Sitowise Group Oyj (SITOWS) Earnings Call Transcript & Summary

Welcome to our Q4 presentation. My name is Minttu Vilander and I'm here with our CEO, Pekka Eloholma; and CFO, Heidi Karlsson. [Operator Instructions]. But without any further ado, please, Pekka, you can continue.

Okay. Thank you. Yes. Welcome all. As you can see here from the first headline, we had a strong quarter 4 and especially glad we are to report that we got back to the clear organic growth track. And here is the agenda for our presentation here with Heidi and Minttu. First, some key takeaways and then the financial review that will be done then by Heidi. Then some business highlights, developments there. Minttu will shortly present our proceeding there in the -- with the sustainability new program, which goes to the 2025. Then our proceeding on the M&A track, I will tell that. How we are going then with our innovative part, the Smart City Lab, what has been done there. Then as you know, a new CEO is coming, some thoughts on that. And then our dividend proposal and the market outlook, as well the guidance. And then we have time for your questions. But let's start. So strong performance Q4, as we expected. And throughout the whole year, we were saying that the market is clearly picking up, and that was really, really the case. Our top line increased almost by 20%, and the organic growth, which I already mentioned, that was clear, 6% overall for the whole company. And that we are really, really delighted about that. Then our profitability. That was improving and also the adjusted EBITA we reported -- we could report the EUR 5.6 million, which there's really a clear improvement compared to the quarter 4 last year. Market is picking up, and we have been active there with our sales efforts, and we are really glad to report that our order book is, once again, on the all-time high level and that the improvement compared to the 1 year back is 41%. M&A pipeline is strong. As you know, that is the -- that is also a big agenda for us to drive that further on. And from the start of the Q4 till today, we have been closing 4 new acquisitions, and we will then come back to that later on in this [ presentation ]. And then really a big thing that was during the Q4 that we really went above the 2,000 specialist level in our company. So we are now over 2,000 really, really motivated, inspired and high-level specialists in the company. And now we will start with the financial review, and I will give over to Heidi, please.

