1 January – 31 March 2022
Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.
* Based on calculation principles confirmed with the lending parties, containing certain agreed adjustments. The calculation principles take into account the impacts of the IFRS 16 standard as of Q4/2021, while prior to this period IFRS 16 standard impacts were not applicable.
Review by the President & CEO Jacob Götzsche
“I am pleased that we continued improving our underlying business and increased revenue and adjusted EBITA during the first quarter of 2022. I am satisfied that despite the challenging business environment we had a strong order intake and a positive organic growth. We also refinanced our existing bond with a new EUR 75 million bond with extended maturity. All this supports our sustainable profitable growth strategy going forward.
The recent changes in the geopolitical environment are expected to impact also Caverion. We divested our Russian subsidiary in the end of 2021 and have no operations in Ukraine or Belarus. Therefore, the impact of the conflict on Caverion is currently indirect. The corona pandemic continued to impact our operations with people in isolation and due to very high sick leave levels compared to normal. Despite these challenges in the operating environment and resulting cost inflation, our performance during the first quarter of 2022 was solid.
Our order backlog increased by 20.0 percent to EUR 1,951.6 (1,626.7) million compared to a year earlier. The order backlog increased in Services by 20.5 percent and in Projects by 19.2 percent. We expect our increased order backlog to continue to support our revenue growth in 2022. Our first quarter revenue was EUR 528.1 (515.3) million, up by 2.5 percent or 2.6 percent in local currencies. Measured in local currencies, the Services business revenue increased by 4.4 percent, while the Projects business revenue decreased by 0.7 percent in the first quarter. The business mix change seen in recent years continued; the Services business accounted for 66.5 (65.4) percent of Group revenue in the first quarter.
Our first quarter adjusted EBITA improved to EUR 17.4 (16.4) million, or 3.3 (3.2) percent of revenue. EBITA was EUR 15.0 (15.1) million, or 2.8 (2.9) percent of revenue. Profitability improved especially in Sweden and Denmark. Both business units, Services and Projects, improved their performance slightly during the first quarter of 2022.
We have a solid financial position. Our liquidity position continues to be strong and our leverage is at a low level. Our operating cash flow before financial and tax items was EUR 39.1 (40.6) and cash conversion (LTM) was 89.6 (137.4) percent in the first quarter. In the first quarter 2022, the cash flow was negatively impacted by the payment of EUR 8.8 million for civil claims relating to the German anti-trust matter. The respective cost was recognised in 2021 and reported in items affecting comparability in 2021. At the end of the first quarter, our interest-bearing net debt amounted to EUR 125.6 (98.0) million, or EUR -11.6 (-27.4) million excluding lease liabilities. The net debt/EBITDA ratio was 1.0x (-0.5x) according to the confirmed calculation principles.
As part of our ongoing development of our capabilities to serve our customers, we signed the agreement to acquire the Danish company DI-Teknik A/S in March 2022 and closed one bolt-on acquisition in Sweden in January 2022. DI-Teknik is one of Denmark’s largest industrial automation companies bringing us completely new expertise in this area. The acquisition was closed in April.
We have continued the work on our updated strategy that will guide us up until the year 2025. We will target sustainable profitable growth going forward. We strongly believe in our purpose to enable building performance and people’s wellbeing in smart and sustainable built environment. We will tell more about this work at our Capital Markets Day in Helsinki on 10 May 2022.”
The corona pandemic continued to have an impact on the operating environment. Although the governmental restrictions eased at the beginning of the first quarter 2022, the omicron variant had an increasing impact on the level of sick leaves and absences. As a result of the Ukraine crisis, the geopolitical tensions were reflected as weakened economic sentiment in the EU in March 2022.
The building technology market continued to be impacted by the cost inflation. There have also been supply shortages and delays in some areas. Caverion has proactively taken various measures to optimise the supply chain and to manage pricing.
In Services, the market demand and general investment activity remained positive.
Caverion has continued to see a general increasing interest for services supporting sustainability, such as energy management and advisory services, driven by regulation and the expected governmental and EU stimulus packages supporting investments in green growth. There has also been increasing interest towards long-term and large-scale service agreements.
In Projects, the market demand remained stable during the first quarter of 2022.
The market was impacted by increases in material prices, delays in decision-making and supply chain as well as uncertainty in the business environment.
Caverion expects the underlying demand to be overall positive in Services and Projects during 2022. This scenario assumes a sufficient control of the corona pandemic impacts with no significant unforeseen setbacks in 2022 and no further escalation or prolongation of the conflict in Ukraine. The conflict has resulted in geopolitical tensions and increased uncertainty in economic growth prospects. Inflationary and interest rate pressures are also rising.
