Review by the President and CEO
Interim Report January 1 - September 30, 2017 (published October 27, 2017)
“We started to see the first signs of improved performance related to our turnaround programme in the third quarter. While we are still getting negative impact from older poor-performing projects, our ongoing new business in Projects and particularly Services is showing improving results. Our EBITDA excluding restructuring costs improved clearly from the first half of the year. In the third quarter, EBITDA excluding restructuring costs was EUR 13.8 (19.5) million. The result was still burdened by project write-downs of EUR 7.1 (4.1) million, trade receivable write-downs of EUR 0.9 million and restructuring costs of EUR 5.2 (5.7) million. Our risk project challenges also impacted negatively on our working capital and cash flow. Overall, we continued implementing our corrective actions to improve particularly our project business performance. Looking forward into the fourth quarter, I expect improved cash flow and our risk for write-downs is lower than last year.
Caverion’s revenue for the third quarter of 2017 was EUR 545.1 (582.0) million. There was a negative impact for the period especially from our more selective project business tendering. In accordance with our target, the Services business grew by 4.7 percent in the third quarter. The revenue of the total Projects business decreased by 15.7 percent, while the revenue of Large Projects by as much as 23.2 percent. Our focus in Services boosted up Services order backlog by 5.5 percent from the previous year, while in Projects the order backlog declined by 2.7 percent. Besides selectivity in tendering, we have closed down several poor-performing project units. This is part of our strategic transformation.
Our market environment remains favourable. Divisions Finland and Austria improved their solid performance in the third quarter. Division Denmark-Norway delivered a good result. In Sweden our quarterly results were burdened by further restructuring costs of EUR 4.9 million affecting about 190 employees and productivity challenges. We started a rigorous performance management programme in Sweden during the period, the target of which is to materially improve our long-term performance. The result in Industrial Solutions and Germany remained negative due to write-downs in previously identified risk projects. By business unit, the Services business unit continued to improve its performance. Performance in the Projects business unit was still poor, burdened by write-downs.
We continued to realise savings from the completed restructuring actions and discretionary fixed cost savings. Our personnel expenses decreased by about 3.9 percent and our other operating expenses by about 5.5 percent from the previous year in January-September. This is satisfying, while taking into account that we have also had turnaround related one-off costs at the same time, for example, our external legal costs relating to project business amounted to EUR 2.2 million in division Industrial Solutions. In January–September, the total performance and utilisation actions amounted to restructuring costs of approximately EUR 12.1 million. Their estimated total savings impact is approximately EUR 2.8 million in 2017 and EUR 8.6 million in 2018.
We have made write-downs totalling EUR 25.4 (19.1) million related to our risk projects in divisions Industrial Solutions and Germany in January–September. Following our latest assessment in October, the remaining project performance risks of our risk list are estimated to be about EUR 18 million. It is possible that the settlement of certain technically completed projects in 2017 may move into 2018.
With respect to old overdue trade receivables, the estimated full-year write-down risk in 2017 is below the earlier anticipated maximum level of EUR 10 million. After the completed restructurings, the impacts of the utilisation risk estimated earlier (up to EUR 10 million) have by and large already materialised in our results.
Caverion’s financial performance in 2017 is negatively impacted mainly by our project business performance. At the same time we have started to build a new stronger Caverion for the future. We will tell more about our new strategy at our Capital Markets Day in Helsinki on November 7, 2017.”