Lehto Group Plc, Inside information, profit warning: Proposed transaction causes a material impairment of assets; outlook for 2023 is cancelled; estimate on the adequacy of cash reserves is updated

Lehto Group Plc
Inside information
24 October 2023 at 4.32 p.m. (Finnish time)

Lehto Group Plc (“Lehto” or the “parent company”) announced earlier today 24 October 2023 that it has signed a letter of intent concerning the sale of its operative subsidiaries ("Transaction”). The proposed Transaction comprises in practice all of the business operations of Lehto Group. 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 Lehto Group. As a result, the valuation of the assets that are the subject of the proposed Transaction will be subject to a material impairment in the consolidated balance sheet of the business overview to be prepared for January-September 2023, and thus the results and equity of Lehto in the reporting period 1.1.-30.9.2023 will be weakened by an estimate of approximately EUR 34 million.

At the moment, the exact amount of capital loss to be incurred by Lehto Group cannot be yet reliably determined. The final amount of the capital loss will be known only once the Transaction is consummated, which is estimated to happen in the final quarter of 2023.

Outlook for 2023

Due to the proposed Transaction, the outlook for 2023 given in Lehto’s half-year report on 27 July 2023 is no longer valid, and Lehto will not issue a new outlook regarding its net sales and operating result for 2023.

Previous outlook for 2023 was as follows:

“Due to the uncertain market and financing situation of the construction industry, and the ongoing process regarding structural and ownership arrangements, there are many uncertainties related to 2023 outlook.

Lehto estimates that the 2023 net sales for Housing service area will be lower than in 2022 (EUR 213.3 million in 2022) and the net sales in Business Premises service area will decrease significantly from 2022 (EUR 131.5 million in 2022). Operating result is estimated to improve substantially.

The reason behind the decline in net sales is the decreased amount of projects in business premises and housing. The improvement in operating profit is primarily based on a significant reduction in loss-making projects.”

The most significant risks related to net sales and operating result are the development of sales of apartments and business premises and the availability of financing and guarantees for construction projects.”

The adequacy of cash reserves

As at today 24 October 2023, Lehto’s cash reserves amount to approximately EUR 5.2 million. 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 December 2023. The adequacy of Lehto’s cash reserves is subject to many uncertainties, including the timing of incoming cash flow from various building projects, the payment schedule of a certain material disputed receivable, and the results of negotiations related to the payment schedule of other receivables and debts.

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.

Further information:
Veli-Pekka Paloranta
CFO
Tel. +358 0400 944 074