New construction is expected to decrease slightly, with renovation remaining stable. Uncertainty is caused by the availability of building materials and the anticipation of cost increases. Increased material prices and longer delivery times may continue to affect also Caverion’s business going forward. Potential risks may still emerge from the supply side, not only from raw material price inflation but also from labour shortage, potentially further fuelled by increased sick leave levels or quarantines caused by the corona pandemic.
The business volume and the amount of new order intake are important determinants of Caverion’s performance in 2022. A negative scenario whereby the corona pandemic or the ongoing geopolitical conflict start to negatively impact market demand cannot be ruled out. However, a large part of Caverion’s services is vital in keeping also critical services and infrastructure up-and-running at all times.
The monetary and fiscal policies currently in place are still supporting an economic recovery. As an example, the economic stimulus packages provided by national governments and the EU are expected to increase infrastructure, health care and different types of sustainable investments in Caverion’s operating area over the next few years. The main themes in the EU stimulus packages are green growth and digitalisation. Caverion expects the national and EU programmes to increase demand also in Caverion’s areas of operation in 2022. The European Central Bank (ECB) continued in March 2022 its step-by-step reduction of its asset purchases and may conclude the program in the third quarter of 2022. There are already expectations that ECB will follow FED with a lag and start to raise its interest rates later in the year to control inflationary pressures.
The digitalisation and sustainability megatrends are in many ways favourable to Caverion and believed to increase demand for Caverion’s offerings going forward. The increased energy efficiency requirements, increasing digitalisation, automation and technology in built environment as well as urbanisation remain strong and are expected to promote demand for Caverion’s services and solutions over the coming years. Especially the sustainability trend is expected to continue strong. The EU also aims to accelerate the green transition due to the current geopolitical situation.
Increasing awareness of sustainability is supported by both EU-driven regulations and national legislation setting higher targets and actions for energy efficiency and carbon-neutrality. This is furthermore supported by the society’s end-users’ general request for an environmentally friendly built environment. Examples of current initiatives include e.g. the proposed revision of EU’s Energy Performance of Buildings Directive (EPBD) and Minimum Energy Performance Standards (MEPS) it aims to establish as well as the “Fit for 55” climate package and the Renovation Wave Strategy. The “Fit for 55” climate package proposes to make EU's climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The objective of the European Commission’s Renovation Wave Strategy is to at least double the annual energy renovation rate of residential and non-residential buildings by 2030. Mobilising forces at all levels towards these goals is expected to result in 35 million building units renovated by 2030.
Caverion expects the underlying demand to be overall positive during 2022. Caverion’s Services business is overall by nature stable and resilient through business cycles. Stimulus packages are also expected to positively impact general demand in the Services business.
There is an increased interest for services supporting sustainability, such as energy management. Caverion has had a special focus for several years both in so-called Smart Technologies as well as in digital solutions development. These are believed to grow faster than more basic services on average and enable data-driven operations with recurring maintenance. The sustainability trend is also increasing the demand for building automation upgrades.
As technology in buildings increases, the need for new services and digital solutions is expected to increase. Customer focus on core operations also continues to open opportunities for Caverion through outsourcing of industrial operation and maintenance, property maintenance as well as facility management.
New construction is expected to slow down slightly in 2022, with office and commercial construction expected to slow down the most. Public construction remains unchanged, with the highest growth expectations in industrial construction. Industrial investment activity is expected to be stable. Due to the late-cyclical nature of the Projects business, even after the economic environment recovers, it typically takes some time before the Projects business turns back to growth. However, the stimulus packages are expected to positively impact the general demand also in the Projects business. Caverion expects the underlying demand to be overall positive also in Projects during 2022.
Economic sentiment is on a lower level in the EU as a result of the Ukraine crisis. However, the indicator is still above the long-term average with less impact on industry and construction confidence compared to consumer confidence.
From the trends perspective, the digitalisation and sustainability megatrends are supporting demand also in Projects, as Caverion’s target is to offer long-term solutions binding both Projects and Services together. The requirements for increased energy efficiency, better indoor climate and tightening environmental legislation continue to drive demand over the coming years.
Guidance for 2022
In 2022, Caverion Group’s revenue (2021: EUR 2,139.5 million) and adjusted EBITA (2021: EUR 87.7 million) will grow compared to 2021.
In January–March, the Group’s operating cash flow before financial and tax items decreased to EUR 39.1 (40.6) million. The Group’s free cash flow improved to EUR 29.1 (28.9) million. Cash flow after investments was EUR 23.8 (24.5) million.
