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Interim review January-March 2018 (IFRS, pro forma1), unaudited)

HIGHLIGHTS OF JANUARY-MARCH 2018 (STATUTORY)

• Net sales increased by 5% to EUR 36.7 (Q1 2017: 35.1) million
• Adjusted EBITDA2) decreased by EUR -0.7 million to EUR 0.3 (1.0) million
• Adjusted EBIT2) decreased by EUR -1.0 million to EUR -2.2 (-1.1) million
• Net debt increased by 15% to EUR 92.3 (80.5) million
• Operative cash flow increased by EUR 3.7 million to EUR 0.5 (-3.2) million
• Operational integration of companies acquired in December 2017 is progressing well

HIGHLIGHTS OF JANUARY-MARCH 2018 (PRO FORMA)

• Net sales decreased by -8% to EUR 36.7 (Q1 2017: 40.1) million
• Adjusted EBITDA2) decreased by EUR -1.2 million to EUR 0.3 (1.5) million
• Adjusted EBIT2) decreased by EUR -1.3 million to EUR -2.2 (-0.8) million

KEY FIGURES

1) Pro forma definition: acquired (divested) businesses’ reported results added (removed) for the current and comparison period in a comparable form.

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.

OUTLOOK FOR 2018 (UNCHANGED)

Industrial Cleaning Services and Recycling Services are expected to continue to perform well and the recovery of Demolition Services to continue in 2018. Delete Group’s profitability is expected to improve in 2018.

TOMMI KAJASOJA, CEO OF DELETE GROUP:

“In the first quarter, the Group’s performance was on a reasonable level given the challenging weather conditions hindering the Industrial Cleaning performance to some extent.

The first quarter of 2018 turned out as expected for the Demolition Services with improving profitability even though the lack of sizable projects in Sweden continued to supress the consolidated sales volume. The actions taken in 2017 to strengthen project management capabilities and controls especially in Sweden, has had the intended favourable effect on Demolition Services’ profitability over the last few quarters. Going forward, the improvement programme for Demolition Services will emphasise strengthening sales efforts and pan-Nordic cooperation to secure the targeted sales development.

The arduous winter in Finland and Sweden had an adverse effect on Industrial Cleaning Services’ profitability in the first quarter. This was caused by a weak sales mix with low profit non-core work assignments, which were executed more than anticipated in order to maintain high resource utilization over the slow season, as the prolonged frost period hindered and delayed sewage services and process industry cleaning operations, for example. Recycling Services sales grew year-on-year, but the profits were adversely impacted by low demand of recycled fuel (REF) causing high processing and control costs.

Despite the seasonal challenges in the first quarter, our strategy execution is progressing well. We have continued actions to support strong and profitable growth both organically and through add-on acquisitions. Delete Group will continue to invest in growth and efficiency improvements across all three business areas and harvest the synergies between Finland and Sweden operations.

The operational integration of industrial cleaning companies that were acquired in the fourth quarter 2017 is progressing well and on plan. Most of the estimated synergies have been successfully harvested already during the first quarter and the operations are running smoothly. In addition, preparations for the high season are progressing well to serve the existing and new customers with high quality service.

The outlook for the year remains positive and we expect good development in Industrial Cleaning after a slow start to the year and Recycling Services to continue the profitable growth enabled by recent investments to Rusko recycling plant. The demolition market outlook remains positive and the Swedish project tender pipeline and order intake have increased gradually since last summer. Our position and coverage in demolition services are strong and I expect both markets to develop positively.”

OPERATING ENVIRONMENT

Industrial cleaning

The core demand for industrial cleaning services remains stable and the industrial customers’ demand is expected to remain on a similar level as in 2017. The market continues, even to a greater extent, to demand suppliers’ capability to handle increasingly complex projects with high-quality environmental, health and safety standards, which is favouring large professional players.

Demolition services

The ongoing underlying positive trend in the construction market also provides a favourable operating environment for demolition services. The current trend of new- and renovation construction demand supports the Finnish and Swedish markets.

The ageing building stock in both countries also increases the demand for renovation demolition services, with buildings from the 1960s and early 1970s being renovated. In the public sector, especially municipality-owned real estate such as hospitals and schools require renovation or even complete demolition.

Recycling services

Increased environmental awareness continues to drive improvements and new regulations in the recycling segment, such as the EU’s 70% recycling target by 2020 and landfill ban on C&D waste. Regulatory development in both the EU Circular Economy Action plan and national legislation as well as generally increasing sustainability awareness continue to keep the demand for recycling services at a high level.