Thank you, Pekka. So we are very pleased with our financial performance in Q4. Our net sales as well as profitability and cash flow developed very positively in the last quarter of 2021. So as Pekka stated, our net sales in Q4 grew to -- grew by close to 20% and was more than EUR 50 million. For the whole year, we almost reached 100 -- we were a little bit short of EUR 188 million, and -- but the growth year-on-year was -- and if we look at the whole year, was more than -- was 12% compared to our 2020. And here, we can clearly see that throughout the year, in the first half, our growth was around 7%, 8%, but it really took off, accelerated in the second half of 2021 and -- where we reached then 15% growth in Q3 and now close to 20% in Q4. When we look at our profitability, the adjusted EBITA, we had even a higher growth. We had more than 40 -- the EUR 5.6 million is more than 40% higher than in the Q4 2020. For the whole year 2021, we reached an EBITA adjusted for more than EUR 21 million, which is also above the 2020 number. The so-called relative profitability or our EBITA margin fell short of the 2020 year. But here, we have to remember that in 2020 was a very unusual exceptional year with -- due to the COVID outbreak and many of the sales activities not taking place as well as we received some support from the government, which lowered our costs significantly in 2020. We normally and historically, we can say that we -- at the end of the year, we tend to generate a very strong cash flow, and last year was not an exception to this. So we had a very strong cash flow at the end of the year, which then resulted in a lower net debt end of the year as well as on a leverage EUR 1.4 million, which is now at the same level as we had after the IPO in the spring in Q -- after Q1. Our leverage increased a little bit in Q2 and Q3 but now dropped down to the level of 1.4. And we have a very -- and we have a very strong cash position at the end of the year, which we have been able to then utilize for the acquisitions that Pekka also mentioned about -- at the year end. So let's next take a look at our quarterly numbers. Last year, we have been able to, each quarter, report a record-high order book and the last quarter, Q4 was not an exception to this. Our order book, EUR 162 million is 41% higher than we had at the end of 2020 and 6% higher than we had at the end of Q3. And this is a clear sign of higher market activity as well as a successful sales work from our employees. What is also very good is that in all of our business areas, the order book has been growing last year, and we have a very solid and strong order book in all of them. The growth in Q4 in our order book was mainly related to the infrastructure business area where we received a couple of very big project, 1 new project and 1 project [ expansion ]. In terms of net sales, our last quarter is our record quarter, so the EUR 51 million is the highest quarter we have ever had in terms of net sales. And here, it is also -- a good sign is that we had growth in all of our business areas. And as Pekka said, this high growth percentage is consisting both of acquired sales as well as then the organic growth, which is very important for us. In terms of profitability, in Q4, we made EUR 5.6 million, which is clearly above the quarter in '20 -- the first -- fourth quarter in 2020. In terms of the relative EBITA margin that we were showing, we're showing 11.1% in Q4. It's a little bit less than we have had, for example, in Q3. And although the utilization rate was on the same level as we have had in Q3. But here, we have to remember that when we look at the profitability, there are many factors impacting it. So for example, our project and product mix as well as then how much our people are taking holidays or sick leave. And then also what was a little bit higher now in Q4 as we were going back to the normal. So there were a little bit more kind of activities for our personnel, which we have not been able to have in the previous quarters or, for example, also in the year of 2020. Nevertheless, we are still very pleased that we are able to maintain the strong high profitability as we are growing with a good base. These slides should be familiar. Many of you have been following us that here, we can clearly see that we have the 4 business areas. We have buildings and infrastructure as the big ones. But then what has happened now, during the last year especially, is that there has been a significant growth in our business area of digital solutions as well as in Sweden, and this is exactly according to our strategy that we do want to have a very well-balanced portfolio of business areas, and we are on a very good path also towards this goal. As stated earlier, our group net sales growth or the increase year-on-year was close to 20%. And here, we then have a breakdown of it in -- to our business areas. And we can see here that we have -- actually, we have a 2-digit growth in all of -- in 3 of our business areas and also in infra, close to 10% growth. And these are, of course, some numbers we are very happy about. And as also, Pekka said that these are very much financially performing -- all of these business areas are performing well. And we have -- in 3 of our business areas, we had a strong organic growth boosting these numbers that we are showing here. So next, I would like to hand over to Pekka, who will tell more then about the development in the different business areas.

Yes. Let's start from the left and that is the buildings business area. Really glad about the development and glad we are able to report here, tell to you that we got back to the organic growth track there at our business, building business area. A lot of effort was been put on that, and the market is flavorable (sic) [ favorable ] for us. Order book was also improving clearly. And we are really glad that we got really many, many significant small and medium-scale projects and that is the day-by-day work we are doing there with the high-quality deliveries to customers, and we are active there and really, really facing the customer day by day. And that is really, really, really nice outcome out of that. Infrastructure, the second one, really, once again, a solid, solid performance, nice growth there. And most of that growth you're just shown, what Heidi was telling, 8% during the quarter 4 on our infrastructure side. Most of that was organic. So that was really an excellent performance there. Digital solutions, the third one, really remarkable growth, as you saw. Market is flavorable (sic) [ favorable ] and we have really reached the position to be one of the leading recognized players when it comes to the digital solutions to the build environment. And we are really competing against the big and smaller medium-sized IT known, recognized IT vendors in Finland and now also in Sweden, and we have been successful there. And we got nice proceedings there with our, let's say, the home area somehow with the public segment. And also big thing here was that there were really nice new entries to the private sector. That means the forestry industry as well as the wind power area. In Sweden, really remarkable growth, as you saw already. During quarter 4, Jonas Larsson started as a new Head for our Swedish operations there. That is a remarkable thing and there was really a good growth in Sweden, and now we are continuing to deliver that profitable growth in Sweden by organic growth, organic means as well as we have really high agenda for M&A there in Sweden. And then having said that, also a big year for our Swedish operations, this -- I mean 2022, which we have now started is that our target is to combine our activities under 1 umbrella, what comes to the brand and what comes to the company. So there will be -- at the end of the year, there will be Sitowise Sweden as a united company to go further on now with our activities in Sweden. And then some other highlights, we actually -- we launched our new sustainability program. And Minttu, who is responsible for our sustainability development and work there, Minttu will present that for you. Minttu, please?

