Caverion Corporation's Interim Report for 1 January - 30 September 2020

- Caverion Corporation Interim Report 5 November 2020 at 8.00 a.m. EET

- Revenue and EBITA impacted by corona-related downturn, still improvement in January-September

HELSINKI, Nov. 5, 2020 /PRNewswire/ --

1 July - 30 September 2020

• Revenue: EUR 515.5 (507.5) million, up by 1.6 percent, 2.3 percent in local currencies. Organic growth was -6.0 percent, impacted by the corona crisis and the downturn. Services business revenue up by 8.6 percent, 9.6 percent in local currencies.
• Adjusted EBITDA: EUR 34.8 (36.2) million, or 6.8 (7.1) percent of revenue.
• Adjusted EBITA: EUR 21.2 (23.0) million, or 4.1 (4.5) percent of revenue.
• EBITA: EUR 17.7 (22.1) million, or 3.4 (4.4) percent of revenue.
• Operating cash flow before financial and tax items: EUR -28.0 (3.8) million, impacted by postponed authority payments due to corona totalling EUR 22.4 million.
• Earnings per share, undiluted: EUR 0.06 (0.08) per share.
• Strong liquidity position

1 January - 30 September 2020

• Order backlog: EUR 1,627.7 (1,676.9) million, down by 2.9 percent. Services backlog grew by 7.3 percent.
• Revenue: EUR 1,575.6 (1,534.2) million, up by 2.7 percent, 4.2 percent in local currencies. Organic growth was -3.5 percent. Services business revenue up by 8.1 percent, 10.1 percent in local currencies.
• Adjusted EBITDA: EUR 79.6 (73.3) million, or 5.0 (4.8) percent of revenue.
• Adjusted EBITA: EUR 38.1 (33.5) million, or 2.4 (2.2) percent of revenue.
• EBITA: EUR 36.1 (27.3) million, or 2.3 (1.8) percent of revenue.
• Operating cash flow before financial and tax items: EUR 76.3 (63.0) million.
• Earnings per share, undiluted: EUR 0.08 (0.04) per share.
• Net debt/EBITDA*: 0.8x (1.1x).
• New EUR 35.0 million hybrid bond in May, redemption of old EUR 66.1 million hybrid notes in June

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.

KEY FIGURES

* Based on calculation principles confirmed with the lending parties.

Ari Lehtoranta, President and CEO:

"Caverion's profitability improved in the third quarter compared to the challenging second quarter. Despite the continuing corona pandemic, the restrictions imposed by governments were much more limited in the third quarter compared to the second quarter, enabling us to operate without bigger interruptions. However, there were more impacts to our business from the resulting economic downturn. The second wave of corona started in Caverion's operating countries towards the end of the third quarter, again increasing the risk exposure. At the same time there was not yet any visible impact from governmental or EU-level stimulus packages in the third quarter. We expect them to provide a helping hand in 2021.

Our order backlog decreased by 2.9 percent to EUR 1,627.7 (1,676.9) million in the third quarter. New order intake was positive especially in Services, whereas in Projects there was a negative impact from the downturn. The economic environment had an impact on both revenue and profitability. Our third quarter revenue was EUR 515.5 (507.5) million, up by 1.6 percent or 2.3 percent in local currencies. Measured in local currencies, the Services business revenue grew by 9.6 percent, while the Projects business revenue declined by 8.1 percent in the third quarter. The Services business accounted for 62.5 (58.5) percent of Group revenue. Adjusted EBITA was EUR 21.2 (23.0) million, or 4.1 (4.5) percent of revenue. In Services, our ad-hoc orders returned to almost normal levels in the quarter, while in the Industry division there was still an impact from delayed industrial shutdown services. In Projects, the corona pandemic continued to impact our productivity to a certain extent due to the need for increased social distancing and work site planning as well as challenges in the usage of foreign subcontracting. Mainly due to the decreased productivity due to corona, we made an additional EUR 2 million write-down to our remaining major risk project in Germany. In January-September, our adjusted EBITA improved to EUR 38.1 (33.5) million, or 2.4 (2.2) percent of revenue. This is less than our expectations pre-corona, but still an improvement.

Due to current downturn and its impacts on our revenue, we announced today that we plan to proactively further streamline and adjust our operations. As a result of the planned actions, we estimate that the company's headcount would reduce by approximately 500 by the end of the first half of 2021, with a large part of the reductions planned to be carried out by the end of 2020. The planned actions include personnel reductions, reorganisation and operating model development. Our people have shown strong performance during the corona crisis, in which light the reductions are very unfortunate but still necessary to secure our competitiveness in the future. The actions would impact all Caverion countries with a minor impact on the best-performing countries Finland and Austria. The resulting savings including some other cost-cutting measures are estimated to be at least EUR 25 million for 2021. A part of the savings will be invested in growing particularly our digital and smart technology businesses across our divisions. The initially estimated restructuring costs amount to approximately EUR 10 million in the fourth quarter of 2020.

Our operating cash flow before financial and tax items was EUR -28.0 (3.8) million in the third quarter. As we stated in our half-yearly report, cash flow was impacted by postponed authority payments to the value of EUR 22.4 million paid in the third quarter. The final postponed authority payments totalling EUR 10.2 million will be paid in the fourth quarter of 2020 and in the first quarter of 2021. Our liquidity position has remained strong and our leverage is at a low level. At the end of the third quarter, our interest-bearing net debt amounted to EUR 187.5 (172.9) million, or EUR 55.3 (41.7) million excluding lease liabilities. The net debt/EBITDA ratio was 0.8x (1.1x). Our cash and cash equivalents were EUR 84.8 (83.4) million. At the end of the third quarter, we closed the divestment of certain parts of our industrial operations in Finland as requested by the Finnish Competition and Consumer Authority.

