Delete Group Oyj: Profitability continued to improve, outlook remains positive

Delete Group Oyj | Stock Exchange Release | 30 August 2023 at 2:00 p.m. EEST

Interim Financial Statements January–June 2023 (IFRS, IAS 34, unaudited)

Delete Group Oyj: Profitability continued to improve, outlook remains positive

KEY POINTS: APRIL–JUNE 2023

•         Net sales increased by 6% to EUR 31.4 (Q2 2022: 29.8) million

•         EBITDA increased by EUR 1.5 million to EUR 7.0 (5.5) million

•         EBIT increased by EUR 1.4 million to EUR 3.6 (2.2) million

•         Operative cash flow increased by EUR 3.0 million to EUR 6.2 (3.2) million

•         Net debt increased by EUR 3.1 million to EUR 36.4 million (33.3)

•         The owners of Delete Group and Remondis Maintenance & Services International GmbH signed an agreement regarding the sale of all the shares in Delete Group. The closing is conditional on competition authorities’ approval

KEY POINTS: JANUARY–JUNE 2023

•         Net sales increased by 6% to EUR 48.4 (45.6) million

•         EBITDA increased by EUR 2.4 million to EUR 6.0 (3.6) million

•         EBIT increased by EUR 2.5 million to EUR 1.2 (-1.3) million

•         Operative cash flow increased by EUR 0.4 million to EUR 0.2 (-0.2) million

•         Group equity increased by EUR 1.0 million to EUR 34.5 million

•         Net debt increased by EUR 3.1 million to EUR 36.4 (33.3) million

KEY FIGURES

Information about the formulas and Alternative Performance Measures are presented in the notes section of these Interim Financial Statements. 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:

“I am very pleased with our second-quarter and the first half year performance. The spring high season demand was well met and delivered with high quality and controlled field productivity. We maintained a higher growth rate than the market growth and our operating profit improved considerably, as expected.

The Cleaning Services business developed well, and we gained several new customers in a fairly active market. Our flexible service offering is resilient to the macroeconomic cycles, but in the medium term we may face some hindrances if our customers in certain segments will see slowing activity.

The geopolitical development in Europe has had only limited impact on our business, at least so far, and we have no exposure to sanctioned parties or conflict regions. The fuel prices and general cost inflation have, to a high degree, been successfully mitigated through pricing and improved productivity.

As a result of the strategic evaluation, we announced on 12 May that the owners of Delete Group and Remondis Maintenance & Services International GmbH have signed an agreement on the sale of all the shares in Delete Group, closing being conditional on competition authorities’ approval. After the reporting period, the Finnish competition authorities have approved the sale of Delete Group to Remondis Maintenance and Services International GmbH, while the Swedish authorities have announced, that a decision will be made on or before 2 November 2023, subject to extensions if required.

We will continue the development of our efficient and high quality operations in collaboration with our customers. We are confident that the positive customer feedback we have received on our high standard service level will position us well in our efforts to continue profitable growth.”

OPERATING ENVIRONMENT

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 second quarter, Delete Group’s net sales for Cleaning Services were EUR 31.4 (29.8) million, representing a year-on-year growth of 6%. Healthy general market growth was further fuelled with sales to new customers and an active spring shut-down season.

In January-June, the Group’s net sales were EUR 48.5 (45.8) million, growing 6% year-on-year, reflecting the continued and sustainable growth based on new customer acquisition, increased share of wallet from existing customers and pricing.

NET SALES BY SEGMENT

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the second quarter of 2023 improved by EUR 1.1 million from the previous year to EUR 4.1 (3.0) million. The main drivers for the improvement were the growing sales volumes, controlled deliveries, improved productivity and pricing.

Cost inflation did not have a material effect on the Group’s financial performance in the second quarter, and was managed by pricing and productivity improvements.

For January–June, Cleaning Services EBITDA grew by 40% from EUR 6.5 million to EUR 9.1 million with both quarters contributing consistently to the improvement.

Administration costs were 15% higher than in the previous year, affected by inflation and investments in operating systems and ICT infrastructure in 2023, and to some extent by internal cost re-allocations between the operating and administrative units.

For January–June, the Administration costs were aligned with the previous year’s level, increasing by 1% to EUR 3.8 million.

Devaluation of Swedish operation’s currency, SEK, has had a minor adverse effect on the Group’s reported EUR-based revenues and profits in the first half of 2023, compared to the previous year.

EBITDA BY SEGMENT

EBIT BY SEGMENT

In April–June, net financial expenses amounted to EUR -1.5 (-1.8) million, consisting mainly of interest expenses and unrealised exchange rate losses. In January–June, net financial expenses amounted to EUR -2.6 (-3.0) million. Interest rates have increased considerably from the previous year, but the nominal amount of interest-bearing debt has decreased, mitigating the effects accordingly.

