Welcome to this webcast presentation of Etteplan's Q1 results for 2025. My name is Juha Näkki, I'm the CEO, and I will also be joined by our CFO, Helena Kukkonen, for the Q&A part of this webcast. The contents of the webcast follow the same line as we have had before, so we'll look at the quarter highlights and lowlights and the overview. Look at the financial development in Q1 a bit more in detail, look a little bit on our service areas, and then to end, we will look at how we did against our targets and also give out our financial guidance, and then followed by the Q&A session.
If we get started with the highlights of Q1, in the market situation, after a difficult start, or let's say a difficult end for last year, we knew that the beginning of the year in January would be tough, and it was. There were certain signs of a slight recovery in our European customers during the first quarter. We saw in particular the hardware design and hardware engineering and the software side improving slightly, which was a good indication because this is normally where R&D investments start when our customers start to invest a little bit more. This was positive. Our customers were getting a little bit more orders, and we also started to see some positives in the market.
Investments related to defense were continuing on a high level, and also the energy industry continued at a moderate level, so investments were continuing as per last year in these areas. Also, China was clearly positive for us in Q1. The market situation or the demand situation remained good despite all the turbulence that is happening around us. Still, the number of hours sold to the Chinese market were increasing significantly by 21.9%, and the performance in China was solid. However, if we look at the negatives, in the first quarter, of course, the market was highly unpredictable. There was very high political tension, and also the development of the trade war had a clear impact in the market at the end of the quarter. We started to see postponements and cancellations of investment decisions at the end of the quarter.
Even if it looked a little bit positive during the quarter, the development of the trade war and the tariffs in the U.S. had a clearly negative impact. We are a little bit in a more difficult area when it comes to estimating the future. In this weak market condition, of course, we did need to continue adaptation measures with our organization, and that led to significant one-time items or non-recurring expenses. This, of course, had a clear impact on our result. We also had one large credit loss in Germany, which also impacted the result. Also, our service area, Technical Communication and Data Solutions, was not doing well. We had some turbulence with the Central European customers especially. I will return to that with the service area presentation.
If we look a little bit on the operating environment, of course, it was very, very uncertain during the first quarter, and the war in Ukraine continued, and also the new uncertainty with the trade war was apparent and clearly affecting our customers' decision-making. Defense industry energy continued, as mentioned earlier, but in all other markets, the customer decision-making was very, very slow. There were also considerable differences between different customers, so some customers were moving slightly forward, others were waiting. Very, very few investment projects got started. The only ones that did get started were pretty much related to direct cost savings, and all the other investments were on hold, basically. If we look at the markets a little bit more in detail, in Europe, of course, the geopolitical tensions had an impact, and basically all the countries were a little bit similar.
There was no country that much weaker or that much better, but in all countries, the uncertainty, and especially the increasing uncertainty, had an impact, and different customers reacted in a different manner to this. Customer-specific variations were, of course, high, especially in Central Europe. We saw certain customers having difficulties with their deliveries and with their orders, and this resulted in basically a standstill in any kind of new investment, which then had an impact on our demand situation. In China, despite the trade war developing and so on, in China, the situation was really good. Still, the development of the sort of services, buying services culture is the primary sort of movement that helps us with the demand, and that still continues. Also, there are certain measures that the government has taken that is boosting the demand currently in the Chinese market.
There we see that good situation will continue at least during H1. It was very difficult to say what will happen after that, but we see a positive development in China currently. If we then go to the figures, a slight decrease in revenue by 2.3% to EUR 94.9 million, but of course, organic development was much worse. EBITDA had EUR 5.8 million, a 29.4% drop from last year, and EBIT EUR 4.2 million, a 37.9% decrease for last year, and also a drop in the EPS to EUR 0.09. Of course, this compared to a fairly good first quarter last year, or at least the market conditions were fairly positive compared to where we are right now. If we then look a little bit on the revenue and personal split in Q1, revenue by service area, Engineering Solutions 56%, so growth mainly due to the acquisition of Novacon.
