Caverion Oyj - Half Year financial report

Caverion Corporation’s Half Yearly Report for January 1 – June 30, 2017

Caverion Corporation Half Yearly Report July 20, 2017 at 9.00 a.m. EEST
Caverion Corporation’s Half Yearly Report for January 1 – June 30, 2017

Turnaround progressing – Completion of a few older projects hurting
profitability and cash flow

April 1 – June 30, 2017

  · Order backlog: EUR 1,512.7 (3/2017: 1,543.5) million.
  · Revenue: EUR 565.1 (615.5) million.
  · EBITDA excluding restructuring costs: EUR -6.0 (-6.8) million, or -1.1 (
-1.1) percent of revenue.
  · EBITDA: EUR -13.0 (-14.4) million, or -2.3 (-2.3) percent of revenue.
  · Working capital: EUR 31.0 (15.3) million.
  · Free cash flow: EUR -28.2 (-32.6) million.
  · Earnings per share, undiluted: EUR -0.13 (-0.13) per share.

January 1 – June 30, 2017

  · Revenue: EUR 1,147.4 (1,176.1) million.
  · EBITDA excluding restructuring costs: EUR 0.8 (6.6) million, or 0.1 (0.6)
percent of revenue.
  · EBITDA: EUR -6.2 (-2.9) million, or -0.5 (-0.2) percent of revenue.
  · Free cash flow: EUR -46.7 (-61.3) million.

Unless otherwise noted, the figures in brackets refer to the corresponding
period in the previous year.

KEY FIGURES

+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|EUR million
|4–6/17 |4–6/16 |Change|1–6/17 |1–6/16 |Change |1–12/16 |
|                       |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Order backlog          |1,512.7|1,554.2| -2.7%|1,512.7|1,554.2|  -2.7%|
1,408.1|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Revenue                |  565.1|  615.5| -8.2%|1,147.4|1,176.1|  -2.4%|
2,364.1|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|EBITDA excluding       |   -6.0|   -6.8|12.4% |    0.8|    6.6| -88.2%|
15.6|
|restructuring costs    |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|EBITDA margin excluding|   -1.1|   -1.1|      |    0.1|    0.6|       |
0.7|
|restructuring costs, % |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|EBITDA                 |  -13.0|  -14.4|  9.8%|   -6.2|   -2.9|-113.3%|
-11.4|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|EBITDA margin, %       |   -2.3|   -2.3|      |   -0.5|   -0.2|       |
-0.5|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Operating profit       |  -20.5|  -21.5|  4.6%|  -21.3|  -16.7| -28.1%|
-40.8|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Operating profit       |   -3.6|   -3.5|      |   -1.9|   -1.4|       |
-1.7|
|margin, %              |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Net profit for the     |  -15.9|  -16.1|  1.5%|  -18.4|  -12.9| -42.7%|
-31.7|
|period                 |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Earnings per share,    |  -0.13|  -0.13| -4.1%|  -0.15|  -0.10| -49.7%|
-0.25|
|undiluted, EUR         |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Working capital        |   31.0|   15.3|102.5%|   31.0|   15.3| 102.5%|
-2.6|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Free cash flow         |  -28.2|  -32.6| 13.3%|  -46.7|  -61.3|  23.8%|
-72.1|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Interest-bearing net   |   98.6|  130.6|-24.5%|   98.6|  130.6| -24.5%|
145.5|
|debt                   |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Gearing, %             |   37.2|   63.6|      |   37.2|   63.6|       |
78.7|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+
|Personnel, end of      | 16,750| 17,664| -5.2%| 16,750| 17,664|  -5.2%|
16,913|
|period                 |       |       |      |       |       |       |
|
+-----------------------+-------+-------+------+-------+-------+-------+-------
-+

Word from the President and CEO Ari Lehtoranta

“We continued the company’s turnaround and the stabilisation of our operations
in the second quarter of 2017. While profitability-wise the quarter was a
difficult one for the company, the work is progressing according to plan. The
challenges in our risk projects impacted both profitability and cash flow and
overshadowed the good progress we have done elsewhere. We continued to implement
corrective actions to improve our project business performance and were able to
avoid any new projects entering our risk project list this year.