Thank you, Pekka. Yes. So we published our new sustainability program in the end of last year. And it's a program that goes until 2025. And we set 4 targets to ourselves, 2 internal and 2 external. And the targets are based on a couple of surveys that we did. We did surveys to our employees, to our clients, and we also had a survey for the big audience kind of -- so that we would understand what thing -- what is important in the sustainability sector that we should take into consideration when doing this program. And first 2 targets that we have are internal, as I said. The first 1 is that we want to be carbon neutral until -- before 2025. And this is kind of an important target to us even though our carbon footprint is not that big. But it is important because we give this -- or we sell this service also to our customers. We tell them how to do it. So it's important for us to do it ourselves too. And how we are going to do it is that we will change our ways of working so that we will be more carbon neutral during next years. And then in the end of this time period, we will also compensate so that 2025, we will be carbon neutral. Then the second one -- second internal target that we have here is based on the fact that our success is based on the people that we have here in Sitowise. So we want to be the most equal workplace, and we want our people to be well-being. Because we see that if they -- if we succeed in this, we will get the best talent and we will also make sure that our projects are done in the best -- with the best quality. So that is the reason why we see that this is really important to us. One other thing and target under that, a target is that we also want to concentrate on diversity of our employees and make sure that because we make the build environment better and people who live in the build environment are different, so we want to make sure that the people who plan the build environment are different -- from different backgrounds, too. Then the 2 other targets are external. And the first one is that we aim to -- aim for sustainable economic growth. And this, of course, means that our clients expect us to understand sustainability and how sustainability regulation and regulation affect on the business that we have and how it affects in the build environment and the projects that we have there. So we need to understand what kind of services, new services we need to have -- to make sure that we will have that growth. And the other thing is that the services that we already have, how to make them more sustainable. We see that there is a big business potential. And that's why we also emphasized in this program that we want to also have innovations and innovation activities targeted to sustainability -- sustainable services. And one other thing is, of course, important to us and it's the regulation, for example, EU taxonomy, that the first time this year, we will report also under that, and we want to make sure how that affects us and also our clients. And the last one that we -- the last target that we have here is the thought leadership. We see that there is a place and need also for thought leadership in sustainability in our business. So we see that we want to be the one company who understands sustainability the best. And what we need to do to be able to do that is that we need to make sure that all our employees, not just those who work with the sustainable services, but all of them understand what sustainability means in build environment, how it changes the way we need to work, how it changes the way we need to help our clients. So here it is in a nutshell, the sustainability program. Thank you.

