Sitowise Q1 morning result: Operational development weakened as we had expected in the first months of the year

Translation: Original comment published in Finnish on 5/8/2024 at 9:13 am EEST.

Sitowise reported its Q1 results this morning, which were operationally in line with our expectations. The weak construction market is currently weighing on the performance of the Buildings business in particular, which Infra's good performance given the circumstances is not enough to compensate. The company's outlook comments showed small signs of improvement for Buildings and Sweden, but overall the current year is still set to be challenging. In response, the company will continue to take measures to protect profitability, which should gradually start to show in the coming quarters. 

Weak market situation reflected in lower revenue, as expected

Sitowise's Q1 revenue decreased by 8% to 51.5 MEUR, which slightly exceeded our estimate of 50.3 MEUR. The development was soft especially in the Buildings business (16.1 MEUR, -19%), which, as expected, is currently facing challenges due to the difficult market situation. In addition, the number of working days in Q1 was lower than in the comparison period (1 day in Finland, 1.5 in Sweden), and exchange rates caused a headwind on revenue. In line with our estimates, the Infra business (17.0 MEUR, +8%) developed significantly better, supported by the green transition projects. In Sweden (-8%) and Digital Solutions (-12%), revenue development weakened early in the year as demand cooled and competition intensified. The order book (Q1'24: 163 MEUR) decreased by 8% from the good level of the comparison period, reflecting in particular the challenging market for the Building business. Compared to the previous quarter, however, it remained stable.

As predicted, result at low level early in the year

Sitowise's adjusted EBITA declined to 3.4 MEUR in Q1 (Q1’23: 6.6 MEUR) and was well in line with our estimate of 3.5 MEUR. Adjusted EBITA margin (6.6 % vs. 11.8%) was, as predicted, under pressure from the combined impact of lower revenue and wage inflation. Reported earnings figures were below our predictions due to higher one-off items and amortization of intangible assets. Sitowise's top priority for the current year is to improve profitability and these measures are likely to be gradually reflected in the coming quarters. Cash flow from operating activities (5.0 MEUR) was at a good level at the beginning of the year. With the weakening earnings trend, the net debt/EBITDA ratio rose to 3.8x at the end of Q1, well above the company's target level (max. 2.5x).

Small signs of improvement in the outlook, but uncertainty persists

As expected, Sitowise reconfirmed its guidance for the current year. The company expects its revenue (2023: 211 MEUR) to slightly decline in 2024, driven by the Buildings business decline. Adjusted EBITA margin (%) is anticipated to be at the 2023 level or above (2023: 8.1%). According to the company, the order books at the end of Q1 were at a good level in Infra and Digital Solutions and at a satisfactory level in Sweden. In Buildings, the workload was not at an adequate level, and selective temporary layoffs have continued in Q1 and also in Q2. In Buildings and Sweden, tendering volumes and increased order intake signal the start of a gradual market recovery, but predicting the timing of a clear improvement is very difficult according to the company. Our forecast before the report was for revenue of 203 MEUR and an adjusted EBITA of 17.0 MEUR for this year, to which we expect to make only fine-tuning adjustments for the time being. Uncertainty remains high regarding the strong earnings improvement we forecast for 2025-2026.