Caverion’s revenue for the second quarter of 2017 was EUR 565.1 (615.5) million
and EBITDA EUR -13.0 (-14.4) million. There was a negative impact for the period
from currencies, lower number of working days, write-downs and our more
selective tendering. Our market environment remains favourable. Divisions
Finland and Austria improved their solid performance. Division Denmark-Norway
continued its turnaround and I am delighted that Norway has stabilised its
position among our well-performing countries. There are also signals that Sweden
is starting to turn around, for example our cash flow in Sweden was clearly
better than last year. In Services business, Technical Maintenance and Managed
Services continued to improve the performance. The Services business grew by 3.1
percent in the second quarter, while the revenue of the Projects business
decreased by 17.7 percent.

Our project business performance was burdened by large-scale write-downs
particularly in Industrial Solutions and Germany. The write-downs and remaining
project performance risks relate to about 15 risk projects, most of which will
be completed this year. I am pleased that we have no new projects added to our
risk list this year. Our profitability for the period was significantly burdened
by cost overruns and write-downs in a set of Industrial Solutions projects in
the new bioproduct plant in Finland, where we plan to finalise our work this
summer.

We expect to realise savings from the completed restructuring actions and from
discretionary fixed cost reductions. In the first half of the year, our
personnel expenses decreased by about 3.7 percent and our other operating
expenses by about 4.4 percent from the previous year. We launched further
performance and utilisation improvement actions in divisions Sweden and
Industrial Solutions in the second quarter. These additional actions amounted to
restructuring costs of approximately EUR 6.3 million and their estimated total
savings impact is approximately EUR 2.7 million in 2017 and EUR 5.5 million in
2018. Overall, these actions are estimated to lead to personnel reductions
affecting approximately 160 employees in Sweden. In addition there were further
restructuring costs of EUR 0.7 million in the second quarter in Industrial
Solutions.

In the first half of the year, we made write-downs totalling EUR 18.3 million
related to above mentioned risk projects in divisions Industrial Solutions and
Germany. After these write-downs and following our latest assessment completed
in July, the remaining project performance risks for the rest of the year are
still estimated to be about EUR 20 million. The increase compared to our earlier
estimates is caused almost solely by the above mentioned Industrial Solutions
project in Finland where we have made write-downs totalling EUR 11.2 million.
With respect to old overdue trade receivables, we have succeeded in collecting
certain old receivables without major impact on profitability. The estimate for
full-year risk related to old overdue trade receivables is slightly lower than
the earlier anticipated up to EUR 10 million in 2017. The risk related to
utilisation is estimated not to exceed the level of up to EUR 10 million
indicated earlier. However, we are ready to implement further cost savings
during 2017 if necessary.

In early June we issued a EUR 100 million hybrid bond. It was important for us
in the middle of our turnaround, as the hybrid bond strengthened our capital
structure and financial position and provided us with a platform to further
develop our business. I am very pleased with the confidence the bond investors
showed in our company.

Caverion’s financial performance in 2017 is negatively impacted mainly by our
project business performance. In our current turnaround phase we must first
complete the risk projects, restructurings and other corrective actions. We have
further strengthened our management team and are currently completing our
strategy towards 2020. We will tell more about it at our Capital Markets Day in
Helsinki on November 7, 2017.”

OUTLOOK FOR 2017

Market outlook for Caverion’s services and solutions

The megatrends in the industry, such as the increase of technology in buildings,
energy efficiency requirements, increasing digitalisation and automation as well
as urbanisation continue to promote demand for Caverion’s services and solutions
over the coming years.

Services

The underlying demand for Technical Maintenance and Managed Services is expected
to remain strong. As technology in buildings increases, the need for new
services and the demand for Life Cycle Solutions are expected to increase.
Clients’ tendency towards focusing on their core operations continues to open
opportunities for Caverion in terms of outsourced operations and maintenance
especially for public authorities, industries and utilities.

