Earnings call transcript: Etteplan Q4 2024 sees AI focus amid revenue growth

Etteplan Oyj reported its Q4 2024 earnings, revealing a modest revenue increase and a strategic pivot towards AI-driven solutions. Despite challenging market conditions, the company aims for substantial AI integration into its services. The stock experienced a slight uptick following the earnings release. According to InvestingPro data, the company’s market capitalization stands at $276.48 million, with a year-to-date price return of 5%.

Key Takeaways

• Full-year revenue grew by 0.3% to SEK 361 million.
• EBITA and EBIT saw significant declines of 21% and 27.8% respectively.
• Strategic focus on AI aims for 35% of revenue from AI solutions.
• Temporary layoffs in Finland due to restructuring.
• Positive signs in the Defense, Energy, and Automotive sectors.

Company Performance

Etteplan’s overall performance in 2024 showed resilience amidst difficult market conditions. The company’s revenue grew slightly, but profitability metrics such as EBITA and EBIT declined significantly. The company is focusing on expanding its AI-driven solutions, which currently constitute a small portion of its revenue but are expected to grow substantially.

Financial Highlights

• Revenue: SEK 361 million (0.3% growth year-over-year)
• Earnings per share: €0.41
• EBITA: SEK 24.4 million (21% drop year-over-year)
• EBIT: SEK 18.4 million (27.8% drop year-over-year)
• Operating cash flow: SEK 31 million
• Proposed dividend: €0.22 per share

Outlook & Guidance

Etteplan has set a revenue target of €365-400 million for the upcoming year, with an operating profit (EBIT) target of €23-30 million. The company is optimistic about improving market conditions and is heavily investing in AI-driven solutions and managed services. InvestingPro data indicates the company maintains a solid financial health score of FAIR, though analysts have revised their earnings expectations downward for the upcoming period. Discover comprehensive analysis and detailed financial metrics with InvestingPro’s in-depth research reports, available for over 1,400 stocks.

Executive Commentary

CEO Johan Akki emphasized the transformative role of AI, stating, "AI is coming more and more into play. And we see that that will have a big impact on our business." He also highlighted the importance of human resources, saying, "We are in a people business and still even if we have more technology and AI, people are the main asset for our company."

Risks and Challenges

• Geopolitical tensions impacting the business environment.
• Low investment levels and high market uncertainty.
• Restructuring challenges, including temporary layoffs in Finland.
• Pricing challenges in a difficult market.

Q&A

Analysts questioned the timing of market recovery, with Akki cautiously optimistic about a pickup in market conditions. The company noted initial order increases in the cargo handling and marine sectors, driven by automotive demand for electrification and powertrain development.

Full transcript - Etteplan Oyj (ETTE) Q4 2024:

Johan Akki, CEO, Eteplan: Welcome to this webcast presentation for Etheplans Financial Results for 2024. My name is Johan Akki, I’m the CEO. And by the end of the presentation, there will be a Q and A session where you will also be able to ask questions from our CFO, Helena Kukkonen. Looking at the contents of the presentation. So first, we’ll look at the highlights and overview of the year 2024, look a little bit more in detail what happened in Q4 and then also for the service areas what happened in the service areas in the last quarter.

And then to end the presentation, I will go through a little bit our strategy and we have now done a strategy update and I will go through the results of the previous period and also the updated strategy a little bit. And of course then followed by the Q and A session. But if we move straight to the highlights of 2024, so it was a difficult year for us and the markets were considerably down and our customers were receiving less and less orders after quarter ’1 quarter after another. So it was a difficult year and a struggle. But on the positive side, even despite the difficulty with the support of acquisitions, we did manage to have a very slight growth in our revenue.

So we were able to hold on to what we had despite the fact that our organic revenue development was negative. We also saw good development in the Defense sector and also in the Energy sector. So there was better demand situation than in our other customer segments and we were also able to progress in these segments. Also China was towards the end of the year, especially in H2, China was highly positive. The demand was increasing substantially and we were also able to capitalize on that.

