CAPITAL STRUCTURE STRENGTHENED CONSIDERABLY, OUTLOOK REMAINS POSITIVE

Delete Group Oyj Stock Exchange Release 14 May 2021 at 2.00 p.m. (EEST)

DELETE GROUP OYJ                                                 

Interim Review January–March 2021 (IFRS, unaudited)

Demolition Services is reported in this report in accordance with IFRS 5 “Assets Held for Sale and Discontinued Operations” and is not included in the financials for continuing operations. More information is in the notes section.

KEY POINTS: JANUARY–MARCH 2021

• Net sales decreased by 5% to EUR 22.6 (Q1 2020: 23.7) million
• EBITDA decreased by EUR 0.3 million to EUR -0.8 (-0.5) million
• EBIT decreased by EUR 0.3 million to EUR -4.0 (-3.7) million
• Operative cash flow increased by EUR 2.0 million to EUR 3.2 (1.2) million
• Remaining Demolition Services business was divested in January 2021
• Group equity increased from year end 2020 by EUR 26.4 million to EUR 24.5 million
• Net debt decreased from year end 2020 by EUR 39.7 million to EUR 78.6 million (123.7)

KEY FIGURES

Post emergency services and firestop installation services have been reclassified from Assets held for sale to continuing operations (Cleaning Services) in 2020. Comparative 2020 financials in the table above have been reclassified accordingly.

Information about the formulas and Alternative Performance Measures are presented in the notes section of this Interim Review. All figures presented are statutory unless stated otherwise.

OUTLOOK FOR 2021 (UNCHANGED)

The demand for Cleaning Services and Recycling Services are expected to gradually recover in 2021. The Group’s efficiency and productivity are expected to improve compared to the previous year.

Delete Group’s continued operations’ operating profit is expected to improve in 2021.

Due to the COVID-19 pandemic, the outlook contains more uncertainty than usual and is based on the assumption that there are no material changes in the operating environment or scheduled work postponements or cancellations due to the pandemic.

TOMMI KAJASOJA, CEO OF DELETE GROUP:

“The first quarter, as always, was a slow period for our businesses. I am reasonably satisfied with our performance given the additional challenges we faced this year from the continuing coronavirus pandemic market conditions and the harsher than usual winter conditions. With the winter passing in late March, we saw some good development in services demand levels and are preparing for an active high season in the second quarter despite the continuing coronavirus pandemic related challenges. We were able to operate relatively efficiently through a tough period, although some room for improvements remains. We also imposed temporary layoffs to manage the situation with low demand during the winter period.

In the first quarter, we completed two key efforts, with partially overlapping purposes, when we sold the remaining Demolition Services business in Finland and restructured our capital structure. As a result, we are now aligned to execute our strategy of becoming a focused and leading environmental services provider in the Nordic countries, with a lower exposure to project business and a considerably stronger balance sheet. I am very pleased with the cooperation of different stakeholders on this important matter, forming a sustainable foundation for Delete’s future.

In the first quarter, net sales of Cleaning Services declined by 10% due to a lower level of daily assignments activity than in the previous year. The decline was mainly due to the continuing coronavirus pandemic, but also the harsh winter. Responding to the lower demand, we managed to plan and execute resourcing on a satisfactory level.

Recycling Services’ net sales grew by 1% in the first quarter despite the continuing supressed market, driven by new customers and expansion of offering in waste trading. The performance remained at a good level in Recycling Services and resulted in EBIT margin improving to 6% (1%). This was enabled by production improvements implemented last year. Our recycling plants are currently in good operational shape and production processes are functioning well, setting a good foundation for  continued enhanced performance in 2021.

We will continue to enforce tight cost and cash flow controls and prepare ourselves for quick manoeuvring with health & safety as well as efficiency aspects in mind, should pandemic related issues interfere with the planned 2021 first half assignments. We will continue to follow the health & safety precautions every day, protecting not only our employees but also our customers and partners with whom we are in contact. Throughout the pandemic, we have sustained a fully operational team with the ability to execute all tasks as usual.

What makes me especially excited is our continuous efforts for work safety, environment and sustainability, which continue to pay off. We have just recently excelled in a broad HSEQ audit executed jointly by several of our large customers,  achieving high ratings. This proves we are on the right track when creating more functional and cleaner society.”

