News

12. Nov 2012

Nordecon increased its turnover and profitability

The Nordecon Group’s year-over-year sales revenue in the first nine months grew by 13% and exceeded €117 million. The gross profit of the construction group was €6 million, while the same period in the last year generated a loss. The volume of work-in-progress covered by construction contracts amounted to €146.1 million as of late September.

The Nordecon Group’s year-over-year sales revenue in the first nine months grew by 13% and exceeded €117 million. The gross profit of the construction group was €6 million, while the same period in the last year generated a loss. The volume of work-in-progress covered by construction contracts amounted to €146.1 million as of late September.
 
“These financial results met our expectations and we are satisfied with them in the current business environment,” said Jaano Vink, Chairman of the Management Board of Nordecon AS. “The growth of turnover was backed by the Group’s successful tendering activities in the previous year and this year. The ongoing construction of several major projects, such as the Aruvalla-Kose road section and Tartu bypass, ensure that the group has to work more intensely for some time. It’s quite likely that we will also see similar year-over-year growth in the last quarter, but after that the growth will slow down.”
 
Jaano Vink said that the recovery of the profitability had been the outcome of consistent efforts and its impact was already seen in 2011. “The improved performance year-over-year is explained by the recognition of the final results of unprofitable contracts in the previous reporting year. Without these, 2011 would have also been profitable in terms of our main activity. Decreased competitive pressure perceived in some segments played some role in the growth of profitability, too.”
 
The gross profit of the group for the 9 months amounted to approximately €6 million and the net profit to some €2 million. A year ago the group generated loss and these figures amounted to respectively €0.7 million and €4 million.
 
“Notwithstanding improved profitability, the situation in the construction market in general is not favourable,” Jaano Vink noted. “In road and utility lines construction, market players will be pressed hard by decreasing volumes starting from the next year. The current EU budget period will end in 2013 and the amount of the support to the construction sector in the next budget period is not known. In road construction, the government intends to invest more in individual large-scale projects. In the area of buildings, the competition situation is continually abnormal, as often more than 15 tenderers take part in small or mid-size public procurements.” 
 
Jaano Vink says that although the slightly improved economic situations has brought about the increased investments by private customers, their small number in comparison with the public sector raises serious concerns among market actors.
 
“The uneven distribution of risks between customers and main contractors and an increasing gap between the orders received from the public sector customers and the dates when subcontractors will be paid, still worries construction companies,“ Jaano Vink explained. “While the payment dates of customers tend to generally exceed 60 days, subcontractors are not as patient – payments have to be made within 30 days or often even more quickly. This means that along with their basic activity, main contactors have to continuously act as banks and this cannot be taken for a reasonable business model in any sense.” 
 
Jaano Vink noted that the volume of outstanding contractual work of the group is decreasing. This mainly results from completing many large-scale projects; along with this, decreasing volumes can also be explained by the changes taking place in some sub-segments of the construction market. “Through implementing large-scale projects, our portfolio moves towards a normal situation that reflects the market. In terms of procurements coming to the market, our tendering has met the goals set and the volumes of our work portfolio have also increased in several sub-segments as compared to the previous year,” Jaano Vink explained.
 
Nordecon continues to work in two main areas: project management and general contracting in the construction of buildings and other structures. Their share in the sales revenue was respectively 42% and 58%; the slight predominance of structures will probably hold until the end of the year.