Caverion Corporation’s Half-year Financial Report for January 1 – June 30, 2018
Caverion Corporation Half-year Financial Report 25 July 2018 at 8.00 a.m. EEST
Caverion Corporation’s Half-year Financial Report for January 1 – June 30, 2018
Operational improvement continues and Q2 revenue slightly higher than last year – Risk level lower going forward
April 1 – June 30, 2018
- Revenue: EUR 564.8 (563.3) million.
- Adjusted EBITDA: EUR 12.9 (4.5) million, or 2.3 (0.8) percent of revenue.
- EBITDA: EUR -31.7 (-14.1) million, or -5.6 (-2.5) percent of revenue, impacted by German anti-trust fine of EUR 40.8 million and there-related costs.
- Earnings per share, undiluted: EUR -0.32 (-0.14) per share.
- Net debt/EBITDA*: 0.2x (3.4x).
- EUR 60 million share issue completed in June to support strategic flexibility.
January 1 – June 30, 2018
- Revenue: EUR 1,091.6 (1,138.0) million.
- Adjusted EBITDA: EUR 23.9 (12.3) million, or 2.2 (1.1) percent of revenue.
- EBITDA: EUR -21.8 (-16.1) million, or -2.0 (-1.4) percent of revenue, impacted by German anti-trust fine of EUR 40.8 million and there-related costs.
- Operating cash flow before financial and tax items: EUR 4.9 (-38.1) million.
- Earnings per share, undiluted: EUR -0.31 (-0.22) per share.
- Guidance for 2018 unchanged
Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year. The figures for 2017 have been restated according to IFRS 15.
* Based on calculation principles confirmed with the lending parties.
KEY FIGURES
| EUR million | 4–6/18 | 4–6/17 | Change | 1–6/18 | 1–6/17 | Change | 1–12/17 |
| Order backlog | 1,596.8 | 1,512.7 | 5.6% | 1,596.8 | 1,512.7 | 5.6% | 1,491.0 |
| Revenue | 564.8 | 563.3 | 0.3% | 1,091.6 | 1,138.0 | -4.1% | 2,275.8 |
| Adjusted EBITDA | 12.9 | 4.5 | 185.9% | 23.9 | 12.3 | 94.3% | 25.8 |
| Adjusted EBITDA margin, % | 2.3 | 0.8 | 2.2 | 1.1 | 1.1 | ||
| EBITDA | -31.7 | -14.1 | -21.8 | -16.1 | 3.8 | ||
| EBITDA margin, % | -5.6 | -2.5 | -2.0 | -1.4 | 0.2 | ||
| Operating profit | -38.7 | -21.6 | -35.3 | -31.3 | -26.6 | ||
| Operating profit margin, % | -6.9 | -3.8 | -3.2 | -2.7 | -1.2 | ||
| Result for the period | -39.7 | -16.8 | -37.6 | -26.3 | -27.0 | ||
| Earnings per share, undiluted, EUR | -0.32 | -0.14 | -0.31 | -0.22 | -0.24 | ||
| Operating cash flow before financial and tax items |
-15.0 | -25.9 | 4.9 | -38.1 | -8.7 | ||
| Working capital | -57.2 | -8.6 | -30.8 | ||||
| Interest-bearing net debt | 10.2 | 98.6 | -89.6% | 64.0 | |||
| Net debt/EBITDA* | 0.2 | 3.4 | 2.9 | ||||
| Gearing, % | 3.9 | 41.7 | 27.2 | ||||
| Equity ratio, % | 28.2 | 25.8 | 25.8 | ||||
| Personnel, end of period | 15,751 | 16,750 | -6.0% | 16,216 |
* Based on calculation principles confirmed with the lending parties.
