Business Review for January-
Lehto Group Plc :
Business Review 1 January-30 September 2023
Operating result without impairment on previous year's level, letter of intent regarding the sale of business operations signed
This is not an interim report as specified in the IAS 34 standard. The company complies with half-yearly reporting according to the Finnish Securities Markets Act and discloses regular business 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.
In this report, financial information is presented for the operations for sale and continuing operations separately and together with previous periods for comparability.
Group including operations for sale andcontinuing operations | 7-9/ 2023 | 7-9/ 2022 | 1-9/ 2023 | 1-9/ 2022 | 1-12/ 2022 |
Net sales, EUR million | 39.9 | 86.1 | 154.5 | 250.1 | 344.8 |
Change in net sales, % | -53.7% | 15.8% | -38.2% | -2.9% | -14.7% |
Operating result without impairment, EUR million | -5.2 | -6.4 | -23.4 | -27.9 | -42.2 |
Operating result without impairment, % of net sales | -13.0% | -7.4% | -15.2% | -11.1% | -12.2% |
Result for the period, EUR million | -40.5 | -7.5 | -27.9 | 1.6 | -26.7 |
Order backlog at period end, EUR million | 90.9 | 246.4 | 90.9 | 246.4 | 205.9 |
Earnings per share, EUR | -0.08 | -0.09 | -0.32 | 0.02 | -0.31 |
Cash and other liquid assets, EUR million | 7.5 | 11.6 | 7.5 | 11.6 | 13.2 |
Interest-bearing liabilities, EUR million | 22.6 | 38.7 | 22.6 | 38.7 | 33.9 |
Lease liabilities in interest-bearing liabilities, EUR million | 62.6 | 84.0 | 62.6 | 84.0 | 77.8 |
Equity ratio, % | 22.6% | 32.8.% | 22.6% | 32.8% | 27.0% |
Net gearing ratio, % | 201.1% | 117.2% | 201.1% | 117.2% | 147.9% |
Equity ratio excluding IFRS 16 lease liabilities, % | 35.0% | 45.9% | 35.0% | 45.9% | 38.7% |
Net gearing ratio excluding IFRS 16 lease liabilities, % | 39.0% | 28.6% | 39.0% | 28.6% | 31.0% |
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In January-September, net sales from operations for sale and continuing operations were down 38.2% and amounted to
EUR 154.5 (250.1) million. Net sales declined in both service areas, but especially in Business Premises. This decrease was due to the lower number of construction projects and termination of business premises project contracts in 2022. -
The operating result from operations for sale and continuing operations without impairment improved slightly and was
EUR -23.4 (-27.9) million. The operating loss was impacted especially by developer-contracted projects sold at a loss as well as other low-margin or loss-making projects. - At the end of the review period, there were 325 (1,662) units under construction, which all are related to projects for institutional investors.
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Cash and cash equivalents including cash from assets held for sale totalled
EUR 7.5 million at the end of the review period (EUR 13.2 million on31 December 2022 ). In addition to this, the company hadEUR 2.2 million pledged cash deposits as collateral for the credit facility signed onJune 30, 2022 . -
Interest-bearing liabilities including interest-bearing liabilities from liabilities held for sale but excluding IFRS 16 lease liabilities amounted to
EUR 22.6 million (EUR 33.9 million on 31 December 2022). -
The order backlog declined to
EUR 90.9 million (EUR 205.9 million on31 December 2022 ). The order backlog was down in both service areas due to the low order intake.
Net sales by service area, operations for sale and continuing operations, total | |||||||
EUR million | 7-9/ 2023 | 7-9/ 2022 | Change Q3 | 1-9/ 2023 | 1-9/ 2022 | Change | 1-12/2022 |
Housing | 21.5 | 53.6 | -59.9% | 105.8 | 146.3 | -27.7% | 213.3 |
Business Premises | 18.4 | 32.5 | -43.5% | 48.7 | 103.7 | -53.1% | 131.5 |
Total | 39.9 | 86.1 | -53.7% | 154.5 | 250.1 | -38.2% | 344.8 |
The table below shows the official consolidated income statement as a reconciliation statement, which shows the impact of the operations intended for sale on the consolidated profit, including the total impairment of assets of
Consolidated statement of income | |||||||
Reconciliation | 1-9/2023 | 1-12/2022 | |||||
EUR million | Operations for sale and continuing | Operations for sale | Continuing operations | Operations for sale and continuing | Operations for sale | Continuing operations | |
Net sales | 154.5 | 154.5 | 0.0 | 344.8 | 344.5 | 0.3 | |
Other operating income and expenses | -177.9 | -177.2 | -0.8 | -387.0 | -385.9 | -1.1 | |
Operating result | -23.4 | -22.7 | -0.7 | -42.2 | -41.4 | -0.8 | |
Financial incomes and expenses | -4.3 | -1.7 | -2.6 | -3.3 | -1.4 | -2.0 | |
Result before taxes | -27.8 | -24.4 | -3.3 | -45.5 | -42.8 | -2.7 | |
Income taxes | -0.1 | -0.2 | 0.1 | -13.3 | -7.8 | -5.5 | |
Result from continuing operations | -27.9 | -24.6 | -3.2 | -58.8 | -50.5 | -8.3 | |
Impairment from assets held for sale | -33.5 | -33.5 | 0.0 | ||||
Result from earlier discontinued operations | -0.1 | -0.1 | 32.1 | 32.1 | |||
Result for the period | -61.4 | -58.1 | -3.3 | -26.7 | -50.5 | 23.9 |
CEO Juuso Hietanen
"In the third quarter of the year, the construction market continued to be difficult, which was reflected, among other things, in the slowness of purchase decisions for business premises and housing sales. In particular, the uncertainty of consumers is increased by the general economic situation, the poor availability of loan financing and the increased interest rate.