OPERATING ENVIRONMENT

Cleaning services

The overall demand for cleaning services has to some degree been impacted by the coronavirus pandemic, but the underlying long-term core demand is relatively resilient and stable. Customers continue to demand capabilities to handle increasingly complex assignments with high-quality environmental, health & safety standards, which favours large professional players like Delete Group.

Recycling services

Increasing environmental awareness continues to drive improvements and new regulations, such as EU’s 70% recycling target by 2020 and the landfill ban on construction and demolition waste. Regulatory development in the EU Circular Economy Action plan and national legislation as well as generally increasing sustainability awareness continue to support the growing demand for recycling services. The market demand for recycled fuel (REF) has continued at a low but stable level and is expected to develop favourably through 2021.

NET SALES

In the first quarter, Delete Group’s net sales of continuing operations were EUR 22.6 (23.7) million, representing a year-on-year decline of 5%, with the effects of the coronavirus pandemic still apparent in 2021.

As usual, net sales of Cleaning Services were low during the winter period, EUR 17.5 (19.3) million, but declining by 10% mainly due to coronavirus pandemic related general demand decline and to some degree also due to the harsh winter, impeding outdoor services more than usual. After the snowy conditions eased up gradually in March, the activity levels improved considerably, and the first high season shut-down preparations commenced.

Recycling Services’ net sales grew by 1% to EUR 5.8 (5.8) million despite the continuing suppressed coronavirus driven market, enabled by new customers gained and the expansion of services offering in waste trading.

NET SALES BY SEGMENT

Post emergency services and firestop installation services have been reclassified from Demolition Services to Cleaning Services in 2020. Comparative 2020 sales have been reclassified accordingly.

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the first quarter of 2021 declined by EUR 0.3 million from the previous year to EUR -3.5 (-3.2) million. The adverse volume effect of declined sales was the main reason for the decline, while the field productivity was on a satisfactory level, especially given the harsher than normal winter conditions causing some delivery cost overruns and even work stoppages at sites.

In the first quarter, Cleaning Services’ EBIT-% declined to -12% (-8%), adversely impacted by challenging winter conditions affecting field productivity and sales mix, with a higher portion of low margin services, such as snow plowing services.

Recycling Services’ performance continued at an improved level in the first quarter with EBIT-% of 6% (1%) on the back of production efficiency improvements implemented during 2020 and with a stabilising REF market and improved production controls.

Administration was burdened with considerable amount of non-recurring costs, mainly related to the divestment of Demolition Services business and capital structure restructuring.

EBITDA BY SEGMENT

EBIT BY SEGMENT

Post emergency services and firestop installation services have been reclassified from Demolition Services to Cleaning Services in 2020. Comparative 2020 profitability has been reclassified accordingly.

In January–March, net financial expenses amounted to EUR 22.2 (-3.5) million, favourably affected by the EUR 24.8 million write-down of the nominal value of senior secured notes. Gross financial expenses were EUR -2.6 (-3.6) million. The decrease was mainly driven by significantly lowered interest-bearing debt.

In January–March, profit before taxes amounted to EUR 18.2 (-7.2) million, affected favourably by the notes write-down. In January–March, net result for the financial period for continuing operations amounted to EUR 18.1 (-7.4) million.

In January–March, net result for the financial period including assets held for sale amounted to EUR 16.3 (-7.7) million.

FINANCING AND FINANCIAL POSITION

In January–March, cash flow from operating activities was EUR 3.2 (1.2) million. The increase in the first quarter was positively affected by adopted factoring (non-recourse) financing, which reduced net working capital by approximately EUR 5.4 million.

Delete Group’s cash and cash equivalents at the end of March 2021 were EUR 4.4 (4.8) million. The Group’s interest-bearing debt was EUR 83.1 (128.4) million, consisting mainly of EUR 65.0 million secured notes, a EUR 7.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 11.0 million. At the end of March, the Group had fully drawn its SSRCF facility. After the reporting period on 14 April, the SSRCF was extended by EUR 3 million to EUR 10 million to be used for general corporate purposes, acquisitions and capital expenditure. There were no maintenance covenants for financing facilities in the first quarter 2021.