Ari Lehtoranta, President and CEO:
“The implementation of the “Fit” phase of our strategy continued to show results in the second quarter of 2018. Our adjusted EBITDA continued to clearly improve, although being periodically impacted by certain project write-downs from older projects as well as one-off legal and strategy-related costs. For the second quarter of 2018, our adjusted EBITDA improved to EUR 12.9 (4.5) million. Both business units improved their margins and our Projects business made a break-even result. For the first half of 2018, our adjusted EBITDA improved to EUR 23.9 (12.3) million. I am pleased that we managed to settle some of our largest old project claims during the quarter, one of them relating to a large Industrial Solutions project. As a consequence, our risk position related to old project risks was reduced.
Operating cash flow before financial and tax items was EUR -15.0 (-25.9) million in the second quarter, impacted by seasonality. Our net debt/EBITDA ratio improved to 0.2, following the calculation principles confirmed with our lending parties.
We continued the strengthening of our Services business and the selective approach in our Projects business. Revenue for the second quarter was EUR 564.8 (563.3) million, up by 0.3 percent or 2.1 percent in local currencies. Revenue for the Services business increased by 4.2 percent or 6.4 percent in local currencies. Revenue for the Projects business declined by 4.0 percent or 2.5 percent in local currencies. I am happy that while maintaining selectivity in our Projects business we were able to stop our revenue decline thanks to the good performance of our Services business.
There was positive development in profitability and cash flow in most divisions in the second quarter. Sweden and Industrial Solutions materially improved their result compared to last year. Finland, Norway and Austria continued to deliver good results.
An important event for the quarter was that Caverion managed to settle for its part with the Bundeskartellamt (German Federal Cartel Office) the cartel case investigated by the authority since 2014. Caverion Deutschland GmbH was imposed an anti-trust fine of EUR 40.8 million. The fine was booked as an expense in the second quarter and will be paid in the third quarter. I am satisfied that this particular matter is now behind us and we can move forward. In the quarter we also successfully strengthened our financial position through a directed share issue totalling EUR 60 million. The proceeds of the issue strengthen our strategic flexibility and enable us to smoothly continue the execution of our strategy going forward. This includes investments in digitalisation and possible bolt-on acquisitions in key areas in Services.
The foundation of our strategy is in providing superior customer value through an excellent customer experience. At the same time, we rigorously continue the further implementation of our “Top performance at every level” Must-Win, which is at the core of our operational development. We are planning to continue the streamlining of our operations in certain divisions during the second half of 2018, which is part of our ”Fit” program and strategic transformation. Our strengthened balance sheet enables a gradual shift towards the Growth phase. With a reduced risk exposure, we are on a more stable path towards improving our profitability going forward.”
OUTLOOK FOR 2018
Market outlook for Caverion’s services and solutions
There are no major changes in the market outlook for Caverion’s services and solutions since the previous quarterly report.
The megatrends in the industry, such as the increase of technology in built environments, energy efficiency requirements, increasing digitalisation and automation as well as urbanisation continue to promote demand for Caverion’s services and solutions over the coming years.
Services
The underlying demand for Services is expected to remain strong. As technology in buildings increases, the need for new services and digital solutions and the demand for Life Cycle Solutions are expected to increase. Clients’ tendency towards focusing on their core operations continues to open opportunities for Caverion in terms of outsourced operations and maintenance especially for public authorities, industries and utilities.
Projects
The Projects market is expected to remain on a good level. Good demand is expected to continue from both private and public sectors. However, price competition is expected to remain tight. Low interest rates and availability of financing are expected to support investments. The demand for Design & Build of Total Technical Solutions is expected to develop favourably in large and technically demanding projects. Requirements for increased energy efficiency, better indoor conditions and tightening environmental legislation will be significant factors supporting the positive market development.
Guidance for 2018
Caverion’s guidance for 2018 is unchanged: “Caverion estimates that the Group’s revenue for 2018 will decrease compared to the previous year (2017: EUR 2,275.8 million). Caverion estimates that the Group’s adjusted EBITDA will more than double in 2018 (2017: EUR 25.8 million).”
Adjusted EBITDA = EBITDA before items affecting comparability (IAC).