Software and Embedded Solutions at 24% and Technical Communication Solutions at 20%. By area, Finland 45%, Scandinavia 27%, Central Europe growing 25%, and China 3%. Clearly, the Novacon acquisition affecting the figures here. Personnel by area, Finland 47%, Scandinavia 18%, Central Europe 24%, and China 10%. The acquisition of Novacon having an impact here, otherwise fairly stable with the exception of China where the market has been strong. If we look at the revenue split by customer segment, automotive has actually grown in terms of percentage, and this is mainly due to the fact that the Novacon acquisition took place in the beginning of the year. Also, we have been doing relatively well in the automotive sector.
Our position has improved, and also there has been investments in the automotive sector, especially to new models and to electrification of cars, which has led to a slightly better demand situation than in some other industries. Defense very, very strong again, and aerospace and defense growing to 7% of the revenues. All the others basically then marine and transportation, slight growth. There also Novacon had a slight impact with their work they're doing for trains. All the others are also relatively down, and the weak conditions in the market continue. If we look then a little bit more detailed in the financial development, overall all the key figures were dropping.
Revenue not that much, but on the profitability side we had significant drops, and personnel growing just slightly by 1.8% to 3,918 due to the acquisition of Novacon and also compared to the quarter last year, some other acquisitions. If we look at the revenue, clearly the market uncertainty is high on an unprecedented level, and forecasting the future is extremely difficult. Revenue was dropping by 2.3%. Organic growth at comparable exchange rates was - 8% or - 7.7% with normal exchange rates. Revenue from key accounts was growing by declining by 5% in Q1. There's a split between the growing defense and energy customers, and then the rest are declining more than the 8%. That is clearly visible in this number as well. Difficult condition, very difficult to predict, which had an impact on revenue.
On the profitability, we had significant non-recurring items during Q1, and these amounted to EUR 1.3 million compared to EUR 0.2 million last year, so a significant increase. EBITDA was at EUR 5.8 million and 6.1% of the revenue, which was of course not satisfactory at all. The non-recurring items related to adaptation measures that we took in the organization to adapt ourselves to the current prevailing market conditions and also to enhance our strategy execution capabilities. On top of that, we had of course some expenses and costs related to the Novacon acquisition, and then a very unfortunate credit loss in Germany that had a significant impact on the Engineering Solutions result level.
Without the non-recurring items, the EBITDA would have been at 7.5%, which in this market condition could have been considered decent, but of course the non-recurring items are there, and this was the third quarter in a row where we had a fairly high number. This needs to stop, and we do not foresee that in Q2 there would be a very large number. There will be some, but not a very large number in Q2. This is our current expectation. EBIT was at EUR 4.2 million, so a clear drop from last year, so EBIT% was 4.4%, not satisfactory of course at all. Amortizations related to acquisitions were at EUR 1.6 million, so slightly growing compared to last year due to the Novacon acquisition. EPS was affected of course by the lower profitability, so at EUR 0.09. Operating cash flow weakened also compared to last year.
Of course, a very, very slow and short December month had an impact here. Also, the non-recurring items and lower profitability overall had an impact on the cash flow. Personnel at the end of the period was at 3,918, and the number was growing by 1.8%. People outside Finland or personnel outside Finland was at 2,060, so clear growth there due to the acquisitions and also China having a positive impact here. Overall, we still had a difficult market situation. There were certain adaptation measures that took the personnel down. We haven't done that much recruitment in these kinds of weak market conditions. Also, we have had to take adaptation measures here in Finland in terms of temporary layoffs. We had 157 employees temporarily laid off in the end of March.
We had a clearly higher number during the quarter, so it was close to 180 or so. It started to decline a little bit during the quarter when the market situation seemingly improved. Now, of course, with the trade war measures, it's difficult to say how this development will continue. In the income statement, no major items. Of course, financial expenses relatively on the same level as last year as the interest rates have been coming down despite the fact that we have slightly more loans to finance the acquisitions. With the lower interest rates, that is coming slightly down. Nothing more in this one. The balance sheet after the Novacon acquisition currently standing at EUR 322 million. Nothing significant on this slide either. If we then go a little bit more in detail into the service areas.
