounting to €199,947
thousand. New contracts worth €84,930 thousand were added in the
first quarter.Despite the decrease in sales revenue, the group's
gross profit increased compared to the same period last year. In
the first quarter of 2023, the gross profit was €1,322 thousand (Q1
2022: €1,147 thousand) and the gross margin was 2.8% (1Q 2022:
1.7%). The increase in profitability is based on the improvement in
the profitability of the Buildings segment, which had a margin of
5.1% (1Q 2022: 4.1%). The result of the first quarter is affected
by the large part of uncovered fixed costs resulting from the
seasonality of construction, especially in the Infrastructure
segment. The margin of the Infrastructure segment was -26.3% (1Q
2022: -23%) affected by a significant decrease in sales revenue.
The group's operating loss in the first quarter of 2023 was €605
thousand, which is comparable to the operating result of the first
quarter of 2022 without the impact of the reorganization of Swencn
AB (€1,560 thousand).Condensed consolidated interim
statement of financial position
€’000 |
31 March 2023 |
31 December 2022 |
ASSETS |
|
|
Current assets |
|
|
Cash and cash equivalents |
5,901 |
7,238 |
Trade and other receivables |
39,039 |
48,084 |
Prepayments |
5,582 |
6,728 |
Inventories |
28,993 |
25,454 |
Total current assets |
79,515 |
87,504 |
Non-current assets |
|
|
Other investments |
76 |
76 |
Trade and other receivables |
8,661 |
8,604 |
Investment property |
8,347 |
8,347 |
Property, plant and equipment |
17,176 |
17,669 |
Intangible assets |
15,148 |
15,134 |
Total non-current assets |
49,408 |
49,830 |
TOTAL ASSETS |
128,923 |
137,334 |
|
|
|
LIABILITIES |
|
|
Current liabilities |
|
|
Borrowings |
16,830 |
17,193 |
Trade payables |
54,422 |
65,144 |
Other payables |
7,544 |
8,324 |
Deferred income |
13,610 |
6,996 |
Provisions |
1,030 |
1,288 |
Total current liabilities |
93,436 |
98,945 |
Non-current liabilities |
|
|
Borrowings |
6,233 |
6,311 |
Trade payables |
1,924 |
2,769 |
Provisions |
2,163 |
2,049 |
Total non-current liabilities |
10,320 |
11,129 |
TOTAL LIABILITIES |
103,756 |
110,074 |
|
|
|
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 |
3,485 |
3,316 |
Retained earnings |
817 |
2,691 |
Total equity attributable to owners of the
parent |
21,210 |
22,915 |
Non-controlling interests |
3,957 |
4,345 |
TOTAL EQUITY |
25,167 |
27,260 |
TOTAL LIABILITIES AND EQUITY |
128,923 |
137,334 |
Condensed consolidated interim statement
of comprehensive income
€’000 |
Q1 2023 |
Q1 2022 |
2022 |
Revenue |
47,653 |
68,453 |
322,860 |
Cost of sales |
(46,331) |
(67,306) |
(314,365) |
Gross profit |
1,322 |
1,147 |
8,495 |
|
|
|
|
Marketing and distribution expenses |
(136) |
(71) |
(490) |
Administrative expenses |
(1,870) |
(1,601) |
(7,287) |
Other operating income |
112 |
1,753 |
2,049 |
Other operating expenses |
(33) |
(278) |
(462) |
Operating profit (loss) |
(605) |
950 |
2,305 |
Finance income |
74 |
67 |
258 |
|
|
|
|
Finance costs |
(900) |
(1,335) |
(3,740) |
Net finance costs |
(826) |
(1,268) |
(3,482) |
|
|
|
|
Loss before income tax |
(1,431) |
(318) |
(1,177) |
Income tax expense |
(243) |
0 |
(264) |
Loss for the period |
(1,674) |
(318) |
(1,441) |
|
|
|
|
Other comprehensive income (expense)Items
that may be reclassified subsequently to profit or
loss |
|
|
|
Exchange differences on translating foreign operations |
169 |
154 |
1,368 |
Total other comprehensive income |
169 |
154 |
1,368 |
TOTAL COMPREHENSIVE INCOME (EXPENSE) |
(1,505) |
(164) |
(73) |
|
|
|
|
Profit (loss) attributable to: |
|
|
|
- Owners of the parent |
(1,874) |
(919) |
(3,650) |
- Non-controlling interests |
200 |
(601) |
2,209 |
Loss for the period |
(1,674) |
(318) |
(1,441) |
|
|
|
|
Comprehensive income (expense)
attributable to: |
|
|
|
- Owners of the parent |
(1,705) |
(765) |
(2,282) |
- Non-controlling interests |
200 |
601 |
2,209 |
Comprehensive expense for the period |
(1,505) |
