Caverion Corporation Half-year Financial Report 24 July 2019 at 8.00 a.m. EEST

Caverion Corporation's Half-year Financial Report for January 1 – June 30, 2019

Projects burden end of the Fit phase - Strong cash flow, increased order backlog and decreased project risks pave the way to the Growth phase

April 1 – June 30, 2019

Revenue: EUR 512.3 (564.8) million. Services business revenue increased by 2.7 percent.
Adjusted EBITDA: EUR 10.0 (12.9) million, or 2.0 (2.3) percent of revenue, strongly impacted by finalisation of old projects in the Fit phase.
EBITDA: EUR 9.1 (-31.7) million, or 1.8 (-5.6) percent of revenue.
Operating cash flow before financial and tax items: EUR 29.1 (-15.0) million.
Earnings per share, undiluted: EUR -0.06 (-0.32) per share.
Net debt/EBITDA*: 0.8x (0.2x).

January 1 – June 30, 2019

Order backlog: EUR 1,704.7 (1,596.8) million, up by 6.8 percent.
Revenue: EUR 1,026.7 (1,091.6) million. Services business revenue increased by 3.3 percent.
Adjusted EBITDA: EUR 37.1 (23.9) million, or 3.6 (2.2) percent of revenue.
EBITDA: EUR 31.7 (-21.8) million, or 3.1 (-2.0) percent of revenue.
Operating cash flow before financial and tax items: EUR 59.2 (4.9) million.
Earnings per share, undiluted: EUR -0.04 (-0.31) per share.
Maintpartner acquisition signed during Q1, competition authority review ongoing.
EUR 75 million unsecured senior bond issued during Q1, partial redemption of hybrid notes.

Unless otherwise noted, the figures in brackets refer to the corresponding period in the previous year. * Based on calculation principles confirmed with the lending parties.

Caverion has adopted IFRS 16 Leases standard as of the effective date of January 1, 2019. The Group applies the modified retrospective approach and comparative figures for the financial periods prior to the first date of adoption have not been restated. Additional information is presented under Changes in external financial reporting in 2019 and in financial tables section note 1 Accounting principles.

KEY FIGURES

	4–6/19	4–6/18		1–6/19	1–6/18		1–12/18
EUR million	(IFRS 16)	(non IFRS 16) Change		(IFRS 16)	(non IFRS 16) Change		(non IFRS 16)
Order backlog	1,704.7	1,596.8	6.8%	1,704.7	1,596.8	6.8%	1,494.3
Revenue	512.3	564.8	-9.3%	1,026.7	1,091.6	-5.9%	2,204.1
Adjusted EBITDA	10.0	12.9	-22.3%	37.1	23.9	55.5%	53.4
Adjusted EBITDA margin, %	2.0	2.3		3.6	2.2		2.4
EBITDA	9.1	-31.7		31.7	-21.8		-8.8
EBITDA margin, %	1.8	-5.6		3.1	-2.0		-0.4
Operating profit	-7.7	-38.7	80.0%	-2.4	-35.3	93.1%	-35.9
Operating profit margin, %	-1.5	-6.9		-0.2	-3.2		-1.6
Result for the period	-7.1	-39.7	82.2%	-4.1	-37.6	89.2%	-48.1
Earnings per share,
undiluted, EUR	-0.06	-0.32	82.4%	-0.04	-0.31	86.0%	-0.40
Operating cash flow before
financial and tax items	29.1	-15.0		59.2	4.9		21.6
Working capital				-80.8	-57.2	-41.2%	-54.6
Interest-bearing net debt				158.9	10.2		6.9
Net debt/EBITDA*				0.8	0.2		0.2
Gearing, %				77.3	3.9		2.7
Equity ratio, %				20.8	28.2		30.2
Personnel, end of period				14,681	15,751	-6.8%	14,950

* Based on calculation principles confirmed with the lending parties.

Ari Lehtoranta, President and CEO:

"We launched our Fit for Growth strategy in November 2017, estimating that the Fit phase would be finalised by the end of the first half of this year. Over the last few years we have focused on turnaround actions, particularly in the Projects business. Although there are certain Fit actions still to be finalised, our risk level is reduced going forward and we are now ready to move forward to the Growth phase of our strategy.

During the second quarter our main effort was in finalising our old projects. Our result was burdened by major project forecast changes with a negative net impact of about EUR 16 million, about half of which was explained by one single old project. In the second quarter, our adjusted EBITDA was EUR 10.0 (12.9) million. Our revenue for the second quarter was EUR 512.3 (564.8) million. For the first time, our Services business accounted for over 60 percent of Group revenue. Measured in local currencies, revenue decreased by 8.5 percent; the Services business was up by 3.7 percent while the Projects business revenue was down by 22.6 percent.

In the Services business, most of our divisions continued to improve their margins in accordance with targets. The Projects business profitability was still negatively impacted by old projects. However, I believe that the magnitude of project write-downs and cost overruns will decrease going forward. I also expect the Projects business to improve its profitability in the second half of the year. Our remaining Fit actions are specifically concentrated on Denmark and the Projects business in Germany. I am particularly happy that our German business has already turned its cash flow to positive, indicating a turnaround.

Our ongoing business continues to develop positively. Our strong cash flow is a clear sign of this. In the second quarter, our operating cash flow before financial and tax items improved to EUR 29.1 (-15.0) million. Our working capital improved to the level of EUR -80.8 (-57.2) million. An increasing part of our business is already Fit and taking growth actions. As a proof of this, our order backlog increased by 6.8 percent to EUR 1,704.7 (1,596.8) million. This will support our organic growth going forward. Highlights of new orders were our first PPP life cycle project in Austria, where the maintenance period covers 25 years, as well as our new life cycle projects in Finland.

Our financial position has clearly improved. Our net debt excluding lease liabilities amounted to EUR 24.7 (10.2) million at the end of June and the net debt/EBITDA ratio was 0.8x (0.2x). Going forward, we are looking more actively for bolt-on acquisitions in our selected focus areas and geographies. Regarding the Maintpartner acquisition signed in March, the Finnish Competition and Consumer Authority has, as part of its standard procedure, decided to initiate further proceedings concerning the transaction.

The future of Caverion looks promising, supported by megatrends such as energy efficiency and digitalisation. Environmental regulations and legislation are further tightening, requiring increased actions in energy efficiency in buildings, and our enhanced offering is well suited to meet the new demands enabling smart cities and smart buildings. All these factors pave the way to Caverion's profitable growth."

OUTLOOK FOR 2019

Market outlook for Caverion's services and solutions

The megatrends in the industry, such as the increase of technology in built environments, energy efficiency requirements, increasing digitalisation and automation as well as urbanisation continue to promote demand for Caverion's services and solutions over the coming years.

Services

The underlying demand for Services is expected to remain strong. As technology in buildings increases, the need for new services and digital solutions is expected to increase. Customer focus on core operations continues to open up outsourcing and maintenance as well as technical building management opportunities for Caverion. There is a trend towards a deeper collaboration in order to gain business benefits instead of mere cost savings. International customers are looking for unified operating models across countries, especially within the Nordic region. There is an increasing interest for services supporting sustainability, such as energy management.

Projects

The Projects market in the non-residential construction market segment is expected to remain stable. Good demand is expected to continue from both private and public sectors. Customer demand for total technical deliveries, life cycle projects and different types of partnership projects such as alliance projects is increasing, mainly driven by risk management. However, price competition is expected to remain tight. Low interest rates and the availability of financing continue to support investments. The requirements for increased energy efficiency, better indoor climate and tightening environmental legislation are increasing the costs of building systems investments.

Guidance for 2019

Caverion's guidance for 2019 is unchanged: "Caverion estimates that the Group's Services business revenue and its relative share of the Group's total revenue will increase in 2019, while the Projects business revenue will decrease. The Group's Adjusted EBITDA for 2019 will be over EUR 120 million. The guidance takes into account the adoption of IFRS 16 in 2019, which has an estimated annual impact of adding around 2 percentage points to the Group's EBITDA margin."

Adjusted EBITDA = EBITDA before items affecting comparability (IAC).

In 2018, major risk projects included three completed Large Projects from Industrial Solutions, the financial effects of which were reported under category (2). The German anti-trust fine and related legal and other costs were reported under category (4). In 2019, major risk projects only include one risk project in Germany reported under category (2).

Adjusted EBITDA ‒ Items affecting comparability

	4–6/19	4–6/18	1–6/19	1–6/18	1–12/18
EUR million	(IFRS 16)	(non IFRS 16)	(IFRS 16)	(non IFRS 16)	(non IFRS 16)
EBITDA	9.1	-31.7	31.7	-21.8	-8.8
EBITDA margin, %	1.8	-5.6	3.1	-2.0	-0.4
Items affecting EBITDA
- Capital gains and/or losses and transaction costs
related to divestments and acquisitions	0.3		2.5		5.5
- Write-downs, expenses and income from major
risk projects		2.2	1.6	3.1	9.3
- Restructuring costs	0.5	1.1	1.0	1.2	5.3
- Other items*	0.1	41.3	0.2	41.3	42.1
Adjusted EBITDA	10.0	12.9	37.1	23.9	53.4
Adjusted EBITDA margin, %	2.0	2.3	3.6	2.2	2.4

* Including the German anti-trust fine and related legal and other costs in 2018

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

Caverion will hold a news conference and webcast on the Half-year Financial Report on Wednesday, 24 July 2019, at 10:00 a.m. (Finnish time, EEST) at Hotel Lilla Roberts (meeting room Selim), Pieni Roobertinkatu 1, Helsinki, Finland. The news conference can also be viewed live on Caverion's website at www.caverion.com/investors. It is also possible to participate in the event through a conference call by calling the assigned number +44 (0)330 336 9104 at 9:55 a.m. (Finnish time, EEST) at the latest. The participant code for the conference call is "778951 / Caverion". More practical information on the news conference can be found on Caverion's website, www.caverion.com/investors.

Financial information to be published in 2019

Q3 Interim Report will be published on October 29, 2019. Financial reports and other investor information are available on Caverion's website, www.caverion.com/investors, and IR App. The materials may also be ordered by sending an e-mail to [email protected].

Caverion will arrange a Capital Markets Day in Helsinki on 5 November 2019 at 12:00 noon (EET). Further information on the programme will be published closer to the date.

