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Lehto Group Plc Half-Year Financial Report

1 January - 30 June 2021

Net sales down by 22%, operating result improves on the comparison period

This half-year financial report has been prepared in accordance with 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.

Summary January-June 2021

GROUP

1-6/2021

1-6/2020

4-6/2021

4-6/2020

1-12/2020

Net sales, EUR million

197.6

254.5

110.0

135.1

544.7

Change in net sales, %

-22.3%

3.3%

-18.6%

5.1%

-18.4%

Operating result, EUR million

-2.6

-5.1

-0.8

-1.6

-2.9

Operating result, % of net sales

-1.3%

-2.0%

-0.7%

-1.2%

-0.5%

Result for the period, EUR million

-4.4

-5.8

-1.7

-2.0

-8.2

Order backlog at period end,

501.1

531.9

501.1

531.9

426.3

EUR million

Earnings per share,

-0.05

-0.08

-0.02

-0.03

-0.12

EUR million 1)

Cash and cash equivalents,

56.8

45.0

56.8

45.0

105.1

EUR million

Interest-bearing liabilities,

145.2

171.7

145.2

171.7

113.7

EUR million

Lease liabilities in interest-bearing liabilities,

77.5

60.0

77.5

60.0

33.3

EUR million

Equity ratio, %

35.4%

30.7%

35.4%

30.7%

38.7%

Net gearing ratio, %

74.2%

119.7%

74.2%

119.7%

7.0%

Equity ratio, excl. IFRS 16

46.0%

37.0%

46.0%

37.0%

43.2%

lease liabilities, %

Net gearing ratio, excl. IFRS 16

lease liabilities, %

9.2%

63.0%

9.2%

63.0%

-19.9%

  1. Earnings per share for 1-6/2020 have been adjusted for the share issue carried out in December 2020.
  • Net sales for January-June experienced a year-on-year decline of 22.3% to EUR 197.6 (254.5) million. Net sales decreased in both service areas due to a reduction in the number of construction projects.
  • The operating loss was EUR 2.6 million (operating loss of EUR 5.1 million). The decrease in projects with weak margins had a positive effect on the operating result. The operating result was burdened by high fixed costs in relation to current business volumes and the low profitability of some business premises projects.
  • The balance sheet position remained good. At the end of the review period, interest-bearing liabilities excluding lease liabilities under IFRS 16 amounted to EUR 67.8 million (EUR 80.4 million on 31 December 2020) and cash

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Lehto Group Plc Half-Year Financial Report, 1 January - 30 June 2021

and cash equivalents to EUR 56.8 million (EUR 105.1 million on 31 December 2020). Cash and cash equivalents declined due to growth in net working capital and especially plot investments.

  • The order backlog rose to EUR 501.1 million (EUR 426.3 million on 31 December 2020). The order backlog rose in both service areas.

NET SALES BY SERVICE AREA, EUR MILLION

1-6/2021

1-6/2020

Change

4-6/2021

4-6/2020

Change Q2

1-12/2020

Housing

124.3

166.4

-25.3%

71.3

91.2

-21.8%

372.9

Business Premises

73.3

88.0

-16.7%

38.7

43.9

-11.8%

171.7

Total

197.6

254.5

-22.3%

110.0

135.1

-18.6%

544.7

CEO Juuso Hietanen:

Juuso Hietanen started out as the new CEO of Lehto Group Plc at the beginning of May 2021.

"I've now been working for the company for about a hundred days, and have been getting to know our employees, customers, partners, financiers and other stakeholders. I've seen how our company has the innovativeness, will and ability to find solutions that will lead to affordable and high-quality outcomes. And that's exactly what our customers and society at large need both now and in the future.

On the other hand, I've also noticed large variations in the final results of projects. After the company's major ups and downs, I see the consolidation of our corporate culture and operating methods to be a key task. We want to be pioneers in the production of modular, industrially prefabricated buildings. This requires a systematic and meticulous approach in all areas: project and planning development, sales, design processes, and production.

Over the next few years, we will be focusing wholeheartedly on enhancing our competitiveness. Improving the profitability of our projects is a key priority, but our profitability targets will be moderate, as the company is still in the development and investment phase, and it will take a relatively long time before we see the impact of our developmental measures.

We have already taken a number of steps that are described in more detail later on in this report. We will also be refining our action plans during the second half of the year.

Although net sales decreased by 22 per cent year-on-year in the first half of 2021, our operating result improved, as has now been the case for six successive quarters. We received significant new orders for business premises, such as a multi-space office building for the City of Vantaa in Tikkurila and the port warehouse in Kemi. On the housing side, there were fewer start-ups than in the comparison period.

The construction market has remained relatively strong in spite of the coronavirus pandemic. Demand for housing has been maintained by institutional investors. There has been a slight decline in demand from small investors, while consumer demand has remained unchanged.

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Lehto Group Plc Half-Year Financial Report, 1 January - 30 June 2021

The prices of many building materials rose significantly during the first half of the year, and the availability of some raw materials has been weak. This has raised construction costs and will also impact the full-year result.

