Russia’s invasion of Ukraine at the end of February 2022 increased geopolitical tensions especially in Europe overnight. Unprecedented sanctions have been imposed on Russia and Belarus and on certain individuals of these countries, and Russia has imposed extensive counter-sanctions. The war has created uncertainties weakening the growth prospects in several countries where Caverion operates. Any further escalation or prolongation of the conflict or regional unrest in neighbouring areas could adversely affect growth estimates for all of Europe, and potentially lead to a recession. Caverion has divested its Russian subsidiary at the end of 2021 and has no operations in Ukraine or Belarus. Therefore, the impact of the conflict on Caverion is currently indirect. The crisis may affect Caverion directly short or longer term if the conflict escalates further or if de-escalation is not achieved. The possibility that other countries may become actively involved in the conflict would be likely to materially and adversely affect also Caverion’s operations in such countries.
The duration of the Ukrainian conflict and its future effects on the industry, and Caverion in particular, remain uncertain, and the overall situation remains highly volatile. Caverion has already experienced increases in material prices and delays in the supply chain and in decision-making, however Caverion continued to manage them on a daily basis without having a significant impact on the performance during the first half of 2022. These will potentially accelerate further with a longer duration of the war in Ukraine. Due to the uncertainty, it is however difficult to evaluate the potential long-term effects of the crisis on Caverion.
Market outlook for Caverion’s services and solutions in 2022 and megatrends impacting the industry
Caverion expects the underlying demand to be overall positive in Services and Projects during 2022. This scenario assumes a sufficient control of the corona pandemic impacts with no significant unforeseen setbacks in 2022 and no further escalation of the conflict in Ukraine. The conflict has resulted in geopolitical tensions, mounting inflation, rising interest rates and lowered economic growth prospects.
According to Euroconstruct forecasts published on 10 June 2022, the total construction growth is estimated to slow down from the level of 5.7 percent in 2021 to 2.3 percent in the Western Europe (EC-15) countries in 2022, and a similar rate is forecasted for 2023. After the sharp decline in 2020, the total non-residential construction is forecast to recover in 2022-2024. However, it will not return to pre-pandemic levels in several EC-15 countries, including Germany and Finland. Stagnant forecasts are predicted for the largest European construction market Germany, while the expectations for the Nordic countries are diverse. Forecasts for Finland and Sweden are more negative with expectations on decreasing production levels over the next three years, whereas Norway and Denmark expect an increase by 3-4 percent over 2022-2024. Both new construction and renovation in the non-residential sector are expected to have stable growth in 2022.
The market instability resulting from the war in Ukraine and the high inflation are expected to dampen the willingness to invest in new construction. Uncertainty is caused by the availability of building materials and the significant cost increases. Increased material prices, including fuel costs, and longer delivery times may continue to affect also Caverion’s business going forward. Potential risks may still emerge from the supply side, not only from cost inflation but also from labour shortage, potentially further fuelled by increased sick leave levels or quarantines caused by the corona pandemic. Any further delays in the supply chain and potential cost increases may have a negative impact on business execution and order intake going forward.
The business volume and the amount of new order intake are important determinants of Caverion’s performance in 2022. A negative scenario whereby the corona pandemic or the ongoing geopolitical conflict start to negatively impact market demand cannot be ruled out. However, a large part of Caverion’s services is vital in keeping also critical services and infrastructure up-and-running at all times. Furthermore, the continued focus on energy efficiency and CO reduction activities and projects continue to support the activity and business volume.
The monetary and fiscal policies currently in place are still supporting an economic recovery. As an example, the economic stimulus packages provided by national governments and the EU are expected to increase infrastructure, health care and different types of sustainable investments in Caverion’s operating area over the next few years. The main themes in the EU stimulus packages are green growth and digitalisation. Caverion expects the national and EU programmes to increase demand also in Caverion’s areas of operation in 2022.
In order to control the mounting inflation, the European Central Bank (ECB) concluded in June 2022 that it will end its asset purchases program as of 1 July 2022 and raise the key ECB interest rates at its July monetary policy meeting, whereby the rates were raised by 50 basis points. Furthermore, the ECB expects to further normalise the key interest rates in its upcoming meetings depending on the updated medium-term inflation outlook.
The digitalisation and sustainability megatrends are in many ways favourable to Caverion and believed to increase demand for Caverion’s offerings going forward. The increased energy efficiency requirements, increasing digitalisation, automation and technology in built environment as well as urbanisation remain strong and are expected to promote demand for Caverion’s services and solutions over the coming years. Especially the sustainability trend is expected to continue strong. The EU also aims to accelerate the green transition due to the current geopolitical situation that has led into energy crisis in many countries that have been largely dependent on imported gas from Russia.
Increasing awareness of sustainability is supported by both EU-driven regulations and national legislation setting higher targets and actions for energy efficiency and carbon-neutrality. This is furthermore supported by the society’s end-users’ general request for an environmentally friendly built environment. Examples of current initiatives include e.g. the proposed revision of EU’s Energy Performance of Buildings Directive (EPBD) and Minimum Energy Performance Standards (MEPS) it aims to establish as well as the «Fit for 55» climate package and the Renovation Wave Strategy. The «Fit for 55» climate package proposes to make EU’s climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The objective of the European Commission’s Renovation Wave Strategy is to at least double the annual energy renovation rate of residential and non-residential buildings by 2030. Mobilising forces at all levels towards these goals is expected to result in 35 million building units renovated by 2030.
Services
Caverion expects the underlying demand to be overall positive during 2022. Caverion’s Services business is overall by nature stable and resilient through business cycles. Stimulus packages are also expected to positively impact general demand in the Services business.
There is an increased interest for services supporting sustainability, such as energy management. Caverion has had a special focus for several years both in so-called Smart Technologies as well as in digital solutions development. These are believed to grow faster than more basic services on average and enable data-driven operations with recurring maintenance. The sustainability trend is also increasing the demand for building automation upgrades.
As technology in buildings increases, the need for new services and digital solutions is expected to increase. Customer focus on core operations also continues to open opportunities for Caverion through outsourcing of industrial operation and maintenance, property maintenance as well as facility management.
Projects
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