1 January – 31 December 2023
1 October – 31 December 2023
Unless otherwise noted the figures in brackets refer to the corresponding period in the previous year.
Review by the President & CEO Jacob Götzsche
“The year 2023 was another positive, and eventful, year for Caverion, marked by increased revenue and solid profitability. Both our revenue and adjusted EBITA reached record-high levels. Our revenue increased to EUR 2,490.9 (2,352.1) million and adjusted EBITA to EUR 123.7 (105.8) million, which represents a margin of 5.0%. I am very pleased with this achievement in these market conditions, characterised by high interest rates, low investment activity, increased geopolitical uncertainty and a turbulent construction market as a whole.
In the fourth quarter, revenue was slightly behind last year at EUR 670.0 (682.9) million due to a negative currency impact. In 2023, organic revenue growth was 5.6% whereas acquisitions contributed by 4.1%. During the year, we also saw a significant currency impact due to the devaluation of the Swedish and Norwegian currencies. The negative revenue contribution of the currency impact was as much as EUR 20 million in the
fourth quarter and EUR 87 million during the year. Measured in local currencies, revenue increased in 2023 in all divisions except Industry as well as in both Service and Project businesses. We have executed several sizable projects during the year, including substations and power lines for the main grid in Finland, a new airport terminal in Frankfurt, Germany, a university hospital in Northern Finland as well as a recycling plant
for car batteries in Sweden. These types of projects are not dependent on the general market sentiment and demonstrate the advantage in having broad capabilities and know-how, as we have in Caverion.
In the fourth quarter, adjusted EBITA improved by 13.8% to EUR 44.0 million (38.7), 6.6% (5.7) of revenue. Our adjusted EBITA for the full year increased by 16.9% compared to the previous year and by 21.9% when excluding the negative impact of the currency devaluation (about EUR 4.4 million). The main contributor to the improvement was the continued high performance in Services as well as the healthy project mix and profitable growth in the Projects business unit. While we have been quite resilient to the high inflation and high interest rates, we are of course not immune to the negative market sentiment. Even if the challenges in the residential construction market do not have a significant impact on our business directly, we also do experience the indirect impact through more competition and price pressure. Our operating cash flow during the year improved to EUR 165.9 (144.3) million.
Order backlog at the end the year was stable at EUR 1,908.7 (1,943.3) million. In these market conditions, this gives us confidence of continued good performance also in 2024. Despite the challenges of the current operating environment, global trends drive long-term demand in our business.
In 2023, we made good progress in the execution of our Sustainable Growth strategy. We strengthened our service capacity and expertise by completing five acquisitions in Finland, Norway and Sweden. As outlined in our strategy, we will continue screening complementing, high-quality companies also going forward. Overall, we are in a good position to meet the demands of our customers from both geographical and capability point of view.
Sustainability and energy efficiency in the built environment are major priorities for our customers and hence also strategic focus and growth drivers for us at Caverion. Our sustainability work focuses on four key targets: caring for our people, ensuring sustainable value chain, increasing our carbon handprint as well as decreasing our own carbon footprint. The year 2023 has been a year of preparation for the requirements of the upcoming EU legislation concerning sustainability reporting. During 2023, we defined, among other actions, a unified carbon handprint calculation model, calculated our total greenhouse gas Scope 1-3 emissions, and expect our Science Based Targets to be validated in 2024.
The year 2023 also marks, for now, the last full year for Caverion Corporation as a publicly listed company. We are pleased to see the long tender offer process, which started already back in 2022, now coming to an end. Furthermore, we are happy that with Triton we will have an owner who has vast experience in our sector and who will enable us to accelerate the execution of our strategy. The ownership change in itself has no impact in our daily business and at Caverion we continue to focus on serving our customers as before. I wish to thank our customers, business partners, shareholders and the Caverion employees in particular for their contribution to a successful 2023 and look forward to continued good collaboration and success in 2024!”
The economic uncertainty due to the conflicts in Ukraine and recently in the Middle East, followed by the subsequent energy crisis, mounting inflation, rising interest rates and lowered economic growth prospects continued. Caverion has no operations in the Middle East, Russia, Ukraine or Belarus. Therefore, the impact of the conflicts on Caverion is currently indirect.
Core inflation, despite signs of easing, remained high during January–December 2023. The cost inflation related to material prices continued to impact also the building technology market. Caverion continues to manage any increases in material prices and delays in the supply chain on a daily basis without them having a significant impact on the financial performance during January–December 2023. On the other hand, wage inflation has gradually increased in all of Caverion’s operating countries.