Although the market has been challenging, we have sold a total of 263 apartments in January-September. At the end of the reporting period, Lehto had only 30 completed apartments for sale, and there are no apartments under construction with a risk of sale. Our ongoing housing projects are investor projects that generate a relatively steady cash flow. In the third quarter we started up Makita's Finnish headquarters and warehouses in Tuusula and completed local service centre in Kivistö.
In the third quarter, we continued the process we started at the beginning of the year to find structural or ownership partners. The goal of the process has been to secure funding for the implementation of the company's strategy and projects. Negotiations took place in the third quarter of the year closely, and at the end of October we signed a letter of intent to sell our operational subsidiaries to a European fund management company. The planned transaction comprises in practice all of the current business operations of
As we told when publishing the letter of intent, through negotiations we found a solid and reliable contract partner who recognizes the future potential of our business. The contractual partner has significant financial resources and experience in investing in companies in the real estate industry. We believe that this planned transaction is the best possible arrangement currently feasible in this challenging construction industry market situation. In the last quarter of the year, our focus is on implementing the transaction and mapping the business opportunities of the remaining parent company."
Outlook for 2023
As Lehto announced in stock exchange release on
Structural arrangements and liquidityA letter of intent regarding the sale of its operative subsidiaries
On
According to the Letter of Intent, the debt-free value of the Target Companies is
Since the net income generated for the parent company as a result of the consummation of the transaction would be lower than the net value of the assets classified as available for sale and the related liabilities, the transaction would result in a capital loss for the parent company and
The signing of the final transaction agreement is subject to, among other things, the completion of the purchaser's due diligence review to the satisfaction of the purchaser, approval for the transfer of certain liabilities of Lehto to the target companies by Lehto's financing partners and the convertible bond holders' meeting supporting the transaction. The completion of the transaction is also subject to other uncertainties typical for M&A transactions. The Letter of Intent signed does not obligate the parties to complete the transaction or any similar arrangement.
The remaining Lehto Group
After completion of the proposed transaction the parent company would retain cash, sundry assets and sundry liabilities of approximately net
The adequacy of cash reserves
Assuming Lehto will not receive any new financing or cash flow from new projects, Lehto estimates that its cash reserves will last until the end of
Lehto estimates that the consummation of the transaction is essential for the continuation of Lehto's business operations and without additional financing or cash flow from new projects, Lehto will not be able to meet its payment liabilities in the first quarter of 2024.
More information about issues is available on stock exchange releases published on
Business environment and business development in the review periodDevelopment of the business environment
Lehto operates in
In its economic outlook published in
The decrease in the construction market is also indicated by the reduction in building permits. Statistics
Furthermore, Statistics Finland confirmed on
Housing
Business development in the review period
The Housing service area's net sales experienced a year-on-year decrease of 27.7% to
Sold housing units during the review period | 1-9/2023 | 1-9/2022 | 1-12/2022 |
Investor projects | 84 | 270 | 497 |
Consumer projects | 179 | 189 | 261 |
Sold housing units during the review period, total | 263 | 459 | 758 |
During the period, 902 (794) housing units were completed, but only one new housing project with 31 housing units was started up (454 units started up in 1-9/2022). There were 325 (1,662) housing units under construction at the end of the review period.
