Solwers Oyj (SOLWERS.HE) Earnings Call Transcript & Summary

Welcome to Solwers' Half Year January-June 2025 webcast. My name is Jasmine Jussila. I'm the Chief Communications Officer, and we are here today with CEO, Stefan Nyström; and CFO, Teemu Kraus. So today, we will shortly look at Solwers as a company. Then Stefan will continue with the H1 highlights and the market situation, interesting projects, and Teemu will continue with the financial review in the H1. And then in the end, Stefan shed some light on the outlook for 2025 and the investor calendar. And in the end, we will have some time for your questions. So please submit your questions via webcast chat, and we will go through them in the end. So first, about Solwers. We are a group of consultancy companies that offer architectural design, technical and other consulting as well as project management services locally close to clients. We operate in 2 countries, Finland and Sweden. And we have also opened a third country subsidiary in Poland and are looking to expand there at some point. We are today 27 companies, 13 in Sweden, 14 in Finland. We are 700 experts and our revenue in the end of 2024 was EUR 78 million with 7% EBITDA -- sorry, EBIT. And then Stefan will continue with the Solwers concept. Go ahead.

Thank you. Yes, I'm Stefan and the CEO of the company. Welcome to also on my behalf to this presentation. Some words about the Solwers concept. We have a light integration. That means actually that we don't change everything organization and big part of the administration remain as before. But we are then more focusing on collaboration. For us it is important, common project marketing and sales offering and things like that. We have a common management team in both Finland for the Finnish companies and in Sweden for the Swedish companies where we are handling this collaboration issues and, of course, other group issues as well. And we also have for this collaboration set up different groups for industry projects, common cross-selling group and then in Finland for architectural design. We are in Finland, the second largest architectural office. And we have a lot of potential there to sell larger ranges of services. Then Solwers is a growth platform for the different companies, and we develop them together with the subsidiaries management and also set up strategies for the coming years. Then a little bit about our growth. Growth has been very important for us, and we have been growing very fast. You can see that it has been quite on the same level, the growth all the time, and now we are up to EUR 78.3 million. It has been a yearly growth of 25.3%. And then a little bit about where we are. We are -- we want to be local and close to the clients. So we have a lot of offices, in fact, 28 offices in Finland and Sweden. And we have a well-established client network. Every subsidiary has their own client base. And they have in the past, only been selling their own services to these clients. Now they can sell much larger range of services to the same clients. The biggest clients we have is Trafikverket in Sweden and following by Väylävirasto in Finland. And then we have some actually project that is in Helsinki, this Laakso Hospital and then HUS, real estate and other. We can say that half of the -- our clients are from the private sector and the other half is public and half of the public is infra and other half is then hospital schools, day care buildings, et cetera. We have a lot of projects, small ones. We have more than 5,500 active projects last year. And up to 70% of them were below EUR 10,000. So a lot of small projects makes our actually order stock less risky. And then we have a lot of frame agreements, 250 and about 60% of our projects are based on running price. And we have 2 analysts who are following what we are doing. Inderes is doing that in both Finnish and English, and Nordea in English. And if you look at the highlights of the first half year, we had a revenue growth of 6%, and we ended up in EUR 42.3 million. And we see that in Finland, we have improvement in the business, more stable performance. In Sweden, it varies a little bit more. We have some very good performing units, and then we have other who have faced challenges. And then we have -- the billing rate has been increased. So it's now over 80%, and it's actually on a quite good level. Order stock have remained at a good level also. Actually, it has increased, and we see that it goes in the right direction. But we have had challenges with the profit. And the reason -- the reasons are price competition. It has continued. We have still a difficult market situation. There are not enough investments. And the salary increases have not yet been fully transferred to the prices. And then we had some one-offs. We had in Sweden, actually a project that was delayed, and it was -- the impact for us was EUR 0.4 million. And then we have additional cost that is actually impacted by additional purchase price for actually 3 companies. And then we have this, let's say, investment to the future mainly transferring related investments, and they were totally EUR 0.6 million. And what we are doing now is, of course, action to improve our profitability. And of course, first is sell -- as sell, but it means actually for us to sell more joint projects with broader scope of work. And for that, we have the sales teams, both in Finland and Sweden, as I mentioned before. And then we are reducing the group costs, and it will start to impact in H2, the figures. Same applies for our cost reduction programs in the subsidiaries. And of course, if nothing else helps, then we have to adjust the capacity. But at the same time, where possible, we will grow organically and of course, increase the price where it is possible. Some interesting projects. The first one was actually received after the H1, a few days after. It's the Helsinki port tunnel, alliance. It's a huge project. It will last for 7 years. And we have from Finnmap Infra is the project manager there. It is the tunnel from Länsiväylä to the port for all lorries and big -- actually all trucks that are transporting load to the harbor. And then we have in North Sweden, we are involved in the North Botnia Line, railway line. It's a huge project, and we have -- it's also 7 years is the duration. We have more than 10 people involved in that project. And then we have actually our first cross-border project. It's this Chiller HQ and factory in Tuusula. It's a Finnish project, but we have the electrical engineering is actually coming from Sweden. And then we have in Turku, we have 7 new day care centers. As I said earlier, we are doing a lot of schools and day care centers and hospitals and things like that. And Lukkaroinen is responsible for that project. And then some words about we have 2 mergers has happened. I think the most interesting is now the architect Davidsson Tarkela and Siren Arkkitehdit. They will -- the new name will be Davidsson Tarkela Siren Arkkitehdit Oy. And actually, Siren is the oldest acting architectural company in Finland. They have a lot of very interesting buildings they have designed. And together, they have very impressive references. Together, there are 30 and the new brand will be launched in mid-September. Then we have also HVAC company, LVI-Insinööritoimisto Meskanen has been merged into Plan-Air and the new name is Plan-Air Oy. And they have 15 people in all. Then we will have a new CEO has been appointed. He will start in 24th of November. He is actually been working more than 20 years in the same branch as Solwers is in. He has maybe more the focus on industry. And he is also speaks fluently Swedish and Finnish. And that is, of course, important for us when we only have the business at present in Finland and Sweden. And then we can use mother tongue in our management teams. He has a lot of experience also from industry, and we believe that, that will help us also to access the paper and pulp industry, both in Finland and Sweden. And then I will give the word to Teemu, please, the numbers.

