Review by the President and CEO
Financial Statement Release for January 1 – December 31, 2018 (published February 5, 2019)
“After the first full year of implementation of our 2020 strategy, the results from the “Fit” phase are becoming visible. Our adjusted EBITDA more than doubled and amounted to EUR 53.4 (25.8) million in January–December. The adjusted EBITDA for the fourth quarter was EUR 11.0 (-5.2) million, or 1.9 (-0.9) percent of revenue. It was still impacted by a high amount of write-downs and costs from old projects initiated in 2016 or earlier.
A highlight of the year was our improving cash flow. Our operating cash flow before financial and tax items improved to EUR 21.6 (-8.7) million during 2018, although impacted by the German cartel fine payment of EUR 40.8 million in August. Excluding the fine and related costs, our operating cash flow improved materially by EUR 72.3 million compared to the previous year.
Revenue for 2018 was EUR 2,204.1 (2,275.8) million, down by 3.2 percent compared to the previous year. Taking into account the completed divestments, our revenue was at about the same level as last year in local currencies. Revenue for the Services business increased by 2.5 percent while revenue for the Projects business decreased by 5.6 percent in local currencies. Revenue for the fourth quarter was EUR 587.6 (592.3) million. Measured in local currencies, revenue increased by 0.5 percent and the Services business continued to grow by 1.5 percent.
Our adjusted EBITDA margin improved quarter by quarter in 2018 compared to the previous year. Both business units improved their margins in 2018 from last year. The profitability of the Services business increased according to our expectations. Order intake in Services has been developing well and we have won several important long-term facility management contracts. The overall performance improvement in our Services business and the investments we have made both in sales and in digitalisation make the outlook going forward positive.
Although we materially improved our performance in the Projects business compared to two previous years, its profitability for the full year remained negative due to non-performing old projects. At the end of 2018, slightly above 10 percent of our projects order backlog was from projects initiated in 2016 or earlier. We expect this figure to be only a few percent at the end of the first half of 2019. I am satisfied that we are observing better and more stable profitability in our new projects at the same time. We furthermore settled two out of three large Industrial Solutions projects from our risk list during the year. In the fourth quarter, due to an updated risk evaluation based on a delay of an arbitration decision, we booked a write-down in receivables totalling EUR 4.4 million in the third large project on our risk list for 2018. I expect the Projects business to continue markedly improving its result in 2019, although there are still project risks remaining especially from old projects.
Following our strategy, we divested three non-core units at year-end 2018 and the beginning of 2019. These included the divestment of the project piping and tank business and the related Ylivieska workshop of the Industrial Solutions division and the sale of our small subsidiaries in Poland and Czech Republic. After these divestments, Caverion has operations in ten European countries. We also made one acquisition during the fourth quarter to strengthen our Services business. The acquisition of Jetitek Oy in Finland extends our cooling services.
By division, Finland and Austria continued to deliver strong results in the fourth quarter. Excluding non-recurring items, the result of Industrial Solutions was also strong. Sweden continued its positive development, along with the Services business in Germany and Norway. In Germany, the overall performance was still burdened by write-downs from old projects and restructuring. In Denmark and Eastern Europe, our restructuring actions were continued, which impacted their quarterly profitability compared to the previous year.
Our financial position strengthened during the year, which now enables investments in digitalisation and possible bolt-on acquisitions in key areas in Services. Our net debt amounted to only EUR 6.9 million at the end of December and the net debt/EBITDA ratio was 0.2x. We also refinanced our bank loans and revolving credit facilities in the beginning of February 2019.
The implementation of the IFRS 16 Leases standard will impact our financial figures as of the Q1/2019 interim report. Consequently, we converted our existing financial targets until the end of 2020 to reflect the impacts of IFRS 16. The level of ambition in our financial targets remains unchanged.
The implementation of the “Fit” phase of our strategy will continue during the first half of 2019. While we are experiencing strong improvements in several fronts both in Services and Projects, we will still streamline our operations in certain divisions. For the full year of 2019, I expect a further clear improvement in our profitability.”