Sitowise comments on the market and its development in an analyst call

Translation: Original comment published in Finnish on 4/8/2024 at 7:10 am EEST.

On Friday, Sitowise held its Q1 pre-silent period call to review the market situation and events during the quarter. We do not expect the market situation to have changed much in either direction since the Q4 report. There has been no major news from Sitowise either, apart from a change of management in Sweden and a small acquisition of KM Project. We expect the early part of the year to be challenging for Sitowise in terms of performance due to fewer working days, system reforms, weak billing rates and a challenging construction market (Buildings business).

The market is challenging, especially in the early part of the year

Based on the call, the market situation for Sitowise has remained in line with the Q4 report. The market has both bright spots and areas of weakness. The underlying megatrends (green transition, security and digitization of the built environment) will support the demand for Sitowise's services in the long term, but in the short term both the economic and construction market situation will weaken demand and billing rates, affecting both revenue and profitability.

In the Buildings business, the first half of the year will continue to be challenging, particularly due to the difficult situation in the Finnish construction market. Our assessment is that there are no clear signs of a recovery yet, but Q1 is often a very quiet period for construction. However, according to the outlook in the financial statements, Sitowise does not expect the market to pick up until the end of 2024 at the earliest.

In contrast to Finland, the development of the technical consulting market in Sweden has been more stable. In Sweden, the order book was also at a good level at the time of the Q4 report. However, minor internal challenges in Sweden and delays in the integration of acquisitions have raised some concerns about the sustainability of growth in Sweden. The quarter saw a change of management in Sweden, with Daniel Doeser taking over Sitowise's Swedish operations. According to the release, Doeser has a strong background in growing businesses both organically and through acquisitions. In his most recent role, Doeser led Ramboll's digital and education business in the Nordic countries. Our assessment is that the new leadership is looking for some change from the current situation, although we do not believe there were significant challenges in Sweden. However, it should also be remembered that Sitowise is only at the beginning of its journey in Sweden and a new phase may require a new and different kind of leader.

On a positive note, the company said that order books for Infrastructure and Digital Solutions were at a good level at the beginning of 2024. In Infrastructure, the market is more stable than in Buildings and is partly divided into weak and strong markets. Understandably, there is currently a weak development of infrastructure related to building construction, while green transition projects and public projects support the development on the other side. However, pricing has also tightened on the infrastructure side due to the weakness of other construction.

In Digital Solutions, the market has recently suffered from a weak economic environment and increased competition. In particular, demand from the private sector has weakened, while public investment in mobility and the digitization of the built environment has recently remained stable. However, as seen in the work of other consultants, the general weakness in the IT consulting market has intensified competition and increased pricing pressure on project bids.

In Q1, in addition to market developments, it is also important to consider the impact of cost inflation (wages, interest rates), currencies (SEK) and the lower number of working days compared to last year (-1 working day in Q1 in Finland, -1.5 days in Q1 in Sweden). In addition, market weakness and the impact of ERP and CRM system upgrades will contribute to a further decline in billing rates in Q1.

Small acquisition to strengthen Sitowise's fuel distribution station expertise

In the Friday call, Sitowise also announced that it has acquired the KM Project business. KM Project provides technical services to transport fuel distributors. According to the Finnish Trade Register, KM Project has no revenue, but the company made an EBIT of 0.11 MEUR in 2023. In total, according to the register, the company employed one person, so the size of the transaction is very small by Sitowise standards.

The acquisition seems to be about gaining expertise in this field for Sitowise to develop the technical services of the distribution stations for Sitowise. The press release explains that together the companies can create a hub for consulting services related filling stations at a time when environmental requirements are tightening and changes in transportation propulsion are challenging technical expertise. According to the press release, Sitowise and KM Project are now in a better position to respond to this transition and to undertake larger-scale projects in the field.