NET SALES (statutory)

As from the beginning of 2018, Delete Group has started to apply IFRS 15, which concerns revenue recognition. The impact on the Group is estimated to be relatively minor. In the first quarter 2018, the sales under the retired IAS 11 standard would have been EUR 1.4 million higher without any impact on EBITDA. For 2017, IFRS 15 would have had no impact on the reported first quarter financials but would have been estimated to have a EUR 1.3 million impact on the full year as lower than reported sales, but again without an EBITDA impact.

In the first quarter, Delete Group’s statutory net sales were EUR 36.7 (35.1) million, representing a 5% year-on-year growth. Growing net sales in Industrial Cleaning and Recycling Services mitigated the declining project volumes in Demolition Services.

The Group’s statutory net sales from Industrial Cleaning were EUR 14.7 (11.4) million, representing an increase of 29%, driven by acquisitive growth in Finland. Recycling Services statutory net sales grew by 10% to EUR 4.9 (4.5) million. It was mainly achieved through organic growth which was supported by considerable investments to capacity and processing efficiency. Statutory net sales of Demolition Services were EUR 17.8 (20.0) million, showing a decrease of 11%, driven by a lack of large projects in Sweden during the first quarter of the year.

Post emergency services and firestop installation services have been rearranged from Industrial Cleaning to Demolition Services in 2018. Comparative 2017 sales have been restated accordingly.

NET SALES BY SEGMENT (statutory) 

NET SALES BY SEGMENT (pro forma) 

FINANCIAL PERFORMANCE (statutory)

The Group’s adjusted statutory EBITDA during the first quarter of 2018 decreased by EUR 0.7 million from the previous year to EUR 0.3 (1.0) million as a result of challenging winter conditions affecting Industrial Cleaning Services’ profitability. Unadjusted EBITDA of EUR -0.3 (0.7) million decreased by EUR -1.0 million.

In the first quarter, Industrial Cleaning adjusted statutory EBITDA-% was 0% (7%) declining from the previous year’s level. Demolition Services adjusted statutory EBITDA-% increased to 8% (5%) driven by improved project controls. Recycling Services adjusted statutory EBITDA-% declined to 19% (21%), which was a result of the increased recycled fuel processing costs caused by low demand.

In the first quarter, the net financial expenses amounted to EUR -2.5 (-1.5) million. The increase was mainly related to unrealised translation differences from inter-company loans and had no cash flow implications. Profit before taxes amounted to EUR -5.2 (-2.9) million. Income taxes amounted to EUR -0.3 (-0.0) million. The statutory net result for the financial period amounted to EUR -5.5 (-2.9) million.

Post emergency services and firestop installation services have been rearranged from Industrial Cleaning to Demolition Services in 2018. Comparative 2017 EBITDA has been restated accordingly.

EBITDA BY SEGMENT (statutory) 

EBITDA BY SEGMENT (pro forma) 

FINANCING AND FINANCIAL POSITION

In the first quarter, the cash flow from operating activities was EUR 0.5 (-3.2) million, driven by efficient working capital control, especially the receivables collection.

Delete Group’s cash and cash equivalents at the end of March 2018 were EUR 2.9 (0.6) million. In addition, the Group has committed undrawn revolving credit facilities of EUR 11.1 million to be used for general corporate purposes, acquisitions and capital expenditure. The Group’s interest-bearing debt was EUR 95.3 (81.3) million, mainly consisting of a EUR 85.0 million secured bond and a EUR 7.0 million drawn revolving credit. The revolving credit facility’s quarterly maintenance covenant for debt leverage was reached at the end of March.

At the end of March, the Group’s net debt3)amounted to EUR 92.3 (80.5) million, increasing mainly due to the utilisation of the revolving credit facility for acquisition financing in Q4 2017. The first quarter net working capital liabilities include an accrual for final purchase price settlement for the acquired companies in December 2017.

The balance sheet total at the end of March 2018 was EUR 203.2 (181.7) million. Property, plant and equipment totalled EUR 43.4 (37.6) million. Equity ratio5) was 32.3% (39.4%).

The purchase price allocation for the acquired companies in December has been finalised and is reported accordingly in the balance sheet at the end of March.

CAPITAL EXPENDITURE AND CORPORATE TRANSACTIONS

Capital expenditure in intangible and tangible assets for January-March 2018 was EUR 2.5 (1.0) million including sizable investments to the Rusko recycling plant. There were no acquisitions during the reporting period. 

R&D EXPENDITURE

The R&D related expenditure was immaterial in the first quarter of 2018 and was related to the minor development of processes and tools.

KEY EVENTS AFTER THE REPORTING PERIOD

On 13 April 2018, the final accrued purchase price of EUR 8.8 millions for the acquired companies in December 2017 was settled and paid to the sellers.

