2013-06-04 08:11:00 CEST
2013-06-04 08:11:06 CEST
SÄÄNNELTY TIETO
YIT - Company Announcement
YIT Corporation publishes outlook and guidance for the second half of 2013, strategy, financial targets as well as certain financial information regarding Caverion Corporation, a company to be formed in the partial demerger of YIT
Helsinki, Finland, 2013-06-04 08:11 CEST (GLOBE NEWSWIRE) -- YIT CORPORATION
STOCK EXCHANGE RELEASE 4 June, 2013 9.11am
YIT CORPORATION PUBLISHES OUTLOOK AND GUIDANCE FOR THE SECOND HALF OF 2013,
STRATEGY, FINANCIAL TARGETS AS WELL AS CERTAIN FINANCIAL INFORMATION REGARDING
CAVERION CORPORATION, A COMPANY TO BE FORMED IN THE PARTIAL DEMERGER OF YIT
The Board of Directors of YIT Corporation (”YIT”) confirmed in its meeting on 3
June, 2013 the outlook and guidance for the second half of 2013 as well as the
strategy and financial targets until 2016 for Caverion Group to be formed in
the partial demerger of YIT (“Demerger”). This release contains also certain
other previously unpublished information that will be described in the
prospectus regarding Caverion Corporation, a company to be formed in the
Demerger, to be published on or about 5 June, 2013 (the “Prospectus”). This
information includes the key competitive strengths of Caverion Group, carve-out
and pro-forma historical financial information of Caverion Group, events after
the three-month period ended 31 March 2013, dividends and dividend policy as
well as treasury policy.
The Board of Directors of YIT approved and published the demerger plan
regarding the Demerger on 21 February, 2013. According to the demerger plan YIT
is demerged so that all assets and liabilities related to YIT's Building
Services business are transferred to a new company, named Caverion Corporation
(“Caverion”), to be formed in the Demerger. YIT's Construction Services
business will form YIT's continuing operations.
The Demerger will become effective when YIT's Extraordinary General Meeting to
be held on 17 June, 2013 has approved the Demerger and its implementation is
recorded with the Finnish Trade Register. The planned registration date is 30
June, 2013. YIT will apply, on behalf of Caverion, for the listing of all
Caverion shares for public trading on NASDAQ IMX Helsinki Ltd with the trading
code “CAV1V”, so that the Caverion shares are estimated to be entered into
public trading on 1 July, 2013.
GUIDANCE FOR THE SECOND HALF OF 2013
-- Caverion estimates that the Group's revenue for the second half of 2013 is
more than EUR 1.3 billion and EBITDA more than EUR 50 million.
-- The guidance does not take into account the non-recurring expenses related
to the Demerger, nor the expenses related to any potential mergers or
acquisitions.
SUMMARY OF THE STRATEGY AND LONG-TERM FINANCIAL TARGETS FOR CAVERION GROUP
Caverion's strategic objective is to achieve a leading position in the European
building systems market. The strategy has three main objectives:
-- In Northern Europe, the key aim is to improve profitability.
-- In Central Europe, Caverion will pursue strong growth, especially in
Germany and German-speaking countries. The aim is to grow both organically
and through acquisitions.
-- Extensive new and advanced projects and services. The company will pursue
growth and profitability by putting an emphasis on long-term service
agreements in the service and maintenance business, Design & Build
projects and deliveries related to energy savings.
YIT's Board of Directors set the following financial targets for Caverion until
2016 on June 3, 2013.
TARGET UNTIL 2016 ACTUAL 2012
(Carve-out)
--------------------------------------------------------------------------------
Revenue growth (%) Average annual growth in revenue of more -2.5
than 10 per cent
--------------------------------------------------------------------------------
Profitability (%) EBITDA over six per cent of revenue 3.0
--------------------------------------------------------------------------------
Operating cash flow Strong operating cash flow to enable 40.5
after investments (EUR organic growth, repayment of loans and
million) distribution of dividend
--------------------------------------------------------------------------------
Market outlook for Caverion's services
Caverion's operating environment varies by business and country. Caverion
operates in Sweden, Finland, Norway, Germany, Austria, Denmark, Russia,
Estonia, Latvia, Lithuania, Poland, the Czech Republic and Romania. The
extensive geographical area of operations and comprehensive portfolio balance
the effect of economic fluctuations, with the changes impacting business
operations at different times and force.
