Delete Group Oyj: Profitable growth continues, outlook remains positive

Delete Group Oyj | Stock Exchange Release | 15 November 2023 at 9:00 a.m. EET

Delete Group Oyj: Profitable growth continues, outlook remains positive

Interim Review January–September 2023 (IFRS, unaudited)

KEY POINTS: JULY–SEPTEMBER 2023

•         Net sales increased by 8% to EUR 29.1 (Q3 2022: 27.0) million

•         EBITDA increased by EUR 0.3 million to EUR 6.6 (6.3) million

•         EBIT increased by EUR 0.3 million to EUR 4.3 (4.0) million

•         Operative cash flow increased by EUR 3.2 million to EUR 3.2 (0.0) million

•         Net debt decreased by EUR 0.3 million to EUR 35.2 million (35.5)

KEY POINTS: JANUARY–SEPTEMBER 2023

•         Net sales increased by 7% to EUR 77.5 (72.5) million

•         EBITDA increased by EUR 2.7 million to EUR 12.6 (9.9) million

•         EBIT increased by EUR 2.8 million to EUR 5.5 (2.7) million

•         Operative cash flow increased by EUR 3.5 million to EUR 3.3 (-0.2) million

•         Group equity increased by EUR 1.3 million to EUR 37.8 (36.5) million

•         Net debt decreased by EUR 0.3 million to EUR 35.2 (35.5) million

•         The owners of Delete Group and Remondis Maintenance & Services International GmbH signed an agreement regarding the sale of all the shares in Delete Group. Closing will take place on 29 November 2023.

KEY FIGURES

Information about the formulas and Alternative Performance Measures is 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 includes 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 growth in the third quarter, continuing the strong development we’ve seen throughout eight quarters. Our operating profit improved as well, even though we experienced some momentary productivity issues during the summer. After a slower July holiday period, the continuing autumn high season started off very well and customer demand was met and delivered well, with high quality and controlled productivity.

The Cleaning Services business continued to develop well, and we gained new customers in a fairly active market. Our broad service offering is resilient to macro-economic cycles; however, in the short to medium term, we may face some hindrances if our customers in certain segments were to experience a slowdown.

The geopolitical development in Europe has, at least so far, had only a limited impact on our business, and we have no exposure to sanctioned parties or conflict regions- 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 2023 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. After receiving unconditional approval from the competition authorities by 1 November 2023, the transaction will be completed on 29 November 2023.

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 and 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. Fuel prices and general cost inflation continue to increase uncertainty in both the short and medium term.

NET SALES

In the third quarter, Delete Group’s net sales for Cleaning Services were EUR 29.1 (27.0) million, representing year-on-year growth of 8%. The increase was fuelled with resilient and healthy general market growth, sales to new customers and an active autumn shut-down season.

In January–September, the Group’s net sales were EUR 77.5 (72.5) million, growing 7% year-on-year, reflecting the continued and sustainable growth based on new customer acquisitions, increased share of wallet from existing customers and pricing in a well developing market.

NET SALES BY SEGMENT

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the third quarter of 2023 improved by EUR 0.2 million from the previous year to EUR 4.3 (4.1) million. The main driver for the improvement was growing sales, although relative profitability was suppressed to some degree by minor productivity challenges over a brief period in July.

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

For January–September, Cleaning Services’ EBITDA grew by 21% from EUR 15.0 million to EUR 18.1 million, with all quarters contributing consistently to the improvement.

In the third quarter, administration costs were 7% 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, which can be seen also in the year-to-date increase of 8%.

Devaluation of the Swedish currency (SEK) has had an adverse effect on the Group’s reported EUR-based revenues and profits in the first three quarters of 2023, compared to the previous year. On comparable SEK/EUR exchange rate year-on-year, January–September sales would be EUR 2.3 million and EBITDA EUR 0.4 million higher.

