Yearbook 2008

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Yearbook 2008 CONTENTS Management’s discussion and analysis 3 Description of the main risks 25 Corporate governance report 29 Consolidated financial statements 41 Consolidated balance sheet 42 Consolidated income statement 43 Consolidated statement of cash flows 44 Consolidated statement of changes in equity 45 NOTE 1. Reporting entity 46 NOTE 2. Statement of compliance and basis of preparation 46 NOTE 3. Changes in accounting policies and presentation practice 48 NOTE 4. Significant accounting policies 51 NOTE 5. Financial risk management 62 NOTE 6. Changes in the structure of Nordecon International Group 66 NOTE 7. Cash and cash equivalents 70 NOTE 8. Receivables and prepayments 70 NOTE 9. Deferred tax assets 71 NOTE 10. Inventories 71 NOTE 11. Non-current assets held for sale 72 NOTE 12. Long-term investments 72 NOTE 13. Investment property 75 NOTE 14. Property, plant and equipment 76 NOTE 15. Intangible assets 77 NOTE 16. Interest-bearing loans and borrowings 81 NOTE 17. Finance and operating leases 83 NOTE 18. Other payables and taxes payable 84 NOTE 19. Provisions 84 NOTE 20. Equity and reserves 85 NOTE 21. Earnings per share 86 NOTE 22. Segment reporting – business segments 86 NOTE 23. Segment reporting – geographical segments 88 NOTE 24. Construction contracts 89 NOTE 25. Cost of sales 89 NOTE 26. Administrative expenses 89 NOTE 27. Other operating income and expenses 89 NOTE 28. Finance income and expenses 90 NOTE 29. Income tax expense 90 NOTE 30. Financial instruments and financial risk management 91 NOTE 31. Contingent assets and liabilities 94 NOTE 32. Assets pledged as collateral 94 NOTE 33. Off-balance sheet liabilities 95 NOTE 34. Transactions with related parties 95 NOTE 35. Events after the balance sheet date 97 NOTE 36. The Parent company’s unconsolidated financial statements 99 Signatures 103 Independent auditor’s report 104 Profit allocation proposal 105 List of shareholders whose interest exceeds 10 per cent 106 Business activities (Parent company) 107 Object: Reconstruction works in Tallinn Airport air traffic area Location: Lennujaama tee 2, Tallinn, Estonia Employer: Tallinna Lennujaam AS Designer: K-Projekt AS Period: September 2006 – September 2008 Contractor: Nordecon International AS, Nordecon Infra AS Project Manager: Peeter Sarv 2 Nordecon | ANNUAL report 2008 HIGHLIGHTS OF 2008 FEBRUARY Nordecon Infra AS signed an agreement for rehabilitation of the Rõhu–Puhja section of national road 92 in Estonia. MarcH Nordecon International AS and Tallinna Sadam AS (Port of Tallinn) signed an agreement for the projection and construction works of quays no 8 and 9 in Paldiski Port. APRIL The Group-wide strategy renewal process is started with a goal to develop a new strategy for the Group for 2009-2013. MAY Nordecon Infra AS increases its shareholding in a Latvian infrastructure company Nordecon Infra SIA and starting from May Nordecon Infra SIA is a Group subsidiary. Nordecon International AS, Nordecon Infra AS with other members of a consortium signed an agreement for the projection and construction works of Tallinn–Tartu road Mäo bypass. Latvian subsidiary Nordecon Infra SIA with other members of consortium signed an agreement for the extension works of water and waste water networks in Riga, Sempeteris district. JUNE Nordecon Ehitus AS signed a projection and construction agreement for the expansion works of Lõunakeskus shopping centre in Tartu, Estonia. AUGUST Nordecon Infra AS, Nordecon International AS and third member of consortium signed an agreement for the first stage projection and construction Koidula railway border station. Nordecon International AS and Saarte Liinid AS signed an agreement for construction of quay no 8 of port Virtsu. SEPTEMBER Group subsidiary Mapri Projekt OÜ established a subsidiary in Ukraine, MP Ukraine TOV, with principal activities in concrete works carried out in Ukraine. DECEMBER Nordecon International AS received a NASDAQ OMX Baltic Market award as a listed company with “The Most Visible Improvement in Investor Relations in 2008”. Group’s Latvian subsidiary Nordecon Infra SIA signed a share purchase agreement to acquire a major- ity shareholding in Latvian road construction company LCB SIA, situated in the North-Eastern part of Latvia. Nordecon | ANNUAL report 2008 3 OUR MISSION Our mission is to offer our customers complete premier value adding construction and engineering solutions. We add value to the company by motivating our employ- ees and providing them with clear development oppor- tunities and a contemporary work environment. VISION Our goal is to become the fastest growing construction group on the Nordic and Baltic stock exchanges by 2013 in terms of revenue growth. SHARED VALUES Reliability We keep our promises and honour our agreements. We act