Thank you, Stefan. Also welcome from my side to this webcast. I will present you the financial review. Let's start from the highlights, financial highlights. First of all, revenue at the first half was EUR 42.3 million and the revenue growth for H1 was 6% and for Q2, 5.9%, respectively. Growth was mainly driven by acquisitions, and the growth was a little bit stronger in Finland than it was in Sweden. In H1, EBITA was EUR 1.8 million and 4.3%. The market situation has been challenging, but we are not satisfied with the current performance. We have initiated several savings programs and sales boost programs to reach back midterm target levels. In the end of June, we had a breach of our financial agreement net debt-EBITDA covenant. A waiver has just been agreed and relaxed covenant will take place until the end of June 2026, when we assume that we are back on the original covenant level at latest. Due to the bridge, our long-term loans have been reclassified as short term despite no changes in the maturity of the financial agreement has occurred. Net cash flow from operating activities is EUR 1.5 million, and the cash balance at the end of measurement period was EUR 11.2 million. Key figures. EBITDA in H1 was EUR 2.2 million. In the same period last year, EBITDA was EUR 3.8 million. Respective EBITDA percentages were 5.4% and 9.4% in 2024. Q2 EBITDA was EUR 1.2 million and 5.3%. And in 2024, it was EUR 2 million and 9.5%. EBIT at the first year half was EUR 173,000 and EUR 121,000 at quarter 2. We believe that we have hit the bottom in Q1 during this year. EBIT margin was low being 0.6% in the first year half. Last year, at the same period, it was 4.9%. Headcount at the end of the period was 703 persons. It was 713 at the end of Q1 period and 724 at the end of the year 2024. We have made some reductions in the companies where reductions have been necessary. On top of these reductions, we have also made some temporary layoffs. Reduction made does not hinder our potential to grow when market recovers. Equity ratio at the end of the measurement period was 42.3% which is above our midterm target of 40%. At the end of the year 2024, equity ratio was 33.4% (sic) [ 43.4% ]. Net profit turned negative in H1 being minus EUR 559,000. Net profit percentage was 1.3%. Last year, at the same period, net profit was EUR 750,000 positive and net profit percentage was 1.9%. In H1, billing rate was 82.6%, which we considered fairly good. Last year, at the same period, billing rate was 81.5%. Full year 2024 billing rate was 79.9%. Equity at the end of the measurement period ended up to EUR 40.7 million and change from the year-end 2024 was marginal. Net debt in the end of June was EUR 25.1 million, which is well very close to the year-end 2024. And balance sheet liabilities, noncurrent liabilities have decreased and current liabilities have increased mainly due to the reclassification of bank loan due to the covenant bridge. Reclassification does not mean that the original maturity of the loans has changed. Some pickups from the cash flow. Reduced profit has affected negatively to our operating cash flow. Change in the net working capital is less than last year. To speed this development, we have started a project to reduce working capital in subsidiaries. Net cash flow from operating activities was positive, and it was EUR 524,000. We have also paid contingent considerations and withdrawn loans to cover this cash outflow. And end of the measurement period, cash was EUR 11.2 million. That was all from finance. Thank you.

