Result center

Significant profitability improvement in Q2

1 April – 30 June 2021

  • Revenue: EUR 545.1 (518.5) million, up by 5.1 percent, 2.6 percent in local currencies. Organic growth was 3.3 percent. Services business revenue increased by 10.1 percent, 7.1 percent in local currencies.
  • Adjusted EBITDA: EUR 33.2 (18.5) million, or 6.1 (3.6) percent of revenue.
  • Adjusted EBITA: EUR 19.7 (4.8) million, or 3.6 (0.9) percent of revenue.
  • EBITA: EUR 18.0 (8.4) million, or 3.3 (1.6) percent of revenue.
  • Operating cash flow before financial and tax items: EUR -3.4 (48.2) million.
  • Earnings per share, undiluted: EUR 0.06 (0.01) per share.

Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.

“I am satisfied with our performance improvement continuing strongly in the second quarter of 2021. A new highlight of the quarter was that our revenue grew clearly, driven by the strong organic growth in the Services business. The effects of the corona pandemic gradually started to ease off during the quarter. Having said that, we remain somewhat cautious with the pandemic as unpredictable virus variants and new waves of the pandemic may continue to emerge. Our profitability improved significantly compared to the previous year, helped by the revenue growth and our efficiency and productivity improvements completed earlier. Like in the first quarter, the profitability improvement came from both the Services and Projects sides of the business.

Our order backlog increased by 2.8 percent to EUR 1,789.0 (1,739.7) million compared to a year earlier and by 10.0 percent compared to the end of the first quarter (EUR 1,626.7 million). Order backlog continued to increase particularly in Services, up by 10.7 per cent. Our second quarter revenue grew to EUR 545.1 (518.5) million, up by 5.1 percent or 2.6 percent in local currencies. Measured in local currencies, the Services business revenue increased by 7.1 percent and the Projects business revenue declined by 4.6 percent in the second quarter. The Group’s organic growth was 3.3 percent in the second quarter. Organic growth in the Services business was as high as 8.0 percent. The business mix change seen in recent years continued; the Services business accounted for 65.1 (62.6) percent of Group revenue in the first half of 2021.

The performance improvement in the second quarter follows our plans. Our second quarter adjusted EBITA improved to EUR 19.7 (4.8) million, or 3.6 (0.9) percent of revenue. EBITA was EUR 18.0 (8.4) million, or 3.3 (1.6) percent of revenue. Both business units improved their profitability. I am particularly happy about the progress seen lately in divisions Industry, Germany, Norway and Sweden. In Services, the positive progress continued and the performance was on a strong level. We continued to see an increased interest towards those parts of our lifecycle offering that help customers make their operations more sustainable. In Projects, market demand still continued on a lower level, although there were clear signs of market stabilisation towards the end of the quarter. We have so far coped well with the increase in material prices, affecting particularly our Projects business. We continued to deploy best practices and to improve our business performance in Projects. The finalisation of the last remaining major risk project will most likely take until the end of the year.

Our operating cash flow before financial and tax items was EUR 37.2 (104.3) million in January-June 2021 and the cash conversion (LTM) was 80.3 (160.7) percent. A periodic change was according to our expectations. In the second quarter of 2020, operating cash flow was also positively impacted by postponed authority payments of EUR 29.6 million. Our liquidity position is strong and our leverage is at a low level. At the end of the second quarter, our interest-bearing net debt amounted to EUR 147.3 (138.8) million, or EUR 23.7 (9.9) million excluding lease liabilities. The net debt/EBITDA ratio was 0.4x (0.1x). Our cash and cash equivalents were EUR 113.7 (130.2) million. We completed bolt-on acquisitions in Sweden and Austria in July and continue to actively search for suitable acquisitions in the second half of 2021.

Looking forward into this year, we are well positioned to meet growing customer demand, supported by our new offerings. The economic environment is turning more positive and the sustainability trend is growing stronger around us. The improvement of energy efficiency of buildings will play a key role in the achievement of environmental targets such as EU’s “Fit for 55” climate package. We saw clear improvements in our performance in the first half of the year and I am confident in our ability to continue improving going forward. Our mid-term financial targets launched in November 2019 remain valid.”

During the second quarter, the effects of the corona pandemic gradually started to ease off and the operating environment generally improved. The ongoing corona vaccination programmes provided a helping hand seen in the lower number of severe COVID-19 cases. Many governments have also started to lift the various restrictions related to the corona virus and have formulated their plans to support the economic recovery. Despite the positive developments, Caverion remains somewhat cautious with the pandemic as unpredictable virus variants and new waves of the pandemic may continue to emerge.

