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Edited Transcript of CAV1V.HE earnings conference call or presentation 7-Feb-20 12:00pm GMT

Q4 2019 Caverion Oyj Earnings Call

Helsinki Feb 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Caverion Oyj earnings conference call or presentation Friday, February 7, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ari Lehtoranta

Caverion Oyj - President, CEO & Member of Management Board

* Martti Ala-Härkönen

Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board

* Milena Hæggström

Caverion Oyj - Head of IR & External Communications

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Conference Call Participants

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* Anssi Kiviniemi

SEB, Research Division - Analyst

* Olli Koponen

Inderes Oy - Analyst

* Svante Krokfors

Nordea Markets, Research Division - Analyst

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Presentation

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Milena Hæggström, Caverion Oyj - Head of IR & External Communications [1]

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Good afternoon, everybody, and welcome to this conference call on Caverion's Q4 results. We will start with the management presentations and follow-up with Q&A after that. Before the Q&A, however, we will show you our new brand videos also. Something to look forward to for the future.

And now we will start the presentations with the presentation of our CEO, Ari Lehtoranta. Please go ahead.

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [2]

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Thank you, Milena, and good morning, again on my behalf dear distinguished finance and media professionals in this room and behind the lines. Presentation will take today slightly longer than in the last session, maybe 45, 50 minutes. I will share it with Martti, as our practice has been, our CFO.

I will go through the performance during the period, a little bit about the market. I touch the orders, revenue, profitability, but also the acquisitions update. And as this is the first release call since our Capital Market Day, I will also share a few topics from that session. And Martti will then cover the cash flow related items and then our strengthened balance sheet and recent financial transactions. And then I will return and summarize the Board's dividend proposal and then our guidance.

But as my tradition has been, I first verbally summarize a bit kind of key themes of the quarter. First thing is that I'm actually quite satisfied for the -- our performance in the second half, including the fourth quarter, what comes to financial performance, we have achieved our results targets and a positive development started, especially in the third quarter continued. So our Fit condition is improving and getting more stable.

Second theme is this Fit for Growth, change of the phase and change of the focus, we had our Capital Markets Day, and then, we introduced our updated financial targets and actions and sources of growth. And then the third theme is the actual growth. So it was good to see now that we were able to complete the acquisitions of main partners -- Maintpartner and Huurre. But then also, organic growth. So we had the order book developing very well again in the fourth quarter. So this is giving a very good stand going forward.

Overall market, we are saying it was stable. Actually, I feel that it was even slightly, maybe, better than in the summer. There was no kind of continuation decline. There was a bit soft market in Sweden. But all the other markets were pretty active. And like I said, our order book continued developing well.

We are seeing increasingly strong demand on this sustainable ability driven services and projects. It's coming up with all our discussions, stronger and stronger in all countries with the customers, with the investors and with all our key stakeholders. So the trend that we have seen, it's just getting stronger.

Our Services business continued to develop very well. I have said already a couple of quarters that this speed of this business mix changed towards this 2/3 from the revenue being Services. It has been faster than I expected. Of course, we are now a little bit supported by the acquisitions. We have 1 month of revenue from both Maintpartner and Huurre in our 2019 figures. But still, 60% of revenue being Services revenue is a good thing for various reasons.

We love our Projects business, and we do certainly love Service business, and kind of respect all the goods that it brings for us. And in the fourth quarter, the Services share was as high as 61.5%.

So market being stable, no further decline activity level, on a good level. And we also see that there's not going to be any kind of drastic even if there would be some -- some kind of decline is definitely not going to be anything drastic anytime soon.

Summary of the 2019. We say that we turned to growth. So we started to turn to growth in the fourth quarter. Order backlog as much as almost 12% up. And of course, we have here the acquisitions. But even if we exclude the acquisitions, the development was very positive. I'm very happy for this.

Order backlog increased, both in Services and in Projects. And at the same time, I strongly believe that the quality of the backlog, as well, improved.

The revenue for full year is down 2.6% in local currencies. But in fourth quarter, we already had a positive turn. Services, however, 6%. So over the market growth in Services, and Projects as much as almost 14% down in local currencies.

And this kind of declines, we see it also on the divisional level, are quite substantial. If in Service business, you are either growing or declining more than 10%, typically, you may have some challenges on your profitability. But we have been able to manage these declines and growth in a reasonably good level.

