Sitowise's Interim Report January-September 2023: Strong quarter in Infra and Digital Solutions, Buildings and Sweden facing challenges
Interim reports - 2.11.2023 at 8.30 UTC+2
Sitowise Group Plc, Interim Report, 1 January - 30 September 2023, 2 November 2023 at 8:30 am EET
This release is a summary of Sitowise Group Plc’s Interim Report January-September 2023. The complete report is attached to this release as a PDF file, and also available on the company’s website at www.sitowise.com/investors/reports-and-presentations
July – September in brief
January – September in brief
The figures in the interim report are unaudited. Comparative figures for the corresponding period of the previous year are in brackets. The figures disclosed in the interim report are rounded so the sum of individual figures can deviate from the reported sum. This report has been published in Finnish and English. If there are any differences between the English translation and the original Finnish version, the Finnish report shall prevail.
|EUR million||7-9/2023||7-9/2022||Change, %||1-9/2023||1-9/2022||Change, %||1–12/2022|
|% of net sales||7.6%||10.7 %||9.2%||10.3 %||10.0%|
|Result for the period||0.8||2.8||-72.7%||6.4||5.5||16.4%||7.9|
|Cash flow from operating activities before financial items and taxes||-2.7||0.6||-561.4 %||12.6||9.6||31.0%||22.7|
|Net debt / EBITDA, adjusted||2.9x||2.9x||2.6%||2.6x|
|Equity ratio, %||44.7%||44.1 %||41.6%|
|Earnings per share (EPS), EUR||0.02||0.08||-72.5%||0.18||0.15||18.2%||0.22|
|Number of personnel, average||2,216||2,177||1.8%||2,224||2,122||4.8%||2,151|
CEO Heikki Haasmaa: Deteriorating market environment and weak performance in Sweden impacted Q3 growth and profitability
Sitowise's net sales were down by 1 percent from the comparison period in July-September (up by 1 percent in constant currency) and totaled EUR 45.6 million. Organic growth was 1 percent.
The Q3 net sales growth was driven by the strong development in Infra and Digital Solutions business areas, where key driver for growth continued to be demand for green transition and security related services. Both business areas performed well with all KPIs, and Digital Solutions succeeded especially in our strategic growth area of product sales.
The development in the Buildings business area was adversely impacted by the further deterioration of the underlying Finnish construction market. We have adapted our operations to the weakening market conditions with temporary layoffs and vacation arrangements until October and started during the quarter change negotiations to find a more long-term solution for the challenges in Buildings. The change negotiations were concluded in early October with a decision to reduce close to 80 employees, and the introduction of a new leaner and more agile organizational structure for Buildings.
In Sweden, integrations of acquired companies took more time than expected at the cost of sales focus. Furthermore, other internal issues such as one troublesome big project and delays in key recruitments burdened the performance. At the same time, the market softened, and as a whole, all of this was reflected in the weaker than expected development in Sweden.
Overall, the challenges experienced during the quarter, combined with the negative calendar effect of one working day less than in the comparison period, slowed our growth and burdened our profitability. Sitowise's adjusted EBITA decreased in Q3 to 3.5 million euros, corresponding to a 7.6 percent adjusted EBITA margin. This was clearly below our expectations.
We continue our work to improve our profitability. Key actions in all business areas include shift in sales culture and pricing excellence, directing our efforts to the growing segments in the market, further actions to mitigate cost inflation and increasing internal efficiencies. In Sweden, the focus is now shifted strongly to sales and pricing excellence, and non-critical internal development activities are postponed. As a part of strengthening our basis for future growth, we have invested in new ERP and CRM systems. The go-lives of these systems in Finland will bring additional pressure to the utilization rate in Q4, as will integrations of companies acquired in 2022 in Sweden and Digital Solutions.
The market environment continues to be mixed with the wider technical consulting market being divided into weaker and stronger segments. The market still offers growth opportunities especially in Infra and Digital Solutions, but also in Sweden. In the Buildings business market is difficult, but thanks to the targeted measures taken, the Buildings business is now in a better position to meet the demand of the growing business segments such as special services, green transition, and security.
The key driver in our future success is our ability to keep the right people in our service. We needed to make some tough decisions during the past quarter, and I want to express my warmest thanks for all Sitowise employees for their continued commitment and good work for our clients in these times.