Projects

The Technical Installation and Large Projects markets are expected to remain on
a good and stable level, however price competition is expected to remain tight
in Technical Installation projects. In the Large Projects market, new tenders
for buildings and industry are expected to remain on a good level and even to
somewhat increase. Low interest rates and availability of financing are expected
to support investments. The demand for Design & Build of Total Technical
Solutions is expected to develop favourably in large and technically demanding
projects. Good demand from both the public and private sector is expected to
continue. Requirements for increased energy efficiency, better indoor conditions
and tightening environmental legislation will be significant factors supporting
the positive market development.

Turnaround programme ‒ Items affecting EBITDA and operating profit*

+----------------------+-------+-------+-------+-------+--------+
|EUR million           |4–6/17 |4–6/16 |1–6/17 |1–6/16 |1–12/16 |
+----------------------+-------+-------+-------+-------+--------+
|EBITDA                |  -13.0|  -14.4|  -6.2 |   -2.9|   -11.4|
+----------------------+-------+-------+-------+-------+--------+
|EBITDA margin, %      |   -2.3|   -2.3|  -0.5 |   -0.2|    -0.5|
+----------------------+-------+-------+-------+-------+--------+
|Items affecting EBITDA|       |       |       |       |        |
|and operating profit  |       |       |       |       |        |
+----------------------+-------+-------+-------+-------+--------+
|-  Project write      |   12.6|   15.0|  18.3 |   15.0|    59.0|
|-downs**              |       |       |       |       |        |
+----------------------+-------+-------+-------+-------+--------+
|-  Restructuring costs|    7.0|    7.5|   7.0 |    9.5|    26.9|
+----------------------+-------+-------+-------+-------+--------+

* The effect of the risk from overdue trade receivables and the utilisation risk
excluded for 2017.

** Including cost estimate adjustments, cost overruns and provision increases
from the risk project list for 2017.

Guidance for 2017

Caverion’s guidance for 2017 is unchanged. Caverion’s guidance for 2017 is:
“Caverion estimates that the Group’s revenue will remain at the previous year's
level in 2017 (2016: EUR 2,364 million). Caverion estimates that the Group’s
EBITDA excluding restructuring costs will more than double in 2017 (2016: EUR
15.6 million).”

In its guidance Caverion applies the following guidance terminology, with a +/-
2pp (percentage point) threshold to the said limits.

+------------------------+-----------+-----------+
|Positive change         |Lower limit|Upper limit|
+------------------------+-----------+-----------+
|%                       |%          |
+------------------------+-----------+-----------+
|At last year’s level    |-5%        |5%         |
+------------------------+-----------+-----------+
|Grows                   |5%         |15%        |
+------------------------+-----------+-----------+
|Grows clearly           |15%        |30%        |
+------------------------+-----------+-----------+
|Grows significantly     |30%        |100%       |
+------------------------+-----------+-----------+
|Doubles                 |100%       |           |
+------------------------+-----------+-----------+
|                        |           |           |
+------------------------+-----------+-----------+
|Negative change         |Lower limit|Upper limit|
+------------------------+-----------+-----------+
|%                       |%          |
+------------------------+-----------+-----------+
|Decreases               |-15%       |-5%        |
+------------------------+-----------+-----------+
|Decreases clearly       |-30%       |-15%       |
+------------------------+-----------+-----------+
|Decreases significantly |           |-30%       |
+------------------------+-----------+-----------+

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

Caverion will hold a news conference and webcast on the Half Yearly Report on
Thursday, July 20, 2017, at 11:00 a.m. (Finnish Time, EEST) at the Glo Hotel
Kluuvi (Videowall meeting room), Kluuvikatu 4, 2nd floor, Helsinki, Finland. The
news conference can also 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 9411 at
10:55 a.m. (Finnish time, EEST) at the latest. Participant code for the
conference call is “9305052/ Caverion”. More practical information on the news
conference can be found on Caverion's website, www.caverion.com/investors.

Financial information and IR events in 2017

Caverion will arrange a Capital Markets Day in Helsinki, Finland on November 7,
2017 at 9:00 a.m. (EET). Further information on the programme will be published
closer to the date.

Interim Report for the first nine months of 2017 will be published on October
27, 2017. 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
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, Caverion Corporation, tel.
+358 40 5581 328, milena.haeggstrom@caverion.com

Attachments:

07197511.pdf