Profitability, adjusted EBITDA was over EUR 120 million, 5.7% of the revenue. And once again, I need to remind that this respective figures from last year are not restated to comply with IFRS 16. There was a gap to reported EBITDA, however, the gap last year was about EUR 60 million. So now we had about EUR 17 million. So even that gap is reducing. And I believe that we will -- it will continue reducing going forward. Margin, 4.8% for full year. And therefore, we were able to turn the EPS from clearly negative to positive $0.14.

Our star performer was, again this year, the cash flow, operating cash flow improved to as high as EUR 144 million. This has been our #1 target. You need cash in order to be able to enjoy your profitability, but also because cash flow is an indicator of the healthiness of your business. It also is an indicator of the risk levels that you have in your business. If the customers accept to pay for your stuff, and you don't have claims and issues with them, they don't withheld your payments, it's an indication that things are going smoothly, and the customers are happy.

Cash flow, even after the investments, and then it's good to remember that we made significant acquisitions that we paid, was EUR 64.5 million positive. And this is, of course, highlighting the beauty of this business, how it should be. The margins are not that great. I have been in a much higher margin businesses but the investments needs are lower, cash flow should be possible. And as in our case, there are lots of good consolidation opportunities in front of us.

Leverage was clearly below our target levels. It is now higher than it was last year. Reasons being, of course, the acquisitions, but also because of the timing of some of our principles, some milestones in our principles are created with the lending banks. So nothing drastic changes as such.

And maybe other events to be mentioned from 2019. We launched -- we had a very successful CMD session, and we launched our new financial targets and showed where are we going to target to get the growth, acquisitions completed, especially Maintpartner was a bit difficult birth giving, but ended up being closed in November. And then Martti and his team has been able to execute excellent financing rearrangements, including this EUR 75 million unsecured senior bond that we did in the first half, and partially also redempted our hybrid notes.

Short recap on the journey. We started 2017 with this Fit for Growth strategy launch. There has been a steady improvement of the Services share of the revenue, now going from 48% in 2016 to 60% now. And then selectivity has meant reduced revenue by about EUR 200-plus million, which is coming from drastic reduction in the Services business. If you look at it, it's almost EUR 400 million. At the same time, we've been able to grow the Services revenue.

And we have had a constant improvement of the profitability, even we reached our own financial target in the fourth quarter. And now full year was over EUR 120 million. And especially, the operating cash flow improvement is very, very nice -- nice-looking.

Order backlog, it started the development already earlier this year. One thing, what is clear is that when you get your house in a better shape, you are able to start focusing more on the growth, you are working more externally with the customers and you start to win more of the orders. And this has also been the case with us. We have had a very strong year with orders, 12% up from last year. We have, of course, these investments, as said, but we also have divestments that impacted the last year that has disappeared from last year.

So overall, this is a very nice situation going to this year and to coming years. And we are getting good orders. And like I said, kind of my perception with the customers on -- is that this good situation with orders should continue also going forward.

First example here is Orion, an excellent medical pharma company from Finland. We extended our cooperation. We have had the cooperation, both from Caverion side but also from the Maintpartner side. We continued the -- being their service partner for technical maintenance and managed services in their 4 locations in Finland. And this pharma, as a segment, is extremely important for us. And we see that with our focus on Smart Technologies like cooling, like cleanroom, we will be able to grow with these customers.

Next one also kind of medical-related project, we are turning a former medical operation theater building to a modern research facility in Germany. The project -- this is kind of project that we want, again, including all our key Smart Technologies.

Then another type of very typical projects that we are seeing in the markets, modernization. So modernization of -- renovation of the Uppsala City Hall and the surrounding public space. And we are delivering all the technical solutions. And this is now a nice project for our Swedish operations.

Revenue development, as you can see, there was a slight -- very slight growth in the fourth quarter compared to last year. However, in local currencies, it was 1.6%. Very strong growth of Services, 9% in local currencies. And at the same time, the Projects continued to decline by 8.5% in local currencies.

When you look at the division of development at the bottom part of the page, you can see huge drop of revenue driven by the selectivity in Projects, 19% in Germany, 15% in Denmark, 10% in Industrial, where we have the divestment impacting the figures. But then at the same time, very strong growth of our positive divisions, Finland and Austria.

