Caverion Corporation’s Interim Report for January 1 – March 31, 2018

Caverion Corporation’s Interim Report for January 1 – March 31, 2018

Good start for the year – Operational improvement starting to show results

January 1 – March 31, 2018

•  Revenue: EUR 526.8 (574.6) million.
•  Adjusted EBITDA: EUR 10.9 (7.8) million, or 2.1 (1.4) percent of revenue.
•  EBITDA: EUR 9.9 (-2.0) million, or 1.9 (-0.3) percent of revenue.
•  Operating cash flow before financial and tax items: EUR 19.8 (-12.1) million.
•  Cash conversion (LTM): 148.2 (n.a) percent.
•  Net debt/EBITDA*: 1.8x (3.7x). 
•  Earnings per share, undiluted: EUR 0.01 (-0.08) per share.

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

* Based on calculation principles confirmed with the lending parties.

KEY FIGURES

* Based on calculation principles confirmed with the lending parties.

Ari Lehtoranta, President and CEO:

“The market situation in building technology services has remained good and the year 2018 has started according to our expectations. The implementation of our strategy in the “Fit” phase is starting to show results. For the first quarter of 2018, our adjusted EBITDA improved to EUR 10.9 (7.8) million and EBITDA to EUR 9.9 (-2.0) million. Our financial position strengthened. Operating cash flow before financial and tax items turned strongly positive and improved to EUR 19.8 (-12.1) million. Furthermore, our cash conversion rate came in at 148.2 percent, and our net debt/EBITDA improved to 1.8x, as calculated following the calculation principles confirmed with our lending parties.

We continued our selective approach in our Projects business and strengthening our Services business. Revenue was down as expected. It is noteworthy that revenue was also impacted by adverse fluctuations in currency exchange rates, the timing of Easter and the sale of our Krantz business in the last quarter of 2017. New orders were on a good level. Revenue of the Services business declined by 1.4 percent and revenue of the Projects business declined by 15.7 percent. Measured in local currency terms, revenue however increased by 1.4 percent in the Services business unit. Both the Projects and the Services business unit improved their performance. There were no material project business write-downs impacting our first quarter results. Although there still are certain project risks remaining, I expect the Projects business to materially improve its result in 2018. 

By division, there was overall good progress. All divisions that experienced significant problems in 2017 (Sweden, Germany and Industrial Solutions) improved their profitability and cash flow in the first quarter. In Germany, however, the performance still remained far from satisfactory. There was positive development in most other divisions. Finland, Norway and Austria continued to deliver good results, with Denmark clearly improving.

The implementation of our “Top performance at every level” Must-Win was at the core of our operational development. We continued to roll out the performance management programme and its four streams related to Services, Projects, procurement and material logistics as well as fixed costs. The target of this programme is to materially improve our operational efficiency, customer focus, agility and management systematics with focus on the operative units.

At the same time, we continued to further develop our “Best solutions” Must-Win, with increased resourcing to strengthen our service offering and new digital services. This programme is taken forward with several different focus areas during the first half of 2018. In addition, we continued the implementation of our “Excellent customer experience” and “Winning team” Must-Wins.

Looking forward into 2018, the market environment remains favourable. Our customer satisfaction has improved and our personnel is getting good feedback on their competences and service mindset. This in turn has translated into better quality new orders. Furthermore, our renewed leadership has team shown significant commitment to Caverion by making considerable investments in the company’s shares. All this creates a good foundation based on which to further improve our performance.”

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 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.

Change in reporting of business unit revenue

Caverion adopted a new way of reporting its business unit revenue as of 2018. Previously Caverion reported revenue according to the classification of its contracts as follows: Project business consisting of the Large Projects and Technical Installation business areas and the Services business consisting of the Technical Maintenance and Managed Services business areas. As of 2018 Caverion adopted business unit monitoring based on a profit center structure, whereby each profit center belongs to either the Projects or Services business unit. The new profit center structure enables improved financial steering in Caverion. Caverion provides comparative figures for the new Business Unit structure for each quarter of the financial year 2017. Based on the new classification, the Services business unit accounted for 53.1 per cent and the Projects business unit for 46.9 per cent of Group revenue in 2017, while based on the previous classification the Services business accounted for 52.5 per cent and the Projects business for 47.5 per cent of Group revenue in 2017.

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.

Adjusted EBITDA ‒ Items affecting comparability

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.

In its adjusted EBITDA 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 Tuesday, 24 April 2018, 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 9105 at 10:55 a.m. (Finnish time, EEST) at the latest. Participant code for the conference call is “5790356 / 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

Half-yearly/interim reports will be published on 25 July 2018 and 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

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