Caverion Corporation’s Interim Report for January 1 – March 31, 2017

Caverion Corporation’s Interim Report for January 1 – March 31, 2017 

Stabilisation of operations progressing, earlier identified risks burden performance

January 1 – March 31, 2017 

• Order backlog: EUR 1,543.5 (12/2016: 1,408.1) million.
• Revenue: EUR 582.3 (560.6) million.
• EBITDA excluding restructuring costs: EUR 6.8 million, or 1.2 percent of revenue.
• EBITDA: EUR 6.8 (11.5) million, or 1.2 (2.0) percent of revenue.
• Working capital: EUR 17.3 (15.6) million.
• Free cash flow: EUR -18.5 (-28.8) million.
• Earnings per share, undiluted: EUR -0.02 (0.03) per share.

Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.

KEY FIGURES

Word from the President and CEO Ari Lehtoranta

“We have kicked off the year 2017 with a focus on stabilising our operations. This work is progressing according to plan. We continued to implement our corrective actions and to improve our project business performance towards an acceptable level in the first quarter of 2017. However, we still have some earlier identified risk projects in our orderbook which will burden our performance until the projects have been executed and closed.

The market environment remains favourable. Divisions Finland and Austria performed well during the first quarter. Division Denmark-Norway continues making a turnaround. In Services business, Technical Maintenance and Managed Services continued to perform well. It was also positive that our order backlog increased to EUR 1,543.5 million at the end of March, up by 9.6 percent compared to the end of 2016 (EUR 1,408.1 million), despite our more selective tendering especially in Large Projects. 

Caverion’s revenue for the first quarter of 2017 was EUR 582.3 (560.6) million and EBITDA EUR 6.8 (11.5) million. In a seasonally slow quarter, we managed to grow our revenue by 3.9 percent in comparison to the previous year. I am specifically delighted about the revenue growth of 11.5 percent in our Services business. We also turned our EBITDA positive, despite EUR 5.7 million of project write-downs during the period. However, the performance is yet far from our targeted level. Our free cash flow was negative although improving from the corresponding period last year. Overall, the first quarter represented only the first step in the stabilisation of our operations.

Our project business performance was still poor in Sweden, Germany and Industrial Solutions. In addition to many well-performing projects inside these divisions there are some projects which overshadow the good work in other projects. In February we estimated that our remaining identified performance risks in projects amount to approximately EUR 20 million for 2017. In the first quarter, we made project write-downs totalling EUR 5.7 million related to our project portfolio mainly in divisions Industrial Solutions and Germany. These write-downs were negative forecast changes to the earlier identified risk projects. After these write-downs, the total project performance risks for the full year may unfortunately be over EUR 5 million higher than earlier anticipated. In addition, we estimated in February that there are risks related to old overdue trade receivables of up to EUR 10 million in 2017. The full-year maximum risk is slightly lower than earlier anticipated. There were no write-downs related to overdue trade receivables in the first quarter.

We expect to realise savings this year from the restructuring actions completed last year and from discretionary fixed cost reductions. In the first quarter, our personnel expenses decreased by about 3 percent and our other operating expenses by about 2 percent from the previous year, when adjusting the variable costs for revenue growth. The utilisation challenge we typically have at the beginning of the year was still visible but the situation was clearly better than last year. If necessary, we are ready to implement further cost savings during 2017. However, I see that the risk related to utilisation should not exceed the level identified in February.  

We are in the middle of a turnaround and I see several good signs of our culture developing positively. Well performing units keep on improving and the ones with challenges are gradually turning around. Our performance in 2017 will not yet reflect the Group’s full earnings potential. We are currently preparing our strategy towards 2020. We will tell more about it at our Capital Markets Day in Helsinki on November 7, 2017.”

OUTLOOK FOR 2017

Market outlook for Caverion’s services and solutions

The megatrends in the industry, such as the increase of technology in buildings, 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 Technical Maintenance and Managed Services is expected to remain strong. As technology in buildings increases, the need for new services 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 Technical Installation and Large Projects markets are expected to remain on a good and stable level, however price competition is expected to remain tight in Technical Installation projects. In the Large Projects market, new tenders for buildings and industry are expected to remain on a good level and even to somewhat increase. 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. Good demand from both the public and private sector is expected to continue. Requirements for increased energy efficiency, better indoor conditions and tightening environmental legislation will be significant factors supporting the positive market development.

Guidance for 2017 

Caverion’s guidance for 2017 is unchanged. Caverion’s guidance for 2017 is: “Caverion estimates that the Group’s revenue will remain at the previous year's level in 2017 (2016: EUR 2,364 million). Caverion estimates that the Group’s EBITDA excluding restructuring costs will more than double in 2017 (2016: EUR 15.6 million).”

In its guidance Caverion applies the following guidance terminology, with a +/- 2pp (percentage point) threshold to the said limits.

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

Caverion will hold a news conference and webcast on the interim report on Friday, April 28, 2017, at 11:00 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 9411 at 10:55 a.m. (Finnish time, EEST) at the latest. Participant code for the conference call is “3470942/ Caverion”. More practical information on the news conference can be found on Caverion's website, www.caverion.com/investors.

Financial information and IR events in 2017

Caverion will arrange a Capital Markets Day in Helsinki, Finland on November 7, 2017 at 9:00 a.m. (EET). Further information on the programme will be published closer to the date.

Interim Reports will be published on July 20 and October 27, 2017. 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

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