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Strong cash flow the highlight of the corona year – enabling an increased dividend

1 October – 31 December 2020

  • Revenue: EUR 579.3 (589.0) million, down by 1.7 percent, 1.0 percent in local currencies. Organic growth was
    -5.6 percent. Services business revenue up by 4.4 percent, 5.3 percent in local currencies.
  • Adjusted EBITA: EUR 22.5 (33.7) million, or 3.9 (5.7) percent of revenue.
  • EBITA: EUR 6.3 (22.5) million, or 1.1 (3.8) percent of revenue, impacted by restructuring and write-downs on the last remaining major risk project.
  • Operating cash flow before financial and tax items: EUR 81.3 (80.6) million. Cash and cash equivalents at year-end EUR 149.3 (93.6) million.
  • Earnings per share, undiluted: EUR -0.03 (0.11) per share, impacted also by a high effective tax rate (corona and restructuring impact).

 

1 January – 31 December 2020

  • Order backlog: EUR 1,609.1 (1,670.5) million, down by 3.7 percent. Services backlog grew by 0.7 percent.
  • Revenue: EUR 2,154.9 (2,123.2) million, up by 1.5 percent, 2.8 percent in local currencies. Organic growth was
    -4.1 percent. Services business revenue up by 7.1 percent, 8.7 percent in local currencies.
  • Adjusted EBITDA: EUR 116.5 (120.4) million, or 5.4 (5.7) percent of revenue.
  • Adjusted EBITA: EUR 60.6 (67.2) million, or 2.8 (3.2) percent of revenue.
  • EBITA: EUR 42.4 (49.8) million, or 2.0 (2.3) percent of revenue.
  • Operating cash flow before financial and tax items: EUR 157.6 (143.7) million.
  • Earnings per share, undiluted: EUR 0.05 (0.14) per share.
  • Net debt/EBITDA*: -0.2x (1.4x).
  • Board’s dividend proposal for the AGM on 24 March 2021: Dividend of EUR 0.10 per share and an extraordinary dividend of EUR 0.10 per share, in total EUR 0.20 per share for the year 2020.
  • No dividend will be paid for FY 2019 based on authorisation by AGM 2020.

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

“The start of 2021 has been according to our expectations. We saw the rise of the third wave of the corona pandemic during the first quarter which continued to affect our operations similarly as in the previous few quarters. Most notably, the pandemic has had an effect on our revenue level. I am nevertheless pleased that we have learned to cope better and better in the difficult circumstances. Despite a revenue decline, helped by our efficiency and productivity improvements our profitability improved clearly year-on-year in the first quarter.

Our order backlog decreased by 8.0 percent to EUR 1,626.7 (1,768.3) million in the first quarter. Order backlog continued to increase in Services. In Projects there was a negative impact on the order backlog from the downturn and our more selective approach to project tendering. Our first quarter revenue was EUR 515.3 (541.6) million, down by 4.9 percent or 6.0 percent in local currencies. Measured in local currencies, the Services business revenue declined by 3.1 percent and the Projects business revenue by 11.1 percent in the first quarter. The business mix change seen in recent years continued; the Services business accounted for 65.4 (63.3) percent of Group revenue. There are early signs of increased investment activity among Caverion’s service customers.

The performance improvement in the first quarter follows our plans. Our first quarter adjusted EBITA improved to EUR 16.4 (12.1) million, or 3.2 (2.2) percent of revenue. EBITA was EUR 15.1 (10.0) million, or 2.9 (1.8) percent of revenue. The restructurings completed in the fourth quarter of last year had a positive impact on our cost base and the full-scale impacts will be visible later in the year. Both business units and all divisions except Finland and Austria 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, while the demand environment remained stable and comparable to the previous quarter. We have started to see an increased interest towards those parts of our lifecycle offering that help customers make their operations more sustainable. I am proud of the performance in our Services business being overall on a strong level. In Projects, the pandemic continued to impact our productivity to a certain extent, while market demand remained on a lower level. On a positive note, there were no large-scale project write-downs during the period. We continued to deploy best practices in Projects and our risk exposure is smaller going forward due to various efforts we have made in project management, execution and financial steering.

Our cash flow was again strong. Our operating cash flow before financial and tax items was EUR 40.6 (56.1) million in the first quarter. Our liquidity position strengthened further and our leverage is at a record low level. At the end of the first quarter, our interest-bearing net debt amounted to EUR 98.0 (142.8) million, or EUR -27.4 (11.8) million excluding lease liabilities. The net debt/EBITDA ratio was -0.5x (1.1x). Our cash and cash equivalents were EUR 166.2 (113.2) million. This allows us to actively search for acquisitions during 2021.

Looking forward into this year, our target remains to come out of the crisis as a stronger company than entering it. We saw clear improvements in the first quarter and I am confident in our ability to continue improving our performance going forward. When the growth starts after the crisis, we are well positioned to meet new customer demand, supported by our new offerings. We are still focusing on improving our operations. We search for profitable growth and constant productivity improvement while increasing our interaction with customers. Our mid-term financial targets launched in November 2019 remain valid.”

During the first quarter, the operating environment was affected by the rise of the third wave of the corona pandemic. The ongoing corona vaccination programmes provided a helping hand seen in the lower number of severe COVID-19 cases, although the speed of the vaccination programmes and the availability of vaccines are still raising concerns in Caverion’s operating area. Many governments have also started formulating their exit plans for lifting the various restrictions in the post-COVID-19 era and for supporting the economic recovery.

The corona pandemic continued to affect Caverion’s operations similarly as in the previous few quarters. This was visible particularly in the Projects business, whereas the Services business has remained more stable. On a positive note, Caverion did not experience any major constraints in the supply chain during the period.