And now when I look at that how much of the revenue is coming from the healthy Fit, extremely well-performing divisions, that ratio of our revenue has drastically changed from 2018 to 2019, and then this will continue going forward. Sweden, in local currency, also ended up on a slightly positive growth. Norway slightly negative here.

Profitability. If I look at the division wise, I'm especially happy for the development in Germany. So the strong effort that we've been doing there is paying off. And we, of course, were able to predict it because the cash flow turned positive already earlier. And now also, we are seeing clearly improved profitability development.

Also, we are seeing now signs that this long-lasting turnaround in Denmark is clearly showing good signs of profitability improving there. So situation, again, risk wise and then the division specific performance-wise is clearly better going to this year.

Adjusted EBITDA, 8%, exact relative profitability in the fourth quarter. Services business had a really fantastic, excellent last quarter with most of the divisions improving. And overall, all divisions improved -- continued to improve their results compared to the previous year.

In Project business, we are still not at all on the targeted level. We had this one specific project where we were now able to proceed, to such situation, with a negotiation with the customer with the design and planning of the project and with the execution of the project that we were able to estimate the impact to the financials from the projects that we made to significant write-down in the fourth quarter for that particular project.

And again, the risk level for that project, therefore, is now clearly reduced going forward. If we exclude that one project away, the project business adjusted EBITDA was positive as well.

There was a gap hopeful year. On reported EBITDA, we had about a bit less than EUR 5 million of restructuring costs. So we continued the strong performance management. Still we had a bit less than EUR 5 million on divestment, capital losses and then transaction costs of the divestments, and investments, we had as much as EUR 17 million on this one specific project throughout the whole year. And then we had a positive impact, close to EUR 10 million, about EUR 9 million, where we had the mix back of negative impact from the legal costs related to, for example, German cartel case, and then, positive impact from the arbitration that we had with the former sellers of the Caverion in Germany. So we got the compensation from them.

We have been doing this performance management programs for Services, Projects, procurement and fixed cost. And this has provided good results. We have worked on the headcount, productivity of the organization, fixed cost premises. We will continue working on this. We see that we are nowhere near to the kind of optimal situation in all -- all of our operations. Materials have gone down almost 22% during this time from 2017 and personnel expenses as much as 12%.

And this is actually better result is personnel than it looks because Services have actually grown and the subcontracting has been the major element, on the project side, which has then declined.

So as said, we will continue the performance management programs. We will put still further, further, further actions on the making sure that the Projects business becomes even fitter and we will get rid of the remaining negative issues and then improve the relative profitability all the time going forward.

Number of headcount, as we estimated, has started to grow. And of course, here, the acquisitions are the main reason, almost 1,700 employees through the acquisitions. Relative share of Finland is increasing because the industry and Finland together now form 35% of our headcount.

At the same time, I'm very happy to notice that the engagement of our employees has started to relate it to the better direction. We are providing safe environment, it remained on a good level. We didn't get an improvement. We are targeting to further, further improvement -- improve their sick leaves, got to the better -- better direction. And overall, now that this, let's say, the substantial part of the turnaround is behind us, people see that we are able to start focus on the good actions, for example, on the fight against the climate change, the motivation level is getting clearly better in all divisions.

So we have entered the growth phase, our brokers in Fit enables this critical phase of turnaround, not the whole turnaround, but critical phase of the turnaround is behind us. We are delivering improving profits and cash flow. And we have already been able to make investments in the growth already during this time. For example, on the digital platform, sales, we have grown the sales gradually all the time, brand image is improving. And then we have made the first acquisitions towards the growth.

We will grow, but we will make sure that we stay fit or actually we become fitter while we grow. So we have still a significant potential in productivity: fixed cost, procurement improvements, still pricing. Everything that we can do, digitalizing our service process will improve our productivity and efficiency. And we will be transforming our operating model to become more customer-focused and more productive and efficient.

When we started 2017, we already understood the importance of digitalization and technology development. It has continued very strongly, but even more stronger has been the impact of focus on sustainability, and especially fight against the climate change.

And we are extremely well positioned. We are already now the most sustainable building technology company in Northern Europe. All our organization is extremely enthusiastic about this, let's say, renewed purpose for our work, making sure that we have sustainable outcomes, and improved performance for our customers, for society and for our owners.