The economic sentiment indicators have continued to be volatile in the EU during January–December 2023, and the operating environment is still impacted by lower economic growth prospects and the recent interest rate hikes.
In Services, the market demand and general investment activity remained positive. Caverion has continued to see an increasing interest towards long-term and large-scale service agreements, driven by the demand for technical competencies and self-delivery capability. There has also been increasing demand for services supporting sustainability, such as energy management, digital solutions and advisory services, driven by
regulation and increased awareness. Growth has been limited by the availability of competent workforce.
The increasing interest rates have as much as stalled certain segments of the building construction market. Caverion is not immune to this development. The residential construction market, however, does not have a significant role in Caverion’s Projects business portfolio. On the other hand, the demand in certain other businesses, such as renewable energy related projects, has been strong. As such, for Caverion’s Projects
business as a whole, the market demand has remained mostly stable, however, with regional differences.
The Projects market was also impacted by increases in material prices, delays in decision-making and supply chain as well as uncertainty in the business environment, especially related to new construction.
The digitalisation and sustainability megatrends are in many ways favourable to Caverion and they are believed to support demand for the company’s offering in 2024 and going forward. The increased energy efficiency requirements, and the increasing digitalisation, automation and technology requirements in the built environment remain strong, together with the urbanisation megatrend. 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. The continued focus on energy efficiency and CO2 reduction targets and projects continues to support activity and business volume in Caverion’s operating environment.
Guidance for 2024
Caverion will no longer publish result guidance due to the previously announced intention of a controlling shareholder, Crayfish BidCo Oy, to cause Caverion's shares to be delisted from Nasdaq Helsinki Ltd as soon as reasonably practicable
In October–December, the Group’s operating cash flow before financial and tax items improved to EUR 132.3 (106.9) million. The Group’s free cash flow improved to EUR 123.8 (88.1) million. Cash flow after investments was EUR 109.1 (86.2) million.
The Group’s operating cash flow before financial and tax items improved to EUR 165.9 (144.3) million in January–December and cash conversion (LTM) was 107.5 (100.6) percent. The period’s cash flow was negatively impacted by the tender offer related costs of EUR 17.2 million as well as by a payment of EUR 6.5 million for civil claims relating to the German anti-trust matter.
The Group’s free cash flow improved to EUR 111.6 (32.9) million. Cash flow after investments was EUR 87.1 (23.4) million. The Group’s working capital improved to EUR -170.8 (-141.4) million at the end of December.
At the end of December, the Group’s working capital was affected by the following items: The amount of trade and POC receivables decreased to EUR 606.1 (611.2) million, other current receivables decreased to EUR 30.2 (31.6) million and inventories decreased to EUR 19.4 (22.3) million. On the liabilities side, advances received
decreased to EUR 273.2 (286.2) million, other current liabilities increased to EUR 322.7 (293.3) million and trade and POC payables increased to EUR 230.7 (227.1) million.
Caverion’s cash and cash equivalents amounted to EUR 41.5 (81.2) million at the end of December. In addition, Caverion had undrawn revolving credit facilities amounting to EUR 48.7 million and undrawn overdraft facilities amounting to EUR 41.2 million.
The Group’s gross interest-bearing loans and borrowings excluding lease liabilities amounted to EUR 132.0 (144.6) million at the end of December, and the average effective interest rate was 7.4 (3.0) percent. Approximately 39 percent of the loans have been raised from banks and other financial institutions and approximately 61 percent from capital markets. Caverion has issued commercial papers to support sufficient liquidity. At the end of December, the outstanding commercial papers amounted to EUR 9.9 million. Lease liabilities amounted to EUR 146.3 (137.5) million at the end of December 2023, resulting to total gross interest-bearing liabilities of EUR 278.3 (282.0) million.
The Group’s interest-bearing net debt excluding lease liabilities amounted to EUR 90.4 (63.4) million at the end of December and including lease liabilities to EUR 236.8 (200.9) million. Net debt was impacted by investments in acquisitions with a negative cash flow effect of EUR 29.7 million in January–December 2023 as well as the EUR 35 million redemption of the Hybrid bond in May 2023.
At the end of December, the Group’s gearing was 134.8 (89.1) percent and the equity ratio 15.6 (19.8) percent. Equity ratio was also negatively impacted by the full repayment of the EUR 35 million hybrid bond.
In March, Caverion repaid the remaining part of the EUR 75 million senior unsecured bond issued in 2019 according to its terms and conditions which totalled EUR 3.5 million following the tender offer in February 2022.