At the end of March 2021, the Group’s net debt amounted to EUR 78.6 (123.7) million, decreasing mainly due to the financial restructuring completed in February 2021 with the following main items:

• The bond maturity was extended by three years to 19 April 2024
• The bond nominal value was written off by EUR 24.8 million
• The bond was partially repaid by EUR 20 million
• The repayment was funded by EUR 10 million new raised equity, EUR 5 million from Demolition Services divestment proceeds and EUR 5 million by factoring proceeds.

The significant reduction of interest-bearing debt and new share capital raised had a net impact of EUR 34.8 million on improved consolidated equity, and the amount of the notes outstanding decreased from EUR 109.8 million to EUR 65.0 million.

Delete Group announced on 16 December 2020 a restructuring proposal to the noteholders of the senior secured notes issued by Delete Group Oyj. The restructuring proposal included certain amendments to the terms and conditions of Delete Group Oyj’s senior secured notes, including a write-down the principal of the notes with approximately EUR 24.8 million and an extension of the maturity of the notes with three years, which were subject to certain conditions. The conditions included, among others, an immediate redemption of the notes in an aggregate amount of EUR 15 million and new equity investments by Delete’s shareholders in an aggregate amount of at least EUR 10 million as well as further redemptions of EUR 10 million by the funds obtained from receivables sold under Delete Group’s (non-recourse) factoring arrangement in two instalments of EUR 5 million.

On 15 January 2021, Delete announced the successful completion of a written procedure regarding the senior secured notes, as proposed on 16 December 2020.

On 16 January 2021, an Extraordinary General Meeting of Delete Group Oyj approved a new share issue of EUR 10 million, in order to raise capital for a partial redemption of the outstanding notes, as required in the amended Terms and Conditions, approved by the noteholders on 15 January 2021.

On 29 January 2021, Demolition Services in Finland was divested with a purchase price of EUR 7.3 million to Lotus Maskin & Transport AB. On 5 February 2021, Delete announced that the conditions for effectiveness of the amendments to the terms and conditions of its secured notes were satisfied with the amendments to the Terms and Conditions becoming effective on the same date, 5 February 2021.

On 12 February 2021, Delete made a EUR 20 million partial redemption of the notes, consisting of the required EUR 15 million redemption as well as the first EUR 5 million instalment to be made from the factoring proceeds, in accordance with the amended Terms and Conditions and the conditions for such amendments, financed by the new share issue, factoring proceeds and proceeds from the sale of Demolition Services in Finland.

On 12 February 2021, Delete’s new super senior revolving credit facility (SSRCF) with Collector Bank AB became effective, replacing the existing SSRCF with Nordea Bank Plc. Nordea Bank Plc will continue to provide an EUR 2,0 million guarantee facility to Delete.

After the reporting period, on 30 April 2021, Delete announced that it had reached a factoring threshold of EUR 10 million. A committed EUR 5 million partial redemption of the notes due 2024 was carried out on 14 May 2021, lowering the notes’ nominal value further down to EUR 60 million.

The balance sheet total at the end of March 2021 was EUR 135.2 (185.8) million, decreasing mainly because the sale of Demolition Services and related impairment of assets. Property, plant and equipment totalled EUR 28.3 (33.2) million decreasing on the back of deferred capital expenditure in 2020. The equity ratio⁵⁾ at the end of March 2021 was 18.1% (12.1%).

After the Demolition Services divestment completion on 29 January 2021, Delete Group no longer carries assets classified under IFRS 5. IFRS 5 implications are reported in more detail in the notes section of this Interim Review.

CHANGES IN THE MANAGEMENT

Delete announced on 8 April 2021 that Juha Kettunen (born 1975, M.Sc. in Mechanical Engineering and eMBA) had been appointed as Commercial Director of Delete Group Oyj and member of the Group Management Team as of 23 April 2021. Kettunen joined Delete from the position of Sales Director of Saalasti Finland Oy. Kettunen will be responsible for leading Delete Group’s sales operations and the company’s key customers together with the rest of the organisation. Kettunen has strong experience in similar roles, particularly in the energy and process industry sectors.

Composition of the Group Management Team as of 23 April 2021:

• Tommi Kajasoja, CEO
• Ville Mannola, CFO
• Janika Vilkman, General Counsel
• Henri Pesonen, Business Area Director, Recycling Services
• Raimo Huhtala, Business Area Director, Cleaning Services, Finland
• Peter Revay, Business Area Director, Cleaning Services, Sweden
• Juha Kettunen, Commercial Director

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In January–March 2021, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.5 (1.0) million. Capital expenditure was low partially due to deferred maintenance investments in preparation for coronavirus pandemic related liquidity assurance.

