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Lehto Group Oyj: Lehto Group Plc: Business Review 1 January-30 September 2021

Lehto Group Plc
Stock exchange release
4 November, 2021 at 07:30 a.m. (EET)

Net sales and operating result declined. Order backlog and financial position remained stable.

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.

Summary January-September 2021

Group 1-9/ 1-9/ 2020 7-9/ 2021 7-9/ 2020 1-12/ 2020
Net sales, EUR million 278.1 374.9 80.5 120.4 544.7
Change in net sales, % -25.8% -5.8% -33.2% -20.5% -18.4%

Operating result, EUR -10.7 -7.8 -8.2 -2.6 -2.9
Operating result, % of net -3.9% -2.1% -10.1% -2.2% -0.5%
Result for the period, EUR -12.1 -9.0 -7.8 -3.2 -8.2

Order backlog at period 503.2 512.8 503.2 512.8 426.3
end, EUR million
Earnings per share, EUR -0.14 -0.13 -0.09 -0.05 -0.12
Cash and cash equivalents, 52.3 57.5 52.3 57.5 105.1
EUR million
Financial liabilities, EUR 63.3 106.5 63.3 106.5 80.4
Lease liabilities, EUR 93.4 55.3 93.4 55.3 33.3
Equity ratio, % 33.0% 31.3% 33.0% 31.3% 38.7%
Net gearing ratio, % 93.7% 101.3% 93.7% 101.3% 7.0%
Equity ratio, excl. IFRS 45.7% 37.7% 45.7% 37.7% 43.2%
16 lease liabilities, %
Net gearing ratio, excl. 9.9% 47.5% 9.9% 47.5% -19.9%
IFRS 16 lease liabilities,

1. Earnings per share for 1-9/2020 have been adjusted for the share issue carried out in December 2020.
2. Lease liabilities primarily relate to plots leased for the company's construction projects, in which the related lease obligation is recognised as a liability until the end of the lease period in accordance with IFRS 16.

  • Net sales for January-September experienced a year-on-year decline of 25.8% to EUR 278.1 (374.9) million. Net sales decreased in both service areas due to a reduction in the number of construction projects.
  • The operating loss was EUR 10.7 million (operating loss of EUR 7.8 million). The reasons behind the operating loss were some loss-making business premises projects and their delayed execution, rising prices of the building materials and their weak availability, and delays in the starts of new projects and the company's currently high fixed costs in relation to volume.
  • The balance sheet position remained good. At the end of the review period, financial liabilities (ie. interest-bearing liabilities excluding lease liabilities under IFRS 16) amounted to EUR 63.3 million (EUR 80.4 million on 31 December 2020) and cash and cash equivalents to EUR 52.3 million (EUR 105.1 million on 31 December 2020). The decrease in cash and cash equivalents was due to an increase in net working capital; in particular, cash was tied up in ongoing construction projects in which cash expenses were greater than cash income from customers.
  • The order backlog rose to EUR 503.2 million (EUR 426.3 million on 31 December 2020). The order backlog grew in both service areas.

Net sales by 7-9/2 7-9/20 Change 1-9/20 1-9/2020 Change 1-12/2020
service area, EUR 021 20 Q3 21
Housing 39.9 79.4 -49.8% 164.2 245.8 -33.2% 372.9
Business Premises 40.6 41.1 -1.1% 113.9 129.1 -11.7% 171.7
Total 80.5 120.4 -33.2% 278.1 374.9 -25.8% 544.7

CEO Juuso Hietanen:

"The third-quarter result was a loss and the full-year result for 2021 will also be negative. The main factors behind this are some loss-making business premises projects and their delayed execution, rising prices of materials, weak availability of building materials, and delays in the starts of new construction projects.  The exceptional rise in costs also impacts on several projects that have just been started or are about to begin, in which the contract price was set earlier and the higher costs cannot be offset in full.

In the third quarter, we focused on moving ahead with ongoing projects, but also put effort on developing our operating methods and culture. We have streamlined our project assessment, starting and approval practices as well as implemented changes in the organisation and promoted plans and operating methods for prefabricated wooden apartment buildings.  However, the financial impact of these measures will only be seen in the longer term.

In the shorter term, the factors that will affect our result are the startup of 17 housing and care home construction projects and 8 pipeline renovation projects, the successful sale of the Kivistö shopping centre at the end of September and agreements for 12 new business premises projects.  Our order backlog grew slightly from the previous quarter to EUR 503 million.

