Sitowise’s Half-year Report January–June 2024: Strategic initiatives progressing well, profitability burdened by low volumes in Sweden

Sitowise Group Plc, Half-year Report, 1 January – 30 June 2024, 13 August 2024 at 8:30 am EET

This release is a summary of Sitowise Group Plc’s Half-Year Report January-June 2024. 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

April–June in brief

• Net sales decreased by 9.9 % to EUR 50.9 (56.5) million. In constant currency net sales were down by 9.6%.
• Organic net sales growth was negative at -13% (5%).
• Adjusted EBITA was EUR 2.6 (4.5) million, or 5.0% (8.0%) of net sales.
• Operating profit decreased to EUR 1.1 (3.6) million, or 2.1% (6.4%) of net sales.
• The personnel survey conducted in May indicated that a very good working atmosphere and supervisory work continue to be Sitowise's key strengths as an employer.
• Sitowise acquired KM Project Oy’s expert business in April.

January–June in brief

• Net sales decreased by 9.0% to EUR 102.4 (112.5) million. In constant currency net sales were down by 8.8%.
• Organic net sales growth was negative at -10% (4%).
• Adjusted EBITA was EUR 5.9 (11.1) million, or 5.8% (9.9%) of net sales.
• Operating profit decreased to EUR 3.0 (9.1) million, or 3.0% (8.1%) of net sales.
• The order book remained stable during the quarter. Year-on-year the order book decreased by 8% to 162 (175) million euros.
• Leverage (net debt / adjusted EBITDA) was 4.3x (2.4x).
• In the client survey conducted at the beginning of the year, the willingness to recommend remained at a good level and NPS (Net Promoter Score) was 31 (32). In addition, 95% (97%) of respondents would re-select Sitowise as their supplier.
• The acquisition of Ahlman Group Oy’s expert business was finalized in January.

The figures in the Half-year report are unaudited. Comparative figures for the corresponding period of the previous year are in brackets. The figures disclosed in the Half-year 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	4-6/ 2024	4-6/ 2023	Change, %	1-6/ 2024	1-6/ 2023	Change, %	1-12/2023
Net sales	50.9	56.5	-9.9%	102.4	112.5	-9.0%	210.9
EBITA, adjusted	2.6	4.5	-43.3%	5.9	11.1	-46.7%	17.0
% of net sales	5.0%	8.0%		5.8 %	9.9%		8.1%
EBITA	2.2	4.4	-50.3%	5.2	10.6	-50.8%	15.1
Operating profit	1.1	3.6	-69.7%	3.0	9.1	-66.5%	11.7
Result for the period	-0.2	2.2	-107.5%	0.4	5.6	-93.3%	5.5
Cash flow from operating activities before financial items and taxes	5.9	9.6	-38.4%	10.9	15.2	-28.6%	23.9
Net debt				56.1	55.1	1.8%	55.3
Net debt / EBITDA, adjusted				4.3x	2.4x	78.7%	3.0x
Equity ratio, %				43.6%	42.5 %		42.9%
Earnings per share (EPS), EUR	0.00	0.06	-105.2%	0.01	0.16	-91.7%	0.16
Number of personnel, average	2,111	2,231	-5.4%	2,115	2,229	-5.1%	2,211

CEO Heikki Haasmaa: Infra and Digital Solutions performing well, our focus is on strengthening future competitiveness in all business areas

Sitowise's performance in the second quarter was multifaceted. Our Infra and Digital Solutions business areas, which together represent approximately one half of our business, continued their solid performance despite the mixed market conditions. The Buildings business area faced challenges from the weak construction market, as expected, achieving a tolerable performance within these constraints. The Sweden business area's performance was notably below expectations, resulting in a clearly loss-making quarter in Sweden. This burdened the Group’s profitability heavily. Additional headwinds included continued wage and cost inflation and intense price competition. At the Group level Sitowise's net sales declined by 9.9% to 50.9 million euros, and adjusted EBITA margin decreased to 5.0%.

Our primary objectives in near-term are to return Sweden back to a profitable operational trajectory, maintain a reasonable profitability in the Buildings business in the challenging market environment and to ensure its continued strong market position, and to further enhance our leading market positions and performance in Infra and Digital Solutions businesses. The key actions include the following:

• In Sweden, we pursue improved profitability under a specific “Building for the future” program. We are adjusting our resources to match current demand and workload. This process is underway, and we expect to see first results from the third quarter onwards. We are also streamlining our local operations into nationwide business model from a more region-focused model. This aims to enhance client and sales activity, efficiency and agility ensuring a stronger hold on the business. Our new leadership in Sweden has identified also additional measures to be implemented during the coming quarters.
• Also in the Buildings business area, we take measures under “Building for the future” program. We will continue to optimize organization and processes to ensure proximity to clients and improved efficiency. We also continue our heavy focus on proactive sales activities.
• Across all business areas, we remain committed to fostering and developing close client relationships, proactive sales, pricing excellence, and cost awareness.
• Furthermore, to secure growth and enhance competitiveness, we are targeting a stronger foothold in our defined growth segments sustainability, renewable energy, and industry. We have already progressed well in these segments, which improves our future market opportunities clearly.  
• We will keep new smart services and business models high on our agenda. During the review period, the number of new client engagements and wins in these areas increased, something that I am particularly pleased with. One specific highlight was the successful launch of Planect, a product born from the collaboration of our infra, AI, and digital solutions experts. The increasing interest in our other products is also encouraging.
• The final point to raise from our agenda is the commitment to fostering a positive work environment and providing development opportunities for our personnel. The expertise of Sitowise employees is the cornerstone of our business, and with our experts’ commitment, I am confident we will overcome current challenges and continue a successful execution of our strategy.

