2024 III quarter and 9 months consolidated interim report (unaudited)

In the third quarter of this year, the downward trend in the construction market did not experience a significant shift. Forward-looking indicators that characterize both the construction market and the broader macroeconomic environment are contradictory, making it difficult to predict a market upturn in the coming quarters. This uncertainty affects both the public and private sectors' willingness and confidence to make broad-based investments in buildings and infrastructure.
Despite the challenging market conditions, all three key economic indicators of Nordecon AS show a positive trend. In the third quarter, the group continued to see growth in profitability and sales revenue, and the backlog of unfinished work increased as well.
The group’s gross profit margin reached 7.1% for the first nine months of 2024 (compared to 3.3% in the first nine months of 2023) and 8.7% in the third quarter (compared to 3.5% in Q3 2023). Profitability improved in both the Building and Infrastructure segments, driven by better risk management in general contracting projects and the completion in 2023 of long-term contracts signed before the war in Ukraine, which were impacted by previous years' rapid growth in construction input costs. The improvement in the Infrastructure segment was partly influenced by an investment made earlier this year in an asphalt concrete plant, which has reduced production costs and marked a significant step forward in materials recycling.
The group's net profit for the first nine months amounted to 4,547 thousand euros (compared to a loss of 2,772 thousand euros for the same period in 2023).
Sales revenue for the first nine months of 2024 was 178,722 thousand euros, a 37% increase compared to the sales revenue from continuing operations in the same period last year. Sales revenue in the building segment grew by 57%, while it decreased by 18% in the infrastructure segment.
As of 30 September 2024, the volume of order book was 195,628 thousand euros, marking an 11% increase compared to the same period last year. New contracts worth a total of 131,801 thousand euros were signed in the first nine months, of which 67,771 thousand euros were signed in the third quarter.

Condensed consolidated interim statement of financial position

€’000	30 September 2024	31 December 2023
ASSETS
Current assets
Cash and cash equivalents	11,476	11,892
Trade and other receivables	39,332	37,010
Prepayments	3,951	1,789
Inventories	23,541	25,879
Total current assets	78,300	76,570
Non-current assets
Other investments	76	76
Trade and other receivables	9,607	9,113
Investment property	5,517	5,517
Property, plant and equipment	13,264	14,292
Intangible assets	14,961	14,964
Total non-current assets	43,425	43,962
TOTAL ASSETS	121,725	120,532
LIABILITIES
Current liabilities
Borrowings	8,119	10,188
Trade payables	52,269	39,855
Other payables	8,283	9,241
Deferred income	8,921	20,602
Provisions	651	1,129
Total current liabilities	78,243	81,015
Non-current liabilities
Borrowings	8,888	8,563
Trade payables	5,175	6,011
Provisions	2,493	2,405
Total non-current liabilities	16,556	16,979
TOTAL LIABILITIES	94,799	97,994
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	4,288	3,786
Retained earnings	4,292	919
Total equity attributable to owners of the parent	25,488	21,613
Non-controlling interests	1,438	925
TOTAL EQUITY	26,926	22,538
TOTAL LIABILITIES AND EQUITY	121,725	120,532