During the first half of the year, the building technology market was impacted by increases in material prices, affecting particularly Caverion’s Projects business. Caverion has proactively taken various measures to optimise the supply chain and to manage pricing.

Services

In Services, Caverion experienced increased investment activity among several customer segments as of the second quarter. As an example, certain annual industrial shutdowns in Finland postponed from last year took place in the second quarter of 2021.

There was 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.

Projects

In Projects, market demand still continued on a lower level, although there were clear signs of market stabilisation towards the end of the second quarter. During the first half of the year, the market was impacted by increases in material prices.

Stimulus packages did not yet have a clear impact on general demand in the first half of 2021.

 

Caverion expects the economic environment in the first half of 2021 still to be challenging and to negatively impact general demand and pricing, while market demand is expected to gradually pick up as of the second half of the year. This base case scenario assumes a successful implementation of the ongoing corona vaccination programmes and no material unforeseen negative surprises in 2021.

Various economic scenarios exist on how deep and long the economic downturn will be and what the speed of the economic recovery will be. The business volume and the amount of new order intake are important determinants of Caverion’s performance in 2021. A negative scenario whereby the corona pandemic continues longer than currently anticipated cannot be ruled out. Nevertheless, a large part of Caverion’s services is vital in keeping critical services and infrastructure up-and-running. This includes ensuring the continued functioning of energy and transportation infrastructure, health facilities, pharmaceutical and food industries, retail and logistics as well as facilities and services used by public authorities. An important share of these services needs to be performed even during a downturn.

The monetary and fiscal policies currently in place are clearly supporting an economic recovery in 2021. 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. The main themes in the EU stimulus packages are green growth and digitalisation. The EU member states must prepare and present their own national plans during spring 2021. Caverion expects these national and EU programmes to increase demand also in Caverion’s areas of operation as of the second half of 2021.

The digitalisation and sustainability megatrends are in many ways favourable to Caverion and believed to increase demand for Caverion’s offerings going forward. The increase of technology in built environments, increased energy efficiency requirements, increasing digitalisation and automation 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. 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. Caverion has put a large effort to develop its offering and solutions to meet this demand.

The Energy Performance of Buildings Directive (EPBD) passed by the EU requires all new buildings from 2021 to be nearly zero-energy buildings (NZEB). Furthermore, EU Member States shall lay down requirements to ensure that, where technically and economically feasible, non-residential buildings with an effective rated output for heating systems or systems for combined space heating and ventilation of over 290 kW are equipped with building automation and control systems by 2025. The building automation and control systems shall be capable of (a) continuously monitoring, logging, analysing and allowing for adjusting energy use; (b) benchmarking the building’s energy efficiency, detecting losses in efficiency of technical building systems, and informing the person responsible for the facilities or technical building management about opportunities for energy efficiency improvement; and (c) allowing communication with connected technical building systems and other appliances inside the building.

The nearly zero or very low amount of energy required should be covered to a very significant extent from renewable sources. As concrete numeric thresholds or ranges are not defined in the EPBD, these requirements leave room for interpretation and thus allow EU Member States to define their nearly zero-energy buildings in a flexible way, taking into account their country-specific climate conditions, primary energy factors, ambition levels, calculation methodologies and building traditions. Several Caverion countries have already passed the national legislation based on the EPBD framework.

Services

While the corona crisis and the economic downturn have negatively impacted the demand environment in Services, especially in ad-hoc works and small service projects, an economic recovery is expected to turn the Services business back to growth. Caverion’s Services business is overall by nature more stable and resilient through business cycles than the Projects business. 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 within building technologies as well as in digital solutions development, both of which are believed to grow faster than more basic services on average and enable data-driven operations with recurring maintenance. In Cooling, as an example, there is a technical change ongoing from environmentally harmful F-gases into CO2-based refrigeration, providing increased need for upgrades and modernisations. 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 outsourcing and maintenance as well as various facility management opportunities for Caverion.

Projects

The corona crisis and the economic downturn are in general impacting the demand environment negatively in Projects. In the short term, new builds are still expected to decrease while modernisations are expected to grow more modestly in larger cities. Commercial and office construction will still suffer from uncertainty. 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.

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.

In 2021, Caverion Group’s adjusted EBITA (2020: EUR 60.6 million) will grow compared to 2020.