The demand is mainly driven by the development of the trend of buying services rather than the strong market itself. But with this trend, we saw good demand and good development in China overall. And on the positive side also, we did go through different kinds of adaptation measures to adapt our business to the prevailing market condition and to prepare ourselves for the future. In the Q4 and in the latter part of the year, we did see that operationally our margins were starting to improve in all service areas, but then there were significant one time costs that burdened the results also in Q4. On the negative side, of course, the market situation was difficult.

As I explained earlier, our customers’ new orders and order backs logs were on declining trend throughout the year. And this resulted in very, very slow decision making and of course the all the political uncertainty that is there did not really help the situation. So very high uncertainty and very, very few projects on the investment side getting started. In Europe, this was very visible in all the markets, but in particular Finland and Germany were very difficult for us in terms of demand. And of course then in the difficult situation, we were forced to do adaptation measures and restructure our organization significantly in certain areas, but a little bit of adaptation across the organization here and there, which resulted then in significant costs that burdened the financial result for last year, almost in all quarters, but in particular in Q3 and also in now Q4.

And if we still go through a little bit the operating environment, so market certainty was clearly high and the war in Ukraine, the events in Middle East and also other political events were really having an impact on uncertainty and very few decisions were made. Defense industry, energy was good. Electrification projects also in the car industry or in the transportation industry Basically, the only investments our customers were willing to make were related to cost savings and cost saving measures. And in this kind of environment, the offshoring and near shoring services were a good tool to work with and we saw also pretty good development with these types of services for our customers. On the countries, Europe, as explained earlier, was on a quite negative trend, of course, varying slightly for different countries.

But for us, Finland and Germany were the most difficult markets. And in Finland, for example, we have close to 180 people. So close to 10% of our operational personnel are temporary laid off currently, which is a very high number and reflects really the market demand and market situation in Finland. And of course, the geopolitical tensions were then increasing and that had impact in Chinese market as well. But as I explained earlier, in China, the demand was still good and mainly driven by the sort of positive development of the sort of buying services trend.

And this resulted in a good demand for us and we had a good second half of the year in China. If we then look at the key figures, so revenue at SEK361 million, so very slight growth of 0.3%, but then on EBITA CHF24.4 million, so a 21% drop. And in EBIT CHF18.4 million, so a 27% or almost 28% drop compared to last year. And of course, significantly burdened by the non recurring items and the restructuring costs that we had. EPS was at EUR 0.41 and or EUR 0.1 and the board’s proposal for dividend for last year is or per share.

If we then look at the development or the sort of different split on revenue, so Engineering Solutions was still the largest, 53% of the revenue, Software (ETR:SOWGn) and Embedded Solutions at 27% and Technical Communication Solutions at 20% of the revenues for the year. Revenue by area, Finland is 47% Scandinavia, meaning Sweden and Denmark, Twenty Eight Percent or slight growth there due to the acquisition of StrongIt from the beginning of the year. Central Europe at 22% and China Three Percent. Personnel by area, Finland Forty Nine Percent Scandinavia Nineteen Percent Central Europe Twenty One Percent and China Ten Percent. And if we look at the revenue by customer segment, so the ones on green are the ones growing and proportionately and the ones on red are declining.

So clearly, Energy, Automotive and Aerospace and Defense were the ones that were growing. Automotive driven by investments into new fleet and especially the electrification of cars and the redevelopment of the powertrain area. In the other segments, large segments that we have Industrial Machinery, Forest Industry, Metal and Mining are clearly down and also slight changes in the smaller segments for us. Financial development then going to Q4 a little bit more in detail. So I said revenue slightly increasing, but then negative development on the rest of the key figures, which is of course very disappointing and slightly less personnel, so minus 2.5% in personnel at the end of the year compared to the previous year.