(164) |
(73) |
|
|
|
|
Earnings per share attributable to owners of the
parent: |
|
|
|
Basic earnings per share (€) |
(0.06) |
(0.03) |
(0.12) |
Diluted earnings per share (€) |
(0.06) |
(0.03) |
(0.12) |
Condensed consolidated interim statement
of cash flows
€’000 |
Q1 2023 |
Q1 2022 |
Cash flows from operating activities |
|
|
Cash receipts from customers |
77,360 |
81,287 |
Cash paid to suppliers |
(67,923) |
(76,240) |
VAT paid |
(2,692) |
(2,011) |
Cash paid to and for employees |
(5,716) |
(5,947) |
Income tax paid |
(324) |
(150) |
Net operaing cash flow |
705 |
(3,061) |
|
|
|
Cash flows from investing activities |
|
|
Acquisition of PP&E |
(37) |
(63) |
Sale of PP&E |
201 |
200 |
Loans provided |
(508) |
0 |
Repayments of loans provided |
4 |
3 |
Dividends received |
12 |
6 |
Interest received |
2 |
2 |
Net nvesting cash flow |
(326) |
148 |
|
|
|
Cash flows from financing activities |
|
|
Proceeds from loans received |
1,234 |
832 |
Repayments of loans received |
(1,330) |
(300) |
Dividends paid |
(588) |
0 |
Lease payments made |
(735) |
(786) |
Interest paid |
(294) |
(239) |
Other payments made |
0 |
(3) |
Net financing cash flow |
(1,713) |
(496) |
|
|
|
Net cash flow |
(1,334) |
(3,409) |
|
|
|
Cash at beginning of period |
7,238 |
9,031 |
Foreign exchange effect |
(3) |
(5) |
Change in cash and cash equivalents |
(1,334) |
(3,409) |
Cash at end of period |
5,901 |
5,617 |
Financial review
Financial performance
Nordecon ended the first quarter of 2023 with a
gross profit of €1,322 thousand (Q1 2022: €1,147 thousand) and a
gross margin of 2.8% (Q1 2022: 1.7%). Profitability improved due to
higher profitability in the Buildings segment, which delivered a
gross margin of 5.1% (Q1 2022: 4.1%). Due to the seasonal nature of
the construction business, first-quarter results are affected by a
large share of uncovered fixed costs, particularly in the
Infrastructure segment. Above all, this applies to asphalt concrete
production and laying in road construction, where plant and
equipment expenses account for a major share of fixed costs. A
large share of fixed costs in combination with a 49% decrease in
revenue triggered a sharp margin decline in the Infrastructure
segment, which delivered a negative gross margin of 26.3 % (Q1
2022: a negative gross margin of 23%). The group’s administrative
expenses for the period were €1,870 thousand. Compared with a year
earlier, administrative expenses grew by around 17% (Q1 2022:
€1,601 thousand) due to growth in the cost of goods and services as
well as staff costs. The ratio of administrative expenses to
revenue (12 months rolling) increased year on year, rising to 2.5%
(Q1 2022: 2.0%).The group earned an operating loss of €605 thousand
in the first quarter of 2023 (Q1 2022: profit €950 thousand).
EBITDA for the period was €264 thousand (Q1 2022: €1,817 thousand).
The operating profit and EBITDA for the comparative period were
influenced by other income of €1,560 thousand, recognised after the
approval of the restructuring plan of Swencn AB according to which
the claims of the entity’s creditors were to be settled to the
extent of 25%. The group’s finance income and costs are affected by
exchange rate fluctuations in the group’s foreign markets. During
the period, the Ukrainian hryvnia weakened against the euro by
around 2% and the Swedish krona weakened against the euro by around
1%. The translation of the loans provided to the group’s Ukrainian
and Swedish subsidiaries in euros into the local currencies gave
rise to exchange losses of €133 thousand (Q1 2022: €313 thousand).
Finance costs of the comparative period were strongly influenced by
the write-down of a loan provided to the group’s Ukrainian
associate V.I. Center TOV by €825 thousand. The group ended the
period with a net loss of €1,674 thousand (Q1 2022: €318 thousand).
The net loss attributable to owners of the parent, Nordecon AS, was
€1,874 thousand (Q1 2022: €919 thousand).
