Revenue grew in 2019 for continued operations, operating profit declined

DELETE GROUP OYJ, STOCK EXCHANGE RELEASE 25 February 2020 at 14:00 EET

DELETE GROUP OYJ

Financial Statements bulletin January–December 2019 (IFRS, IAS 34, unaudited)

REVENUE GREW IN 2019 FOR CONTINUED OPERATIONS, OPERATING PROFIT DECLINED

In November 2019, Delete Group announced that it was exploring opportunities to sell all or part of the Demolition Services business. The company has received the required approvals for the divestments from the creditors and the sale process is ongoing. The Demolition Services 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 for continuing operations. Unless otherwise stated, all of the quarterly and full year figures which are presented in this report, including the corresponding 2018 periods, only include Continuing operations. In this Financial Statements bulletin, the Demolition Services is referred to as Assets held for sale and Cleaning Services and Recycling Services as Continuing operations.

HIGHLIGHTS OF OCTOBER–DECEMBER 2019

• Net sales decreased by -5% to EUR 31.2 (Q4 2018: 32.9) million
• EBITDA decreased by EUR -1.5 million to EUR 1.3 (2.8) million
• EBIT decreased by EUR -2.7 million to EUR -1.9 (0.8) million
• Net debt increased by 22% to EUR 122.4 (100.0) million, of which EUR 8.8 million due to IFRS 16 adoption
• Operative cash flow decreased by EUR -6.0 million to EUR 7.4 (13.4) million
• Demolition Services business held for sale and reported according to IFRS 5
• Demolition Services’ goodwill impairment EUR 29.7 million had a significant impact on the Group’s loss for the period

HIGHLIGHTS OF JANUARY–DECEMBER 2019

• Net sales increased by 10% to EUR 125.8 (114.1) million
• EBITDA increased by EUR 1.6 million to EUR 11.7 (10.1) million
• EBIT decreased by EUR -3.6 million to EUR -1.0 (2.6) million
• Operative cash flow decreased by EUR -14.0 million to EUR 1.7 (15.7) million
• Bond tap of EUR 25 million was completed in April and utilised for the repayment of the revolving credit facility

KEY FIGURES

• Information about the formulas and Alternative Performance Measures are presented in the notes section of this interim review. All the figures represented are statutory unless otherwise mentioned.
• Delete Group has adopted IFRS 16 (Leases) on 1 January 2019 while partially using the modified retrospective approach, which means that the comparative information is not restated.
• Delete Group has renamed the former Industrial Cleaning Services as Cleaning Services.

OUTLOOK FOR 2020

The demand for Cleaning Services is expected to grow in 2020. Recycling waste volumes are expected to remain stable in 2020 and the market demand for recycled fuel is expected to gradually improve during 2020 thereby improving Recycling Services’ profitability.

Delete Group’s continued operations’ operating profit is expected to improve in 2020.

TOMMI KAJASOJA, CEO OF DELETE GROUP:

“The fourth quarter was challenging in both continuing operations Cleaning Services and Recycling Services, with sales and operating profit not reaching the previous year’s level. Cleaning Services and Recycling Services were performing on a typical late autumn level, but the operating profit in both businesses weakened toward the year end.

For the full year, Delete Group's growth continued in 2019. The growth was mainly driven by acquisitions made in 2018, but the net sales grew also organically. The Group's net sales increased by 10%, of which 1% organically, but the operating profit fell below the previous year’s level.

Net sales of Cleaning Services grew by 11%, supported by acquisitions in the third quarter 2018. For maintenance shutdowns, the year was quieter than the previous year, which impacted the development of organic net sales. Profitability was negatively impacted by challenges with subcontractor management in the second quarter and cost overruns in the fourth quarter.

Recycling Services net sales grew organically 13%, but profitability was lower than in the previous year due to low demand for recycled fuel and operations disruptions related to the construction of storage facilities at the main recycling plant at Rusko in the fourth quarter. We have invested considerably in increasing capacity and efficiency at Rusko's recycling plant since 2018. As a result of our investments, we expect the profitability of Recycling Services to improve in 2020.

Even though we did not make any acquisitions in 2019, we are actively monitoring the opportunities to expand the business further also inorganically.

Customer and employee satisfaction remained on a high level in 2019, 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.

The sale process of Demolition Services is progressing. By reducing the complexity of the group, reducing project business risks and allocating more resources, Delete Group will be able to focus on the long-term development of the more stable environmental service businesses with Cleaning Services as the backbone supported by Recycling Services.

We will continue the implementation of our efficiency-enhancing measures across all segments and support functions, in terms of both cost structure and delivery efficiency, and we expect their impact to continue developing favourably in 2020.”

OPERATING ENVIRONMENT

Cleaning Services

The underlying core demand for Cleaning Services remains stable while the industrial shut-down schedule will be busier in 2020 than in 2019. 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.