On 29 January 2021, Delete Finland Oy, a group company of the Delete Group, sold all the shares in Delete Demolition Oy, a fully owned subsidiary operating in the Demolition Services business area, to Lotus Maskin & Transport AB for a purchase price of EUR 7.3 million. After the transaction, Delete Group no longer operates in Demolition services business.

There were no acquisitions during January–March 2021.

R&D EXPENDITURE

In January–March 2021, R&D-related expenditure was immaterial and related to minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

On 14 April 2021, Delete extended its revolving credit (SSRCF) with Collector Bank Plc from EUR 7 million to EUR 10 million with the existing terms and conditions. The revolving credit is intended to be used as working capital and for general corporate purposes of the company and its subsidiaries.

On 30 April 2021, Delete announced that it had reached a factoring threshold of EUR 10 million. A committed EUR 5 million partial redemption of the notes due 2024 was carried out on 14 May 2021.

SUMMARY OF SIGNIFICANT RISKS AND RISK MANAGEMENT

Delete Group conducts an extensive annual risk assessment analysis and, as a result of which, risk management capabilities are updated and reviewed and approved by the Board of Directors.

The Group’s key risks are divided into strategic, operational and financing risks.

Operational risks are mainly related to uncertainty and a lack of visibility due to the coronavirus pandemic, project execution and the integration of acquired businesses, both in terms of quality and financially. The Group's business operations also inherently involve risks, such as environmental, health and safety risks, as well as dependence on suppliers and clients. The internal control environment is under constant development to improve preventative measures.

 Financing risks are mainly related to refinancing, credit and liquidity, all of which may be further affected by coronavirus pandemic related uncertainties.

Other uncertainties are related to the market environment as well as the successful implementation of the Group’s transformation strategy, including risks related to the outcome of the operational improvement plan for increased profitability, uncertainty related to capturing synergies and risks related to targeted bolt-on acquisitions, personnel and recruitments.

The Group has not identified other relevant changes that can be expected to have a significant influence on the business, given the risks mentioned hereinabove, at the end the first quarter in 2021.

SHARES AND SHAREHOLDERS

The number of registered shares in Delete Group Oyj is 1,085,859,500 P-shares and 308,964,900 C-shares. Each share carries one vote. The Group is owned by Ax DEL Oy (<90 % of the shares) and a group of key employees and other minority investors (>10%). The Group does not hold any of its own shares.

ANNUAL GENERAL MEETING AND BOARD AUTHORISATIONS IN EFFECT

The Annual General Meeting of Delete Group Oyj Shareholders held on 13 April 2021 adopted the Financial Statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 1 January–31 December 2020. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2020.

Martin Forss, Åsa Söderström Winberg, Ronnie Neva-aho and Christian Schmidt-Jacobsen were re-elected as members of Board of Directors. Convening after the Annual General Meeting, the Board of Directors elected Martin Forss as its chairman.

KPMG Oy Ab was elected to continue as the Auditor of the company and Teemu Suoniemi, Authorised Public Accountant, will act as the Principal Auditor.

The Chairman of the Board will be paid EUR 50,000 and the Board members EUR 22,000 as remuneration for 2021. The appointed members of the Audit Committee and the Project Committee will be paid EUR 4,000 as additional remuneration and the appointed members of the Remuneration Committee EUR 2,000. Axcel Management’s Christian Schmidt-Jacobsen will not be paid remuneration. It was resolved that the remuneration for the Auditor shall be paid according to the Auditor's invoice.

STATEMENT OF ACCOUNTING POLICIES FOR INTERIM REVIEW

Delete Group Oyj complies with half-yearly reporting according to the Finnish Securities Markets Act and discloses interim reviews for the first three- and nine-month periods of the year, in which key information regarding the company’s financial situation and development will be presented. The financial information presented in this interim review is unaudited.

FINANCIAL CALENDAR 2021

Delete Group Oyj will publish the half year financial report January–June 2021 on 20 August 2021 and the interim review January–September 2021 on 17 November 2021.

