Review by the President and CEO
Half-year Financial Report for 1 January – 30 June 2020 (published 6 August 2020)
“Like we estimated in our first quarter report, the impacts of the corona crisis were more visible to our business in the second quarter. The wellbeing of our employees, customers and other stakeholders continued to be our first priority. Fortunately, all of our infected employees have recovered from Covid-19. Most of our operating countries were locked down especially in April-May, at which time there were more of our workforce absent as well as more work site delays and closures. The government restrictions and the impacts to our business started to clearly ease up in June. In the latter part of the quarter, several governments announced also material stimulus packages to accelerate the return of the economies to more normal business conditions.
Our order backlog increased by 2.1 percent to EUR 1,739.7 (1,704.7) million. The coronavirus pandemic had an impact on both revenue and profitability in the second quarter, but there was still improvement year-on-year. Our second quarter revenue was EUR 518.5 (512.3) million, up by 1.2 percent or 3.3 percent in local currencies. Measured in local currencies, the Services business revenue grew by 5.8 percent, while the Projects business revenue declined by 0.6 percent in the second quarter. The Services business accounted for 61.9 (60.8) percent of Group revenue. Our adjusted EBITA improved to EUR 4.8 (-3.2) million, or 0.9 (-0.6) percent of revenue. Our EBITA improved to EUR 8.4 (-4.1) million, or 1.6 (-0.8) percent of revenue, being positively impacted by a one-off capital gain. In Services, our ad-hoc orders were lower in April-May, followed by a recovery in June. In Projects, the corona pandemic impacted our productivity. The Projects business profitability was also affected by completion of the last few old projects, ramping down the large projects business in Denmark and the inflexibility to adjust personnel costs with temporary lay-offs in Central Europe.
Our cash flow generation and liquidity position continued to be strong in the second quarter. Our operating cash flow before financial and tax items improved to EUR 48.2 (29.1) million. Cash flow was positively impacted by postponing authority payments to the value of EUR 29.6 million, which will be paid out in July-November. At the end of the second quarter, our interest-bearing net debt amounted to EUR 138.8 (158.9) million, or EUR 9.9 (24.7) million excluding lease liabilities. The net debt/EBITDA ratio was 0.1x (0.8x). Our cash and cash equivalents increased to EUR 130.2 (103.6) million. The integration of our most recent acquisitions and the divestment of certain parts of our industrial operations in Finland progressed according to plan.
At present the main issue is how quickly our European economies will recover and return back to the growth track. Naturally we hope that there will not be a second wave with the virus spread leading to new lockdown measures. I am so far pleased with our ability to manage the negative impacts of the crisis. We have executed contingency and cost-saving actions since March and furthermore benefited from having rooted performance management throughout the organisation during the Fit phase of our strategy.
Due to the poor visibility and the extraordinary circumstances, Caverion withdrew its guidance for 2020 in April. At present it is still difficult to forecast how deep and long the current downturn will be and what will be the speed of the economic recovery. For Caverion, the business volume and the amount of new order intake will be key determinants to our performance in the second half of this year. Nevertheless, we assume a pick-up in our Adjusted EBITA in the second half of 2020 compared to the first half of 2020.
We continued our most important development efforts in the areas of digitalisation, sustainability and energy efficiency in the first half of the year. We have been pleased to recognise that a significant amount of the economic stimulus packages is directed towards sustainable investments enabling smart buildings and cities. This is the area where we have our strategic focus. We are well positioned to support our customers' sustainability targets. Our own sustainability KPI targets will be published this year. We will come back to this in more detail at our Sustainability Morning to be held in connection with our Q3/2020 report in Helsinki on 5 November 2020. Our target is to come out of the crisis as a stronger company than entering it.”