Cash flows
Operating activities in the first quarter of
2023 produced a net cash inflow of €705 thousand (Q1 2022: an
outflow of €3,061 thousand). Operating cash flow is 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. 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 of the period resulted in a net cash outflow
of €326 thousand (Q1 2022: an inflow of €148 thousand). Payments
made to purchase property, plant and equipment amounted to €37
thousand (Q1 2022: €63 thousand) and proceeds from the sale of
property, plant and equipment amounted to €201 thousand (Q1 2022:
€200 thousand). Loans provided amounted to €508 thousand.Financing
activities generated a net cash outflow of €1,713 thousand (Q1
2022: an outflow of €496 thousand). The largest items were loan
repayments and lease payments of €1,330 thousand and €735 thousand,
respectively (Q1 2022: €300 thousand and €786 thousand). Proceeds
from loans received amounted to €1,234 thousand (Q1 2022: €832
thousand) and interest payments to €294 thousand (Q1 2022: €239
thousand). Dividends paid during the period amounted to €588
thousand.The group’s cash and cash equivalents at 31 March 2023
were €5,901 thousand (31 March 2021: €5,617 thousand).
Key financial figures and
ratios
Figure/ratio |
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
Revenue (€’000) |
47,653 |
68,453 |
48,987 |
322,860 |
Revenue change |
(30.4)% |
39.7% |
(10.8)% |
11.9% |
Net profit (loss) (€’000) |
(1,674) |
(318) |
(1,911) |
(1,441) |
Net profit (loss) attributable to owners of the parent (€’000) |
(1,874) |
(919) |
(1,564) |
(3,650) |
Average number of shares |
31,528,585 |
31,528,585 |
31,528,585 |
31,528,585 |
Earnings per share (€) |
(0.06) |
(0.03) |
(0.05) |
(0.12) |
Administrative expenses to revenue |
3.9% |
2.3% |
3.0% |
2.3% |
Administrative expenses to revenue (rolling) |
2.5% |
2.0% |
2.3% |
2.3% |
EBITDA (€’000) |
264 |
1,817 |
(811) |
5,766 |
EBITDA margin |
0.6% |
2.7% |
(1.7)% |
1.8% |
Gross margin |
2.8% |
1.7% |
(0.2)% |
2.6% |
Operating margin |
(1.3)% |
1.4% |
(3.4)% |
0.7% |
Operating margin excluding gain on non-current asset sales |
(1.5)% |
1.2% |
(3.4)% |
0.6% |
Net margin |
(3.5)% |
(0.5)% |
(3.9)% |
(0.4)% |
Return on invested capital |
(2.4)% |
(0.2)% |
(2.1)% |
(0.5)% |
Return on equity |
(6.4)% |
(1.1)% |
(5.3)% |
(5.2)% |
Equity ratio |
19.5% |
20.4% |
28.0% |
19.8% |
Return on assets |
(1.3)% |
(0.2)% |
(1.8)% |
(1.1)% |
Gearing |
35.6% |
36.1% |
27.8% |
32.0% |
Current ratio |
0.85 |
0.91 |
0.99 |
0.88 |
|
31 March 2023 |
31 March 2022 |
31 March 2021 |
31 Dec 2022 |
Order book (€’000) |
199,947 |
251,781 |
281,431 |
149,799 |
Performance by geographical
market
The revenue contribution of foreign markets has
decreased year on year, dropping to 2% of the group’s total revenue
for the first quarter of 2023. Due to Russia’s military invasion of
Ukraine, the business volumes of the Ukrainian subsidiary, Eurocon
Ukraine TOV, have decreased considerably. Revenue generated during
the period in Ukraine amounted to €166 thousand, a major share of
it resulting from a contract secured at the end of 2022 for
building concrete structures for a modular kindergarten, a bomb
shelter and outdoor infrastructure in the city of Ovruch. Finnish
revenues include mainly subcontracting revenue from the provision
of concrete works. Nordecon did not generate any revenue and had no
ongoing construction contracts in the Swedish market. Nor did the
group generate any revenue in Latvia and Lithuania, where we
operate on a project basis.
|
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
Estonia |
98% |
95% |
96% |
96% |
Finland |
2% |
2% |
2% |
2% |
Ukraine |
0% |
0% |
1% |
0% |
Sweden |
0% |
0% |
1% |
0% |
Latvia |
0% |
3% |
0% |
1% |
Lithuania |
0% |
0% |
0% |
1% |
Performance by business
line
Segment revenues
Our targets include maintaining the revenues of
our two main operating segments (Buildings and Infrastructure) in
balance, if this is permitted by market conditions, because this
helps diversify risks and provides better opportunities to continue
construction operations in more challenging market conditions where
the volumes of one subsegment may decline sharply while the volumes
of another may begin growing more rapidly.The group’s revenue for
the first quarter of 2023 was €47,653 thousand, roughly 30% less
than in the same period last year, when the figure was €68,453
thousand. The Buildings segment generated revenue of €44,789
thousand and the Infrastructure segment revenue of €2,849 thousand.