I believe that Lehto's solid experience in industrial prefabrication and repeatable solutions gives us a firm foundation for working towards our strategic objective. It's clear that eco-friendliness and carbon neutrality will play a significant role in our future business. Ecological, affordable and high-quality solutions are in high demand among consumers, investors and society as a whole. Our strategy is based on meeting these needs."

Outlook for 2021

The still continuing coronavirus pandemic, weak profitability of few business premises projects and rising prices of building materials and problems with the availability of certain materials have increased the uncertainty towards year 2021 financial outlook.

Lehto estimates that net sales in 2021 will be 15-20 % lower than in the previous year (EUR 544.7 million in 2020) and that the operating result will be positive. The accrual of the net sales and operating result is expected to be concentrated on the last quarter of the year.

The main risks to the development of net sales and the operating result in 2021 concern the progress of business premises projects according to the plans, trends in sales of housing and business premises, the potential for interruptions in construction site operations due to the coronavirus pandemic, and the availability and rising prices of building materials.

Business objectives and focus areas

Under the leadership of its new CEO, who started in May 2021, Lehto has assessed its business objectives and priorities for the next few years and determined the needs for change and development.

The company's business will continue to revolve around its strategic cornerstones: design management, repeatable operating methods and solutions, industrial prefabrication and digital solutions. However, in order to implement its strategy effectively, Lehto will need to clarify its operating culture and methods, and these areas will be a focus area for development over the coming years.

In housing construction, the focus for the next few years will be on concrete apartment buildings, but wooden apartment buildings are expected to account for a growing share of total production. Lehto will be investing in both wooden construction and sustainable, carbon-neutral construction. Although more attention will be paid to the company's project and planning development, the results of this work will not be seen for several years.

The market for business premises construction is forecast to shift increasingly towards hybrid projects in which different types of users share the same properties. The company will be strengthening its expertise in the implementation of these kinds of hybrid projects. Lehto has profound experience in the successful implementation of hall-like retail, logistics, sports and warehouse buildings, and wants to both utilise this existing experience and further develop its expertise.

The company will evaluate and possibly revise its strategic choices by the end of April 2022. Over the next few years, Lehto will focus on the profitability of its projects, and enhancing competitiveness. Net sales growth targets are secondary. Profitability will be moderate, as the company is still in the investment phase and is focusing on enhancing its competitiveness and sustainable construction.

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Lehto Group Plc Half-Year Financial Report, 1 January - 30 June 2021

The company will evaluate and possibly revise its strategic choices by the end of April 2022. Over the next few years, Lehto will focus on the profitability of its projects, and enhancing competitiveness. Profitability will be moderate, as the company is still in the investment phase and is focusing on enhancing its competitiveness and sustainable construction.

Press conference on the half-year report

Lehto Group will hold a conference on the Half Year Financial Report for the media, analysts and investors on Thursday 12 August 2021 at 9:30 a.m. (EET). Due to the prevailing corona situation, the event will only be held online. The conference can also be followed as a live webcast on Lehto's website at lehto.fi/en/investors. The live webcast will begin at 9:30 (EET) and questions can be asked by using an online questionnaire.

The presentations are held by Lehto's CEO Juuso Hietanen and CFO Veli-Pekka Paloranta. The presentations will start by short summary in English, following the presentation in Finnish.

The recorded webcast will be published on the same website right after the event.

Business development in the review period

DEVELOPMENT OF THE BUSINESS ENVIRONMENT

In its outlook report published in February 2021, the construction trends group of the Ministry of Finance (RAKSU) estimated that the development of construction in 2020 was significantly better than expected, especially in housing production. Although the coronavirus pandemic temporarily slowed down sales in the spring, housing sales saw year-on-year growth. However, housing production is expected to decline both this year and the next. Housing start-ups in 2020 are estimated to have amounted to around 40,000 units. Start-ups are expected to amount to 34,000-36,000 in 2021 and 31,000-34,000 in 2022.

Start-ups of business premises and other production facilities were down by slightly less than one-tenth last year. In particular, start-ups of industrial buildings decreased significantly, while start-ups of warehouse buildings increased compared to the previous year.

The RAKSU group estimates that construction as a whole will decrease by one to three per cent this year, less than previously forecast. This is due to the moderate coronavirus situation in Finland and the start-up of many new construction projects in the latter part of 2020.

In its business cycle review published in March 2021, the Confederation of Finnish Construction Industries RT estimated that construction contracted by about one per cent in 2020, and will decline further by around 2 per cent this year. Start-ups of apartment buildings are expected to decline from last year's level of 30,700 units to around 26,300 units this year. However, slight growth is anticipated in start-ups of terraced and single-family houses. Thus, it is expected that the construction of a total of 37,000 units will be started in 2021. RT also forecasts that housing start-ups will see a further year-on-year decline in 2022.

Construction of business premises remained at a good level last year due to long construction periods. On the other hand, the number of building permits declined significantly. Start-ups of non-housing construction projects are expected to decrease by around 5 per cent this year.

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Lehto Group Plc Half-Year Financial Report, 1 January - 30 June 2021

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Lehto Group Oyj published this content on 11 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2021 08:40:04 UTC.