In Engineering Solutions, of course, the Novacon Powertrain acquisition was completed and it is continuing as planned. The integration has started well and we are progressing forward. Of course, the high uncertainty in the market had an impact on the demand situation and we had to take adaptation measures and that kept our operational efficiency modest, which also had an impact on the result. We also had costs from the adaptation measures and a significant credit loss in Germany of about EUR 800,000 in this service area, which clearly affected the result. The profitability EBITDA without the non-recurring items would have been 8.1% and that would have been fairly decent in the prevailing market conditions. Still, of course, the non-recurring items are there, so no way to avoid that. Slight growth, 1.1%, but the profitability down.
In the Software and Embedded Solutions, we continued on a relatively similar level as in Q4. Revenue was dropping clearly by 11.9% compared to last year due to the difficult market situation and adaptation measures that we have taken. But EBITDA was at 8%, lower than previous year, but relatively similar to the previous quarters during last year. We clearly saw an improvement during the quarter, especially in the product development area and especially in hardware where projects started to come in. We expected that to be followed by software and hopefully then application engineering as well, but unfortunately this has not happened. Now with the recent development in the trade war, it's difficult to predict whether projects will continue or not. Certain customers have already postponed their investment decisions and we need to wait and see how things move forward. It's clearly twofold.
The R&D activity started a little bit, especially in hardware, but then it did not develop into software yet. Also in the sort of application area, there is still very, very low levels of investment. Due to this, we had to also continue adaptation measures here and that resulted in a slightly lower level than would have been without them. Here, not that big of a change in Finland or any other country. In the Technical Communication and Data Solutions area, we had a difficult quarter clearly. We had slight growth and this is related to our improving market position, especially in Central Europe. We had growth in Germany last year when we won clearly market share, and this is visible in the growth numbers. We also had certain growing customers, especially in the defense area in Northern Europe.
During the quarter, due to the uncertainty, there were certain customers that were taking their investments down, and we did have a lower demand situation in Central Europe. Especially in the Netherlands, we had difficulties with certain customers, and the operational efficiency was really low. We had to also take adaptation measures in this service area, and that had an impact on the profitability. Without the measures, the profitability would have been at 5.7%. Now it was at 4.4%, which is very, very low for our standards and definitely something that we need to improve. We have taken measures, we have made changes, and we feel confident that with the new offering we are developing with AI, we will be able to get back to the levels which we have seen before.
It will take a little bit of time and a little bit we need help from the market as well before things can really start to recover. If we then look at the financial targets and our strategy as well, this is the strategy that we released at the end of last year and also communicated in Q1. The strategy period is called Transformation with AI. What we plan to do is to transform the way we sell and deliver services and incorporate AI into the solutions that we are selling to our customers. We have three cornerstones: trusted partner, AI and technology empowered service solutions, and success with people. Of course, we have strategy programs to execute the strategy moving forward.
We feel confident that with this strategy, we are able to really change the company to create more additional value for our customers and then move forward as a company. The financial targets that we set were 35% of AI-driven solutions share of revenue. We are still at 2%. We have some more projects. Some projects that we had last year, the revenues have started to go down as the projects are coming to an end. The number of projects is continuing to increase, and we see lots of potential with the new offering that we have been developing to increase this number further. When we are able to increase this number, we are also confident that our managed services share of revenue, which is a 75% target, will also increase. Currently, we are at 66%.
With that, with the more competitive offering, we also feel that we can grow and we are in a position to reach our EUR 500 million revenue target. Currently, the rolling 12 months is at EUR 359 million after a slow Q1, but we are confident that even during this year we are able to improve on that. Of course, the profitability target remains the same. We can by no means be happy with our current 6.1% target, but we have demonstrated in the past profitability of above 10%. With the new offering, with some help of the market, we feel very confident that we are able to reach this kind of profitability levels also in the future.
If we then go to the financial guidance for this year, due to the weak start of the year, due to the very, very high uncertainty that we see in the market, we did lower or specify our guidance within our range. The new range for revenue is EUR 365 million-EUR 395 million, which is a EUR 5 million drop from the higher end or the higher end of the range. On the operating profit EBIT, we estimate profit to be between EUR 23 million and EUR 28 million. There is also a EUR 2 million drop due to the high uncertainty in the market and also the high non-recurring items that we needed to take during Q1. Overall in the market, the tension is very high and it's very, very difficult to predict what will happen.