And if we look a little bit more detailed on revenue in Q4, so revenue dropped by 4.1% and was at million and the comparable exchange rates, the same 4.1% drop. Organic drop was 7.2% for the fourth quarter and the revenue from key accounts was actually dropping by 10%. So clearly weaker demand for the fourth quarter and also the quarter was affected by very many heavy vacation days and other free days that our employees were taking around Christmas, which was basically in the middle of the week, which is professionally the worst time of the sort of timing for Christmas for our type of business. So lots of occasions which had an impact on the revenue development, but also the declining demand had an impact. Acquisitions, of course, increased the revenue throughout the year.

And for the sort of full year, the revenue was at SEK361 million, so just slight positive trend compared to last year. EBITA, very heavy restructuring costs also in Q4. So we did have to do changes to adapt to the market situation that has been prevailing for the previous quarters and also in Q4. And also we did during the year in Q3 decide to stop certain businesses in Germany, where we didn’t see any future and not a perfect fit for our strategy. And with these restructuring costs, we did have 3,000,000 of non recurring items during 2024.

And also in Q4, the non recurring items amounted to million, which is still a very significant amount. And we are happy that it seems that our measures that we have taken are starting to pay off a little bit. All our service areas were on operational level, excluding the one times, are improving on the preceding quarters a little bit. And if we look at the company profitability in terms of EBITA percent, so excluding the non recurring items, we would have been at 7.6%, which is not good and very far from where we want to be. But still, in a very, very bad and difficult market condition, some kind of decent result.

But with the non recurring items, of course, we are not happy with the results level at all. And EBIT was at million for Q4 and 18,400,000.0 for the full year. Amortizations related to acquisitions was at million for the last quarter and million for the full year. And EPS, of course, the lower profitability had an impact on our EPS. Of course, also the slightly higher financial expenses and other things had an impact there.

And EPS was at $0.41 for the full year. And as mentioned earlier, the proposal for dividend by the Board of Directors is at $0.22 Operating cash flow was good throughout the year and it also improved in Q4. We have worked hard to work with our working capital and also the accounts receivables has dropped during the year after hard work on certain accounts and certain contracts. And the full year operating cash flow amounted to SEK31 million, which is a good level for this type of a year. And of course, our cash flow accrues unevenly during the year.

Personnel has stood at 3,803 at the end of the period and there’s a slight drop by 2.5% for the full year compared to last year. And the people outside Finland were nineteen twenty one, so proportionately increasing slightly compared to last year. And as mentioned earlier, due to the restructurings that we made, the headcount was dropping a little bit. Of course, there is still attrition as well and we have slowed down our recruitment due to the weaker market condition. And perhaps as a final note here, the layoffs at 178 employees in Finland kind of gives the picture of the Finnish market.

The demand is very low, very, very low number of new projects are starting and it’s very difficult to find enough work for our workforce. On the income statement, no major changes And on the balance sheet, basically, the trade and other receivables dropping slightly compared to last year even if the revenue was increasing slightly. So the work which we’ve done with the accounts receivables and also the working capital is paying off here a little bit. So that’s improving our situation. But no major changes here.

The balance sheet stood at 297,800,000.0 at the end of the year. If we then go a little bit more in detail to the service areas, so of course the same story a little bit continues. Difficult market for engineering solutions and in particular here the low level of new orders for our customer and low level of new investment project starting had an impact for the service area. And here, of course, we did do quite significant adaptation measures and restructuring measures for our business. In Q3, we closed down the building technology related business in Germany, which is not really our core.

And that had an impact on the non recurring items. And also we did do considerable measures to adapt our capacity and adjust our organization for the prevailing market, but also to be fit for future. And the costs related to this service area were amounting to 1,900,000.0. So the EBITDA was at 7.3% for the fourth quarter and 7% for the full year. And this is, of course, very different than what we’re used to seeing.

