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Siili Solutions Oyj reported its fourth-quarter 2024 earnings, highlighting a strategic pivot towards data and AI, which has resonated well with investors. The company’s stock saw a notable increase of 14.45%, closing at €5.86, following the announcement. According to InvestingPro analysis, the stock appears undervalued despite experiencing a significant 33.5% decline over the past six months. Despite a year-on-year revenue decline, the market reacted positively to Siili’s renewed focus and future outlook.
Key Takeaways
- Siili’s stock rose by 14.45% post-earnings announcement.
- Revenue for 2024 was €112 million, marking a decline from the previous year.
- The company is focusing on data and AI as primary growth drivers.
- International revenue share reached nearly 30%, an all-time high.
- Cost-saving measures are expected to save €2.7 million.
Company Performance
Siili Solutions experienced its first-ever year-on-year revenue decline in 2024, with a total revenue of €112 million. Despite this, the company improved its equity ratio to nearly 50% and saw an increase in international revenue share to almost 30%. InvestingPro data shows the company maintains a healthy financial position with a Current Ratio of 1.53 and an impressive Free Cash Flow Yield of 22%. The strategic shift towards data and AI, alongside operational efficiency measures, positions Siili to leverage future market opportunities.
Financial Highlights
- Total (EPA:TTEF) revenue: €112 million, a decline compared to 2023.
- EBITDA: Approximately 5%.
- Equity ratio: Improved to nearly 50%.
- International revenue share: Almost 30%.
Outlook & Guidance
Siili’s 2025 revenue guidance ranges from €108 million to €130 million, with an adjusted EBITDA forecast between €4.7 million and €7.7 million. The company plans to scale its AI capabilities and enhance profitability, assuming stable market demand and continued momentum in AI adoption. InvestingPro analysis indicates the company maintains a GOOD Financial Health Score of 2.52, suggesting a solid foundation for executing its growth strategy.
Executive Commentary
CEO Tomi highlighted the AI revolution, stating, "Last year was an AI revolution." He emphasized the company’s ambition to become "the preferred AI partner for our clients" and identified data and AI as the primary growth drivers.
Risks and Challenges
- Continued pricing pressure in the public sector could impact margins.
- Slow market conditions may hinder short-term growth.
- The challenge of successfully integrating AI into existing operations.
- Potential volatility in international markets affecting revenue diversification.
- Managing the transition in workforce expertise amidst change negotiations.
Q&A
During the earnings call, analysts inquired about ongoing pricing pressures, particularly in the public sector. Management addressed the importance of reshaping expertise to align with strategic priorities in data and AI, which currently represent about 10% of consultant capacity. The resilience of the international business compared to the Finnish market was also discussed.
Full transcript - Siili Solutions Oyj (SIILI) Q4 2024:
Tomi, CEO, Siili: Good afternoon, everyone, and welcome to Siili’s result info for 2024. My name is Tomi, and I’m the CEO of Siili. And I have here today with me our CFO, Alexi, and he will tell you about the numbers a bit later in this session. Today, we will go through key highlights of 2024 and of course the numbers as well and look a bit of how the ’twenty five for Sealy is looking. Before I jump to the ’twenty four highlights, a brief summary of Sealy, so who we are, what we do and what we do in case we are not necessarily familiar to all of you in the audit.
Our key message is for you today. First, we have a solid foundation and twenty years of track record of growth to build on. Second, we renewed our strategy last year and focused on data and AI. So we have a very sharp strategy leveraging our core strengths and history and to drive the transformation for us and for the market. Third, we have clear initiatives to enhance our operational efficiency and as a consequence, the shareholder value as well.
Sealy is an impact driven and AI powered partner for creating competitive advantage. Our services cover whole value chain from exploration, design, data and AI, obviously, the development, test automation and maintenance as well. Our key client sectors are services industry, public sector, finance and our key markets, Finland, U. K. And Germany.
We have three specialized CV family companies or subsidiaries and they, each of them is focusing on what they can be best at. Supercharts is focusing on innovation. So they are innovation partner for our clients. CD Aldo is focusing purely on the HMIs of cars. And Valla is focusing on quality assurance services.
We have a strong client base and proactive competence development. And those are the very key success factors of our growth and success. Almost 90% of our revenue last year came from clients who have been with us for over two years. And our revenue, out of our revenue, 75% came from clients who have been with us more than five years now. So satisfied customers with stable client relationships.
On the right side of the slide, that describes our competence pool. So on the competence side, the majority of our services is deburred by our own consultants and this approach allows us to maintain the quality and consistency of the services. And smaller portion of our capacity is allocated to subcontractors and that is to allow flexibility and fast scalability when needed. We renewed our strategy last year and also we renewed our slogan. And now our slogan is Make AI Real.