ALTERNATIVE PERFORMANCE MEASURES USED IN FINANCIAL REPORTING

Delete Group Oyj has adopted the guidelines of the European Securities and Market Authority (ESMA) on Alternative Performance Measures. In addition to the IFRS-based key figures, the company will publish certain other generally used key figures that may, as a rule, be derived from the profit and loss statement and balance sheet. The calculation of these figures is presented below. According to the company’s view, these key figures supplement the profit and loss statement and balance sheet, providing a better picture of the company’s financial performance and position.

FORMULAS

¹⁾ EBITDA = operating profit + depreciation and amortisation costs

²⁾ Adjustment definition: adjustments are material items outside the ordinary course of business affecting comparability, e.g. acquisition related expenses, restructuring related expenses and other material extraordinary costs.

³⁾ Net debt = interest bearing liabilities, lease liabilities and instalment credit liabilities – cash and cash equivalent assets

⁴⁾ Organic growth: net sales from acquired businesses are considered inorganic for 12 months after the acquisition, and not accounted for contributing to organic growth for the said period.

⁵⁾ Equity ratio = equity / (assets - prepayments)

⁶⁾ Net working capital = other than cash and cash equivalent current assets – other than net debt related current liabilities

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amounts in thousands of euros

Continuing operations

CONDENSED NOTES

Accounting policies

This interim review is not an interim report as specified in the IAS 34 standard. Delete Group Oyj complies with half-yearly reporting according to the Finnish Securities Markets Act and discloses interim reviews for the first three- and nine-month periods of the year, in which key information regarding the company’s financial situation and development will be presented. The financial information presented in this interim review is unaudited. The accounting policies applied in this interim review are the same as those applied in the last annual financial statements.

Assets held for sale and discontinued operations

The Demolition Services business is reported in this report in accordance with IFRS 5 “Assets Held for Sale and Discontinued Operations” and is not included in the financial statements for continuing operations. The figures in the statement of income and the items related to it, including comparison figures, have been stated to show the discontinued operations separately from continuing operations.

The net assets of the discontinued Demolition Services have been revaluated at year end 2020 according to the agreed sale price, resulting in a EUR 20.3 million write-off to net assets with an equal adverse effect on discontinued operations’ operating profit, Group’s net profit and the Group’s equity accordingly.

On 29 January 2021, Delete Finland Oy, a group company of the Delete Group, sold all  shares in Delete Demolition Oy, a fully owned subsidiary operating in the Demolition Services business area, to Lotus Maskin & Transport AB for a purchase price of EUR 7.3 million. After the transaction, Delete Group no longer operates in the Demolition Services business. Any post-transaction costs related to Demolition Services are reported under IFRS 5 during 2021.

Operating profit (EBIT)

Operating profit (EBIT) consists of sales and other operating income less the costs of materials and services, costs of employee benefits and other operating expenses as well as depreciation, amortisation and impairment losses. Exchange rate differences resulting from working capital items are included in the operating profit.

KEY EVENTS AFTER THE REPORTING PERIOD

On 14 April 2021, Delete extended its revolving credit (SSRCF) with Collector Bank Plc from EUR 7 million to EUR 10 million with the existing terms and conditions. The revolving credit is intended to be used as working capital and for general corporate purposes of the company and its subsidiaries.

On 30 April 2021, Delete announced it had reached a factoring threshold of EUR 10 million, and a committed EUR 5 million partial redemption of the notes due 2024 were carried out on 14 May 2021.

Delete Group Oyj

Board of Directors
 

FOR FURTHER INFORMATION

Ville Mannola, CFO of Delete Group Oyj

E-mail: ville.mannola@delete.fi

Tel. +358 400 357 767
 

Tommi Kajasoja, CEO of Delete Group Oyj

E-mail: tommi.kajasoja@delete.fi

Appointment requests via Helena Karioja, tel. +358 40 662 7373

www.delete.fi
 

DELETE GROUP IN BRIEF

Delete Group is one of the leading providers of environmental services in the Nordic countries, a specialist that works for a more functioning and cleaner society. We provide our customers in the industrial sector, construction and real estate and the public sector with cleaning and recycling services that are critical to their operations. We maintain security of supply by helping the industry to optimise its production and cities and municipalities to keep the infrastructure in good condition and the living environment comfortable. We receive, recycle and handle waste safely, reliably and responsibly.

In 2020, our net sales were EUR 117 million. The Group is headquartered in Helsinki and employs approximately 700 professionals in more than 35 locations in Finland and Sweden.