If you take into account the one off cost for the full year, million. So without those, we would have been at around 8% levels on the EBITA for the full year, which is not good, but still some kind of decent performance for this kind of very weak market. But as I said earlier, also this service area without the one off costs for the last quarter was improving compared to the preceding quarters. So So some of the measures that we have taken seem to be paying off, but for the situation to really get better and for us to be able to move really forward, we would need to see a little bit of market pickup to get to back to the levels where we are used to being in this service area. Also in this prevailing market conditions, saving measures were important for our customers.

So outsourcing solutions were at high demand and we did manage to make several outsourcing deals during the year. And this is helping our customers to reduce their own cost levels and improve their operational efficiency. So this is some trend that has been continuing throughout last year and we also hope that it will continue during the start of next year. If we move on to Software and Embedded Solutions, so here a little bit better performance overall in Q4, EBITDA at 8.7% and for the full year at 8.1. Again, for the full year, there were also in this service area adaptation measures, which amount to 2,300,000.0 for the full year.

So not that much, but still. And with that, we would have been at something like 8.4% for the full year if we take those into account. Not good, but on par with last year slightly improving. And when the market picks up, we are confident that also in this service area, we will have a much better situation. Here in the weak market, there was of course a lot of competition for all the few projects that were out there and we were able to utilize our global offering and in particular our near shoring service from Poland.

And with that, we were able to win cases, which was supporting our growth and also our margin development during the year. And we feel that that’s a strong asset for us also going forward. In the Technical Communication Solutions area, also difficult market. This is the service area is mainly working with project deliveries and the volumes are coming from project deliveries. And when the project delivery volumes are down, of course, the demand will be down in this service area.

So we had a quite tough time and we did have to also here take non recurring items and do different kind of adaptation measures. For that reason and for the operational difficulties, the profitability was not where it should be, 5.9% EBITA for Q4 and then 6.1% for the full year. Here, the amount of non recurring items was million for the full year. With that taken into account, we also in this service area in Q4 would have been close to 8%. And that also shows that in the latter part of the year, especially Q4, our performance operationally was improving if we exclude the nonrecurring items.

So hopefully, when the market picks up, we will be in a better structure to start improving on our profitability again. In this service area, we have also started, perhaps the fastest on our AI development and we have been able to sell the first service solutions including AI to our customers which is proven to be very, very promising. We’re also now working a lot with data solutions in this service area and we feel that there’s a lot of opportunity also in that area. So these are things that we are pushing forward with our new strategy and will affect this service area and the whole company going forward. If we then go to our strategic development and our strategy development, so first taking a look back on our previous strategy period, which we started in 2020.

We updated some of the targets in 2022 at the end of twenty twenty two. And now this strategy period has ended at the end of twenty twenty four. So if we look at the outcomes on revenue, we are at $3.61 compared to our 500,000,000 target. So very far from the target. But of course, when we set the target in 2019, we did not know of COVID.

We did not know of the war in Ukraine and all the other uncertainty here. So that has had a significant impact on our ability to grow organically, but also to make acquisitions. So it’s not a reason for the full deviation, but certainly the environment was completely different to what we expected when we set the target. Looking at the revenue outside Finland here, we progressed well. We have made organic investments into our business outside Finland and we’ve also made acquisitions more outside Finland than within Finland.

And the development went to 53%. This target was originally at 50, so that we exceeded. But we lifted the target up to 55% in the end of the 22% and that we fell a little bit short of. But still very good development in internationalizing our company, which we feel will give us great opportunities to grow in our current markets going forward. In the managed services share of revenue, we are at 65%, so quite far still from our 75% target.

Of course, here the market condition having also an impact and especially the customer’s delivery related services in Technical Communication Solutions and also in Engineering Solutions are on a low level. These services are counted into many of them are counted into our managed services share of revenue and this had a little bit of an impact on our number. So it’s actually declining year on year from twenty three percent. But still, we are behind the target and we have work to do. That’s very clear.