CAVERION CORPORATION

For further information, please contact:

Martti Ala-Härkönen, Chief Financial Officer, Caverion Corporation, tel. +358 40 737 6633, [email protected]

Milena Hæggström, Head of Investor Relations, Caverion Corporation, tel. +358 40 5581 328, [email protected]

Distribution: Nasdaq Helsinki, principal media, www.caverion.com

GROUP FINANCIAL DEVELOPMEN T

Key Figures

Operating environment in the second quarter and during the first half of 2019

The overall market situation was positive and stable throughout the period. Demand developed favourably in the Finnish and German markets. In the Industrial Solutions division, the market was stable in industrial maintenance. The markets for Denmark, Norway, Austria and Other countries also remained stable. In Sweden, the activity levels in projects showed signs of slowing down.

Services

The demand for Services continued being strong. There is a trend towards a deeper collaboration between customers and service providers in order to gain business benefits instead of mere cost savings. International customers are looking for unified operating models across countries, especially in the Nordic region. There is an increasing interest for services supporting sustainability, such as energy management and advisory services.

Projects

The market for Projects remained stable. In the residential construction market segment, there were indications of the market slowing down. In the non-residential construction segment, which is more relevant for Caverion, the market remained favourable. Customer demand for total technical deliveries, life cycle projects and different types of partnership projects such as alliance projects has been increasing, mainly driven by risk management. The requirements for increased energy efficiency, better indoor climate and tightening environmental legislation are increasing the costs of building systems investments. There have been some shortages in project manager and installer resources in growth centers. In Germany, the cost of subcontracting has also increased.

Estimated Projects business risks for 2019

During the second quarter, the Projects business profitability was still negatively impacted by old projects. Caverion continued its efforts to close or settle the remaining non-performing projects. The result was burdened by major project forecast changes with a negative net impact of about EUR 16 million, about half of which was explained by one single old project. Caverion believes that the magnitude of project write-downs and cost overruns will decrease going forward and expects that the Projects business will improve its profitability in the second half of the year. The remaining Fit actions are specifically concentrated on Denmark and the Projects business in Germany.

In 2019, Caverion reports only one old risk project from Germany in adjusted EBITDA, the completion of which has been delayed. In addition to this, at the end of June 2019 approximately 6.6 percent of Caverion's order backlog in the Projects business was from projects started in 2016 or earlier. In the second quarter, Caverion concluded amendments in a few existing large old projects which extended their scope and share in the order backlog. Excluding these amendments made, the share of projects started in 2016 or earlier was less than five percent of Caverion's order backlog in the Projects business. It is possible that risks may emerge in these old or new projects. More information on project and other risks is given under "Significant short-term risks and uncertainties".

Caverion announced on 15 February 2019 that Caverion Industria Oy was awarded a positive arbitration decision relating to the third and final large project from Caverion's risk list for 2018. Caverion booked the award related income in its first quarter results for 2019, while the payment was received in April.

Order backlog

Order backlog amounted to EUR 1,704.7 million at the end of June, up by 6.8 percent from the end of June in the previous year (EUR 1,596.8 million). At comparable exchange rates the order backlog increased by 7.2 percent. Order backlog increased both in Services and Projects compared to the last year.

Revenue

April–June

Revenue for April–June was EUR 512.3 (564.8) million, a decrease of 9.3 percent compared to the same period in the previous year. Revenue was impacted by fluctuations in currency exchange rates and the sale of the project piping and tank business and the related Ylivieska workshop of the Industrial Solutions division in the last quarter of 2018. There was also a negative impact from project write-downs and the Group's more selective approach towards the Projects business. At the previous year's exchange rates, revenue was EUR 516.8 million and decreased by 8.5 percent compared to the previous year. Changes in the Swedish krona accounted for EUR 2.9 million and the Norwegian krone for EUR 1.6 million.

Revenue increased in Austria and Finland, while it decreased in other divisions. In local currencies, revenue in Sweden was in line with the previous year. The revenue in Industrial Solutions in 2019 is not comparable with the previous year, as Caverion sold its project piping and tank business and the related Ylivieska workshop of the Industrial Solutions division in the last quarter of 2018.

The revenue of the Services business unit increased and was EUR 311.3 (303.1) million in April–June, an increase of 2.7 percent, or 3.7 percent in local currencies. The revenue of the Projects business unit was EUR 201.0 (261.6) million in April–June, a decrease of 23.2 percent, or 22.6 percent in local currencies.

The Services business unit accounted for 60.8 (53.7) percent of Group revenue, and the Projects business unit for 39.2 (46.3) percent of Group revenue in April–June.

January–June

Revenue for January–June was EUR 1,026.7 (1,091.6) million, a decrease of 5.9 percent compared to the same period in the previous year. Revenue was impacted by fluctuations in currency exchange rates and the sale of the project piping and tank business and the related Ylivieska workshop of the Industrial Solutions division in the last quarter of 2018. There was also a negative impact from project write-downs and the Group's more selective approach towards the Projects business. At the previous year's exchange rates, revenue was EUR 1,037.6 million and decreased by 4.9 percent compared to the previous year. Changes in the Swedish krona accounted for EUR 7.7 million, the Norwegian krone for EUR 2.7 million and the Russian rouble for EUR 0.3 million.

Revenue increased in Austria, Finland and Norway, while it decreased in other divisions. In local currencies, revenue in Sweden was in line with the previous year. The revenue in Industrial Solutions in 2019 is not comparable with the previous year, as Caverion sold its project piping and tank business and the related Ylivieska workshop of the Industrial Solutions division in the last quarter of 2018.

The revenue of the Services business unit increased and was EUR 615.7 (596.1) million in January–June, an increase of 3.3 percent, or 4.5 percent in local currencies. The revenue of the Projects business unit was EUR 411.0 (495.5) million in January–June, a decrease of 17.0 percent, or 16.3 percent in local currencies.

The Services business unit accounted for 60.0 (54.6) percent of Group revenue, and the Projects business unit for 40.0 (45.4) percent of Group revenue in January–June.

Distribution of revenue by Division and Business Unit

Revenue,	4–6/	%	4–6/	%	Change	1–6/	%	1–6/	%	Change	1–12/	%
EUR million	2019		2018			2019		2018			2018
Sweden	107.9	21.1	111.8	19.8	-3.5%	214.5	20.9	224.8	20.6	-4.6%	443.1	20.1
Finland	92.6	18.1	81.3	14.4	14.0%	181.3	17.7	159.1	14.6	13.9%	336.3	15.3
Norway	89.5	17.5	94.3	16.7	-5.1%	188.6	18.4	184.5	16.9	2.2%	377.4	17.1
Germany	83.8	16.3	117.3	20.8	-28.6%	166.0	16.2	223.8	20.5	-25.8%	436.7	19.8
Austria	50.5	9.9	42.7	7.6	18.3%	91.7	8.9	79.5	7.3	15.3%	176.8	8.0
Industrial
Solutions	46.4	9.1	65.2	11.5	-28.8%	98.0	9.5	116.1	10.6	-15.6%	229.2	10.4
Denmark	25.8	5.0	34.6	6.1	-25.6%	53.2	5.2	70.0	6.4	-24.0%	129.2	5.9
Other
countries*	15.9	3.1	17.6	3.1	-9.7%	33.4	3.3	33.7	3.1	-0.7%	75.5	3.4
Group,
total	512.3	100.0	564.8	100.0	-9.3%	1,026.7	100.0	1,091.6	100.0	-5.9%	2,204.1	100.0
Services
business
unit	311.3	60.8	303.1	53.7	2.7%	615.7	60.0	596.1	54.6	3.3%	1,213.0	55.0
Projects
business
unit	201.0	39.2	261.6	46.3	-23.2%	411.0	40.0	495.5	45.4	-17.0%	991.1	45.0

* Other countries include the Baltic countries, Poland (until 28 February 2019) and Russia.

Profitability

EBITDA

April–June

Adjusted EBITDA was EUR 10.0 (12.9) million, or 2.0 (2.3) percent of revenue in April–June. EBITDA for April– June was EUR 9.1 (-31.7) million, or 1.8 (-5.6) percent of revenue.

In the adjusted EBITDA calculation the transaction costs related to divestments and acquisitions totalled EUR 0.3 million in April–June. The Group's restructuring costs amounted to EUR 0.5 million. The other items were EUR 0.1 million.

In the Services business, most of the divisions continued to improve their margins in accordance with targets. The Projects business profitability was still negatively impacted by old projects. The result was burdened by major project forecast changes with a negative net impact of about EUR 16 million, about half of which was explained by one single old project. Caverion continued its efforts to close or settle the remaining non-performing projects.

By division, Finland, Austria and Industrial Solutions delivered strong results in the second quarter. The result of Other countries turned positive. In other divisions the overall result was burdened by project write-downs and cost overruns from projects. The Services business in Germany continued its positive development.

Costs related to materials and supplies decreased to EUR 127.8 (148.8) million and external services to EUR 99.6 (105.2) million in April–June. Personnel expenses decreased by 5.7 percent from the previous year and amounted to a total of EUR 218.6 (231.7) million for April-June. Other operating expenses decreased to EUR 58.0 (110.8) million, affected mainly by IFRS 16 adoption and the German anti-trust fine of EUR 40.8 million in June 2018. Other operating income was EUR 0.8 (0.1) million.

January–June

Adjusted EBITDA was EUR 37.1 (23.9) million, or 3.6 (2.2) percent of revenue in January–June. EBITDA for January–June was EUR 31.7 (-21.8) million, or 3.1 (-2.0) percent of revenue.

Caverion Industria Oy was awarded a positive arbitration decision in February relating to the third and final large project from Caverion's risk list for 2018. Based on the decision, Caverion was paid about EUR 8.9 million plus interest as of 19 May 2016 until full payment, as well as the related administrative expenses, legal costs and fees. Caverion booked the award related income in its first quarter EBITDA for 2019.

In the adjusted EBITDA calculation, the capital losses from divestments and transaction costs related to divestments and acquisitions totalled EUR 2.5 million in January–June. The write-downs, expenses and/or income from separately identified major risk projects amounted to EUR 1.6 million. In 2019, major risk projects include only one risk project in Germany. The Group's restructuring costs amounted to EUR 1.0 million. The other items were EUR 0.2 million.

The Services business unit continued to improve its profitability, while the result of the Projects business unit was negatively impacted by project write-downs and cost overruns. By division, Finland, Austria and Industrial Solutions delivered strong results in January–June. The result of Other countries turned positive. In other divisions the overall result was burdened by project write-downs and cost overruns from projects. The Services business in Germany continued its positive development.

