Sitowise Group Oyj (SITOWS) Earnings Call Transcript & Summary

Welcome all to the Sitowise Digital Solutions Event. So today, we'll have a deep dive on what is our Digital Solutions all about, and what is the potential of that in the future. Sitowise is known as one of the largest Finnish planning and consulting companies for the built environment. Besides this, we also have a significant self-sustaining IT solutions business, specialized in geospatial solutions and Software-as-a-Service, SaaS, product business that provides a complementary service offering to infrastructure, buildings and Sweden business areas with data and digital solutions expertise and capabilities. Today, infra is our largest business area with roughly 37% of the group's net sales in third quarter this year. That focus is on urban development including infrastructure, transport, environment and project management. The second largest business area is Buildings, that has, in recent times, suffered heavily from the construction market downturn in Finland. Buildings business specializes in building design, consulting and project management services. Digital Solutions provides smart geospatial solutions for various sectors, helping clients to save costs, time and also the environment by optimizing asset management and utilizing data for decision-making. Digital Solutions accounted for 16% of our net sales in third quarter. And together with the Digital Solutions business in Sweden, Infracontrol, namely, it would have been 18%. Sweden business area offers design and consulting services in structural engineering, building services engineering and also consulting for buildings and real estate infrastructure and also geotechnical design. And altogether, we have 2,100 experts working for us in over 30 locations both in Finland and Sweden. So today, we are hosting this event in Central Helsinki. Whether you drove here from the east or from the west or chose to travel by metro light rail or train, you likely used transportation routes that have been partially designed by our experts. You may also have passed buildings where our experts have contributed to the design and planning of the HVAC systems, electricity, acoustics or fire safety. And maybe we have been even planning your housing renovations. Although it's harder to see, our Digital Solutions has been involved in several built environment, mobility or forestry-related IT projects. For example, on ”RYHTI”, the new built environment information system that will be a significant national home for Finnish land use and building information. So in sum, our handprint is really large but often goes unnoticed as we are consultants, not constructors. Megatrends. So our society must continuously adapt to significant societal and also environmental changes. Our clients' needs are influenced by the following 5 megatrends that also drive Sitowise's business growth. Urbanization. So by 2050, probably like 70% of world's population will live in urban areas. This highlights the importance of public transport, especially rail and also efficient bike lanes. And monitoring built environment and traffic flows presents several opportunities for our Digital Solutions business as we can leverage data analytics and also IoT to create smart cities, fast optimizing traffic flows, reducing energy consumption and also improving public services. Renovation backlog. So addressing urbanization requires maintaining and upgrading existing infrastructure. In Finland, investments in residential buildings and traffic routes need to nearly double, while water supply networks require tripling. Sitowise's Digital Solutions provide advanced planning and management tools for efficient and sustainable upgrades. Climate change emphasizes energy efficiency, emission reduction, life cycle cost optimization, biodiversity, conservation and sustainable materials. It also drives the need for new building and transport solutions and natural resources, asset management services. Our digital products help professionals assess climate impacts, design climate-resilient environments and also manage forest assets sustainably. Digitalization. The exponential growth of data presents large opportunities in our industry. Technologies like AI, IoT and augmented reality, virtual reality, revolutionalizing how we interact with the built environment and natural assets. Our Digital Solutions harness data to drive sustainable development, also to streamline project management, enhance collaboration and improve efficiency. Also, the regulatory changes are accelerating digitalization. For example, the new Building Act in Finland coming into force in '25 requires data to be in a digital format. And then finally, security. Increasing threats to data, IT systems, infrastructure and also properties require better data management in real estate. In our Digital Solutions, we use advanced cybersecurity protocols and AI to detect and mitigate threats. We continuously also enhance our security-critical offerings and are the largest operator in Finland's built environment with an ISO 27001 information security certificate. Our Digital Solutions business offers Nordic excellence in location intelligence. So our services include custom-made digital solutions, products and SaaS solutions as well as consulting for the built environment, mobility, security, forest and other natural resources sector as well as for the energy and industry. Anna Wäck will today discuss Digital Solutions business in more detail soon, so I'll just jump to sharing some facts about the origins of the business. Our digital business actually has a strong foundation built on over 30 years of expertise. So over the past 5 years, we've been experiencing rapid growth both organically and also through acquisitions. The roots of Sitowise's Digital Solutions are in the Infra business, which started software development in the '80s and developed CityCAD software, a market leader in Sweden in the '90s. In 2018, Sitowise acquired Dimenteq company, a specialized -- a specialist in GIS, so geographic information system, and also the spatial data information systems. And then we established Digital Solutions as an independent business area. And since then, the business area has more than tripled in its size. Some key milestones. So in 2020, we acquired Ficonic Solutions, known for its expertise in mobility and transport infrastructure, IT solutions. In '21, we acquired Sweetlakes, specializing in cloud and mobile development and also security information system solutions. And also in '21, the Swedish traffic and infrastructure IT company, Infracontrol. The Bitcomp acquisition in summer '22 was especially significant for us. So Bitcomp offered digital services and also SaaS solutions for the forest sector and also natural resource operators, paving the way for our current SaaS business growth and expanding our clients to forestry and also natural resources segments. What is noteworthy here is that all these acquisitions have been really successful. So we have integrated the acquired expert teams and also the products into our operations. These acquisitions have brought us new capabilities and expertise and also expanded our product portfolio, significantly then enhancing our offering and also our profitability. Sitowise's 3 strategic pillars are to be the most innovative, the most sustainable and the most efficient. With these goals in mind, we established our own innovation platform, The Smart City Lab 2 years ago, and this year launched Sitowise AI Center of Excellence. And actually, these initiatives aim to promote and drive forward innovation and the development of new smart and sustainable products. Today, as I said, 18% of Sitowise's net sales come from Digital Solutions, which is actually a figure which is much more higher than our technical consulting peers have. So before discussing competition in more detail, let's review still the Digi's addressable market next. So as said, we focus in digital solutions on location intelligence. Therefore, the most relevant market for us is to follow the GIS services, so geographic information system, as said. And then also the software market, which provides the technology to collect, store, analyze and also visualize geographic information. And based on our estimates, the GI services and software market is in Finland and Sweden roughly at EUR 350 million; in the Nordics, at EUR 700 million; European market, approximately EUR 2.5 billion. And then global, the market is already like from EUR 7 billion to EUR 10 billion. And some key trends supporting the growth in this market includes of course, increase of this GIS data, like a strong increase there, and then the need for solutions supporting data management and governance. Also the growing integration of the GIS with IoT, smart cities and asset management is a trend, rising interest in the open source GIS solutions for the flexibility and cost effectiveness and then, lastly, the increasing demand for the off-the-shelf product solutions. So these are the key trends. And as already said, we today operate in Finland and Sweden, where we have roughly a 10% market share. In future, our ambition is to further strengthen our position in these markets and to be recognized as a leading service provider and partner in geospatial software projects in this space. We expect that in Finland and Sweden, the market would start to recover during '25 after roughly like a 1.5 years weaker cycle and expect the market to grow at an average annual growth rate of -- from 5% to 10% in the coming 2 years. The market also offers opportunities outside our home markets, especially for our like product business, the SaaS type of business. And today, we already have some clients outside the Nordics as well. And our overall ambition is to expand our product business internationally towards the end of this decade. And then coming to the competitive landscape. So we face actually quite a versatile competition that we need to be familiar with, ranging from the traditional technical consulting competition to pure IT players, GIS consultants and also these SaaS companies. What differentiates us from the competition is our ability to combine our digital capabilities and geospatial expertise with the technical consulting know-how. So in the product business, we are in a position to create new markets and also then, in a positive way, to also disrupt the way our clients have managed their built assets or natural resources in the past. In many cases, our competitors also form a potential partner base. For example, we provide in-depth industry expertise for pure IT players in larger IT projects related to built environments. Now I'd like to hand over to Anna. So you'll talk -- you are leading our digital business overall at Sitowise, and it would be now great to hear a little bit more detail about the business itself. So welcome.