  • Order backlog increased by 10.0% to EUR 1,789.0 million from the end of the previous quarter (EUR 1,626.7 million).
    • All-time high level
  • Order backlog increased by 2.8% year-on-year to EUR 1,789.0 (1,739.7) million at the end of June.
    • At comparable exchange rates the order backlog increased by 1.7% year-on-year.
    • Order backlog increased by 10.7% in Services year-on-year, while it decreased by 6.1% in Projects.

Strong liquidity position

Caverion’s liquidity position was strong and Caverion had a high amount of undrawn credit facilities on 30 June 2021. Caverion’s cash and cash equivalents amounted to EUR 113.7 (130.2) million at the end of June. 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 137.3 (140.1) million at the end of June, and the average interest rate was 2.6 (2.7) percent. Approximately 45 percent of the loans have been raised from banks and other financial institutions and approximately 55 percent from capital markets. Lease liabilities amounted to EUR 123.6 (128.9) million at the end of June 2021, resulting to total gross interest-bearing liabilities of EUR 260.9 (269.0) million.

The Group’s interest-bearing net debt excluding lease liabilities amounted to EUR 23.7 (9.9) million at the end of June and including lease liabilities to EUR 147.3 (138.8) million. At the end of June, the Group’s gearing was 79.9 (72.5) percent and the equity ratio 18.1 (18.6) percent. Excluding the effect of IFRS 16, the equity ratio would have amounted to 20.5 (21.2) percent.

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 per cent 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. The financial covenant shall not exceed 3.5:1. At the end of June, the Group’s Net debt to EBITDA was 0.4x according to the confirmed calculation principles. The confirmed calculation principles exclude the effects of the IFRS 16 standard and contain certain other adjustments.

Cash flow and working capital

The Group’s operating cash flow before financial and tax items decreased to EUR 37.2 (104.3) million in January–June and cash conversion (LTM) was 80.3 (160.7) percent. The Group’s free cash flow amounted to EUR 21.5 (91.0) million. Cash flow after investments was EUR 16.2 (85.7) million.

In April–June, the Group’s operating cash flow before financial and tax items decreased to EUR -3.4 (48.2) million. The operating cash flow was negatively affected particularly by an increase in trade and POC receivables by EUR 35.5 million from EUR 482.9 million to EUR 518.4 million from the end of March 2021. A periodic change was according to the expectations of Caverion. In the second quarter of 2020, operating cash flow was also positively impacted by postponed authority payments of EUR 29.6 million. The Group’s free cash flow amounted to EUR -7.3 (45.0) million. Cash flow after investments was EUR -8.3 (43.1) million.

The Group’s working capital was EUR -139.9 (-161.3) million at the end of June. There were improvements in all divisions except for Industry, Germany and Finland compared to the previous year. The amount of trade and POC receivables increased to EUR 518.4 (488.4) million and other current receivables increased to EUR 26.9 (24.0) million. On the liabilities side, advances received increased to EUR 237.9 (236.5) million and other current liabilities increased to EUR 278.1 (267.0) million, while trade and POC payables decreased to EUR 185.9 (189.3) million.

There have been no material changes in Caverion’s significant short-term risks and uncertainties compared to those reported in the Board of Director’s Report presented in the Annual Review of 2020. Those risks and uncertainties are still valid. After this, the lack of availability of materials and the increase in material prices have been identified as new short-term risks.

Read more about risks and our risk management

IMPACT OF CORONA PANDEMIC ON CAVERION

During the second quarter, the effects of the corona pandemic gradually started to ease off and the operating environment generally improved. The ongoing corona vaccination programmes provided a helping hand seen in the lower number of severe COVID-19 cases. Many governments have also started to lift the various restrictions related to the corona virus and have formulated their plans to support the economic recovery. Despite the positive developments, Caverion remains somewhat cautious with the pandemic as unpredictable virus variants and new waves of the pandemic may continue to emerge.

Caverion’s business is exposed to various risks associated with the corona pandemic and the economic downturn. 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.

The speed of the economic recovery is still somewhat uncertain. The business volume and the amount of new order intake are important determinants of Caverion’s performance in 2021. A negative scenario whereby the corona pandemic continues longer than currently anticipated, due to for example the so-called delta variant, can still not be ruled out. Nevertheless, a large part of Caverion’s services is vital in keeping also critical services and infrastructure up-and-running at all times.

Caverion expects market demand to be overall positive in Services and to gradually improve also in Projects in the second half of 2021. This scenario assumes a successful outcome from the ongoing corona vaccination programmes and no material unforeseen negative surprises in 2021. Increased material prices may still affect particularly the development of the Projects business.