Lehto Group Oyj: Lehto Group Plc: Financial Statement Bulletin 1 Jan - 31 Dec 2024

From construction to energy construction

This report has been prepared in accordance with the IAS 34 standard and the financial statements have been prepared on a going concern basis. The company complies with half-yearly reporting according to the Finnish Securities Markets Act. The financial statement bulletin is unaudited. The company will publish audited financial statements by the end of April 2025.

Key events in 2024

In 2024, significant changes occurred in the Group's operations. The Group's construction business ended and a corporate restructuring program was confirmed for the parent company, Lehto Group Oyj, according to which the company is transitioning to the energy construction business.

Lehto Group Plc still owns Lehto Components Oy, a factory company that manufactured components for the construction industry, which has its own factory premises in Oulainen and a leased factory premises in Hartola. The factories are currently not operating. Lehto is in negotiations to sell the Hartola factory operations and sell or lease the Oulainen factory. In addition to the factory company, the Group includes small subsidiaries that do not have significant operations and real estate companies that have rental income.

The following describes key events during the financial year:

• On 6 February 2024, trading in Lehto Group Oyj's shares was suspended on Nasdaq Helsinki. Trading in the shares is still suspended at the time of publication of this financial statement release.
• On 8 February 2024, Lehto Group Oyj's subsidiaries Lehto Asunnot Oy, Lehto Tilat Oy and Lehto Korjausrakentaminen Oy were declared bankrupt.
• On 16 February 2024, corporate restructuring proceedings were initiated at Lehto Group Oyj.
• On 6 March 2024, Lehto announced that the parent company's equity had become negative.
• On 19 March 2024, the entire share capital of Insinööritoimisto Mäkeläinen Oy was sold.
• On 1 May 2024, the CEO of Lehto Group Oyj changed.
• On 29 May 2024, Lehto announced that it would focus its business on energy solutions for real estate and electricity storages.
• On 17 June 2024, Lehto Group Plc's restructuring plan proposal was submitted to the Oulu District Court.
• The Annual General Meeting held on 19 June 2024 decided, among other things, on the new composition of the Board of Directors, amendments to the Articles of Association, and significant authorizations to acquire own shares and arrange share issues.
• On 24 September 2024, Lehto Group Plc's restructuring plan was confirmed and the decision regarding it became legally binding on 3 October 2024
• On 15 November 2024, Lehto announced that the company intends to apply to transfer trading of its shares from the Nasdaq Helsinki Stock Exchange (main list) to the First North Growth Market marketplace.
• On 31 December 2024, Lehto's EUR 15 million convertible bond issued in 2022 was fully converted into shares.
• On December 31, 2024, Lehto issued a new convertible equity bond of EUR 2.5 million, which was offered for subscription to the Company's largest shareholder, Lehto Invest Oy, which subscribed for the loan in full.

Stock exchange releases have been published about the above-mentioned events, which can be read in full at https://lehto.fi/en/investors/stock-exchange-releases/.

Contrary to previously announced information, Lehto estimates that the transfer of share trading from the Nasdaq Helsinki stock exchange list to the First North Growth Market will not occur in the first half of 2025, but only in the last quarter of 2025.

Financial development during the financial year

The Group's net sales and operating result weakened significantly as a result of the bankruptcies of Group companies engaged in construction. Net sales from continuing operations were EUR 1.1 million, which mainly consists of rental income from properties owned by the Group and material sales from Lehto Components Oy. The energy construction business did not generate significant net sales during 2024.

The Group's operating result from continuing operations was EUR -5.7 million, which was particularly affected by low turnover, maintenance costs of Lehto Components Oy's factories, costs incurred from the downscaling of the parent company's operations, and costs related to the launch of new business.

Result from discontinued operations was EUR 0.4 million. Discontinued operations include the results of bankrupt subsidiaries up to the date of bankruptcy and the results of Lehto Sverige Ab's operations for the entire financial year.

Result for the period was EUR -2.9 million. The result was improved by EUR 6.2 million in debt reductions recorded in the income statement in accordance with the restructuring program.

