Strong growth, profit suppressed by cost overruns at one site

DELETE GROUP OYJ

Interim Financial Statements January–June 2021 (IFRS, IAS 34, unaudited)

STRONG GROWTH, PROFIT SUPPRESSED BY COST OVERRUNS AT ONE SITE

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: APRIL–JUNE 2021

• Net sales increased by 48% to EUR 41.7 (Q2 2020: 28.1) million
• EBITDA increased by EUR 1.2 million to EUR 3.5 (2.3) million
• EBIT increased by EUR 1.3 million to EUR 0.3 (-1.0) million
• Operative cash flow increased by EUR 11.6 million to EUR 11.2 (-0.4) million

KEY POINTS: JANUARY–JUNE 2021

• Net sales increased by 25% to EUR 64.3 (51.5) million
• EBITDA increased by EUR 0.9 million to EUR 2.7 (1.8) million
• EBIT increased by EUR 0.9 million to EUR -3.7 (-4.6) million
• Operative cash flow increased by EUR 13.5 million to EUR 14.4 (0.9) 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 million
• Net debt decreased from year end 2020 by EUR 50.4 million to EUR 67.9 (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 these Interim Financial Statements. 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.

TOMMI KAJASOJA, CEO OF DELETE GROUP:

“The second quarter was two-fold with high activity levels across the Group but with very disappointing earnings due to execution issues in one large customer site. While we missed the second quarter profit target considerably due to this one specific site, and are not likely to recover that gap in the second half, we still expect the full year operating profit to improve from last year.

In Cleaning Services, we delivered the highest quarterly revenue of all time, driven by the large shutdown service in Finland. Unfortunately, the challenging execution environment, to some degree affected by coronavirus restrictions and related lowered productivity, resulted in labour cost overruns and consumed the expected higher margins. Due to the challenges and extensive scope requirements we had to subcontractwork more than expected. We will reassess and improve our operating models to ensure better outcome in future shutdowns of this size. I am pleased to note that the other Cleaning Service business is growing and performing well, especially in Sweden with new sizable customers gained recently, giving us confidence going forward.

I am also very pleased with Recycling Services’ development, with net sales growing by 10% and EBITDA by 23% in the second quarter, continuing on a good track as expected after process improvements and investments made last year. Operations at our main recycling plant in Tampere, Finland, are functioning well, and the improved REF market in combination with well secured incineration exit capacity will enable further controlled and profitable growth. We have recently invested in improving our waste and sustainability reporting capabilities to support our customers’ needs, and will continue to do.

Implemention the new strategy after the Demolition Services divestment is progressing well, including the ongoing cost base restructuring, which will be more visible in the second half result after our recent ICT systems change in Finland. The focus on growing our service business is gaining traction, further fuelled with recent investments in reinforcing our commercial capability and customer service level improvement efforts. In spite of the current insecurity due to the pandemic, we feel that the market is recovering well in both our business areas and we have managed to gain new customers and contracts to support our continuing growth beyond 2021.

We anticipate the coronavirus impact on our business to gradually ease up, but we will continue to enforce tight cost and cash flow controls and prepare ourselves 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 health & safety precautions every day, protecting not only our employees but also our customers and partners with whom we are in contact.

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.

NET SALES

In the second quarter, Delete Group’s net sales of continuing operations were EUR 41.7 (28.1) million, representing a year-on-year growth of 48%, with both business areas contributing to the positive development.

As expected, net sales of Cleaning Services increased considerably after the winter entering a high season in the second quarter reaching EUR 36.6. (23.3.) million growing 57%. The high year-on-year growth is mainly due to the aforementioned sizable shutdown in 2021, but the underlying services grew as well. The comparison period in 2020 was low, with several assignments postponed by our customers due to the first wave of the coronavirus pandemic.

Recycling Services’ net sales grew by 10% to EUR 6.3 (5.7) million enabled partially by the gradually recovering market, but also with new gained customers and the expansion of services offering in waste exit quotas.