We have good and long experience of the implementation of wooden and concrete apartment buildings, hall-like buildings and pipeline renovations. These are our bread and butter - and we generally succeed well in them. Our latest care home and school projects have also gone according to plans.

We are going to focus on improving our project management in long and diverse business premises projects.  When it comes to such demanding projects, our performance has been good in some of them, but in some of them our profitability has been weak. The major differences arise in the design and preparatory work carried out prior to the start of construction site operations. The on-site phase is critical for generating earnings, but the potential for profits is created at the design stage.

In the last quarter, we plan operations in 2022 and sharpening the strategy of the Housing service area. We will work on the strategy of the Business Premises service area when its new EVP comes on board in early 2022."   

Outlook for 2021

Lehto revised its financial guidance for 2021 downward, as described in a stock exchange release published on 18 October 2021.

Lehto estimates that net sales in 2021 will be approximately 20% lower than in the previous year (EUR 544.7 in 2020) and that the operating result will be negative.

The main factors behind the declined outlook are some loss-making business premises projects and their delayed execution, rising prices of the building materials and their weak availability, and delays in the starts of new projects.

The main risks to the development of net sales and the operating result in 2021 concern the availability and rising prices of building materials and the completion of certain business premises projects according to the planned schedule and planned costs.

The previous guidance was as follows:

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.

Business development in the review period


The Housing service area's net sales experienced a year-on-year decrease of 33.2% to EUR 164.2 (245.8) million. In particular, the number of developer contracting projects recognised as revenue declined during the period. The volume of projects sold as contracts was also lower than in the comparison period. A total of 1,265 housing units were sold during the review period, most of which were built through contract projects.

Sold housing units during 1-9/2021 1-9/2020 1-12/2020
the review period
Contract 1,050 1,311 1,582
Developer contract 215 366 528
Sold housing units during 1,265 1,677 2,110
the review period, total

During the review period, 641 (928) housing units were completed and the construction of 1,185 (1,282) new units was started. The start-ups were located in Southern Finland, Western Finland and Northern Finland. There were 1,988 (1,749) housing units under construction at the end of the review period.

Housing units under construction 1-9/2021 1-9/2020 1-12/2020
Under construction at the beginning of the period 1,444 1,485 1,485
+ started up during the period 1,185 1,282 1,508
- postponed project -90 -90
- completed during the period -641 -928 -1,459
Housing units under construction, total 1,988 1,749 1,444

At the end of the review period, 266 housing units were either under construction or completed yet unsold (361 on 30 September 2020). Of these, 27 (40) were completed, unsold apartments. Although housing will continue to focus on contract projects, efforts are being made to moderately increase the share of developer-contracted projects. In a contract project, all the housing units are considered to have been sold at the time of signing.

Unsold housing units 30 Sept 2021 30 Sept 2020 31 Dec 2020
Under construction 266 321 118
Completed 27 40 56
Unsold housing units, total 293 361 174
  including DWS units - 80 -

The Housing service area's order backlog stood at EUR 276.0 million at the end of the review period (EUR 232.1 million on 31 December 2020). During the review period, several properties were sold to institutional investors and developer contracting projects were started, especially in the Helsinki metropolitan area and Turku. The housing production order backlog includes the proportion of developer contracting projects that have been started but have not yet been recognised as net sales. A developer contracting construction project is included in the order backlog once the decision to start construction has been made and the contract for the project has been signed.

Demand for housing construction remained good in spite of the uncertainty arising from the coronavirus pandemic. Several agreements were signed during the review period for housing projects sold as contracts, and also for care homes and assisted living projects as part of a housing project. The availability and price of financing still affect start-ups of developer contracting projects.

The volume of care home construction was slightly lower than in the comparison period due to the small number of projects. Three (4) care homes were completed during the review period and two (3) was under construction at the end of the period. Care home and assisted living projects are in the negotiation phase as both individual sites and as part of larger projects in city centres and suburban areas. Lehto expects demand for care homes and assisted living to rise in the longer term.

The pipeline renovation business has remained stable and 7 (8) projects were completed during the review period. Eleven (11) properties were under construction at the end of the review period. Work on construction sites has continued to go well in spite of the exceptional...

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