We do see that the industry needs to keep moving and maintain what is already there. For this reason, even if the market will not significantly improve, we do not think that the market will go down further. We do see that once we have taken all the necessary actions and activities and once our new offering is starting to really take or let's say accelerate in pace, we feel that we can move forward in the prevailing market. If we get some help from the market conditions, we are definitely able to move forward and start to grow again. At this point, I would like to welcome questions from the audience.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue.
If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Atte Joki from Evli. Please go ahead.
Good afternoon and thank you for the presentation. This is Atte Joki from Evli Research. Firstly, a housekeeping question on the non-recurring items. Could you give us a bit more color on the credit loss and how large share of total non-recurring items was it for the Engineering Solutions?
We have not disclosed that number, so unfortunately I cannot give an exact number on that, but it was a significant part of it. There were also some adaptation measures regarding the organization, but it did have a high impact. The full impact is not even visible in these numbers, but there will not be any further impact from it.
It could have, had it not happened, it could have had a significant impact on the numbers.
Okay, thank you. To the hot potato, namely trade war. Firstly, if we think of the business areas, in which of those have you seen the highest number of postponements of investments and projects, or has it been across the board more or less?
It has been more or less across the board. Some customers still continue. It really depends on the customer and how much trade with the U.S. they have. Some customers continue, some even increase. Maybe they see some opportunity in this. Overall, it is having an impact. The customers are, of course, having a difficulty in deciding where to invest because you do not really know what will happen and what your investment case will look like tomorrow.
It's completely impossible for them, and therefore it's somewhat understandable. It's a really irritating situation that we are right now in.
Yes, agreed. Roughly a month has passed since the introduction of these tariffs. As your clients have now kind of assessed the impacts a little bit, at least to their businesses, have you seen any restarts in projects or talks?
Of course, some customers are redirecting their efforts and deciding differently. So far, there's discussions, but not that many decisions have been taken that this would start and that would not. Currently, it's more of a waiting game for most of our customers, and we certainly hope that the situation will get clarified at least so that you will know what kind of an environment you're operating in. Right now, it's difficult to say. It's mainly waiting mode at the moment.
Yes.
Last question on the trade war. Have you had to implement further efficiency measures after the escalation of the trade war and the tariffs?
No. I would not say, maybe some, but I would not say that that has been the case. We are already at a very, very low level of investment. We were sort of hoping that investments would start. There were certain signs of it, especially in the R&D and in the hardware side. With these new tariffs and with the new uncertainty, the investments have been postponed or stopped for the time being. We have not, so far, I would not say that we have implemented new adaptation measures due to this situation, but the sort of potential improvement in the situation has certainly been postponed at least for a while.
Yes, very helpful.
From the negatives to possibilities, Central Europe has grown to over 20% of your total sales. How do you think the fiscal package introduced in Germany during Q1 will affect demand for your services in the market in mid to long term, or have you already seen any improvement related to this?
I think that it will certainly have some kind of an impact. We have not seen it yet. Of course, it is still uncertain where the money exactly will go and who will get it and so on. Certainly, this kind of an injection will boost the market, and it should also mean better demand for us. If we look at our organization, we start to be, not big, but we start to have enough size that we can really invest into the market and also attack the market.
It is such a large market that with better sort of organizational capabilities and sales capabilities in place, plus a slightly wider service offering in place, we see lots of opportunities to win market share, etc. We feel very, very confident of our offering with this market. That is the reason why we have invested there, and we see lots of opportunities. There is plenty of room for our size of a company to still grow. Of course, if there is this kind of a major capital injection into the market, for sure it will have an impact. Have not seen it yet, but in the midterm, in the long term, we feel confident that there will be a boost.
Yes. My last question related on the offering. You launched the AI-powered version of HyperSTE during Q1.
How has this been received by the client base, and how large a share of the technical communication data clients have already taken it to use?
