Translation: Original published in Finnish on 9/5/2025 at 8:50 am EEST.

GRK announced on Thursday that it would initiate change negotiations concerning its Finnish rail business. The company aims for annual savings of around 3 MEUR to address increased competition. However, the announcement does not lead to changes in earnings forecasts, as we estimate the demand outlook for the rail business to be slightly weaker than previously anticipated, offsetting the cost savings.

Efficiency program aims for annual savings of 3 MEUR

GRK Finland is initiating an efficiency program for its rail business, aiming to achieve annual savings of approximately 3 MEUR. As part of the program, the company will initiate change negotiations concerning approximately 500 employees in GRK Finland's rail business. According to a preliminary estimate, the measures may lead to the redundancy of approximately 20-40 employees, as well as potential temporary layoffs and organizational changes. In total, the group employed an average of over 1,200 people during Q2, so the need for reductions is moderate in proportion to this. The negotiations will begin on September 12, 2025, and are expected to conclude in early October.

The change negotiations likely indicate weaker demand

According to CEO Juha Toimela, competition in the rail market has intensified, and efficiency measures aim to ensure profitable growth and competitiveness in line with the company's strategy. While GRK's overall performance has been very strong recently, and we have commented positively on the general demand outlook for infrastructure construction, the situation in Finnish railway construction is slightly weaker. The planned personnel reductions may be due to a decreased growth outlook for the segment. Therefore, we do not see any major need to update our earnings estimates despite the targeted cost savings.

At the same time, the release confirms our assessment that maintaining good profitability is more important to the company than growth, as the employment of the personnel subject to reductions would surely have been possible by lowering bid prices sufficiently. We view this positively, as it shifts forecast risks more towards future revenue development rather than margins. We will assess the need for forecast changes no later than in connection with the Q3 report or once the final outcome of the change program is clear.

The outlook is better outside of Finnish rail construction

However, based on the release, there is no reason for major concern, as the need for staff reductions is moderate given GRK's size and in our estimate the project pipeline is at a reasonable level. Although the current volumes in rail construction are historically low in Finland, government infrastructure investments support the outlook for the coming years. However, in our view, the rail business has the best growth prospects outside Finland (Sweden and Estonia), which is also indicated by the change negotiations that were limited to Finland. Furthermore, the outlook for the company's most significant segment, specialized and civil engineering (~75% of revenue), is at least reasonable, which supports revenue development. A key challenge remains replacing the large and profitable Stegra project (ending in 2026) with new business, which we believe will be challenging. For this reason, we estimate that the current year will remain a peak year in terms of revenue and earnings for now.