Thank you. Thank you, Heikki, for the good introduction. So as Heikki already highlighted, our successful M&A activities -- we've had successful M&A activities over the past 5 years. But in addition to the acquisitions, we've had strong growth, let's say, low single-digit growth also organically. On this graph, you can see Infracontrol's figures that are presented here as part of our Digital Solutions net sales so that we can provide an all-inclusive view to the digital business within Sitowise. In fact, from next year onward, we will transition into a Nordic Digital Solutions organization, where Infracontrol will be reported as part of Digital Solutions. And the change is not only about reporting. We see clear business synergies related to cross-selling and operational efficiency in our home markets, in Finland and Sweden. But we are also preparing for scaling our product business internationally in a few years' time, as Heikki mentioned. Our business mix is well balanced across the 3 main service areas, and our business is a very healthy mix of hourly invoice consulting work, stable revenues from long IT development projects and maintenance contracts and increasingly growing share of recurring revenue generated by our SaaS products. And this business model stabilizes the top line fluctuations and brings scalability to grow our business further. We also share similarities with other business areas within Sitowise, Infra and Buildings, especially through our customer portfolio, which benefits especially new product development, commercialization and sales. As many of you know, this year has been quite challenging for the IT sector due to the challenging market conditions leading to weaker demand, postponed decision-making especially hitting the project and consulting businesses. However, I'm happy to say that Digital Solutions business is currently exceeding Sitowise's long-term profitability target of 12% EBITA margin. We have been systematically improving our profitability since the early 2023, achieving a successful turnaround last year despite the challenging market. And this year, we have not only defended our profitability, but we've actually been able to improve our margins in the Digital Solutions business in Finland. And we've achieved this through a few levers. First, sharpening our project -- product business offering already back in '23. So focusing on the products which have proven customer benefits and a very strong business case, strong profitability. And we've been continuing, of course, investments in product development, but in a focused manner to maximize ROI. Then we've been secondly, focused on sales and pricing, so commercial excellence. And we've seen -- we've been able to increase our average prices for 2 consecutive years, mainly through systematic price escalations and also ensuring we take part in tenders where we can really differentiate with quality. Third lever is our business mix. So as we have seen a stronger growth in the higher profitability product business, of course, this has been then compensating for the slightly weaker performance in project business. And finally, an important element is that as we have had some quieter service areas, namely our project business, we have been able to shift the experts from the projects to work on our product development, and this way, accelerate the value creation of our products, but also then ensure we maintain healthy utilization rate and don't have people on the bench on the project business. We have a very kind of balanced customer portfolio. The public sector, including municipalities, authorities, ministries, represents approximately 55% of our net sales. This work includes especially framework agreements and long-term contracts with stable revenue and profits. We have very strong customer relationships in the public sector, and our clients value our understanding of their business, the systems, their data but also the ecosystem in which they operate. The private sector, on the other hand, has been growing, reaching now 45% of our net sales driven especially by growth in forest, energy and industry sectors. And especially our products, such as Louhi, LeafPoint, Smartlas have been grow -- contributing into the private sector growth as many of these customers are looking into transitioning from fully customized software solutions into off-the-shelf-ready products. Going forward, we continue to grow and diversify our customer portfolio. Firstly, we continue to increase the share of wallet in our identified key accounts by proactive account management and customer proximity. Second, we continue to push to increase the private sector share of sales, especially through strengthening our product sales in industry and energy segments. Thirdly, we expand the reach with the help of partnerships. So as Heikki mentioned, we are working with more generalist IT companies, and we are tendering together in larger tenders. And then we have go-to-market partners like Ponsse. I will address that a bit later more. But it's an innovation partnership and we are looking into international solution sales together. And then finally, we have great examples of cross-selling our solutions between different Sitowise business areas and see that this is also an important lever moving forward to reach new customers. In Digital Solutions, we are benchmarking our performance to our listed IT industry peers. And with the past year's double-digit growth, fueled by M&As but also organic growth as well as the more recent profitability turnaround, Sitowise's Digital Solutions is well positioned in our peer group of listed IT companies. And our ambition is to maintain our position in this top right quarter, so the strongest performers, both in terms of growth but also profitability. Our competitive edge comes especially from the fact that we are a professional IT services business combined with deep industry and GIS expertise. I won't go into deep technology topics today, but on this slide, you can -- I wanted to highlight some of our technical expertise. And we are driving our business through a diverse and state-of-the-art technology stack. We are a technology-agnostic company, which means that we want to ensure that our solutions meet our customer needs by leveraging the most appropriate and most cost-efficient technologies available. This also enhances efficiency and innovation. And our product business is also providing us with some ready-made components that can bring efficiency and competitive edge to the custom software development. Next, I will go through our 3 service areas in more detail, and I'll start with software development that represents 60% of the digital revenues. So we offer software development for our clients throughout the life cycle of their IT systems. This means that we design, develop and maintain large, often quite complex IT systems that are tailored to our customers' unique needs. The project scope typically involves some geospatial data-related competence needs, and this niche competence as well as our industry knowledge provides us with differentiating edge compared to our competition. Typically, the software development projects employ between 5 to 15 professionals and they expand to several years. We are currently working with customers like Finnish Traffic Agency, Ministry of the Interior, state-owned forest company, Metsähallitus and Finnish Environmental Center. Then consulting, representing 10% of our revenues. So we provide management consulting in areas related to data management and geospatial intelligence, smart and secure cities, intelligent traffic and logistics and sustainable energy transition. And we have also strong business and service design capabilities. And