Housing units under construction | 1-9/2023 | 1-9/2022 | 1-12/2022 |
Under construction at the beginning of the period | 1,196 | 2 002 | 2 002 |
+ started up during the period | 31 | 454 | 586 |
- completed during the period | 902 | -794 | -1,392 |
Housing units under construction at period-end | 325 | 1,662 | 1,196 |
At period end, the number of completed and unsold apartments stood at 30 (49). There were no unsold apartments under construction (221 units on
Unsold housing units | 1-9/2023 | 1-9/2022 | 1-12/2022 |
Under construction | - | 221 | 181 |
Completed | 30 | 49 | 73 |
Unsold housing units, total | 30 | 270 | 254 |
The Housing service area's order backlog stood at
Business Premises
Business development in the review period
The service area's net sales experienced a year-on-year decrease of 53.1% to
Six business premises projects were completed and handed over during the review period (9 sites in 1-9/2022). At period-end, one (11) project was under construction, which is the Finnish headquarters of Makita, and a warehouse building in Tuusula. The Business Premises service area's order backlog decreased to
On
Factory production
Lehto manufactures a variety of building modules and elements at its own production facilities, primarily for its own use. The company seeks to increase its sales of products outside the Group.
The major share of the factory production comprises kitchen-bathroom modules for concrete-frame apartment buildings, space elements for wooden apartment buildings and large roof elements for large business premises. In addition, Lehto manufactures external wall elements, aluminium doors, windows as well as kitchen and other fixtures at its factories.
In March, Lehto sold one of its factories in Oulainen, including its warehouse buildings, to the City of Oulainen. The sold factory measures around 10,000 m² and the total sales price was approximately
Balance sheet and financial position
Lehto announced on
The consolidated balance sheet below shows the Group's assets and liabilities before impairment and reclassification of balance sheet items:
Consolidated balance sheet before impairment and reclassification of balance sheet items, EUR million | 30 Sep2023 | 30 Sep2022 | 31 Dec2022 | |
Non-current assets | 21.4 | 44.9 | 27.7 | |
Current assets | ||||
Inventories, excluding IFRS 16 assets | 55.2 | 121.4 | 101.2 | |
Inventories, IFRS 16 assets | 59.6 | 79.4 | 70.9 | |
Current receivables | 29.0 | 64.4 | 50.4 | |
Cash and cash equivalents | 7.5 | 11.6 | 13.2 | |
Non-current assets held for sale | 0.0 | 0.0 | 3.8 | |
Assets total | 172.6 | 321.8 | 267.2 | |
Equity | 38.6 | 94.8 | 66.6 | |
Financial liabilities | 22.6 | 38.7 | 33.9 | |
Lease liabilities | 62.6 | 84.0 | 77.8 | |
Liabilities to customers for constructing contracts (advances received) | 1.6 | 32.6 | 20.6 | |
Other payables | 47.2 | 71.6 | 68.4 | |
Equity and liabilities total | 172.6 | 321.8 | 267.2 |
The balance sheet total comparable to previous periods before impairment of assets and reclassification of balance sheet items was
The table below shows reconciliation of the official consolidated balance sheet which shows the assets and liabilities related to the operations for sale after the impairment of the assets of
Consolidated balance sheet on | Balance sheet items including assets and liabilities held for sale | Reclassification of balance sheet items to assets and liabilities held for sale | Total(official) |
Non-current assets | 21,4 | -17,7 | 3,7 |
Current assets | |||
Inventories, excluding IFRS 16 assets | 55,2 | -55,1 | 0,1 |
Inventories, IFRS 16 assets | 59,6 | -59,6 | 0,0 |
Current receivables | 29,0 | -22,6 | 6,4 |
Cash and cash equivalents | 7,5 | -0,1 | 7,5 |
Non-current assets held for sale | 121,4 | 121,4 | |
Total assets | 172,6 | -33,5 | 139,1 |
Equity | 38,6 | -33,5 | 5,1 |
Financial liabilities | 22,6 | -2,4 | 20,2 |
Lease liabilities | 62,6 | -62,6 | 0,0 |
Liabilities based on customer contracts (advances received) | 1,6 | -1,6 | 0,0 |
Other payables | 47,2 | -45,1 | 2,1 |
Non-current liabilities related to assets held for sale | 111,6 | 111,6 | |
Total equity and liabilities | 172,6 | -33,5 | 139,1 |
Key financing agreements
Lehto has a Revolving Credit Facility (RCF) amounting to
In
Personnel and remuneration
The average number of Group personnel during the review period was 513 (915 in 1-9/2022). The number of personnel at period-end was 409 (664 on
In
Events after the review period
On
Also, the company issued a profit warning that the outlook for 2023 given in Lehto's half-year report on
Vantaa,
Board of Directors
+358 50 343 4023
juuso.hietanen@lehto.fi
+358 400 944 074
veli-pekka.paloranta@lehto.fi
https://news.cision.com/lehto-group-oyj/r/lehto-group-plc-business-review-1-january-30-september-2023,c3872156
https://mb.cision.com/Main/16922/3872156/2417723.pdf
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