Review by the President and CEO

Half Yearly Report January 1 - June 30, 2017 (published July 20, 2017)

“We continued the company’s turnaround and the stabilisation of our operations in the second quarter of 2017. While profitability-wise the quarter was a difficult one for the company, the work is progressing according to plan. The challenges in our risk projects impacted both profitability and cash flow and overshadowed the good progress we have done elsewhere. We continued to implement corrective actions to improve our project business performance and were able to avoid any new projects entering our risk project list this year.

Caverion’s revenue for the second quarter of 2017 was EUR 565.1 (615.5) million and EBITDA EUR -13.0 (-14.4) million. There was a negative impact for the period from currencies, lower number of working days, write-downs and our more selective tendering. Our market environment remains favourable. Divisions Finland and Austria improved their solid performance. Division Denmark-Norway continued its turnaround and I am delighted that Norway has stabilised its position among our well-performing countries. There are also signals that Sweden is starting to turn around, for example our cash flow in Sweden was clearly better than last year. In Services business, Technical Maintenance and Managed Services continued to improve the performance. The Services business grew by 3.1 percent in the second quarter, while the revenue of the Projects business decreased by 17.7 percent.

Our project business performance was burdened by large-scale write-downs particularly in Industrial Solutions and Germany. The write-downs and remaining project performance risks relate to about 15 risk projects, most of which will be completed this year. I am pleased that we have no new projects added to our risk list this year. Our profitability for the period was significantly burdened by cost overruns and write-downs in a set of Industrial Solutions projects in the new bioproduct plant in Finland, where we plan to finalise our work this summer.

We expect to realise savings from the completed restructuring actions and from discretionary fixed cost reductions. In the first half of the year, our personnel expenses decreased by about 3.7 percent and our other operating expenses by about 4.4 percent from the previous year. We launched further performance and utilisation improvement actions in divisions Sweden and Industrial Solutions in the second quarter. These additional actions amounted to restructuring costs of approximately EUR 6.3 million and their estimated total savings impact is approximately EUR 2.7 million in 2017 and EUR 5.5 million in 2018. Overall, these actions are estimated to lead to personnel reductions affecting approximately 160 employees in Sweden. In addition there were further restructuring costs of EUR 0.7 million in the second quarter in Industrial Solutions.

In the first half of the year, we made write-downs totalling EUR 18.3 million related to above mentioned risk projects in divisions Industrial Solutions and Germany. After these write-downs and following our latest assessment completed in July, the remaining project performance risks for the rest of the year are still estimated to be about EUR 20 million. The increase compared to our earlier estimates is caused almost solely by the above mentioned Industrial Solutions project in Finland where we have made write-downs totalling EUR 11.2 million. With respect to old overdue trade receivables, we have succeeded in collecting certain old receivables without major impact on profitability. The estimate for full-year risk related to old overdue trade receivables is slightly lower than the earlier anticipated up to EUR 10 million in 2017. The risk related to utilisation is estimated not to exceed the level of up to EUR 10 million indicated earlier. However, we are ready to implement further cost savings during 2017 if necessary.

In early June we issued a EUR 100 million hybrid bond. It was important for us in the middle of our turnaround, as the hybrid bond strengthened our capital structure and financial position and provided us with a platform to further develop our business. I am very pleased with the confidence the bond investors showed in our company.

Caverion’s financial performance in 2017 is negatively impacted mainly by our project business performance. In our current turnaround phase we must first complete the risk projects, restructurings and other corrective actions. We have further strengthened our management team and are currently completing our strategy towards 2020. We will tell more about it at our Capital Markets Day in Helsinki on November 7, 2017.”

Ari Lehtoranta