Recycling services

Increasing environmental awareness continues to drive improvements and new regulations, such as the EU’s 70% recycling target by 2020 and the landfill ban on construction and demolition waste. Regulatory development in both the EU Circular Economy Action plan and national legislation as well as generally increasing sustainability awareness continue to support the growing demand for recycling services. The market demand for recycled fuel (REF) has continued at a low but stabilized level and is expected to develop favourably during 2020.

NET SALES

In the fourth quarter, Delete Group’s net sales were EUR 31.2 (32.9) million, representing year-on-year organic growth of -5% with both of the continuing operations, Recycling Services and Cleaning Services, contracting.

The net sales of Cleaning Services were EUR 25.3 (26.8) million, growing by -6% organically. Recycling Services’ net sales declined organically by -3% to EUR 7.2 (7.4) million with slightly lower general market demand than a year ago.

The Group’s net sales in January–December amounted to EUR 125.8 (114.1) million growing 10% from 2018 acquisitions and 1% organically. The growth was fuelled by strong organic growth in Recycling Services (13%), which was mainly driven by price increases implemented to compensate for increased REF market costs and supported by considerable investments in capacity during recent quarters. Cleaning Services grew by 11%, mainly as a result of 2018 acquisitions (12%), while organic growth was -1 %.

NET SALES BY SEGMENT

The net sales by segment information includes intercompany sales, which is eliminated separately to form consolidated Group sales, and is the basis for reported growth measures for the segments.

W-Tech AB and Waterjet Stockholm AB, acquired in 2018, have been reclassified to Cleaning Services from Demolition Services in 2019. The 2018 sales have been reclassified accordingly.

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the fourth quarter of 2019 decreased by EUR -2.6 million from the previous year to EUR -0.9 (1.7) million. Operationally, the EBIT was adversely affected by construction related disruptions in Recycling Services and execution overruns in Cleaning Services.

In the fourth quarter, Cleaning Services’ EBIT-% weakened to 3% (8%) due to lower sales volume and execution cost overruns for continued assignments in business acquired in 2018. Recycling Services EBIT-% did not reach the previous year’s level, as profitability was, to some degree, adversely affected by operation disruptions due to a construction of storage facilities at the main recycling plant at Rusko. The last of the constructed facilities is expected to be inaugurated in March-April 2020.

The IFRS 16 Leases, adoption has had a minor favourable impact on the operating profit and a significantly more favourable impact on the EBITDA in January–December 2019. The impact in January–December 2019 for lease expenses was a decrease of EUR -4.8 million, for depreciation costs an increase of EUR 4.5 million and for interest expenses an increase of EUR 0.4 million.

The Group’s adjusted EBIT for January–December 2019 amounted to EUR 0.5 (4.4) million. Cleaning Services EBIT was close to the previous year’s level, while Recycling Services’ result was weaker than in 2018 mainly due to challenges in the first half of the year mainly related to increased REF exiting costs.

EBITDA BY SEGMENT

EBIT BY SEGMENT

From 1 January 2019, the internal management fee has been allocated to the Administration unit instead of the two business segments. 2018 has been restated accordingly. The impact on segment EBIT in January–December 2018 is a decrease of EUR 2.1 million in Administration and correspondingly an increase of EUR 0.9 million in the Cleaning Services and an increase of EUR 1.1 million in the Demolition Services (held for sale). EBITDA is not affected by the reclassification and is comparable.

W-Tech AB and Waterjet Stockholm AB, acquired in 2018, have been reclassified to Cleaning Services from Demolition Services in 2019. Comparative 2018 profits have been reclassified accordingly.

In October–December, net financial expenses amounted to EUR -1.7 (-1.4) million and in January–December to EUR -8.4 (-6.9). The increase was mainly related to increased interest-bearing liabilities. In October–December, profit before taxes amounted to EUR -3.6 (-0.6) million and in January–December to EUR -9.4 (-4.3) million. In October–December, income taxes amounted to EUR 1.2 (1.2) million and in January–December to 0.0 (0.1) million. In October–December, the net result for the financial period for continuing operations amounted to EUR -2.3 (0.7) million and in January–December to EUR -9.4 (-4.2) million.

In October–December, the net result for the financial period including assets held for sale amounted to EUR -33.9 (-1.9) million and in January–December to EUR -42.1 (-0.5) million affected by goodwill impairment for the assets held for sale of EUR -29.7 million.

FINANCING AND FINANCIAL POSITION

In October–December, cash flow from operating activities was EUR 7.4 (13.4) million and for January–December EUR 1.7 (15.7) million. The decrease was driven by lower operating profit, increased financing costs and high amount of collected receivables in 2018 from acquired businesses, which did not recur in 2019.

