THIRD QUARTER REMAINED CHALLENGING, OUTLOOK IMPROVING

Delete Group Oyj, Interim Review January–September 2020 (IFRS, unaudited) 13 November 2020 at 12:45 p.m. EET

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 in the notes section.

KEY POINTS: JULY–SEPTEMBER 2020

• Net sales decreased by -16% to EUR 31.0 (Q3 2019: 36.9) million
• EBITDA decreased by EUR -2.5 million to EUR 4.8 (7.3) million
• EBIT decreased by EUR -2.6 million to EUR 1.5 (4.1) million
• Operative cash flow decreased by EUR -3.0 million to EUR -1.7 (1.3) million

KEY POINTS: JANUARY–SEPTEMBER 2020

• Net sales decreased by -16% to EUR 79.3 (94.6) million
• EBITDA decreased by EUR -4.0 million to EUR 6.4 (10.4) million
• EBIT decreased by EUR -4.1 million to EUR -3.2 (0.9) million
• Operative cash flow increased by EUR 3.3 million to EUR -0.8 (-4.1) million
• Net debt increased by 0% to EUR 128.5 (128.1) million
• Demolition Services businesses in Sweden were divested in March 2020

KEY FIGURES

Information about the formulas and Alternative Performance Measures are presented in the notes section of this interim review. All the figures presented are statutory unless otherwise mentioned.

OUTLOOK FOR 2020

Delete withdraw its outlook on 3 April 2020 due to the COVID-19 pandemic and related uncertainty of economic development. As the uncertainty over the full-year performance has decreased, Delete reinstated its outlook on 10 November 2020.

Delete’s fourth quarter adjusted EBITDA for continued operations is expected to be on a similar or better level than in 2019. Adjusted EBITDA for continued operations in the fourth quarter 2019 was EUR 2.2 million.

Adjusted EBITDA for continued operations for the full year 2020 is expected to be lower than in the previous year. In 2019, adjusted EBITDA for continued operations was EUR 13.2 million.

Due to the COVID-19 pandemic, the outlook contains more uncertainty than usual and is based on the assumption that there are no material changes in the operating environment due to the pandemic.

TOMMI KAJASOJA, CEO OF DELETE GROUP:

“The third quarter was better than the challenging second quarter, but it was still short of the level of previous years, with continuing COVID-19-related issues regarding market demand. As expected, the industrial shutdown season commenced in the third quarter after delays from the spring and deliveries were carried out well in terms of quality, health & safety and efficiency.

Net sales of Cleaning Services declined by 15% in the third quarter of 2020. In some cases, our scope of delivery in the shutdowns was narrower than usual and our daily assignments activity was at a lower level than in the previous year, mainly in the industrial segment. Despite the lower demand, we managed to plan and execute resourcing, partially enabled by temporary layoffs, reasonably efficiently in the third quarter.

Recycling Services’ net sales declined by 19% in the third quarter, mainly due to the pandemic-related slowdown of incoming waste volumes and a large customer’s insourcing of waste processing. The operative performance remained at a good level in Recycling Services; however, the reported operating profit declined on the back of considerable non-recurring relocation costs and increased waste cost provisions. Following the Rusko plant interruptions in May, the site is currently in good operational shape and production processes are functioning well.

In addition to optimizing the operative resources in a suppressed market, our efficiency actions taken earlier this year decreased our administrative costs by over 30% in the third quarter, with further actions being prepared. To further protect our cash flow, we have postponed certain fleet investments, while the fleet maintenance programmes have continued according to schedule to secure operational capabilities.

The Demolition Services divestment process is ongoing in Finland, despite the general market uncertainty. Delete’s Demolition Services business in Finland is in reasonably good shape and currently delivers positive operating profit. Since the self-standing incorporation of the business in late 2019, it has been executing its growth strategy well. In August 2020, we announced our plan to also assess the divestment of the Recycling Business, which would enable us to focus and allocate additional resources on the long-term development of the Cleaning Services business. In line with these plans and to support our strategic goals, we have also made some changes in our management team.

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 COVID-19-related issues interfere with the planned fourth quarter assignments. 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. Throughout the pandemic, we have sustained a fully operational team with the ability to execute all tasks as usual.

Entering the fourth quarter, we have gained better visibility and published a new outlook in November, with a caveat concerning possible unexpected COVID-19 interruptions. The industrial shutdowns will continue in the fourth quarter and we also see some gradual recovery in the daily assignments activity in the Cleaning Services and improvement in incoming waste volumes for our Recycling Services business. In the medium and long term, we believe that the megatrends supporting our business have not changed and remain supportive, while some uncertainty concerning demand remains in the short to mid-term.”

