Interim Report January September 2018

Transcription

1 Interim Report January September 2018 Ari Lehtoranta, President and CEO Martti Ala-Härkönen, CFO 25 October 2018

2 Contents Group development Q3/2018 Cash flow and financing Market outlook Update on the progress of the strategy Guidance for 2018

3 Group development Q3/2018

4 Operating environment 1-9/2018 Services The demand for Services continued being strong. Trend towards a deeper collaboration to gain business benefits instead of mere cost savings International customers are looking for unified operating models across countries, especially in the Nordic region. Increasing interest for services supporting sustainability, such as energy management Revenue breakdown* 1-9/2018 (1-9/2017) Projects The market for Projects remained positive. In non-residential construction segment, more relevant for Caverion, the market remained stable. Demand for total technical deliveries and PPP models has been increasing. Requirements for increased energy efficiency, better indoor climate and tightening environmental legislation are increasing the costs of building systems investments. Services business unit 54% (52%) Projects business unit 46% (48%) * Change in reporting of business unit revenue 4

5 Summary of Q3/2018: Results from the Fit phase of the 2020 strategy visible, strong improvement in cash flow Order backlog Order backlog amounted to EUR 1,552.3 (1,460.4) million at the end of September, up by 6.3 percent from the end of Q3/2017. Reporting change of long-term Services contracts in Sweden, up by EUR 62.5 million Revenue Revenue EUR (545.6) million, down by 3.8% (-1.7% in local currencies. Services -1.5% and Projects -6.3% (+0.9% and -4.6% in local currencies). Sale of Krantz also affecting negatively. EBITDA EBITDA amounted to EUR 14.3 (9.6) million in Q3 and to EUR -7.5 (-6.5) million during 1-9/2018 (latter period affected by anti-trust fine of EUR 40.8 million). Adjusted EBITDA amounted to EUR 18.5 (18.8) million in Q3 and to 42.4 (31.1) million during 1-9/2018. Cash flow and leverage Operating cash flow before financial and tax items was EUR (-37.5) million in Q3. Excluding the impact of the German fine of EUR 40.8 million, an improvement of EUR 41.3 million y-o-y. Net debt/ebitda was 1.1x (4.1x). Earnings per share Earnings per share was EUR 0.03 (0.00) in Q3 and EUR (-0.22) during 1-9/2018. German anti-trust fine of EUR 40.8 million and other costs had an impact during 1-9/

6 Order backlog development Order backlog amounted to EUR 1,552.3 (1,460.4) million at the end of September, up by 6.3 percent from the end of Q3/2017. The order backlog reporting was changed during the period due to reporting harmonisation of longterm Services contracts in Sweden, which increased the order backlog by EUR 62.5 million. At comparable exchange rates the order backlog increased by 7.6 percent. Order backlog increased in Services and declined in Projects from the end of September Order backlog EUR million Q1 Q2 Q3 Q4 1,597 1,552 1, Comparative figures are carve-out figures for the periods before the effective date of the partial demerger (June 30, 2013). 6

7 Examples of our recent contracts (7-9/2018) Services Customer: Liikennevirta Oy (Virta) Contract: Cooperation agreement on the installation and maintenance services of electric vehicle (EV) charging points in Finland Location: The most comprehensive charging network in Finland, expansion of cooperation to Sweden and Norway being planned Value: Not disclosed Projects Customer: Hospital District of Southwest Finland Contract: Installing the Heating & Sanitation and Ventilation & Air Conditioning systems for the new T3 hospital which will be an extension to the Turku University Hospital Location: Turku, Finland Value: EUR 14.7 million Projects Customer: Veidekke Contract: Installing Heating & Sanitation, Cooling, and Sprinkler systems for two new environmentally friendly office buildings (VIA). Location: Oslo, Norway Value: Not disclosed 7

8 Revenue development Group revenue, EUR million Q1 Q2 Q3 Q4 Q1 Q2 Q : 2,275.8 Revenue breakdown by division, EUR million Norway Denmark Sweden Germany Industrial Solutions 1-9/2018: 1,616.5 (1,683.5) / /2018-1% -6% -12% -4% -7% +2% +10% -9% Finland Austria Eastern Europe Q3/2018: Revenue was EUR (545.6) million, down by 3.8% from the previous year (-1.7% in local currencies). Services -1.5% and Projects -6.3% (+0.9% and -4.6% in local currencies). Revenue increased in Austria, Finland and Norway, and was in line with the previous year in Industrial Solutions, while it decreased in other divisions. 1-9/2018: Revenue was EUR 1,616.5 (1,683.5) million, down by 4.0% from the previous year (-1.9% in local currencies). Services +0.5% and Projects -8.7% (+2.9% and -7.1% in local currencies) Impacted also negatively by the sale of Krantz Comparative figures are restated IFRS 15 figures for