Items affecting comparability (IAC) are material items or transactions, which are relevant for understanding the financial performance of Caverion when comparing profit of the current period with previous periods. These items can include (1) capital gains and losses from divestments; (2) write-downs, expenses and/or income from separately identified major risk projects; (3) restructuring expenses and (4) other items that according to Caverion management’s assessment are not related to normal business operations. In 2018, major risk projects include three completed Large Projects from Industrial Solutions. The financial impacts of these will be reported separately by Caverion under “Items affecting comparability (IAC)”. The adjusted EBITDA figures for 2017 have been calculated accordingly. The German anti-trust fine and there-related legal and other costs fall under “Items affecting comparability (IAC)” in category (4) i.e. “other items that according to Caverion management’s assessment are not related to normal business operations”.
Adjusted EBITDA ‒ Items affecting comparability
| EUR million | 4–6/18 | 4–6/17 | 1–6/18 | 1–6/17 | 1–12/17 |
| EBITDA | -31.7 | -14.1 | -21.8 | -16.1 | 3.8 |
| EBITDA margin, % | -5.6 | -2.5 | -2.0 | -1.4 | 0.2 |
| Items affecting EBITDA | |||||
| - Write-downs, expenses and income from major risk projects | 2.2 | 11.6 | 3.1 | 21.4 | 27.1 |
| - Restructuring costs | 1.1 | 7.0 | 1.2 | 7.0 | 7.3 |
| - Capital gains and losses from divestments | -12.3 | ||||
| - Other items* | 41.3 | 41.3 | |||
| Adjusted EBITDA | 12.9 | 4.5 | 23.9 | 12.3 | 25.8 |
| Adjusted EBITDA margin, % | 2.3 | 0.8 | 2.2 | 1.1 | 1.1 |
* Including the German anti-trust fine and there-related legal and other costs.
Caverion published IFRS 15 restated figures and quarterly Adjusted EBITDA for 2017 as well as its guidance for 2018 according to IFRS 15 in a stock exchange release on 21 March 2018.
In its revenue guidance Caverion applies the following guidance terminology.
| Positive change | Lower limit | Upper limit |
| % | % | |
| Increases | 0% | |
| Negative change | Lower limit | Upper limit |
| % | % | |
| Decreases | 0% |
In its adjusted EBITDA guidance Caverion applies the following guidance terminology, with a +/- 2pp (percentage point) threshold to the said limits.
| Positive change | Lower limit | Upper limit |
| % | % | |
| At last year’s level | -5% | 5% |
| Grows | 5% | 30% |
| Grows significantly | 30% | 100% |
| Doubles | 100% | |
| Negative change | Lower limit | Upper limit |
| % | % | |
| Decreases | -30% | -5% |
| Decreases significantly | -30% |
INFORMATION SESSION, WEBCAST AND CONFERENCE CALL
Caverion will hold a news conference and webcast on the Half-year Financial Report on Wednesday, 25 July 2018, at 10:00 a.m. (Finnish Time, EEST) at the Glo Hotel Kluuvi (VideoWall meeting room), Kluuvikatu 4, 2nd floor, Helsinki, Finland. The news conference can also be viewed live on Caverion’s website at www.caverion.com/investors. It is also possible to participate in the event through a conference call by calling the assigned number +44 (0)330 336 9105 at 9:55 a.m. (Finnish time, EEST) at the latest. Participant code for the conference call is “7508671 / Caverion”. More practical information on the news conference can be found on Caverion's website, www.caverion.com/investors.
Financial information to be published in 2018
Q3 interim report will be published on 25 October 2018. Financial reports and other investor information are available on Caverion's website, www.caverion.com/investors, and IR App. The materials may also be ordered by sending an e-mail to IR@caverion.com.
CAVERION CORPORATION
Distribution: Nasdaq Helsinki, principal media, www.caverion.com
For further information, please contact:
Martti Ala-Härkönen, Chief Financial Officer, Caverion Corporation, tel. +358 40 737 6633, martti.ala-harkonen@caverion.com
Milena Hæggström, Head of Investor Relations, Caverion Corporation, tel. +358 40 5581 328, milena.haeggstrom@caverion.com