Sitowise continues to have a promising mid-term outlook, thanks to the green transition, security, and the digitalization of the built environment, which all support our growth prospects. We also have good possibilities and strong capabilities to disrupt the industry with new business models and SaaS products.

OUTLOOK, GUIDANCE, AND FINANCIAL TARGETS

Outlook for the year 2024

The long-term growth in the demand for design, consulting, and digital services to create sustainable societies is supported by megatrends such as urbanization, renovation backlog, sustainability, digitalization and security.

In 2024, weak macro-economic outlook and high interest rates have slowed down growth in both Finland and Sweden and impacted the short-term decision-making of Sitowise’s clients especially in the private sector and most of all in residential building projects. Furthermore, recent general economic environment has adversely impacted larger public sector investments, and central banks’ anticipated interest rate cuts have materialized later and on a more moderate scale than expected, thus delaying market recovery in the Buildings business area.

We expect the technical consulting market environment to remain mixed in the latter half of 2024. Growing demand for services related to green transition, security, and digitalization of the built environment will support business performance especially in the Infra and Digital solutions business areas. In the Buildings business area, the second half of the year will still be weak. However, we are seeing signs of bottoming out and gradual recovery in the Finnish construction market and estimate growth to materialize in greater scale in 2025. In Sweden challenges faced in the second quarter are expected to continue into the latter half of the year and improvement to be seen more clearly only in 2025.

At the end of June 2024, order books were at good level in Infra and Digital Solutions. In Buildings and Sweden order books and workload were at insufficient levels, and in Buildings selective temporary layoffs have continued into the third quarter. In Sweden actions to adapt resources to the existing demand and workload are on the way.

In addition to the market development, cost inflation (e.g. relating to salary increases), higher number of working days in 2024 than in the previous year (+1 day in Q3 and equal number of days in Q4), potential currency fluctuations (EUR/SEK) and high interest expenses are expected to impact Sitowise’s financial performance during the latter half of 2024.

Guidance (issued on 31 July 2024)

Sitowise Group’s net sales is expected to decline in 2024, driven by the Buildings business decline and weakened growth outlook in Sweden for the second half of the year. In year 2024, the adjusted EBITA margin (%) is expected to be lower than in 2023.

Long-term financial targets

The Board of Directors of Sitowise Group has set the following long-term financial targets:

• Growth: Annual growth in net sales of more than 10 percent, including acquisitions
• Profitability: Adjusted EBITA margin of at least 12 percent
• Leverage: Net debt / adjusted EBITDA should not exceed 2.5x, except temporarily in conjunction with acquisitions

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

Guidance update

On 31 July 2024, Sitowise issued a profit warning lowering its full year 2024 guidance for net sales and profitability.

Flagging notifications

On 11 July 2024 Sitowise received a notification in accordance with the Chapter 9, Section 10 of the Finnish Securities Market Act from from Lannebo Fonder AB. According to the notification Lannebo Fonder AB's direct holding of the shares and votes of the Company decreased under 5.00 percent on 10 July 2024. According to the notification, Lannebo Fonder AB holds a total of 1,563,569 shares corresponding to 4.36 percent of the Company’s shares and votes. 

On 31 July 2024 Sitowise a notification in accordance with the Chapter 9, Section 10 of the Finnish Securities Market Act from Handelsbanken Fonder AB. According to the notification Handelsbanken Fonder AB's direct holding of the shares and votes of the Company decreased under 5.00 percent on 30 July 2024.

According to the notification, Handelsbanken Fonder AB holds a total of 1,687,079 shares corresponding to 4.71 percent of the Company’s shares and votes. 

Espoo, 13 August 2024

Sitowise Group Plc

Board of Directors

Additional information

Heikki Haasmaa, CEO, heikki.haasmaa@sitowise.com, tel. +358 50 304 7765

Hanna Masala, CFO, hanna.masala@sitowise.com, tel. +358 40 558 1323

Mari Reponen, Head of IR, mari.reponen@sitowise.com, tel. +358 40 702 5869

Financial calendar 2024

The planned publication dates for Sitowise Group Plc’s financial reports in 2024 are as follows:

• Interim Report for January–September 2024:                                     7 November 2024

Webcast for analysts, media and investors

Sitowise’s Q2 2024 earnings webcast will be held today, 13 August 2024, at 12 pm EEST. The webcast can be accessed either live or as a replay available at

https://rajucast.tv/sitowise/q2-2024/

Distribution:

Nasdaq Helsinki Ltd

Key media

www.sitowise.com

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  211 million in 2023 and the company employs more than 2,100 experts. Sitowise Group Plc is listed on Nasdaq Helsinki under the trading symbol SITOWS.