these consulting projects, whether it's studies or road maps or concept design, are also acting as spearheads to drive growth for our software development and other Sitowise business areas. Besides hourly invoice consulting work, we complement the offering with modeling and simulation using advanced technology. And I wanted to highlight some related customer -- recent customer cases. So with Tampere digital twin, we built the digital twin that was used for Police University College training, meaning that our game engine-based technology enabled the police students to have remote virtual access to real world training environments. Second example, Helsinki City's virtual environments, where we've been stimulating possible future drone corridors for emergency hospital deliveries. Then product business, representing 30% of the revenues. Share has been growing in the past years. We have a portfolio of 7 SaaS products that support customers across built environment, forest, industry and energy sectors. These products help manage assets and operations and enable data-driven decision-making. Our portfolio includes products with strong revenue potential, good profitability and proven customer benefits. And besides product ARR, so the annual recurring revenue, we also generate significant revenue from product-related consulting. It can be deployment projects or integrations to existing customer systems. And also, customers have been funding part of the product development, which is another revenue stream on top. Each of our products act as stand-alone solutions. But recently, we've seen stronger demand in customers wanting to use several products together. And this is enabled by our platform approach, so the product functioning as a family with their value creation supporting one another. I will first show the portfolio view to our products and then we will do some deep dives in the individual products. This is very important to understand, the Digi value creation. So here, we've categorized our products based on the current revenues, the addressable market coverage and their life cycle stage. The portfolio approach, of course, allows us to strategically manage our products and ensuring we are making the right investments moving forward. So I said the other -- or the products will be discussed in more detail, but there is one exception, that's LeafPoint. It's a specific product that was designed for a very particular target audience. So the 56 Finnish Forest Owners' Associations. And we've now reached full coverage, so it's no longer commercially available for other customers. Overall, our products are able to serve multiple industries. While most of them already have a very solid coverage, we also see future potential to accelerate growth. One of our standout metrics that, of course, we closely monitor is annual recurring revenue growth rate. And we expect the solid high double-digit growth rate to continue also this year. Our retention rate is exceptionally high at 99%, showcasing the strong loyalty and strong satisfaction of our clients. And in terms of investment, we maintain a balanced investment revenue ratio. Recently, it has been around 20%. This approach ensures that we simultaneously keep on innovating and improving our offering while still maintaining financial stability. And it's also worth noting that 20% of our investments are client funded. So this is really a demonstration of our ability to tap into true prevailing customer needs. Now going through our products, starting with Louhi. It's our comprehensive geospatial platform for managing various types of assets. It adds value to our clients by improving situational understanding, enabling knowledge-based decision-making and supporting in many core business processes, some examples being that municipalities can manage their permit processes and maintain data about zoning, road network and pipeline systems. Citizens are able to view the land property and zoning plans on a virtual map. Renewable energy companies can select the optimal location and manage ground rent invoicing throughout the life cycle of the factories. And then factories can manage operations with a single source of truth from the infrastructure both above ground and underground. And with the 45% market share, we have room to expand still in the Finnish municipalities and we currently have a strong momentum there. We also see a lot of potential in growth in terms of industry and energy sectors. This year, we have already doubled our current user base. And this private sector is also interesting for us from the international growth perspective. We see it could act as a catalyst moving forward. Also, we've recently gone through a cloud transition, which allows us to scale faster and offer more modular solutions for specific client use cases. Then Infracontrol Online, that's a cloud-based smart city platform that provides municipalities with real-time transparency on issues reporting, citizen feedback and sensor data from both our subservices but also any brand independent source. This Infracontrol Online has a very strong foothold within the Swedish municipalities, where we have approximately 50% market share. In addition, we have operations in the Iberian Peninsula, where we see very potential growth market for Infracontrol's current solutions as well as some new modules, including municipality water management and fire protection. Foresta. Foresta is a smart forest management system that empowers users to make sustainable and data-driven decisions about their forest assets. It provides user-friendly tools for professional forest and resource management, and it's used by various organizations in Finland of different sizes and types. Generally speaking, in Finland, the digitalization of forest industry is in a very mature state, and we at Sitowise are among the leading experts globally when it comes to forest management systems. And we see that as the maturity and regulation develops in other markets as well, there will be even more needs for Foresta types of solutions. So while the current market in Finland starts to be relatively saturated, we are exploring new potential markets in the medium term. Then Smartlas. So Smartlas enables access to public GIS data and it also provides AI-based smart maps and reports to help professionals design a climate-resilient environment. Some concrete use cases include preventing the spread of insect damages in nature or simulating forest growth scenarios for sustainability reporting. We are also able to detect storm damages or logging, any type of changes in the forest. And as a client case example, Finnish Forestry Center has been using Smartlas to monitor illegal logging since 2019, and this has led to a 40% decrease in forest law violations in Finland. Instead of being only a stand-alone solution, also our other products and services utilize and benefit from Smartlas functions, and we also sell Smartlas as part of our infra projects with a Data-as-a-Service model. And Smartlas is a, let's say, particularly suitable solution for international sales. But we see that as many of our use cases are fairly new, there are still significant growth opportunities to capture in our home markets with the right packaging and commercialization. Next, I'll introduce Routa. Routa is an ERP solution that enables end-to-end efficient management of infrastructure maintenance, reporting and regulatory compliance. Routa's use cases include, among others, road repairs, snow plowing, maintenance of outdoor areas and parks, traffic infrastructure property management, this can include traffic signs or street lights, bridges, et cetera, and then security management such as incidents, alarms and