Delete Group’s cash and cash equivalents at the end of December 2019 including cash in assets held for sale were EUR 5.2 (8.5) million. The Group’s interest-bearing debt was EUR 127.6 (108.4) million, consisting mainly of a EUR 110.0 million secured bond, a EUR 7.0 million drawn revolving credit and lease liabilities. The Group has undrawn revolving credit facilities of EUR 18.0 million to be used for general corporate purposes, acquisitions and capital expenditure. The revolving credit facility’s quarterly maintenance covenant for debt leverage of drawn RCF over adjusted EBITDA was complied with at the end of December 2019.

At the end of December 2019, the Group’s net debt amounted to EUR 122.4 (100.0) million, increasing mainly due to lower level of earnings and an increase of EUR 8.8 million of lease liabilities deriving from the adoption of IFRS 16.

The balance sheet total at the end of December 2019 was EUR 195.1 (223.7) million, decreasing mainly because of a goodwill impairment of EUR -29.7 million for the assets held for sale. Property, plant and equipment totalled EUR 34.5 (48.3) million decreasing mainly due to IFRS 5 classification of assets held for sale. The equity ratio⁵⁾ was 14.5% (31.5%). In addition to the IFRS 5 implications and related goodwill impairment, the balance sheet total and equity ratio were affected by the implications of IFRS 16 adoption.

Under IFRS 5, assets held for sale are included in the Group’s balance sheet, but compiled and reported under separated specified line items, amounting to EUR 45.1 million of assets and EUR 11,0 million of liabilities. IFRS 5 implications are reported in more detail in the notes section of this financial statements bulletin.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

Capital expenditure in intangible and tangible assets excluding acquisitions for October–December 2019 was EUR 1.9 (3.3) million. For January–December, capital expenditure in intangible and tangible assets was EUR 5.2 (8.8) million. There were no acquisitions during January–December, but a EUR 2.0 million purchase price settlement was completed in the first quarter for an acquisition closed in the third quarter of 2018.

R&D EXPENDITURE

In January–December 2019, R&D-related expenditure was immaterial and was related to minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

Extraordinary General Meeting of Delete Group Oyj held on 9 January 2020 appointed Martin Forss, M. Sc. (Econ.), as a new member of the Board of Directors. Convening after the Extraordinary General Meeting, the Board of Directors meeting elected Mr Forss as the Chairman of the Board.

Former Chair of the Board Åsa Söderström Winberg will continue as a member of the Board of Directors. She has been a member of the Board of Directors since 2014 and the Chairman of the Board since 2017.

Christian Schmidt-Jacobsen and Ronnie Neva-aho will continue as members of the Board of Directors.

SUMMARY OF SIGNIFICANT RISKS AND RISK MANAGEMENT

Delete Group carries out 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, operative and financing risks.

Operational risks are mainly related to project execution and the integration of acquired businesses both quality-wise and financially. The internal control environment is under constant development to improve preventative measures.

Financing risks are mainly related to interest rates, credit and liquidity.

Other uncertainties are related to the market environment as well as the successful implementation of the Group’s growth strategy and related corporate acquisitions, personnel and recruitments.

With the divestment of Assets held for sale, the risk for project executions will decrease significantly. The Group has not identified other relevant changes that can be expected to have a significant influence on the business, given the risks mentioned above, at the end the fourth quarter in 2019.

SHARES AND SHAREHOLDERS

The number of registered shares in Delete Group Oyj is 10,858,595 P-shares and 3,089,649 C-shares. All of the shares have one vote each. The Group is owned by Ax DEL Oy (85% of the shares) and a group of key employees and other minority investors (15%). 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 2 April 2019 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 2018. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2018.

Åsa Söderström Winberg, Holger C. Hansen (resigned in August 2019) and Ronnie Neva-aho were re-elected as members of Board of Directors and Christian Schmidt-Jacobsen was elected as a new member. Convening after the Annual General Meeting, the Board of Directors elected Åsa Söderström Winberg as its chair.

KPMG Oy Ab was elected to continue as the Auditor of the company and Teemu Suoniemi, Authorised Public Accountant, will act as the Principal Auditor.

The Chair of the Board will be paid EUR 40,000 and the Board members EUR 22,000 as remuneration for 2019. The appointed members of the Audit Committee and the Project 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 2019 including assets held for sale totalled EUR -33.9 million, and the net profit of the parent company was EUR -0.7 million. The parent company’s distributable funds on 31 December 2017 totalled EUR 67.9 million.

The Board of Directors will propose to the Annual General Meeting, that no dividend be paid.

STATEMENT OF ACCOUNTING POLICIES FOR FINANCIAL STATEMENTS BULLETIN

This financial statements bulletin has been prepared according to IAS 34 standard. The same accounting standards have been used as in the Financial Statements apart from the IFRS 16 standard, which has been adopted from 1 January 2019.