Due to significant changes in the Group's operations, structure and strategy, as well as the reclassification of continuing operations during the financial year, the financial information for 2024 is not reasonably comparable with the financial information for previous years.

*The figures in the comparative period's income statement have changed due to a change in the classification of continuing operations. In this financial statement release, discontinued operations include companies that went bankrupt and the Swedish operations.

The Group's cash reserves weakened during the financial year but increased at the end of the year to EUR 2.2 million due to the convertible bond issued.

The Group's personnel decreased significantly during the financial year. At the end of December, the Group had 76 employees, of whom 67 were on full-time or part-time layoff. The laid-off employees are employees of Lehto Components Oy.

Energy construction business

Business in general

The energy construction business is based on the utilization of electricity storage in balancing the production and demand of electricity markets (so-called reserve and wholesale markets) and in energy saving solutions for properties.

The strong growth of weather-dependent wind and solar power causes an imbalance between electricity production and consumption, which in turn creates an imbalance in electricity networks. The imbalance in electricity networks can be managed with electricity storage, which enables electricity to be charged and discharged as needed. When electricity production is high, energy is charged to electricity storage and when production is low, energy is taken from them. Already today, adjustment reserves are connected to electricity networks, which are used to prepare for changes in the frequency, production and consumption of electricity, but the need for reserves is now increasing sharply as a result of the growth of renewable energy sources.

A large part of the electricity storage facilities operating or under construction in Finland and Europe are so-called battery parks, where a relatively large electricity storage capacity is placed at one point. Lehto's primary goal is to build a distributed electricity storage system, where relatively small batteries are placed in properties across Finland. This model enables the utilization of existing electricity connections and also serves the properties' own energy saving needs. When the electricity storage facilities are connected to the property's own electricity production, for example, the electrical energy produced by solar panels that exceeds the property's needs can be stored in a battery and the stored electricity can be used when energy is expensive. In addition to the distributed electricity storage system, the company's goal is to build medium-sized battery parks that are separate from the properties. Lehto is also developing a solution in which the property's HVAC systems (e.g. ventilation, heating) work together with the batteries to balance the electricity grids. Lehto's partner company manages the HVAC systems of a large property portfolio, which enables the utilization of HVAC in balancing the electricity grid. Electricity storage systems installed in properties can simultaneously serve the needs of the property and operate in the reserve and wholesale markets.

In its energy construction business, Lehto acquires suitable battery locations (buildings or land areas), designs and implements battery installations at the locations, connects the batteries as part of the property's own energy solution if necessary, obtains the necessary permits, and concludes the necessary agreements with property owners, electricity grid companies and business partner companies. The batteries are purchased or rented and their operations are controlled using the partner company's software.

Business income is generated from reserve market compensation paid by the Finnish grid company Fingrid, income from the sale and purchase of electricity from the Nord Pool marketplace, and compensation paid by property owners and users. Lehto also develops battery park projects for sale to investors in the industry.

Lehto's Energy Construction business development during the financial period

The company began evaluating the energy construction business already in 2023, when the company began to familiarize itself with the market logic, market players and technologies of energy construction.

In the spring of 2024, the company began systematic project development, the aim of which is to acquire rights to use real estate and land as locations for electricity storage facilities and to agree on the necessary electricity connections with electricity grid companies.

During the summer, the company implemented the first pilot project, which successfully tested and verified the control functions of the electricity storage facilities and compatibility with various technical interfaces. The electricity storage facility in question has been in use by the reserve market since the third quarter of the year.

During the second half of the year, the company built procurement channels for electricity storage and carried out project development, as a result of which the company has good conditions for expanding its business.

Financial outlook

Due to uncertainties related to the initial phase of the business, Lehto does not provide a precise estimate of the development of its net sales or operating result in 2025.

During 2025, Lehto aims to build significantly more new electricity storage capacity, which will be used primarily in the reserve and wholesale markets, but also in connection with the properties' own energy solutions.

During 2026-2028, Lehto aims to build new electricity storage capacity so that the net sales generated from electricity storage in 2028 would be approximately EUR 25 million and the operating result would be more than 10% of net sales.