And that captures the essence of our strategy in three words and also describes the transformation from IT to AI. So our previous slogan was make IT real. And we are here to deliver tangible impact driven value to our clients. At CE, we aim to be the preferred AI partner for our clients to guide them through their own AI journey. And for ourselves, that means that we aim to become the AI transformation leader in our own fields of expertise and by making the AI very practical and impactful reality for our clients.
Our strategy in one slide, so we have, first of all, three strategic priorities, the community of top talent that was there already earlier and the two blue boxes are the new ones, I mean, the ones that we added last year. So the community of top talent, there the aim is to becoming the best AI driven community for humans. Then the two blue boxes. First, the significant growth in data and AI business. There the driver for us is, of course, growth.
And then the second, the pioneer in AI powered diesel development. And there, the driver for us is the productivity improvement and leading the development in AI powered development. And we always been a pioneer in leading the ways of developing software and thus, this is just a natural step, next step for us. A few case examples just to give you a bit of flavor that what do we actually do for our clients. So all these are real life customer case examples to give you a bit of flavor of what we are currently working on.
And if I highlight two very typical case types at the moment. So first, the future of organization, the age of AI. So in these kind of cases, what the client is after is that the advantage like Gen AI and AI agents are rapidly transforming business operations, driving efficiency and unlocking new opportunities. And there, we help companies across different industries to navigate them through this AI shift and of course, identify the emerging possibilities for our clients. Second typical case example nowadays is the R and D, efficiency of R and D.
So many of our clients focus on optimizing their R and D operations. So the industry clients forces, they have big R and D operations. And there, they are after from leveraging the critical data sources to improving customer insight by utilization and streamlining the software development processes and of course with AI. And we are very experts on that matter. And then moving on the highlights of 2024.
Last year, if I describe that in one sentence, last year was an AI revolution and that was, in my opinion, the biggest and fastest change I have seen in my career for almost thirty years. And not just in our industry, but broadly, of course, as well. And this massive impact in the market led us to fully commit to AI and strive for leading position in the AI field in the field of expertise that we are specializing. And we are significantly aiming to expand our data and AI business and advancing the AI SSD software development. And the other theme of last year in addition to AI revolution was that the market continued to be slow in practically all the market areas where we operate.
So that was, of course, the so the AI revolution was very positive change for us and then the slowness of the Maclum market obviously slowed us down. A few highlights of from last year. So first on the customer front, we opened significant new automotive industry client in Germany. We cannot disclose the the name, but a major automotive client in Germany. Also Helsinki University Hospital chose us to develop their eHealth (NASDAQ:EHTH) services.
They are a big organization itself, so a major client for as such. But even more significant for us is that it was an opening of the health segment for us. So that was a new segment for us as a segment. Last year, we launched our new AI centered strategy. That was, of course, a big thing for us as a team.
And later or later part of the year, integrations group. So we acquired integrations group and and they joined the CD family to strengthen our integration competencies. And as the expansion of AI will significantly increase the need for integrations and that’s why obviously we acquired the integrations group. So practically, and basically the more complex application architecture will always lead to more integrations and the easier the software development is, then most likely the application architectures will become more and more complex and then that pretty much automatically leads to the need for more integration. And last but not least, we were chosen in top 10, among the top 10 most attractive workplaces in Finland among the young professionals.
And we are very proud of it then also individually, I mean, personally, I’m very proud of particularly that because that was a, I felt that, that was a big thing for us as a team. Then the numbers, last year or so, we made €112,000,000 revenue, EBITDA roughly 5% of debt And the international share of revenue continued to grow. So share of international revenue has increased steadily for quite a long time now for us. And in quarter four, it was already more than 30%. So we, first time, we broke the 30% mark in international revenue on the fourth quarter.
And so that has been a good business for us already a long time. And quarter four was, let’s say, clearly better than the average numbers of last year, and that is a signal to me that our new AI strategy is starting to pay off. Of course, it’s not it’s a big thing for us and for the market and it obviously takes more than one or two or three quarters to get it running, up and running. But now we start already to see some signs of that it will pay off. And we are determined to focus on growth buckets in the market and continue the efficiency actions.
And our response to slow macro market in Finland and particularly in public sector is to focus on the growth pockets in the market and of course continue the efficiency actions. And I would just remind that, yes, it’s a slow market cycle, but it’s a small market cycle thing. And the digital transformation obviously is that goes beyond the market cycle. Cycle. So the little transformation as such is here to stay and that of course fuels the long term growth despite of the short term market cycles.
And that is why we are confident that we are able to deliver long term value for our stakeholders. Earlier today, we unfortunately announced that we have started or will start a change in negotiations in Finland. And our AI strategy is our response to the disruptive impact of AI on the market. And the reason for this tension negotiation is that we are now refining our expertise to better align with the, with both the last year announced certainty and of course, the evolving market demand. And at the same time, we are focusing on the growth and the solidity of chosen areas while strengthening our competitiveness and profitability, of course.
