Review by the President and CEO
Interim Report for 1 January – 30 September 2020 (published 5 November 2020)
“Caverion’s profitability improved in the third quarter compared to the challenging second quarter. Despite the continuing corona pandemic, the restrictions imposed by governments were much more limited in the third quarter compared to the second quarter, enabling us to operate without bigger interruptions. However, there were more impacts to our business from the resulting economic downturn. The second wave of corona started in Caverion’s operating countries towards the end of the third quarter, again increasing the risk exposure. At the same time there was not yet any visible impact from governmental or EU-level stimulus packages in the third quarter. We expect them to provide a helping hand in 2021.
Our order backlog decreased by 2.9 percent to EUR 1,627.7 (1,676.9) million in the third quarter. New order intake was positive especially in Services, whereas in Projects there was a negative impact from the downturn. The economic environment had an impact on both revenue and profitability. Our third quarter revenue was EUR 515.5 (507.5) million, up by 1.6 percent or 2.3 percent in local currencies. Measured in local currencies, the Services business revenue grew by 9.6 percent, while the Projects business revenue declined by 8.1 percent in the third quarter. The Services business accounted for 62.5 (58.5) percent of Group revenue. Adjusted EBITA was EUR 21.2 (23.0) million, or 4.1 (4.5) percent of revenue. In Services, our ad-hoc orders returned to almost normal levels in the quarter, while in the Industry division there was still an impact from delayed industrial shutdown services. In Projects, the corona pandemic continued to impact our productivity to a certain extent due to the need for increased social distancing and work site planning as well as challenges in the usage of foreign subcontracting. Mainly due to the decreased productivity due to corona, we made an additional EUR 2 million write-down to our remaining major risk project in Germany. In January-September, our adjusted EBITA improved to EUR 38.1 (33.5) million, or 2.4 (2.2) percent of revenue. This is less than our expectations pre-corona, but still an improvement.
Due to current downturn and its impacts on our revenue, we announced today that we plan to proactively further streamline and adjust our operations. As a result of the planned actions, we estimate that the company’s headcount would reduce by approximately 500 by the end of the first half of 2021, with a large part of the reductions planned to be carried out by the end of 2020. The planned actions include personnel reductions, reorganisation and operating model development. Our people have shown strong performance during the corona crisis, in which light the reductions are very unfortunate but still necessary to secure our competitiveness in the future. The actions would impact all Caverion countries with a minor impact on the best-performing countries Finland and Austria. The resulting savings including some other cost-cutting measures are estimated to be at least EUR 25 million for 2021. A part of the savings will be invested in growing particularly our digital and smart technology businesses across our divisions. The initially estimated restructuring costs amount to approximately EUR 10 million in the fourth quarter of 2020.
Our operating cash flow before financial and tax items was EUR -28.0 (3.8) million in the third quarter. As we stated in our half-yearly report, cash flow was impacted by postponed authority payments to the value of EUR 22.4 million paid in the third quarter. The final postponed authority payments totalling EUR 10.2 million will be paid in the fourth quarter of 2020 and in the first quarter of 2021. Our liquidity position has remained strong and our leverage is at a low level. At the end of the third quarter, our interest-bearing net debt amounted to EUR 187.5 (172.9) million, or EUR 55.3 (41.7) million excluding lease liabilities. The net debt/EBITDA ratio was 0.8x (1.1x). Our cash and cash equivalents were EUR 84.8 (83.4) million. At the end of the third quarter, we closed the divestment of certain parts of our industrial operations in Finland as requested by the Finnish Competition and Consumer Authority.
The purpose of Caverion is to enable performance and people’s well-being in smart and sustainably built environments. We are extremely well positioned to support our customers' sustainability efforts. We have today introduced our own sustainability targets. Caverion’s target is to create sustainable impact through its solutions, with a positive carbon handprint 10 times greater than its own carbon footprint (Scope 1-2) by 2030. More detailed information on Caverion’s sustainability work will be presented at the Sustainability Morning event in connection with our Q3 report news conference.
At present it is difficult to forecast how deep and long the current downturn will be and what will be the speed of the economic recovery. In the fourth quarter, the second wave of corona implies an additional risk to our revenue level. We will execute our above-mentioned Fit actions, while at the same time continue our most important development efforts in the areas of digitalisation, sustainability and energy efficiency. We are pleased that a significant amount of the economic stimulus packages that have been discussed on an European level seem likely to be directed towards sustainable investments enabling smart buildings and cities. This is the area where we have our strategic focus. Our target remains to come out of the crisis as a stronger company than entering it.”