We had a good development in both our handprint and footprint, our own kind of usage of -- or emissions through our service fleet reduced nicely.

But for us, much more important is our handprint. What we do with our customers. This EPC projects is just a small part of what we do. But even with this, we improved almost 10%, the energy savings that we are getting through these programs that we do with our customers. And this is not an insignificant work. So this reduction corresponds to 30,000 flats annual energy consumption. So this really, I repeat the word, purpose. This gives purpose. And this is only small part of what we do for reducing and managing energy in a better way.

We will talk, I'm pretty sure that we will be talking in all of the release calls, we will be increasingly talking more and more about this particular topic. And we are seeing that it's all about cities in the future. Cities are defining what's happening on energy consumption, buildings are constituting 40% of the world's energies. And it's mainly in cities. And then when we look at what's happening in technologies, these are -- what is our bread and butter. We increased the number of electric car charging points from a couple of thousands to 11,000 in Norway alone. We are now expanding it to other countries. We are providing now increasingly clean cooling technologies in Finland, in Sweden and in Austria, but now we are expanding to other countries. With the assets that we have, we are providing telematics solutions, safety and security solutions, (inaudible) being one of the examples of the recent ones, emergency rescue solutions, Pelsu acquisition, again, will be expanded from Finland to other countries gradually. Based management systems that we are implementing in several places here in Finland. So this is really providing excellent opportunities for us to do good and make a buck at the same time.

We selected sources of growth that makes it, let's say, easier for us to grow. This is what we know, it's an existing customer base. It's the advisory and outcome based solutions. Instead of providing ours and doing kind of traditional projects services, digital solutions like our Caverion SmartView technology that we launched earlier last year. And then Smart Technologies where the first acquisitions in cooling for example are good examples. These are all sites that will provide us our basic technology service and project revenues. So every time we are able to make leeway on this wants to be typically sell hvac, electricity, plumbing projects and services as well.

Like I said, these are riskless, we don't go for huge projects on some unknown stuff. This is the stuff that we know and constantly expand with our existing customers.

Maintpartner's and Huurre's integrations are proceeding. They are proceeding well, Pelsu is integrated, doing well. Pelsu is a very specific -- even though revenue was clearly smaller than these others, but it's very specific kind of software -- first software acquisition that we have made, we can complement our digital solutions with this one. And I believe that this kind of moves, you will see also later more and more.

With this, I'll give the floor now to Martti to continue with the cash flow and balance sheet items.

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [3]

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Yes. Thank you very much, Ari. So while the headline of our fourth quarter report is result targets achieved in the fourth quarter, current turn to growth started. A true highlight, like Ari, already mentioned, was actually our cash flow, both in the fourth quarter of last year and also for the full year. And this, of course, is satisfying when considering that we operate as we think very much a cash flow business. This is the nature of our business.

So for the full year of 2019, our operating cash flow before financial and tax items totaled EUR 143.7 million. This represents a cash conversion of 139.5%. And in the fourth quarter, our operating cash flow improved to EUR 80.6 million compared to EUR 53.7 million a year earlier.

And for the full year, our free cash flow improved to EUR 74 million, and cash flow after investment to EUR 64.5 million. It should be noted here that both of these cash flow figures, free cash flow and cash flow after investments, they, of course, include the impact of the -- from the 3 acquisitions, which we completed in the fourth quarter. There was a cash impact, a negative EUR 47.5 million, from the 3 acquisitions. So actually, if we look in the down graph, which shows the free cash flow. Just in the fourth quarter, our free cash flow was EUR 24.4 million. So we could weather the impact of the 3 acquisitions in this fourth quarter alone, the 47.5% and had a positive free cash flow of EUR 24.4 million.

So overall, cash flow really worked out nicely throughout 2019. Our capital expenditure for the full year was EUR 73.4 million, IT investments totaled EUR 9.4 million and other investments, which includes tender acquisitions completed, that was EUR 64 million.

In this slide, we are looking a bit more over a few years of Fit for Growth journey and achievements on the cash flow and working capital side. As, first of all, shown in the graph on the left-hand side, there has been a substantial cash release in the past 2 years, in particular, from working capital.