9 Adjusted EBITDA for 1-9/2018 improved by 36.5% from the previous year Adjusted EBITDA amounted to: EUR 42.4 (31.1) million for 1-9/2018, up by 36.5% from the previous year, or 2.6 (1.9) percent of revenue. EUR 18.5 (18.8) million for Q3/2018, down by 1.4% from the previous year, or 3.5 (3.4) percent of revenue. EBITDA amounted to: EUR 14.3 (9.6) million for Q3/2018, up by 48.7% EUR -7.5 (-6.5) million for 1-9/2018, impacted by the German anti-trust fine of EUR 40.8 million and other costs. Both business units improved their margins from last year and there was also positive development in most divisions during 1-9/2018. Adjusted EBITDA, EUR million Adjusted EBITDA margin, % 2017: 25.8 (1.1%) 1-9/2018: 42.4 (2.6%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 EBITDA, EUR million EBITDA margin, % 2017: 3.8 (0.2%) 1-9/2018: -7.5 (-0.5%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Comparative figures are restated IFRS 15 figures for

10 Estimated Projects business risks for 2018 Caverion managed to further settle some of its largest old project claims during the quarter, one of which related to a large Industrial Solutions project. The risk position related to old project risks was further reduced, as two of the three Large Projects on the risk list for 2018 have been settled. The impact of the one remaining completed Large Project in Industrial Solutions to be reported separately under Items affecting comparability. The Projects business is expected to materially improve its result in 2018 although there are still certain project performance risks remaining in 2018 from older projects. At present, approximately 16 percent of projects in Caverion s project order backlog were started in 2016 or earlier. At the beginning of Q3, Caverion had approximately 20 percent of its order backlog in such projects, and Caverion estimates that this level will be reduced to slightly above 10 percent by the end of the year. There was good development also in old overdue trade receivables compared to the previous year. 10

11 15,556 employees at the end of September 2018 Employees by division 9/2018 Number of employees (end of period) 17,281 16,483 Work safety Accident frequency rate* in the end of September decreased by 12 percent from the previous year to 5.3 (6.0). Sweden 19% Norway 16% Finland 16% Germany 15% Industrial Solutions 13% Eastern Europe 10% Denmark 6% Austria 5% Group Services 1% 15,556 Q3/16 Q3/17 Q3/18 *Occupational safety is measured using a common indicator (number of accidents per one million working hours). 11

12 Cash flow and financing

13 Strong improvement in cash flow Operating cash flow before financial and tax items amounted to EUR (-75.6) million during 1-9/2018. Excluding the impact of the German fine of EUR 40.8 million, the operating cash flow improved materially by EUR 84.3 million during 1-9/2018 y-o-y, improving in all divisions except Denmark. Free cash flow improved to EUR (-90.5) million during 1-9/2018. Capex was EUR 8.3m (13.1). IT investments: EUR 5.9m (8.2) Other investments: EUR 2.5m (5.0) Operating cash flow before financial and tax items, EUR million 2017: /2018: (-75.6) Free cash flow, EUR million Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Capex, EUR million Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Free cash flow = Operating cash flow before financial and tax items Taxes paid Net cash used in investing activities (net, including acquisitions and disposals) 13

14 Working capital development The Group s working capital improved to EUR -3.2 (37.0) million at the end of September. Working capital, EUR million % of sales, (LTM) The German anti-trust fine of EUR 40.8 million was paid during the third quarter, which impacted the working capital level compared to the second quarter % -0.5% -1.0% The amount of POC receivables decreased to EUR (296.1) million and trade receivables to EUR (317.6) million at the end of September. There was good development also in old overdue trade receivables % % % % -1.5% -2.0% -2.5% -3.0% Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Comparative figures are restated IFRS 15 figures for

15 Working capital development in divisions Positive trend compared to last year almost in all divisions Working capital tied to risk projects released especially in Industrial Solutions Working capital breakdown by division, EUR million 60 Q3/2017 Q3/ Norway Finland Austria Sweden Denmark Eastern Europe Industrial Solutions Germany Group 15

16 Balanced debt maturity structure Debt maturity structure on 30 September 2018, EUR million Sources of funds in the loan portfolio 16 Banks 87% Insurance companies 11% Others 2% Interest rate type (after hedges) Fixed interest rate 13% Floating interest rate 87% Gross loans EUR 68.9m (159.6m) at the end of September 2018 Net interest-bearing debt EUR 50.2m (141.3m) Net financing expenses for 1-9/2018 EUR -2.0m (-4.2m) Average interest rate after hedges 2.6% (1.8%) EUR 100m hybrid bond issued on 9 June 2017, treated as equity in the IFRS financial statements.

