Solwers Oyj (SOLWERS) Earnings Call Transcript & Summary

Welcome to Solwers January, June 2026 Results Presentation. My name is Jasmine Jussila. I'm Chief Communications Officer, and I will be moderating this event. Today, we have Johan Ehrnrooth together with -- CEO, Johan Ehrnrooth, together with Teemu Kraus, CFO, presenting the results. And afterwards, you will be we will go through your questions. During the presentation, you can write your questions to the webcast chat. Before we kick off, let's have a short recap on Solwers today. We are a group of consultancy companies that offer architectural design technical and other consulting as well as product management services in 3 countries. Altogether, we are 29 companies, all operating under their own brand identity and serving their clients locally in Finland, Sweden and Poland. Then let's start. Go ahead, Johan.

Thank you. Yes, Jasmine. Good morning also from my from my part. So let's have a look at our January June results. The key figures, we produced a revenue of EUR 41.8 million. It was EUR 1.2 million down from last year. Our EBITDA was EUR 0.3 million. We have updated our calculation method for that to correspond in similar companies in the market. We also now report adjusted EBITDA. It was EUR 0.4 million. There was not that much adjustments. This time, EBIT was EUR 0.1 million, and -- another new KPI is the return on capital employed, which was 2.4% in the first year half. Going into this year, we expected Q1 to be challenging, and we had real to believe that we would perform better in Q2. However, Q2 was a disappointment. And by that, the total performance in H1 was not satisfactory. So with the EBITDA margin of 0.7% and we have the discussions with the banks had a waiver for our covenant testing in the end of June, -- so we had reason to believe that we could perform better. Since this waiver, we have negotiated our terms to our financing agreement. And yes, we came out with a notice that we have agreed on this with the bank. Behind this Q2, this appointment was especially the lower billing rate in companies serving the Swedish industry. The performance in the architectural design in Sweden was also for -- and to some extent, we had challenges in the architectural design in Finland. We were not able to pass on the wage inflation to the prices. Last year, we announced a program to save costs, and that has resulted in savings of EUR 0.7 million in fixed cost. Now the focus is turned to subsidiary specific actions. So there, we are carrying out personnel and office space savings. The full effect of those will be visible during Q4. On a positive note, the order stock grew and most of the portfolio companies delivered. So specialist engineering, financial administration and also infrastructure delivered good performance and the order stock there developed positively. Solwers is composed of 29 companies. Among those, there are well performance and -- but also weak performance. Those -- the weak result was concentrated in about the handful of companies, mainly in Sweden -- and there, we now are carrying out the corrective measures. Looking at the performance in the countries. So in Finland, so the performance was reasonable. The demand of infrastructure planning is at high level and FINMA Infra, our largest company, had stable performance. Regarding technical services [indiscernible] as an example, continued their quite good performance. In the structural design, we had a satisfy level. And, for example, Pantech there had encouraging progress. In architecture, the market remained challenging. So we had to adapt capacity to demand, but we did see some picking up of request proposals over the summer. In Sweden, H1 was challenging. Also there, the infrastructure was -- also there, the infrastructure was stable and the order stock has long-running projects for lease-up as an example. In the companies serving the industry market. So there, the competition remained tough. So L.A. Whitegate consulting relator faced price pressure and had too low billing rate. Also, the architectural design had challenges in the first half of the year. So FINMA in access principle designer in the improvement of the Tampere underground infrastructure. Hemp there is being enlarged. And this is a collaboration project with Citovise and Gamble. This project continues all into 2030. In June, we won a general planning assignment for the East Railway, Parva, Korea. This was also -- this is also a FINMA Infra project. North Botnia line continues to be a significant undertaking for us. Lisa has about 20 experts involved there. This is also a long project. There are a lot of other projects as well. And as an example, we are involved in multiple swimming hall projects. For example, the Elmo, the Tapiola swimming hall in Muraki in Kemi, our Davidson Targa Siren architects have specialist competence in this area and also other companies, Tender and Planar are participating in these projects with building technology design. We are doing work to strengthen the foundation for the future. So as mentioned, so we have renegotiated the terms for our financing agreement by which we will reach a net debt EBITDA ratio of 3.5x by end of June next year. We are doing subsidiary specific measures. So we are closing small offices. We need to reduce some staff and we have a clear focus on sales and costs. We are doing competence development. As an example, we have conducted AI training in Finland and project manager training in Sweden. In the spring, we launched 2 new -- we have also improved our financial reporting and IR communication. So the EBITDA calculation is now aligned with market practice. We now report the adjusted EBITDA and ROCE. We have also implemented new tools to improve the transparency of our share. Teemu, please.