And on the operating profit, EBITA, we should be above 10%. Now we are very far from it. So there’s a lot of work to do there. And we feel that going forward with the structure, with all the measures that we’ve taken, we will be able to move closer to our targeted levels. But then for the new strategy, so we set three year strategies and three year strategy periods, and we have now revisited and done a lot of work during 2024 for our new strategy.

And this is now the new strategy picture that we have. And the strategy period is called transformation with AI. And what it means is that AI is coming more and more into play. And we see that that will have a big impact on our business and the way we do things in our company, but also the way our customers are doing things. So with this picture, we try to show change that we must achieve during this period and we need to really move forward and be able to transform the way we deliver our services and value for our customers.

We have three cornerstones in our strategy, trusted partner, which we feel we already are to majority of our customers. But it really means that enable to for us to be able to really utilize AI, we need to work even more in-depth with our customers and jointly understand where AI can bring benefits to their business and then move forward with new types of solutions. AI and technology empowered service solutions is something that we will continue to work on. We have had this element before and it has worked well for us. The name is a little bit changed.

AI is more coming into play, But we see that we will have more and more new technology, more AI based service solutions within our portfolio and this will help us to really create new kind of value streams for our customers. And then the third one, success with people. We are in a people business and still even if we have more technology and AI, people are the main asset for our company and they are the ones that are really generating the value for our customer. The name is the same as it was in the last period. It has been a good agenda for us.

Now the content is a little bit different, but still we will work hard with our people to create success together with our customers. So these are the three main elements. The business focus will be still on Europe and Asia within the existing countries and widening our service portfolio, introducing new services and widening the portfolio for our customers both in product business and also for asset owners. We’ve also set new strategic targets. Three of them are the same, but the means to get there will change and the order of presenting the targets are also slightly different.

So 35% of AI driven solutions share of revenue and our starting point is 2%. So it’s a clear sign that we have a lot of things to do here in this area. And by AI driven solutions, we mean service solutions where an Eteplan developed AI component serves as an important part of the service solution for our customers. Not just utilizing a commercial AI tool in doing, for example, coding, that is not counted in. But if Eteplan has developed an AI component that is necessary for delivering a service solution, then we would count it into the 35%.

This should change the way we deliver services to our customers. It should increase the value, but it should also help us increase our managed services share of revenue. So we should be able to move closer to our 75% target, which is the same as it was for the last year. And if we can achieve this, we are very or these two targets, we are very, very confident that we will be able to provide new kind of value for our customers and we will be able to grow organically and we will also be able to top that get up to million by also doing some more acquisitions to get us forward with our strategy. And with the sort of AI driven solutions with the managed services, we feel that we should be at a point where our profitability is above 10%.

This is the same target that we had before. And with the new strategy, of course, we will enter next year and we feel that the market is starting a little bit slow. There is a lot of turmoil. There is uncertainties continuing and the global political situation is also a little bit strange at the moment with different kinds of trade war talks all over the place. But we do expect that at some point things will calm down and our customers will start to invest.

We already now see some small signs in certain industries that orders are starting to pick up slightly. And we hope that during the year, this will pick up to a wider range of our customers. And with this pick up, with the measures that we have taken during last year to adjust our organization and with good performance, we feel that we should be in a position to improve our growth. So the revenue target or the revenue range is now for our estimate for next year is $365,000,000 to $400,000,000 and this of course includes the acquisition of Novakon that we already announced in January. And then the operating profit EBIT range is at NOK 23,000,000 to NOK 30,000,000.

So we should clearly grow. We should clearly improve on our profitability. The difficult question for the financial guidance is that when does the market pick up. And we expect it to pick up during the year. When is the $1,000,000 question and this is something that we and probably everybody else is looking answers into.

But with that, I would like to end the presentation for the time being and now invite questions that you may have.