The business requires significant battery investments, which will be acquired partly by leasing and partly by purchasing for its own balance sheet. The working capital needs of the initial phase of the business will be managed through capital investments specified in Lehto's restructuring program.

The company's restructuring program

Lehto Group Oyj's corporate restructuring program was confirmed on September 24, 2024.

Main content of the restructuring program:

• The restructuring programme is based on the company's complete divestment of the construction business of Lehto Group and the reorientation of its business towards real estate energy solutions and electricity storages ("Energy Construction Business"). The Energy Construction Business is described in more detail in the stock exchange release published on 29 May 2024 and in the half-year financial report published on 1 August 2024.
• In order to launch the Energy Construction Business, the company is required to raise EUR 2,500,000 in equity financing within three months from the date on which the decision to approve the restructuring programme has become final and EUR 2,500,000 in debt or equity financing by 31 December 2025. The deadlines for obtaining financing may be extended with the approval of the supervisor of the restructuring programme.
• The company is obliged to ensure that the EUR 15 million convertible bond of the company is converted into shares of the company at least for the claim of approximately EUR 10 million of Lehto Invest Oy by 31 December 2024.
• The payments under the payment schedule of the restructuring programme will be financed partly by the realisation of the company's assets and by future payments on the company's claims. The company is therefore obliged to sell most of its assets within the timeframe set out in the restructuring programme at an arm's length price and to collect the claims identified in the restructuring programme.
• The company's liabilities under the restructuring programme have been structured in such a way that the company will be able to meet the payments and interest due under the payment schedule with the proceeds from the realisation of the company's assets and the cash flow from the company's Energy Construction Business.
• The duration of the payment schedule is approximately 5 years. The last payments under the payment schedule are due on 31 December 2029 for the non-preferential restructuring liabilities and on 30 November 2027 for the secured liabilities.
• The total amount of the secured liabilities under the restructuring programme is EUR 3,470,974.20. The secured liabilities are to be paid upon realization of the collateral assets up to the amount of the net realisation value of the collateral assets, but not exceeding the amount of the secured liabilities. The secured liabilities shall bear annual interest at the rate of 6-month Euribor plus a margin of 2.5 %. The interest rate shall always be at least 3.5 %.
• The total amount of the non-preferential restructuring liabilities, whose amount and basis is clear, is EUR 19,190,659.00, including, inter alia, the company's EUR 15 million convertible bond. The amount of the non-preferential restructuring liabilities will be reduced by 90 % of the amount of the claims. The company will be obliged to make additional payments on the non-preferential restructuring liabilities if the conditions set out in the restructuring programme are met, inter alia in case of better-than-expected asset sales and collection of claims.
• Payments on restructuring liabilities whose basis is conditional or amount is capped, shall be deposited in an escrow account and the funds in the escrow account shall be paid on the liabilities in the same way as for non-preferential restructuring liabilities, once a reliable explanation of the basis and amount of the liabilities has been obtained. The payment schedule contributions to the escrow account shall be 75 % of the maximum amount of the unclear liabilities remaining after the debt reduction. The total amount of such restructuring liabilities is approximately EUR 41,781,485.33. The amount of disputed restructuring liabilities is EUR 4,560,713.84.
• The restructuring liabilities of a creditor with a lower ranking (Section 2 of the Act on the Ranking of Claims) will be reduced in full, i.e. obligation to pay such liabilities will be abolished in full as a result of the adoption of the restructuring programme.
• Early termination of the restructuring programme is possible at the earliest on 1 July 2025. Early termination is conditional on the company paying in full the secured liabilities and their interest, the payment schedule contributions and additional payments on the non-preferential restructuring liabilities in full and the additional payment resulting from the early termination.

Balance sheet and financial position

There were major changes in the Group's balance sheet during the financial year. As a result of the bankruptcies of subsidiaries, a large amount of assets were removed from the balance sheet, and as a result of the parent company's restructuring program, the company's debts decreased and equity returned to positive. The equity ratio at the end of the financial year was 8.2%.