In April–June, profit before taxes amounted to EUR 2.1 (0.5) million and in January–June to EUR -1.3 (-4.2) million. In January–June, net result for the financial period for Continuing operations amounted to EUR 2.2 (0.5) million.

In January–June, net result for the financial period including Discontinued operations amounted to EUR 2.2 (17.5) million with the net proceeds from the divestment of Recycling Services affecting 2022 favourably.

FINANCING AND FINANCIAL POSITION

In April–June, cash flow from operating activities was EUR 6.2 (3.2) million, with most of the year-on-year difference coming from the improving profitability and net working capital efficiency. The balance of non-recourse factoring receivables at the end of the second quarter was EUR 18.4 (16.2) million.

Delete Group’s cash and cash equivalents at the end of June 2023 were EUR 7.7 (44.6) million. In June 2022 the amount included net proceeds of EUR 36.2 million from the divestment of Recycling Services. The Group’s interest-bearing debt was EUR 44.0 (77.8) million, consisting mainly of EUR 24.6 million in secured notes, a EUR 9.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 11.6 million. The decrease was a result of a partial repayment of the secured notes in the third quarter 2022. At the end of June, 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 second quarter, the only covenant for the senior secured notes and the SSRCF was complied with. The net debt leverage was 2.0x, well below the covenant threshold of 5.0x.

At the end of June 2022, the Group’s net debt amounted to EUR 36.4 (33.3) million. The balance sheet total at the end of June 2023 was EUR 102.4 (140.9) million, decreasing mainly because of the divestment of Recycling Services and the related partial notes redemption in the third quarter of 2022. Property, plant and equipment totalled EUR 10.8 (13.3) million, decreasing mainly due to a transition to lease-based assets. Right of use assets (leases) increased from EUR 8.5 to EUR 11.5 million from the previous year. The equity ratio5) at the end of June 2023 improved to 33.7% (23.7%).

On 12 May 2023, Delete announced that the owners of Delete Group and Remondis Maintenance & Services International GmbH had signed an agreement regarding the sale of all the shares in Delete Group, closing being conditional on competition authorities’ approval. The completion of the sale will trigger a full repayment of the senior secured notes in accordance with the terms and conditions of the notes agreement.

After the reporting period, the Finnish competition authorities have approved the sale, while the Swedish authorities have announced, that a decision will be made on or before 2 November 2023, subject to time extensions if required.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In April–June 2023, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.4 (0.1) million and in January–June EUR 0.6 (0.5) million. There were no acquisitions during January–June 2023.

R&D EXPENDITURE

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

KEY EVENTS AFTER THE REPORTING PERIOD

On 17 August 2023, Delete Group announced, that Country Manager and Managing Director of Delete Sweden AB Peter Revay has resigned from the company to take up a new position outside Delete Group.

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, 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 second quarter in 2023.

SHARES AND SHAREHOLDERS

At the end of June 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 INTERIM FINANCIAL STATEMENTS

These Interim Financial Statements have been prepared according to the IAS 34 Interim Financial Reporting standard. The Group has adopted amendments to IAS/IFRS standards and interpretations effective from January 1, 2023, but these do not have essential effect on 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 these Interim Financial Statements is unaudited.

FINANCIAL CALENDAR 2023

Delete Group Oyj will publish 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

CONDENSED NOTES

Accounting policies

These Interim Financial Statements have 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 these Interim Financial Statements is unaudited.

The accounting policies applied in these Interim Financial Statements are the same as those applied in the last annual financial statements.

The Group has adopted amendments to IAS/IFRS standards and interpretations effective from January 1, 2023, but these do not have essential effect on the financial statements.

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

On 12 May 2023, Delete announced that the owners of Delete Group and Remondis Maintenance & Services International GmbH have signed an agreement on the sale of all the shares in Delete Group companies, closing being conditional on competition authorities’ approval. The completion of the sale will trigger a full repayment of the senior secured notes in accordance with the terms and conditions of the notes agreement.

After the reporting period, the Finnish competition authorities have approved the sale, while the Swedish authorities have announced, that a decision will be made on or before 3 November 2023, subject to time extensions if required.

The senior secured notes will mature inside 12 months from the reporting date on 19 April 2024, and have been classified as current liabilities.

SEGMENT REPORTING

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.

REVENUE STREAMS

BUSINESS COMBINATIONS

In June 2022, Delete 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 Interim Financial Statements for Continuing operations. Unless otherwise stated, all of the quarterly and full-year figures which are presented in this report only include Continuing operations. In these Interim Financial Statements, the Recycling Services is referred to as Discontinued operations and Cleaning Services as Continuing operations.

CHANGES IN INTANGIBLE ASSETS

CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES

GROUP STRUCTURE

KEY EVENTS AFTER THE REPORTING PERIOD

On 17 August 2023, Delete Group announced, that Country Manager and Managing Director of Delete Sweden AB Peter Revay has resigned from the company to take up a new position outside Delete Group.

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 675 professionals in 29 locations in Finland and Sweden.