Costs related to materials and supplies decreased to EUR 252.1 (278.2) million and external services to EUR 194.2 (200.5) million in January–June. Personnel expenses decreased by 4.5 percent from the previous year and amounted to a total of EUR 439.2 (459.8) million for January-June. Other operating expenses decreased to EUR 110.8 (176.1) million, affected mainly by IFRS 16 adoption and the German anti-trust fine of EUR 40.8 million in June 2018. Other operating income was EUR 1.3 (1.2) million.

EBITDA is defined as Operating profit + Depreciation, amortisation and impairment. Adjusted EBITDA = EBITDA before items affecting comparability (IAC). Items affecting comparability (IAC) in 2019 are material items or transactions, which are relevant for understanding the financial performance of Caverion when comparing the profit of the current period with that of the previous periods. These items can include (1) capital gains and/or losses and transaction costs related to divestments and acquisitions; (2) write-downs, expenses and/or income from separately identified major risk projects; (3) restructuring expenses and (4) other items that according to Caverion management's assessment are not related to normal business operations.

Operating profit

April–June

The operating profit for April–June was EUR -7.7 (-38.7) million, or -1.5 (-6.9) percent of revenue.

Depreciation, amortisation and impairment amounted to EUR 16.9 (7.0) million in April–June. Of these EUR 0.8 (0.5) million were allocated intangibles related to acquisitions and EUR 16.1 (6.5) million were other depreciations, amortisation and impairments, the majority of which related to right-of-use assets in accordance with IFRS 16 and IT. The depreciation on right-of-use assets amounted to EUR 12.0 million during the second quarter.

January–June

The operating profit for January–June was EUR -2.4 (-35.3) million, or -0.2 (-3.2) percent of revenue.

Depreciation, amortisation and impairment amounted to EUR 34.2 (13.5) million in January–June. Of these EUR 1.6 (1.0) million were allocated intangibles related to acquisitions and EUR 32.6 (12.5) million were other depreciations, amortisation and impairments, the majority of which related to right-of-use assets in accordance with IFRS 16 and IT. The depreciation on right-of-use assets amounted to EUR 23.9 million during the first half of 2019.

The other factors affecting operating profit have been described in more detail under EBITDA.

Result before taxes, result for the period and earnings per share

Result before taxes amounted to EUR -5.9 (-36.8) million, result for the period to EUR -4.1 (-37.6) million, and earnings per share to EUR -0.04 (-0.31) in January–June. Net financing expenses in January–June were EUR 3.4

(1.5) million. This includes an interest cost on lease liabilities amounting to EUR 2.6 million and an exchange rate gain from an internal loan denominated in euros in Russia amounting to EUR 1.0 million.

The Group's effective tax rate was 30.8 (-2.2) percent in January–June.

Capital expenditure, acquisitions and disposals

Gross capital expenditure on non-current assets totalled EUR 8.3 (7.4) million in January–June, representing 0.8 (0.7) percent of revenue. Investments in information technology totalled EUR 4.6 (5.7) million. IT investments were focused on building a harmonised IT infrastructure and common platforms as well as datacenter consolidation. IT systems and mobile tools were also developed to improve the Group's internal processes and efficiency going forward. Other investments, including acquisitions, amounted to EUR 3.7 (1.7) million.

Caverion announced the sale of its small subsidiaries in Poland and Czech Republic in the end of December 2018. The sale of the subsidiary in the Czech Republic was completed on 2 January 2019 and the sale of the Polish subsidiary became effective on 28 February 2019. The divestments had no material impact on the financial position and performance of Caverion Group. The transaction prices were not disclosed.

Caverion announced on 12 March 2019 that it has signed an agreement with Maintpartner Holding Oy to acquire all of the shares in Maintpartner Group Oy including its subsidiaries in Finland, Poland and Estonia. The acquisition excludes Maintpartner Group Oy's subsidiary in Sweden. The transaction is subject to approval by the competition authorities. More detailed information on the transaction valuation will be published at the closing of the transaction. The purchase price will be paid by cash. According to the Finnish Accounting Standard (FAS), the revenue of the business to be acquired was approximately EUR 137 million in 2018 (EUR 137 million in 2017), with most of the revenue generated in Finland. The business employed approximately 1,500 people in 2018. According to the Finnish Accounting Standard (FAS), EBITDA of the business to be acquired was EUR 6.1 million in 2018 (EUR 4.6 million in 2017). According to the preliminary valuation, the IFRS adjusted net value of the assets to be purchased amounted to EUR 6.4 million in 2018.

Cash flow, working capital and financing

The Group's operating cash flow before financial and tax items improved to EUR 59.2 (4.9) million in January-June. The Group's free cash flow improved to EUR 52.1 (-5.1) million.

The Group's working capital improved to EUR -80.8 (-57.2) million at the end of June. Excluding the impact of the German cartel fine accrual of EUR 40.8 million in Q2/18, the improvement was EUR 64.4 million. The amount of trade and POC receivables decreased to EUR 502.2 (529.5) million and other current receivables to EUR 25.2 (44.0) million. On the liabilities side, trade and POC payables decreased to EUR 194.5 (207.4) million and advances received increased to EUR 196.5 (170.8) million. Working capital continued to decrease on the Group level during the second quarter. Excluding the impact of the cartel fine accrual in the second quarter of 2018, working capital improved substantially in division Germany. There was also good improvement in divisions Finland and Industrial Solutions compared to the previous year.

Caverion's cash and cash equivalents amounted to EUR 103.6 (62.2) million at the end of June. In addition, Caverion has undrawn revolving credit facilities amounting to EUR 100.0 million and undrawn overdraft facilities amounting to EUR 19.0 million.

The Group's gross interest-bearing loans and borrowings excluding lease liabilities amounted to EUR 128.3 (72.4) million at the end of June, and the average interest rate after hedges was 2.9 percent. Approximately 39 percent of the loans have been raised from banks and other financial institutions, approximately 58 percent from capital markets and approximately 3 percent from insurance companies. A total of EUR 3.3 million of the interest-bearing borrowings will fall due during the next 12 months. Lease liabilities amounted to EUR 134.3 million at the end of June 2019, resulting to total gross interest-bearing liabilities of EUR 262.6 million.

The Group's net debt excluding lease liabilities amounted to EUR 24.7 (10.2) million at the end of June and including the lease liabilities EUR 158.9 million. At the end of June, the Group's gearing was 77.3 (3.9) percent and the equity ratio 20.8 (28.2) percent. Excluding the effect of IFRS 16, the gearing would have amounted to 12.0 percent and the equity ratio to 24.0 percent.

At the end of the first quarter, Caverion issued new EUR 75 million senior unsecured fixed rate notes with maturity on 28 March 2023 as well as carried out a voluntary cash tender offer for its EUR 100 million hybrid notes issued on 16 June 2017. The 4-year notes carry a fixed annual interest rate of 3.25% per annum. The use of proceeds from the notes included, in addition to the partial redemption of the hybrid notes, general corporate purposes and investments and acquisitions in accordance with Caverion's strategy. The final acceptance amount of the hybrid tender offer was EUR 33.94 million and the remaining amount of the hybrid bond outstanding is EUR 66.06 million. The purchase price of the hybrid notes was 101.20%. The rationale of the transactions was to proactively manage the Group's debt portfolio, to extend the Group's debt maturity profile and to decrease overall funding costs. Furthermore, Caverion also refinanced its bank loans and undrawn revolving credit facilities at the beginning of February 2019.

Caverion's external loans are subject to a financial covenant based on the ratio of the Group's net debt to EBITDA. The financial covenant shall not exceed 3.5:1. At the end of June, the Group's Net debt to EBITDA was 0.8x according to the confirmed calculation principles. The confirmed calculation principles exclude the effects of the IFRS 16 standard and contain certain other adjustments such as excluding the German anti-trust fine and related legal and advisory fees.

Changes in external financial reporting in 2019

Caverion has adopted the new IFRS 16 Leases standard as of the effective date of 1 January 2019. The new standard requires the lessee to recognise almost all lease contracts on the balance sheet. Whereas, under the previous guidance in IAS 17, Leases, a lessee had to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet), the new model requires the lessee to recognise an asset (the right to use the leased item) and a financial liability to pay rentals. The only exceptions are short-term and lowvalue leases, which Caverion has utilised and the lease expense will be recognised in income statement. Caverion does not have any material contracts as lessor.

The standard has had significant impact on the Group's balance sheet and related key ratios, such as the equity ratio and the gearing. The adoption of IFRS 16 increased the Group's right-of-use assets and interest-bearing liabilities by approximately EUR 142 million. The standard impacted also the Group's income statement. The impacted operating lease cost is divided into the depreciation of the right-of-use asset and interest cost associated with the lease liability resulting in an improved EBITDA, having an estimated annual increase of around 2 percentage points on the Group's EBITDA margin. The effect to profit for the period is insignificant. Caverion has applied the modified retrospective approach and the comparative figures for the financial periods prior to the first date of adoption have not been restated. Further information has been presented in financial tables section note 1 Accounting principles.

Caverion made several divestments of non-core units in 2018. Caverion completed the sale of its project piping and tank business and the related Ylivieska workshop of the Industrial Solutions division on 31 December 2018. Revenue of the divested business was approximately EUR 45 million in 2018. Furthermore, Caverion announced the sale of its small subsidiaries in Poland and Czech Republic in the end of December. These were completed on 28 February 2019 and on 2 January 2019, respectively. The revenue of Caverion Polska Sp. Z o.o. was approximately EUR 13 million in 2018, and the number of employees totalled approximately 170 people. The revenue of the Caverion Česká republika s.r.o. was approximately EUR 3 million in 2018, and the number of employees approximately 40 people.

Caverion also made one acquisition to strengthen its service business in 2018. Caverion announced on 19 November 2018 that Caverion Suomi Oy had signed an agreement to acquire the entire share capital of Jetitek Oy from the management of the company. Jetitek's revenue was EUR 16 million and it employed 52 people in Finland in 2018.

Caverion also reorganised its Eastern European operations in 2018. The financial reporting of Russia, Poland and the Baltics continued under "Eastern Europe" until the end of 2018. In 2019, Russia and the Baltics are reported under "Other countries".

PERSONNEL

Personnel by division, end of period	6/19	3/19	Change	6/19	6/18	Change	12/18
Sweden	2,790	2,810	-1%	2,790	3,007	-7%	2,955
Finland	2,698	2,522	7%	2,698	2,537	6%	2,513
Norway	2,409	2,425	-1%	2,409	2,431	-1%	2,438
Germany	2,190	2,229	-2%	2,190	2,235	-2%	2,268
Industrial Solutions	1,613	1,538	5%	1,613	2,053	-21%	1,603
Other countries	1,235	1,193	4%	1,235	1,600	-23%	1,350
Austria	829	827	0%	829	829	0%	857
Denmark	803	836	-4%	803	952	-16%	860
Group Services	114	109	5%	114	107	7%	106
Group, total	14,681	14,489	1%	14,681	15,751	-7%	14,950

Caverion Group employed 14,663 (15,835) people on average in January–June 2019. At the end of June, the Group employed 14,681 (15,751) people. Personnel expenses for January–June amounted to EUR 439.2 (459.8) million.