inspections. We've recently invested in Routa in order to significantly expand the potential user base in Finland and we are currently also exploring opportunities to sell Routa in the nearby markets where we have either good relationships with municipalities or then relationships with Finnish customers who have cross-border operations. And finally, Planect. Planect is our latest intervention. We've developed the idea from -- or we've developed this from idea to a product in about a year's time as a cross-disciplinary project between Infra and Digi. It's an innovative urban planning platform that allow us to assess and mitigate client impacts -- climate impacts of changes done in the built environment, for instance, zoning. And this is done by consolidating accurate data in the matter of minutes from all relevant emission categories into an easily understandable and easily usable format. And while Planect is a relatively fresh joiner in our portfolio, the solution has sparked a lot of interest, especially among municipalities in Finland but also on the EU level. And while it is still in a more start-up phase, currently Planect is in use with 50 municipalities in Finland and the number is increasing by the day. We have a clear road map for growth ahead of us. So we have a quite vast product portfolio with clear road maps. But in order to stay competitive in the future, we need to continue innovating new ways to generate value for our customers. And as Heikki mentioned, in 2022, we established The Smart City Lab, which operates as our platform for creating new sustainable business innovations and supporting Sitowise in our goal of becoming the most innovative company in our field. Planect and Smartlas are examples of innovative ideas developed from idea to product enabled by The Smart City Lab. And here, you can see some examples of current concepts that are cooking in our Smart City Lab. So first, using our AI-based maps to bring intelligence into harvesting with Ponsse. Second, working with local partners in Portugal to identify areas that are affected by risks from forest fires. And then third, we've identified several new value packages on top of our existing products to improve asset management and minimize environmental impact. Then I, of course, need to talk a bit about AI. Of course, like in many other industries, AI is already rapidly changing ours, and we embrace this as an opportunity. Of course, AI is not entirely new to us. Our aim is to become the most innovative and most efficient in our field, and we've been developing our products based on machine learning already 4 years. Now we see that this new wave of generative AI will help us generate more competitive advantage in terms of productivity and efficiency. At the turn of the year, we took action and we established our group-wide Center of Excellence for AI. Altogether in the company, we have around 40 experts in AI. And with the help of the Center of Excellence, we have now been developing our AI capabilities and tools. One of the main kind of early achievements from this year was the publication of our own AI tool, Saga AI. It's our internal safe ChatGPT, as you will. And then we've been developing multiple AI proof of concepts to produce useful tools for our entire staff. On the right-hand side, you can see some of the use cases where we are applying AI to improve our everyday work already today. And then, of course, on behalf of Digi, I can say that with the generative AI, work of the software developers can clearly be more efficient. In some cases, we've seen that a week's work could have been done during just 1 day using the tools we have now deployed. So that's really our focus, deploying all of the tools and assets we have and sharing the best practices to gain maximum impact. So summarizing the Digital Solutions' future ambitions. First, we want to be recognized as a leading service provider and partner in geospatial software projects in our home markets. Second, we aim to grow significantly through our products. And third, our goal is to double the revenue of Digital Solutions by the end of this decade. And I then want to elaborate on the sources for this growth plan. So we see growth from four sources. First, we will address existing customer segments in current markets, where we have a strong momentum and we all have the opportunity to further capture market share. Here, the key levers are product business, so we feel there's an opportunity to double -- for double-digit growth for several products in the near term; then the GIS niche capability and our key accounts. So we continue to ensure Sitowise is a recognized and trusted partner for GIS-related software projects; and then third, of course, in our business, pricing plays a key role both in terms of our long projects, but also in the product business. Then secondly, we want to commercially package our existing solutions to new customer groups. So we've already today broadened our addressable market, not by developing new things, but actually packaging our capabilities in novel ways. And we continue to create demand for our services, for instance, by boosting internal cross-selling to reach new customers. Then in the medium term, we plan to expand the geographical reach from Nordics to new European markets. Our market research and customer discussions until now have shown that there is a fairly low market penetration in certain markets, which makes us confident that there is demand for our SaaS solutions outside of our home markets. We have ongoing several initiatives to boost international growth, including early direct sales. We have also a first win from Latvian State Forests for Smartlas from this year, then the Ponsse-Veturi strategic partnership with global market potential. And then we've been introducing some of our products, such as the forest suite and Planect in Europe, which you can see if you follow our experts in LinkedIn. We are also currently looking into different sales channels, whether selling directly or via partners or the leveraging our broad customer network. And then the fourth point, overall, while the market continues to be quite challenging, we feel that it is actually giving us some tailwind in the medium term. So there is an increasing demand for GIS solutions and data management. And our relevant product markets are actually growing faster than the IT services market on average. So next year, we will see growth especially from the first two growth sources I just described. In addition, we continue to create good conditions for marketing expansion in the medium term. When it comes to the surrounding market conditions, we expect to see improvement sometime next year. It's difficult to say exactly when. But we estimate that the market growth will be in the low single digits during '25. In product business, our direction is very clear. So we want to tap into the existing market potential with a full sales force while creating good conditions for expanding market in medium term. And in the short term, we expect the relevant product markets to grow with 15% growth rate. And then in consulting, our focus is on efficiency, profitability and sales, looking at mid-single-digit market growth. As a final note on this slide, an important one. A key prerequisite for our success is our experts. So we are in people business and we aim to be widely, wider than today, recognized and valued employer for IT professionals. Our culture is based on employee engagement, growth mindsets and constant learning. And I'm very pleased that this year, for the first time ever, we were listed among the most appealing employers for IT students. With this, I am now handing back to Heikki so that you can summarize for today.