The market situation for building systems is expected to vary by country also
in 2013, especially in the project business. In 2013, the service and
maintenance market is estimated to remain stable or even grow slightly in all
major countries where Caverion operates. The raise in technology in buildings
increases the need for new services, and the demand for energy efficiency
services is expected to remain stable. The opportunities for growth in service
and maintenance are still quite favorable, particularly in Norway, Germany and
Austria. In Poland, the building systems market will continue to grow but
suffer from oversupply, which has a negative impact on prices. The building
services market in the rest of Central Eastern Europe (the Czech Republic and
Romania) is developing slowly with a low level of activity.
Decision-making on new investments is still slow, but positive signs can be
seen. After the stagnation in 2012, new investments in building systems are
expected to increase slightly in Norway, Germany and Austria. Increasing public
investments and an increasing need for renovation and repair work are expected
to the growth. Demand in the project market is expected to weaken further in
2013 in Finland, Sweden and Denmark and decrease slightly or remain unchanged
in Central Eastern Europe. The size of the Swedish project market as a whole is
expected to decrease by approximately 5 per cent during 2013, mainly due to
weakening demand. The Norwegian project market has developed well during the
first quarter of the year, and the favourable development is expected to
continue during 2013. In the Baltic countries and Russia, both the project and
service market demand is estimated to remain low.
There is potential for energy-efficient services over the next few years with
the tightening of environmental legislation. Environmental certifications and
energy efficiency will be increasingly significant factors in the future,
allowing property owners to increase the value of their properties, which will
continue to support growth opportunities. Services and projects related to the
maintenance of traffic infrastructure are also estimated to develop favorably.
Outlook for the second half of 2013
Caverion estimates that the Group's revenue for the second half of 2013 is more
than EUR 1.3 billion and EBITDA more than EUR 50 million. The guidance does not
take into account the non-recurring expenses related to the Demerger, nor the
expenses related to any potential mergers or acquisitions.
Company's management may with its actions affect the controllability of
operations and the improvement of profitability by streamlining the segment
organization and by lowering the organizational structures as well as with
business restructurings. The profitability of the project business is sought to
be improved by choosing the projects more carefully, by a more systematic risk
management and by improving the acquisition process. In addition to these
improvement measures commenced earlier the aim is to improve the tender process
and to focus the project business in knowledge centers. The criteria for the
tendering process have been made clearly stricter with regard to the
profitability and risks of the project, among other factors, and the number of
offers made will be decreased. The systems and software used in offer
calculations will be harmonised, and authorisations for approving projects have
been made more stringent. The company also aims further in the value chain and
it aims to strengthen its position particularly in Design & Build projects. The
restructuring of operations proceeded during the first quarter of 2013 in all
countries where Building Services Northern Europe operates. The aim is to
decrease the number of personnel by 600 employees in 2013; of these, personnel
cuts amounting to approximately 200 employees were carried out during the first
quarter. The effects of the executed cost savings and measures are estimated to
be seen as an improvement of the profitability during 2013.
Company's management cannot affect the general market development with its
actions. According to the company management's estimate, the effects of the
implemented cost-savings are expected to be shown as improved profitability
during the rest of 2013. The additional service and maintenance work postponed
by customers starting from the fourth quarter of 2012 is expected to result in
increasing demand, which is also estimated to contribute to the favorable
development of revenue and profitability during the rest of the year. The clear
strengthening of the order backlog of Building Services Central Europe and
picking up of demand in Germany in the first quarter of 2013 will contribute,
according to the management's estimates, to the development during the rest of
the year. The increased insecurity of the general macroeconomic development has
nonetheless an effect on Caverion's business and customers.
Strategy and financial targets for Caverion Group
As Caverion will be established only in connection to the implementation of the
Demerger, YIT has defined the strategy and financial objectives for Caverion.
After its establishment Caverion will independently make the decisions
regarding its strategy and financial objectives.