The purpose of Caverion is to enable performance and people's well-being in smart and sustainably built environments. We are extremely well positioned to support our customers' sustainability efforts. We have today introduced our own sustainability targets. Caverion's target is to create sustainable impact through its solutions, with a positive carbon handprint 10 times greater than its own carbon footprint (Scope 1-2) by 2030. More detailed information on Caverion's sustainability work will be presented at the Sustainability Morning event in connection with our Q3 report news conference.

At present it is difficult to forecast how deep and long the current downturn will be and what will be the speed of the economic recovery. In the fourth quarter, the second wave of corona implies an additional risk to our revenue level. We will execute our above-mentioned Fit actions, while at the same time continue our most important development efforts in the areas of digitalisation, sustainability and energy efficiency. We are pleased that a significant amount of the economic stimulus packages that have been discussed on an European level seem likely to be directed towards sustainable investments enabling smart buildings and cities. This is the area where we have our strategic focus. Our target remains to come out of the crisis as a stronger company than entering it."

OUTLOOK FOR 2020

Market outlook for Caverion's services and solutions

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, food retail and logistics as well as facilities and services used by public authorities. An important share of these services needs to be performed regardless of the corona pandemic. Going forward, the economic stimulus packages provided by governments and the EU are expected to increase infrastructure, health care and different types of sustainable investments in Caverion's operating area. There was however no visible impact yet from such new governmental or EU-level stimulus packages in the third quarter.

At the beginning of the third quarter, the corona pandemic was well contained in most Caverion countries, while the second wave of corona started to be more visible at the end of the third quarter, again increasing the risk exposure. The second wave of corona is currently leading to renewed lockdown measures also in Caverion countries and increasing the negative business impacts in the fourth quarter. Any further restrictions such as limiting industrial operations and shutdowns or temporary close-downs of premises or construction sites would further impact Caverion's revenue level and also profitability.

The corona crisis has led to a global downturn, but it is still unclear how deep and how long the 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 going forward. While the digitalisation and sustainability megatrends are in many ways favourable to Caverion, a global downturn will most likely negatively impact the general level of demand and the pricing environment also for Caverion's offering. Most likely the demand for new construction projects will decrease, but there may also be an impact on smaller ad-hoc services and projects.

The corona crisis and the resulting downturn may also promote additional demand and new opportunities for some of Caverion's solutions. As an example, remotely controlled buildings are helping customers to save time and money, but also enable to operate the buildings more safely. Special requirements also apply to ventilation and air-conditioning systems, increasing the demand for ventilation related upgrades based on new guidelines and requirements.

Despite corona and its economic effects, the overall megatrends in the industry, such as the increase of technology in built environments, 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.

Services

The corona crisis and the economic downturn are in general expected to impact the demand environment negatively in Services, especially in ad-hoc services and small service projects. However, Caverion's Services business is by nature more stable and resilient through business cycles than the Projects business. As technology in buildings increases, the need for new services and digital solutions is expected to increase. Customer focus on core operations continues to open up outsourcing and maintenance as well as technical building management opportunities for Caverion. In some cases, the demand for smaller ad-hoc work in empty buildings may also increase. There is a continued interest for services supporting sustainability, such as energy management. In Cooling, there is a technical change ongoing from F-gases into CO2-based refrigeration, providing increased need for upgrades and modernisations. Stimulus packages are also expected to gradually impact general demand in the Services business.

Projects

The corona crisis and the economic downturn are in general expected to impact the demand environment negatively in Projects. Most likely the demand for new construction projects will decrease, but on the other hand, renovation construction is expected to continue increasing. The current circumstances also allow doing repairs and many types of installation projects for unoccupied properties and sites. From the trends perspective, the requirements for increased energy efficiency, better indoor climate and tightening environmental legislation continue to drive demand over the coming years. Stimulus packages are also expected to gradually impact general demand in the Projects business.

Guidance for 2020

Caverion announced on 14 April 2020 that it withdraws its guidance for 2020 due to the increased uncertainty around the market outlook as a result of the corona pandemic. Due to the continued corona pandemic and economic uncertainty experienced at the end of the third quarter, Caverion has decided not to give any guidance for the remainder of 2020. Caverion's target is to provide guidance for 2021 in conjunction with the publication of its financial statements release for 2020.

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

Caverion will hold a joint news conference and webcast on its Q3 Interim Report and Sustainability Morning on Thursday, 5 November 2020, at 10.00 a.m. Finnish time (EET). The Sustainability Morning is expected to start at around 10.45 a.m. Finnish time (EET), immediately following the Q3 news conference. 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 "9790402 / Caverion". More practical information on the news conference can be found on Caverion's website, www.caverion.com/investors.

Financial information to be published in 2020

Financial Statement Release for 2020 will be published on11 February 2021 at 8:00 a.m. (EET). Financial reports and other investor information are available on Caverion's website, www.caverion.com/investors, and IR App. The materials may also be ordered by sending an e-mail to IR@caverion.com.

CAVERION CORPORATION

Distribution: Nasdaq Helsinki, principal media, www.caverion.com

CONTACT:

For further information, please contact:

Martti Ala-Härkönen, Chief Financial Officer, Caverion Corporation, tel. +358 40 737 6633, martti.ala-harkonen@caverion.com

Milena Hæggström, Head of Investor Relations and External Communications, Caverion Corporation, tel. +358 40 5581 328, milena.haeggstrom@caverion.com

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