17 Financial position x Net debt (EURm) Net debt/ebitda (12m) x 2.3x x 0.7x x x x x x 2.8x 2.8x x 3.4x * The Net Debt/EBITDA for Q1-Q3/16 has been calculated excluding restructuring costs. ** The Net Debt/EBITDA for Q4/16 Q3/18 has been calculated according to confirmed calculation principles with lending parties x x x x x Net debt increased by EUR 40 million in Q3, net debt EUR 50.2 million at the end of Q3. o German anti-trust fine EUR 40.8m was paid in Q3/2018. Financial covenant (Net Debt/EBITDA): Net debt/ebitda in Q3/2018: 1.1x according to the confirmed calculation principles with lending parties. In June 2018 it was agreed with the lending parties that the German anti-trust fine and there-related legal and advisory fees are excluded from the calculation of EBITDA. Gross debt to net debt (EURm) Liquidity reserve EUR 138 million at the end of September 2018, EUR million Long-term borrowings Short-term borrowings Cash and cash equivalents Net debt Unused credit facilities Cash and cash equivalents 17

18 Strengthened balance sheet Equity ratio 30.9% (Q3/2017: 24.8%) Equity ratio, % Gearing, % Gearing 18.9% (Q3/2017: 59.5%) Caverion concluded a directed share issue of EUR 60 million in June. The rationale was to maintain a strong balance sheet and to retain strategic flexibility after the payment of the antitrust fine. 16.9% 16.7% 25.8% 24.8% 25.8% 27.7% 28.2% 30.9 % 88.8% 106.4% 41.7% 59.5% 27.2% 19.4% 3.9% 18.9 % Comparative figures are restated IFRS 15 figures for Q4/

19 Market outlook

20 Economic sentiment and construction confidence Indicators in main Caverion countries remain well above long-term averages ECONOMIC SENTIMENT INDICATOR (1/2008 9/2018) CONSTRUCTION CONFIDENCE INDICATOR (1/2008 9/2018) Long-term average Long-term avergae Average adjusted figures Source: European comission, October

21 Favourable Services market demand and outlook Facility Service market growth outlook Europe Germany Development of the facility service market volume 2018, 2019, , growth p. a. (%); forecasts of all companies; averages. Caverion s outlook for Services Underlying demand expected to remain strong As technology in buildings increases, the need for new services and digital solutions is expected to increase. Opportunities in outsourced operations and maintenance Trend towards a deeper collaboration in order to gain business benefits instead of mere cost savings International customers are looking for unified operating models across countries, especially in the Nordic region. Increasing interest for services supporting sustainability, such as energy management Source: Lünendonk Study 2018: Facility service companies in Germany. 21

22 German Facility Services market >EUR 80bn and consolidating Large opportunity for Caverion German Facility Services Market in 2017 Top-10 market share increasing in German Facility Services Facility services 42% IT staffing 5% Temporary work 16% Total German B-to-B market ~ EUR 200bn Audit, tax, advisory 7% IT Consulting and service 25% Engineering services 5% Facility Services is the largest service sector in German B-to-B service market, representing 42% of the market, i.e. >EUR 80bn. Industrial Facility Services accounted for 36% of the Facility Services market (similar breakdown also in other Northern European markets). The top-10 market share in German Facility Services has increased from 11.6% in 2009 to 16.9% in 2017, and the number of employees from 107,000 to 172, % 17% 16% 15% 14% 13% 12% 11% 10% 11.9% 11.6% 11.5% 2009/ / / % 14.9% 14.4% 2012/ / / % 16.3% 2015/ /2017 Source: Lünendonk Study 2018: Facility service companies in Germany. 22