Conference Operator: Six on your telephone keypad the next question comes from at your ticker from evely please go ahead

Atte, Research Analyst, Evli Research: This is Atte from Evli Research. I have a few quick ones. Just going back to the guidance, so it’s quite puzzling to me if we think about the guidance low range. The net sales were $361,000,000 last year and now the guidance low is $365,000,000 taking into the account the acquisition? What kind of scenario is that low range based on?

Johan Akki, CEO, Eteplan: Well, it’s, of course, a cautious number, but we need to bear in mind that we are starting the year. Last year, when we started the year, we had, for example, in Finland, which is not the full company, but still in Finland we had about 60 persons temporary laid off. Now we are starting the year with 180 people temporary laid off. So our starting point is quite low. And if the market does not pick up at all, if it gets worse during the year, which we do not expect, but then we might be looking at worse numbers.

But it’s a cautious number and you’re very right in observing that. But given the profit warnings that we made last year, we feel that being cautious is not a bad thing at this point.

Atte, Research Analyst, Evli Research: Yes, understood. Then you commented on that you see certain industries where you or there are certain industries where you see orders picking up. Could you further elaborate on what are these industries?

Johan Akki, CEO, Eteplan: Well, if we look at, for example, the cargo handling companies have been reporting slightly increasing order intakes, which is a positive sign in my view. There are certain other companies that have come out with their reports that are doing really well, for example, in the marine sector. So there are small glimpses of slightly better market for at least some companies in some segments. And this has really not been visible for anything else except for Defense sector and Energy sector during last year as we see it. So we feel that these are some sort of a slight positive glimpses at least at the market.

But of course, this would then need to spread across many industries for the market situation to actually improve. But some small signs, we start to see and are hopeful that they will lead into better things. But at the same time, of course, uncertainty is really high, changing every day basically nowadays and it’s difficult to say.

Atte, Research Analyst, Evli Research: Yes. Then on the automotive sector, quite surprising to hear the kind of hopeful comments and that the demand is on moderate level taking into account that overall industry has faced quite significant headwinds at least here in Europe. Do you see that you have performed better than your competitors perhaps? Or what is the market like there?

Johan Akki, CEO, Eteplan: I think we have been gaining inroads, yes. And of course, the automotive is not just the passenger cars, but it’s mainly for us on the truck side. And there some of the companies have been doing relatively okay. But we see the key driver there being the necessary change in electrification and developing new models and new features and new things for the powertrain and that is basically where the demand is coming from. So new kind of development in the powertrain area and electrification of the cars bringing out new models in this respect that is the driver that we see.

And as said, for us the bigger clientele is on the truck side rather than the passenger cars. So these have been the drivers. But I think we’ve also focused on the area a bit. It’s starting to be big for us and we focused a bit more. So I think we have also gained inroads within the industry.

Atte, Research Analyst, Evli Research: Okay. Very helpful. Then lastly, the AI related goal that you introduced, it’s quite ambitious coming from so low levels at the moment. Are you kind of aiming to move there or grow there with acquisitions perhaps? Or what is your kind of

Johan Akki, CEO, Eteplan: That is one thing, of course. But with the target that we’ve said, we mean the service solutions that are AI driven. So not everything needs to be AI. It can be also normal services. But within the solution that we are selling, there needs to be a crucial AI component that Aetnaplan has developed.

And we have these kinds of services already. And we do see that, for example, in the Technical Communication Solutions area, some of the services which we are already doing today with our customers, for example, outsourced models for certain technical writing or data related services, There we can convert our existing business into AI driven models by utilizing our own offering development and introducing new types of services. So it’s both building new types of services, building new types of offering, but it’s also converting our existing offering so that we can be more competitive towards our customers and create more benefits for our customers. So that helps us to have this type of revenue more and more. So maybe that is the answer that I can give at this point.

Of course, we are looking into different kind of acquisition related targets as well, but we don’t mean that we will charge for the AI bit that much. But the solution itself needs to contain an AI component, which enables the higher value delivery for our customers. And basically, those services couldn’t be efficiently done without AI. So those are the types of services that we mean.

