Profitability continued to improve, outlook remains positive

Delete Group Oyj Stock Exchange Release       24 August 2022 at 9:30 a.m. EEST                                                      

DELETE GROUP OYJ

Interim Financial Statements January–June 2022 (IFRS, IAS 34, unaudited)

PROFITABILITY CONTINUED TO IMPROVE, OUTLOOK REMAINS POSITIVE

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 Interim Financial Statements 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 these Interim Financial Statements, Recycling Services is referred to as Discontinued operations and Cleaning Services as Continuing operations.

KEY POINTS: APRIL–JUNE 2022

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

•         Net sales decreased by 16% to EUR 29.8 (Q2 2021: 35.4) million. Organic growth was -9%, excluding divested W-Tech Entreprenad AB.

•         EBITDA increased by EUR 2.5 million to EUR 4.6 (2.1) million

•         EBIT increased by EUR 2.5 million to EUR 2.2 (-0.3) million

•         Operative cash flow decreased by EUR 8.2 million to EUR 3.2 (11.4) million

•         Net debt decreased by EUR 34.6 million to EUR 33.3 million (67.9)

KEY POINTS: JANUARY–JUNE 2022

•         Net sales decreased by 13% to EUR 45.6 (52.2) million

•         EBITDA increased by EUR 3.4 million to EUR 3.6 (0.2) million

•         EBIT increased by EUR 3.4 million to EUR -1.3 (-4.7) million

•         Operative cash flow decreased by EUR 13.7 million to EUR -0.2 (13.5) million

•         Group equity increased from year end 2021 by EUR 13.4 million to EUR 33.4 million

•         Net debt decreased by EUR 34.6 million to EUR 33.3 (67.9) 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 2022

Following the divestment of its Recycling Services business, Delete Group updated its outlook for 2022 on 29 June 2022:

The underlying demand for Cleaning Services business is expected to grow in 2022. Delete Group’s efficiency and productivity are expected to improve compared to the previous year.

Delete Group’s operating profit excluding the Recycling Services business is expected to improve in 2022 compared to the operating profit excluding the Recycling Services business in 2021.

Due to the coronavirus pandemic and the 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 due to the pandemic.

Previously valid outlook for 2022, published on 19 May 2022:

The underlying demand for Cleaning Services and Recycling Services is expected to grow in 2022. Delete Group’s efficiency and productivity are expected to improve compared to the previous year.

Delete Group’s operating profit is expected to improve in 2022.

Due to the coronavirus pandemic and the 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 due to the pandemic.

SIRPA OJALA, CEO OF DELETE GROUP:

“I am pleased with our second quarter performance. The high season demand was well met and delivered with high quality and controlled field productivity. Our operating profit improved considerably, as expected, minding also the issues we had in a sizeable one-off shutdown delivered in the second quarter of last year.

The underlying Cleaning Services business has developed well with several new customers gained in an active market. Excluding the sizeable one-off shutdown in the second quarter of 2021 and revenues of the divested W-Tech operationsin, our underlying sales grew also in the second quarter following the favourable trend earlier this year.

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

Our strategy execution is progressing well; Recycling Services was divested on 29 June with solid valuation and our core business of Cleaning Services now has our undivided attention, focusing on continuing the good recent organic development, both in terms of growth and improving profitability. 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

Cleaning services

The coronavirus pandemic impacts are gradually passing and the overall demand has normalised. 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 second quarter, Delete Group’s net sales for Cleaning Services were EUR 29.8 (35.5) million, representing a year-on-year decline of 16%, mainly due to the divestment of W-Tech operations at year end 2021. Organically, the net sales declined by 9%, and the decrease was mainly attributable to a sizeable one-off shutdown delivered in the comparison period of 2021.

In January-June, the Group’s net sales were EUR 45.6 (52.2) million, declining 13% year-on-year, representing a good positive development for the underlying business, considering the abovenoted W-Tech and one-off shutdown effects.

NET SALES BY SEGMENT

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the second quarter of 2022 improved by EUR 3.1 million from the previous year to EUR 3.0 (-0.1) million. The main driver for the considerable improvement was the soft comparison period result, which was in 2021 adversely affected by delivery cost overruns in the aforementioned sizeable one-off shutdown. In 2022, field controls and productivity have improved, and the cost base efficiency programme completed at year end 2021 had a meaningful favourable effect, as did the divestment of loss making W-Tech operations.

Cost inflation, most notably for fuel, did not have a material effect on the Group’s financial performance in the second quarter, managed by fuel surcharges and productivity improvements.

For January–June, Cleaning Services EBITDA improved by 64% from EUR 3.9 million to EUR 6.3 million, supported with the second quarter improvements.

Administration without non-recurring costs was on a clearly lower level than in the previous year, enabled by the abovenoted efficiency programme. The reported Administration costs were inflated considerably (EUR 0.6 million) in the second quarter by non-recurring costs related to the divestment of Recycling Services.