If you compare to our situation where we were in the fourth quarter of 2017, there has been a working capital decrease of EUR 70 million, a very important achievement.

And in the center, we have the operating cash flow. Over the past 3 years, if you compare our situation on a rolling 12-month basis, where we were in the first quarter of 2017, comparing it to the achievement now at the end of 2019, there is an improvement of EUR 160 million.

It should be noted that the '19 figure includes or the '18 and earlier figures, do not include IFRS 16 conversion. Its impact is roughly EUR 50 million, a bit less than that for '19. Even if you include that impact, the improvement is EUR 110 million.

And in the right-hand side, we are summarizing the actions, which have contributed to these improvements. In the Fit phase of our strategy, these include a tight weekly follow-up of invoicing and receivables. We have very much focused on resolving the old risk projects. And of course, we have been implementing invoicing related KPIs and competitions at various levels of the organizations.

Here also, some of the actions that are already continuing now in the growth phase, we are rolling out further a centralized management of invoicing related processes across all our divisions to make sure that this is implemented in all our divisions. And further, we are rolling out automation of invoicing and the rest of the order to cash processes.

In this slide, we are showing, furthermore, how our continuing efforts to improve the working capital have paid off. At the end of 2019, our working capital level was a negative EUR 100.9 million. And if you compare it to a year ago, there is an improvement of EUR 46.3 million. In the picture, we can see that the improvement year-on-year has come from Finland, Austria, Sweden, Industrial Solutions and particularly in Germany.

At our Capital Markets Day, we had a specific presentation on Germany, highlighting how we are making the progress and turnaround there. And I think this is one good indication of the turnaround program results of it. We have been able to reduce working capital level by almost EUR 36 million year-on-year, also a very good improvement in Industrial Solutions.

In this slide, we can see the group's credit ratios and the debt maturity structure. In 2019, the group's equity ratio and the gearing, like we have said earlier, they have been affected by the adoption of the IFRS 16 leasing standard. And also, as it comes to Caverion, in the early part of the year, we did the partial redemption of our hybrid notes, that was EUR 34 million completed in March.

So the group's net debt, excluding the lease liabilities, that was EUR 31.5 million at the end of December. On the other hand, the impact of the IFRS 16, that's the leases, which were previously off-balance sheet and which were now last year brought into the balance sheet was EUR 136.9 million. And if we now have last year included also the lease liabilities, the net debt, including the lease liabilities, was EUR 168.4 million at the end of December last year.

And the bar graph on the right-hand side, on the other hand, that describes the Group's debt maturity structure at the end of December. During last year, we extended the maturities through the refinancing of our bank loans and also through the issuance of a 4-year unsecured bond in March last year.

Then this slide shows the development of the group's leverage. That is the net debt to EBITDA, which is also our single financial covenant since the beginning of 2016. And the calculations have been made according to the confirmed calculation principles with our lending parties.

The net debt-to-EBITDA was 1.4x at the end of December 2019. For this quarter, I should note that the calculation includes the hybrid -- remaining hybrid notes, which totaled EUR 66 million to be treated as debt in the calculation.

For the previous quarters, they have not been treated in the debt, in the formula. On the other hand, this slide also shows -- describes our strong liquidity position at the end of December. Our cash and cash equivalents totaled EUR 93.6 million at the end of December. And in addition to this cash, we had undrawn revolving credit facility totaling EUR 100 million and undrawn overdrafts facilities totaling EUR 19 million at the end of December.

I think this is important to state that overall, the low leverage level and the strong liquidity base, they have already enabled us a smooth entry into the growth phase in our strategy.

Here, we are then describing and summarizing how we are attempting to reallocate on our capital to achieve sustainable, profitable growth. The first issue is foremost that our target is to increase our investment capacity going forward through profitable growth, continuing the strong cash conversion and the further performance management actions, partly also Ari described them earlier, while at the same time, looking for further fixed cost-saving opportunities, looking to optimize our procurement and supply chain, and also, to further optimize our operating model.

Then the figure in itself on this slide describes illustratively how we are, and have been, allocating our capital in the Fit phase. We can see there that deleveraging has been -- has had a meaning, but it's important it's now waning out. And on the other hand, in the growth phase, the importance and the priority in terms of how we are spending, reallocating our capital, the #1 priority is organic investments into organic growth, including the digitalization and offering development.