OUTLOOK, GUIDANCE, AND FINANCIAL TARGETS
Outlook for the year 2023
The stable long-term growth in the demand for design and consulting services to create sustainable societies is supported by megatrends such as urbanization, renovation backlog, sustainability, digitalization and security.
The uncertainty in the market that started with the Russian invasion to Ukraine, increasing interest rates and inflationary pressures continue to affect the short-term decision-making of Sitowise’s clients. That said, the effects on Sitowise’s technical consulting business have remained more limited than on the broader construction industry, which is one of Sitowise’s key client segments. During the third quarter of 2023, Sitowise’s order book declined somewhat, but is still at a good level.
The market outlook for the rest of the year in the Buildings business area is weak, and we expect the challenges to continue also in 2024. In other business areas market outlooks are more mixed with areas of both growing and slowing demand. The weakened macro-economic outlooks slow down growth in both Finland and Sweden.
In addition to the market development, go-lives of new ERP and CRM systems in Finland, cost inflation (e.g. relating to salary increases), a lower number of working days (-1) in Q4 2023 than in the previous year, potential currency fluctuations (EUR/SEK) and higher interest expenses are expected to put pressure on Sitowise’s financial performance during the rest of 2023.
Guidance (issued on 19 October 2023)
Sitowise Group estimates that its net sales in year 2023 in euros will increase compared to 2022, and that its adjusted EBITA margin (%) for the whole year 2023 will be below year-to-date adjusted EBITA margin level of 9.2%, but above 8%.
Long-term financial targets
The Board of Directors of Sitowise Group has set the following long-term financial targets:
According to its dividend policy, Sitowise’s objective is to pay annually a dividend corresponding to 30–50 percent of net profit to its shareholders. When distributing a possible dividend, business acquisitions, the company’s financial situation, cash flow and future growth opportunities are taken into account.
SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD
In October 2023, Sitowise Group Plc received a total of 6 notifications in accordance with the Chapter 9, Section 5 of the Finnish Securities Markets Act from Morgan. According to the notifications received on 2, 10, 11, 13, 25 and 31 October, Morgan Stanley’s indirect holding of shares and votes in Sitowise Group Plc had either exceeded or fallen below the 5 percent threshold of all shares and votes as a result of stock borrowing agreements. Based on the latest notification given on 31 October 2023, Morgan Stanley holds indirectly a total of 2,238,281 shares corresponding to 6.28 percent of the Company’s shares and votes, and a total of 146,194 shares through financial instruments corresponding to 0.41 percent of the Company’s shares and votes.
Change negotiations in the Buildings business area
The change negotiation started in the Buildings business area in August were completed in early October. The negotiations led to a reduction of close to 80 employees, and in addition, a new leaner organization was introduced in Buildings business area.
The one-off cost resulting from the redundancies will be recorded under items affecting comparability in Sitowise's October-December 2023 P&L. The saving will start to materialize from October 2023 onwards and will be fully in force from January 2024 onwards.
On 19 October 2023, Sitowise issued a profit warning and updated its guidance for profitability in 2023. The guidance for net sales remained unchanged.
Espoo, 2 November 2023
Sitowise Group Plc
Board of Directors
Heikki Haasmaa, CEO, firstname.lastname@example.org, tel. +358 50 304 7765
Hanna Masala, CFO, email@example.com, tel. +358 40 558 1323
Mari Reponen, Head of IR, firstname.lastname@example.org, tel. +358 40 702 5869
Financial calendar 2024
The planned publication dates for Sitowise Group Plc’s financial reports in 2024 are as follows:
Webcast for analysts, media and investors
Sitowise’s Q3 2023 earnings webcast will be held today, 2 November 2023, at 12 pm EEST. The webcast can be accessed either live or as a replay available at livekatsomo.fi/sitowise-q3-2023-result-webcast/
Nasdaq Helsinki Ltd
SITOWISE IN BRIEF:
Sitowise is a Nordic expert in the built environment with strong focus on digitality. We provide design and consulting knowhow to enable more sustainable and smarter urban development as well as smooth transportation. Sitowise offers services related to real estate and buildings, infrastructure, and digital solutions both in Finland and in Sweden. Global megatrends drive huge changes that require a re-evaluation of the smartness in the built environment – therefore we have set our vision to be Redefining Smartness in Cities. The Group's net sales were EUR 204 million in 2022 and the company employs more than 2,200 experts. Sitowise Group Plc is listed on Nasdaq