23 Update on the progress of the strategy

24 Fit for Growth Improved financial results and clear targets Digitalisation will revolutionise our industry Well positioned to enable digital future for our clients. We are becoming a more selective master in projects, while the growth will come from service business. After getting FIT through our Must-Wins, we seek to accelerate our GROWTH to outpace the market in Services. Cash conversion* Profitability (EBITDA-%) Leverage (Net debt/ebitda) Growth Services growth > market > 100% > 6% < 2.5x Services generate > 2/3 of Group revenue (long-term target beyond 2020) Group revenue growth target specified by the end of 2019 *) Operating cash flow before financial and tax items / EBITDA 24

25 Status update on Services business strategy in the Fit phase TARGET 2020: AFTER GETTING FIT, ACCELERATE SERVICES GROWTH TO OUTPACE THE MARKET ACTIONS TO DELIVER STRATEGY : Improving organisational efficiency Implementing service performance management Developing profitability through productivity, pricing and procurement Building for profitable growth PROGRESS STATUS BY Q3/2018: Ongoing Ongoing Ongoing Ongoing Centralisation of process critical functions proceeding Optimisation of spans & layers ongoing Centralised master data teams in place Management systematics implemented Positive development on performance KPIs Focus on low-performing units Improved system support to increase productivity under implementation Comprehensive pricing analyses completed and actions proceeding New customer-centric FM development showing early signs of success Increasing activity level in high-technology disciplines and digital solutions FIT PHASE FINALISED ~ BY THE END OF H1/2019, THEREAFTER CONTINUOUS DEVELOPMENT 25

26 Status update on Projects business strategy in the Fit phase TARGET 2020: PROFITABLE PROJECT BUSINESS GENERATING STRONG CASH FLOW AND SUPPORTING SERVICE GROWTH ACTIONS TO DELIVER STRATEGY : Selecting projects through categorisation model and selective tendering Implementing project performance management Developing project competences and implementing strategic resource planning Developing active project portfolio and business mix management PROGRESS STATUS BY Q3/2018: Completed Ongoing Ongoing Ongoing Project category model implemented Tender approval process and practises improved Revenue down by 8.7% (1-9/2018) y-o-y, due to selectivity Profitability improved y-o-y Positive margin slippages in projects started and completed since 2017 Comprehensive Project Unit Manager trainings held in all divisions Project manager training program ongoing in all divisions (9 common modules) Share of Large Projects (> EUR 5m) is decreasing Number of projecting units being reduced by one third (113 71), still ongoing FIT PHASE FINALISED ~ BY THE END OF H1/2019, THEREAFTER CONTINUOUS DEVELOPMENT 26

27 Effective incentive plans to boost top performance execution CAVERION S ORGANISATION Exec Division/ BU mgmt Region Manager Unit Manager INCENTIVE PLANS AND CHANGES SINCE 2020 STRATEGY LAUNCH Matching Share Plan : (share price increase + dividends) Performance Share Plan : ca. 100 key employees (EPS and operating cash flow) Group annual bonus plans (Cash flow & EBITDA) Bonus plans based on division s and own region s financial performance Bonus plans based on own unit s financial performance TOP MANAGEMENT SHAREHOLDING At the end of September 2018, the GMB members and the Board of Directors of Caverion held 16% of the total number of shares in the company. The target is to increase top management shareholding to align management and shareholder interests. Project/Service Manager Project and Service incentive plans Technician / Site Manager Local bonus plans, as applicable Spot bonuses 27

28 Results so far Digitalisation will revolutionise our industry Well positioned to enable digital future for our clients. We are becoming a more selective master in projects, while the growth will come from service business. After getting FIT through our Must-Wins, we seek to accelerate our GROWTH to outpace the market in Services. Cash conversion* EUR 84.3m y-o-y improvement in the operating cash flow 1-9/2018** Profitability (EBITDA-%) 36.5% improvement in adjusted EBITDA 1-9/2018 Adjusted EBITDA margin improved to 2.6 (1.9) percent over 1-9/2018 Leverage (Net debt/ebitda) Improved to a level of 1.1x (4.1x) as per 9/2018 Growth Services business revenue growth 2.9% in local currencies in 1-9/2018 The share of Services growing, in 1-9/2018 >54% of revenue Caverion s FIT divisions already on the growth path * Operating cash flow before financial and tax items / EBITDA ** Excluding the impact of the German fine of EUR

29 Caverion s Fit for Growth strategy 2020 on track Fit phase ongoing until H1/2019 Strategy process focused on profitable growth Growth phase H2/2019 onwards 2017 H1/2019 H2/ FIT Projects: Roll-out performance management actions in the remaining divisions Services: Finalise performance management actions, realise quick-wins in pricing and set up the foundation for continuous pricing management Procurement and fixed costs: Supplier category management ongoing and performance management program continued As necessary, complete further restructurings in divisions and the Group structure GROWTH Launch the Growth phase during H2/2019 Transform the business mix further into Services Save the date: Capital Markets Day in Helsinki scheduled for 5 November 2019 (more details on the programme to be released later) Growth targets provided by the end of

