Review by the President and CEO
Half-year Financial Report for January-June 2019 (published 24 July 2019)
“We launched our Fit for Growth strategy in November 2017, estimating that the Fit phase would be finalised by the end of the first half of this year. Over the last few years we have focused on turnaround actions, particularly in the Projects business. Although there are certain Fit actions still to be finalised, our risk level is reduced going forward and we are now ready to move forward to the Growth phase of our strategy.
During the second quarter our main effort was in finalising our old projects. Our result was burdened by major project forecast changes with a negative net impact of about EUR 16 million, about half of which was explained by one single old project. In the second quarter, our adjusted EBITDA was EUR 10.0 (12.9) million. Our revenue for the second quarter was EUR 512.3 (564.8) million. For the first time, our Services business accounted for over 60 percent of Group revenue. Measured in local currencies, revenue decreased by 8.5 percent; the Services business was up by 3.7 percent while the Projects business revenue was down by 22.6 percent.
In the Services business, most of our divisions continued to improve their margins in accordance with targets. The Projects business profitability was still negatively impacted by old projects. However, I believe that the magnitude of project write-downs and cost overruns will decrease going forward. I also expect the Projects business to improve its profitability in the second half of the year. Our remaining Fit actions are specifically concentrated on Denmark and the Projects business in Germany. I am particularly happy that our German business has already turned its cash flow to positive, indicating a turnaround.
Our ongoing business continues to develop positively. Our strong cash flow is a clear sign of this. In the second quarter, our operating cash flow before financial and tax items improved to EUR 29.1 (-15.0) million. Our working capital improved to the level of EUR -80.8 (-57.2) million. An increasing part of our business is already Fit and taking growth actions. As a proof of this, our order backlog increased by 6.8 percent to EUR 1,704.7 (1,596.8) million. This will support our organic growth going forward. Highlights of new orders were our first PPP life cycle project in Austria, where the maintenance period covers 25 years, as well as our new life cycle projects in Finland.
Our financial position has clearly improved. Our net debt excluding lease liabilities amounted to EUR 24.7 (10.2) million at the end of June and the net debt/EBITDA ratio was 0.8x (0.2x). Going forward, we are looking more actively for bolt-on acquisitions in our selected focus areas and geographies. Regarding the Maintpartner acquisition signed in March, the Finnish Competition and Consumer Authority has, as part of its standard procedure, decided to initiate further proceedings concerning the transaction.
The future of Caverion looks promising, supported by megatrends such as energy efficiency and digitalisation. Environmental regulations and legislation are further tightening, requiring increased actions in energy efficiency in buildings, and our enhanced offering is well suited to meet the new demands enabling smart cities and smart buildings. All these factors pave the way to Caverion’s profitable growth.”