Thank you. Thank you, Anna. So as an outcome, what has been discussed today, our goal is to double our Digital Solutions business by 2030. And this is, of course, an ambitious goal, but I fully believe that it's totally achievable. And as Anna just explained, in the short term we are focusing on our home markets and growth within our existing client segments and capturing more market share in Finland. By leveraging our strong local presence and then deep understanding of the market, we believe that we can achieve significant growth already in the short term. Then in the midterm, we start to implement our geographical expansion strategy. So we are in -- currently in the phase of starting to evaluate more closely the best entry strategies for each product and market, whether it is about the direct sales or strategic go-to-market partnerships. And finally, towards the end of this decade, then we are looking to scale our product business even more faster internationally. So in summary, we continue to focus on profitable growth and really want to position us as a leader in the GIS-related market space. We are also confident that with our strategic focus and the dedicated team, we'll achieve these goals. So today, the presentation has been much about the Digital Solutions business and discussions about the other business areas has been more limited. However, at the end of this presentation, I really want to also get back to the group level and once more underline the valuable role that the Digital Solutions has in Sitowise, so both as a driver of profitable growth for the whole group but also as an internal aspiring partner for other business areas in the organization within the areas of digitalization, use of AI and also sales. And then we'll wrap up the whole session. So what are the highlights of today? So firstly, with over 30 years of experience in the digital business, our Digital Solutions has established itself as a leader in the geospatial excellence and also having a strong industry knowledge. Secondly, our long-term contracts ensure stable revenue and profitability, while our existing product and Software-as-a-Service type of business demonstrates a strong track record of double-digit growth. Thirdly, we have the ability to create new markets and also foster a strong culture with a digital flavor, driving innovation and success. And we have clearly synergies between the digital solutions and other Sitowise businesses and are now well prepared to leverage on innovation and also cross-selling more than earlier. And then finally, we have ambitions, as I just said. So goal to double our -- the goal is to double our Digital Solutions business by the end of this decade, but I fully believe it's achievable. So thank you for your attention, and now we are also ready for the questions.

