Caverion Corporation’s Interim Report for 1 January – 31 March 2020

All-time high order backlog as well as strong cash flow and liquidity support tackling the corona crisis

1 January – 31 March 2020

• Order backlog: EUR 1,768.3 (1,579.7) million, up by 11.9 percent.
• Revenue: EUR 541.6 (514.4) million, up by 5.3 percent. Services business revenue up by 12.7 percent.
• Adjusted EBITDA: EUR 26.3 (27.1) million, or 4.8 (5.3) percent of revenue.
• Adjusted EBITA: EUR 12.1 (13.8) million, or 2.2 (2.7) percent of revenue. Like-for-like profitability improved, Q1/2019 included a one-off gain of EUR 8.9 million plus interest.
• EBITA: EUR 10.0 (9.3) million, or 1.8 (1.8) percent of revenue.
• Operating cash flow before financial and tax items: EUR 56.1 (30.1) million.
• Earnings per share, undiluted: EUR 0.01 (0.01) per share.
• Net debt/EBITDA*: 1.1x (0.7x).
• Strong liquidity position

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:

“In the first quarter of 2020, the general business environment radically changed with the outbreak of the coronavirus pandemic. In this situation, the wellbeing of our employees, customers and other stakeholders has been, and continues to be, our first priority. Governments in our operating countries reacted to the situation by enforcing strict restrictions on social interactions, group gatherings and travel, many also by locking down their national borders. At the same time the corporate sector has tried to keep the business up and running to the extent possible. This meant wholly new challenges also for Caverion, both in the areas of health and safety and the optimisation of our operations.

Our performance in the first quarter shows that Caverion was not at the frontline taking the immediate hits from the corona crisis. 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 real estate premises, 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 even under lockdown measures imposed to help fight the coronavirus pandemic. While we also took contingency plans into use throughout the organisation in March, at the same time we benefited from a strong order backlog and a large amount of service contracts. We furthermore benefited from having rooted performance management throughout the organisation during the Fit phase of our strategy. We steer our business and contingency actions with a weekly performance management cycle, while in divisions and units the steering takes place on a daily basis.

In the first quarter of 2020, our revenue increased to EUR 541.6 (514.4) million, up by 5.3 percent. Excluding the impact of currencies, revenue grew by 7.0 percent in the quarter. Our adjusted EBITA amounted to EUR 12.1 (13.8) million, or 2.2 (2.7) percent of revenue. Our like-for-like profitability improved, taking into account that the result for the first quarter of 2019 was impacted by a positive arbitration decision relating to an old large risk project totalling EUR 8.9 million plus interest. I am especially satisfied with our cash flow generation which was a highlight of the quarter. Our operating cash flow before financial and tax items improved to EUR 56.1 (30.1) million. Our order backlog increased by 11.9 percent to EUR 1,768.3 (1,579.7) million. The integration of our most recent acquisitions (Maintpartner and Huurre) is progressing according to plan.

Measured in local currencies, the Services business revenue grew by 14.9 percent, while the Projects business revenue declined by 4.3 percent in the first quarter. Organic growth in the Services business was 3.8 percent. The Services business accounted for 63.3 (59.2) percent of Group revenue.

Our liquidity position is strong. At the end of the first quarter, our net debt amounted to EUR 142.8 (162.7) million, or EUR 11.8 (27.1) million excluding lease liabilities. The net debt/EBITDA ratio was 1.1x (0.7x). Our cash and cash equivalents increased to EUR 113.2 (101.3) million. In addition, Caverion had undrawn revolving credit facilities amounting to EUR 100.0 million and undrawn overdraft facilities amounting to EUR 19.0 million. Possible pension loans provide additional head room.

We estimate that the impacts of the corona crisis will be more visible to our business in the second quarter. It is expected that there will be somewhat more of our work force absent as well as more work site delays and closures. Although there recently have been positive signs that the governmental restrictions are clearly minimising the spread of the virus, many of our operating countries are currently still locked down. Due to the poor visibility and the extraordinary circumstances, Caverion informed on 14 April 2020 that it is withdrawing its guidance for 2020. Caverion may provide an updated guidance for 2020 once the visibility improves and more reliable estimates can be made.