Condensed consolidated interim statement of comprehensive income

€’000	9M 2024	Q3 2024	9M 2023	Q3 2023	2023
Revenue	178,722	63,777	130,799	44,273	186,464
Cost of sales	(165,955)	(58,204)	(126,488)	(42,745)	(182,655)
Gross profit	12,767	5,573	4,311	1,528	3,809
Marketing and distribution expenses	(301)	(129)	(402)	(176)	(497)
Administrative expenses	(5,011)	(1,638)	(4,337)	(1,353)	(6,564)
Other operating income	145	68	240	30	286
Other operating expenses	(628)	(170)	(309)	(123)	(465)
Operating profit (loss)	6,972	3,704	(497)	(94)	(3,431)
Finance income	437	120	267	136	613
Finance costs	(2,625)	(1,079)	(2,298)	(515)	(3,356)
Net finance costs	(2,188)	(959)	(2,031)	(379)	(2,743)
Profit (loss) before tax	4,784	2,745	(2,528)	(473)	(6,174)
Income tax expense	(237)	0	(244)	0	(244)
Profit (loss) for the period from continuing operations	4,547	2,745	(2,772)	(473)	(6,418)
Profit for the period from a discontinued operation	-	-	2,408	1,699	8,474
Profit (loss) for the period	4,547	2,745	(364)	1,226	2,056
Other comprehensive income (expense) Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations	502	337	(48)	(302)	470
Total other comprehensive income (expense)	502	337	(48)	(302)	470
TOTAL COMPREHENSIVE INCOME (EXPENSE)	5,049	3,082	(412)	924	2,526
Profit (loss) attributable to:
- Owners of the parent	3,373	2,353	(2,452)	41	(942)
- Non-controlling interests	1,174	392	2,088	1,185	2,998
Profit (loss) for the period	4,547	2,745	(364)	1,226	2,056
Comprehensive income (expense) attributable to:
- Owners of the parent	3,875	2,690	(2,500)	(261)	(472)
- Non-controlling interests	1,174	392	2,088	1,185	2,998
Comprehensive income (expense) for the period	5,049	3,082	(412)	924	2,526
Earnings per share from continuing operations attributable to owners of the parent:
Basic earnings per share (€)	0.11	0.07	(0.16)	(0.05)	(0.31)
Diluted earnings per share (€)	0.11	0.07	(0.16)	(0.05)	(0.31)
Earnings per share from a discontinued operation attributable to owners of the parent:
Basic earnings per share (€)	-	-	0.08	0.05	0.28
Diluted earnings per share (€)	-	-	0.08	0.05	0.28

Condensed consolidated interim statement of cash flows

€’000	9M 2024	9M 2023
Cash flows from operating activities
Cash receipts from customers	199,510	249,453
Cash paid to suppliers	(173,448)	(211,054)
VAT paid	(7,048)	(8,563)
Cash paid to and for employees	(15,051)	(18,225)
Income tax paid	(237)	(574)
Net cash from operating activities	3,726	11,037
Cash flows from investing activities
Paid for acquisition of property, plant and equipment	(289)	(318)
Proceeds from sale of property, plant and equipment	193	384
Loans provided	(35)	(524)
Repayments of loans provided	1	12
Dividends received	6	12
Interest received	159	25
Net cash from (used in) investing activities	35	(409)
Cash flows from financing activities
Proceeds from loans received	902	1,344
Repayments of loans received	(1,857)	(799)
Lease payments	(1,689)	(2,194)
Interest paid	(819)	(935)
Dividends paid	(661)	(1,347)
Net cash used in financing activities	(4,124)	(3,931)
Net cash flow	(363)	6,697
Cash and cash equivalents at beginning of period	11,892	7,238
Effect of movements in foreign exchange rates	(53)	1
Change in cash and cash equivalents	(363)	6,697
Cash and cash equivalents at end of period	11,476	13,936