The restructurings completed in the fourth quarter of 2020 had a positive impact on Caverion’s cost base during the first quarter, while the full-scale impacts will be visible later in the year. These actions included personnel reductions, reorganisation and operating model development.

Services

In Services, the demand environment remained stable and comparable to the previous quarters despite the rise of the third wave of the corona pandemic. Overall there were early signs of increased investment activity among Caverion’s customers. Certain annual industrial shutdowns in Finland postponed from last year will take place in the second quarter of 2021.

There was still 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, the pandemic continued to impact Caverion’s productivity to a certain extent, while market demand remained on a lower level. Due to the lower volumes, the pricing environment also remained tight during the quarter.

The demand for new construction projects was negatively impacted by the corona pandemic, however less for renovation construction. Stimulus packages did not yet impact general demand during the quarter.

 

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 at the end of December decreased by 3.7 percent to EUR 1,609.1 million from the end of December in the previous year (EUR 1,670.5 million).

  • At comparable exchange rates the order backlog decreased by 3.5 percent.

  • Order backlog increased by 0.7 percent in Services compared to the previous year, while it decreased by 8.8 percent in Projects.

  • In the second half of the year, the impacts of corona were more visible in the Projects order backlog.

  • Services business order backlog was less affected by corona during the year.

     

Strong liquidity position

Caverion’s liquidity position was strong and Caverion had a high amount of undrawn credit facilities on 31 December 2020. Caverion’s cash and cash equivalents amounted to EUR 149.3 (93.6) 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 19.0 million.

The Group’s gross interest-bearing loans and borrowings excluding lease liabilities amounted to EUR 138.7 (125.0) million at the end of December, and the average interest rate was 2.7 (3.0) percent. Approximately 46 percent of the loans have been raised from banks and other financial institutions and approximately 54 percent from capital markets. Lease liabilities amounted to EUR 129.2 (136.9) million at the end of December 2020, resulting to total gross interest-bearing liabilities of EUR 267.9 (261.9) million.

The Group’s interest-bearing net debt excluding lease liabilities amounted to EUR -10.6 (31.5) million at the end of December and including lease liabilities to EUR 118.6 (168.4) million. At the end of December, the Group’s gearing was 60.4 (73.6) percent and the equity ratio 18.9 (21.5) percent. Excluding the effect of IFRS 16, the gearing would have amounted to -5.4 (13.7) percent and the equity ratio to 21.5 (24.6) percent.

Caverion raised a 5-year TyEL pension loan of EUR 15 million on 29 April 2020.

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.

The previously outstanding EUR 66.06 million 2017 Hybrid Capital Securities were redeemed in full on 16 June 2020 in accordance with their terms and conditions.

In June a one-year extension option to move the maturity of RCF (100M€) and term loan (50M€) from 2022 to February 2023 was utilised.

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 December, the Group’s Net debt to EBITDA was -0.2x 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 improved to EUR 157.6 (143.7) million in January-December and cash conversion (LTM) was 158.5 (139.5) percent. The Group’s free cash flow improved to EUR 137.3 (74.0) million. Cash flow after investments was EUR 127.8 (64.5) million.

In October-December, the Group’s operating cash flow before financial and tax items improved to EUR 81.3 (80.6) million. Cash flow was negatively impacted by previously postponed authority payments due to corona totalling EUR 6.8 million paid in the fourth quarter. The final postponed authority payments totalling EUR 3.3 million will be paid in in the first half of 2021. The Group’s free cash flow was EUR 76.9 (24.4) million. Cash flow after investments was EUR 74.2 (21.4) million.

The Group’s working capital improved to EUR -160.4
(-100.9) million at the end of December. There were improvements in all divisions except for Industry compared to the previous year. The amount of trade and POC receivables decreased to EUR 506.5 (527.2) million and other current receivables to EUR 30.2 (32.6) million. On the liabilities side, advances received increased to EUR 252.2 (216.2) million and other current liabilities to EUR 273.3 (269.2) million, while trade and POC payables decreased to EUR 188.0 (194.1) 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.

The impacts of the corona pandemic and the consequent economic downturn on Caverion, and the actions taken by the company are summarised separately after this section and described earlier in the report in the “Market outlook for Caverion’s services and solutions” and “Operating environment in the first quarter in 2021” sections.

IMPACT OF CORONA PANDEMIC AND CONSEQUENT ECONOMIC DOWNTURN ON CAVERION

During the first quarter, the operating environment was affected by the rise of the third wave of the corona pandemic. The ongoing corona vaccination programmes provided a helping hand seen in the lower number of severe COVID-19 cases, although the speed of the vaccination programmes and the availability of vaccines are still raising concerns in Caverion’s operating area. Many governments have also started formulating their exit plans for lifting the various restrictions in the post-COVID-19 era and for supporting the economic recovery.

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.

Apart from its immediate effects, the corona pandemic has also led to a global economic downturn, which in many areas can negatively impact the general demand and the pricing environment also for Caverion. However, a material part of Caverion’s offering is of such nature that customers will need these services also during a downturn. At the end of the first quarter, there were indications of growth gradually starting.

It is still unclear how long the corona pandemic will last, how deep and long the consequent downturn will be and what will be the speed of the economic recovery. The business volume and the amount of new order intake are important determinants to Caverion’s performance in 2021. Large-scale vaccination against the corona virus is expected to improve the overall risk situation going forward. Caverion estimates that the first half of 2021 will still be negatively impacted by the corona pandemic, after which the operating environment is expected to improve.