Second, it's the dividends. And third, mergers and acquisitions in growth areas, selected growth areas and in areas where we are adding complementary capabilities to our capability base.

And in this slide, we are then summarizing the new financial targets or updated financial targets for the midterm, which means that for the next couple of years, we launch these at our Capital Markets Day, which we held in November. And to start with the #1 financial target remains cash flow for us. Like I said earlier, we are operating a cash -- very much a cash flow business. We continue to prioritize cash flow in the growth phase, and the target is a sustainably high cash conversion. We are targeting cash conversion each year, higher than 100%.

The second target is on profitability, where we have made a conversion. Now we used to have a target of higher than 8% adjusted EBITDA target. We have made a straight conversion to adjusted EBITDA, where the target is higher than 5.5% of revenue.

If we look now into last year, of course, EUR 67.2 million, 3.3 -- sorry, 3.2% margin. But in the last quarter of last year, we were at EUR 33.7 million in the adjusted EBITDA and the margin was already 5.7%. So we met for this last quarter, the target level.

Anyway, of course, the target remains now to reach the target level for the full year. And going forward, of course, we try to, through that, provide an attractive level of return on equity on a continuous basis to our shareholders.

Then the third target is on growth, where we introduced a new target. It's on organic revenue growth of higher than 4% over the cycle. I want to underline here the word organic. We're going to report this from the first quarter onwards this year, how we are achieving this, which means that, of course, the mergers and acquisitions will be then on top of this. And we are looking for those complementing M&As also going forward.

We have kept intact the previous 2 targets, which say that for the Services revenue, we are targeting higher than market growth on a continuous basis. And also that Services should generate, if you look at our business mix, more than 2/3 of our total group revenue.

And then finally, we are continuing also with the debt leverage target. We are targeting a moderate debt leverage level of less than 2.5x. The net debt to EBITDA, like I said, we were at 1.4x now at the end of last year. This means that we are targeting a continuously strong balance sheet and financial flexibility. And a good capacity to pay dividends and make acquisitions going forward.

Next, I will make a very brief market outlook still and look at some of the key recent trends.

In this slide, like before, we are having updated data on the economic sentiment indicator and the construction confidence indicator, these are provided by the European Commission on a monthly basis.

And before going to the graph, as a general statement, we described the market as stable. The indicators for the main covering countries, they are perhaps slightly down on perhaps, the overall economic sentiment has recently even somewhat improved compared to where we were like last -- like last summer. But overall, we are in a stable satisfactory level.

If you look at the economic sentiment indicator, as an example, of course, those trend lines have come down from where they were a year ago or a bit more than a year ago, but you could still describe that the situation is satisfactory.

We are roughly at the long-term average level for all the main Caverion countries. And if you look at the construction confidence indicator, we are actually above the long-term average level for all the countries, although the trend lines have been a bit downwards in the past several months. Perhaps with the exception of Denmark, which is a little bit less just above the trend line.

And in the bar graph on the right, we are summarizing, again the forecast for the European facility service market growth outlook. We can see that the underlying services demand, we expect to remain good. The average percentages for growth are between 4.3% to 4.7%. And it's -- the estimates go even as long as up to 2025. So overall, no big changes in the market estimates from what we reported after the third quarter.

I will now close here and hand it back to Ari, who will next summarize our guidance for 2020.

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [4]

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Thank you, Martti. So our guidance is very short this -- for this year. So we are saying that our revenue and our adjusted EBITDA will grow compared to last year.

And then the Board has decided to propose for the AGM a dividend of EUR 0.08 per share from EUR 0.05 last year. And this is following our dividend payout policy, which is that we pay at least 50% of the result as dividend. So this is somewhat above it.

Summarizing, so we believe our Fit for Growth strategy is working well, both for the Fit and then for the Growth phase. We've been able to achieve our cash conversion target and leverage target profitability we achieved in the fourth quarter, but not yet for the full year. We are definitely not happy yet for our overall profitability for the full year. And then the growth -- organic growth target of more than 4%. And in Services, we had a 6.4% growth in local currencies last year.