The amount of trade and POC receivables increased to EUR 516.8 (482.9) million and other current receivables increased to EUR 31.2 (28.4) million. On the liabilities side, advances received decreased to EUR 241.3 (248.2) million, other current liabilities increased to EUR 282.4 (275.9) million and trade and POC payables increased to EUR 200.9 (179.1) million.
Caverion’s liquidity position was strong and Caverion had a high amount of undrawn credit facilities on
31 March 2022. Caverion’s cash and cash equivalents amounted to EUR 149.2 (166.2) million at the end of March. In addition, Caverion had undrawn revolving credit facilities amounting to EUR 100.0 million and undrawn overdraft facilities amounting to EUR 19.0 million.
The Group’s gross interest-bearing loans and borrowings excluding lease liabilities amounted to EUR 137.6 (138.8) million at the end of March, and the average effective interest rate was 2.5 (2.6) percent. Approximately 44 percent of the loans have been raised from banks and other financial institutions and approximately 56 percent from capital markets. Lease liabilities amounted to EUR 137.2 (125.4) million at the end of March 2022, resulting to total gross interest-bearing liabilities of EUR 274.8 (264.2) million.
In February Caverion issued a senior unsecured bond of EUR 75 million with an issue price of 99.425 percent. The 5-year bond matures on 25 February 2027 and carries a fixed annual interest of 2.75 percent. Also, Caverion carried out a tender offer for the EUR 75 million bond maturing in March 2023 resulting to a EUR 71.5 million acceptance level. The new bond extends the maturity profile, lowers the interest expenses and supports Caverion’s strategy for sustainable profitable growth.
On 15 May 2020 Caverion issued a EUR 35 million hybrid bond, an instrument subordinated to the company's other debt obligations and treated as equity in the IFRS financial statements. The hybrid bond does not confer to its holders the rights of a shareholder and does not dilute the holdings of the current shareholders. The coupon of the hybrid bond is 6.75 percent per annum until 15 May 2023. The hybrid bond does not have a maturity date but the issuer is entitled to redeem the hybrid for the first time on 15 May 2023, and subsequently, on each coupon interest payment date. If the hybrid bond is not redeemed on 15 May 2023, the coupon will be changed to 3-month EURIBOR added with a Re-offer Spread (706.8 bps) and a step-up of 500bps.
Caverion’s external loans are subject to a financial covenant based on the ratio of the Group’s net debt to EBITDA according to the confirmed calculation principles. The financial covenant shall not exceed 3.5:1. At the end of March, the Group’s Net debt to EBITDA was 1.0x according to the confirmed calculation principles.
There have been no material changes in Caverion’s significant short-term risks and uncertainties reported in the Board of Director’s Report presented in the Annual Review of 2021. Those risks and uncertainties are still valid.
The most significant new factor creating uncertainty is the invasion of Ukraine by Russia since 24 February 2022. The expected impacts of the crisis on Caverion’s business during the first quarter of 2022 have been described in the Interim Report.
The lack of availability of materials and supply as well as the increase in material prices were presented as short-term risks in the Board of Director’s Report presented in the Annual Review of 2021. These risks are still valid and even more significant due to the Ukraine crisis. The same applies to the risk of rising energy prices and possible problems with the availability of energy, which may impact the operating environment in the near future.
Cyber risks have increased due to the Ukraine crisis. There have been concrete cases of cyber-attacks on business enterprises and government authorities. Government authorities have warned of an increasing amount of cyber-attacks. Caverion has improved the company’s cyber security operations and technologies continuously and is well prepared against cyber security threats. However, it cannot be excluded that also Caverion could face cyber-attacks with potential impact on operations.
The corona pandemic continued to negatively impact Caverion’s business in the first quarter of 2022. While there was less impact on the demand, the level of sick leaves was particularly high in the Nordics and also higher than normally in Central Europe. The high level of infections continued in Caverion’s operating countries in the end of the first quarter. However, the health care authorities have estimated that the corona pandemic would ease off towards the summer.
The business volume and the amount of new order intake are important determinants of Caverion’s performance. Despite the more optimistic outlook of the corona pandemic, a negative scenario whereby new waves of the corona pandemic or new pandemics would emerge cannot be ruled out. However, a large part of Caverion’s services is vital in keeping critical services for buildings, industries and infrastructure up-and-running at all times.
Should the new waves of the corona pandemic or new pandemics emerge, Caverion’s business would be exposed to various risks. These include, for example, suspension or cancellation of existing contracts by customers, lack of demand for new services, absenteeism of employees and subcontractor staff, closures of work sites and other work premises by customers or authorities and defaults in customer payments.