openly and transparently. We consistently support and promote the best construction practices. We do not take risks at the expense of our customers. Quality We are professional builders – we apply appropriate and effective construction techniques and technologies and observe generally accepted quality standards. We provide our customers with integrated cost efficient solutions. We are environmentally aware and operate sustainably. We value our employees by providing them with a mod- ern work environment that encourages creativity and a motivation system that fosters initiative. Innovation We are innovative and creative engineers. We take maxi- mum advantage of the benefits offered by information technology. We inspire our employees to grow through continuous training and balanced career opportunities. 4 Nordecon | ANNUAL report 2008 Object: Apartment and business building (The Snail Tower) Location: Väike-Turu tn 5, Tartu, Estonia Employer: Nordecon Ehitus AS Architect: AB Künnapu & Padrik OÜ Period: March 2006 – March 2008 Contractor: Nordecon Ehitus AS Project Manager: Ain Rebane Nordecon | ANNUAL report 2008 5 MESSAGE FROM THE CHAIRMAN OF THE COUNCIL In many respect, 2008 was a year of new beginnings. previous years’ concentration on the efficiency of our site and office staff, both engineers and workers, was definitely When we began devising our strategy for the period not a short-term tactic. It stemmed from our fundamental 2009-2013 in spring 2008, our primary desire was to con- understanding of the construction business – in a cyclical tinue streamlining Nordecon International into an efficient field only those companies can achieve long-term success and competitive organisation. The Group’s development and international competitiveness that consistently invest through the growth of the construction market and acqui- in their efficiency and productivity. sition of interests in chosen companies had prompted a need for harmonising our operations, both across compa- The Group’s management and employees are facing the nies and the target markets. After careful deliberation we huge task of shaping Nordecon International into a well- have decided that in each of our target markets – Estonia, integrated and efficient construction organisation. It is a Latvia, Lithuania and Ukraine – we are going to focus change of a scale we were probably unable to imagine separately on our two main business lines – the construc- some years ago but which in the current situation is inevi- tion of buildings and engineering. In addition, we are going table if we wish to achieve the goal of becoming the fastest to align the structure of our entities with our core skills and growing construction group on the Nordic and Baltic stock will adopt the single Noredcon brand. exchanges by 2013. On the other hand, it is clear that the construction market of 2009 will not be the same as it was during the years of hectic growth. The construction business is highly cyclical and responds to a positive economic environment with an upsurge that is times larger than the underlying economic growth, as it happened in Estonia. When the situation reverses and economic growth decelerates, the response Toomas Luman of the construction market is accordingly more acute. Our Chairman of the Council 6 Nordecon | ANNUAL report 2008 CHIEF EXECUTIVe’s stATEMENT Over a number of years we are forced to admit that the year For the executive management, one of the most important that has ended was not the best for the construction market. tasks of the year was to develop a new corporate strategy Despite the economic downturn, Nordecon International for the next five years. In retrospect, we are pleased to admit was able to sustain growth and increase revenue. However, that the timing of the process that started in April 2008 was the profit figures fell short of expectations and the focus excellent for critically reviewing all our activities with their shifted increasingly on maintaining the Group’s liquidity. On associated strengths and weaknesses, opportunities and the positive side, we are pleased to report that our compa- threats. Our perception of the need for change, which would nies continued competing successfully also in an unstable create a foundation for future growth and development environment, winning a number of large contracts in various already today, increased in line with the downturn of the segments of the construction market, such as the construc- construction market. You will find a detailed description of tion of the Mäo overtake, berth 8 at Virtsu Harbour and an the new strategy on the following pages of this report. extension to the Lõunakeskus shopping centre in Tartu. Our year-end order backlog, which is substantial in view of the Nordecon International
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