Financial review

Financial performance

Nordecon delivered a gross profit of €12,767 thousand in the first nine months of 2024 (9M 2023: €4,311 thousand). The group’s gross margin improved significantly year on year, rising to 7.1% for the nine months (9M 2023: 3.3%) and 8.7% for the third quarter (Q3 2023: 3.5%). Both main operating segments earned a profit in the nine months and the third quarter, showing a year-on-year margin improvement. The gross margin of the Buildings segment was 8.5% for the nine months and 10.2% for the third quarter (9M 2023: 4.5% and Q3 2023: 3.7%). The Infrastructure segment’s gross margin was lower, reaching 5.1% for the nine months and 9.2% for the third quarter (9M 2023: 2.0% and Q3 2023: 4.5%). While both segments have improved their profit margins, the volumes of the Infrastructure segment are low and therefore most of the group’s profit was generated by the Buildings segment. The margin improvement was supported by better mitigation of the risks associated with general contracting and the expiry last year of a number of long-term contracts signed before the war, which had been severely affected by earlier increases in construction input prices. The improved performance of the Infrastructure segment is partly due to the investment in an asphalt concrete plant made earlier this year, which has reduced the cost price and represents a major step forward in material recycling.
The group’s administrative expenses for the first nine months of 2024 were €5,011 thousand. Administrative expenses increased by around 16% compared to the same period last year (9M: €4,337 thousand) due to growth in staff costs. The ratio of administrative expenses to revenue (12 months rolling) decreased year on year to 3.1% (9M 2023: 3.3%).
The group ended the nine months of 2024 with an operating profit of €6,972 thousand (9M 2023: an operating loss of €497 thousand). EBITDA for the period was €9,154 thousand (9M 2023: €1,799 thousand).
The group’s finance income and costs are affected by exchange rate fluctuations in the group’s foreign markets, particularly movements in the exchange rate of the Ukrainian hryvnia. During the period, the Ukrainian hryvnia weakened against the euro by around 8% and the translation of the loans provided to the group’s Ukrainian subsidiaries in euros into the local currency gave rise to a foreign exchange loss of €534 thousand (9M 2023: a foreign exchange gain of €66 thousand).
The group’s net profit for the period was €4,547 thousand (9M 2023: a net loss of €2,772 thousand). The net profit attributable to owners of the parent, Nordecon AS, was €3,373 thousand (9M 2023: a net loss of €2,452 thousand).

Cash flows

Operating activities produced a net cash inflow of €3,726 thousand in the nine months of 2024 (9M 2023: an inflow of €11,037 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 inflow of €35 thousand (9M 2023: an outflow of €409 thousand). Investments in property, plant and equipment amounted to €289 thousand (9M 2023: €318 thousand) and proceeds from the sale of property, plant and equipment amounted to €193 thousand (9M 2023: €384 thousand). Loans provided amounted to €35 thousand (9M 2023: €524 thousand) and interest received amounted to €159 thousand (9M 2023: €25 thousand).
Financing activities generated a net cash outflow of €4,124 thousand (9M 2023: an outflow of €3,931 thousand). The largest items were related to loans and leases. Proceeds from loans received amounted to €902 thousand (9M 2023: €1,344 thousand), consisting of the use of development loans. Repayments of loans received totalled €1,857 thousand (9M 2023: €799 thousand), consisting of regular repayments of long-term investment and development loans and the change in the overdraft balance. Lease payments were €1,689 thousand (9M 2023: €2,194 thousand). Dividends paid in the nine months of 2024 amounted to €661 thousand (9M 2023: €1,347 thousand).
The group’s cash and cash equivalents as at 30 September 2024 amounted to €11,476 thousand (30 September 2023: €13,936 thousand).

Key financial figures and ratios

Figure/ratio		9M 2024		9M 2023		9M 2022	2023
Revenue (€’000)*		178,722		130,799		165,462	186,464
Revenue change*		36.6%		(20.9)%		5.4%	(15.4)%
Net profit (loss) (€’000)*		4,547		(2,772)		(2,552)	(6,418)
Net profit (loss) attributable to owners of the parent (€’000)		3,376		(2,452)		(2,651)	(942)
Weighted average number of shares		31,528,585		31,528,585		31,528,585	31,528,585
Earnings per share (€)		0.11		(0.08)		(0.08)	(0.03)
Administrative expenses to revenue*		2.8%		3.3%		2.4%	3.5%
Administrative expenses to revenue (rolling)*		3.1%		3.3%		2.3%	3.5%
EBITDA (€’000)*		9,154		1,799		2,232	(412)
EBITDA margin*		5.1%		1.4%		1.3%	(0.2)%
Gross margin*		7.1%		3.3%		1.4%	2.0%
Operating margin*		3.9%		(0.4)%		(0.1)%	(1.8)%
Operating margin excluding gain on non-current asset sales*		3.8%		(0.6)%		(0.2)%	(2.0)%
Net margin*		2.5%		(2.1)%		(1.5)%	(3.4)%
Return on invested capital		13%		1.9)%		(1.1)%	8.0%
Return on equity		18.4%		(1.4)%		(5.1)%	8.3%
Equity ratio		22.1%		17%		17.8%	18.7%
Return on assets		3.8%		0.3%		(1.0)%	1.6%
Gearing		12.6%		16.8%		36.6%	16.6%
Current ratio		1.00		0.91		0.90	0.95
		30 Sept 2024		30 Sept 2023		30 Sept 2022	31 Dec 2023
Order book (€’000)*		195,628		175,539		150,694	216,732

