Continued strong development, good outlook

Delete Group Oyj   Stock Exchange Release 28 February 2023   at 10:00 a.m. EET

DELETE GROUP OYJ

Financial Statements Bulletin January–December 2022 (IFRS, IAS 34, unaudited)

Continued strong development, good outlook

In June 2022, Delete announced that it had divested its Recycling Services. The segment 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 bulletin for Continuing operations. Unless otherwise stated, all of the quarterly, half-year and full-year figures that are presented in this report, including the corresponding 2021 periods, only include Continuing operations. In this Financial Statements Bulletin, Recycling Services is referred to as Discontinued operations and Cleaning Services as Continuing operations.

KEY POINTS: OCTOBER–DECEMBER 2022

•         Net sales decreased by 4% to EUR 25.6 (Q4 2021: 26.6) million. Organic growth was +9%, excluding divested W-Tech Entreprenad AB.

•         EBITDA increased by EUR 2.4 million to EUR 3.5 (1.1) million

•         EBIT increased by EUR 2.3 million to EUR 0.7 (-1.6) million

•         Operative cash flow increased by EUR 9.3 million to EUR 7.3 (-2.0) million

•         Net debt decreased by EUR 39.5 million to EUR 32.5 (72.0) million, mainly due to the divestment of the Recycling Services

•         Delete issued a positive profit warning related to significant growth of adjusted EBITDA

KEY POINTS: JANUARY–DECEMBER 2022

•         Net sales decreased by 9% to EUR 98.1 (107.8) million. Organic growth was 2%, excluding divested W-Tech Entreprenad AB.

•         EBITDA increased by EUR 8.5 million to EUR 13.3 (4.8) million

•         EBIT increased by EUR 8.7 million to EUR 3.4 (-5.2) million

•         Operative cash flow decreased by EUR 4.1 million to EUR 7.1 (11.2) million

•         Group equity increased from year end 2021 by EUR 15.9 million to EUR 36.0 million

•         Recycling Services was divested in June for net proceeds of EUR 36.2 million

KEY FIGURES

Information about the formulas and Alternative Performance Measures are presented in the notes section of this Financial Statements Bulletin. All figures presented are statutory, unless stated otherwise.

OUTLOOK FOR 2023

The underlying demand for cleaning services business is expected to grow in 2023. Delete Group’s efficiency and productivity are expected to improve when compared to the previous year.

Delete Group’s adjusted EBITDA is expected to improve in 2023.

Due to geopolitical developments, the outlook contains more uncertainty than usual and is based on the assumption that there are no material changes in the operating environment, postponements of scheduled work, or cancellations.

SIRPA OJALA, CEO OF DELETE GROUP:

“I am pleased with our improving performance in 2022 and I look forward to the favourable development continuing also in 2023. Like the full year of 2022, our fourth quarter performance was strong with a significant increase in sales and operating profit on a comparable basis, driven by customer wins, good performance in service quality, productivity and field controls.

The Cleaning Services business continued its strong development in the fourth quarter with further new customers gained in an active market. For the full year of 2022, our like for like growth without the divested W-Tech business was positive, which is a strong result when considering the multi-million one-off shutdown that we delivered in 2021. While we’re delighted with our strong customer work driving the sales development, I’m equally pleased with our improved productivity and delivery controls, which show up as a clear profitability improvement in 2022, with more potential identified and being developed.

The geopolitical development and energy crisis in Europe have only had a limited direct impact on our business, at least so far, as we have no direct exposure to sanctioned parties or conflict regions. We have been able to mitigate the increased fuel prices and general cost inflation to a high degree with improved productivity and pricing measures.

Our strategy implementation reached an important milestone in 2022 with the successful divestment of our Recycling Services in June, and we have, since then, fully focused on our core business of Cleaning Services. In December, Delete’s Board of Directors announced that a strategic evaluation to support the Company's growth had been initiated and a potential result of the strategic evaluation is the sale of the company and its Cleaning Services business in Finland and Sweden.

We are looking forward to 2023 with a positive momentum in a resilient market. Our target is to continue the recent good development, both in terms of organic growth and further improving profitability. Collaboration with our customers is the key to further developing our efficient and high-quality operations. We are confident that the continuous positive customer feedback that we have received on our high level of service will position us well in our efforts to continue profitable growth.

Our customer and employee satisfaction improved in 2022, which is a sign of our strong expertise and our customers’ confidence in the quality of our services. We would like to thank our customers and our skilled staff for the continued confidence shown in us.”

OPERATING ENVIRONMENT

The impacts of the coronavirus pandemic have passed and the overall demand for industrial cleaning services is at a good normal level. The underlying long-term core demand is relatively resilient and stable over macro economic cycles. Customers continue to demand capabilities to handle increasingly complex assignments with high-quality environmental, health and safety standards, which favours large professional players like Delete Group. The recent and ongoing fuel and general cost inflation increases uncertainty for the short and mid-term.

NET SALES

In the fourth quarter, Delete Group’s net sales were EUR 25.6 (26.6) million, representing a year-on-year decline of 4%, mainly due to lacking revenue from the divested W-Tech operations at the end of 2021. Organically, the net sales of the Group grew by 9%, driven by industrial cleaning services provided to new customers and expanded share of wallet with the old customers with a solid general market demand.

