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's activity report 2022

AS EG Construction continued its main activities in 2022 with the construction and reconstruction of natural gas and district heating pipelines and facilities, electrical solutions, and the maintenance of biogas plants. A greater focus was on the construction of LNG solutions, where demand increased due to the energy crisis.

In 2022, the company's operations were most affected by the energy crisis and high inflation. The imposition of war-related restrictions on Russia and the gas deficit in the market led to increased interest in creating LNG reception capacity in both Estonia and Europe in general. Therefore, the company participated in the construction of the Paldiski LNG terminal, but unfortunately, this project failed, and the company suffered a loss in 2022. However, in other areas of activity, it was possible to keep operations profitable despite high input prices and reduced market volume. Turnover generally decreased due to reduced procurement volumes in the market, and many procurements were also canceled due to the lack of funds from the client due to high prices. It has not been possible to fully pass on the increase in input prices to the market. In the fourth quarter, the subsidiary HG Prosolution OÜ of Eesti Gaas was acquired and merged with AS EG Construction.

In the near future, the construction sector will be most affected by the state's policy in conditions of economic downturn, investment in infrastructure, and planned directions and goals of the green turn.

In addition, the company's operations will continue to be affected by political instability in the region and the resulting large fluctuations in gas and electricity prices. The sharp rise in Euribor will likely also limit clients' interest in implementing larger infrastructure investments in the near future.

Construction market

According to preliminary data from Statistics Estonia, the economy shrank in real terms in the fourth quarter of 2022 by -4.1%, and the construction price index growth was 17.8% per year. The year is characterized by the coincidence of cluster crises - high energy prices, availability and price increase of materials, war-related restrictions, and a sharp rise in Euribor to curb inflation. As a result of all this, the market has started to cool down.

According to Statistics Estonia, last year 11% fewer construction permits were issued for the construction of gas pipelines than a year earlier, while the volume of new pipelines and other structures to be built decreased by 37% and the volume of pipelines and other structures to be reconstructed by 75%. This can be justified by high gas prices and little interest in expanding and reconstructing gas pipelines in such conditions when the market is looking for alternative options for energy and cost-effective technologies.

According to the Estonian Institute of Economic Research, the construction sector's confidence in January 2023 was significantly lower than in the same period last year (22-01 confidence indicator +2; 23-01 indicator -31); the volume of contracts guaranteeing work is ahead on average 4.4 months. Insufficient demand is considered the main factor limiting construction activity.

Due to the specifics of the infrastructure sector, the shortage of qualified labor, including engineers, and pressure on labor costs due to inflation and the rise in the cost of living continue to be bottlenecks. The construction sector is also dependent on national policy on labor movement and the use of foreign labor.

Russian – Ukrainian war On February 24, 2022, Russia started a war against Ukraine. There was no direct impact of the war on the company, but the economic environment has changed because of it. In addition to providing military aid at the national level, the EU has imposed various restrictions/sanctions on the import of goods from Russia. Therefore, the company must carefully monitor the origin of the materials purchased and the circle of actual beneficiaries. During the year, supply chains have been rearranged in Europe, and the availability of raw materials has improved, and the deficit and price rally that occurred in the meantime have calmed down.

Today, we are moving towards an economic downturn, and the outlook for the construction market is temporarily deteriorating.

Impact of the coronavirus In 2022, the impact of the coronavirus on the company's operations was not particularly large, as restrictions were no longer applied and there was no mass illness of workers.

Financial results and ratios