Review by the President and CEO

Interim Report January-March 2017:

“We have kicked off the year 2017 with a focus on stabilising our operations. This work is progressing according to plan. We continued to implement our corrective actions and to improve our project business performance towards an acceptable level in the first quarter of 2017. However, we still have some earlier identified risk projects in our orderbook which will burden our performance until the projects have been executed and closed.

The market environment remains favourable. Divisions Finland and Austria performed well during the first quarter. Division Denmark-Norway continues making a turnaround. In Services business, Technical Maintenance and Managed Services continued to perform well. It was also positive that our order backlog increased to EUR 1,543.5 million at the end of March, up by 9.6 percent compared to the end of 2016 (EUR 1,408.1 million), despite our more selective tendering especially in Large Projects.

Caverion’s revenue for the first quarter of 2017 was EUR 582.3 (560.6) million and EBITDA EUR 6.8 (11.5) million. In a seasonally slow quarter, we managed to grow our revenue by 3.9 percent in comparison to the previous year. I am specifically delighted about the revenue growth of 11.5 percent in our Services business. We also turned our EBITDA positive, despite EUR 5.7 million of project write-downs during the period. However, the performance is yet far from our targeted level. Our free cash flow was negative although improving from the corresponding period last year. Overall, the first quarter represented only the first step in the stabilisation of our operations.

Our project business performance was still poor in Sweden, Germany and Industrial Solutions. In addition to many well-performing projects inside these divisions there are some projects which overshadow the good work in other projects. In February we estimated that our remaining identified performance risks in projects amount to approximately EUR 20 million for 2017. In the first quarter, we made project write-downs totalling EUR 5.7 million related to our project portfolio mainly in divisions Industrial Solutions and Germany. These write-downs were negative forecast changes to the earlier identified risk projects. After these write-downs, the total project performance risks for the full year may unfortunately be over EUR 5 million higher than earlier anticipated. In addition, we estimated in February that there are risks related to old overdue trade receivables of up to EUR 10 million in 2017. The full-year maximum risk is slightly lower than earlier anticipated. There were no write-downs related to overdue trade receivables in the first quarter.

We expect to realise savings this year from the restructuring actions completed last year and from discretionary fixed cost reductions. In the first quarter, our personnel expenses decreased by about 3 percent and our other operating expenses by about 2 percent from the previous year, when adjusting the variable costs for revenue growth. The utilisation challenge we typically have at the beginning of the year was still visible but the situation was clearly better than last year. If necessary, we are ready to implement further cost savings during 2017. However, I see that the risk related to utilisation should not exceed the level identified in February.

We are in the middle of a turnaround and I see several good signs of our culture developing positively. Well performing units keep on improving and the ones with challenges are gradually turning around. Our performance in 2017 will not yet reflect the Group’s full earnings potential. We are currently preparing our strategy towards 2020. We will tell more about it at our Capital Markets Day in Helsinki on November 7, 2017.”

Ari Lehtoranta