Heikki, my name is Olli Koponen. I'm from Inderes. Firstly, I'm interested -- and this is a kind of a straight question, but why is Digital Solutions part of Sitowise? Sitowise is known as an engineering company, consulting company for construction. And there, you can also kind of highlight what kind of synergies do you really see kind of between the different kind of business segments that Sitowise has?

Yes, yes. I would -- yes, first answering to the first question. So I would say that, of course, a big benefit, what we also said today is that our unique thing here is that we are able to differentiate from the other players in the industry that we are able to combine the strong technical expertise we already have had for several years, or decades actually, and then the digital understanding, digital competencies what we have. And that, of course, leads to the big potential what we have in the top line synergies. Maybe Anna can elaborate or give a couple of examples on those ones. Then of course, other angle to think about this one is that we have been growing well in the digital business. It's been really profitable as we today said. We believe that that's going to be the case in the future as well. So it will be also complementing our, yes, not just the offering but also business-wise our performance, and that's why we want to focus on that one. And then overall, I see that there's a big potential in the market to like have new ways of providing the consulting services for our clients. So in a positive way, we are looking at disrupting the existing ways and, of course, this digitality it will help us a lot. But do you, Anna, want to elaborate on the concrete top line synergies, maybe?

Yes, yes. So I think there are a few different angles to this. Of course, we are sharing much of the same customer base, meaning that we either work together in ongoing projects or then we have the possibility to do some cross sales. A very concrete example from this is that some of our colleagues in the Infra environmental departments have started to very actively sell our Smartlas Data-as-a-Service solution as part of their project work. And then maybe more from the internal efficiency point of view, I feel that while we are a self-sustaining business unit, we have been able to accelerate the digital transformation in the whole company. So our products like Louhi is being used in -- by our colleagues in Infra, and of course, our experts have been involved in developing our AI-based tools. So a lot of synergies already realizing today.