MARKET ENVIRONMENT

Cleaning services

The overall demand for cleaning services has been impacted by COVID-19 to some degree, but 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 favour 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 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 stabilised level and is expected to develop favourably through 2021.

NET SALES

In the third quarter, Delete Group’s net sales of continuing operations were EUR 31.0 (36.9) million, representing a year-on-year decline of 16%. While the activity improved over the low second quarter activity level, the COVID-19 implications were still apparent.

The net sales of Cleaning Services were EUR 26.9 (31.7) million, declining by 15%. The postponed shutdowns from the second quarter commenced in the third quarter. The scope of delivery for shutdown work was narrower than usual and the daily assignments were at a lower level than in the previous year.

Recycling Services’ net sales declined by 19% to EUR 5.4 (7.7) million on the back of two main drivers: COVID-19-related temporary slow-down, which covered for the majority of the decline, and the loss of a key customer that decided to insource its waste processing.

The Group’s net sales in January–September amounted to EUR 79.3 (94.6) million. The decline of 16% is mainly caused by COVID-19-driven lower demand for daily maintenance services for the industrial cleaning segment, postponed shutdowns and the COVID-19-related slow-down of waste volumes.

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.

FINANCIAL PERFORMANCE

The Group’s adjusted operating profit (EBIT) during the third quarter of 2020 decreased by EUR -2.6 million from the previous year to EUR 1.8 (4.1) million. The volume effect of declined sales was mitigated to some degree by the lower cost base for Administration. The restructuring of Administration has mainly affected Sweden.

In the third quarter, Cleaning Services’ EBIT-% weakened to 13% (18%) caused by lower sales due to somewhat reduced shutdown scopes, lower demand for daily assignments and some unfavourable mix effect. Productivity was reasonably well managed by operational resource planning and temporary layoffs.

Recycling Services’ operational performance continued at an improved level in the third quarter, however the reported EBIT -8% (7%) was adversely impacted by considerable non-recurring logistics costs related to a relocation of stored REF, affecting comparability. Further, Recycling Services EBIT was burdened with an increased disposal cost provision on the back of unit cost level increases for stored REF produced in previous periods.

The Group’s adjusted EBIT for January–September 2020 amounted to EUR -1.3 (1.7) million. The Group’s adjusted EBIT was negatively impacted by Cleaning Services’ profitability, which suffered from the low sales in the second and third quarters due to postponed shutdowns and lower than normal daily assignment demand. Despite lower volumes, Recycling Services’ adjusted profitability remained stable and the reduced administration cost base had a positive impact on the Group’s adjusted EBIT. Without adjustments and including non-recurring items, such as costs from divestment processes, Group EBIT declined from EUR 0.9 million to EUR -3.2 million.

EBITDA BY SEGMENT

EBIT BY SEGMENT

In July–September, net financial expenses amounted to EUR -2.0 (-2.3) million and in January–September to EUR -5.6 (-6.8). The decrease was mainly related to an unrealised favourable SEK exchange rate translation effect on intercompany lending in the second quarter. In July–September, profit before taxes amounted to EUR -0.5 (1.8) million and in January–September to EUR -8.8 (-5.8) million. In July–September, income taxes amounted to EUR 0.0 (-1.0) million and in January–September to -0.0 (-1.2) million. In July–September, the net result for the financial period amounted to EUR -0.5 (0.9) million and in January–September to EUR -8.8 (-7.1) million.

In January–September, the net result for the financial period including Assets held for sale amounted to EUR -6.8 (-8.2) million. Condensed financials of IFRS 5 classified Assets held for sales are reported in the notes section.

FINANCING AND FINANCIAL POSITION

In July–September, cash flow from operating activities was EUR -1.7 (1.3) million. The decrease was driven by lower earnings and increased net working capital⁶⁾ from the second quarter on the back of high season delay from the second to third quarter in 2020. In January-September, cash flow from operating activities was EUR -0.8 million (-4.1) enabled by considerably lower net working capital, offsetting lower earnings.

Delete Group’s cash and cash equivalents at the end of September 2020 including cash in Assets held for sale were EUR 3.7 (4.2) million. The Group’s interest-bearing debt was EUR 132.2 (132.3) million, consisting mainly of a EUR 109.8 million secured bond, a EUR 11.0 million drawn revolving credit (SSRCF) and lease liabilities. At the end of September, the Group had undrawn revolving credit facilities of EUR 9.0 million to be used for general corporate purposes, acquisitions and capital expenditure. The SSRCF’s quarterly maintenance covenant for debt leverage of drawn SSRCF over adjusted EBITDA was waived for the test date of 30 September.

At the end of September 2020, the Group’s net debt remained at the previous year’s level, amounting to EUR 128.5 (128.1) million.

