Caverion Corporation’s Interim Report for 1 January – 31 March 2021
Clear profitability improvement − positive start to 2021
1 January – 31 March 2021
Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year.
|Adjusted EBITDA margin, %||5.7||4.8||5.4|
|EBITDA margin, %||5.5||4.4||4.6|
|Adjusted EBITA margin, %||3.2||2.2||2.8|
|EBITA margin, %||2.9||1.8||2.0|
|Operating profit margin, %||2.1||1.2||1.3|
|Result for the period||6.8||1.6||323.8%||8.6|
|Earnings per share, undiluted, EUR||0.05||0.01||534.0%||0.05|
|Operating cash flow before financial and tax items||40.6||56.1||-27.7%||157.6|
|Cash conversion (LTM), %||137.4||162.4||158.5|
|Interest-bearing net debt||98.0||142.8||-31.4%||118.6|
|Equity ratio, %||17.2||22.0||18.9|
|Personnel, end of period||14,892||16,010||-7.0%||15,163|
|* Based on calculation principles confirmed with the lending parties.|
“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.”
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.
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.
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.
Caverion will hold an online news conference on its Interim Report on Thursday, 29 April 2021, at 10.00 a.m. Finnish time (EEST). The online 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, EEST) at the latest. The participant code for the conference call is “1505696 / Caverion”. More practical information on the online news conference can be found on Caverion's website, www.caverion.com/investors.
Half-yearly and Interim Reports will be published on 5 August and 4 November 2021. Financial reports and other investor information are available on Caverion's website www.caverion.com/investors. The materials may also be ordered by sending an e-mail to IR@caverion.com.
Distribution: Nasdaq Helsinki, principal media, www.caverion.com