EBITDA BY SEGMENT

EBIT BY SEGMENT

In July–September, net financial expenses amounted to EUR -0.6 (-0.8) million, consisting mainly of interest expenses. In January–September, net financial expenses amounted to EUR -3.2 (-3.8) 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 July–September, profit before taxes amounted to EUR 3.7 (3.2) million and in January–September to EUR 2.3 (-1.1) million. In January–September, net result for the financial period for Continuing operations amounted to EUR 2.5 (-0.9) million.

In January–September, the net result for the financial period including Discontinued operations amounted to EUR 2.5 (16.5) million, with the net proceeds from the divestment of Recycling Services affecting 2022 favourably.

FINANCING AND FINANCIAL POSITION

In July–September, cash flow from operating activities was EUR 3.2 (-0.0) million, with most of the year-on-year difference coming from net working capital efficiency and the improving profitability. The balance of non-recourse factoring receivables at the end of the third quarter was EUR 15.0 (13.3) million.

Delete Group’s cash and cash equivalents at the end of September 2023 were EUR 9.4 (6.5) million. The Group’s interest-bearing debt was EUR 44.6 (42.0) million, consisting mainly of EUR 24.6 million in secured notes, a EUR 9.0 million drawn revolving credit (SSRCF) and increased lease liabilities of EUR 12.0 million. At the end of September, 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 third quarter, the only covenant for the senior secured notes and the SSRCF was complied with. The net debt leverage was 1.96x, well below the covenant threshold of 5.00x.

At the end of September 2023, the Group’s net debt amounted to EUR 35.2 (35.5) million. The balance sheet total at the end of September 2023 was EUR 107.5 (102.7) million, increasing mainly because of increased equity and lease liabilities. Property, plant and equipment totalled EUR 10.5 (12.8) million, decreasing mainly due to a transition to lease-based assets. Right of use assets (leases) increased to EUR 12.0 (8.7) million. The equity ratio5) at the end of September 2023 decreased to 35.1% (35.5%).

Delete announced on 2 November 2023 that its shareholders have received all approvals required by relevant competition authorities to complete the sale of all the shares in Delete to Remondis Maintenance & Services International GmbH. Delete hereby confirms that the transaction will be completed on 29 November 2023, and all its outstanding senior secured notes maturing on 19 April 2024 (ISIN FI4000252119) will be redeemed on 30 November 2023. In connection with the redemption, the notes will be delisted from Nasdaq Helsinki.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In July–September 2023, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.3 (0.5) million and in January–September EUR 1.0 (1.1) million. There were no acquisitions during January–September 2023.

R&D EXPENDITURE

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

CHANGES IN MANAGEMENT

On 17 August 2023, Delete Group announced, that Peter Revay, Country Manager and Managing Director of Delete Sweden AB has resigned from the company to take up a new position outside Delete Group. Peter Revay will leave the Group in February 2024.

KEY EVENTS AFTER THE REPORTING PERIOD

Delete announced on 2 November 2023 that its shareholders have received all approvals required by relevant competition authorities to complete the sale of all the shares in Delete to Remondis Maintenance & Services International GmbH. Delete hereby confirms that the transaction will be completed on 29 November 2023 and all its outstanding senior secured notes maturing on 19 April 2024 (ISIN FI4000252119) will be redeemed on 30 November 2023. In connection with the redemption, the notes will be delisted from Nasdaq Helsinki.

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 due to geopolitical developments in Europe, project execution and resourcing, 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 procedures are 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 third quarter in 2023.

SHARES AND SHAREHOLDERS

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

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 the 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 the 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

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 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. The Group has adopted amendments to IAS/IFRS standards and interpretations effective from 1 January 2023, but these do not have an essential effect on the 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 2 November 2023 that its shareholders have received all approvals required by relevant competition authorities to complete the sale of all the shares in Delete to Remondis Maintenance & Services International GmbH. Delete hereby confirms that the transaction will be completed on 29 November 2023 and all its outstanding senior secured notes maturing on 19 April 2024 (ISIN FI4000252119) will be redeemed on 30 November 2023. In connection with the redemption, the notes will be delisted from Nasdaq Helsinki.

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.