After the reporting period on 14 October 2020, Delete announced that it had started preparations for arrangements to secure the continuance of financing, including a maturity extension of its outstanding EUR 109.8 million senior secured floating rate notes due April 2021.

On 10 July 2020, the SSRCF’s maturity was extended until 31 December 2020, mainly under existing terms. The limit has been lowered from EUR 25 million to EUR 20 million upon extension and will be lowered further to EUR 15 million on 30 November, aligned with Sweden’s Demolition Services divestment and the resized Delete Group.

The balance sheet total at the end of September 2020 was EUR 188.1 (233.5) million, decreasing mainly because of a goodwill impairment at year end 2019 for the Assets held for sale. Property, plant and equipment totalled EUR 31.5 (44.3) million decreasing mainly due to IFRS 5 classification of Assets held for sale. The equity ratio⁵⁾ was 11.4% (26.7%), the decline mainly caused by the goodwill impairment adversely effecting equity and negative net income.

Under IFRS 5, Assets held for sale are included on the Group’s balance sheet, but compiled and reported under separated specified line items, amounting to EUR 44.6 million of assets and EUR 8.5 million of liabilities.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

Capital expenditure in intangible and tangible assets for July–September 2020 was EUR 0.2 (1.5) million. For January­–September, capital expenditure in intangible and tangible assets was EUR 1.6 (5.7) million. There were no acquisitions during January–September.

On 21 August 2020, Delete announced its plan to assess and explore various possibilities to divest the Recycling Services business. The company has mandated financial advisors to explore various possibilities for the sale of the business area. Further, divestment of Delete's Demolition Services business in Finland is ongoing. Consent for the divestments has been received from the noteholders of Delete’s senior secured floating rate notes in November 2019, on the condition that the net proceeds received from such divestments would be used towards early partial redemption of the notes.

R&D EXPENDITURE

In January–September 2020, R&D-related expenditure was immaterial and was related to the minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

On 14 October 2020, Delete announced that it had started preparations for arrangements to secure the continuance of financing, including a maturity extension of its outstanding EUR 109.8 million senior secured floating rate notes due April 2021.

On 12 November 2020, supporting the strategy to focus on maintenance-driven Cleaning Services, Delete announced changes to the Group management team. Raimo Huhtala, Business Area Director, Cleaning Services Finland, and Henri Pesonen, Business Area Director, Recycling Services, have been appointed as new members of the management team. Tommi Kajasoja, CEO, Ville Mannola, CFO, Janika Vilkman, General Counsel and Peter Revay, Business Area Director, Cleaning Services Sweden, continue as members of the management team.

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, operative and financing risks.

Operational risks are mainly related to uncertainty and a lack of visibility due to COVID-19, 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 COVID-19-related uncertainties.

There are risks related to achieving commercially acceptable terms in the announced divestment processes of Demolition and Recycling Services, and increased uncertainty related to COVID-19.

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 above, at the end the third quarter in 2020.

SHARES AND SHAREHOLDERS

The number of registered shares in Delete Group Oyj is 10,858,595 P-shares and 3,089,649 C-shares. Each share carries one vote. The Group is owned by Ax DEL Oy (87% of the shares) and a group of key employees and other minority investors (13%). 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 8 April 2020 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 2019. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2019.

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 Chairman of the Board will be paid EUR 50,000 and the Board members EUR 22,000 as remuneration for 2020. 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.

FINANCIAL CALENDAR 2020

Delete Group Oyj will publish the 2020 financial statement bulletin on 26 February 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

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.

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.

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.

IFRS 5: Assets held for sale and discontinued operations

In November 2019, Delete Group announced that it was exploring opportunities to sell Demolition Services in full or in part. The company has received the required approvals for the divestments from creditors and the sales process has been completed for the Swedish entities and is ongoing for the Finnish part.

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. Demolition Services has been classified as assets held for sale and discontinued operations since December 2019. 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.

KEY EVENTS AFTER THE REPORTING PERIOD

On 14 October 2020, Delete announced that it has started preparations for arrangements to secure continuance of financing, including a maturity extension of its outstanding EUR 109.8 million senior secured floating rate notes due April 2021.

On 12 November 2020, supporting the strategy to focus on maintenance-driven Cleaning Services, Delete announced changes in the Group’s management team. Raimo Huhtala, Business Area Director, Cleaning Services Finland, and Henri Pesonen, Business Area Director, Recycling Services, have been appointed as new members of the management team. Tommi Kajasoja, CEO, Ville Mannola, CFO, Janika Vilkman, General Counsel and Peter Revay, Business Area Director, Cleaning Services Sweden, continue as members of the management team.

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

Interview 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 900 professionals at over 36 locations in Finland and Sweden.