Steady development with continuing growth

Delete Group Oyj                  Stock Exchange Release                          12 November 2021 at 12:00 p.m. EET               

DELETE GROUP OYJ

Interim Review January–September 2021 (IFRS, unaudited)

STEADY DEVELOPMENT WITH CONTINUING GROWTH

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 financials for continuing operations. More information is available in the notes section.

KEY POINTS: JULY–SEPTEMBER 2021

•         Net sales increased by 4% to EUR 34.0 (Q3 2020: 32.7) million

•         EBITDA decreased by EUR 0.2 million to EUR 4.8 (5.0) million

•         EBIT decreased by EUR 0.1 million to EUR 1.6 (1.7) million

•         Operative cash flow decreased by EUR 1.1 million to EUR -2.8 (-1.7) million

KEY POINTS: JANUARY–SEPTEMBER 2021

•         Net sales increased by 17% to EUR 98.3 (84.2) million

•         EBITDA increased by EUR 0.7 million to EUR 7.5 (6.8) million

•         EBIT increased by EUR 0.8 million to EUR -2.1 (-2.9) million

•         Operative cash flow increased by EUR 12.5 million to EUR 11.7 (-0.8) million

•         Remaining Demolition Services business was divested in January 2021

•         Group equity increased from year end 2020 by EUR 25.3 million to EUR 23.4 (-1.2) million

•         Net debt decreased from year end 2020 by EUR 45.9 million to EUR 72.4 (118.3) million

KEY FIGURES

Post Emergency Services and Firestop Installation Services have been reclassified from Assets held for sale to Continuing operations (Cleaning Services) in 2020. Comparative 2020 financials in the table above have been reclassified accordingly.

 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 2021

The demand for Cleaning Services and Recycling Services are expected to gradually recover in 2021. The Group’s efficiency and productivity are expected to improve compared to the previous year.

Delete Group’s continued operations’ operating profit is expected to improve in 2021.

Due to the coronavirus pandemic, the outlook contains more uncertainty than usual and is based on the assumption that there are no material changes in the operating environment or scheduled work postponements or cancellations due to the pandemic.

SIRPA OJALA, CEO OF DELETE GROUP:

“Overall development of Delete’s third quarter was positive with net sales growing by 4% compared to the same quarter last year, where activity levels were high due to deferred deliveries from the second quarter of 2020 into third quarter of 2020. We believe we will improve our operating profit over last year, even if we are not likely to recover the second quarter disappointment, which had some effect still in the third quarter of 2021.

In Cleaning Services, Delete managed to exceed last year’s relatively high third quarter revenue on the back of well executed shut-downs, several with extended scopes, and the recent good customer acquisition development supported also by the recovering market. Operational profitability returned back to desired level, although EBITDA was still suppressed to some degree by the previously reported difficult one-off shutdown executed in the second quarter.

Recycling Services continued to develop well, with net sales growing by 7% and EBITDA improving considerably from the previous year. Operational efficíency has continued on a good and planned level since the process improvements and investments made last year. Operations at the main recycling plant in Tampere, Finland, are functioning well. The incineration exit capacity has improved and the REF market is developing positively. Delete has also invested in improving its waste and sustainability reporting capabilities to support its customers’ needs.

The coronavirus had no material impact on Delete’s business in the third quarter. We will continue to enforce tight cost and cash flow controls and prepare for quick manoeuvring with health & safety as well as efficiency aspects in mind, should the pandemic related issues further interfere with the planned assignments going forward. We  will continue to follow the necessary precautions every day, protecting not only our employees but also our customers and partners with whom we are in contact.

I am excited to be appointed CEO of Delete as of 1 November 2021. Delete is one of the leading environmental service providers in the Nordic countries and I see a lot of potential in developing the company further based on the strategy and direction that the Board has set for the company. My first task is to get to know the people and business well. I look forward to working together with Delete’s professional personnel. Together we will strive for a well functioning and cleaner society.”