Caverion's strategic objective is to achieve a leading position in the European
building systems market. The strategy has three main objectives:
-- In Northern Europe, the key aim is to improve profitability
-- In Central Europe, Caverion will pursue strong growth, especially in
Germany and German-speaking countries. The aim is to grow both organically
and through acquisitions.
-- Extensive new and advanced projects and services. The company will pursue
growth and profitability by putting an emphasis on long-term service
agreements in the service and maintenance business, Design & Build
projects and deliveries related to energy savings.
Improving the profitability of Building Services Northern Europe
Caverion aims to improve the profitability of Building Services Northern
Europe. The previously announced measures to carry out cost savings of EUR 40
million have been executed and personnel cuts of 800 employees were carried out
by the end of the 2012. The cost savings measures related to personnel have
been executed and the pursued cost savings have been reached. Nonetheless the
cost saving measures have turned out to be inadequate due to market development
and decrease in revenue. Hence, the adjustment of costs will continue in
Building Services Northern Europe during 2013. The aim is to decrease the
number of personnel by further 600 employees in 2013; of these, personnel cuts
amounting to approximately 200 employees were carried out during the first
quarter. The aim is to improve the profitability of project business through
more careful project selection, increasingly systematic risk management and
more efficient procurement. In addition to these efficiency measures that have
already been launched earlier, the aim is to make the tendering process more
efficient and centralise the project business in centres of excellence. The
criteria for the tendering process have been made clearly stricter with regard
to the profitability and risks of the project, among other factors, and the
number of offers made will be decreased. The systems and software used in offer
calculations will be harmonised, and authorisations for approving projects have
been made more stringent.
Strong growth in Central Europe
Caverion will pursue strong growth in Central Europe both through acquisitions
and organically. Caverion's market shares in Central European countries are
smaller than in Northern Europe, which offers good opportunities for growth in
these diversified Central European markets. According to the Company's
management, Caverion is the second largest player in terms of market position
in Germany with a market share of approximately two per cent and the third
largest player in Austria with a market share of approximately three per cent.
Caverion aims to further expand in service and maintenance business in the
German-speaking region with selected acquisitions. YIT has expanded into the
Central European market with two significant acquisitions (MCE in 2008,
caverion GmbH in 2010) and the Company estimates that Caverion also has
resources for continuing its growth through acquisitions.
Caverion aims to increase its service and maintenance operations significantly
in Central Europe, where service and maintenance account for a lower share of
revenue than in Northern Europe. The outlook for services and maintenance of
building services is good over the long term in all countries in which the
Company operates. Economic trends have less effect on the demand for
maintenance than the project business, and the profitability of maintenance is
also typically better. In 2012, service and maintenance operations accounted
for 64 per cent of all Building Services and Industrial Services volume in
Northern Europe and 31 per cent in Central Europe.
Growth and profitability will be pursued with extensive, new and advanced
projects and services
In the project business, the aim is to grow as a supplier of so called Design &
Build projects and total deliveries of building systems, as large projects that
require significant resources and extensive competence are where Caverion
excels, being involved throughout the project from designing the solution to
delivering the technology. Higher profitability than in individual tendered
projects are typical of such project development. Major projects often last for
several years and generate cash flows positively.
The Company also aims to increase long-term service agreements, strengthen its
technical expertise and become even more of a forerunner as a provider of
energy-efficient building systems and energy efficiency services. Caverion has
been a forerunner in energy-efficient building systems for a long time, and it
aims to continue to invest in the development of its products and services.
Long-term financial targets
YIT's Board of Directors set the following financial targets for Caverion until
2016 on June 3, 2013.
TARGET UNTIL 2016 ACTUAL 2012
(Carve-out)
--------------------------------------------------------------------------------
Revenue growth (%) Average annual growth in revenue of more -2.5
than 10 per cent
--------------------------------------------------------------------------------
Profitability (%) EBITDA over six per cent of revenue 3.0
--------------------------------------------------------------------------------
Operating cash flow Strong operating cash flow to enable 40.5
after investments (EUR organic growth, repayment of loans and
million) distribution of dividend
--------------------------------------------------------------------------------
There is no certainty of the Company achieving the above financial targets or
being able to maintain them if it reaches them. The Company uses the
above-mentioned and other financial targets and performance indicators at
selected intervals in its business.