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’s 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 2020

Delete Group Oyj will publish the interim review January–March 2020 on 15 May 2019, the half year financial report January–June 2020 on 21 August 2020 and the interim review January–September 2020 on 13 November 2020.

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 amortization costs

²⁾ Adjustment definition: adjustments are material items outside the ordinary course of business affecting comparability, e.g. 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 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 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 applied in this Financial statements bulletin are the same as those applied in the annual financial statements, apart from the IFRS 16 standard, which has been adopted from 1 January 2019.

IFRS 16 Leases

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. IFRS 16 replaces the former IAS 17 standard and related interpretations.

The Group has applied IFRS 16 initially on 1 January 2019, using the modified retrospective approach which means that the comparative information has not been restated. The Group has recognized new assets and liabilities for its operating leases of premises and machinery. Under IAS 17 the Group recognized finance leases on balance sheet as asset and liabilities which have been transferred as such to opening balance 1 January 2019.

In transition the impact on balance sheet was EUR 11,2 million due to recognizing new assets and liabilities. IFRS 16 has also changed the nature of expenses as a depreciation charge for right-of-use assets and interest expense on lease liabilities will be recognized instead of lease expenses. The Group has applied exemptions for both to short-term leases and low value leases.

IFRS 16 impacts on the balance in transition are presented in the table below:

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 1 January 2019. The applied range of rates has been 2-4%.

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation brings clarity to the accounting for income tax treatments that have yet to be accepted by tax authorities. The key test is whether the tax authority will accept the company’s chosen tax treatment. When considering this the assumption is that tax authorities will have full knowledge of all relevant information in assessing a proposed tax treatment. The interpretation has not had any significant impacts from this interpretation.

Assets held for sale and discontinued operations

In November 2019, Delete Group announced that it was exploring opportunities to sell all or part of the Demolition Services business. The company has received the required approvals for the divestments from the creditors and the sales process is ongoing.

The Demolition Services business 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 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.

Operating profit (EBIT)

Operating profit (EBIT) consists of sales and other operating income less 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 operating profit.

Financing

In the Second quarter, Delete Group Oyj issued a tap of senior secured floating rate notes in a nominal amount of EUR 25 million. The subsequent notes, which mature on 19 April 2021, had an issue price of 100,00 per cent (par), and bear a floating rate of EURIBOR 3 months plus a margin of 5 per cent per annum, payable quarterly in arrears commencing on 19 April 2019. The proceeds from the tap issue were applied towards repayment of drawings under the company’s EUR 25 million super senior revolving credit facility and other existing financial indebtedness.

SEGMENT REPORT

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

The Industrial 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.

The Recycling Services Segment provides services such as recycling and waste processing, reception of oily waste, open large waste container services and crushed concrete 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.

Operating profit (EBIT) is the measure of profit or loss for the reportable segment which is regularly reviewed by the Board of Directors to make decisions about resources to be allocated to the segments and assess their performance. Segment assets and liabilities are not presented as these are no regularly monitored by the Board of Directors.

Administration costs are not allocated to segments but are presented separately. Any transactions between segments are based on market prices. 

There is not a single external customer amounting to 10 per cent or more of the Group’s revenues.

DISAGGREGATION OF REVENUE

CHANGES IN INTANGIBLE ASSETS

CHANGES IN TANGIBLE ASSETS

CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES

KEY EVENTS AFTER THE REPORTING PERIOD

Extraordinary General Meeting of Delete Group Oyj held on 9 January 2020 appointed Martin Forss, M. Sc. (Econ.), as a new member of the Board of Directors. Convening after the Extraordinary General Meeting, the Board of Directors meeting elected Mr Forss as the Chairman of the Board.

Former Chair of the Board Åsa Söderström Winberg will continue as a member of the Board of Directors. She has been a member of the Board of Directors since 2014 and the Chairman of the Board since 2017.

Christian Schmidt-Jacobsen and Ronnie Neva-aho will continue as members of the Board of Directors.

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

Tommi Kajasoja, CEO of Delete Group Oyj

E-mail: tommi.kajasoja@delete.fi

Appointment requests via Helena Karioja, tel. +358 40 662 7373

www.delete.fi

DELETE GROUP IN BRIEF

Delete Group is a leading environmental full-service provider in the Nordics. The Group offers specialist competencies and specialised equipment through three business areas: Cleaning Services, Demolition Services (held for sale) and Recycling Services. Delete was formed in 2010 through the combination of Toivonen Yhtiöt and Tehoc and was acquired by private equity investor Axcel in 2013. Since 2011, Delete has made over 34 acquisitions within the cleaning services and demolition segments.

The Group is headquartered in Helsinki and employs approximately 1,000 professionals at over 34 locations in Finland and Sweden.