Assets

Non-current assets, EUR 6.4 million, consist mainly of Lehto Components Oy's Oulainen factory building and machinery and furniture. Non-current assets also include a total of EUR 1.5 million in ownership and shares in real estate companies and one project company.

Inventories, EUR 0.7 million, consist mainly of Lehto Components Oy's materials and finished products.

Cash and cash equivalents increased as a result of the subscription of a EUR 2.5 million convertible bond in December 2024. Of the subscription, EUR 0.5 million was implemented as a conversion of a loan previously granted to Lehto Group Oyj into a convertible bond in 2024.

Non-current assets held for sale consist of lease rights related to Lehto Components Oy's Hartola factory, machinery and equipment.

Liabilities

Financial liabilities decreased significantly when the EUR 15 million convertible bond was converted into shares. At the balance sheet date, the amount of financial liabilities was EUR 3.5 million, which mainly consists of secured RCF bank debt. The debt in question will be repaid according to the schedule specified in the company's restructuring program. The RCF bank debt is secured by, among other things, all shares and the most significant receivables of the real estate companies owned by Lehto Group Oyj, as well as the assets of the bankrupt subsidiaries. If the assets of the bankruptcy estates of the subsidiaries are used to repay Lehto Group Oyj's RCF bank debt, the bankruptcy estates in question will become creditors of Lehto Group Oyj with the rights of the original creditor.

Other liabilities are mainly unsecured liabilities in accordance with the restructuring program and in addition, ordinary trade and accrued liabilities.

Liabilities related to non-current assets held for sale are future rental obligations of Lehto Components Oy's Hartola factory in accordance with IFRS 16.

Going Concern analysis

In connection with the preparation of the financial statements, the company has made an assessment of the conditions for the continuity of operations. The company needs cash and cash income to cover current operating expenses, implement electricity storage projects and pay off restructuring liabilities according to the restructuring program.

The company estimates that the cash expenses for the next 12 months can be financed in general terms as follows:

• The company's current operating expenses (fixed costs) will be paid from existing cash resources.
• Investments required by electricity storage projects will be financed with project-specific debt instruments.
• Payments of restructuring liabilities will be financed by the sale of assets

The assessment takes into account that the company is in a restructuring program and its business involves more risks than usual.

The adequacy of cash depends in particular on the success and timing of asset sales. The company has also identified ways to accelerate the cash flows of the business if asset sales are delayed.

As a conclusion of the assessment, the company's management and board of directors have stated that there are no such uncertainties related to the company's operations that would give significant reason to doubt the company's ability to continue as a going concern and meet its payments over the next 12 months.

Risks and uncertainties

The most important risks for 2025 are described below.

Liquidity and funding risk

The company does not have significant regular revenue streams at the time of publication of this financial statement release. The company's current expenses can be covered during 2025 with existing cash resources, but the existing cash resources are not sufficient to pay the electricity storage investments in accordance with the business plan and the debts specified in the restructuring program. Although Lehto's reserve and wholesale market returns are expected to increase during 2025, the company will need to sell its assets and obtain debt financing for electricity storage investments in order to meet all its future payments.

Failure to obtain financing for electricity storage projects or to sell assets could result in a situation where the company is unable to meet all of its payment obligations.

Risks related to starting and expanding the energy construction business

The business is still in its early stages and its expansion requires, among other things, technical assessment and planning, building procurement channels, finding suitable energy project sites, operational implementation of projects, obtaining financing, and finding partners and building cooperation models. Failure to implement these may lead to delays in starting the business and a deterioration in liquidity.

Risks related to the sale of factory operations

The company is in negotiations to sell the factory operations of Lehto Components Oy. It is possible that the factory operations cannot be sold or the factory premises and equipment cannot be leased. In such a situation, the company would be left with cost burdens related to the maintenance of the factories and the company might not be able to meet its payments.

Resolutions of the Annual General Meeting

The Annual General Meeting (AGM) held on June 19, 2024 decided, in accordance with the board's proposal, that no dividend will be paid based on the balance sheet approved for the fiscal year January 1-December 31, 2023.