Okay. Second question. On the revenue side, you're aiming to double your revenue in Digital Solutions by 2030 to EUR 70 million. I was wondering how much of this is projected to be kind of the product business and SaaS product business that you have?

Yes. Do you want to take that one, Anna?

Yes. We see that there is room -- for the product business, it's -- the market is very appealing from two viewpoints. First, it is growing clearly faster than the IT services market. And second, we are able to generate demand ourselves through our efforts. So we do see that, that will be a significant growth driver for us achieving that target. But then we also want to continue growing in line or even a bit faster than market in our project businesses, so consulting and software development.

So we see that market share -- or the product share is like 30% of the revenue in Digital Solutions right now. So do you see kind of going to 50% or 60% or even higher? Or is it kind of stable around that level?

The share will certainly be increasing.

Like we said today, so I think, yes okay, of course, more custom-made software development is very dependent on the market. And if it's like a low single digits now for the next months, but it will be probably increasing like during the next years. However, still in the product business, we aim already at like a double digit growth. So basically, yes, then you can quite easily calculate that in some years, we are reaching that like a 50-50 level, yes.

Okay. I have one more question. Can you highlight kind of a product or a SaaS business you have now that you see the most potential as a kind of stand-alone product? You have lot of SaaS products or products in the kind of forest industry and on the road service and infra segment. But what is the kind of highest potential product or SaaS business you have at the moment?

I wouldn't want to name a favorite in terms of highest potential because, as I was showing, we have been developing our products, and many of them, Routa and Louhi, for instance, are in a shape where, with the current product, we are able to expand significantly mainly by commercially packaging, not needing to invest so much. And for me, that's actually a huge potential. And then a second aspect we see now becoming more and more prominent is that customers actually want to buy a platform. So they would, for instance, buy our Louhi, but then through Louhi, get access to Smartlas or potentially Planect in the future. Routa combined with Louhi is also kind of a usual combination for the municipalities. So there are several products that have very high growth potential still in the home market. And then, of course, we have the Europe and beyond, so big opportunities lie there as well.