*Continuing operations
Due to the sale of Nordecon Betoon OÜ and NOBE Rakennus OY at the beginning of December 2023, the business of those companies has been classified as a discontinued operation. The discontinued operation’s revenues and expenses for comparative periods are presented separately in the consolidated statement of comprehensive income within Profit (loss) from a discontinued operation.

Performance by geographical market

The proportion of revenue generated outside Estonia remained stable compared to the same period last year. Other markets accounted for approximately 2% of the group’s total revenue for the first nine months of 2024, consisting of revenue generated in Ukraine. Despite the war, Nordecon’s construction volumes in Ukraine have increased. During the period, the group provided services under contracts for the reconstruction of substations and installation of associated physical protection systems in the Poltava, Zhytomyr, Volyn and Ivano-Frankivsk oblasts in Ukraine, and for the reconstruction of a building into an apartment complex for internally displaced persons in Ovruch, Zhytomyr Oblast, Ukraine. Nordecon did not generate any revenue and had no ongoing construction contracts in the Swedish market. With the sale of Nordecon Betoon OÜ at the beginning of December 2023, the group also withdrew from the Finnish market, where it had operated through Nordecon Betoon OÜ’s subsidiary NOBE Rakennus OY. The group was active on a project basis in Latvia and Lithuania.

	9M 2024	9M 2023	9M 2022	2023
Estonia	98%	98%	96%	97%
Ukraine	2%	1%	0%	2%
Finland	-	1%	2%	1%
Lithuania	-	0%	1%	0%
Latvia	-	0%	1%	0%

Performance by business line

Segment revenues

We strive to maintain a balance between the revenues of our two main operating segments (Buildings and Infrastructure) as far as market developments allow, as this helps diversify risks and provides better opportunities to continue construction activities in more challenging market conditions, where volumes in one subsegment decline sharply while volumes in another subsegment start to grow more rapidly.
The group’s revenue for the first nine months of 2024 was €178,722 thousand, approximately 37% higher than in the same period last year, when revenue from continuing operations amounted to €130,799 thousand. The Buildings segment generated revenue of €149,615 thousand and the Infrastructure segment revenue of €29,068 thousand. The corresponding figures for the first nine months of 2023 were €95,423 thousand and €35,295 thousand. Revenue generated by the Buildings segment increased by 57%, while revenue generated by the Infrastructure segment decreased by 18%. The revenue growth and changes in the performance of the reportable segments were expected and in line with the group’s order book. The decrease in revenue in the Infrastructure segment is mainly due to delays in the start of work on the Rail Baltica contracts and reduced investment by the Transport Administration.

Revenue by operating segment	9M 2024	9M 2023	9M 2022	2023
Buildings	84%	73%	76%	74%
Infrastructure	16%	27%	24%	26%