The corresponding figures for the same period of 2022 were €62,814
thousand and €5,569 thousand. The decline was 29% for Buildings and
49% for Infrastructure. The decrease in both segments was expected
and is attributable to market contraction. The trend is also
reflected the group’s order book, which declined year on year.
Although the group was successful in winning new contracts in the
first quarter of 2023, these did not yet affect revenue for the
period. The drastic fall in the revenue of the Infrastructure
segment to its practically lowest-ever level is directly related to
cutbacks in the investments of the largest customer, the Transport
Administration.
Revenue by operating segment |
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
Buildings |
93% |
89% |
80% |
81% |
Infrastructure |
7% |
11% |
20% |
19% |
Subsegment revenues
In the Buildings segment, the main revenue
contributor was the public buildings subsegment, which also
delivered nearly 11% revenue growth. The revenues of other
subsegments decreased compared with a year earlier. The largest
projects under construction in the public buildings subsegment
during the period were the construction works in the Medical Campus
of the Tartu University Hospital in Tartu, the construction of the
main building of the Estonian Internal Security Service in Tallinn,
the design and construction of storage facilities and utility
networks for the Centre for Defence Investment in Harju county and
the construction of the building and outdoor premises of the
Karlsson kindergarten in Viljandi.The apartment buildings
subsegment earns most of its revenue from the construction of
apartment buildings for third parties. In the first quarter, the
largest projects of this kind were the design and construction of
the Luccaranna and Kastanikodu housing estates near Tallinn.
Revenue generated by the group’s own development operations
(reported in the apartment buildings subsegment) decreased,
amounting to €2,173 thousand (Q1 2022: €2,893 thousand). Nordecon
continues the development of the Mõisavahe Kodu
(https://moisavahe.ee) housing estate and the construction of the
centrally located Emajõe
Residents (https://emajoeresidents.ee) housing estate in
Tartu. The group is also making preparations for the construction
of an apartment building in the Kivimäe Süda development in the
Nõmme district in Tallinn (https://www.kivimaesuda.ee/en) and
moving on with the design of the Seileri Kvartal housing estate in
Pärnu (https://seileri.ee/en). In carrying out our own development
activities, we carefully monitor potential risks in the housing
development market. The largest projects in the commercial
buildings subsegment were the construction of the commercial and
residential complex Vektor and the Ahtri 4 office building in
Tallinn and the design and construction of the Männiku commercial
building in the Kandiküla district in Tartu. The largest project in
progress in the industrial and warehouse facilities subsegment is
the construction of a factory complex for the dairy company E-Piim
in Paide but the subsegment is also involved in various smaller
projects.
Buildings segment |
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
Public buildings |
43% |
28% |
31% |
30% |
Commercial buildings |
25% |
23% |
33% |
24% |
Apartment buildings |
22% |
31% |
30% |
28% |
Industrial and warehouse facilities |
10% |
18% |
6% |
18% |
In the Infrastructure segment, the largest
revenue contributor is still road construction and maintenance
although its revenue has decreased year on year by roughly 58%.
During the period, a major share of the subsegment’s revenue
resulted from the performance of the road maintenance contract in
Järva county and the construction of the Tagadi ecoduct on the
route of Rail Baltica. The revenue contribution of other
engineering, which is currently generating most of its revenue from
the construction of two wind farms (Saarde and Tootsi-Sopi) in
Estonia, increased year on year.
Infrastructure segment |
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
Road construction and maintenance |
61% |
66% |
88% |
75% |
Other engineering |
33% |
27% |
1% |
20% |
Environmental engineering |
6% |
0% |
5% |
0% |
Specialist engineering |
0% |
7% |
6% |
5% |
Order book
The group’s order book (backlog of contracts
signed but not yet performed) stood at €199,947 thousand at
31 March 2023, reflecting a roughly 21% decrease year on year.
In the first quarter of 2023, we signed new contracts of €84,930
thousand (Q1 2022: €63,167 thousand). The surge in materials prices
and the uptrend in interest rates due to the rise in the EURIBOR
rates have caused a substantial increase in the costs of
development projects and the postponement of new projects. The
volume of investments made by the Transport Administration has
decreased sharply and this has had a direct impact on the size of
the order book of the Infrastructure segment. The volume of
procurements for the Rail Baltica project has increased and will
partly counterbalance the decline in the investments of the
Transport Administration. While public investments in the buildings
construction segment have also decreased, investments in national
defence infrastructure are going to increase according to currently
available information and this is a subsegment where Nordecon has
traditionally been very successful.