The safety of employees is always a focus area and the accident frequency rate in the end of June was 5.8 (5.4).

Changes in Caverion's Group Management Board and organisation structure

Frank Krause (born 1963) started as the Head of Division Germany and a member of the Group Management Board and Carsten Sørensen (born 1972) as the Head of Caverion Division Denmark and a member of the Group Management Board as of 1 January 2019.

Kari Sundbäck, M.Sc. (Eng.), born 1971, was appointed as Caverion's Head of Transformation and Supply Operations and member of the Group Management Board as of 8 May 2019. Sundbäck's responsibilities include the supply operations, including procurement, the management of group-wide transformation initiatives and Communications. Additionally, he assumes the responsibility for business operations and turnaround in Russia. Kari Sundbäck was previously responsible of KONE's operating model and transformation program.

Thomas Hietto (born 1967, M.Sc.,Tech.), Head of Caverion's Services Business Unit and member of the Group Management Board, was appointed as Deputy CEO of Caverion Corporation as of 1 July 2019. He will also continue in his current position responsible for the Services business, Sales Development as well as Marketing and brand. In his new position he will also be responsible for managing the growth strategy of Caverion.

SIGNIFICANT SHORT-TERM RISKS AND UNCERTAINTIES

Caverion is exposed to different types of strategic, operational, political, market, customer, financial and other risks. The market environment is currently stable in markets relevant for Caverion, but any changes affecting also Caverion may always occur. Caverion estimates that the trade related and political risks are increasing globally, but their effect on Caverion is estimated to be limited in the short term.

Caverion's typical operational risks relate to its Services and Projects business. These include risks related to tendering (e.g. calculation and pricing), contractual terms and conditions, partnering, subcontracting, procurement and price of materials, availability of qualified personnel and project management. To manage these risks, risk assessment and review processes for both the sales and execution phase are in place, and appropriate risk reservations are being made. The Group Projects Business Unit is dedicated to the overall improvement of project risk management, to steering the project portfolio, and to improving project management capabilities. Despite all the actions taken, there is a risk that some project risks will materialise, which could have a negative impact on Caverion's financial performance and position. Project risk assessment is part of the standard project management processes in the company, and it is possible that risks may be identified in projects which are currently running and in new projects.

Despite clearly defined project controls, it is possible that some risks may materialise, which could lead to project write-downs, provisions, disputes or litigations. Caverion made a large amount of project write-downs during 2016−2018. In the second quarter of 2019, the result was burdened by major project forecast changes with a negative net impact of about EUR 16 million, about half of which was explained by one single old project. For the second half of 2019, there are still certain project risks remaining especially from old projects started in 2016 or earlier. At the end of June 2019, approximately 6.6 percent of the projects order backlog was from such projects. In the second quarter, Caverion concluded amendments in a few existing large old projects which extended their scope and share in the order backlog. Excluding these amendments made, the share of projects started in 2016 or earlier was less than five percent of Caverion's order backlog in the Projects business. It is possible that risks may emerge in these old or new projects.

According to Group policy, write-offs or provisions are booked on receivables when it is probable that no payment can be expected. Caverion Group follows a policy in valuing trade receivables and the bookings include estimates and critical judgements. The estimates are based on experience with write-offs realised in previous years, empirical knowledge of debt collection, customer-specific collaterals and analyses as well as the general economic situation of the review period. Caverion carries out risk assessments related to POC and trade receivables in its project portfolio on an ongoing basis. There are certain individual larger receivables where the company continues its actions to negotiate and collect the receivables. There is remaining risk in the identified receivables, and it cannot be ruled out that there is also risk associated with other receivables.

Given the nature of Caverion's business, Group companies are involved in disputes and legal proceedings in several projects. These disputes and legal proceedings typically concern claims made against Caverion for allegedly defective or delayed delivery. In some cases, the collection of receivables by Caverion may result in disputes and legal proceedings. There is a risk that the client presents counter claims in these proceedings. The outcome of claims, disputes and legal proceedings is difficult to predict. Write-downs and provisions are booked following the applicable accounting rules.

In June 2018, Caverion reached a settlement for its part with the German Federal Office (FCO) in a cartel case that had been investigated by the authority since 2014. The investigation concerns several companies providing technical building services in Germany. Caverion Deutschland GmbH (and its predecessors) was found to have participated in anti-competitive practices between 2005 and 2013. According to the FCO's final decision issued on 3 July 2018, Caverion Deutschland GmbH was imposed a fine of EUR 40.8 million. There is a risk that civil claims may be presented against Caverion Deutschland GmbH in relation to this matter. It is not possible to evaluate the magnitude of the risk at this time. Caverion will disclose any relevant information on the potential civil law claims as required under the applicable regulations.

As part of Caverion's co-operation with the authorities in the cartel matter, the company identified activities between 2009 and 2011 that were likely to fulfil the criteria of corruption or other criminal commitment in one of its client projects executed in that time. Caverion has brought its findings to the attention of the authorities and supports them in further investigating the case. It is possible that these infringements will cause considerable damage to Caverion in terms of fines, civil claims as well as legal expenses. However, the magnitude of the potential damage cannot be assessed at the moment. Caverion is monitoring the situation and will disclose any relevant information as required under the applicable regulations.

Caverion has made significant efforts to promote compliance in order to avoid any infringements in the future. As part of the programme all employees must complete an e-learning module and further training is given across the organisation. All employees are required to comply with Caverion's Code of Conduct, which has a policy of zero tolerance on anti-competitive practices, corruption, bribery or any unlawful action.

Goodwill recognised on Caverion's balance sheet is not amortised, but it is tested annually for any impairment. The amount by which the carrying amount of goodwill exceeds the recoverable amount is recognised as an impairment loss through profit and loss. If negative changes take place in Caverion's result and growth development, this may lead to an impairment of goodwill, which may have an unfavourable effect on Caverion's result of operations and shareholders' equity.

Caverion's external loans are subject to a financial covenant based on the ratio of the Group's net debt to EBITDA. Breaching this covenant would give the lending parties the right to declare the loans to be immediately due and payable. It is possible that Caverion may need amendments to its financial covenant in the future. The level of the financial covenant ratio is continuously monitored and evaluated against actual and forecasted EBITDA and net debt figures.

Caverion's business typically involves granting guarantees to customers or other stakeholders, especially for large projects, e.g. for advance payments received, for performance of contractual obligations, and for defects during the warranty period. Such guarantees are typically granted by financial intermediaries on behalf of Caverion. There is no assurance that the company would have continuous access to sufficient guarantees from financial intermediaries at competitive terms or at all, and the absence of such guarantees could have an adverse effect on Caverion's business and financial situation. To manage this risk, Caverion's target is to maintain several guarantee facilities in the different countries where it operates.

There are risks related to the functionality, security and availability of the company's IT systems. Caverion has made significant investments in IT and system development. There is a risk that the expected functionalities and pay-back are not fully materialised. In 2019, Caverion is making a transition to a new IT vendor providing comprehensive IT outsourcing services. Such a transition always includes risks.

Financial risks have been described in more detail in the 2018 Financial Statements under Note 5.5.

RESOLUTIONS PASSED AT THE ANNUAL GENERAL MEETING

Caverion Corporation's Annual General Meeting, which was held in Helsinki on 25 March 2019, adopted the Financial Statements and the consolidated Financial Statements for the year 2018 and discharged the members of the Board of Directors and the President and CEO from liability. In addition, the Annual General Meeting resolved on the use of the profit shown on the balance sheet and the payment of dividend, the composition of members of the Board of Directors and their remuneration, the election of the auditor and its remuneration as well as authorised the Board of Directors to decide on the repurchase of the Company's own shares and/or acceptance as pledge of own shares as well as share issues.

The Annual General Meeting elected a Chairman, a Vice Chairman and five (5) ordinary members to the Board of Directors. Mats Paulsson was elected as the Chairman of the Board of Directors, Markus Ehrnrooth as the Vice Chairman and Jussi Aho, Joachim Hallengren, Antti Herlin, Thomas Hinnerskov and Anna Hyvönen as members of the Board of Directors for a term of office expiring at the end of the Annual General Meeting 2020. The stock exchange release on the resolutions passed at the Annual General Meeting is available on Caverion's website at http://www.caverion.com/about-us/media/releases.

The Board of Directors held its organisational meeting on 25 March 2019. At the meeting the Board decided on the composition of the Human Resources Committee and the Audit Committee. A description of the committees' tasks and charters are available on Caverion's website at www.caverion.com/investors - Corporate Governance.

DIVIDENDS AND DIVIDEND POLICY

The Annual General Meeting, held on 25 March 2019, approved the proposal of the Board of Directors according to which a dividend of EUR 0.05 per share will be paid from the distributable funds of the Company for the financial year 2018. The dividend will be paid to shareholders who on the record date of the dividend payment 27 March 2019 are recorded in the shareholders' register held by Euroclear Finland Ltd. The dividend was paid on 3 April 2019.

Caverion's dividend policy is to distribute as dividends at least 50 percent of the result for the year after taxes, however, taking profitability and leverage level into account. Even though there are no plans to amend this dividend policy, there is no guarantee that a dividend or capital redemption will actually be paid in the future, and also there is no guarantee of the amount of the dividend or return of capital to be paid for any given year.

SHARES AND SHAREHOLDERS

The Caverion Corporation is a public limited company organised under the laws of the Republic of Finland, incorporated on 30 June 2013. The company has a single series of shares, and each share entitles its holder to one vote at the General Meeting of the company and to an equal dividend. The company's shares have no nominal value.

Share capital and number of shares

The number of shares was 138,920,092 and the share capital was EUR 1,000,000 on 1 January 2019. Caverion held 3,264,451 treasury shares on 1 January 2019. At the end of the reporting period, the total number of shares in Caverion was 138,920,092. Caverion held 2,947,289 treasury shares on 30 June 2019, representing 2.12 percent of the total number of shares and voting rights. The number of shares outstanding was 135,972,803 at the end of June 2019.