Thank you. Good morning from my side as well. I will walk us through the financial part of this webcast. And let's start from the top line. So group revenue for the first half was 1.2% below the comparison period. The development differed between the 2 quarters. In the first quarter, revenue increased by 2.9% and whereas in the second quarter, it declined by 5.1% year-on-year. Second quarter revenue amounted to EUR 20.8 billion compared with EUR 21.9 million in the corresponding period last year. This means that the decline in the second quarter was more than the offset of the positive start to the year and resulted in a modest decrease for the first half as a whole. Looking at the geographical revenue split business remains well balanced between Finland and Sweden. Finland represented EUR 22.1 million of revenue during the first half while Sweden contributed EUR 80.9 million. As a result, neither market dominates the group's revenue [indiscernible] base, which provides silence against market-specific fluctuations. Although still modest in size, Poland, broader such geographical presence and supports our long-term growth opportunities. Other operating income had only a limited impact on the group's profitability. The item includes mainly nonrecurring business related income, and the biggest impact factor was changes in contingent consideration liabilities arising from early acquisitions. The development of variable cost was broadly in line with the underlying level of business activity. Cost control in projects related and subcontracting expenses remained satisfactory. As revenues declined slightly compared to the previous year variable cost also adjusted accordingly. Personnel expenses increased by approximately 2% year-on-year. While the average head count remained broadly unchanged. The increase reflects normal salary inflation and annual compensation adjustments. Across the group rather than growth in personnel. However, profitability was affected by lower utilization levels, which had a direct impact on earnings. In response, we have continued to implement targeted cost adjustment measures in selected businesses. The benefits of these measures are expected to [indiscernible] gradually during the second half of the year. Financial expenses increased year-on-year, mainly due to the group interest rates. During the review period, the group also entered into interest rate swap in order to hedge part of our exposure to real interest rates. Looking at profitability, the first half of [indiscernible] comparison period. EBIT amounted to EUR 0.3 million, corresponding to EBITDA margin of 0.7%. Adjusted EBITDA was EUR 0.4 million or 0.9% of the revenue. The main reasons behind the weaker performance were lower billing rates and pricing pressure in parts of the business, particularly in Sweden. Billing rate declined to 79.8% from 82.6%. At the same time, personnel expenses increased moderately due to the salary inflation and compensation adjustments while head count remained broadly stable. The challenges were not evenly distributed across the group as several businesses performed very well, while a limited number of unperforming units, particularly in Sweden -- affected on the overall profitability. As stated, we have already implemented corrective actions, including personnel reductions, office rationalization and tighter cost control. Our priority for the remainder of the year is to improve utilization, strengthen sales activities and rest of profitability. While the benefits will build gradually, we expect the impact to become mainly visible during the second half of the year and particularly towards the end of the year. Our balance sheet remained relatively stable during the first half. The equity ratio was 41.1%, slightly below the 42.3% reported earlier. Net debt increased by approximately 12% to EUR 28.2 million, mainly as a result of lower cash reserves. At the same time, return on capital employed declined to 2.4% from 7.7%, reflecting the lower earnings level. Operating cash flow amounted to approximately EUR 1.2 million in the first half compared with EUR 0.5 million in the comparison period. The improvement was mainly supported by working capital movements. On the other hand, lower profitability impacted operating cash flow. Investment cash flow -- sorry, Investment cash flow was close to neutral at EUR 0.1 million, reflecting the fact that no acquisitions were completed during the reporting period. Financing cash flow was negative at EUR 2.7 million, driven by repayment of loans and purchase of noncontrolling interest. As a result, cash and cash equivalents decreased from EUR 11.2 million at the end of June 2025 to EUR 6.2 million at the end of June 2026. Improving profitable key priorities for the second half of the year. Other finance topics, as already mentioned, temporary waiver was agreed with the group's main bank in June, followed by a financing agreement amendment signed 23rd of August, which means yesterday. It is valid until 13th of June 2027. This amendment provides more stable environment for executing the profitability and improvement program and strengthening the financial position. Solwers also entered into an interest rate swap to reduce exposure to variable interest rates. And this was all from finance.

Thank you, Teemu. So let's go ahead with the outlook for the rest of the year. So regarding the market outlook in Finland, so infrastructure demand stays strong. So this is backed by the assignments already secured and the national transport plans. On this side, it's mainly rail investments and roll repair projects that keep the engineering demand up. The credential is expected to remain weak. But on other sides of the construction, there is some picking up expected. In architectures, so we see opportunities in commercial, in public sector and renovation projects. In Sweden, the demand for industrial clients improved gradually, and this comes a step behind the wider industrial recovery. As until now, so the -- it is mainly the green transition investments in electrification, renewable energy and energy infrastructure. structure, but also defense that support the market demand. Also in Sweden, the infrastructure demand is expected to stay strong, architecture, however, is held back by a slow new housing commercial -- slow new housing projects. On the commercial and real estate side, we see some early signs of improvement in Poland [indiscernible]. Our key priorities for the second half of the -- we need to improve our billing rate. We need to ensure that we have rightsized resources and we closely manage the cost structure for all Solwers companies. We do not provide an outlook for H2 for the time being. The market situation for our sectors remain mixed. So for most of the portfolio companies is we expect them to deliver stable results. And as I said before, the order stock level is higher than it was this time last year. But the profitability development for the rest of the year is limited -- or the -- sorry, the visibility to the development of the profitability is limited for the year. And this is especially true regarding our Swedish companies serving the industrial engineering clients. We have already started measures to improve the efficiency of our Swedish companies, and we expect that this the results are visible then during the fourth quarter. We maintain our midterm financial targets. So we target a revenue growth of about 20% and EBITDA above 9% and an equity ratio above 40%. Now there is time for some Q&A.

Thank you, Johan and Teemu. We have a couple of questions here. Johan, you mentioned that the development in Q2 was a disappointment. Why positive development in the order backlog, it did not result in a favorable at sales development already in Q2.

The Q2, as said before, so the main challenging -- challenges are there in a handful of companies. And the problem was there in the billing rate of those companies. So Solwers consists of 29 companies. And among that, there are several good performances as well. But this time, the handful of companies drove the situation to what it is now.

You mentioned that the billing rate was down. How was the pricing?

The pricing in average, as we mentioned, so we were not able to pass on the salary increases to the pricing. So it remains stable.

Do you have insight on how much did your sales decline organically in Q2 or H1?

We have not reported that figure.

We do not have organic growth in H2 -- H1.

Okay. Then Again, for Johan...

We have also in Finland, they are particularly in Sweden, in Finland, there is a better possibility to manage the capacity. But there are some companies in Finland also where we need to improve our performance.