Atte, Research Analyst, Evli Research: Okay. Thank you. That’s all from me. Thanks.

Johan Akki, CEO, Eteplan: Thanks.

Conference Operator: The next question comes from Emil Imonin from Carnegie. Please go ahead.

Emil Imonin, Analyst, Carnegie: Hi, Yoha. Thanks for taking my questions. Maybe to continue on the growth guidance. I understand that you can’t impact really the market improvement, but what kind of actions are you taking to improve your organic growth rate by yourself in the company?

Johan Akki, CEO, Eteplan: Basically, a lot of it has to do with offering development and especially introducing the AI components into our service solutions that we are currently selling. And we are continuously renewing our offering and we are continuously working to improve also the existing offering and introducing new components, AI components also into our existing offering. And with that, we feel that we are able to increase the value add that we provide for our customers and that should help us grow organically. There are also areas where we have had services in the past, for example, data, master data creation, asset information, data management, etcetera, where with AI we can really have a compelling offer for our clients. And this is an area that we see will grow significantly with AI because if you want to use AI with your product business or your asset business and utilize the data that you have, The data needs to be correct and in the correct kind of systems and organized in a correct manner, which it clearly is not today with quite many companies.

So there will be quite a lot of things to do around this area. We have great offering around that and we feel that there’s a lot of opportunity in this area. So these are perhaps some of the examples that we see where we can really grow also organically.

Emil Imonin, Analyst, Carnegie: If we continue on that, so is a lot of the now AI offering and the organic growth focus on existing customers, your key account revenue dropped quite a bit. So is that losing market share maybe with those accounts? Or what’s your thinking?

Johan Akki, CEO, Eteplan: Well, I would say that we have not really lost market share. Maybe some customers, yes, but majority, no. But our key customers are in certain kind of industries. Many of them are in industries which are really not seeing good order development, etcetera, and the sheer fact that there is less and less orders, less investment decisions. So there is less work to do for our customers and thus less work to do for us.

And this is the main sort of driver for the drop in the key accounts. We have been able to then find other accounts and mid sized companies and small companies to replace some of that. So our drop in organic revenue was not as high as it was in the key accounts. But I would say that the key account drop really represents the business situation and the new order intake for our customers. So that’s the main driver of it.

Of course, some key accounts, yes, may have dropped for other reasons as well. But generally speaking, this would be my view on it.

Emil Imonin, Analyst, Carnegie: Okay. On China, I know it’s a small part of your operations, but pretty impressive growth figures there. Could you maybe explain what kind of customers do you serve in China? And what expectations do you have on that market?

Johan Akki, CEO, Eteplan: Well, we are we have been for a couple of years already. We have been working more and more with the sort of local Chinese market with Western companies that are operating and selling their products to the Chinese market, but also in an increasing amount to Chinese companies serving the local market. So the trend of ordering services is increasing, so that creates good market opportunities for us. And certainly, we will continue in China. We have had a very good second half, especially in China, and we see lots of opportunities.

And we will continue to grow our business, grow our customer base, but mainly the growth will come from the local China business. So this is the direction that we head. But we still want to grow in China. We will make investments into expanding our footprint in China, etcetera, in the following years given that the market conditions remain favorable. But we see there’s a lot of opportunity in the local China China business.

Emil Imonin, Analyst, Carnegie: Can you disclose any specifics on what kind of industry segments you are serving in China?

Johan Akki, CEO, Eteplan: Basically, it’s pretty much the same industry segments that we have. Of course, depending on where we are and which city and location it is slightly different from one place to another, but it’s pretty much similar customer segments that we have here in Europe. And perhaps the car industry is a very that is very small for us in China. Maybe that is an area where we could do more. But then it’s a wide variety of different kinds of customers that we serve there.

