Delete Group Oyj: Continued strong development, outlook remains good

Delete Group Oyj | Stock Exchange Release | 24 May 2023 at 9:00 a.m. EEST

Interim Review January–March 2023 (IFRS, unaudited)

Delete Group Oyj: Continued strong development, outlook remains good

KEY POINTS: JANUARY–MARCH 2023

•         Net sales increased by 8% to EUR 17.0 (Q1 2022: 15.8) million

•         EBITDA increased by EUR 1.0 million to EUR 0.0 (-1.0) million

•         EBIT increased by EUR 1.1 million to EUR -2.4 (-3.5) million

•         Operative cash flow decreased by EUR 2.7 million to EUR -6.1 (-3.4) million

•         On 12 May 2023, Delete announced that the owners of Delete Group and Remondis Maintenance & Services International GmbH have signed an agreement on sales of all the shares in Delete Group companies, closing being conditional on competition authorities’ approval.

KEY FIGURES

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 2023 (UNCHANGED)

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

“The first quarter of 2023 was a typical slow season for our businesses. I am pleased with how we managed to continue improving our performance, despite the prolonged winter hindering the start of the high season in March. Our solid growth of 8% and considerable EBITDA improvement reflect the well-established strategy and efficiency implementation, setting a firm foundation for 2023 and beyond.

The Cleaning Services business continued its strong development in the first quarter with further new customers gained in a relatively active market. The prolonged winter and snowy conditions in March, especially in Finland, had an adverse effect on the sewer and infrastructure services demand momentarily, as did the short union strikes in March. Our productivity improved and the cost inflation was well mitigated through pricing, enabling the solid EBITDA improvement in the first quarter.

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.

Delete announced on 12 May that the owners of Delete Group and Remondis Maintenance & Services International GmbH have signed an agreement on sales of all the shares in Delete Group companies, closing being conditional on competition authorities’ approval.

We continue with a positive momentum in a relatively resilient market and look forward to delivering firm growth and improving profitability in 2023. Collaboration with our customers is 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.”

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 medium term.

NET SALES

In the first quarter, Delete Group’s net sales were EUR 17.0 (15.8) million, representing a year-on-year growth of 8%, driven by new customer sales, increased share of wallet with the old customers in a stable market and inflation. The prolonged winter hindered the sewer and infrastructure services demand, while industrial cleaning demand remained on a fair level during the low season.

NET SALES BY SEGMENT

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the first quarter of 2023 improved by EUR 1.0 million year on year to EUR -2.0 (-3.0) million. The main drivers for the improvement were solid productivity and the sales growth.

Cost inflation was mitigated through customer pricing and productivity improvements and did not have a material effect on the Group’s financial performance in the first quarter.

For January–March, Cleaning Services’ EBITDA improved by 215% from EUR 0.6 million to EUR 1.8 million. Field controls and productivity have improved, while the sickness absences were on a higher than average level, having an adverse effect on profitability.

EBITDA for the Administration units was on a lower level in the first quarter compared to the previous year with the 2021 efficiency programme effects now fully effective and comparable and burdened with some non-operational costs for strategic assessment work.

EBITDA BY SEGMENT

EBIT BY SEGMENT

In January–March, net financial expenses amounted to EUR -1.1 (-1.2) million, consisting mainly of interest expenses. Profit before taxes amounted to EUR -3.5 (-4.7) million and the net result for the period for Continuing operations amounted to EUR -3.4 (-4.6) million.

In January–March, the net result for the financial period including Discontinued operations amounted to EUR -3.4 (-4.3) million.

FINANCING AND FINANCIAL POSITION

In January–March, cash flow from operating activities was EUR -6.1 (-3.4) million, mainly due to increased net working capital having a negative effect. The balance of non-recourse factoring receivables at the end of the first quarter was EUR 7.8 (9.5) million.

Delete Group’s cash and cash equivalents at the end of March 2023 were EUR 3.2 (2.4) million. At the end of the first quarter, the Group’s interest-bearing debt was EUR 43.8 (80.3) million, consisting mainly of secured notes with a nominal amount of EUR 24.6 million, a EUR 9.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 11.4 million. At the end of March 2023, the Group had fully drawn its EUR 9.0 million SSRCF facility, to be used for general corporate purposes, acquisitions, and capital expenditure.

At the end of the first 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 2.5x, well below the covenant threshold of 5.0x.

At the end of March 2023, the Group’s net debt amounted to EUR 40.6 (77.8) million. The balance sheet total at the end of March 2023 was EUR 97.3 (124.9) million, decreasing mainly because of the divestment of Recycling Services and the related partial redemption of the senior secured notes in 2022. Property, plant and equipment totalled EUR 11.5 (23.8) million, decreasing mainly due to the divested assets of Recycling Services. The equity ratio5) at the end of March 2023 improved considerably to 33.9% (12.7%).

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In January–March 2023, capital expenditure in intangible and tangible assets was EUR 0.2 (0.4) million.

There were no acquisitions during January–March 2023.

R&D EXPENDITURE

In January–March 2023, R&D-related expenditure was immaterial and related to minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

On 12 May 2023, Delete announced that the owners of Delete Group and Remondis Maintenance & Services International GmbH have signed an agreement on sales of all the shares in Delete Group companies, closing being conditional on competition authorities’ approval.

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 first quarter in 2023.

SHARES AND SHAREHOLDERS

At the end of March 2023, 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 3 April 2023 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 2022. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2022.

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 2023. 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.

STATEMENT OF ACCOUNTING POLICIES FOR THE INTERIM REVIEW

Delete Group Oyj complies with half-yearly reporting according to the Finnish Securities Markets Act prepared in accordance with IAS 34 Interim Financial reporting 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 2023

Delete Group Oyj will publish the Half-Year Financial Report for January–June 2023 on 30 August 2023 and the Interim Review for 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 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 which is prepared in accordance with IAS 34 Interim Financial reporting and should be read in conjunction with the Group’s last annual consolidated financial statements as at end for the year ended 31 December 2022 (‘last annual financial statements’). This Interim Review does not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Accounting Standards. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements. 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.

Changes in Group structure

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 Continuing operations. Unless otherwise stated, all of the quarterly, half-year and full-year figures that are presented in this report, including the corresponding 2022 periods, only include Continuing operations. In this Interim Review Recycling Services is referred to as Discontinued operations and Cleaning Services as Continuing operations.

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

Delete announced on 12 May, that the owners of Delete Group and Remondis Maintenance & Services International GmbH have signed an agreement on sales of all the shares in Delete Group companies, closing being conditional on competition authorities’ approval.

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

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 675 professionals in 29 locations in Finland and Sweden. www.delete.fi