Key competitive strengths of Caverion Group
Comprehensive services and strong market position in selected geographical
regions.
The building systems market is fragmented in all of Caverion's geographical
areas: no individual players hold a market share of over 10 per cent in any of
Caverion's significant operating countries. There are lots of small companies
in the market, focusing on only a few technical solutions in a limited
geographical area. Caverion's strength is its extensive service portfolio,
covering all building systems throughout the life cycle of the property from
design and installation to service and maintenance. With its extensive
expertise, Caverion can offer total deliveries of building systems also in
large-scale Design & Build projects that typically offer better profitability
and have less competition compared to conventional tender-based projects.
The increasing amount of technology in buildings increases the demand for new
services, and outsourcing of service and maintenance of building systems is
expected to increase. The comprehensive expertise in building systems is
expected to provide Caverion with a competitive advantage as customers often
prefer a single supplier instead of several small suppliers.
Caverion has a strong market position in all key countries in which it
operates: the Company's management estimates, that measured by revenue,
Caverion is the market leader in Finland and Norway, the second largest in
Sweden and in the relevant markets in Germany and among the three largest also
in Denmark and Austria (source for market size: Euroconstruct December 2012,
VTT Technical Research Centre of Finland and the management's estimate based on
public information from third parties). Caverion also has special expertise in
industrial services, particularly in Finland and Sweden.
Solid experience in acquisitions supports growth opportunities in a fragmented
market
Caverion's management and business areas have solid experience in mergers,
acquisitions, reorganization of operations and integration of companies in all
key countries relevant to its business. The fragmented markets continue to
offer plenty of opportunities for acquisitions. Caverion's strategic objective
is to grow also through acquisitions, especially in Central Europe.
The profitability of the most significant acquired companies has been
successfully improved in a relatively short time after the acquisition. The
significant growth in YIT's Building Services, and also the foundation for
Caverion's international operations, was facilitated at the beginning of the
2000s when YIT acquired Calor AB in Sweden and the building services business
of ABB. These acquisitions almost tripled the volume of YIT Building Services.
At the same time, YIT succeeded in improving the profitability of the acquired
businesses: for example, the operating profit margin of the business operations
acquired from ABB grew from zero in 2003 to more than seven per cent by 2007.
Correspondingly, the business volume, revenue and operating profit margin of
Building Services Central Europe increased significantly between 2008 and 2010
with the acquisition of MCE AG and caverion GmbH. The average annual growth in
YIT Building Services revenue in 2000-2012 was approximately 15 per cent, with
acquisitions playing a key role.
Low capital employed, extensive customer base and significant share of service
business provide the preconditions for strong and stable cash flow.
The building systems business ties relatively little capital and requires only
low level of investments, apart from possible acquisitions. Caverion's
cash-based investments in tangible and intangible assets according to the
carve-out financial statements totaled EUR 14.2 million in 2010-2012, or only
approximately 4 per cent of the combined EBITDA for the years in question.
Long-term customer relationships and an extensive customer base support the
stability of cash flow. Caverion does not depend on individual customers: its
ten largest customers accounted for only approximately 14 per cent of the
Groups revenue in 2012. In addition, different customer groups in the private
and public sector and extensive geographical area of operations decrease the
business operations' dependence on economic fluctuation.
In 2012, the service and maintenance business, which is less cyclical than the
project business, accounted for 55 per cent of Caverion's business. The share
of service and maintenance operations of revenue has remained stable in recent
years. Their demand is expected to develop at a stable rate in the future as
well, as the increasing amount of technology in buildings, among other factors,
maintains the continuous need for service and maintenance.
Building systems operations have generated a strong cash flow for YIT in the
long term. After the Demerger, the cash flow will be available exclusively for
developing Caverion's building systems business. Naturally, changes in working
capital also influence the total cash flow of individual years, and therefore
the management of trade receivables and advance payments plays a key role in
terms of the generation of cash flow to be used for acquisitions, for example.
Caverion is a forerunner in technology with own innovative solutions
Caverion's technological expertise covers all building systems, which makes it
stand out from smaller competitors. Furthermore, Caverion has special
technological expertise in, for example, energy efficiency, cooling, technology
for cleanrooms and other demanding sites, such as hospitals and laboratories,
traffic and tunnel telematics, as well as high-pressure industrial piping.