30 Guidance for 2018

31 Guidance for 2018 unchanged Revenue Adjusted EBITDA Caverion estimates that the Group s revenue for 2018 will decrease compared to the previous year (2017: EUR 2,275.8 million). Caverion estimates that the Group s adjusted EBITDA will more than double in 2018 (2017: EUR 25.8 million). Dividend Dividend policy: Dividend pay-out at least 50% of the result for the year after taxes, however, taking profitability and leverage level into account. The AGM held on 26 March 2018 decided that no dividend will be paid for Adjusted EBITDA = EBITDA before items affecting comparability (IAC) 31

32 Fit for Growth Increasing technology Energy efficiency Digitalisation Urbanisation Caverion is turning into a leading service company and a selective master of projects. We cover the whole life cycle of buildings, industries and infrastructure. We are a technology forerunner providing excellent customer experience. We will, after getting fit, grow faster than the market. MISSION VISION Smart solutions and happy customers First choice in digitalising environments MUST-WINS Excellent customer experience Best solutions Top performance at every level Winning team VALUES Step ahead Cooperation Responsibility High performance MUST-HAVES Safety Quality Sustainability 32

33 Additional slides

34 Key figures EUR million Q3/18 Q3/17 Change 1-9/18 1-9/17 Change 1-12/17 Order backlog 1, , % 1, , % 1,491.0 Revenue % 1, , % 2,275.8 Adjusted EBITDA % % 25.8 Adjusted EBITDA margin, % EBITDA % % 3.8 EBITDA margin, % Operating profit % % Operating profit margin, % Earnings per share, undiluted, EUR % Operating cash flow before financial and tax items % % -8.7 Working capital Interest-bearing net debt % 64.0 Net debt/ebitda Gearing, % Equity ratio, % Personnel, end of period 15,556 16, % 16,216 34

35 New Digital Services add value to our customers Smart service concepts : IoTFlex for industrial customers ServiFlex+ for buildings Customer information portal Remote center services Analytics Sensors Customer information portal Remote center Building Automation System Field mobility Development: Caverion smart solutions Digitalised service delivery process Analytics New business models 35

36 Smart service concepts IoTFlex and ServiFlex+ IoTFlex: Smart service concept for industry ServiFlex+ Smart service concept for buildings Modern analytics based on sensor technology allows the detection of disturbances in critical parts of the production line at an early stage Tested and developed together with a few industrial customers Fits for various industrial segments Major cost-savings when uncontrolled interruptions of production can be eliminated Renewed, digitalised service for preventive maintenance Experience from over 30,000 facilities Applications for all kind of facilities With ServiFlex+ customers can: Optimise and predict maintenance costs Choose single or multiple technical systems See 24/7 how their building is performing from a customer information portal Reduce energy consumption up to 20 percent 36

37 Directly registered shareholders on September 30, 2018 Largest shareholders Shares, pcs % of shares Change after 6/2018, pcs Change after 6/2018, % 1 Herlin Antti 20,500, ,400, Structor S.A. (Ehrnrooth family) 17,565, Solero Luxco Sarl 11,172, Varma Mutual Pension Insurance Company 9,721, Ilmarinen Mutual Pension Insurance Company 4,402, ,366, Mandatum companies 3,927, , Fondita funds 3,335, , Caverion Oyj 3,264, Nordea funds 2,375, , Aktia funds 2,118, Säästöpankki funds 1,950, , The State Pension Fund 1,850, Evli funds 1,100, , Elo Pension Company 1,060, Brotherus Ilkka 1,048, Odin funds 848, Foundation of Brita Maria Renlunds minne 817, Funds held by Ari Lehtoranta* 768, Kaleva Mutual Insurance Company 483, OP funds 289, , largest, total 88,599, All shares 138,920, Sector distribution (9/2018) 26,781 owners Nominee reg. and non- Finnish 33.3% (Jun. 30: 30.6%) Households 16.8% (17.3%) General government 12.6% (13.7%) Financial and insurance corporations 10.9% (11.5%) Non-profit institutions 4.1% (4.2%) Non-financial corporations and housing corporations 22.3% (22.7%) *) incl. Voluntas Investment Oy and directly held shares. 37