The number of company board members was decided to be four. In accordance with the proposal of the shareholders' nomination committee, Hannu Lehto and Jani Nokkanen were re-elected as board members and Tarja Teppo and Timo Okkonen as new members. The term of the board members will expire at the end of 2025 annual general meeting.

The AGM decided to change the scope of the articles of association so that it includes energy services, energy storage and distribution, energy saving services and ownership and sale of energy production equipment.

The AGM authorized the board of directors to decide on the issue of shares and the granting of stock options and other special rights entitling to shares, so that the board has the authority to decide on the issuance of a total of approximately 114 million new shares, which corresponded to approximately 131% of the company's number of shares at that time (87,339,410 shares). Of the authorization, approximately 39 million shares can be used for share issues or for granting option rights or other special rights entitling to shares, and 75 million shares for converting the company's EUR 15 million convertible bond into shares.

The above-mentioned and other decisions of the annual general meeting have been detailed in the stock exchange bulletin published on June 19, 2024.

Significant events after the reporting period

The 75 million new shares resulting from the conversion of Lehto's EUR 15 million convertible bond were registered in the Trade Register on 31 January 2025. At the same time, the combined holding of Hannu Lehto and his controlling entity Lehto Invest Oy in all shares and votes in Lehto Group Oyj increased to 51.75 percent. However, the Lehto Invest Oy and Hannu Lehto announced that they will use the exception provided for in Chapter 11, Section 21, Subsection 5 of the Securities Markets Act, and waive their voting rights exceeding the threshold within one month from the creation of the obligation to make the tender offer, i.e., by 28 February 2025.

On 31 January 2025, Lehto Group Oyj received a flagging notification from Pension Insurance Company Ilmarinen. According to the announcement, Ilmarinen's total holding of shares and votes in Lehto Group Oyj had increased to 7.08 percent as of 31 January 2025 as a result of the conversion of the convertible bond into shares.

On 28 February 2025, Lehto Group Oyj received a flagging notification from Hannu Lehto and his controlling entity Lehto Invest Oy. According to the announcement, Lehto Invest Oy had disposed 2,900,000 shares on 28 February 2025, as a result of which the total holding of Hannu Lehto and Lehto Invest Oy in all shares and votes in Lehto Group Oyj had decreased to 49.96 percent.

Proposal by the Board of Directors on the use of profit shown on the balance sheet and the payment of the dividend

The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial year 1 January - 31 December 2024.

31 March 2025

Lehto Group Plc

Board of Directors

Additional information:

Hannu Lehto, CEO                                                   Veli-Pekka Paloranta, CFO

+358 500 280 448                                                  +358 400 944 074

hannu.lehto@lehto.fi                                               veli-pekka.paloranta@lehto.fi

TABLES

The accounting principles and key figures are largely the same as in the company's most recent financial statements, but unlike the previous 2023 financial statements, the 2024 financial statements have been prepared on a going concern basis. The going concern basis has no impact on the valuation of balance sheet items, as the valuation of the Group's assets is based on an estimate of the recoverable amounts in situations where they fall below the carrying amount determined on a going concern basis.

*The figures in the comparative period's income statement have changed due to a change in the classification of continuing operations. In this financial statement bulletin, discontinued operations include companies that went bankrupt and the Swedish operations.

* The figures in the comparative period's income statement have changed due to a change in the classification of continuing operations. In this financial statement release, discontinued operations include Group companies that went bankrupt and the Swedish operations.

** The key figure cannot be calculated due to a change in the classification of continuing operations.

*** Trading of the share has been suspended since February 6, 2024.

TRANSACTIONS WITH RELATED PARTIES

The Group's related parties include Group companies, members of the Board of Director and the Group's top management as well as entities on which related parties, or their family members, have influence through ownership or management. Related parties also include associated companies and joint ventures.

Transactions with related parties have taken place at arm's length prices and terms. Liabilities to related parties relate to convertible bond loans given by Lehto Invest Oy to the company.