Review by the Interim President and CEO

Half Yearly Report January-June 2016:

“After the departure of the previous CEO, Caverion initiated a thorough review of operations in all divisions where operative challenges had been observed. Based on the results of this review Caverion has identified profitability problems due to resource overcapacity and challenges in executing and managing projects. The identified issues mainly relate to divisions Sweden and Denmark-Norway. The profitability of certain bigger projects in Germany and Norway has also been weaker than forecasted. Furthermore, Caverion has had too many development projects ongoing at the group level, which has resulted in high fixed costs. Working capital and cash flow have deteriorated in 2016 due to low profitability, high level of investments and weak development in Germany and Sweden driven by delayed final payments in projects and low invoicing.

Caverion has already started implementing the restructuring actions to reduce the identified overcapacity. These actions will unfortunately also imply personnel reductions, mainly focusing on the divisions Sweden and Denmark-Norway as well as in the Group functions. The personnel reductions are estimated to affect up to 700 employees and the total restructuring costs for 2016 are estimated to be in the region of EUR 22-26 million. By the end of June 292 employees have been permanently laid off and restructuring costs were EUR 9.5 million during January–June. The impact of the actions will start to materialise during the second half of 2016, with full effect visible in 2017. At the end of June there were 62 people on temporary leave in division Norway.

Due to the challenges in project management and execution, a more detailed project review was conducted in Sweden covering more than a hundred ongoing projects. In connection with this review, Caverion has  in division Sweden identified clear challenges in execution of projects and has observed margin slippages in many of the reviewed projects. Based on the the results of review, Caverion has made cost estimate adjustments and provisions in the project portfolio in division Sweden, which have a negative impact of EUR 15 million on the reported EBITDA for April–June. Additionally in Germany and Norway, Caverion has experienced challenges in executing certain bigger projects.

In order to better support its operations, Caverion has decided to reorganise its Group functions, establishing two new functions: Projects and Services. These will respond to the challenges in executing and managing projects and help to secure the targeted utilisation rate in the service business. Additionally Caverion is reviewing and reducing its fixed costs. Caverion will continue the implementation of those development projects that support the improvement of profitability and cash flow starting from the second half of the year.

Finally I would like to emphasise that we are performing according to our strategy in several divisions. Our order backlog has developed very favourably during the beginning of the year, which is expected to support our development in the second half of the year.”

Sakari Toikkanen