OPERATING ENVIRONMENT

Cleaning services

The overall demand for cleaning services has been impacted by the coronavirus pandemic, but is gradually recovering and the underlying long-term core demand is relatively resilient and stable. Customers continue to demand capabilities to handle increasingly complex assignments with high-quality environmental, health & safety standards, which favours large professional players like Delete Group.

Recycling services

Increasing environmental awareness continues to drive improvements and new regulations. Regulatory development in 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 recovered and is expected to stabilise or to continue to grow through 2021 driven by the increase in the use of alternative fuels. The effects of the coronavirus pandemic are gradually easing up. There is currently some uncertainty related to building material supply shortages affecting our customers’ operations to some degree.

NET SALES

In the third quarter, Delete Group’s net sales of continuing operations were EUR 34.0 (32.7) million, representing a year-on-year growth of 4%, with both business areas contributing to the positive development.

Cleaning Services net sales EUR 29.0 (28.6) million grew by 1% supported by a well executed shut-down schedule and the recovering market. The comparison period in 2020 was fairly high, due to pandemic-related postponements of assignments from the second to the third quarter of 2020.

Recycling Services’ net sales grew by 7% to EUR 5.8 (5.4) million enabled partially by the gradually recovering market, but also with new customers and the expansion of services offering in waste exit quotas.

The Group’s net sales in January–September amounted to EUR 98.3 (84.2) million. The growth of 17% was enabled by the second quarter performance, while the first quarter was slightly behind the previous year due to a harsh winter hindering outdoor services demand and the third quarter almost on par with the previous year.

NET SALES BY SEGMENT

Post Emergency Services and Firestop Installation Services have been reclassified from Demolition Services to Cleaning Services in 2020. Comparative 2020 sales have been reclassified accordingly.

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the third quarter of 2021 increased by EUR 0.3 million from the comparison period to EUR 2.3 (2.0) million.The Group’s reported Operating Profit decreased in the third quarter to EUR 1.6 (1.7) million.

In the third quarter, Cleaning Services’ EBIT percentage was 9% (13%), improving over the second quarter but adversely effected by some late costs from the sizable one-off shut-down executed in the second quarter. The EBIT percentage was also negatively impacted by restructuring and disposal costs for the discontinued small firestops business in Finland and for infrastructure and concrete renovation services in Sweden. Operationally, the profitability of Cleaning Services was close to a normal and comparable level.

Recycling Services’ performance continued at an improved level in the third quarter with EBIT percentage of 10% (-7%) on the back of production efficiency improvements implemented during 2020 and with an active and improved REF market as well as strengthened production controls.

Administration costs were on a similar level as in the comparison period despite being burdened by non-recurring costs mainly related to an ICT system change in the third quarter. Delete expects that the divestment of Demolition Services early this year and the ongoing cost base restructuring will reduce the costs further considerably on annualised level, though only fractionally visible in 2021 reported result.

The recent ICT system change in Finland was successfully launched in July, with some additional improvements still being developed. Following the strategy map we have initiated a disposal process of the last remaining part of our non-core project business in Sweden, a low valued operation of infrastructure and concrete renovation services operated in the Stockholm region with some 34 FTEs in operation. The discontinued part of the business has lately been loss making and reported under discontinued businesses as a non-recurring item for periods after the disposal decision in August 2021.

The Group’s adjusted EBIT for January–September 2021 amounted to EUR -0.7 (-1.0) million and reported EBIT to EUR -2.1 (-2.9) million The second and third quarter improvements mitigated the slow first quarter result, adversely affected by the harsh wintery conditions in 2021.

EBITDA BY SEGMENT

EBIT BY SEGMENT

Post Emergency Services and Firestop Installation Services have been reclassified from Demolition Services to Cleaning Services in 2020. Comparative 2020 profitability has been reclassified accordingly.

In July–September, net financial expenses amounted to EUR -1.6 (-2.0) million consisting mainly of interest costs. In January–September, net financial expenses amounted to EUR 19.7 (5.6) million, favourably affected by the EUR 24.8 million write-down of the nominal value of senior secured notes. Gross financial expenses were EUR -5.0 (-5.7) million.

