Annual Report 2014 Annual Report 2014
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ANNUAL REPORT 2014 ANNUAL REPORT 2014 Business name Nordecon AS Registry number 10099962 Address Pärnu mnt 158/1, 11317 Tallinn Domicile Republic of Estonia Telephone + 372 615 4400 E-mail [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 2014 – 31 December 2014 Council Toomas Luman (chairman of the council), Alar Kroodo, Andri Hõbemägi, Tiina Mõis, Meelis Milder, Ain Tromp Board Jaano Vink (chairman of the board), Avo Ambur, Erkki Suurorg Auditor KPMG Baltics OÜ CONTENTS About the Group 5 Message from the chairman of the council 6 Chief executive’s statement 7 Management’s discussion and analysis 11 Consolidated financial statements 63 Consolidated statement of financial position 64 Consolidated statement of comprehensive income 65 Consolidated statement of cash flows 66 Consolidated statement of changes in equity 67 NOTE 1. Reporting entity 68 NOTE 2. Statement of compliance and basis of preparation 68 NOTE 3. Significant accounting policies 71 NOTE 4. Changes in accounting policies and presentation of information 81 NOTE 5. Financial risk management 82 NOTE 6. Group entities 88 NOTE 7. Changes in Group structure 88 NOTE 8. Cash and cash equivalents 89 NOTE 9. Trade and other receivables 90 NOTE 10. Prepayments 90 NOTE 11. Inventories 90 NOTE 12. Investments in equity-accounted investees 91 NOTE 13. Participation in joint operations 93 NOTE 14. Other long-term investments 93 NOTE 15. Investment property 93 NOTE 16. Property, plant and equipment 95 NOTE 17. Intangible assets 96 NOTE 18. Loans and borrowings 98 NOTE 19. Finance and operating leases 100 NOTE 20. Trade payables 101 NOTE 21. Other payables 101 NOTE 22. Deferred income 101 NOTE 23. Provisions 101 NOTE 24. Equity 102 NOTE 25. Earnings per share 103 NOTE 26. Share-based payments 103 NOTE 27. Operating segments 103 NOTE 28. Construction contracts in progress 106 NOTE 29. Government grants 107 NOTE 30. Cost of sales 107 NOTE 31. Administrative expenses 107 NOTE 32. Other operating income and expenses 107 NOTE 33. Finance income and costs 108 NOTE 34. Income tax expense 108 NOTE 35. Financial instruments and financial risk management 109 NOTE 36. Contingent liabilities 113 NOTE 37. Assets pledged as collateral 113 NOTE 38. Transactions with related parties 114 NOTE 39. Events after the reporting period 115 NOTE 40. Parent company’s primary financial statements 116 Statements and signatures of the board and the council 121 Independent auditors’ report 124 Profit allocation proposal 126 CONTENTS Construction of the Sõpruse bridge boat harbour in Tartu 13 Construction of the Paide city wastewater treatment plant 15 Design and construction of the Juuliku-Tabasalu connecting 19 road (km 4.6-5.4) Construction of FLIR Systems Estonia OÜ production building 21 Reconstruction of the Aovere-Luunja road (km 0-11.35) 24 Apartment buildings in Uus-Tammelinn 29 Stroomi shopping centre 32 Phase III of the Astri shopping centre in Narva 36 Construction and reconstruction work in phase V of 39 St Paul’s Church in Tartu Design and construction of the Translational Medicine Centre 43 of the University of Tartu Commercial and residential building at Õhtu põik 3 in Pärnu 45 Milectria Est OÜ’s production building 47 Konsum supermarket 50 Multi-storey car park at Valukoja 4C 53 Construction of the Väätsa Agro farm complex 58 Petroter 3 Oil Plant 61 ABOUT THE GROUP 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 operating 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. We have gradually extended our offering with activities that support the core business such as road maintenance, concrete works and other services that provide added value, improve the Group’s operating efficiency and help manage our business risks. Nordecon’s specialists offer high-quality integrated solutions in the construction of commercial, residential, industrial and public buildings as well as infrastructure – roads, landfill sites, utility networks and port facilities. In addition, the Group is involved in the construction of concrete structures, leasing out heavy construction equipment, and road maintenance. Besides Estonia, Group entities currently operate in Ukraine and Finland. 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 environment management certi- ficate ISO 14001 and international occupational health and safety certificate OHSAS 18001. The shares in Nordecon AS have been listed on the NASDAQ OMX Tallinn Stock Exchange since 18 May 2006. Vision To be the preferred partner in the construction industry for customers, subcontractors and employees. Mission 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. Shared values Professionalism 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. Reliability 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. Openness We act openly and transparently. We observe best practice in the construction industry and uphold and promote it in society as a whole. Employees We inspire our people to grow through needs-based training and career opportunities consistent with their experience. We value our employees by providing them with a modern work environment that encourages creativity and a motivation system that fosters initiative. 5 MESSagE FROM THE CHAIRmaN OF THE COUNCIL The year 2014 brought several unforeseen developments. None of us expected such an escalation in geopolitical tensions in our region by which I mean our own country and, more specifically, Ukraine, which has been a familiar market for the Group since 1997. The need for supporting the European economic environment into which Estonia has been integrated with a vigorous monetary policy also became more urgent than anticipated. In the light of this, developments in the Estonian construction sector were all the more surprising – even though investments influenced by the beginning of the new EU budget period decreased as expected, the rise in private sector investment activity was considerably stronger than anticipated. Thus, there was a basis for delivering solid perfor- mance. However, to use a well-known sports analogy, the game is not over until the final whistle. After the first three quarters, when the Group took maximum advantage of the economic situation, its fourth-quarter results were not quite satisfactory. Whatever the external situation, the key to our basic success lies in what we do, i.e., our own work methods. Consistent focus on operational produc- tivity and efficiency must remain Nordecon’s primary guiding principle and the council will ensure that this remains a priority. I am pleased to state that Nordecon is again among companies that pay dividends. We have always believed that Nordecon must be a company that distributes dividends when economic conditions permit. This was again the case in 2014 and, in line with our strategy, we make dividend distribution decisions on an annual basis. In such a dynamic sector as construction there is always room for improvement and streamlining. In this respect Nordecon is no exception either in the Estonian market or more generally. There is no doubt that throughout its history Nordecon has been a highly competitive company. We have analysed possible developments in our home market as well as our five-year track record in the Finnish market and have decided to start looking at the Swedish market, which according to many analysts is one of the most dynamic and attractive real estate markets not only in the Nordic countries but also in Europe. Nordecon wishes to remain a growth company. Toomas Luman Chairman of the Council 6 CHIEF EXECUTIVE’S STATEMENT In 2014, Nordecon celebrated an anniversary: 25 years since the beginning of operations. In February 1989, the first employee was hired for the newly-established Estonian-Finnish joint venture and work began on the construction of a wastewater treatment facility for Rakvere meat processing plant. Today, the former Estonian venture partner is one of the leading companies in the Estonian const- ruction market and the former Finnish venture partner is one of the largest players in the Finnish construction and real estate market. There is every reason to be proud on both sides of the Gulf of Finland. For the construction market as a whole the year 2014 was quite subdued. On the one hand, the preceding two or three years had given time to regroup after a severe recession, but on the other hand, the decline in EU support, resulting from the change of budget periods, became a harsh reality even though it was known for a long time that this would happen. Altogether, the sector delivered average performance. There were no major negative surprises and, regrettably, no exceptionally positive developments. The same can be said about Nordecon’s results. The Group’s revenue decreased but less than we had expected.