For January–June, the Administration unit’s EBIT improved by 9%, even after a net increase in non-recurring costs of EUR 0.1 million.

EBITDA BY SEGMENT

EBIT BY SEGMENT

In April–June, net financial expenses amounted to EUR -1.8 (-0.8) million, consisting mainly of interest expenses and unrealised translation exchange rate losses. In January–June, net financial expenses amounted to EUR 3.0 (21.5) million; 2021 favourably affected by the EUR 24.8 million write-down of the nominal value of senior secured notes. Gross financial expenses were EUR -3.0 (-3.4) million.

In April–June, profit before taxes amounted to EUR 0.5 (-1.1) million and in January–June to EUR -4.2 (16.8) million. In January–June, net result for the financial period for Continuing operations amounted to EUR -4.1 (16.5) million, previous year affected by the notes write-down.

In January–June, net result for the financial period including Discontinued operations amounted to EUR 13.3 (15.3) million with the net proceeds from the divestment of Recycling Services affecting 2022 and the notes write-down 2021 favourably.

FINANCING AND FINANCIAL POSITION

In April–June, cash flow from operating activities was EUR 3.3 (11.4) million, with most of the year-on-year difference coming from high cash infows from factoring and collected receivable related to the sizeable one-off shutdown in 2021. The balance of non-recourse factoring receivables at the end of the second quarter was EUR 16.2 (18.9) million.

Delete Group’s cash and cash equivalents at the end of June 2022 were EUR 44.6 (11.6) million including the net proceeds of EUR 36.2 million from the divestment of Recycling Services. The Group’s interest-bearing debt was EUR 77.8 (79.4) million, consisting mainly of EUR 60.0 million in secured notes, a EUR 10.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 8.7 million. At the end of June, the Group had fully drawn its EUR 10.0 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. After allowed pro forma EBITDA adjustments of the efficiency programme related to the divestment of the Demolition Business (EUR 0.6 million) and the pro forma adjustment for the divested Recycling Services, the net debt leverage was 2.7x, well below the covenant threshold of 5.0x.

At the end of June 2022, the Group’s net debt amounted to EUR 33.3 (67.8) million.The balance sheet total at the end of June 2022 was EUR 140.9 (145.3) million, decreasing mainly because of the sale of W-Tech Entreprenad AB and the related impairment of assets and sustained net losses on retained earnings. Property, plant and equipment totalled EUR 13.3 (27.3) million, decreasing mainly due to the divested assets of Recycling Services. The equity ratio5) at the end of June 2022 improved to 23.7% (16.1%).

After the reporting period on 13 July 2022, the Group announced 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 net proceeds of EUR 36.2 million.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In April–June 2022, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.1 (0.3) million and in January–June EUR 0.5 (0.6) million.

There were no acquisitions during January–June 2022. Net proceeds from the divested Recycling Services 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–June 2022, R&D-related expenditure was immaterial and related to minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

After the reporting period on 13 July 2022, the Group announced 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 net proceeds of EUR 36.2 million.

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 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 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, 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 2022.

SHARES AND SHAREHOLDERS

At the end of June 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.

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 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 these Interim Financial Statements is unaudited.

FINANCIAL CALENDAR 2022

Delete Group Oyj will publish the interim review for January–September 2022 on 11 November 2022.

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

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 changes in IFRS standard 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 these Interim Financal Statements in accordance with IFRS 5 “Assets Held for Sale and Discontinued Operations” and is not included in the Interim 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.

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 January 2022, Delete extended its SSRCF facility duration with Collector Bank to February 2023, with the existing terms.

After the reporting period on 13 July 2022, the Group announced 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 net proceeds of EUR 36.2 million.

SEGMENT REPORTING

The Group had two reportable segments in January–June 2022: Cleaning Services and Recycling Services (divested), which were the Group’s business areas. The reporting segments have been aggregated from the group’s three operating segments: the operating segments for Cleaning Services in Finland and Sweden have been combined as reportable segments, as they are considered to be similar and have similar economic characteristics.

The Cleaning Services business serves, among others, industrial customers, energy companies, shipyards and construction sector companies in Finland and Sweden.

Delete Group’s (divested) Recycling Services received and processed construction and industrial waste in the Helsinki metropolitan area and in the Tampere region.

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.

Any transactions between segments are based on market prices. 

REVENUE STREAMS

BUSINESS COMBINATIONS

In June 2022, Delete Group 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 Interim Financial Statements for Continuing operations. Unless otherwise stated, all of the quarterly and full-year figures which are presented in this report, including the corresponding 2021 periods, 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

After the reporting period on 13 July 2022, the Group announced 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 net proceeds of EUR 36.2 million.

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

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. 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 Helsinki and the Group employs approximately 600 professionals in 28 locations in Finland and Sweden.