In July–September, profit before taxes amounted to EUR -0.0 (-0.5) million and in January–September to EUR 17.6 (-8.8) million. In January–September, net result for the financial period for continuing operations amounted to EUR 17.5 (-8.8) million, affected by the write-down of the nominal value of senior secured notes.

In January–September, net result for the financial period including assets held for sale amounted to EUR 15.5 (-6.9) million.

FINANCING AND FINANCIAL POSITION

In July–September, cash flow from operating activities was EUR -2.8 (-1.7) million, with net working capital levelling out after the second quarter’s high peak volumes. Non-recourse factoring of receivables, taken into use in the fourth quarter of 2020, had an impact of EUR -1.9 million in the third quarter cash flow from operating activities. In January–September, cash flow from operating activities was EUR 11.7 (-0.8) million with the non-recourse factoring contributing approximately EUR 13.2 million.

Delete Group’s cash and cash equivalents at the end of September 2021 were EUR 7.0 (3.7) million. The Group’s interest-bearing debt was EUR 79.4 (132.0) million, consisting mainly of EUR 60.0 million secured notes, a EUR 10.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 10.4 million. At the end of September, the Group had fully drawn its EUR 10 million SSRCF facility, used for general corporate purposes, acquisitions and capital expenditure. There were no covenants for financing facilities in the third quarter 2021.

At the end of September 2021, the Group’s net debt amounted to EUR 72.4 (128.5) million, decreasing mainly due to the financial restructuring completed in February 2021 with the following main items:

• The bond maturity was extended by three years to 19 April 2024
• The bond nominal value was written off by EUR 24.8 million in February 2021
• The bond was partially repaid by EUR 20 million in February 2021 and further by EUR 5 million on 14 May 2021
• The repayment was funded by EUR 10 million newly raised equity in February 2021, EUR 5 million from Demolition Services divestment proceeds and EUR 5+5 million by factoring proceeds.

The significant reduction of interest-bearing debt and new share capital raised in the first quarter had a net impact of EUR 34.8 million on improved consolidated equity, and the amount of the notes outstanding decreased from EUR 109.8 million to EUR 60.0 million.

On 14 April 2021, the SSRCF limit was increased by EUR 3 million to EUR 10 million.

On 30 April 2021, Delete announced that it had reached a factoring threshold of EUR 10 million. A committed EUR 5 million partial redemption of the notes due 2024 was carried out on 14 May 2021, lowering the notes’ nominal value further down to EUR 60 million.

The balance sheet total at the end of September 2021 was EUR 137.1 (188.1) million, decreasing mainly because of the sale of Demolition Services and related impairment of assets. Property, plant and equipment totalled EUR 26.3 (31.5) million decreasing due to  deferred capital expenditure during the coronavirus pandemic period. The equity ratio5) at the end of September 2021 improved to 17.2% (11.4%).

After the completion of the Demolition Services divestment on 29 January 2021, Delete Group no longer carries assets classified under IFRS 5. IFRS 5 implications are reported in more detail in the notes section of this Interim Review. Swedish concrete renovation business, discontinued in the third quarter 2021, is not classified as an IFRS 5 asset, but reported as adjustment item to EBITDA and EBIT instead.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In July–September 2021, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.5 (0.2) million and in January–September 2021 EUR 1.5 (1.6) million. Capital expenditure was relatively low partially due to deferred maintenance investments in preparation for coronavirus pandemic related liquidity assurance.

On 29 January 2021, Delete Finland Oy, a group company of the Delete Group, sold all the shares in Delete Demolition Oy, a fully owned subsidiary operating in the Demolition Services business area, to Lotus Maskin & Transport AB for a purchase price of EUR 7.3 million. After the transaction, Delete Group no longer operates in Demolition services business.

There were no acquisitions during January–September 2021.

CHANGES IN MANAGEMENT

As announced on 26 October 2021, Sirpa Ojala replaced Tommi Kajasoja as Delete’s CEO on 1 November 2021.