Subsegment revenues

In the Buildings segment, revenue from the public buildings subsegment more than doubled and revenue from the commercial buildings subsegment increased by 40% compared to the same period last year. However, revenue from the industrial and warehouse facilities subsegment and the apartment buildings subsegment decreased significantly. As the revenue contribution of the industrial and warehouse facilities subsegment was also modest in previous years, the decrease in its revenue did not have a significant impact on total segment revenue, but the revenue of the apartment buildings subsegment fell by 46%, mainly due to lower revenue from the provision of construction service, reflecting the current market situation in this subsegment.
The period’s largest projects in the public buildings subsegment were the construction of the main building of the Estonian Internal Security Service and Loodusmaja (Nature Hub) in Tallinn, the design and construction of warehouse complexes for the Centre for Defence Investment in Luunja and Nõo rural municipalities in Tartu County and in Ida-Viru County, the design and construction of a new study and sports building for the Saku Upper Secondary School near Tallinn, the reconstruction of the building of the Karlova School in Tartu and the design and construction of a study building for the Centre for Defence Investment on the Raadi campus in Tartu.
Revenue generated by the apartment buildings subsegment consisted of revenue from the construction of the commercial and residential complex Vektor and the group’s own development projects. Revenue from our own development activities decreased slightly compared to the same period last year and was €7,453 thousand (9M 2023: €7,917 thousand). The figure includes revenue from the sale of apartments in Tartu – in the Mõisavahe Kodu housing estate and the centrally located Emajõe Residents housing estate on the banks of the Emajõgi river (https://emajoeresidents.ee). We continued to build phase 1 of the Seileri Kvartal housing estate in Pärnu (https://seileri.ee) and the Tammepärja Kodu housing estate in the Tammelinn district in Tartu (https://tammelinn.ee). Both development projects will be completed in the first half of 2025. In carrying out our own development activities, we carefully monitor potential risks in the housing development market.
The largest ongoing projects in the commercial buildings subsegment were the construction of the commercial and residential complex Vektor and the LEED Gold compliant Golden Gate office building at Ahtri 6 in Tallinn, the design and construction of a commercial building at Nõlvakaare 4 at Raadi in Tartu County, and the construction of a Lidl store in Võru.
A significant share of the revenue generated by the industrial and warehouse facilities subsegment came from the reconstruction of substations and installation of associated physical protection systems in the Poltava, Zhytomyr, Volyn and Ivano-Frankivsk oblasts in Ukraine.

Buildings segment	9M 2024	9M 2023	9M 2022	2023
Public buildings	70%	33%	29%	37%
Commercial buildings	21%	23%	23%	23%
Apartment buildings	7%	30%	29%	27%
Industrial and warehouse facilities	2%	14%	19%	13%

The largest revenue contributor in the Infrastructure segment is the road construction and maintenance subsegment whose revenue for the period decreased by around 2% year on year. A major share of its revenue came from the construction of an armoured manoeuvre shooting range and roads in Harju County, the reconstruction of the Mäeküla-Koeru-Kapu road section, the construction of the Tagadi ecoduct (wildlife crossing) on the Rail Baltica route and the provision of road maintenance services in Järva County.

Infrastructure segment	9M 2024	9M 2023	9M 2022	2023
Road construction and maintenance	94%	60%	80%	63%
Other engineering	6%	31%	16%	30%
Environmental engineering	0%	9%	0%	7%
Specialist engineering	0%	0%	4%	0%

Order book

The group’s order book (backlog of contracts signed but not yet performed) stood at €195,628 thousand at 30 September 2024. Compared to the same period last year, the order book has grown by around 11%. In the nine months of 2024, we signed new contracts for €131,801 thousand (9M 2023: €191,326 thousand), of which €67,771 thousand in the third quarter (Q3 2023: €90,694 thousand). The rise in construction input prices and high interest rates in recent years have caused a sharp increase in the final cost of development projects and, consequently, the postponement of the start of new projects. There has been a significant reduction in investment by the Transport Administration, which has had a direct impact on the order book of our Infrastructure segment. The volume of work procured for the Rail Baltica project has increased, partially offsetting the decline in investment by the Transport Administration, but the excessive length of the procurement processes makes it difficult to predict the potential start dates of the work and the impact on revenue. While public investment in building construction has also declined, we see some investment activity at local authority level.

