1 January – 31 December 2022
1 October – 31 December 2022
Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.
Review by the President & CEO Jacob Götzsche
“Our year 2022 was marked by a clear profitability uplift as a result of the determined performance improvement actions made during the past years. Our revenue grew by 9.9 percent to EUR 2,352.1 (2,139.5) million and adjusted EBITA increased by 20.7 percent to EUR 105.8 (87.7) million in line with our guidance. Our EBITA was record-high during our nearly ten-year history as a publicly listed company and amounted to EUR 86.1 (59.4) million in 2022. Our earnings per share almost doubled from 2021. The performance improvement was supported by the overall revenue growth mainly in Services. In addition, our consistent efforts in improving project risk management have gradually resulted in healthier and more profitable project portfolio. This demonstrates our strong capability to deliver sustainable, profitable growth in line with our strategy that was updated during the year.
The positive momentum of the first nine months of the year continued also in the fourth quarter of 2022. Our fourth quarter revenue increased by 16.7 percent to EUR 682.9 (585.3) million and organic growth was 14.9 percent. The organic growth was partially driven by the increased costs of materials and external services, that we were able to successfully factor in our sales prices. We estimate this inflation impact to account for roughly one third of the organic growth.
Our adjusted EBITA improved by 28.7 percent to EUR 38.7 (30.1) million, or 5.7 (5.1) percent of revenue during the fourth quarter of 2022, even though the high sick leave levels and operating expense increases continued to negatively impact our profitability. Overall, our business has however proved to be relatively resilient to the rapid inflation. I am also pleased that we could improve our operating cash flow before financial and tax items to EUR 106.9 (76.7) million in the fourth quarter.
Our order backlog amounted to EUR 1,943.3 (1,863.8) million at the end of December, 4.3 percent higher compared to the previous year. We expect our solid order backlog to support revenue growth also going forward. Around 63.2 percent of our order backlog is estimated to be realised as revenue during 2023. The high inflation still continues to have some impact on the building technology market, although we have seen some first signs of the material price inflation cooling down. In 2023, we expect the underlying demand to be overall positive in Services. In Projects, we expect the underlying business activity to remain stable in 2023, however, the economic uncertainty may start to impact the demand environment negatively.
The effects of the corona pandemic continued to stabilise during the fourth quarter. We remain somewhat cautious with the pandemic as unpredictable virus variants and new waves of the pandemic may continue to emerge.
As part of the implementation of our Sustainable Growth strategy, we closed 12 acquisitions in 2022 with total annual revenue of EUR 94.3 million and welcomed more than 560 new colleagues from the acquired companies. In the fourth quarter, we closed three acquisitions bringing us additional capabilities in smart security services, refrigeration and technical installation. Our fourth quarter revenue increased by 4.1 percent as a result of acquisitions and divestments compared to the previous year. We continue to screen high quality companies that complement our existing capabilities or geographical footprint.
As we close the year 2022 with strong results, I would like to thank our customers, partners, shareholders and our almost 14,500 employees for their contribution during our journey so far. Updated status on the recent tender offers has been presented under “Events after the reporting period” in this report. The tender offers announced provide clear evidence that our goal to achieve Sustainable Growth by serving our customers along the entire lifecycle of the built environment and assisting in green transition to smart buildings is an attractive strategy."
The economic uncertainty increased during 2022 due to the geopolitical tensions related to the Ukraine conflict, resulting in subsequent energy crisis, mounting inflation, rising interest rates and lowered economic growth prospects. Inflation accelerated during the year and the cost inflation related to material prices, including fuel costs, continued to impact also the building technology market. 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. Economic sentiment weakened in the EU during 2022 along with lower economic growth prospects. Also the corona pandemic still continued to have some impact on the operating environment through sick leaves.
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 by 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. Growth has been limited by the availability of competent workforce and delays in the supply chain.
In Projects, the market demand remained mostly stable. The interest for energy improvement projects has picked up, driven by the focus on energy consumption due to the energy crisis. The market was 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.