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 was 6.75 percent per annum until 15 May 2023. Caverion announced on 14 April 2023 that it will exercise its right to redeem its EUR 35 million hybrid bond. The hybrid bond was redeemed in full on 15 May 2023 in accordance with its terms and conditions.
Caverion has on 31 October 2023 become an additional borrower in Senior Facilities Agreement (SFA) executed between Crayfish BidCo Oy and a group of banks. The new facility consists of term loan facility of EUR 410 million, revolving credit facility of EUR 75 million and committed guarantee facility of EUR 65 million. The term loan facility has a termination date in three years following the acquisition closing date on 31 October 2023, whereas revolving credit facility and guarantee facility have termination dates in two years and nine months following the acquisitions closing date. The term loan facility has been allocated partly to purchase Caverion shares and partly to repay the existing debt outstanding on 31 October 2023. Caverion has converted EUR 26.2 million of the revolving credit facilities into committed bank overdrafts.
Following the change of control, Caverion has prepaid its EUR 50 million term loan and cancelled the unutilised EUR 100 million revolving credit facility with initial termination date on 15 January 2025 in the end of December. Caverion has refinanced the loan with a EUR 50 million withdrawal from the new term loan facility.
As for the EUR 75 million senior unsecured bond due 25 February 2027 (“Notes”), Caverion gave a notice of change of control event on 31 October 2023. As a result of the change of control event, each holder of the Notes had the right to request that all of its Notes be repurchased. By 28 November 2023, which was the due date for repurchase instructions in respect of the Notes, the noteholders submitted valid repurchase
instructions for EUR 72.1 million in principal amount of the Notes. On 29 January 2024, Caverion repurchased the Notes in respect of which noteholders have given such valid repurchase instructions at a price per Note equal to 100 per cent of their nominal principal amount together with accrued but unpaid interest. After such repurchase, the remaining outstanding aggregate principal amount of the Notes is EUR 2.9 million.
Following the accession in the SFA, parent company Caverion Oyj has become also an additional guarantor. According to terms and conditions of the SFA, the members of Caverion Group i.e. the parent company Caverion Oyj and its subsidiaries are required to provide guarantees and securities to the lenders. Those guarantees and securities may be limited in scope and substance. Guarantees and securities from subsidiaries will be delivered within 120 days of the first utilisation of any facility. The first utilisation date
was 29 December 2023. The agreed security principles contain two tests that need to be fulfilled. Firstly, there is material company requirement, which includes subsidiaries contributing 5% or more of the consolidated EBITDA of the Group. Secondly, guarantor entities must together equate to over 80% of the Group EBITDA. The above requirements only apply to entities incorporated in Finland, Sweden, Norway and
Denmark. Agreed security principles require a security over the shares in a material company and over material intercompany loans with a certain threshold. The total book value of such shares to be included under the securities was EUR 221,3 million on 31 December 2023. There were no material intercompany loans that meet the agreed security principles. Until Crayfish BidCo Oy owns 100% of Caverion Group, guarantee granted by the Caverion Group shall be limited to the amount of the facilities actually utilised by members of Caverion Group only, excluding the obligations of Crayfish BidCo Oy. After 100% ownership is reached, the guarantees and securities of Caverion Group will cover also Crayfish BidCo Oy obligations, but may be limited if required to comply with relevant local regulations regarding financial assistance constraints.
Caverion’s external loans are subject to a financial covenant based on the ratio of the Group’s net debt to EBITDA on Crayfish BidCo Oy level according to the calculation principles confirmed with the lending parties. The Group is in compliance with the financial covenant.
Significant short-term risks an uncertainties
There have been no material changes in Caverion’s significant short-term risks and uncertainties reported in the Interim Report Q3/2023. Those risks and uncertainties are still valid. The most significant factor creating uncertainty are the conflicts in Ukraine and recently also in the Middle East as well as their potential implications on the operating environment of Caverion. Further escalation or prolongation of the conflicts or regional unrest in neighbouring areas could negatively affect Caverion's operating environment.
The short-term risks related to the lack of availability of materials and supply as well as the increase in material prices are still valid. The same applies to the risk of rising energy and fuel prices. Possible problems with the availability and cost of materials, labour, energy and fuel may impact the operating environment in the near future. These risks have already partly materialised. Also wage inflation has gradually increased. The key measures how Caverion is managing the situation include price increase clauses in tenders and agreements covering these costs.
The elevated inflation in the EU countries poses several risks and may lead to a recession within the EU and also wider. The situation may have an impact on the market demand going forward due to a weakening economic sentiment. The potential risk is balanced by the growing need for energy efficiency in the built environment where Caverion is able to support its customers.
Cyber risks have increased, among others, 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 number 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.