The Group’s net sales in January–June amounted to EUR 64.3 (51.5) million. The growth of 25% was enabled by the second quarter performance, while the first quarter was slightly behind the previous year due to a harsh winter hindering outdoors services demand.
 

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 second quarter of 2021 increased by EUR 0.4 million from the comparison period to EUR 0.5 (0.1) million. The contribution effect from the increased volume was low in Cleaning Services.

In the second quarter, Cleaning Services’ EBIT percentage declined to 4% (5%), adversely impacted by low margin contribution from one specific site, the aforementioned sizable shutdown, while the underlying business performed on normal profitability levels. Profits from this shutdown were greatly suppressed by excess labour costs, both for internal workforce and subcontractors. This was caused by lowered productivity due to coronavirus controls, extended service scope and prolonged work schedule that caused considerable additional costs, partially under fixed price contract arrangements. Further, the services margin mix was low,as a high degree of the delivered scope was non-core mechanical installations with inherently lower margins than on the industrial cleaning services side.

Recycling Services’ performance continued at an improved level in the second 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 and strengthened production controls.

Administration was burdened with much less non-recurring costs than in 2020. The underlying cost base wason a similar level as in the previous year, on comparable basis excluding the divested Demolition Services.Post-divestment cost base reductions will be more visible in the second half of 2021.

The Group’s adjusted EBIT for January–June 2021 amounted to EUR -3.0 (-3.0) million. The second quarter improvement 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 April–June, net financial expenses amounted to EUR -0.9 (-0.1) million consisting mainly of interest costs. In January–June, net financial expenses amounted to EUR 21.3  (-3.6) million, favourably affected by the EUR 24.8 million write-down of the nominal value of senior secured notes. Gross financial expenses were EUR -3.5 (-3.6) million.

In April–June, profit before taxes amounted to EUR -0.6 (-1.1) million and in January–June to EUR 17.6 (-8.3) million. In January–June, net result for the financial period for continuing operations amounted to EUR 17.3 (-8.4) million, affected by the notes write-down.

In January–June, net result for the financial period including assets held for sale amounted to EUR 15.3 (-6.7) million.
 

FINANCING AND FINANCIAL POSITION

In April–June, cash flow from operating activities was EUR 11.2 (-0.4) million. The significant increase was mainly enabled by non-recourse factoring of receivables, taken into use in the fourth quarter of 2020. The factoring effect in the second quarter was approximately EUR 11.1 million. In January–June, cash flow from operating activities was EUR 14.4 (0.9) million with the non-recourse factoring contributing approximately EUR 15.0 million.

Delete Group’s cash and cash equivalents at the end of June 2021 were EUR 11.6 (5.0) million. The Group’s interest-bearing debt was EUR 79.5 (127.8) million, consisting mainly of EUR 60.0 million secured notes after a partial repayment of EUR 5.0 million on 14 May 2021, a EUR 10.0 million drawn revolving credit (SSRCF) and lease liabilities of EUR 10.6 million. At the end of June, the Group had fully drawn its SSRCF facility, which was on 14 April extended by EUR 3 million to EUR 10 million to be used for general corporate purposes, acquisitions and capital expenditure. There were no maintenance covenants for financing facilities in the second quarter 2021.

At the end of June 2021, the Group’s net debt amounted to EUR 67.9 (122.7) 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 new 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 June 2021 was EUR 145.3 (185.5) million, decreasing mainly because the sale of Demolition Services and related impairment of assets. Property, plant and equipment totalled EUR 27.3 (32.9) million decreasing due to  deferred capital expenditure during the coronavirus pandemic period. The equity ratio⁵⁾ at the end of June 2021 was 16.1% (11.7%).

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 these Interim Financial Statements.