In a stock exchange release on 7 February 2018, Caverion's Board of Directors announced the establishment of a new share-based incentive plan directed at the key employees of the Group ("Matching Share Plan 2018−2022"). The aim of the plan is to align the objectives of the shareholders and the key employees in order to increase the value of the company in the long-term, to encourage the key employees to personally invest in the company's shares, to retain them at the company, and to offer them a competitive reward plan that is based on acquiring, receiving and holding the company's shares. The prerequisite for participating in the Plan is that a key employee shall acquire company shares up to the number and in the manner determined by the Board of Directors. The plan participant may not participate in the Performance Share Plan simultaneously with participating in the Matching Share Plan. The rewards from the plan will be paid in four instalments, one instalment each in 2019, 2020, 2021 and 2022. However, the reward payment will be deferred, if a yield of the share has not reached the pre-set minimum yield level by the end of the matching period in question. More detailed information about the Matching Share Plan 2018−2022 and the related share issues and transfers was published in stock exchange releases on 7 February 2018, 19 February 2018, 1 March 2018 and 8 March 2018.

In the second quarter of 2019, the Board of Directors of Caverion Corporation decided on a directed share issue without consideration for the payment of the first reward instalment from Caverion's Matching Share Plan 2018– 2022. In the directed share issue without consideration, 293,540 Caverion Corporation shares held by the company were on 14 May 2019 conveyed to key employees included in the Matching Share Plan 2018–2022. The shares were delivered as a reward from the matching period 1 March 2018 – 28 February 2019. Prior to the directed share issue, Caverion held a total of 3,240,829 of its own shares, of which 2,947,289 own shares remained with the company after the directed share issue.

Caverion's Board of Directors approved the establishment of a new share-based long-term incentive plan for key employees of the Group in December 2018. The new plan is based on a performance share plan (PSP) structure. The Board approved at the same time the commencement of a new plan period 2019−2021 in the Restricted Share Plan (RSP) structure, a complementary share-based incentive structure for specific situations.

The potential share rewards under the first plan (PSP 2019−2021) within the new PSP structure will be paid in the spring 2022 provided that the performance targets set by the Board are achieved. PSP 2019−2021 may include a maximum of approximately 75 key employees of Caverion Group. However, the individuals who currently participate in Caverion's top management Matching Share Plan, including the members of Caverion's Group Management Board, are not included in this plan. The performance target KPI's are the relative total shareholder return of the Company's share and earnings per share. If all targets will be met, the share rewards based on PSP 2019−2021 will comprise a maximum of approximately 1.3 million Caverion shares (gross before the deduction of applicable taxes).

The Restricted Share Plan is based on a rolling plan structure originally announced on 18 December 2015 and the commencement of each new plan within the structure is conditional on a separate Board approval. Share allocations within the Restricted Share Plan will be made for individually selected key employees in specific situations. Each RSP plan consists of a three-year vesting period after which the allocated share rewards will be delivered to the participants provided that their employment with Caverion continues until the delivery of the share reward. The potential share rewards based on the Restricted Share Plans for 2016−2018, 2017−2019, 2018−2020 as well as 2019−2021 total a maximum of approximately 321,000 shares (gross before the deduction of applicable payroll tax). Of these plans, a maximum of approximately 16,000 shares will be delivered at the earliest in the spring of 2019, a maximum of approximately 85,000 shares in both the spring of 2020 and 2021 and a maximum of 135,000 shares in the spring of 2022. In the first quarter of 2019, the Board of Directors of Caverion Corporation decided on a directed share issue without payment for Caverion's Restricted Share Plan 2016–2018 reward payment. In the directed share issue without payment, 23,622 Caverion Corporation shares held by the company were on 28 February 2019 conveyed to a key person participating in the Restricted Share Plan.

Caverion's Board of Directors approved the previous rolling long-term share-based incentive plan for the Group's senior management and key employees in December 2015. The share-based incentive plan consisted of a Performance Share Plan (PSP) as the main structure, supported by a Restricted Share Plan as a complementary structure for specific situations. Both plans consisted of annually commencing individual plans, each lasting a three-year period. The Board of Directors decided to continue the said incentive structure in December 2016 and in December 2017. The targets set for the first and second Performance Share Plan 2016–2018 and 2017−2019 were not met, and no rewards thereof were paid. The targets set for the Performance Share Plan 2018−2020 were partially met and the respective share rewards will be delivered in February 2021.

More information on the incentive plans was released in stock exchange releases on 18 December 2015, 21 December 2016, 21 December 2017 and 18 December 2018.

Caverion has not made any decision regarding the issue of option rights or other special rights entitling to shares.

Authorisations of the Board of Directors

Authorising Caverion's Board of Directors to decide on the repurchase and/or on the acceptance as pledge of own shares of the company

The Annual General Meeting of Caverion Corporation, held on 25 March 2019, authorised the Board of Directors to decide on the repurchase and/or on the acceptance as pledge of the Company's own shares in accordance with the proposal by the Board of Directors. The number of own shares to be repurchased and/or on the acceptance as pledge shall not exceed 13,500,000 shares, which corresponds to approximately 9.7% of all the shares in the Company. The Company may use only unrestricted equity to repurchase own shares on the basis of the authorisation. Purchase of own shares may be made at a price formed in public trading on the date of the repurchase or otherwise at a price formed on the market. The Board of Directors resolves the manner in which own shares be repurchased. Repurchase of own shares may be made using, inter alia, derivatives. Repurchase of own shares may be made otherwise than in proportion to the share ownership of the shareholders (directed repurchase).

The authorisation cancels the authorisation given by the General Meeting on 26 March 2018 to decide on the repurchase and/or on the acceptance as pledge of the Company's own shares. The authorisation is effective until 25 September 2020. The Board of Directors has not used the authorisation during the period.

As part of the implementation of the Matching Share Plan, the company has accepted as a pledge the shares acquired by those key employees who took a loan from the company. As a result, Caverion had 709,090 Caverion Corporation shares as a pledge at the end of the reporting period on 30 June 2019.

Authorising Caverion's Board of Directors to decide on share issues

The Annual General Meeting of Caverion Corporation, held on 25 March 2019, authorised the Board of Directors to decide on share issues in accordance with the proposal by the Board of Directors. The number of shares to be issued may not exceed 13,500,000 shares, which corresponds to approximately 9.7% of all the shares in the Company. The Board of Directors decides on all the conditions of the issuance of shares. The authorisation concerns both the issuance of new shares as well as the transfer of treasury shares. The issuance of shares may be carried out in deviation from the shareholders' pre-emptive rights (directed issue). The authorisation can be used e.g. in order to strengthen the Company's capital structure, to broaden the Company's ownership, to be used as payment in corporate acquisitions or when the Company acquires assets relating to its business and as part of the Company's incentive programmes.

The authorisation cancels the authorisation given by the General Meeting on 26 March 2018 to decide on the issuance of shares. The authorisation is valid until 31 March 2020.

In a directed share issue without consideration, 293,540 Caverion Corporation shares held by the company were on 14 May 2019 conveyed to key employees included in the Matching Share Plan 2018–2022. The conveyance of shares through the directed share issue without consideration was based on the authorisation granted to the Board of Directors by the Annual General Meeting of Shareholders held on 25 March 2019. The shares were delivered as a reward from the matching period 1 March 2018 – 28 February 2019. The launch of the plan and its main terms and conditions were published in a stock exchange release on 7 February 2018.

Trading in shares

The opening price of Caverion's share was EUR 5.05 at the beginning of 2019. The closing rate on the last trading day of the review period on 28 June was EUR 6.89. The share price increased by 37 percent during January–June. The highest price of the share during the review period January–June was EUR 6.90, the lowest was EUR 4.85 and the average price was EUR 5.56. Share turnover on Nasdaq Helsinki in January–June amounted to 9.5 million shares. The value of share turnover was EUR 52.7 million (source: Nasdaq Helsinki).

Caverion's shares are also traded in other market places, such as Aquis, Cboe, POSIT Auction and Turquoise. During January–June, 2.7 million Caverion Corporation shares changed hands in alternative public market places, corresponding to approximately 16.9 percent of the total share trade. Of the alternative market places, Caverion shares changed hands particularly through Aquis and Cboe. Furthermore, during January–June, 3.7 million Caverion Corporation shares changed hands in OTC trading outside Nasdaq Helsinki, corresponding to approximately 22.9 percent of the total share trade (source: Fidessa Fragmentation Index).

The market capitalisation of the Caverion Corporation at the end of the review period was EUR 936.9 million. Market capitalisation has been calculated excluding the 2,947,289 shares held by the company as per 30 June 2019.

Number of shareholders and flagging notifications

At the end of June 2019, the number of registered shareholders in Caverion was 25,883 (3/2019: 26,358). At the end of June 2019, a total of 34.2 percent of the shares were owned by nominee-registered and non-Finnish investors (3/2019: 33.8%).

Updated lists of Caverion's largest shareholders and ownership structure by sector as per 30 June 2019, are available on Caverion's website at www.caverion.com/investors.

HALF-YEAR FINANCIAL REPORT 1 JANUARY – 30 JUNE 2019: FINANCIAL TABLES

Condensed consolidated income statement

	4-6/2019	4-6/2018	1-6/2019	1-6/2018	1-12/2018
EUR million	(IFRS 16)	(non IFRS 16)	(IFRS 16)	(non IFRS 16)	(non IFRS 16)
Revenue	512.3	564.8	1,026.7	1,091.6	2,204.1
Other operating income	0.8	0.1	1.3	1.2	4.1
Materials and supplies	-127.8	-148.8	-252.1	-278.2	-570.6
External services	-99.6	-105.2	-194.2	-200.5	-425.0
Employee benefit expenses	-218.6	-231.7	-439.2	-459.8	-892.9
Other operating expenses	-58.0	-110.8	-110.8	-176.1	-328.4
Share of results of associated companies			0.0	0.0	0.0
Depreciation, amortisation and
impairment	-16.9	-7.0	-34.2	-13.5	-27.1
Operating result	-7.7	-38.7	-2.4	-35.3	-35.9
% of revenue	-1.5	-6.9	-0.2	-3.2	-1.6

Financial income and expense, net	-2.2	-0.7	-3.4	-1.5	-7.9

Result before taxes	-9.9	-39.5	-5.9	-36.8	-43.9
% of revenue	-1.9	-7.0	-0.6	-3.4	-2.0
Income taxes	2.9	-0.3	1.8	-0.8	-4.3

Result for the period	-7.1	-39.7	-4.1	-37.6	-48.1
% of revenue	-1.4	-7.0	-0.4	-3.4	-2.2

