Caverion Corporation’s Interim Report for 1 January – 30 September 2021
Continued improvement in profitability and strong increase in order backlog
1 July – 30 September 2021
1 January – 30 September 2021
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.
Guidance for 2021: In 2021, Caverion Group’s adjusted EBITA (2020: EUR 60.6 million) will grow compared to 2020.
|Organic growth, %||-4.6||-6.0||-2.3||-3.5||-4.1|
|Adjusted EBITDA margin, %||7.1||6.8||6.3||5.0||5.4|
|EBITDA margin, %||6.3||6.1||5.8||4.9||4.6|
|Adjusted EBITA margin, %||4.4||4.1||3.7||2.4||2.8|
|EBITA margin, %||3.6||3.4||3.3||2.3||2.0|
|Operating profit margin, %||2.7||2.7||2.5||1.6||1.3|
|Result for the period||7.8||8.5||-7.8%||23.5||12.2||92.8%||8.6|
|Earnings per share, undiluted, EUR||0.05||0.06||-8.4%||0.16||0.08||112.3%||0.05|
|Operating cash flow before|
|financial and tax items||-10.1||-28.0||64.0%||27.1||76.3||-64.5%||157.6|
|Cash conversion (LTM), %||96.4||138.2||158.5|
|Interest-bearing net debt||185.0||187.5||-1.3%||118.6|
|Equity ratio, %||19.0||19.8||18.9|
|Personnel, end of period||14,773||15,649||-5.6%||15,163|
|* Based on calculation principles confirmed with the lending parties.|
“I am satisfied with our profitability improvement continuing according to plan in the third quarter of 2021. A highlight of the quarter was that our order backlog grew strongly both in Services and Projects compared to the previous year. This provides a solid foundation for profitable growth in the future. However, our revenue decreased seasonally in the third quarter as the new orders booked in the order backlog did not yet materialise in revenue. Our cash flow was also lower in the first nine months of the year. Our working capital was impacted by higher receivables, lower advance payments from new projects and our existing older projects being in a cash-consuming phase. Due to the different impacts of the corona pandemic on the third quarter this and last year, a revenue comparison between those quarters is less informative than in normal years. It is positive to see that most economies are now finally returning more back to business as usual.
In the third quarter, our order backlog increased by 16.1 percent to EUR 1,889.7 (1,627.7) million compared to a year earlier and by 5.6 percent compared to the end of the second quarter (EUR 1,789.0 million). The order backlog continued to increase in Services, up by 15.2 per cent. Now also the Projects order backlog was up by 17.2 per cent. It typically takes a few quarters before the growth in order backlog realises in revenue growth. Our third quarter revenue was EUR 493.7 (515.5) million, down by 4.2 percent or 4.9 percent in local currencies. Measured in local currencies, the Services business revenue declined by 0.8 percent and the Projects business revenue by 11.6 percent in the third quarter. The business mix change seen in recent years follows our plans; the Services business accounted for 65.1 (62.6) percent of Group revenue in January-September 2021.
We continued to improve our profitability in the third quarter. Our third quarter adjusted EBITA improved to EUR 21.5 (21.2) million, or 4.4 (4.1) percent of revenue. EBITA was EUR 17.7 (17.7) million, or 3.6 (3.4) percent of revenue. I am particularly happy about the positive progress which has continued in our divisions Industry, Germany, Norway and Sweden. In Services, the performance continued overall on a strong level year-to-date. There was a minor negative impact from increased material prices in the third quarter. We continued to see an increased interest towards those parts of our lifecycle offerings that help customers make their operations more efficient and predictable as well as improving their sustainability. In Projects, market demand started to pick up following the stabilisation seen in the second quarter. The finalisation of the last remaining major risk project will take until the end of the year and we continued to improve our profitability in Projects. I trust that our professional employees together with our focus on sustainability and digitalisation will enable us to continue improving our performance going forward.
Our operating cash flow before financial and tax items was EUR 27.1 (76.3) million in January-September 2021 and the cash conversion (LTM) was 96.4 (138.2) percent. Following a lower cash flow in the third quarter, we expect a strong cash flow in the fourth quarter. Our liquidity position is strong and our leverage is at a low level. At the end of the third quarter, our interest-bearing net debt amounted to EUR 185.0 (187.5) million, or EUR 56.0 (55.3) million excluding lease liabilities. The net debt/EBITDA ratio was 0.9x (0.8x). Our cash and cash equivalents were EUR 81.5 (84.8) million. We completed three bolt-on acquisitions in the quarter and continue to actively search for suitable acquisitions going forward.
After starting as Caverion’s CEO in early August, my first impression of the company is that our business has clear opportunities going forward. Our people have great skills and capabilities throughout our divisions. We are currently working on our future strategy up to 2025 and expect to finalise this work during the first half of 2022. We expect market demand to pick up in the next few years and we strongly believe in our purpose to enable building performance and people’s wellbeing in smart and sustainable built environments.“
Caverion expects market demand to be overall positive in Services and to improve also in Projects during the end of 2021. This scenario assumes a successful outcome from the ongoing corona vaccination programmes and continued control of the corona pandemic with no significant unforeseen setbacks in 2021. Increased material prices and longer delivery times may still affect Caverion’s business going forward.
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 potential new corona variants, 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.
The monetary and fiscal policies currently in place are clearly 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 as of the end 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. This is furthermore supported by the society end-users’ general request for environmentally friendly built environment. The Energy Performance of Buildings Directive (EPBD) passed by the EU requires all new buildings from 2021 to be nearly zero-energy buildings (NZEB). Other initiatives include 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. The increased rate and depth of renovation will have to be maintained also post-2030 in order to reach EU-wide climate neutrality by 2050. Caverion has been putting an effort to develop its offering and solutions to meet this demand and is well positioned with its approximately 15,000 employees.
Caverion expects market demand to be overall positive during the end of 2021. 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 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. 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 up opportunities for Caverion through outsourcing of industrial operation and maintenance, property maintenance as well as facility management.
According to Euroconstruct reports published in June 2021, the recovery of the European construction industry is more rapid than initially expected. According to the latest estimates by Euroconstruct, the total construction volume in Western Europe is expected to grow by 4.1 percent in 2021, following a drop of 5.2 percent in 2020. Non-residential construction, which was most strongly hit by the crisis, still shows a weaker recovery path in 2021 compared to residential construction according to Euroconstruct. 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 market demand to improve also in Projects during the end of 2021.
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.
Caverion will hold a news conference on its Interim Report on Thursday, 4 November 2021, at 10.00 a.m. Finnish time (EET) at Hotel Kämp, Kluuvikatu 2, 2nd floor, Helsinki, Finland. The news conference can be viewed live on Caverion’s website at www.caverion.com/investors. It is also possible to participate in the event through a conference call by calling the assigned number +44 (0)330 336 9105 at 9:55 a.m. (Finnish time, EET) at the latest. The participant code for the conference call is “4793956 / Caverion”. More practical information on the news conference can be found on Caverion's website, www.caverion.com/investors.
Financial Statement Release for 2021 will be published on 10 February 2022 at 8:00 a.m. (EET). The Annual Review, including the financial statements for 2021, will be published on Caverion's website in English and Finnish by 4 March 2022 at the latest. Interim/Half-yearly Reports for 2022 will be published on 28 April, 4 August and 3 November 2022.
Caverion will arrange a Capital Markets Day in Helsinki on 10 May 2022 at 12:00 noon (EEST). Further information on the programme will be published closer to the date.
Distribution: Nasdaq Helsinki, principal media, www.caverion.com