I would like to express my sympathy to all our stakeholders heavily affected by the corona crisis. We continue supporting our customers with a specific focus on the ones being critical to the proper functioning of society in the current crisis. In this manner we help with building performance back to society.

There are many risks associated with the crisis, especially if it gets prolonged. Having said this, I am confident in our ability to manage the impacts of the crisis in the best possible manner. Our units, divisions and the Group have adopted a rigorous performance management process with a daily or weekly schedule to respond to the increased uncertainty and to implement required actions, including cost savings. We are extremely focused on cash flow and its drivers at all levels of the organisation. At the same time, we are continuing our most important development efforts in the areas of digitalisation, sustainability and energy efficiency. This will help us to keep executing our growth strategy with full force when the crisis is over. Our target is to come out of this crisis as a stronger company than entering it.”

OUTLOOK FOR 2020

Market outlook for Caverion’s services and solutions

Due to the effects of the outbreak of the global coronavirus pandemic, the previous market outlook given on 7 February 2020 is no longer valid. The effects of the coronavirus crisis will impact Caverion’s market outlook for 2020 in many ways.

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 real estate premises, 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 even under lockdown measures imposed to help fight the coronavirus pandemic. The governmental stimulus packages are expected to increase investments in infrastructure and hospital projects in Caverion’s operating area. Also the ramp-up investments in Pharma segment capacity as well as the manufacturing of protective equipment may increase the need for clean room capabilties.

Nevertheless, any restrictive measures such as limiting industrial operations and shutdowns or temporary close-downs of premises or construction sites may also have an impact on Caverion’s business. However, it is very difficult to judge if the effects are of a short-term nature, or if they will have a more long-term impact.

The global corona crisis is expected to result in a global downturn. While the megatrends and the need for Caverion’s offering may even be strengthened by the crisis going forward, a global downturn will negatively impact the level of demand also for Caverion’s offering. Most likely the demand for new construction projects will decrease, but there may also be an impact for smaller ad-hoc services and projects.

On the other hand, the corona crisis may also promote additional demand and new opportunities for some of Caverion’s solutions going forward. Remotely controlled buildings are helping customers to save time and money, but also enable to operate the buildings more safely. Special requirements may currently also apply to ventilation and air-conditioning systems, increasing the demand for ventilation related upgrades based on new guidelines and requirements.

Despite the coronavirus 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 still expected to promote demand for Caverion’s services and solutions over the coming years. Especially the sustainability trend is expected to continue strong going forward. The increasing awareness of sustainability is supported by both EU-driven regulations and national legislation setting targets and actions for energy efficiency and carbon-neutrality.

Services

Over the short term, the corona crisis and the economic slowdown are expected to negatively impact the demand environment in Services in all of Caverion’s divisions, especially in ad-hoc services. Caverion’s Services business is by nature more stable and resilient through the 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. The corona pandemic may even increase the amount of outsourcings going forward. 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.

Projects

Over the short term, the corona crisis and the economic slowdown are expected to negatively impact the demand environment in Projects in all of Caverion’s divisions. There will be somewhat more of work force absent as well as more work site delays and closures. So far there has only been a limited amount of work site closures in Caverion’s Projects business. The current circumstances also allow doing repairs and many types of installation projects for empty properties and sites. The requirements for increased energy efficiency, better indoor climate and tightening environmental legislation continue to drive demand over the coming years.

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 coronavirus pandemic.

Caverion may provide an updated guidance for 2020 once the visibility improves and more reliable estimates can be made.

According to the previous guidance published on 7 February 2020, the Group’s revenue (2019: EUR 2,123.2 million) and adjusted EBITA (2019: EUR 67.2 million) were estimated to grow in 2020 compared to 2019.

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

Caverion will hold a news conference on the Interim Report as a live webcast at www.caverion.com/investors on Thursday, 30 April 2020, at 2.00 p.m. Finnish time (EEST). Due to the coronavirus pandemic, the news conference cannot be attended in person.

It is also possible to participate in the event through a conference call by calling the assigned number +44 (0)330 336 9105 at 1:55 p.m. (Finnish time, EEST) at the latest. The participant code for the conference call is “1717650/ 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

Half-yearly and Interim Reports will be published on 6 August and 5 November 2020. 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

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