|
31 March 2023 |
31 March 2022 |
31 March 2021 |
31 Dec 2022 |
Order book (€’000) |
199,947 |
251,781 |
281,431 |
149,799 |
The proportion of the Buildings segment in the
group’s order book has decreased: the Buildings segment accounted
for 75% and the Infrastructure segment for 25% of the group’s total
order book at 31 March 2023 (31 March 2022: 88% and 12%,
respectively). Compared with 31 March 2022, the order book of the
Buildings segment has decreased by 32% while the order book of the
Infrastructure segment has increased by 64%. Growth in the order
book of the Infrastructure segment was driven by the other
engineering subsegment, which secured a new wind farm construction
contract.The largest new contracts secured by the Buildings segment
during the period include:
- the construction of a complex of
buildings in the Port Athena quarter at Väike-Turu 7 in Tartu with
an approximate cost of €29,900 thousand;
- the construction of a production and
office building at Hüüru in Harju county with an approximate cost
of €3,600 thousand;
- the design and construction of an
administrative building in the Raadi campus in Tartu with an
approximate cost of €5,200 thousand.
The largest new contracts secured by the
Infrastructure segment during the period include:
- design and construction works in the
Sopi-Tootsi wind farm in the northern part of Pärnu county with an
approximate cost of €67,300 thousand (the contract was won in a
joint bid and the group’s share of the cost of the contract is
50%);
- construction of a 2+1 road on the
Neanurme–Pikknurme section of national road no. 2 (E263)
Tallinn‒Tartu–Võru–Luhamaa, km 135.5-141.9, in Jõgeva county with
an approximate cost of €8,900 thousand.
Based on the size of the group’s order book and
the situation in the construction market, management forecasts that
in 2023 the group’s revenue will decrease compared with 2022.
Increasing competition and cost inflation, particularly the growth
in labour costs, will continue to drive up input prices, which will
keep profit margins under pressure. In an environment of stiff
competition, we will avoid taking unjustified risks whose
realisation in the contract performance phase would have an adverse
impact on the group’s results. Our focus remains on cost control as
well as pre-construction and design activities, where we can deploy
our professional competitive advantages.
People
Employees and staff costs
The group’s average number of employees in the
first quarter of 2023 was 584, including 392 engineers and
technical professionals (ETP). Headcount decreased by around 11%
year on year.
Average number of employees at group
entities (incl. the parent and the
subsidiaries):
|
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
ETP |
392 |
434 |
422 |
432 |
Workers |
192 |
225 |
253 |
226 |
Total average |
584 |
659 |
675 |
658 |
The group’s staff costs for the first quarter of
2023, including all taxes, totalled €6,123 thousand compared with
€6,030 thousand in the first quarter of 2022. Despite the decrease
in the number of staff, staff costs grew by around 2% year on year
due to growth in employee remuneration. The service fees of the
members of the council of Nordecon AS for the first quarter of 2023
were €37 thousand and associated social security charges were €12
thousand (Q1 2022: €37 thousand and €12 thousand, respectively).The
service fees of the members of the board of Nordecon AS were €115
thousand and associated social security charges were €38 thousand
(Q1 2022: €99 thousand and €33 thousand, respectively).
Labour productivity and labour cost
efficiency
We measure the efficiency of our operating
activities using the following productivity and efficiency
indicators, which are based on the number of employees and staff
costs incurred:
|
Q1 2023 |
Q1 2022 |
Q1 2021 |
2022 |
Nominal labour productivity (rolling), (€ ‘000) |
472.3 |
451.9 |
417.4 |
490.4 |
Change against the comparative period, % |
4.5% |
8.3% |
14.1% |
16.5% |
|
|
|
|
|
Nominal labour cost efficiency (rolling), (€) |
11.0 |
12.2 |
11.0 |
11.8 |
Change against the comparative period, % |
(9.8)% |
11.4% |
14.9% |
2.9% |
The group’s nominal labour productivity
increased year on year due to the decrease in the average number of
staff compared with the same period last year. Nominal labour cost
efficiency declined due to growth in staff costs.
Andri HõbemägiNordecon ASHead of Investor
RelationsTel: +372 6272 022Email: andri.hobemagi@nordecon.com
www.nordecon.com
- Nordecon_Interim_report_Q1_2023
- NCN investor presentation Q1_2023
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