And as I said, increasingly also Chinese customers and some of them are really, really large. So if we can get good inroads, there can be great growth potential in China.

Emil Imonin, Analyst, Carnegie: Sounds good. Then maybe one final question. Could you maybe help us understand a little bit how your guidance and thinking is on a segment specific level?

Johan Akki, CEO, Eteplan: Well, let’s put it this way. All the sort of service areas, of course, now in engineering solutions, we have made the acquisition of Novakon, which will be placed in the engineering solutions service area. So that will change the setting there a little bit. And but overall, I would say that all the service areas have the potential to continue growing. And for different reasons, we expect their possibility to grow organically should be similar.

And they should also all be in a position to after the restructurings that we have done, they should all be in a position to improve their profitability. So I wouldn’t say that some segment within Aetna plan has better possibilities than some other. There might be different reasons for why the growth is or the growth potential is similar. But I would say that all the three segments have similar potential to grow when the market starts to pick up and also they have similar opportunities to improve their profitability.

Emil Imonin, Analyst, Carnegie: Great. That’s all from me. Thank you. Thanks.

Conference Operator: The next question comes from Juha Kininen from Indias. Please go ahead.

Juha Kininen, Analyst, Inderes: Hi, this is Juha from Inderes. Most of my questions have already been asked and answered, but I do have couple of boring ones left. So first of all, could you comment on the pricing side of things? I guess there will be some salary inflation and in the difficult market situation the clients might not be so interested in raising the prices. So how do you see this dynamic and will this affect your profitability in the current year?

Johan Akki, CEO, Eteplan: Well, of course, in a more difficult market, getting the prices up is a tougher call, of course. You need to have more in-depth negotiations. But I do believe that we will be able to be successful in this area, perhaps not as successful as in some of the other years where the market has been better, but still cost increases related to salary are understandable for the customers. They have the same. So it’s not different from us to the customers.

So it’s understandable. And with our ability to also, I mean, work with the cost side, with our offshoring and nearshoring solutions, we are in a position to really help the customers to reduce their costs significantly. And with the help of our minority owned company in Bangladesh, for example, we can introduce significant cost savings for our customers. And with that, the total cost for customer reduces a lot. And for that reason, we feel that we should be in a position to do well in the sort of local negotiations because we are able to provide them additional benefits through these kinds of models.

Juha Kininen, Analyst, Inderes: All right. Sounds good. And another question is about this adapting measures you have made last year. Are they going to make a significant impact on the fixed cost side or are they mostly on the variable cost?

Johan Akki, CEO, Eteplan: There is some fixed cost, but mainly it is related to restructuring the organization. So there have been significant costs during last year. There will be a little bit of spillover from certain decisions taken last year also to the beginning of 2025, but it’s not fixed. Some, yes, because we have also tried to reduce our fixed cost base. But mainly, it is then personnel related costs and other things, which have been reduced.

Conference Operator: Five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Johan Akki, CEO, Eteplan: Okay. Thank you very much. And if we look at that last year, so of course, we’re happy that on the growth side we were able to keep the sort of growth momentum going just slightly, but still so we are happy that we were able to do that. On the profitability side, of course, there’s a clear drip dip on EBIT and this is something that we just simply have to improve on during the next year. There were significant one offs during last year, which had an impact on our profitability.

There will be a little bit of spillover of that for the beginning of 2025. But with the restructuring measures that we have done, we feel that we are ready. As long as the market doesn’t continue to go down, we are ready to improve both on growth side and also on profit side supported with our new strategy. And we’ll be able to move forward and are very much looking forward to seeing better levels of profitability during next year and also higher growth. And this is our target and I’m convinced that we will also be able to achieve it.

If you have any questions, please feel free to contact us at any time, so myself or our CFO, Herna Kokkonen or Otte Tornian, our SVP for Marketing and Communications. But at this time, I would like to close the conference. So thank you very much for tuning in. Thanks.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.