Caverion offers its own products and brands in building automation and
ventilation systems, among other fields, and invests heavily in research and
development at its own R&D centre.
Caverion offers advanced building automation, remote control and control room
services, which requires special expertise that is quite rare in the market.
The demand for control room services is estimated to be growing as they
decrease the need for service visits and reduce customers' costs significantly.
In the future service and maintenance is expected to focus increasingly on
foreseeing measures and actual need, which will support the demand for
Caverion's services.
Caverion's business is labour-intensive and based on the high professional
skill of the personnel. Own personnel play a significant role in the service
business in particular, which guarantees the uniform high quality of service.
Subcontractors are used as necessary, mainly in the project business, to add
flexibility to overall capacity.
Energy efficiency as part of all services
Energy efficiency is currently an essential criterion for customers in choosing
a service provider. Its importance is estimated to grow further in the future
with tightening environmental regulations and increasing energy costs. This is
a competitive advantage for Caverion, as energy efficiency is part of all
Caverion services. The aim is to incorporate energy savings into all project
deliveries and service agreements. Energy efficiency has been a key factor with
which Caverion has won projects, especially in large-scale Design & Build
projects.
Caverion Group's historical carve-out financial information
The Prospectus contains the following Caverion Group's historical carve-out
financial information:
- Caverion Group's audited carve-out financial statements for the years ended
December 31, 2012, 2011 and 2010
- Caverion Group's unaudited interim financial information for the three month
period ended March 31, 2013, with comparative information.
The above mentioned Caverion Group's historical carve-out financial information
have been attached in full to this release as annex 1 and 2.
Caverion has not formed a separate legal group in the past. The carve-out
financial statements presented in this Registration Document reflect the
financial information of the entities that have historically formed the
Building Services business within YIT Group, which consists of YIT's reportable
segments Building Services Northern Europe and Building Services Central
Europe.
The carve-out financial statements of Caverion Group for the years ended
December 31, 2012, 2011 and 2010 and the carve-out financial information for
the three-month period ended March 31, 2013, have been prepared by combining
(“carve-out”) from YIT's consolidated financial statements using the historical
income and expenses, assets and liabilities and cash flows attributable to
Building Services business. The carve-out financial statements and interim
financial information also include allocations of income, expenses, assets,
liabilities and cash-flows from YIT Corporation and Perusyhtymä Oy.
The carve-out financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the European
Union, under consideration of the principles for determining which assets and
liabilities, income and expenses as well as cash flows are to be assigned to
Caverion Group as described in the notes to the carve-out financial statements.
The carve-out financial statements may not be indicative of the future
performance of Caverion Group and they do not necessarily reflect what its
combined results of operations, financial position and cash flows would have
been had Caverion with its subsidiaries operated as an independent group and
had it presented stand-alone financial statements during the periods presented.
Pro forma information for Caverion Group
The unaudited pro forma financial information included in the Prospectus has
been compiled to illustrate those impacts of the Demerger, which are not
included in the historical carve-out financial information. The unaudited pro
forma information has been presented to illustrate the estimated effects of the
financing agreement negotiated in February 2013 to be transferred to Caverion,
the vcapital structure of Caverion Corporation, the company to be incorporated
in the Demerger, and the direct costs related to the Demerger on Caverion's
result of operations and financial position at the dates presented in the pro
forma information.
The unaudited pro forma financial information has been compiled for the purpose
to illustrate what Caverion's results of operations and financial position
would be, had the Demerger taken place at an earlier date. Pro forma
information had been presented for illustrative purposes only. Therefore, it
does not represent what Caverion's result of operations and financial position
would be had the Demerger taken place at the dates presented in the pro forma
information. The pro forma information is not intended to project the results
of operations or financial position of Caverion as of any future date and does
not represent the results of operations or financial position of Caverion had
Caverion been an independent publicly traded company for the periods presented.
The pro forma adjustments are based upon available information and assumptions.
There can be no assurance that the assumptions used in the preparations of the
unaudited pro forma combined financial information will prove to be correct.