Thank you, Minttu. And then to our M&A activities. As I said in the beginning of the presentation that we have been active there, and this is a big part of our thinking DNA and how we are going forward, added to the organic growth. And since start of the Q4, we have now closed 4 acquisitions, as you can see here. Altogether, it's 44 new high-level high-skilled committed inspired specialists we have got into the Sitowise family. That is the big thing. And then these are altogether representing around EUR 5 million revenue for us. And just shortly, there are 2 first ones, the Livair and Jorma Jääskeläinen. They are consulting companies in the building business area in Finland. The first one, Livair, the competence area is the HPAC consulting, 5 employees there. Then the Jorma Jääskeläinen, that is -- the focus area is the structural engineering for the buildings and especially important thing here for us is that they have really a good foothold there on the Tampere area, and that is strengthening our offering and delivery capacity there. And then the third one, VRT. Now we are talking about the infrastructure consulting business in Finland. And this company really has a special skill set. They are inspecting and modeling with the 3D data models, the below-water structures and also the above-water structures and then making the analysis on that. And 13 specialists also here and the net sales was EUR 1.3 million in last year. And then the last one, the Mavacon. Now we are talking our business operation in Sweden, a company with the 13 specialists specializing on the infra side there. And there in the infra side, really, the core competencies are the design and consulting services for road land and water. And then this is what we have closed. And then when it comes to our M&A pipeline, that is really in the good shape, I can tell you, and we are working with the -- let's say, the new target companies in every stage of our pipeline really, really actively as we have done so far. Then in our last release Q3 release, we launched the Smart City Lab. And that is the innovation initiative inside the Sitowise. And here, the target is, as I said last time, that we are now starting to build R&D platform for Smart City [ skin ]. We are driving that. The first step is the internal activities, but then further on, the target is really to make this platform as a leading smart city development platform services development, solutions development platform on the smart city area. That means that then we are inviting external partners, external customers to that platform. But the first step was that we started this with the internal competition, and we got over 100 really, really good business initiatives development ideas to develop new services to our portfolio. And we have now selected 16 out of them, and we are now continuing our development work with these 16 ideas, and we will then report you later on, and we will be really glad to report you later on then the outcomes when we are getting here further. The focus areas for this Smart City Lab and the whole innovative R&D initiative is, as you can see, the smart buildings, then the sustainability as a service as a solutions. That area that is real potential, and there are new ideas coming into the [ skin ] every day, every week, and we are active there. We see that really as a big potential for our further growth. And then the third one is the smart and sustainable mobility. Mobility, where we have been active, and that is now the focus area also here. But we will come then later on, on this when we will have the, let's say, results. Yes. New CEO, Heikki Haasmaa, we actually published this news early January. This here is about 2 months ago. And Heikki has now started to, let's say, study our operation, our company, our people. And he will then, as you will see here, and you know that he will then start, latest is 2 months from now. And till that -- and that means beginning of May. And until that day, I will be here, and I will be running the company, and that will be really a smooth and -- smooth transition then to give over to Heikki. And I'm really, really glad that we were able to recruit Heikki. He's -- from the personality and from the track with what he has done and the experience and the way he's approaching the customers and especially the people, specialists, that is really the Sitowise way, and that is a good continuity for the company. And then to our dividend proposals here, I give over to Heidi.

Yes. So our Board decided yesterday to propose a dividend of EUR 0.10 per share, and this is approximately 30% of our net result when it has been adjusted for the IPO costs that have been booked to our P&L. This Board's proposal is in line with the dividend policy that was approved and -- last spring, and it is also taking into account our growth strategy, where, of course, the acquisitions, they play a vital role. This dividend proposal, so it is still, of course, a proposal, and it is conditional for the AGM approval. Our AGM will convene on the 20th of April. And if there comes the green light, the dividend will be distributed end of April. And as we have EUR 35 million -- a little bit more than 35 million shares, it will mean that we will be distributing EUR 3.5 million in dividends at the end of April.

Yes. Then the last part of our presentation is the market outlook. And after this, we are then coming to our guidance. The market outlook is flavorable (sic) [ favorable ] for us, as we have said many times. In each of our business areas, the market is now growing clearly. And that is really, really a good thing, started during last year, and that has been now the case, and that is what we feel and see the activity there with our customers, the customers -- existing customers and with the potential new ones. So there's a lot of activity. And really, I would like to underline that in each business area, that is the case. And we all know this sad thing what now is happening there in Ukraine. The Russian military activity caused that and the really a sad thing and we all know that, that can have some impact on the financial environment in the European level at least. But how that then will impact, let's say, our area, we don't know. But basically, really, we see that the market is now flavorable (sic) [ favorable ] and we can continue with that. And when the market is in good shape and our operation is also in the good shape, we are back on the organic growth track. Order book is good. Utilization is right. The quality delivery is in good shape as well as the sales activity in each business area. We are now giving our first guidance in our history. And as you can see, the guidance is that we estimate that both the net sales and the adjusted EBITA will increase when we are talking about the euros that they will increase 2022 when we compare 2021. So that is the guidance and that ends up our presentation here. And now we are -- operator, we are ready for the questions.

