Review by the President and CEO
Financial Statement Release January 1 - December 31, 2017 (published February 7, 2018)
“Caverion’s turnaround programme continued in 2017. For the full year of 2017, our EBITDA excluding restructuring costs improved to EUR 18.3 (15.6) million. Our result for the year was far from satisfactory. Even though we continued implementing numerous corrective actions to improve our project business performance, we were forced to book write-downs and negative forecast changes in a number of older projects. During the year it became evident that while our newer projects are already showing better performance, it takes some time before the impacts of our corrective actions are more visible in our results. At the same time we started to build a new stronger Caverion and implement our “Fit for Growth” strategy, which is paving our way for the future.
In the fourth quarter of 2017, we continued our selective approach towards the Projects business and the further strengthening of our Services business. Our EBITDA excluding restructuring costs was EUR 3.7 (-10.5) million. The result was still impacted by project write-downs of EUR 5.7 (39.9) million and other one-off costs, as an example, legal costs for settling risk projects, as well as a capital gain from the sale of the non-core product business under the Krantz brand in Germany. The result was also impacted by negative forecast changes in other older projects and our more prudent revenue recognition related to change orders in projects. Performance in the Projects business unit was poor. On the other hand, the Services business unit continued to improve its performance.
Caverion’s revenue for the fourth quarter of 2017 was EUR 590.3 (606.0) million. In accordance with our target, the Services business grew by 4.1 percent. The revenue of the Projects business decreased by 10.1 percent due to our more selective project business tendering. The growth in Services led to our highest ever Q4 order backlog. Our Services order backlog increased by 18.5 percent year-on-year, while in Projects the order backlog decreased by 2.8 percent. In addition to being selective in tendering, we closed down several poor-performing project units during the year. This is part of our strategic transformation. For the full year of 2017, our revenue was EUR 2,282.8 (2,364.1) million.
By division, Denmark-Norway improved its performance significantly in the fourth quarter. Divisions Finland and Austria also delivered further increasing results. The result in Industrial Solutions improved gradually from the previous quarters. The result in Germany was positive due to the Krantz capital gain, while the underlying performance was still negative due to project write-downs and negative forecast changes. Sweden materially improved its performance but the result remained negative.
About one third of projects in our project order backlog have been started in 2016 or earlier and there are some risks remaining until these projects are completed. However, we believe that the remaining project risks mainly relate to three completed Large Projects in Industrial Solutions, the impacts of which will be separately reported under “Items affecting comparability”. The project business should materially improve its result in 2018.
We continued to realise savings from the completed restructuring actions and discretionary fixed cost savings. Our personnel expenses decreased by 4.9 percent and other operating expenses by 4.6 percent from the previous year in January–December. This is satisfying, while taking into account that we simultaneously had turnaround related one-off costs.
One of the highlights of the fourth quarter was our improved financial position. Our cash flow and working capital improved substantially. Our free cash flow was EUR 82.0 (28.0) million. We were able to free up cash, for example, by making an important settlement agreement regarding the Berlin Airport project. Through the agreement we agreed on all existing change orders in the project so far and on the finalisation of the project. Our working capital decreased to EUR 6.1 million from EUR 75.7 million at the end of the third quarter. Our net debt reduced to EUR 64.0 (145.5) million and the gearing to 24.4 (78.7) percent. I am happy about the improved cash flow as it is a good indicator of the direction of the underlying business.
We took forward the implementation of our new strategy, in particular the actions of the “Top Performance at Every Level” Must-Win. This programme has different performance management sub-streams touching all pivotal areas of our operations. Our main focus will be the implementation of this Must-Win during the “Fit” phase of our strategy. We will also develop further our service and digital solutions offering.
Looking forward into 2018, our market environment remains favourable. At the same time, our customer satisfaction has improved, our personnel is getting good feedback on their competences and service mindset and our renewed leadership team is in place to take next important steps in improving our performance.”