The pro forma income statement and pro forma statement of comprehensive income
for the year ended December 31, 2012 and for the three month period ended March
31, 2013, have been compiled assuming that the Demerger had been completed on
January 1, 2012 and the pro forma balance sheet as at March 31, 2013 has been
compiled assuming that the Demerger had been completed on March 31, 2013.
The above mentioned Caverion Group's pro forma financial information have been
attached in full to this release as annex 3.
Events after the three-month period ended March 31, 2013
YIT has, on May 23, 2013, announced that it has made an initial, non-binding
offer to acquire HOCHTIEF Service Solutions. On the basis of YIT's initial
offer, the seller has informed that YIT's proposal qualifies the start-up of
due diligence process and SPA negotiations.
YIT is not expected to be the sole bidder qualified to the next phase in the
potential acquisition. As the tendering process and the sales negotiations are
about to be initiated, the terms and conditions of the possible acquisition,
including the purchase price, remain yet to be agreed. Due to this, YIT cannot
at this stage estimate the possibility of the realization of the acquisition,
the detailed timetable, its effects on the company's operations or the risks
involved with the possible acquisition.
The business of HOCHTIEF Service Solutions relates to the Building Systems
operations of YIT. The business potentially to be acquired would thus be
transferred to Caverion Demerger.
Dividends and dividend policy
Caverion's aim is to distribute at least 50 per cent of the result for the year
after taxes, excluding changes in fair value, as dividend and capital
redemption to the Company's shareholders. Even though there are no plans to
amend this dividend policy, there is no guarantee that a dividend or capital
redemption will actually be paid in the future, and also there is no guarantee
of the amount of the dividend or return of capital to be paid for any given
year.
Caverion's treasury policy
The Board of Directors of YIT has, on 3 June, 2013 ratified a treasury policy
to be applied by Caverion, which mainly complies with the same principles as
the treasury policy applied by YIT. The most significant changes to Caverion's
treasury policy concern the maturity distribution of Caverion's liabilities and
interest rate risk and counterparty risk management. Caverion Group's aim is
that a maximum of one half of interest-bearing liabilities may fall due during
a single calendar year and the target for the average interest rate fixing term
of Caverion's net debt is 18 months.
For further information, please contact:
Juhani Pitkäkoski, President and CEO, juhani.pitkakoski@yit.fi, +358 400 451 644
Sakari Toikkanen, SVP Business Development, sakari.toikkanen@yit.fi, +358 40
532 2174
YIT CORPORATION
Milena Hæggström
Investor Relations Manager
Distribution: NASDAQ OMX, principal media, www.yitgroup.com
YIT is a leading European service company in building systems, construction
services and services for industry. Our 25,000 professionals serve customers in
14 countries in the Nordic and Baltic countries, Russia and Central Europe. For
over one hundred years we have grown together with our customers and developed
our services in line with the changes taking place in different societies. We
intend to continue on that track. Our vision is to lead the way in creating and
maintaining good living environments. In 2012, YIT's revenue was approximately
EUR 4.7 billion. YIT's shares are listed on the NASDAQ OMX Helsinki.
www.yitgroup.com
DISCLAIMER
The information contained herein shall not constitute an offer to sell or the
solicitation of an offer to buy the securities referred to herein in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration, exemption from registration or qualification under the
securities laws of any such jurisdiction.
This document is not an offer for sale of securities in the United States.
Securities may not be offered or sold in the United States absent registration
or an exemption from registration under the U.S. Securities Act of 1933, as
amended. YIT Corporation and Caverion Oyj have not registered, and do not
intend to register, any offering of the Caverion shares in the United States.
There will be no public offering of the Caverion shares in the United States.
This release includes forward-looking statements. These forward-looking
statements include, but are not limited to, all statements other than
statements of historical facts contained in this communication, including,
without limitation, those regarding the demerger plan and its execution. By
their nature, forward looking statements involve known and unknown risks,
uncertainties and other factors because they relate to events and depend on
circumstances that may or may not occur in the future. Such statements are
based on numerous assumptions and may differ materially from (and be
significantly more negative than) those made in, or suggested by, the
forward-looking statements contained in this release.
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