And our estimation for the annual cost impact or cost saving impact is roughly 2,700,000 of these change negotiations. And just to give you a bit of flavor of what we are doing in a concrete matter. So we have a very concrete action plan to improve our profitability, and we are executing that plan very systematically. Not going to go through all the items here today, but my point is that we have a clear plan and we are executing it step by step. And now I will hand over to Alexey, and Alexey will go through the numbers of last in more detail.
Alexey, CFO, Siili: Thank you, Tommy. In 2024, Seelis revenue declined from previous year. And actually, this was the first time that in company’s history that year on year basis, the revenue declined. The year was still characterized by tougher market conditions, and this has led us to focus more on our efficiency in order to secure and develop our profitability in the future. So let’s have a quick look to the last year key financials.
The picture on top is showing Sealy’s revenue development, splitted between first half, second half since 2016 until end of last year. During second half of twenty twenty four, our revenue was million and, respectively, a minus 8.2% change compared to second half twenty twenty three. Main driver in the top line change was our lower capacity compared to previous year. The picture below is showing our quarterly revenue since quarter one twenty twenty one until quarter four last year. On quarter four, the revenue drop was roughly minus 6% from quarter four twenty twenty three.
However, we saw improvement after lower quarter three and also some positive signals, especially in the international side, towards end of the quarter.
Tomi, CEO, Siili: In
Alexey, CFO, Siili: general, last year was still marked by tougher market conditions for Sealy. Our international revenue on second half developed in line with previous year. This is actually satisfying outcome given the underlying circumstances. International revenue share continued the growth, and on full year basis, we reached almost 30% share from the group revenue, which is actually our all time high level. So we’ve had consistent growth in the international revenue share since 2016.
Then looking at the profitability. In the profitability, second half of last year was still challenging. Our adjusted EBITDA margin declined by minus 2.5 from second half twenty twenty three, and this was, of course, driven by the lower revenue. In total, second half adjusted EBITDA was million. During the last quarter, we saw improvement from quarter three low levels and also in the profitability, the end of the quarter was stronger.
In total, quarter four, adjusted EBITDA margin was almost 5% from revenue. Looking ahead, we’re determined and committed to continue the strong efforts to improve our profitability towards our long term financial target. Our capacity at the year end was in total over 1,000 employees and subcontractors. The level remained in line with end of quarter three last year, but obviously, there was decline year on year basis due to slower hiring pace over the last year. Going forward, our focus remains in improving our operational efficiency while maintaining recruitment activity in our core areas like data and AI competence.
Then looking at our financial position. Despite the profitability decline, we managed to improve our financial position during last year. At the year end, we had low net debt level, and our equity ratio improved to almost 50%. Thanks to our solid balance sheet, the board is proposing a dividend per share from last year, which is in line with our dividend policy. Our strong financial position is good base to develop Sealy further.
And now back to Tommy and our future outlook.
Tomi, CEO, Siili: Thank you, Alexey. So looking up at how the $25,000,000 for Sealy looks like. That’s very easy and simple to summarize. So in ’twenty five, we have two priorities, we need to scale up the AI and improve our profitability. We have three services streams to scale up the AI, and we have clear objectives and KPIs for each of the three streams.
And on profitability side, we, as already explained, we have concrete plans and actions to improve our operational efficiency. And that’s good. And on those two things, we are focusing this year. And then the guidance. So we, as a public company, we give the guidance for our expectations regarding the coming year and we gave the guidance to the market earlier this morning.
And our guidance regarding $25,000,000 is that we expect the revenue to be between SEK108 million to SEK130 million and the adjusted EBITDA to be between NOK4.7 million to NOK7.7 million. And this guidance, we have two basic assumptions, I mean external assumptions, external regarding the external conditions. And first, we assume that the market demand environment remains unchanged compared to ’twenty four. So we are not expecting that the market will pick up this year and as it may obviously, it may well do that, but our guidance is not based on assumption that the market will improve this year. And the other assumption is that the AR revolution obviously will continue.
Maybe no surprises there. And that’s simply the guidance with a few assumptions. And long term financial targets, we haven’t changed changed those as they were earlier. So to summarize the whole session, first of all, we have a solid foundation and track record, twenty years of track record to build on. And last year, we renewed our strategy focusing on data and AI.
And this year, the theme for this year is to focus on the execution of that. And of course, in practice, it means scaling up the AI. And the second priority for this year is improving the profitability. And regarding that, we have clear initiatives to enhance our operational efficiency and sell their value as a consequence. That was all we had.
And now Q and A. If you have any questions, we are more than happy to answer those.
Alexey, CFO, Siili: Yes. So there is already one question. So just a reminder, so you can
Tomi, CEO, Siili: Reading classes, yes, the text.