[Operator Instructions] At this time, we have no questions. I'll now hand it back over to Pekka.

Okay. Thank you, and hey, thank you for all you who were listening here. And Minttu, you are raising your hand, you have 1 question there.

Yes.

Okay.

We have a couple of questions here at the chat. From Olli Koponen from Inderes. There is a question here. And order book has been growing nicely for a few quarters. How much of this you think will materialize this year?

Heidi?

Yes I think we have been asked this question in the past as well. And our book -- our order book consists of a mixture of projects. So we have projects that can go on for 3 years, up to 3 years, and then we have projects that are realized within 3 weeks or 3 days. So therefore, it is a mixture. And -- but as I stated, it is on a very, very high level currently. And I would say that, of course, the majority, but we are not giving this kind of number out currently. So we are not really disclosing that number.

And also another question about the order book. How does order book growth divide to organic and nonorganic growth?

Here, the majority is organic growth.

Okay. And then 1 more question from Olli. Can you comment the inflation and its effect on you during the quarter?

During Q4 or?

During Q4, yes.

If you think about the inflation as such, when it comes to the salaries, there hasn't been salary increases in Q4. So that is not -- we do our annual salary increases normally or we revise our salaries in beginning of the -- in the first quarter normally. And then -- and we have, of course, we are working in order to get the -- our customer prices adjusted based on the contracts that we are entitled to. So that normally takes place then throughout the whole year. And in that sense, are -- have an impact normally more at the end of the year.

Thank you, Heidi. Then we have questions from Robin Nyberg. Here is a question about M&A. You mentioned that the M&A pipeline is strong. Would it be realistic for you to acquire as many companies as in 2021?

Yes. If I remember right, we acquired, was it 8 companies?

We have 1 at the year-end, so it is a little bit how you look at it, yes.

Eight plus maybe 1, but that is the -- what we did last year. And certainly, our target is to be active there. And in every topic, which is in our strategy, we try to be even more efficient. So basically, short answer is that, yes.

Then there is another question about the inflation. Will it be more challenging to reach the margin target this year because of the inflation?

Like I said, that we do, of course -- if you think about our company and our cost structure, so the inflation, as we can see it is, of course, impacting partially our personnel costs as well as then -- there are some index adjustments also in the premise cost and so forth. But here, I'm thinking of -- sorry, what was -- the question was that if -- how it...

Will it be more challenging to reach the margin...

Then on the other hand, we have had in -- the whole -- if you think about historically, we have every -- we have actually all -- we are always facing this fact that our customer prices are not increasing or have actually been stable, but our cost base has been increasing. And what it means for us that we all the time have to look for more efficient ways of work independently if we have had the inflationary basis or not. So I think it is very much in our strategy is to work in a very, very efficient way and find operational excellence, which will then still support our strong profitability.

Then there is a question, how should we think about the earnings seasonality in 2022?

Yes. We are now entering injured to the, let's say, the normal seasonality, we believe, after the COVID. That was 2 special years behind us now. And basically, when we are on the normal speed here, then the H2 is better, [ when it ] comes to our performance than H1. So that is the normal seasonality, and that is what is our expectation today if the market will develop on that speed we are now expecting.

And then the last question. How should we think about the organic growth in 2022, given that the order book is strong?

Yes. We believe that this will be a strong and a growth year for us. And with the, let's say, the capacity we have today, the efficiency we have today in place and then especially the nice order book, I suppose, the -- already part of the question, that is there in place. So we believe that this will be also -- the organic growth possibilities are quite good. Outlook is bright also in that sense.

Thank you.

Okay. Hey, thanks for really good questions, and thanks that you took the time and -- listening to us. And here, our annual report and the sustainability report, we will publish that end of March, end of this month. Then the AGM, that will be held in 20th of April. And then the next quarterly report that will be released, that will be -- the Q1 report will be released then on 18th of May. So thank you for you all. We will end up here. Bye-bye.

Thank you.