Thank you. So there is a lot to improve, of course. And as Teemu said, I think we have reached the bottom in last quarter. A little bit about the market outlook. It's still quite tough. There have been uncertainty that makes investment that they don't start, they are pending. And -- but we see that it's at least going in the right direction. it's still challenges in residential, commercial and office sector, partly also in the industry project. The reason, of course, for all these challenges is that, first, we had started inflation, then we had interest that went up. And after that, the consumers were actually not anymore consuming, and that makes less investment and also less apartments needed and maybe they are needed, but they are not built right now. But as I said, we have seen that and our order stock has increased, but it don't -- we cannot see it in the figures yet. But in public infrastructure and building, there is still a positive momentum and the green transitions will continue, which means actually transmission and distribution and also energy production and carbon capture, et cetera. As I said, the number of new orders are increasing in -- also in residential now sector and infrastructure projects. And in Sweden, it's still -- real estate market is still challenging. And we -- in some of the industry projects, we see that there is -- there are delays. But the megatrends continues and they are, of course, urbanization, self-sufficiency in energy production and increased order from the defense industry. And if we then look at our outlook, market is still uncertain, and it's difficult to predict what's going to happen in the future. And our operation is actually depending on investment. And when the investments start again to increase, it will also automatically increase our results and figures. It can happen fast. It has happened before. I have seen it already 2 times when some big players are starting to invest, many others are then following. And we think that, that will start to happening, but we don't know when. And of course, our focus areas for 2025 is to increase the profitability and then cost cutting and organic growth, where is it possible. And we are still scanning potential acquisitions targets continues. And then I think Jasmine can tell about this coming dates.

So the next Q3 business report will be published in 21st of November. But before that, we are having quite a few investor events. And also after the Q3 report, we have a couple coming up.

But then I think we can go to the -- your questions. We have quite a few. Well, we didn't cover anything about Poland. So do you have any updates on this?

Yes, I can tell that we are -- we have established the Polish country company, but -- and we are negotiating with some companies, but we have not yet reached any agreements.

Do you have -- Teemu, do you have an estimate of organic growth in H1?

In H1, it was slightly negative.

Okay. Then Stefan, you say that the order stock is in a good level. However, what kind of margin have you agreed on the deals?

Well, it, of course, differs when we have 5,000 projects. But in some cases, the margin is a challenge. As I said earlier, there is a hard price competition. But I think we also have received very good orders. And in some companies, they are not affected by lower prices. So it's kind of a mix. But as a whole, we would like, of course, to increase the prices, and we are doing that wherever it is possible. But -- so I think that when order stock start to grow, also the price will start to rise. That's what usually happens.

Okay. Then, Stefan, you mentioned that the Swedish project loss was EUR 0.4 million in H1. Will losses continue to accumulate in H2?

No, I don't think so. This was kind of -- had more to do with people that were changed in the project organization, and they were not able to handle it in a good way. So I think that it will not -- it was one occurrence.

So on one-off costs. Then how much one-off costs in Q1 and Q2, respectively? Teemu, do you have an insight on this?

I don't have the distribution, but totally, we had this EUR 1.4 million plus EUR 1.6 million, so EUR 1 million altogether.

Then there are some questions about the waiver. Will you be able to make M&A despite the waiver? Your cash position is relatively strong, isn't it?

Which one is?

Maybe you.

Okay. The waiver itself does not hinder us making acquisitions. But of course, we need to be more cautious than previously. So we need to consider every acquisition target very carefully.

Then continuing with the waiver, net debt EBITDA covenant of 3.5. Does the covenant include contingent liabilities?

The covenant as a net debt does not include contingent liabilities as they are noninterest-bearing.