Attributable to
Equity holders of the parent company	-7.1	-39.7	-4.1	-37.6	-48.2
Non-controlling interests	0.0		0.0	0.0	0.0
Earnings per share attributable to the equity holders of the parent company
Earnings per share, basic, EUR	-0.06	-0.32	-0.04	-0.31	-0.40
Diluted earnings per share, EUR	-0.06	-0.32	-0.04	-0.31	-0.40

Consolidated statement of comprehensive income

EUR million	4-6/2019	4-6/2018	1-6/2019	1-6/2018	1-12/2018
Result for the review period	-7.1	-39.7	-4.0	-37.6	-48.1
Other comprehensive income
Items that will not be reclassified to profit/loss
- Change in fair value of defined benefit pension plans	0.1	-0.4	-0.6	-0.8	0.4
-- Deferred tax					0.0
- Change in fair value of other investments	0.0	0.0	0.0	0.0	0.0
-- Deferred tax		-0.1		-0.2	-0.2
Items that may be reclassified subsequently to profit/loss
- Cash flow hedges	0.0	0.0	0.1	0.0	0.1
- Translation differences	-0.2	0.3	1.6	-0.2	2.6
Other comprehensive income, total	-0.2	-0.2	1.1	-1.1	2.9
Total comprehensive result	-7.2	-39.9	-2.9	-38.7	-45.2
Attributable to
Equity holders of the parent company	-7.2	-39.9	-3.0	-38.7	-45.3
Non-controlling interests	0.0	0.0	0.0	0.0	0.0

	Jun 30, 2019	Jun 30, 2018	Dec 31, 2018

















































Total equity and liabilities	1,186.6	1,092.3	1,024.5

Condensed consolidated statement of financial position

Working capital

	Jun 30, 2019	Jun 30, 2018	Dec 31, 2018
EUR million	(IFRS 16)	(non IFRS 16)	(non IFRS 16)
Inventories	17.2	18.4	16.9
Trade and POC receivables	502.2	529.5	518.9
Other current receivables	25.2	44.0	31.3
Trade and POC payables	-194.5	-207.4	-204.4
Other current liabilities	-234.5	-270.9	-234.8
Advances received	-196.5	-170.8	-182.6
Working capital	-80.8	-57.2	-54.6

Consolidated statement of changes in equity

	Equity attributable to owners of the parent
			Cumulative	Fair		Unrest ricted			Non
	Share	Retained	translation	value	Treasury	equity	Hybrid		controlling	Total
EUR million	capital	earnings	differences	reserve	shares	reserve	capital	Total	interest	equity
Equity on December 31, 2018	1.0	95.5	-5.5	-0.2	-3.2	66.0	100.0	253.6	0.4	254.0
Change in accounting principle, IFRS 16		0.1						0.1		0.1
Equity on January 1, 2019	1.0	95.7	-5.5	-0.2	-3.2	66.0	100.0	253.8	0.4	254.1
Comprehensive income
Result for the period		-4.1						-4.1	0.0	-4.0
Other comprehensive income:
Change in fair value of defined benefit pension plans		-0.6						-0.6		-0.6
-Deferred tax
Cash flow hedges				0.1				0.1		0.1
Change in fair value of Investments				0.0				0.0		0.0
-Deferred tax
Translation differences			1.6					1.6		1.6
Comprehensive income, total		-4.7	1.6	0.1				-3.0	0.0	-2.9
Dividend distribution		-6.8						-6.8	0.0	-6.8
Share-based payments		-0.9						-0.9		-0.9
Transfer of own shares		-0.1			0.1
Hybrid capital Repayment							-33.9	-33.9		-33.9
Hybrid capital interests and costs after taxes		-3.8						-3.8		-3.8
Disposal of subsidiaries		-0.2						-0.2		-0.2
Equity on June 30, 2019	1.0	79.1	-3.8	-0.1	-3.1	66.0	66.1	205.1	0.4	205.5

						Unrest
	Share	Retained	Cumulative translation	Fair value	Treasury	ricted equity	Hybrid		Non controlling	Total
EUR million	capital	earnings	differences	reserve	shares	reserve	capital	Total	interest	equity
Equity on December 31,
2017	1.0	146.0	-8.0	-0.5	-3.2		100.0	235.3	0.4	235.6
Change in accounting principle, IFRS 9		-0.8		0.0				-0.8		-0.8
Equity on January 1, 2018	1.0	145.2	-8.0	-0.5	-3.2		100.0	234.4	0.4	234.8
Comprehensive income
Result for the period		-37.6						-37.6	0.0	-37.6
Other comprehensive income:
Change in fair value of
defined benefit pension		-0.8						-0.8		-0.8
Cash flow hedges				0.0				0.0		0.0
Change in fair value of
available-for-sale
assets		-0.4		0.4				0.0		0.0
-Deferred tax				-0.2				-0.2		-0.2
Translation differences			-0.2					-0.2		-0.2
Comprehensive income, total		-38.8	-0.2	0.3				-38.7	0.0	-38.7
Dividend distribution									0.0	0.0
Share issue						60.0		60.0		60.0
Share issue costs after
taxes						-0.7		-0.7		-0.7
Share-based payments		1.1						1.1		1.1
Share subscriptions						6.7		6.7		6.7
Hybrid capital interests after taxes		-3.7						-3.7		-3.7
Equity on June 30, 2018	1.0	103.8	-8.2	-0.2	-3.2	66.0	100.0	259.2	0.4	259.6

	Equity attributable to owners of the parent
						Unrest
	Share	Retained	Cumulative translation	Fair value	Treasury	ricted equity	Hybrid		Non controlling	Total
EUR million	capital	earnings	differences	reserve	shares	reserve	capital	Total	interest	equity
Equity on December 31,
2017	1.0	146.0	-8.0	-0.5	-3.2		100.0	235.3	0.4	235.6
Change in accounting principle, IFRS 9		-0.8						-0.8		-0.8
Equity on January 1, 2018	1.0	145.2	-8.0	-0.5	-3.2		100.0	234.4	0.4	234.8
Comprehensive income
Result for the period		-48.2						-48.2	0.0	-48.2
Other comprehensive income:
Change in fair value of
defined benefit pension plans		0.4						0.4		0.4
-Deferred tax		0.0						0.0		0.0
Cash flow hedges				0.1				0.1		0.1
Change in fair value of investments		-0.3		0.3				0.0		0.0
-Deferred tax				-0.2				-0.2		-0.2
Translation differences			2.6					2.6		2.6
Comprehensive income, total		-48.1	2.6	0.3				-45.3	0.0	-45.2
Dividend distribution									0.0	0.0
Share issue						60.0		60.0		60.0
Share issue costs after
taxes						-0.7		-0.7		-0.7
Share-based payments		2.0						2.0		2.0
Share subscriptions						6.7		6.7		6.7
Hybrid capital interests after taxes		-3.7						-3.7		-3.7
Equity on December 31, 2018	1.0	95.5	-5.5	-0.2	-3.2	66.0	100.0	253.6	0.4	254.0

Condensed consolidated statement of cash flows

	4-6/2019	4-6/2018	1-6/2019	1-6/2018	1-12/2018
EUR million	(IFRS 16)	(non IFRS 16)	(IFRS 16)	(non IFRS 16)	(non IFRS 16)
Cash flows from operating activities
Result for the period	-7.1	-39.7	-4.1	-37.6	-48.1
Adjustments to result	19.0	7.8	39.1	13.9	47.5
Change in working capital	17.1	17.0	24.2	28.5	22.3
Operating cash flow before financial and
tax items	29.1	-15.0	59.2	4.9	21.6
Financial items, net	-1.3	-1.8	-4.7	-0.6	-1.5
Taxes paid	-0.6	2.2	-1.3	-1.8	-1.2
Net cash from operating activities	27.3	-14.6	53.2	2.4	18.9

Cash flows from investing activities
Acquisition of subsidiaries and businesses,
net of cash Disposal of subsidiaries and businesses, net	-0.6		-1.2	-0.4	-4.6
of cash	0.0	-1.2	1.6	-1.2	-1.8
Capital expenditure and other investments,
net	-2.8	-3.2	-6.2	-6.5	-11.1
Net cash used in investing activities	-3.4	-4.4	-5.8	-8.1	-17.5
Cash flow after investing activities	23.9	-19.0	47.4	-5.7	1.4

Cash flow from financing activities
Change in loan receivables, net		-0.3	-0.3	-4.2	-3.1
Change in current liabilities, net				-5.0	-5.0
Proceeds from borrowings			125.0
Repayments of borrowings		-11.0	-53.3	-14.3	-28.7
Repayments of lease liabilities	-11.3	-1.1	-22.8	-1.7	-2.2
Share issue		60.0		60.0	60.0
Share issue costs					-0.8
Share subscriptions				6.7	6.7
Hybrid capital repayment			-33.9
Hybrid capital costs and interests	-3.1	-4.6	-4.7	-4.6	-4.6
Dividends paid and other distribution of
assets	-6.8		-6.8	0.0	0.0
Net cash used in financing activities	-21.1	42.9	3.1	36.8	22.2

Change in cash and cash equivalents	2.8	23.9	50.4	31.2	23.6
Cash and cash equivalents at the beginning of the period	101.3	37.2	51.2	29.2	29.2
Change in the foreign exchange rates	-0.4	1.1	2.1	1.8	-1.7
Cash and cash equivalents at the end of
the period	103.6	62.2	103.6	62.2	51.2

Free cash flow

	4-6/2019	4-6/2018	1-6/2019	1-6/2018	1-12/2018
		(non IFRS		(non IFRS	(non IFRS
EUR million	(IFRS 16)	16)	(IFRS 16)	16)	16)
Operating cash flow before financial and tax
items	29.1	-15.0	59.2	4.9	21.6
Taxes paid	-0.6	2.2	-1.3	-1.8	-1.2
Net cash used in investing activities	-3.4	-4.4	-5.8	-8.1	-17.5
Free cash flow	25.2	-17.2	52.1	-5.1	2.9

Notes to the Half-year Financial Report

1 Accounting principles

Caverion Corporation's Half-year Financial Report for January 1 – June 30, 2019 has been prepared in accordance with IAS 34, 'Interim Financial Reporting'. Caverion has applied the same accounting principles in the preparation of the Half-year Financial Report as in its Financial Statements for 2018, except for the implementation of the new IFRS 16 Leases standard.

The information presented in this Half-year Financial Report has not been audited.

In the Half-year Financial Report the figures are presented in million euros subject to rounding, which may cause some rounding inaccuracies in column and total sums.