Alexey, CFO, Siili: So you can place the questions from the Q and A button from the teams. And there is one question concerning the pricing.
Tomi, CEO, Siili: Yes. I couldn’t see the question. Technical improvement. Actually, yes, I can actually see the question. So are you still seeing pressure in the early pricing during the new vendors?
Is the difference in the pricing momentum between public and private markets currently? Yes, public market, in the public sector, there is really a pressure on prices, so no changes there. And like I said that regarding this year, we are not expecting any changes on that. I mean, the pressure is not a new thing that was there the whole last year, but we are not expecting any changes on that. And also the, that what was there already last year was the, let’s say, that the pricing in private sector and the pricing in public sector, that there is a difference.
All right. And we can see another question as well. Yes. If I repeat the question, maybe it’s easier for everyone. So how should we interpret the announced Chase negotiation?
Is it just clearly shaping its expertise mix? Or do you need to scale down capacity due to continued soft market momentum? Yes, fair question. I would say that definitely the priority number one is that we are shaping our expertise mix because of the AI disruption on the market. But of course, partly it’s due to the soft situation on the market and particularly referring now to the public sector.
So we do not expect that the public sector demand will get or will increase on where we are at the moment. Right, next one, can you elaborate the different growth drivers you see currently? Yes, no, definitely, I start to repeat myself, but definitely the data and AI is of course a growing market segment and that’s the, let’s say, the growth driver number one for us. And as we discussed in some other contexts already that and as we said on the Capital Markets Day that at that time we communicated that it’s roughly I mean the data and AI is roughly 10% of our consultant amount of consultants. So therefore, it’s although that it’s growing fast, still the impact on the overall numbers is still not that significant.
But I emphasize that it’s clearly a growing segment and in a very much in the focus of what we do. And then the other growth drivers, as I said now many times, the public sector is clearly not a growth driver at the moment. And then what will happen this year, I mean that whatever news you open, it’s today, Trump says something. Yesterday, he said something else. And tomorrow, I’m not going to try to guess what he will do tomorrow.
So let’s say a lot of uncertainties on the market. Then on the other hand, a lot of kind of things ongoing that might change the market fast to very positive kind of drivers. And but again, very difficult to estimate that their impact and when and what and all that kind of stuff. But once again, that our focus is now on the data and AI, and that’s clearly the growth driver number one for us.
Alexey, CFO, Siili: Yes. Then question about the guidance range expectation.
Tomi, CEO, Siili: Yes. So the guidance range expectation, what needs to happen to REIT’s higher side of the guidance range? Yes, fair question. Again, if there is no change in the market conditions, then it’s fair to expect that we will not reach the, let’s say, the top quarter of the guidance. But like I said, that may well change during the year.
But now what we learned from last year, that last year, our expectation was, I mean, at this time of last year, that the latter part of the year would be a positive change in the market. That didn’t happen. And now we have been clearly more cautious regarding the expectations and partially one reason for the change negotiations we announced today is that we are prepared if the market wouldn’t get any better.
Alexey, CFO, Siili: Yes. Then question about the development of the new management system or approach. How has that progressed since the CMD? And when should we expect cost efficiency improvements to be visible from here?
Tomi, CEO, Siili: Yes. No, it’s, of course, a long term thing. And also, it’s not kind of something that we do out of the context. So there are so many variables, I mean, the pricing, the market situation in general, the politics, this and that, all that impacts us. So we have quite a few external factors impacting us.
And therefore, it’s I guess, it’s pretty difficult to kind of see the impact of the actions that we do internally. And but what we are aiming to do is make sure that our efficiency is on a good level. And then whenever the market will pick up, then of course, we will see the gains of that efficiency work.
Alexey, CFO, Siili: We have a systematic approach and the figures will follow. Yes.
Tomi, CEO, Siili: Sooner or later the figures will follow, but there are so many factors that are not in our control that will impact that when you will see it in the numbers. So that’s why we are a bit hesitant to give you any estimations
Alexey, CFO, Siili: on that. Then question about our international business. Do you see faster recovery outside Finland in 2025, so this year?
Tomi, CEO, Siili: And there was some positive development. Yes. Yes. No, I would say that it’s likely. And already now, the business outside Finland has performed better than the business in Finland and no reason to expect that, that would change.
So it’s likely that we will see improvement in the business outside Finland. And it’s, I would say, likely that we will see that faster than changes in the business in Finland. However, somehow this volatile, you never know what’s going to happen. Yes. Yes.
Alexey, CFO, Siili: All right. I don’t see currently any more questions. Maybe I’ll check from our studio personnel. Studio audience. No, more questions,
Tomi, CEO, Siili: I guess that’s it. All right. Thank you for participating this session, and we will get back to you later after the first quarter. Thank you.
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