Review by the President and CEO

Financial Statements Release January-December 2016:

“For Caverion, year 2016 was a very special and unfortunately a disappointing one. We found out during the year that our performance was clearly lower than estimated and further studies brought up issues which were dramatic and fundamental. This led to the change of the CEO, CFO and several other key members of the Group and divisional leadership teams especially in divisions having larger problems i.e. Sweden, Germany and Denmark-Norway.

The year was overall a year of restructuring. The total amount of jobs impacted by the restructuring actions in 2016 was 1,060. These actions were unfortunate but necessary to improve our utilisation rate going forward. The total restructuring costs amounted to about EUR 27 million in 2016. We estimate that the restructuring actions improved our performance in 2016 by about EUR 18 million. The estimated total savings impact of the restructuring actions is approximately EUR 40 million in 2017, the additional savings for 2017 vs. 2016 being thus approximately EUR 22 million. In addition, we also cut back on discretionary fixed costs, related for example to development projects, consultancy and travelling.

Caverion completed some 3,000 projects in its Projects business in 2016. We have now reviewed all completed and ongoing projects where we have work in progress, overdue receivables or disputes with customers. As a result of the reviews, we made the necessary cost estimate adjustments, write-downs and provision increases in our project portfolio, totalling EUR 59 million for 2016. We have had too optimistic revenue estimates for add-on sales in projects, too optimistic cost and receivable forecasts and different kinds of project execution challenges. We lost several percentage points in our project margin in 2016 not only in Large Projects, but also in Technical Installation in smaller projects. Our project performance has been poor in Sweden, Germany and Industrial Solutions. Earlier in the year, we also faced problems in division Denmark-Norway.

We believe that our risk level is lower going forward, despite certain risks in some of our ongoing projects especially in divisions mentioned above. We estimate our remaining identified performance risks in projects to amount to approximately EUR 20 million for 2017. We have implemented several actions that will help us improve our project business performance to the right level. For example, we have reorganised our project business and centralised all Large Project activities to dedicated, professional project management teams, we have increased our tender margin requirements and set up proper tender go/no go analyses and steering processes for Large Projects. We also continue to strengthen the steering of our project business and to improve our mandatory project manager trainings.

The completion of the restructuring, implementation of a stricter project tendering process and focus on higher project margins affected our order backlog also in the fourth quarter. This creates us a potential further risk of up to EUR 10 million related to our utilisation rate during 2017. In addition, we estimate that there are risks related to old overdue trade receivables of up to EUR 10 million in 2017.

Our Technical Maintenance and Managed Services business areas, which represent our Services business, continued to perform well in 2016. We clearly see now that our division Denmark-Norway is making a turnaround. Finland and Austria performed well throughout 2016. Clear improvements were also seen in our cash flow and working capital towards the year-end.

We have started the creation of a stronger Caverion for the future. With the completed and ongoing actions, together with the organisational and management changes announced earlier, we are laying a better foundation going forward. Year 2017 will be a year of stabilisation and a way forward for us – not yet reflecting the company’s full profit potential. Our focus is to further implement all our corrective actions and to improve our performance management in our divisions and business units. We have also started to prepare our strategy towards 2020. The market environment remains favourable. Caverion’s service portfolio and industry knowledge are great assets to create a winning company.”

Ari Lehtoranta