Caverion has adopted the IFRS 16 Leases standard as of the effective date of 1 January 2019. The Group applied the modified retrospective approach and did not restate comparative amounts for the year prior to first adoption.

The new model requires the lessee to recognise almost all lease contracts on the balance sheet. Whereas, under the previous guidance in IAS 17, Leases, a lessee had to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet), the new model requires the lessee to recognise an asset (the right to use the leased item) and a respective financial liability to pay rentals. The only exceptions are short-term and low-value leases, which Caverion has utilised and the lease expense will be recognised in income statement. The new IFRS 16 standard has a significant impact on the Group's balance sheet and related key ratios, such as the equity ratio and gearing.

The standard has also an impact on the Group's income statement. The impacted operating lease agreements are booked in the balance sheet and a lease cost is no longer presented for these lease agreements. Instead, the depreciation of the right-of-use asset and interest cost associated with the lease liability are booked into the income statement. This results in an estimated annual increase of around 2 percentage points on the Group's EBITDA margin. The effect to profit for the period is insignificant. The adoption of the new IFRS 16 standard also impacts the presentation of the consolidated statement of cash flows. Operating cash flow before financial and tax items increases with the impacted lease payments and Cash flow from financing activities and Interests paid decrease, respectively.

Relevant accounting policies and key impacts of IFRS 16:

Caverion measures the right-of-use asset at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognised before the date of the initial application. The cumulative effect of the initial application was recognised as an adjustment to the opening balance of the equity as of 1 January 2019. The change increased assets by EUR 141.6 million due to the recognition of right-of-use assets, of which EUR 89.0 million was related to real estate contracts, EUR 51.2 million to car leases and EUR 1.3 million to other assets. Prepaid lease payments resulted to an adjustment of EUR 0.1 million to the opening balance of the equity. After the initial measurement, the right-of-use asset is measured at cost less accumulated depreciation and accumulated impairment.
Caverion has recognised a lease liability, measured at the present value of the remaining lease payments, discounted by using an estimate of the lessee's incremental borrowing rate at the date of initial application. The weighted average incremental borrowing rate at the date of implementation amounted to 3.8 percent. Lease liabilities totalled EUR 141.5 million at the date of implementation.
Since the interest implicit in the lease is not available, a management estimate was used to determine the incremental borrowing rate. The components of the rate are the following: the currency-specific reference rate and the interest margin that is derived from each individual company's risk assessment, adjusted to reflect the maturity of the lease contract.
Caverion does not recognise a IFRS 16 lease liability for leases for which the underlying asset is not material. The assessment of whether the underlying asset is material and is within the scope or excluded from the recognition requirements of IFRS 16 is based on the concept of materiality in the Conceptual Framework and IAS 1. Caverion recognises lease payments associated with such leases as an expense on a straight-line basis, similar to previous IAS 17 accounting for operating leases.
Caverion does not recognise short-term leases in the balance sheet. Short-term leases are lease contracts that have a lease term of 12 months or less, and which do not include an option to purchase the

underlying asset. Caverion has analysed lease contracts where the lease term is not fixed but both the lessor and lessee have an option to terminate the lease within 1-12 months' notice. For some contracts the reasonably certain lease period affecting the balance sheet recognition according to IFRS 16 differs from the non-cancellable period implied in IAS 17. In transition the assessment of a reasonably certain lease term compared to a non-cancellable period according to old IAS 17 increased the right-to-use assets and lease liabilities by about EUR 9 million compared to the off-balance sheet liability reported of those contracts. If the termination of the short-term contract is practically realistic within the time of the notice (1-12 months), those contracts have been excluded from the lease liability.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components and instead account for a lease and its associated non-lease components as a single arrangement. Caverion has used the practical expedient for car leases that include service components. In transition, this increased the lease liability by about EUR 7 million compared to the off-balance sheet liability reported according to IAS 17 of these items. On the other hand, the non-lease component from real estate lease contracts has been separated and the non-lease components have been booked as expenses.
IFRS 16 did not substantially change how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently. Under IFRS 16, an intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use assets arising from the head lease (and not by reference to the underlying asset as was the case under IAS 17). Because of this change, Caverion has not reclassified any of its sublease agreements as finance leases as of 1 January 2019.

EUR million	1 Jan 2019
Operating lease commitments at 31 December 2018	139.5

Less:
Commitments related to short-term leases	-2.4
Commitments related to low value assets	-1.2

Weighted average incremental borrowing rate as at 1 January 2019	3.8%
Discounted operating lease liabilities	124.9
Liabilities additionally recognised based on the initial application of IFRS 16	15.8
Commitments relating to leases previously classified as finance leases	0.9
Lease liabilities at 1 January 2019	141.5

Reconciliation to the operating lease commitments

Consolidated statement of financial position, IFRS 16 impact to 2019 opening balance

		IFRS 16
EUR million	Dec 31, 2018	impact	Jan 1, 2019
Assets

Non-current assets
Property plant and equipment	15.9	-0.9	15.0
Right-of-use assets		141.6	141.6
Goodwill	334.4		334.4
Other intangible assets	34.6		34.6
Shares in associated companies	0.1		0.1
Other investments	1.2		1.2
Other receivables	6.4		6.4
Deferred tax assets	9.9		9.9

Current assets
Inventories	16.9		16.9
Trade and POC receivables	518.9		518.9
Other receivables	31.7		31.7
Income tax receivables	3.2		3.2
Cash and cash equivalents	51.2		51.2
Total assets	1,024.5	140.7	1,165.1

Equity and liabilities

Equity	254.0	0.1	254.1

Non-current liabilities
Deferred tax liabilities	33.1		33.1
Pension liabilities	43.9		43.9
Provisions	6.9		6.9
Interest-bearing debts	30.9	-0.4	30.5
Lease liabilities		100.0	100.0
Other liabilities	0.2		0.2

Current liabilities
Advances received	182.6		182.6
Trade and other payables	415.9		415.9
Income tax liabilities	5.3		5.3
Provisions	24.6		24.6
Interest-bearing debts	27.2	-0.5	26.7
Lease liabilities		41.5	41.5
Total equity and liabilities	1,024.5	140.7	1,165.1

ESMA (European Securities and Markets Authority) issued guidelines regarding Alternative Performance Measures ("APM") to be implemented at the latest during the second quarter of 2016. Caverion presents APMs to improve the analysis of business and financial performance and to enhance the comparability between reporting periods. APMs presented in this report should not be considered as a substitute for measures of performance in accordance with the IFRS. Calculation of key figures is presented on page 30.

2 Key figures

	6/2019	6/2018	12/2018
	(IFRS 16)	(non IFRS 16)	(non IFRS 16)
Revenue, EUR million	1,026.7	1,091.6	2,204.1
EBITDA, EUR million	31.7	-21.8	-8.8
EBITDA margin, %	3.1	-2.0	-0.4
Adjusted EBITDA, EUR million	37.1	23.9	53.4
Adjusted EBITDA margin, %	3.6	2.2	2.4
Operating profit, EUR million	-2.4	-35.3	-35.9
Operating profit margin, %	-0.2	-3.2	-1.6
Result before taxes, EUR million	-5.9	-36.8	-43.9
% of revenue	-0.6	-3.4	-2.0
Result for the review period, EUR million	-4.1	-37.6	-48.1
% of revenue	-0.4	-3.4	-2.2

Earnings per share, basic, EUR	-0.04	-0.31	-0.40
Earnings per share, diluted, EUR	-0.04	-0.31	-0.40
Equity per share, EUR	1.5	1.9	1.9

Equity ratio, %	20.8	28.2	30.2
Interest-bearing net debt, EUR million	158.9	10.2	6.9
Gearing ratio, %	77.3	3.9	2.7
Total assets, EUR million	1,186.6	1,092.3	1,024.5
Operating cash flow before financial and tax items, EUR million	59.2	4.9	21.6
Working capital, EUR million	-80.8	-57.2	-54.6
Gross capital expenditures, EUR million	8.3	7.4	17.5
% of revenue	0.8	0.7	0.8
Order backlog, EUR million	1,704.7	1,596.8	1,494.3
Personnel, average for the period	14,663	15,835	15,672

Number of outstanding shares at the end of the period
(thousands)	135,973	135,656	135,656
Average number of shares (thousands)	135,750	126,469	131,087

3 Financial development by quarter

	4-6/2019	1-3/2019	10- 12/2018	7-9/2018	4-6/2018	1-3/2018
EUR million	(IFRS 16)	(IFRS 16)	(non IFRS 16)	(non IFRS 16)	(non IFRS 16)	(non IFRS 16)
Revenue	512.3	514.4	587.6	524.9	564.8	526.8
EBITDA	9.1	22.6	-1.3	14.3	-31.7	9.9
EBITDA margin, %	1.8	4.4	-0.2	2.7	-5.6	1.9
Adjusted EBITDA	10.0	27.1	11.0	18.5	12.9	10.9
Adjusted EBITDA margin, %	2.0	5.3	1.9	3.5	2.3	2.1
Operating profit	-7.7	5.3	-8.7	8.1	-38.7	3.4
Operating profit margin, %	-1.5	1.0	-1.5	1.5	-6.9	0.7

	10-
	4-6/2019	1-3/2019	12/2018 (non IFRS	7-9/2018 (non IFRS	4-6/2018 (non IFRS	1-3/2018 (non IFRS
	(IFRS 16)	(IFRS 16)	16)	16)	16)	16)
Earnings per share, basic, EUR	-0.06	0.01	-0.12	0.03	-0.32	0.01
Earnings per share, diluted, EUR	-0.06	0.01	-0.12	0.03	-0.32	0.01
Equity per share, EUR	1.5	1.6	1.9	2.0	1.9	1.9

Equity ratio, %	20.8	21.3	30.2	30.9	28.2	27.7
Interest-bearing net debt, EUR
million	158.9	162.7	6.9	50.2	10.2	47.2
Gearing ratio, %	77.3	75.1	2.7	18.9	3.9	19.4
Total assets, EUR million	1,186.6	1,205.5	1,024.5	1,037.5	1,092.3	1,048.5
Operating cash flow before
financial and tax items, EUR
million	29.1	30.1	53.7	-37.0	-15.0	19.8
Working capital, EUR million	-80.8	-60.4	-54.6	-3.2	-57.2	-41.4
Gross capital expenditures, EUR
million	3.8	4.4	9.2	0.9	3.2	4.2
% of revenue	0.7	0.9	1.6	0.2	0.6	0.8
Order backlog, EUR million	1,704.7	1,579.7	1,494.3	1,552.3	1,596.8	1,540.0
Personnel at the end of the
period	14,681	14,489	14,950	15,556	15,751	15,687