	30 Sept 2024	30 Sept 2023	30 Sept 2022	31 Dec 2023
Order book (€’000)*	195,628	175,539	150,694	216,732

* Continuing operations

The Buildings segment accounts for 82% and the Infrastructure segment for 18% of the group’s order book (30 September 2023: 90% and 10%, respectively). Compared with 30 September 2023, the order book of the Buildings segment has remained at the same level while the order book of the Infrastructure segment has doubled, mainly due to the award of the Rail Baltica contract. The order book of the Buildings segment mainly includes contracts secured by the commercial buildings and public buildings subsegments.
Major contracts secured during the period include:

• the construction of an armoured manoeuvre shooting range and roads for the Centre for Defence Investment in Harju County with an approximate cost of €5,450 thousand;
• the construction of a modern war and disaster medicine centre for the Centre for Defence Investment in Tartu with an approximate cost of €15,000 thousand (the group is one of the joint bidders);
• the construction of a Lidl store in Võru with an approximate cost of €3,900 thousand;
• the construction of a platform area for Class E aircraft at Tallinn Airport with an approximate cost of €7,500 thousand;
• the construction of a building complex in the Port Athena quarter at Väike-Turu 7 in Tartu (the complex consists of four six-storey buildings, one seven-storey building and a common basement level used mainly for parking) with an approximate cost of €26,000 thousand;
• the construction of the Hagudi-Alu section of stage III of the Rail Baltica Raplamaa main line railway infrastructure with an approximate cost of €30,500 thousand;
• the construction of the LEED Gold standard Uusküla spa hotel on the northern shore of Lake Peipus in Alutaguse rural municipality with an approximate cost of €28,300 thousand;
• the reconstruction of a building into an apartment complex for internally displaced persons in Ovruch, Zhytomyr Oblast, Ukraine with an approximate cost of €1,800 thousand.

Management expects the group’s revenue to increase in 2024 compared to the revenue generated by continuing operations in 2023. In a highly competitive environment, we will avoid taking unjustified risks that could materialise during the contract execution phase and have an adverse impact on the group’s results. We will focus on cost management and pre-construction and design activities where we can leverage our professional competitive advantages.

People

Employees and staff costs

The average number of the group’s employees (at the parent company and the subsidiaries) in the nine months of 2024 was 437, including 283 engineers and technical professionals (ETP). Headcount decreased by around 23% year on year, due to the restructuring of the group’s Infrastructure segment, which was completed in 2023, and the sale of Nordecon Betoon OÜ and NOBE Rakennus OY at the beginning of December 2023.

Average number of employees at group companies (the parent company and the subsidiaries):

	9M 2024	9M 2023	9M 2022	2023
ETP	283	382	437	374
Workers	154	185	232	184
Total average	437	567	669	558

The group’s staff costs for the first nine months of 2024, including all taxes, were €16,178 thousand, compared with €14,162 thousand for continuing operations in the same period last year. Staff costs increased due to salary increases and the payment of performance bonuses.
The service fees of the members of the council of Nordecon AS for the first nine months of 2024 totalled €149 thousand and the related social security charges amounted to €49 thousand (9M 2023: €129 thousand and €43 thousand, respectively).
The service fees of the members of the board of Nordecon AS totalled €391 thousand and the related social security charges amounted to €129 thousand (9M 2023: €424 thousand and €140 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 the staff costs incurred:

	9M 2024	9M 2023	9M 2022	2023
Nominal labour productivity (rolling), (€‘000)	557.4	488.4	475.7	499.3
Change against the comparative period, %	14.1%	2.7%	14.2%	1.8%
Nominal labour cost efficiency (rolling), (€)	11.0	10.4	12.0	10.3
Change against the comparative period, %	5.0%	(12.8)%	8.1%	(13.4)%

The group’s nominal labour productivity for the period increased year on year due to a decrease in the average number of employees and an increase in revenue. Nominal labour cost efficiency also improved, supported by revenue growth.

Andri Hõbemägi
Nordecon AS
Head of Investor Relations
Tel: +372 6272 022
Email: andri.hobemagi@nordecon.com
www.nordecon.com

Attachments

• Nordecon_Interim_report_Q3_2024
• NCN investor presentation Q3_2024