World News: 07:00 GMT Thursday 8th August 2019. [Nordecon via Globe Newswire via SPi World News]
Nordecon Group’s business volume and profitability increased in the second quarter of 2019 as compared to the same period of the last year. Revenues grew 6.3% to 65,917 thousand euros (Q2 2018: 61,996 thousand euros) and operating profit 43.6% to 1,545 thousand euros (Q2 2018: 1,076 thousand euros).Profit was earned mainly in the buildings segment, where the gross margin in the second quarter was 6.1% (Q2 2018: 3.3%), whereas the gross profitability of the infrastructure segment decreased to 3.5% (Q2 2018: 8.6%).The market is continuously characterised by high competition and increase in input prices. When in building construction market there are new sizeable and complex engineer-technical projects, then in road construction the average size and complexity of the project has fallen, increasing thereby the competition in the segment. Decrease in latter volumes has in turn created on market an approximate 25% asphalt production capacity surplus, affecting negatively the margins.The Group’s order book as of 30 June 2019 stood at 180 million euros, consisting mainly of projects of the building segment.
It is worth noting that the share of revenue earned in Finland has increased. Based on the Finnish order book, where the largest project is a subcontract for supplying concrete constructions for the Raitinkartano commercial and residential building, we expect that in 2019 our Finnish revenues will increase compared to previous years. The contribution of the Ukrainian market where we are currently providing general contractor’s services under two building construction contracts has decreased compared to the same period last year. Swedish revenues have also decreased year on year: two new general construction contracts secured in Sweden in 2019 had only a modest impact on the period’s revenue because the Group was mainly involved in preparatory and design activities.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 affect our current results. Increasing the contribution of foreign markets is one of Nordecon’s strategic targets.
We do not expect revenue breakdown in the Infrastructure segment to change significantly in 2019. The segment will continue to be dominated by road construction and maintenance despite the fact that the contribution of other engineering work has grown. During the period, a major share of the revenue of the road construction and maintenance sub-segment resulted from contracts secured in 2018: the construction of passing lanes on the Pikknurme-Puurmani section of the Tallinn–Tartu–Võru–Luhamaa road (a 2+1 road section) and roads and bridges for the defence forces’ central training area in Kuusalu parish. The strongest contributors among contracts secured in 2019 were those for the construction of the Missokülä-Hindsa section (8 km) and the Misso small town section (2 km) of main road no. 7 (Riga-Pskov). A significant share of the sub-segment’s revenue results from forest road improvement services provided to the State Forest Management Centre. The Group also continues to provide road maintenance services in Järva and Hiiu counties and the Kose maintenance area in Harju county.During the period, we continued earthworks on the Kiili-Paldiski section of the onshore part of Balticconnector (a gas pipeline between Estonia and Finland) that generated a major share of other engineering revenue.
At the reporting date, contracts secured by the Buildings segment and the Infrastructure segment accounted for 81% and 19% of the Group’s total order book respectively (30 June 2018: 73% and 27% respectively). Compared to 30 June 2018, the order book of the Buildings segment has increased by around 52% and the order book of the Infrastructure segment has decreased by 6%.In the Buildings segment, the largest order books are those of the commercial and the public buildings sub-segments, which account for 36% and 33% of the of the segment’s order book respectively. The order book of the apartment buildings sub-segment has also grown compared to the same period last year. The order book of the industrial and warehouse facilities sub-segment, on the other hand, has decreased substantially. In the commercial buildings sub-segment, the largest projects in progress are mostly in Tallinn: the reconstruction and extension of the building of Terminal D in the Old City Harbour and the construction of a new seven-floor commercial building in Rotermann City. At the end of the reporting period, we were awarded a contract for the construction of the first building in the Porto Franco development in Tallinn: a building near Laeva street that has three underground and five above-ground floors. In Tartu, we continue to build a multi-storey car park for Tartu University Hospital. A large part of the order book of the public buildings sub-segment is made up of contracts signed at the beginning of 2019 for the construction of the Estonian Academy of Security Sciences and the University of Tartu Training Centre in Narva, a sports and health centre at Kohtla-Järve and an assembly area at the Defence Forces’ base at Tapa. In the second quarter, we also secured a contract for the reconstruction and extension of a research and academic building of Tallinn University of Technology at Mäepealse 3. The order book of the apartment buildings sub-segment includes contracts for the construction of apartment buildings in Tallinn. In addition, in the first quarter we were awarded contracts for the construction of two apartment buildings in Sweden: one near Uppsala city centre and the other in the Bromma district in Stockholm.As in previous years, the order book of the Infrastructure segment is underpinned by contracts of the road construction and maintenance sub-segment, which at the end of the reporting period accounted for around 89% of the segment’s order book. In the second quarter of 2019, we signed contracts for building the Kernu bypass and the Kernu filling station and Haiba junctions on the Tallinn-Pärnu-Ikla road and reconstructing two road sections of main road no. 7 (Riga-Pskov): the Missokülä-Hindsa section (8 km) and the Misso small town section (2 km). Under contracts signed in 2018, we continue to build passing lanes for a 2+1 road on the Pikknurme-Puurmani section (km 142.2-146.9) of the Tallinn–Tartu–Võru–Luhamaa road and roads and bridges for the Defence Forces’ central training area in Kuusalu parish. The Group continues to provide road maintenance services in three road maintenance areas: Järva, Hiiu and Kose.Based on the size of the Group’s order book and known developments in our chosen markets, we expect that in 2019 the Group’s revenue will grow slightly compared to 2018. In an environment of exceptionally stiff competition, we avoid taking unjustified risks whose realisation in the contract performance phase would have an adverse impact on the Group’s results. Despite this, where suitable opportunities arise, we strive to increase the portfolio to counteract the pressure on margins that is caused by the market situation. Our preferred policy is to keep fixed costs under control and monitor market developments closely.Between the reporting date (30 June 2019) and the date of release of this report, Group companies have secured additional construction contracts in the region of 34,080 thousand euros.
The Group’s personnel expenses for the first half of 2019, including all taxes, totalled 11,036 thousand euros. In the first half of 2018, personnel expenses amounted to 10,566 thousand euros. Despite a decline in the number of staff, personnel expenses grew by around 4% year on year. Due to the persisting shortage of qualified and experienced labour, employers are under strong pressure to increase wages and salaries.The service fees of the members of the council of Nordecon AS for the first half of 2019 amounted to 94 thousand euros and associated social security charges totalled 31 thousand euros (H1 2018: 94 thousand euros and 31 thousand euros respectively).The service fees of the members of the board of Nordecon AS amounted to 278 thousand euros and associated social security charges totalled 93 thousand euros (H1 2018: 390 thousand euros and 128 thousand euros respectively). The figures for the first half of 2018 include termination benefits of 93 thousand euros paid to a member of the board and associated social security charges of 31 thousand euros.
The Group’s nominal labour productivity and labour cost efficiency declined compared to the first quarter of 2018 due to lower revenue and higher personnel expenses.Nordecon () is a group of construction companies whose core business is construction project management and general contracting in the buildings and infrastructures segment. Geographically the Group operates in Estonia, Ukraine, Finland and Sweden. The parent of the Group is Nordecon AS, a company registered and located in Tallinn, Estonia. The consolidated revenue of the Group in 2018 was 223 million euros. Currently Nordecon Group employs close to 680 people. Since 18 May 2006 the company's shares have been quoted in the main list of the NASDAQ Tallinn Stock Exchange.
Andri HõbemägiNordecon ASHead of Investor RelationsTel: +372 6272 022Email:
Globe Newswire: 07:00 GMT Thursday 8th August 2019
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