Transformation plan progressing
Fourth quarter 2017
Comment from the CEO
Stable progress despite high transformation pace
In the fourth quarter, we initiated our internal transformation project, called A New Day, to increase our efficiency and capability, after recent years of stagnant growth and unsatisfactory profitability. We're working from a position of strength in terms of customer relations and technology. But a fragmented structure, weak internal accountability and processes have prevented us from reaching our full potential. Having led a transformation process of this nature several times before in my career, my experience is that it takes time. However, I am confident that it will move us into an era of successful growth for the long term.
Despite our high rate of transformation, we achieved revenues for the full year that were in line with the previous year, although down somewhat in the fourth quarter. Net sales increased by 0.4% for the full year, but decreased by 6% in the fourth quarter.
The Airports and Industry division achieved high revenue growth for both the full year and the fourth quarter, and order intake was up on the previous year. We're experiencing increasing interest in our offerings, including heating and cooling systems, converters and fuelling pit systems in the airport sector, as well as reels and radio remote control systems in mining and other industries.
Revenues in Ports & Maritime were lower in the last three quarters compared to the previous year due to market softness—investment remains low with a limited number of large orders or project opportunities. However, we do expect increased activity with better market conditions in the medium term. This is especially evident in the container terminal business, where we're seeing increased interest in our automatic mooring and charging solutions.
Fourth-quarter EBIT excluding non-recurring items decreased by EUR 1.6 million to EUR 6.9 million, and by EUR 2.5 million to EUR 9.6 million for the full year. Overall, progress means that operating margin was 12.2% for the fourth quarter and 4.5% for the full year. As an outcome of improved working capital management, we saw good progress in our cash flow towards the end of the year resulting in full-year cash flow from operating activities of EUR 12.9 million.
The ongoing review of our Balance Sheet, that was initiated in the third quarter, resulted in a goodwill impairment of EUR 18.3 million in the fourth quarter for INET Airport Systems Inc., which was acquired in 2011. This impairment loss reflects the current value of these operations but will have no cash effect. It is important to clarify that the technologies coming from the acquisition are strategic for Cavotec, and will remain an important component of our turnkey solutions for customers in the airport sector. A non-cash charge of EUR 6.6 million related to a change in US tax legislation and the impairment was also made.
What was very clear from my interviews with employees and customers in the third quarter was that accountability and clarity about responsibilities were an issue at Cavotec, which was obstructing efficiency and future growth. Accordingly, we decided to streamline and simplify decision-making by creating three business divisions with clear profit and loss ownership, from product development through to sales and delivery. This new organisational structure became effective 1 January 2018.
Based on our findings, we also started almost 50 transformation projects in the quarter, including customer and key account management, procurement, SOP deployment and production planning. We have involved more than 200 employees for this journey, who are all fully behind it. Almost all projects started in the fourth quarter of 2017, about a quarter of them will be complete at the end of the first quarter 2018, another quarter by the midpoint of the year, and the remainder before year-end 2018.
Stable process and long-term strategy
In 2018, we will continue investing in actions to improve operational efficiency, enhance our customer offering and ensure that all employees have clear mandates, responsibilities and accountability right across our organisation. I'm confident that our people and technologies put us in a unique position to help our customers take advantage of global trends in safety, automation, and sustainability, although the lower order intake during 2017 will be reflected in revenues in the short to medium term. We have a strong position in our markets, while our challenges, which we are now addressing, are all internal. This means that we are truly masters of our own destiny—which is a great place to be!
This is a summary of the 4Q17 report and full-year 2017 summary published today. The complete 4Q17 report and full-year summary with tables is available on Cavotec's investor relations website http://ir.cavotec.com and attached to this press release. Investors should not rely on summaries only, but should review the complete reports with tables.
For further details please contact:
Group Chief Financial Officer & Investor Relations
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Cavotec is a leading engineering group that designs and manufactures automated connection and electrification systems for ports, airports and industrial applications worldwide. Cavotec innovative technologies ensure safe, efficient and sustainable operations. To find out more about Cavotec, visit our website at cavotec.com.
The information in this release is subject to the disclosure requirements of Cavotec SA under the Swedish Securities Market Act and/or the Swedish Financial Instruments Trading Act. This information was publicly communicated on 23 February 2018, 08:00 CET.