NCN: 2016 1Q Consolidated Interim Report
Financial performance
Nordecon Group ended the first quarter of 2016 with a gross profit of 1,153 thousand euros (Q1 2015: 409 thousand euros) and a gross margin of 4.2% (Q1 2015: 1.5%). Despite increasing competition, we succeeded in improving the gross margin compared with a year ago. The profit was generated by the Buildings segment which raised its gross margin from 6 to 11%. The results of the Infrastructure segment remained expectedly modest with the loss incurred growing considerably year over year. The loss is mainly attributable to the fact that during the winter season there is a lack of operations that could be performed with own resources (major earthworks) and, thus, a large share of the segment’s fixed costs remains uncovered.
We are aware that growth in input prices poses a risk for long-term contracts and continue to prioritise a contract’s expected profitability over revenue growth.
Our administrative expenses for the first quarter of 2016 totalled 1,292 thousand euros. Compared with the same period last year, administrative expenses increased slightly (Q1 2015: 1,109 thousand euros), primarily due to our expansion to the Swedish market. The ratio of administrative expenses to revenue (12 months rolling) was 3.6% (Q1 2015: 3.4%). Our cost-control measures continue to be effective: we have been able to keep administrative expenses below the target ceiling, i.e., 4% of revenue.
We ended the first quarter of 2016 with an operating loss of 213 thousand euros (Q1 2015: an operating loss of 752 thousand euros). EBITDA was positive at 233 thousand euros (Q1 2015: negative at 285 thousand euros).
Adverse movements in the euro/hryvnia exchange rate gave rise to exchange losses that were smaller than a year earlier. During the period, the Ukrainian currency weakened by around 12%, which meant that Group entities whose functional currency is the hryvnia had to restate their euro-denominated liabilities. Exchange losses reported in finance costs totalled 291 thousand euros (Q1 2015: 516 thousand euros). The same movements in the exchange rate increased the translation reserve in equity by 288 thousand euros (Q1 2015: 524 thousand euros) and the net effect of exchange differences on our net assets was a loss of 3 thousand euros (Q1 2015: a gain of 8 thousand euros). Although exchange losses continue to undermine our net result, the weakening of the Ukrainian hryvnia has started to slow and exchange losses have become consistently smaller.
Due to the above factors, the period ended in a net loss of 409 thousand euros (Q1 2015: a net loss of 1,354 thousand euros), of which net loss attributable to owners of the parent, Nordecon AS, amounted to 570 thousand euros (Q1 2015: 1,284 thousand euros).
Cash flows
In the first quarter of 2016, operating activities resulted in a net cash outflow of 2,818 thousand euros (Q1 2015: an outflow of 3,972 thousand euros). Negative operating cash flow is typical of the first quarter and stems from the cyclical nature of the construction business. Larger fixed costs and preparations made for more active construction operations in the second quarter cause outflows to exceed inflows. In addition, operating cash flow continued to be influenced by a mismatch in settlement terms: the ones agreed with customers are relatively long and in the case of public procurement mostly extend from 30 to 56 days while subcontractors generally have to be paid within 21 to 45 days.
Investing activities gave rise to a net cash outflow of 88 thousand euros (Q1 2015: an outflow of 112 thousand euros). Cash flow was mainly influenced by payments for property, plant and equipment which totalled 103 thousand euros (Q1 2015: 275 thousand euros). Dividends received amounted to 3 thousand euros (Q1 2015: 103 thousand euros).
Financing activities generated a net cash inflow of 808 thousand euros (Q1 2015: an outflow of 2,519 thousand euros). Our financing cash flow is strongly influenced by loan and lease transactions. Proceeds from loans received amounted to 1,562 thousand euros, consisting of use of overdraft facilities and development loans (Q1 2015: 331 thousand euros). Loan repayments totalled 201 thousand euros. In the comparative period, loan repayments amounted to 2,350 thousand euros, resulting mainly from changes in overdraft balances. Compared with a year ago, there was also slight growth in finance lease payments which totalled 395 thousand euros (Q1 2015: 313 thousand euros).
At 31 March 2016, the Group’s cash and cash equivalents totalled 4,236 thousand euros (31 March 2015: 2,198 thousand euros).
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