Digitalization and technology development is progressing as we have expected, and it's being now adopted by our customers and the industry. But then the sustainability needs sustainability focus by our customers has clearly become stronger than we were estimating 2017, and we are happy -- very happy for this.

We have a created the fundamentals for our growth. The base is there, and we see numerous good opportunities to grab -- to enable the growth, and we have already proven with our development of order backlog that we can do it organically, and we have also proven that this -- it's possible to complement this growth with a targeted good acquisitions.

Cities make the difference. They have the power to change the world and like I have said, we feel that besides making sure that our shareowners are constantly happy, we are feeling extremely privileged about our role in this new future, having a purpose that is extremely meaningful.

(presentation)

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Questions and Answers

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Milena Hæggström, Caverion Oyj - Head of IR & External Communications [1]

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Okay. We can then move over to the questions for the management. Do we have any here in the audience? Yes, several.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [2]

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Svante Krokfors, Nordea. A couple of questions. If I could start with the -- can you elaborate on the integration of the acquired companies, Maintpartner, who are perhaps mainly Maintpartner, which is the biggest and perhaps also had lower profitability? And how can we expect the integration work to be seen in the numbers?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [3]

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Okay. Let's start with that. So the integration, of course, we were only able to start it after the closing in November. So we are still in the early phase. However, it's progressing well, and our new leadership is meeting. In roadshow now all our sites throughout the whole Finland, plus also the customers. We are progressing well with the integration plans, there will be integration costs, especially in the first half of this year that will basically dilute the relative profitability with this one-off costs that we -- like I said, that I expect them to be in the -- in the first half. Other than that, we see that the business is in a healthy situation, and we have good, good synergies even outside the ones that we listed in our own business case when we made the acquisition. Huurre, as well, is progressing. Well, like you said, it's smaller. But on the other hand, that is in the 2 different countries. But we are -- we have been able to man all the different sub streams. We have some external support for us, and we have dedicated leadership team members who are looking after this integration, both of them.

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [4]

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And maybe to add that both of these companies also met their own financial targets for last year, which is a good starting point then to start the integration.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [5]

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Okay. Then have you considered to start reporting the profitability of the 2 divisions separately?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [6]

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Two divisions or ...

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Svante Krokfors, Nordea Markets, Research Division - Analyst [7]

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Yes, Projects and Services.

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [8]

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Segment, segments. Yes, we have. And we have discussed it with many of you, and our target is still at some point of time. When the time is right, we will be going for that reporting, hopefully. We don't have any concrete time yet when we are doing it.

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Svante Krokfors, Nordea Markets, Research Division - Analyst [9]

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And then finally, on the financial guidance for this year. Basically, I guess, it -- you have a 5% to 30% increase in EBITDA, will you be narrowing it during the year or will it stay?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [10]

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Narrowing? Well, let's see. Let's see. So at the moment, this is our guidance. And then hopefully, we will be able to -- if nothing else to turn it -- turn it maybe to more positive at the future days, but you have seen our performance in the past. So we are careful.

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Anssi Kiviniemi, SEB, Research Division - Analyst [11]

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Anssi Kiviniemi from SEB. A couple of questions left from my side still. Project growth, it was a decline, 10% in Q4. And last couple of times when we have met -- you have made this kind of gesture with your hand, meaning bottoming out. Now the order book is growing. Kind of could you a little bit elaborate on the timing and idea, when should we see growth in the project business? And if you could give us some kind of indications, which markets drives the growth in projects?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [12]

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Not exact time when it actually will happen. Lead time from orders to actual revenue is in our environment, quite long but it will, for sure, happen this year at some point this year. We have had -- and we have given more freedom, more kind of selectivity for our well-performing countries. And well performing typically means that your customers are happy. You are doing the projects in a fantastic way and not causing problems, your satisfaction is better. And therefore, the share of Austria and Finland are increasing from the Projects business quite strongly. We have also very many healthy units and well-performing units in Germany, and I'm expecting also Germany to start returning back to, let's say, more positive revenues for Projects.

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Anssi Kiviniemi, SEB, Research Division - Analyst [13]

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Then I know you're not reporting Services and Projects adjusted EBITDA separately. But could you give us indication, was Projects adjusted EBITDA positive in 2019?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [14]

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We said in our release that at the end of the year, it was positive. We didn't say anything about the full year.