In January–December, the Group’s net sales were EUR 98.1 (107.8) million, declining 9% year-on-year. Considering the above-noted W-Tech effects and the multi-million one-off shutdown we delivered in 2021, the net sales development for the underlying business was positive. Correcting for the W-Tech sales, organic growth was 2% for the full year.

NET SALES BY SEGMENT

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the fourth quarter of 2022 improved by EUR 1.6 million from the previous year to EUR 1.7 (0.1) million. The main drivers for the considerable improvement were strong productivity and the divestment of loss making W-Tech business.

Cost inflation, most notably for fuel, was mitigated through pricing and productivity improvements and did not have a material effect on the Group’s financial performance in the fourth quarter.

For January–December, Cleaning Services’ EBITDA improved by 68% from EUR 12.5 million to EUR 21.0 million, with stable development through the year. Field controls and productivity have improved, and the cost base efficiency programme completed at the  end of 2021 had a meaningful favourable effect, as did the divestment of loss-making W-Tech operations.

Administration without non-recurring costs increased in the fourth quarter from the previous year, mainly due to variable salary scheme provisions. For January–December, the Administration unit’s EBIT improved by 4.4%, driven by the efficiency programme that followed the divestments of Demolition and Recycling Services.

EBITDA BY SEGMENT

EBIT BY SEGMENT

In October–December, net financial expenses amounted to EUR -2.1 (-2.6) million, consisting mainly of interest expenses and unrealised exchange rate losses. In January–December, net financial expenses amounted to EUR -5.9 (17.4) million. The net financial expenses in 2021 were favourably affected by the EUR 24.8 million write-down of the nominal value of senior secured notes. Gross financial expenses in January–December 2022 were EUR -7.1 (-6.7) million.

In October–December, profit before taxes amounted to EUR -1.4 (-4.1) million and in January–December to EUR -2.5 (12.1) million. In January–December, net result for the financial period for Continuing operations amounted to EUR -1.3 (12.3) million. Profit before taxes and net result in 2021 were favourably affected by the senior secured notes write-down.

In January–December, the net result for the financial period including Discontinued operations amounted to EUR 16.1 (11.9) million with the net sales proceeds from the divestment of Recycling Services affecting 2022 and the notes write-down 2021 favourably.

FINANCING AND FINANCIAL POSITION

In October–December, cash flow from operating activities was EUR 7.3 (-2.0) million, with decreased net working capital contributing positively in addition to the considerably improved profits. The balance of non-recourse factoring receivables at the end of the fourth quarter was EUR 12.5 (11.5) million.

Delete Group’s cash and cash equivalents at the end of December 2022 were EUR 7.9 (5.2) million. At the end of the fourth quarter, the Group’s interest-bearing debt was EUR 40.4 (77.2) million, consisting mainly of secured notes with a nominal amount of EUR 24.6 million, a EUR 6.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 10.5 million. At the end of December 2022, the Group had drawn EUR 6.0 million of its EUR 9.0 million SSRCF facility, to be used for general corporate purposes, acquisitions, and capital expenditure.

At the end of the fourth quarter, the only covenant for the senior secured notes and the SSRCF was complied with. After allowed pro forma adjustment for the divested Recycling Services, the net debt leverage was 2.1x, well below the covenant threshold of 5.0x.

At the end of December 2022, the Group’s net debt amounted to EUR 32.5 (72.0) million. The balance sheet total at the end of December 2022 was EUR 101.4 (126.8) million, decreasing mainly because of the divestment of Recycling Services and the related partial redemption of the senior secured notes. Property, plant and equipment totalled EUR 12.2 (24.7) million, decreasing mainly due to the divested assets of Recycling Services. The equity ratio5) at the end of December 2022 improved considerably to 35.5% (15.8%).

The SSRCF was permanently repaid by EUR 1.0 million in October 2022 and in November the EUR 9 million facility was extended to February 2024 with the current terms.

In July 2022, the Group made a partial redemption of the senior secured notes for the amount of EUR 35.4 million, including a premium for the notes, using the Recycling Services divestment’s net proceeds of EUR 36.2 million.

PERSONNEL

Delete Group employed 623 (612) people at the end of December 2022. The average number of personnel in 2022 was 636 (635).

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In October–December 2022, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.7 (-0.1) million and in January–December EUR 1.8 (0.9) million.

There were no acquisitions during January–September 2022. Net proceeds from the divested Recycling Services in June 2022 were 36.2 million and reported under Proceeds from sales of subsidiary in the cash flow report of the Notes section.

R&D EXPENDITURE

In January–December 2022, R&D-related expenditure was immaterial and related to minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

No key events after the reporting.

SUMMARY OF SIGNIFICANT RISKS AND RISK MANAGEMENT

Delete Group conducts an extensive annual risk assessment analysis, as a result of which risk management capabilities are updated, 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 and resourcing due to the coronavirus pandemic, geopolitical developments in Europe, 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, interest rates, credit and liquidity, all of which may be further affected by the noted uncertainties.