Management team member, General Counsel Janika Vilkman, has resigned and left Delete on 4 October 2021 to pursue other opportunities.

R&D EXPENDITURE

In January–September 2021, R&D-related expenditure was immaterial and related to minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

As announced on 26 October 2021, Sirpa Ojala replaced Tommi Kajasoja as Delete’s CEO on 1 November 2021.

Management team member, General Counsel Janika Vilkman, has resigned and left Delete on 4 October 2021 to pursue other opportunities.

SUMMARY OF SIGNIFICANT RISKS AND RISK MANAGEMENT

Delete Group conducts an extensive annual risk assessment analysis and, 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 due to the coronavirus pandemic, 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 coronavirus pandemic related uncertainties.

Other uncertainties are related to the market environment 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 hereinabove, at the end the third quarter in 2021.

SHARES AND SHAREHOLDERS

At the end of the third quarter, 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 (<90 % of the shares) and a group of key employees and other minority investors (>10%). 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 13 April 2021 adopted the Financial Statements for the financial year 1 January–31 December 2020 and discharged the members of the Board of Directors and the CEO from liability. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2020.

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 Teemu Suoniemi, Authorised Public Accountant, will act as the Principal Auditor. The Group’s auditor KPMG appointed a new principal auditor for Delete Group, Ari Eskelinen, CPA, effective from 30 June 2021.

The Chairman of the Board will be paid EUR 50,000 and the Board members EUR 22,000 as remuneration for 2021. 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. No remuneration shall be paid for the representatives of Axcel Management A/S. It was resolved that the remuneration for the Auditor shall be paid against an invoice.

STATEMENT OF ACCOUNTING POLICIES FOR INTERIM REVIEW

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 interim review is unaudited.

FINANCIAL CALENDAR 2022

Delete Group Oyj will publish the Financial Statements bulletin for January–December 2021 on 28 February 2022, the interim review January–March 2022 on 19 May 2022, the half-year financial report January–June 2022 on 24 August 2022 and the interim review 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.

*) The discontinued businesses are reported as adjustment items from the period of disposal decision. For the period January-September, the total effect is EUR 0.9 million.

FORMULAS

1) EBITDA = operating profit + depreciation and amortisation 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 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 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 accounting policies applied in this interim review 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 2021.

IFRIC’s new agenda decision regarding cloud computing and related guidance for capitalisation of certain implementation costs has no material effect on Delete Group’s accounting principles or financial reporting. Any possible immaterial adjustments will be specified during the fourth quarter 2021.

Assets held for sale and discontinued operations

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 interim review 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.

The net assets of the discontinued Demolition Services have been revaluated at year end 2020 according to the agreed sale price, resulting in a EUR 20.3 million write-off to net assets with an equal adverse effect on discontinued operations’ operating profit, the Group’s net profit and the Group’s equity accordingly.

On 29 January 2021, Delete Finland Oy, a group company of the Delete Group, sold all  shares in Delete Demolition Oy, a fully owned subsidiary operating in the Demolition Services business area, to Lotus Maskin & Transport AB for a purchase price of EUR 7.3 million. After the transaction, Delete Group no longer operates in the Demolition Services business. Any post-transaction costs related to Demolition Services are reported under IFRS 5 during 2021.

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

As announced on 26 October 2021, Sirpa Ojala replaced Tommi Kajasoja as Delete’s CEO on 1 November 2021.

Management team member, General Counsel Janika Vilkman, has resigned and left Delete on 4 October 2021 to pursue other opportunities.

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, a specialist that works for a more functioning and cleaner society. We provide our customers in the industrial sector, construction and real estate and the public sector with cleaning and recycling services that are critical to their operations. We maintain security of supply by helping the industry to optimise its production and cities and municipalities to keep the infrastructure in good condition and the living environment comfortable. We receive, recycle and handle waste safely, reliably and responsibly.

In 2020, our net sales were EUR 117 million. The Group is headquartered in Helsinki and employs approximately 700 professionals in more than 35 locations in Finland and Sweden.