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Anssi Kiviniemi, SEB, Research Division - Analyst [15]

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And you don't want to comment on that?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [16]

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I don't want to comment on that because I have only looked at it now, the kind of second half. We had -- you remember, we had a very bad second quarter with a certain project write-downs.

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Anssi Kiviniemi, SEB, Research Division - Analyst [17]

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Okay. Good. Then perhaps on Norway. In 2018, we saw better sales growth momentum there. Now it has been a couple of quarters with weaker sales development. So could you comment a little bit what has happened there? Large projects getting at the end of their life cycle or?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [18]

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We have had more selectivity in projects in Norway as well. And then what is happening in Norway in Services is that they are performing excellently in the Services. And we see fantastic growth opportunities for Services in Norway.

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Anssi Kiviniemi, SEB, Research Division - Analyst [19]

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Then the last one is on acquisitions. The cash flow, it was EUR 47.5 million. Is that the full acquisition price of this acquired companies? Or are there any earn-out components? And could you give us some kind of indication on what is roughly the split between Maintpartner and other acquisitions? Roughly?

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [20]

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Well, we -- in our financial statements, we are combining those. If you have a really material separate acquisition, you disclose that separately. But it is true. We have disclosed those last year's as in combination. But to your earlier part of your question, typically in M&As of this sort, you have at least some sort of an adjustment to the rolling 12-month average net working capital as an example. And I can say that for the Maintpartner part, that component is -- was still not settled. We need to have the full closing accounts and that settles, which will come now in the first quarter. But there were no earn-outs for neither of these.

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [21]

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A maturity for (inaudible).

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [22]

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Some adjustment coming still in Q1, but the main parts were in the -- definitely in the fourth quarter.

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [23]

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Typically, it's the seller who doesn't want us to talk anything about the individual sales prices.

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Anssi Kiviniemi, SEB, Research Division - Analyst [24]

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Yes, we can understand that.

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Milena Hæggström, Caverion Oyj - Head of IR & External Communications [25]

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Okay. We have some more questions. Yes.

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Olli Koponen, Inderes Oy - Analyst [26]

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Olli Koponen from Inderes. I have a few questions left. Just who are the main important effect on the revenue in Q4. The Services revenue was up 7.5%. Can you give us any indication on the organic revenue growth in the quarter?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [27]

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No, we don't want to start separating yet the acquisitions impact, but there was a very, very good development organically as well. And we had only December, was Huurre and Maintpartner in our revenues.

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [28]

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And like mentioned then for the group as a whole, as it is our financial target, the target is to report that now from 2020 onwards. How we're achieving that.

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Olli Koponen, Inderes Oy - Analyst [29]

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Okay. And just on the guidance. And on your previous targets, you said that you were targeting over 8% EBITDA. If we consider the IFRS 16 effect, previous to that, when you said in your last CMD, you change it to EBITDA target. And now if you look at your guidance in 2020, you are not going to achieve that kind of 8% EBITDA target. Has the situation changed a lot during this kind of your strategy period that you don't see you like achieving that EBITDA target now in the end of 2020?

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [30]

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Nothing has changed towards more negative. So we don't have any reasons to change our midterm targets.

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Olli Koponen, Inderes Oy - Analyst [31]

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Just that the last target was at the end of 2020. And now your new targets are roughly 2 years ahead of this from this moment. Am I understanding this correctly?

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [32]

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During the strategy period, which we have set mid-term in the next couple of years. Of course, it is to achieve them as soon as possible, but we haven't set an exact year when we should be there.

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Milena Hæggström, Caverion Oyj - Head of IR & External Communications [33]

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Okay. Do we have any more questions here in the audience? If not, let's move over to the conference call. Please, over to the operator.

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Operator [34]

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(Operator Instructions) And there are no questions from the audio conference call at this time.

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Milena Hæggström, Caverion Oyj - Head of IR & External Communications [35]

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Okay. Thank you. And we have no questions from the Internet either.

So thank you for your participation. Have a nice weekend.

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Ari Lehtoranta, Caverion Oyj - President, CEO & Member of Management Board [36]

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Thank you. Have a nice weekend, and see you in a quarters time, again.

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Martti Ala-Härkönen, Caverion Oyj - CFO of Finance, Strategy & IT and Member of Management board [37]

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Thank you.