Number of outstanding shares at
end of period (thousands)	135,973	135,679	135,656	135,656	135,656	126,132
Average number of shares
(thousands)	135,834	135,664	135,656	135,656	127,477	125,438

4 Calculation of key figures

Key figures on financial performance

	(Equity + non-controlling interest) x 100
Equity ratio (%) =	Total assets - advances received
	(Interest-bearing liabilities - cash and cash equivalents) x 100
Gearing ratio (%) =	Shareholders' equity + non-controlling interest
Interest-bearing net debt =	Interest-bearing liabilities - cash and cash equivalents
Working capital =	Inventories + trade and POC receivables + other current receivables - trade and POC payables - other current payables - advances received - current provisions
Free cash flow =	Operating cash flow before financial and tax items – taxes paid – net cash used in investing activities
Share-related key figures
	Result for the period (attributable for equity holders)
Earnings / share, basic =	- hybrid capital expenses and accrued unrecognised interests after tax Weighted average number of shares outstanding during the period
	Result for the period (attributable for equity holders)
Earnings /share, diluted=	- hybrid capital expenses and accrued unrecognised interests after tax
	Weighted average dilution adjusted number of shares outstanding during the period
	Shareholders' equity
Equity / share =	Number of outstanding shares at the end of the period
Alternative performance measures (APMs) reported by Caverion
EBITDA =	Operating profit (EBIT) + depreciation, amortisation and impairment
Adjusted EBITDA =	EBITDA before items affecting comparability (IAC)

Items affecting comparability (IAC) in 2019 are material items or transactions, which are relevant for understanding the financial performance of Caverion when comparing the profit of the current period with that of the previous periods. These items can include (1) capital gains and/or losses and transaction costs related to divestments and acquisitions; (2) write-downs, expenses and/or income from separately identified major risk projects; (3) restructuring expenses and (4) other items that according to Caverion management's assessment are not related to normal business operations. In 2018, major risk projects included three completed Large Projects from Industrial Solutions, the financial effects of which were reported under category (2). The German anti-trust fine and related legal and other costs were reported under category (4). In 2019, major risk projects only include one risk project in Germany reported under category (2).

5 Related party transactions

Caverion announced on 7 February 2018 in a stock exchange release the establishment of a new share-based incentive plan directed for the key employees of the Group ("Matching Share Plan 2018−2022"). The company provided the participants a possibility to finance the acquisition of the company's shares through an interestbearing loan from the company, which some of the participants utilised. In the end of June 2019 the total outstanding amount of these loans amounted approximately to EUR 4.5 million. The loans will be repaid in full on 31 December 2023, at the latest. Company shares have been pledged as a security for the loans.

6 Leases

Set out below are the carrying amounts of the Group's right-of-use assets and movements during the period.

	Right-of-use assets
EUR million	Buildings and structures	Cars	Other assets	Total
1 January 2019	89.0	51.2	1.3	141.6
Translation differences	0.0	0.0	0.0	0.1
Additions	9.2	9.5	0.2	18.8
Disposals and business divestitures	-1.9	-0.4	0.0	-2.4
Depreciation	-11.6	-11.9	-0.4	-23.9
30 June 2019	84.7	48.4	1.1	134.2

The Group recognised rent expenses from short-term lease liabilities of EUR 1.4 million, leases of low-value assets of EUR 0.2 million and variable lease payments of EUR 5.7 million in January-June.

7 Financial risk management

Caverion's main financial risks are the liquidity risk, credit risk as well as market risks including the foreign exchange and interest rate risk. The objectives and principles of financial risk management are defined in the Treasury Policy approved by the Board of Directors. Financial risk management is carried out by Group Treasury in co-operation with the Group's subsidiaries.

The objective of capital management in Caverion Group is to maintain an optimal capital structure, maximise the return on the respective capital employed and to minimise the cost of capital within the limits and principles stated in the Treasury Policy. The capital structure is modified primarily by directing investments and working capital employed.

No significant changes have been made to the Group's financial risk management principles in the reporting period. Further information is presented in Group's 2018 financial statement in note 5.5 Financial risk management.

Caverion's external loans are subject to a financial covenant based on the ratio of the Group's net debt to EBITDA. The covenant ratio is continuously monitored and evaluated against actual and forecasted EBITDA and net debt figures.

The table below presents the maturity structure of interest-bearing liabilities. Interest-bearing borrowings are based on contractual maturities of liabilities excluding interest payments. Lease liabilities are presented based on discounted present value of remaining lease payments. Cash flows of foreign-denominated liabilities are translated into the euro at the reporting date.

EUR million	2019	2020	2021	2022	2023->	Total
Interest-bearing
borrowings	3.3			50.0	75.5	128.8
Lease liabilities	19.3	30.2	28.4	19.5	36.9	134.3
Total	22.7	30.2	28.4	69.5	112.5	263.2

8 Financial liabilities and net debt

	Jun 30, 2019	Jun 30, 2018	Dec 31, 2018
EUR million	Carrying amount	Carrying amount	Carrying amount
Non-current liabilities
Senior bonds	74.6
Loans from financial institutions	49.8	39.9	30.0
Pension loans		3.3
Other financial loans	0.5	0.5	0.5
Finance lease liabilities		0.4	0.4
Lease liabilities	93.9
Total non-current interest-bearing liabilities	218.9	44.2	30.9
Current liabilities
Loans from financial institutions		20.0	20.0
Pension loans	3.3	7.7	6.7
Other financial loans	0.0		0.0
Finance lease liabilities		0.6	0.5
Lease liabilities	40.4
Total current interest-bearing liabilities	43.7	28.3	27.2
Total interest-bearing liabilities	262.6	72.4	58.1
Total interest-bearing liabilities (excluding IFRS 16 lease liabilities)	128.3	72.4	58.1
Cash and cash equivalents	103.6	62.2	51.2
Net debt	158.9	10.2	6.9
Net debt excluding IFRS 16 lease liabilities	24.7	10.2	6.9

The carrying amounts of all financial assets and liabilities are reasonably close to their fair values.

Derivative instruments

Nominal amounts
EUR million	Jun 30, 2019	Jun 30, 2018	Dec 31, 2018
Interest rate derivatives		40.0	30.0
Foreign exchange forwards	68.5	76.0	88.6

Fair values

EUR million	Jun 30, 2019	Jun 30, 2018	Dec 31, 2018
Interest rate derivatives
positive fair value
negative fair value		-0.2	-0.1
Foreign exchange forwards
positive fair value	0.1	0.2	0.3
negative fair value	-0.3	-0.3	-1.1

The fair values of the derivative instruments have been defined as follows: The fair values of foreign exchange forward agreements have been defined by using market prices on the closing day. The fair values of interest rate swaps are based on discounted cash flows.

9 Commitments and contingent liabilities

EUR million	Jun 30, 2019	Jun 30, 2018	Dec 31, 2018
Guarantees given on behalf of associated
companies	0.0	0.2	0.0
Parent company's guarantees on behalf of its
subsidiaries	415.3	444.4	435.3
Other commitments
- Operating leases		152.7	139.5
- Other contingent liabilities	0.2	0.2	0.2
Accrued unrecognised interest on hybrid bond	0.1	0.2	2.5

Entities participating in the demerger are jointly and severally responsible for the liabilities of the demerging entity which have been generated before the registration of the demerger. As a consequence, a secondary liability up to the allocated net asset value was generated to Caverion Corporation, incorporated due to the partial demerger of YIT Corporation, for those liabilities that were generated before the registration of the demerger and remain with YIT Corporation after the demerger. Caverion Corporation has a secondary liability relating to the Group guarantees which remain with YIT Corporation after the demerger. These Group guarantees amounted to EUR 30.7 million at the end of June 2019.

The short-term risks and uncertainties relating to the operations have been described above under "Short-term risks and uncertainties". It is possible that especially the infringements in compliance may cause considerable damage to Caverion in terms of fines, civil claims as well as legal expenses. However, the magnitude of the potential damage cannot be assessed at the moment.

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Caverion Oyj

3260_ir_2019-07-24_0c8991c3-d1e3-4ba7-a73d-293edf6e8cce.pdf

Caverion Corporation's Half-year Financial Report for January 1 – June 30, 2019

April 1 – June 30, 2019

January 1 – June 30, 2019

KEY FIGURES

Ari Lehtoranta, President and CEO:

OUTLOOK FOR 2019

Market outlook for Caverion's services and solutions

Services

Projects

Guidance for 2019

INFORMATION SESSION, WEBCAST AND CONFERENCE CALL

Financial information to be published in 2019

CAVERION CORPORATION

For further information, please contact:

GROUP FINANCIAL DEVELOPMEN T

Key Figures

Operating environment in the second quarter and during the first half of 2019

Services

Projects

Estimated Projects business risks for 2019

Order backlog

Revenue

April–June

January–June

Distribution of revenue by Division and Business Unit

Profitability

EBITDA

April–June

January–June

Operating profit

April–June

January–June

Result before taxes, result for the period and earnings per share

Capital expenditure, acquisitions and disposals

Cash flow, working capital and financing

Changes in external financial reporting in 2019

PERSONNEL

Changes in Caverion's Group Management Board and organisation structure

SIGNIFICANT SHORT-TERM RISKS AND UNCERTAINTIES

RESOLUTIONS PASSED AT THE ANNUAL GENERAL MEETING

DIVIDENDS AND DIVIDEND POLICY

SHARES AND SHAREHOLDERS

Share capital and number of shares

Authorisations of the Board of Directors

Authorising Caverion's Board of Directors to decide on the repurchase and/or on the acceptance as pledge of own shares of the company

Authorising Caverion's Board of Directors to decide on share issues

Trading in shares

Number of shareholders and flagging notifications

HALF-YEAR FINANCIAL REPORT 1 JANUARY – 30 JUNE 2019: FINANCIAL TABLES

Condensed consolidated income statement

Consolidated statement of comprehensive income

Condensed consolidated statement of financial position

Working capital

Consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Free cash flow

Notes to the Half-year Financial Report

1 Accounting principles

Reconciliation to the operating lease commitments

Consolidated statement of financial position, IFRS 16 impact to 2019 opening balance

2 Key figures

3 Financial development by quarter

4 Calculation of key figures

5 Related party transactions

6 Leases

7 Financial risk management

8 Financial liabilities and net debt

Derivative instruments

9 Commitments and contingent liabilities

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