Lehto Group Plc: Lehto declines its financial outlook for the year 2018

Lehto Group Plc
Stock Exchange Release
19 October 2018 at 5.30 p.m.

Updated outlook 19 October 2018:

Lehto estimates that the Group’s net sales for 2018 will grow by about 20-25% from 2017 (EUR 597.6 million in 2017) and operating profit is expected to be approximately 5-6% of net sales (2017: 10.8%).

The decrease in the estimated operating profit is due to further decreased project margins, particularly in the ‘Social Care and Educational Premises’ and ‘Building Renovation’ service areas, and slightly lower estimate in the Group’s net sales. The declined net sales estimate is mainly due to delay of project starts in ‘Social Care and Educational Premises’ service area. Business in Housing and Business Premises service areas is progressing as planned.

In ’Building Renovation’ service area Lehto operates on pipeline renovations and complete renovations. In complete renovation unit projects have not progressed as planned and regardless of the corrective actions the project margins have further declined and there are many loss-making projects in the unit. Complete renovation operations have altogether a significant negative effect on Lehto Group’s operating profit in 2018. Lehto is rapidly seeking alternative solutions in order to abandon the unprofitable parts of ’Building Renovation’ service area. The decisions are communicated latest by the end of this year.

In the ‘Social Care and Educational Premises’ service area project margins have developed negatively too and there are also loss-making projects. The new management of the service area, appointed in August this year, has taken actions to develop project management. In addition, operations are more clearly focused on developing product concepts and utilizing more efficiently Lehto’s own manufacturing. These actions are supposed to gradually improve project margins.

The profitability of the year 2018 also loaded by the non-recurring costs caused by the expansion of factory capacity and higher than estimated material and subcontracting costs.

The outlook is based on the information on the progress of ongoing construction projects and the company’s estimate of construction projects to be started and sold in 2018. The main risks associated with the development of net sales and operating profit are related to the completion of ongoing projects within the estimated timeframe and costs and the development of the apartment sales.

The previous outlook, published on 9th August 2018 in half-year financial report, was as follows:

Lehto estimates that the Group’s net sales for 2018 will grow by about 20-30% from 2017 (EUR 597.6 million in 2017), and operating profit is expected to be approximately 8-9% of net sales (10.8% in 2017).

Information:

Veli-Pekka Paloranta

Chief Financial Officer

veli-pekka.paloranta@lehto.fi

+358 400 944 074