CHANGE OF AUDITOR

The Group’s auditor KPMG has appointed a new principal auditor for Delete Group, Ari Eskelinen, CPA, effective from 30 June 2021.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

In April–June 2021, capital expenditure in intangible and tangible assets excluding acquisitions was EUR 0.5 (0.5) million and in January–June 2021 EUR 1.0 (1.5) 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–June 2021.

R&D EXPENDITURE

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

KEY EVENTS AFTER THE REPORTING PERIOD

There has been no material events after the reporting period.

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 second quarter in 2021.

SHARES AND SHAREHOLDERS

The number of registered shares in Delete Group Oyj is 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 and discharged the members of the Board of Directors and the CEO from liability for the financial year 1 January–31 December 2020. 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. 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’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 these Interim Financial Statements is unaudited.

FINANCIAL CALENDAR 2021

Delete Group Oyj will publish the interim review for January–September 2021 on 17 November 2021.

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, 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

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’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 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 2021.

IFRIC’s new agenda decision regarding cloud computing and related guidance for capitalization of certain implementation costs has no material effect on Delete Group’s accounting principals or financial reporting, any possible immaterial adjustments will be specified during the third 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 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.

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.

Financing

Delete Group announced on 16 December 2020 a restructuring proposal to the noteholders of the senior secured notes issued by Delete Group Oyj. The restructuring proposal included certain amendments to the terms and conditions of Delete Group Oyj’s senior secured notes, including a write-down the principal of the notes with approximately EUR 24.8 million and an extension of the maturity of the notes with three years, which were subject to certain conditions. The conditions included, among others, an immediate redemption of the notes in an aggregate amount of EUR 15 million and new equity investments by Delete’s shareholders in an aggregate amount of at least EUR 10 million as well as further redemptions of EUR 10 million by the funds obtained from receivables sold under Delete Group’s (non-recourse) factoring arrangement in two instalments of EUR 5 million each.

On 15 January 2021, Delete announced the successful completion of a written procedure regarding the senior secured notes, as proposed on 16 December 2020.

On 16 January 2021, an Extraordinary General Meeting of Delete Group Oyj approved a new share issue of EUR 10 million, in order to raise capital for a partial redemption of the outstanding notes, as required in the amended Terms and Conditions, approved by the noteholders on 15 January 2021.

On 29 January 2021, Demolition Services in Finland was divested with a purchase price of EUR 7.3 million to Lotus Maskin & Transport AB. On 5 February 2021, Delete announced that the conditions for effectiveness of the amendments to the terms and conditions of its secured notes were satisfied with the amendments to the Terms and Conditions becoming effective on the same date, 5 February 2021.

On 12 February 2021, Delete made a EUR 20 million partial redemption of the notes, consisting of the required EUR 15 million redemption as well as the first EUR 5 million instalment to be made from the factoring proceeds, in accordance with the amended Terms and Conditions and the conditions for such amendments, financed by the new share issue, factoring proceeds and proceeds from the sale of Demolition Services in Finland.

On 12 February 2021, Delete’s new super senior revolving credit facility (SSRCF) with Collector Bank AB became effective, replacing the existing SSRCF with Nordea Bank Plc. Nordea Bank Plc will continue to provide an EUR 2.0 million guarantee facility to Delete.

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.

SEGMENT REPORTING

The Group has two reportable segments for the Continuing Operations, 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 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 Recycling Services receives and processes 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.

Post emergency services and firestop installation services have been reclassified from Demolition Services to Cleaning Services in Q4 2020. Comparative 2020 sales and profitability has been reclassified accordingly.”

Any transactions between segments are based on market prices. 

REVENUE STREAMS

BUSINESS COMBINATIONS

Delete Group had no business combinations during 1-6/2021. The Group’s remaining Demolition Services business was divested in January 2021.

CHANGES IN INTANGIBLE ASSETSCLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES

KEY EVENTS AFTER THE REPORTING PERIOD

There has been no material events after the reporting period.

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 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.