Emil Immonen from Carnegie. I want to maybe continue on the digital and the product side. So if we think about the KPIs that you track for that business, how do those differ between the consulting part and the product part?

Very clearly differ, I think that's a basic prerequisite so that you can lead both of the business models effectively. From the product business maybe one North Star could be we are looking into this rule of 40. So I described how we have been able to achieve the productivity leap or profitability leap. And now we want to continue accelerating on the growth side, and we would like to maintain the performance in line with the rule of 40 for our product business. But of course, there are many customer-related metrics that we are tracking there as well.

In that case, if you are looking at the rule of 40, then I think the adjusted EBITA target of 12% is quite low. I think it should be much higher for digital, especially if you want to have 50% share of revenue from SaaS. Can you maybe elaborate on how you approach that?

Yes, yes. So of course, yes maybe first saying that at least we want to maintain the level where we are today as a message. Of course, our ambition is like higher. And then it's like a fair question in that sense, but of course, why we also want to invest and we have been investing in our SaaS business and now want to invest more in the scaling of that one. So of course, the thing is that we can get like a better margins from that business already today. And then, of course, the logic of the whole SaaS business is so that, yes, the more you then scale it, then the better the margins will be. So that's natural. But I would say that, okay, of course, it evolves now during the next years also, I mean, this rule of 40. So -- and I'm probably now today, like, of course, overall, if you think about the whole business then, of course, yes, the market pickup will be then helping with that one as well better.

And maybe thinking about our key direction. So now we are focusing on our home markets, so Nordics. But as we then start expanding Europe-wide and even beyond, of course, that will then accelerate growth, but maybe some investments, of course, needed then in that internationalization.

But if you track profitability across the SaaS products and your consulting is you're targeting consulting to reach the 12% adjusted EBITA as well. Or does that borrow from the profitability of the SaaS operations?

Yes. Okay, we haven't today gone to that detail anyhow. So -- but let's put it so that, of course, we want to make like a solid performance in our consulting -- Digi consulting and also with like a project business. That's clear. But then, of course, the big potential what comes to the actual like profitability margin improvement, that comes from the product business.

Then a couple of questions on government spending. Because the public sector is such a large customer for you and it has been quite a bit under scrutiny how much the government should spend. So has that impacted your operations at all? Do you see that in your sales efforts, for example?

It has been a bit fragmented. So up till summer, government spend has actually been on a very strong level. And in the IT sector, it was more the private sector that was dipping. Now in the early fall, there was a bit of maybe postponed decision-making. But we are now getting the signal that when it comes to these core operating systems that we typically work on, the budget cuts are not tangible moving forward. But clearly, decisions have been postponed now during the fall, so a bit tough, yes.

Is there any opportunity that you would actually benefit from government spending cuts, that they would want to use software that make their operations more efficient? Is that any role for you?

A great example is kind of municipality sector today. So as Heikki mentioned earlier, the new Buildings Act is directly kind of promoting the digitalization of the whole built environment, and it is a big generator of business for us both in terms of software development but also consulting and our Louhi product. So also government investments definitely are a driver for our business moving forward.

Okay. Then we have time for very brief answers for a couple of questions from online. So a question about people and organization. First of all, what kind of people are you having in the Digital Solutions team? Are they mainly IT people? And how does the Digital Solutions organization overlap with the other Sitowise business areas? Or is it completely independent?

We have a very diverse set of people. So of course, many IT professionals, but then geography is another expertise for GIS specialists. That's very common. There is certain overlap, but maybe how we realize it, it's that we work in common projects, especially when it comes to traffic infrastructure.

Okay. And then the final question about competition. So could you still shortly mention your key competitors and especially how the competition is looking in your growth areas outside the Nordics?

Yes. So our key competition, as Heikki mentioned earlier, of course for software development, it's generalist IT companies, and we have niche GIS experts. All of our products have their own specific competitors. And surely, there is competition also outside of Europe. But Finland is so far in digitalization that because of that maturity, we actually have quite a good competitive edge as a country in general and also with our solutions.

Okay. Thank you, Anna, and thank you, Heikki and thank you for the audience here on site and also for you who are watching this via the webcast. I think this concludes our session today.

Thank you.

Thank you.