Caverion Corporation’s Interim Report for 1 January – 30 September 2018
Caverion Corporation Interim Report 25 October 2018 at 8.00 a.m. EEST
Caverion Corporation’s Interim Report for 1 January – 30 September 2018
Results from the Fit phase of the 2020 strategy visible, strong improvement in cash flow
1 July – 30 September 2018
- Revenue: EUR 524.9 (545.6) million.
- Adjusted EBITDA: EUR 18.5 (18.8) million, or 3.5 (3.4) percent of revenue.
- EBITDA: EUR 14.3 (9.6) million, an improvement of 48.7 percent. EBITDA margin of 2.7 (1.8) percent of revenue.
- Operating cash flow before financial and tax items: EUR -37.0 (-37.5) million. Excluding the impact of the German fine of EUR 40.8 million, an improvement of EUR 41.3 million compared to the previous year.
- Earnings per share, undiluted: EUR 0.03 (0.00) per share.
- Net debt/EBITDA*: 1.1x (4.1x).
1 January – 30 September 2018
- Revenue: EUR 1,616.5 (1,683.5) million.
- Adjusted EBITDA: EUR 42.4 (31.1) million, an improvement of 36.5 percent. Adjusted EBITDA margin of 2.6 (1.9) percent of revenue.
- EBITDA: EUR -7.5 (-6.5) million, or -0.5 (-0.4) percent of revenue, impacted by the German anti-trust fine of EUR 40.8 million and other costs.
- Operating cash flow before financial and tax items: EUR -32.1 (-75.6) million. Excluding the impact of the German fine of EUR 40.8 million, an improvement of EUR 84.3 million compared to the previous year.
- Earnings per share, undiluted: EUR -0.27 (-0.22) per share.
- EUR 60 million share issue completed in June to support strategic flexibility.
- Guidance for 2018 is 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 | 7–9/18 | 7–9/17 | Change | 1–9/18 | 1–9/17 | Change | 1–12/17 |
| Order backlog | 1,552.3 | 1,460.4 | 6.3% | 1,552.3 | 1,460.4 | 6.3% | 1,491.0 |
| Revenue | 524.9 | 545.6 | -3.8% | 1,616.5 | 1,683.5 | -4.0% | 2,275.8 |
| Adjusted EBITDA | 18.5 | 18.8 | -1.4% | 42.4 | 31.1 | 36.5% | 25.8 |
| Adjusted EBITDA margin, % |
3.5 | 3.4 | 2.6 | 1.9 | 1.1 | ||
| EBITDA | 14.3 | 9.6 | 48.7% | -7.5 | -6.5 | -15.4% | 3.8 |
| EBITDA margin, % |
2.7 | 1.8 | -0.5 | -0.4 | 0.2 | ||
| Operating profit | 8.1 | 2.2 | 271.3% | -27.2 | -29.1 | 6.4% | -26.6 |
| Operating profit margin, % |
1.5 | 0.4 | -1.7 | -1.7 | -1.2 | ||
| Result for the period |
5.3 | 0.7 | -32.3 | -25.6 | -26.3% | -27.0 | |
| Earnings per share, undiluted, EUR |
0.03 | 0.00 | -0.27 | -0.22 | -23.4% | -0.24 | |
| Operating cash flow before financial and tax items |
-37.0 | -37.5 | 1.4% | -32.1 | -75.6 | 57.5% | -8.7 |
| Working capital | -3.2 | 37.0 | -30.8 | ||||
| Interest-bearing net debt |
50.2 | 141.3 | -64.5% | 64.0 | |||
| Net debt/EBITDA* | 1.1 | 4.1 | 2.9 | ||||
| Gearing, % | 18.9 | 59.5 | 27.2 | ||||
| Equity ratio, % | 30.9 | 24.8 | 25.8 | ||||
| Personnel, end of period |
15,556 | 16,483 | -5.6% | 16,216 |
* Based on calculation principles confirmed with the lending parties.
Ari Lehtoranta, President and CEO:
“After the first year of implementation, the results from the “Fit” phase of our 2020 strategy are becoming visible. Our adjusted EBITDA was up by 36.5 percent and amounted to EUR 42.4 (31.1) million in January–September. Both business units improved their margins from last year. The adjusted EBITDA for the third quarter was EUR 18.5 (18.8) million, or 3.5 (3.4) percent of revenue.