Impacts of the Ukraine crisis
Russia’s invasion of Ukraine at the end of February 2022 increased geopolitical tensions especially in Europe overnight. The war has created uncertainties weakening the growth prospects in several countries where Caverion operates. The duration of the Ukrainian conflict and its future effects on the industry, and Caverion in particular, remain uncertain, and the overall situation remains highly volatile. Caverion divested its Russian subsidiary at the end of 2021 and has no operations in Ukraine or Belarus. Therefore, the impact of the conflict on Caverion is currently indirect. Caverion has experienced increases in material prices and delays in the supply chain and in decision-making, however Caverion continued to manage them on a daily basis without having a significant impact on performance during 2022.
Caverion divested its Russian subsidiary at the end of 2021 and has no operations in Ukraine or Belarus. Therefore, the impact of the conflict on Caverion is currently indirect. Caverion has experienced increases in material prices and delays in the supply chain and in decision-making, however Caverion continued to manage them on a daily basis without having a significant impact on performance during 2022.
Caverion expects the underlying demand to be overall positive in Services during 2023.
In Projects, Caverion expects the underlying business activity to remain stable in 2023. In Projects, however, the economic uncertainty may start to impact the demand environment negatively. The market instability resulting from the war in Ukraine and the high inflation are expected to dampen the willingness to invest in new construction.
This scenario assumes a sufficient control of the corona pandemic impacts with no significant unforeseen setbacks in 2023 and no further escalation of the conflict in Ukraine.
The digitalisation and sustainability megatrends are in many ways favourable to Caverion and they are believed to increase demand for Caverion’s offerings 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 activities and projects continues to support activity and business volume in Caverion’s operating environment.
Guidance for 2023
In 2023, Caverion Group’s revenue (2022: EUR 2,352.1 million) and adjusted
EBITA (2022: EUR 105.8 million) will grow compared to 2022.
In October–December, the Group’s operating cash flow before financial and tax items improved to EUR 106.9 (76.7) million. The Group’s free cash flow improved to EUR 88.1 (64.9) million. Cash flow after investments was EUR 86.2 (62.1) million.
The amount of trade and POC receivables increased to EUR 611.2 (541.9) million and other current receivables decreased to EUR 31.6 (33.8) million. On the liabilities side, advances received increased to EUR 286.2 (261.3) million, other current liabilities increased to EUR 293.3 (278.3) million and trade and POC payables increased to EUR 227.1 (197.7) million.
Caverion’s cash and cash equivalents amounted to EUR 81.2 (130.9) million at the end of December. In addition, Caverion had undrawn revolving credit facilities amounting to EUR 100.0 million and undrawn overdraft facilities amounting to EUR 19.7 million.
The Group’s gross interest-bearing loans and borrowings excluding lease liabilities amounted to EUR 144.6 (135.9) million at the end of December, and the average effective interest rate was 3.0 (2.6) percent. Approximately 39 percent of the loans have been raised from banks and other financial institutions and approximately 61 percent from capital markets. Lease liabilities amounted to EUR 137.5 (135.7) million at the end of December 2022, resulting to total gross interest-bearing liabilities of EUR 282.0 (271.6) million.
Caverion has a balanced debt maturity profile, where most of the long-term debt matures in 2025 and in 2027.
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 calculation principles confirmed with the lending parties. The financial covenant shall not exceed 3.5:1. Caverion is in compliance with the quarterly monitored financial covenant.
There have been no material changes in Caverion’s significant short-term risks and uncertainties reported in the Interim Report Q3/2022. Those risks and uncertainties are still valid. The most significant factor creating uncertainty is the war in Ukraine and its potential implications on the operating environment of Caverion. The impacts of the war on Caverion’s business during 2022 have been described earlier in the report in “Impacts of the Ukraine war on Caverion’s business during 2022”. Further escalation or prolongation of the conflict 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. The key measures how Caverion is managing the situation include price increase clauses in tenders and agreements covering these costs.
The soaring 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 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.
Read more about risks and our risk management
The corona pandemic continued to negatively impact Caverion’s business in 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 especially during the first half of the year 2022. During the second half of the year 2022, the effects of the pandemic started to normalise but it still had an impact on business.
The business volume and the amount of new order intake are important determinants of Caverion’s performance. Despite the somewhat 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.