It is a small share of our revenue, but it has been very positively received. We, of course, use this product ourselves when we are doing technical writing, and the benefits are very visible. There is interest from the clientele towards this new model. It is more efficient, etc. That goes also for other services where we are currently still in the planning phase, but very close to introducing new ways of working with AI, etc. Once we do that, we are confident that we are able to, again, win more market share and move forward to improve productivity for our customers and get the 2% figure improving. That is quite clear.
In the technical communication service area, as I mentioned, as we mentioned in the report, when we are talking about new projects and outsourcing and other things, AI always comes into play. Our AI-driven offering is clearly having an impact on why we are winning certain cases. It is highly positive, not that visible in the numbers yet, but we are confident that it will be in the future.
Okay, thank you. Very helpful. That is all from me.
The next question comes from Emil Immonen from Carnegie. Please go ahead.
Hi Juha. Thanks for taking my questions. Maybe to start with the credit loss in Germany, could you elaborate a little bit more on it? What was it related to, and why are you so confident that there will be no such losses in the future?
This was a project that we did for one of our major customers, a very financially sound large company. In this particular project, we were requested and also agreed to go through an EPCM supplier. Apparently, there were some problems with this supplier, and this EPCM supplier went bankrupt. Unfortunately, that is where we got the credit loss. We have a good continuation of our business with our main customer. For this reason, we do not believe that there will be any further. Of course, never say never, but this was a customer that is non-recurring for us, and it was an EPCM supplier that we had to use or where we had to supply in this particular project.
This is not a new customer in Germany?
No, no. It is our old customer. This way of collaborating was simply new.
Unfortunately, even though we checked, this particular EPCM supplier for our customer went bankrupt, and unfortunately, we suffered this loss.
Understood. On China, good growth continues. What do you believe is the reason why you're growing so strongly in that market, and how much is it market-driven, and how much is it? You are small, but you are still clearly growing very fast there.
We have done a really good job in China, and there the market growth is one thing, and of course that helps us. Still, I would say that the even more, let's say, influencing factor for us in terms of growth is the fact that also the Chinese companies are starting to buy more and more services.
The culture of buying services is developing further in China, and also the sort of Chinese companies working in the China-China business are starting to buy services, which was not the case five years ago, for example. That is the primary factor driving the growth. Of course, we have slightly more than 400 people in China currently. It is such a huge market that there is definitely room to grow, and we are working hard to expand on that.
Is it growth with new customers, or is it your old Chinese customers who you take more wallet with or dynamic?
It is actually both, but I would say that there is quite a lot of new customers and Chinese customers in particular. When we look at our customer list, the new names are predominantly Chinese companies, and that is of course highly positive for us.
Great.
One more question on my part. On your leverage and capability to grow through M&A, is the leverage getting to be a limiting factor as it's going up all the time?
Of course, it is currently under pressure. Not under pressure. We are managing it well, but we do need to get our profitability back to the levels where it has been, which we are used to. With that, there is no issue. If the profitability remains low, then we need to reconsider. We are highly confident that we are able to recover in our profitability, and then we should not have any problem with the leverage. Of course, if we continue to acquire companies, if we make bigger acquisitions, at some point, some kind of equity injection will have to be considered by the board of directors as well.
Is there any reason to believe that the higher leverage would have an impact on, for example, your interest rates and the margins you have to pay?
Not so far. Of course, if the profitability would continue to deteriorate, then maybe yes, but at the time, no.
Okay, great. That's all from me. Thank you.
Thanks.
As a reminder, if you wish to ask a question, please dial pound key 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.
Thank you very much. I mean, if we look at the Q1, so clearly it was disappointing for us. The market showed some signs of improvement, but unfortunately, with the trade war development, the uncertainty is high again, and it's difficult to say when it will change.
Still, we still feel that the market is not going down. We have done acquisitions. We have taken lots of measures to improve our ability to execute our strategy. With that, we are confident that we are able to continue on a growth path and also improve our profitability going forward. I would like to thank you for participating at this time to our conference. Of course, if you have any questions to us at any time, please feel free to contact myself, our CFO Helena Kukkonen, or our SVP for Marketing and Communications, Outi Torniainen, at any time. Thank you very much for tuning in.