Even though our adjusted EBITDA margin has improved quarter by quarter this year as well as against last year, our profitability is still burdened by non-performing projects that were initiated in 2016 or earlier. We started the third quarter by having approximately 20 percent of our order backlog in such projects, and we believe that the level will be reduced to slightly above 10 percent by the end of the year. I am satisfied that we are observing better and more stable profitability in our new projects at the same time. The number of disputes and overdue receivables has also drastically reduced. We furthermore managed to settle another large Industrial Solutions project from our risk list during the quarter. As a consequence, two out of three Large Projects from our risk list have now been settled. Their effects are taken into account as items affecting comparability in the adjusted EBITDA calculation.
During the third quarter, we continued the strengthening of our Services business and the selective approach in our Projects business. Revenue for the third quarter was EUR 524.9 (545.6) million, a decrease of 3.8 percent compared last year. Measured in local currencies, the decrease amounted to 1.7 percent. Revenue for the Services business increased by 0.9 percent in local currencies, while in the Projects business revenue decreased by 4.6 percent in local currencies.
By division, Finland, Norway and Austria continued to deliver strong results in the third quarter. Germany, Sweden and Industrial Solutions are developing favourably. Each delivered a positive EBITDA result compared to a negative one a year earlier. In Denmark and Eastern Europe, our restructuring actions were continued which weakened their quarterly profitability compared to the previous year.
Excluding one-offs, the strong improvement in our cash flow continued. Operating cash flow before financial and tax items was EUR -37.0 (-37.5) million during the third quarter, but it was impacted by the German cartel fine payment of EUR 40.8 million in August. Excluding the fine, our operating cash flow improved materially by EUR 41.3 million compared to the previous year. In January-September, the corresponding y-o-y improvement was EUR 84.3 million.
Our financial position has strengthened, which enables investments in digitalisation and possible bolt-on acquisitions in key areas in Services. Our net debt amounted to EUR 50.2 million at the end of September and the net debt/EBITDA ratio was 1.1x.
We continue with the implementation of the “Fit” phase of our “Top performance at every level” programme. We are experiencing strong improvements in several fronts both in Services and Projects while becoming more harmonised in our ways of working. At the same time, we continue to further streamline our operations in certain divisions. I expect the Fit phase of our strategy to be finalised by the end of the first half of 2019, after which we will focus on profitable growth.”
OUTLOOK FOR 2018
Market outlook for Caverion’s services and solutions
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 is expected to increase. Customer focus on core operations continues to open up outsourcing and maintenance opportunities for Caverion. There is a trend towards a deeper collaboration in order to gain business benefits instead of mere cost savings. International customers are looking for unified operating models across countries, especially within the Nordic region. There is an increasing interest for services supporting sustainability, such as energy management.
Projects
The Projects market in the non-residential construction market segment is expected to remain stable. Good demand is expected to continue from both private and public sectors. Customer demand for total technical deliveries and public–private partnership models (PPP) is increasing, mainly driven by risk management. However, price competition is expected to remain tight. Low interest rates and the availability of financing continue to support investments. The requirements for increased energy efficiency, better indoor climate and tightening environmental legislation are increasing the costs of building systems investments.
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 the profit of the current period with that of the 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 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 | 7–9/18 | 7–9/17 | 1–9/18 | 1–9/17 | 1–12/17 |
| EBITDA | 14.3 | 9.6 | -7.5 | -6.5 | 3.8 |
| EBITDA margin, % | 2.7 | 1.8 | -0.5 | -0.4 | 0.2 |
| Items affecting EBITDA | |||||
| - Write-downs, expenses and income from major risk projects | 1.8 | 4.0 | 4.9 | 25.4 | 27.1 |
| - Restructuring costs | 1.0 | 5.2 | 2.2 | 12.1 | 7.3 |
| - Capital gains and losses from divestments | 1.2 | 1.2 | -12.3 | ||
| - Other items* | 0.2 | 41.5 | |||
| Adjusted EBITDA | 18.5 | 18.8 | 42.4 | 31.1 | 25.8 |
| Adjusted EBITDA margin, % | 3.5 | 3.4 | 2.6 | 1.9 | 1.1 |
* Including the German anti-trust fine and 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 Interim Report on Thursday, 25 October 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. The participant code for the conference call is “9814499 / 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
Caverion will arrange a Capital Markets Day in Helsinki on 5 November 2019 at 9:00 a.m. (EET). Further information on the programme will be published closer to the date.
Financial Statement Release for 2018 will be published on 5 February 2019. 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