Other uncertainties are related to the market environment and inflation of costs, especially for energy and fuel, 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 herein, at the end of the fourth quarter in 2022.

SHARES AND SHAREHOLDERS

At the end of December 2022, the number of registered shares in Delete Group Oyj was 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 (83% of the shares) and a group of key employees and other minority investors (17%). 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 28 April 2022 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 2021. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2021.

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 Ari Eskelinen, 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 2022. The appointed members of the Audit Committee and the ESG and Contracts 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.

THE BOARD'S PROPOSAL TO THE ANNUAL GENERAL MEETING

The consolidated net profit for the year 2022 totalled EUR 16.1 million, and the net profit of the parent company was EUR 37.7 million. The parent company’s distributable funds on 31 December 2022 totalled EUR 121.0 million. The Board of Directors will propose to the Annual General Meeting that no dividend will be distributed.

STATEMENT OF ACCOUNTING POLICIES FOR FINANCIAL STATEMENTS BULLETIN

This Financial Statements Bulletin has been prepared according to the IAS 34 standard. The same accounting standards have been used as in the Financial Statements.

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 Financial Statements bulletin is unaudited.

FINANCIAL CALENDAR 2023

Delete Group Oyj will publish the interim review January–March 2023 on 24 May 2023, the half-year financial report January–June 2023 on 30 August 2023 and the interim review January–September 2023 on 15 November 2023.

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, such as 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 as 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 Financial Statements Bulletin has been prepared according to the IAS 34 Interim Financial Reporting 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 Financial Statements Bulletin is unaudited.

The accounting policies, that are applied in this Financial Statements Bulletin are the same as those applied in the annual financial statements.

The changes in IFRS standards have had no material effect on Delete Group’s financial reporting. The Group has not adopted new IFRS standards affecting reporting during 2022.

Assets held for sale and Discontinued operations

The Recycling Services business is reported in this Financial Statements Bulletin in accordance with IFRS 5 “Assets Held for Sale and Discontinued Operations” and is not included in the Financial Statements bulletin 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.

On 29 June 2022, Delete Finland Oy, a group company of the Delete Group, sold all shares in Delete Ympäristöpalvelut Oy, a fully owned subsidiary operating in the Recycling Services business area, to Remeo Holding II Oy with net proceeds of EUR 36.2 million received by the Group. After the transaction, Delete Group no longer operates in the Recycling Services business. Any post-transaction costs related to Recycling Services are reported under IFRS 5 during 2022.

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.

Financing

In July 2022, the Group made a partial redemption of the senior secured notes for the amount of EUR 35.4 million, including a premium for the notes, using the Recycling Services divestment’s net proceeds of EUR 36.2 million.

In September 2022, an interest cap agreement was settled and discontinued. At the end of 2022, the Group has no hedging for interest rates.

The SSRCF was permanently repaid by EUR 1.0 million in October 2022 and in November the EUR 9 million facility was extended to February 2024 with the current terms.

At the end of 2022, the only covenant for the senior secured notes and the SSRCF was complied with. After allowed pro forma adjustment for the divested Recycling Services, the net debt leverage was 2.1x, well below the covenant threshold of 5.0x.

SEGMENT REPORT

The Group has one reportable segment, Cleaning Services which is the Group’s business area. The reporting segments have been aggregated from the group’s two operating segments: the operating segments for Cleaning Services in Finland and Sweden have been combined as a reportable segment as they are considered to be similar and have similar economic characteristics. Recycling Services, which was previously reported as a reportable segment, has been classified as Discontinued operations.

The Cleaning Services segment consists of a comprehensive industrial service offering, as well as property services, such as high-power vacuuming and blowing services, industrial shutdown and maintenance, exposure vacuuming of sewers and well emptying, industrial cleaning, blast cleaning services, and washing and cleaning of facades.

Segment information is based on IFRS accounting principles applied in the Group, and it is consistent with the Group’s internal reporting.

The measure of profit or loss for the reportable segment is operating profit, which is regularly reviewed by the Group’s management team to make decisions about resources to be allocated to the segment and to assess its performance.

Administration costs are not allocated to segments but are presented separately. Segment assets and liabilities are not presented, as these are not regularly monitored by the management team.

No external customers exceeded 10 per cent share of Group revenues in 2022. Any transactions between segments are based on market prices.

REVENUE STREAMS

BUSINESS COMBINATIONS

Delete Group had no business combinations during 2022. Delete Ympäristöpalvelut Oy (Recycling Services), was divested in June 2022.

CHANGES IN INTANGIBLE ASSETS

CHANGES IN TANGIBLE ASSETS

CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES

KEY EVENTS AFTER THE REPORTING PERIOD

No key events after the reporting.

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

Sirpa Ojala, CEO of Delete Group Oyj

E-mail: sirpa.ojala@delete.fi

www.delete.fi

DELETE GROUP IN BRIEF

Delete Group is one of the leading providers of environmental services in the Nordic countries. The Group provides customers with business-critical services that require special expertise and equipment in cleaning services.

The Group's head office is located in Vantaa and it employs approximately 600 professionals in 27 locations in Finland and Sweden.