On 16 April 2018, Delete Group Oyj applied for the senior secured notes in the amount of EUR 85 million to be listed on Nasdaq Helsinki Ltd. Public trading on the Notes commenced on19 April 2018 under the trading code “DELJVAIH21”. The proceeds from the Notes have been applied towards repayment of the existing indebtedness of the group and towards general corporate purposes of the group. The listing prospectus was published and it is available at Delete Group’s website (www.deletegroup.fi).

Delete Group Oyj’s subsidiary Delete Finland Oy filed on 30 April for an upstream merger of its’ subsidiaries Uudenmaan Erikoispuhdistus Oy, T&K Karppanen Oy, Suomen Saneeraustekniikka Oy and Kaivopumppu M. Kulmala Oy. On the same date Kaivopumppu M. Kulmala Oy has filed for an upstream merger of its subsidiary Tekno Puhto Oy.

Delete Group Oyj extended the super senior revolving credit facility (SSRCF) from EUR 20.0 to EUR 25.0 million on 9 May. The facility is used for general corporate purposes, including growth acquisitions.

On 31 May 2018 Delete acquired 100% of the shares in Karhupurku Oy, a small renovation demolition company in Finland focused on elevator dismantling work. Year 2017 net sales of Karhupurku Oy was EUR 0.7 million.

SIGNIFICANT RISKS AND RISK MANAGEMENT

Delete Group carries out an extensive annual risk assessment analysis as a result of which the risk management capabilities are constantly 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 as well as the integration of the acquired companies, personnel and recruitments.

The Group confirms that there are no relevant changes that influence the business, given the risks mentioned hereinabove, during the first quarter in 2018.

SHARES AND SHAREHOLDERS

Delete Group Oyj (former Ax DEL1 Oy) changed it’s name and company form to a public entity, amended the articles of association and increased share capital from EUR 2,500 to EUR 80,000 on 12 March 2018. The number of registered shares 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 (86% of the shares) and a group of key employees and other minority investors (14%).

The Group does not hold any own shares.

 ANNUAL GENERAL MEETING AND BOARD AUTHORISATIONS IN EFFECT  

The Annual General Meeting of Shareholders of Delete Group Oyj held on 21 March 2018 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 2017. The Annual General Meeting resolved that no dividend will be paid for the fiscal year 2017.

The Annual General Meeting resolved to re-elect the members of the Board of Directors: Åsa Söderström Winberg (Chair), Vilhelm Sundström, Ronnie Neva-aho and Holger Hansen.

Authorised Public Accounting firm KPMG Oy Ab was elected 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 2018. 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 Vilhelm Sundström will not be paid remuneration. It was resolved that the remuneration for the Auditor shall be paid according to the Auditor’s reasonable invoice.

STATEMENT OF ACCOUNTING POLICIES FOR INTERIM REVIEW

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’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 interim review is unaudited.

FINANCIAL CALENDAR 2018

Delete Group will publish the 2018 Half Year Interim Report of 2018 on 31 August 2018 and the third quarter report on 30 November.

TABLE SECTION (ATTACHMENT)

Amounts in thousands of euros

As from the beginning of 2018, Delete Group has started to apply IFRS 15, which concerns revenue recognition. In the transition Delete Group has chosen to use the modified retrospective method, which means that comparative figures have not been restated. The impact on the Group is estimated to be relatively minor. In the first quarter 2018, the sales under the retired IAS 11 standard would have been EUR 1.4 million higher without any impact on EBITDA. For 2017, IFRS 15 would have had no impact on the reported first quarter financials but would have been estimated to have a EUR 1.3 million impact on the full year as lower than reported sales, but again without an EBITDA impact.

Delete Group has adopted IFRS 9 Financial Instruments standard retrospectively from 1 January 2018. In accordance with the transitional provisions, comparative figures have not been restated. The impact is of IFRS 9 standard has been insignificant.

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) Pro forma definition: acquired (divested) businesses’ reported results added (removed) for the current and comparison period in a comparable form.

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 = cash and cash equivalent assets – interest bearing liabilities, finance lease liabilities and instalment credit liabilities

4) Net working capital = other than cash and cash equivalent current assets – other than net debt related current liabilities

5) Equity ratio = equity/(assets-prepayments)]

FOR FURTHER INFORMATION

Ville Mannola, CFO of Delete Group Oyj

Tel.: +358 400 357 767, e-mail: ville.mannola@delete.fi

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 that offers specialist competences and specialised equipment through three business areas: Industrial Cleaning, Demolition Services 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 35 acquisitions within the industrial cleaning and demolition segments.

The Group is headquartered in Helsinki and employs approx. 1,000 professionals at over 35 locations in Finland and Sweden.

DISTRIBUTION:

 Nasdaq Helsinki Ltd

Main media

www.deletegroup.fi/en/