Welcome to this webcast presentation for Etteplan's Q2 results for 2025. My name is Juha Näkki, I'm the President and CEO. After the presentation, there will be a Q&A session where you will be also able to ask questions from our CFO, Helena Kukkonen. As previously, we'll go through the presentation with the following content. First, look at the highlights and overview of the situation, a little bit more detail on the financial development of the company, a bit on the service areas, and then we'll look at how we're doing against our targets and how we're progressing. This is followed by the Q&A session. If I start with the sort of highlights of the second quarter, it was clearly a difficult quarter for us. We had a positive side, which was clearly our strategy implementation and our progress in the strategy work.
We have been systematically and consistently investing into our service offering, especially around AI and building our AI-driven service solution offering, and this work continued. We are gradually moving within our organization to different kinds of AI-based business models and also working a lot with internal processes where we are improving our efficiency through AI. This work is progressing, which is good. Now it starts to be also visible in the numbers, and we were very pleased to see that our AI-driven revenue from service solutions was raising up to 4%, which is basically then doubling from Q1. Now we are moving really forward, very early days yet and very small numbers, but still we are moving forward and it's starting to show.
In the past quarters, we have had quite significant costs for restructuring and reorganizing our operations, and now we feel that after this quarter, we are with a structure where we can move forward and maneuver even in this kind of very uncertain and unpredictable market environment. We expect that in the coming quarters and in H2, we don't need to do similar operations. We will, of course, continue to make sure that we are efficient. If there are situations where we need to adjust capacity, we will still do that. On a structural level, we see that we are now fit to the market. On the negative side, market uncertainty unfortunately increased during the quarter. Of course, the trade war, the U.S. tariffs made it, or the sort of unclarity within this situation made it impossible for our customers to take decisions, and this then affected our demand.
We had projects that were already agreed that were delayed or even canceled or postponed, and decisions on new project starts, new investments were very, very slow. In this kind of highly uncertain situation where you don't know which rules you're playing with, it is difficult to take decisions, and this had a clear impact on our business as well. We didn't really see this impact in Q1, but in Q2, it became evident that our demand is dropping, and for that reason, we also needed to issue a profit warning, which was, of course, very, very unfortunate, but we did take our financial guidance down. I'll return to that later on in the presentation. We also had high non-recurring costs in the demand situation we are facing.
We needed to do still some restructuring and adjustments of our capacity, and this had a high impact on our profitability and was visible in the numbers. As said earlier, we now see that we are with a structure where we can move forward even if the uncertainty continues. We expect that this kind of levels where we have seen during the past two quarters will not continue. If I look a little bit more in detail in the operating environment, as said, it was very much highlighted by the escalation of the trade war and the U.S. tariffs. This had a tremendous impact. The war in Ukraine continues, which also has an impact, and the world is highly uncertain at the moment, and this has a negative impact on overall the demand situation, and this had an impact on our business.
In the customer industries, investments were quite low on most of the sort of traditional industries where Etteplan is operating. However, the defense industry continues strong, which is also visible in our numbers, and investments in the energy industry were at a quite good level, and we also had quite decent intake in the automotive sector, which is visible in the coming slides. Electrification was driving things, digitalization to a certain extent, but very few new investments were started. If we look at the different geographies, Europe was basically all countries were facing the same issues, and the situation was fairly similar. Slight differences between the different customer industries, and of course, our scope in different countries is slightly different, so slight differences, but overall, the picture in Europe is unfortunately very similar in all the countries. Customer-specific variation is very high as well.
There might be some customers who have a good project here and there, but overall, it's still quite slow. China is, of course, affected by this trade war as well. We can see that slightly more cautious decision-making, but still the development in China was positive, and we were able to increase the number of hours sold to the Chinese market. As said earlier as well, as mentioned in the previous quarters, the demand for us is mainly driven by the trend of buying more services and purchasing more services rather than employing own people. This kind of development in this trend is helping our demand. If we look at then the numbers overall, revenue was dropping by 1.3%. This was a shorter quarter than last year by two days, and that had an impact as well, but still a declining, small decline in this kind of prevailing market.
EBITDA was at 6.6%. EBIT was at 4.8% and EPS at EUR 0.10 per share. If we look at then the revenue and personnel split, revenue by service areas or Engineering Solutions at 56% increasing due to the Novacon Powertrain acquisition that we completed in January. Software and Embedded Solutions 23% and Technical Communication Solutions 20%. Revenue by area, Finland 46%, Scandinavia 27%, Central Europe 24%, and China 3%, and also the Novacon Powertrain acquisition visible here in this split. Personnel, Finland 48%, Scandinavia 18%, Central Europe 24%, and China 10%. A similar picture there. If we then look at the revenue by customer segment, automotive is still growing for us and almost catching up to energy, which is the largest segment for us today. The traditionally large segments, industrial machinery, forest industry, metal, and mining are still continuing to drop.
Aerospace and defense at 7%, increasing clearly from last year with the high demand from the defense sector. In marine and transport, we see a small increase, but all the others are going down. If we then look at a little bit more in detail the financial development, almost all the sort of key numbers are pointing a little bit downwards, which is, of course, disappointing. The one positive thing here is the share of AI-driven revenue, which is at 4% currently. We don't have a comparison figure from last year, but in the last quarter, it was 2%. Clearly now we have been able to win new cases with customers with our new offering.
We have also been able to convert some of our existing business into AI-driven business models, which is helping us with the margins and our efficiency and providing more value for our customers, which is very important. Revenue was at EUR 91.4 million, so a -1.3% drop, as I said earlier. Short and weak demand situation had an impact on the demand, and that's the revenue. Organic revenue development was -6.2%, which is clearly visible through the weaker demand situation. Revenue from key accounts was dropping less, so that was -1.6%. This is due to the fact that we have some more key accounts in the better performing sectors. Perhaps we can also see that the drop from certain key accounts is not as high as it has been before. It seems that it is stabilizing a little bit with certain key accounts.
This is hopeful and gives a good sort of view, a little bit better view for the future. Still, it is dropping and it's unfortunate. On EBITDA, we had EUR 6 million and corresponding to 6.6% EBITDA. We did have the EUR 0.9 million restructuring costs and other reorganizing costs in the organization. Without these costs, EBITDA would have been at 7.6% for the group, which is not, of course, good, but somewhat reasonable for the given market conditions anyways. High costs still on the sort of restructuring and organizational adaptation measures. EBIT was at EUR 4.4 million and amortizations in Q2 related to acquisitions were at EUR 1.6 million. Of course, EBIT presented at EUR 4.8 million, which is disappointing. EPS, of course, as well impacted by the lower profitability, so EUR 0.10 per share compared to EUR 0.13 last year.
Operating cash flow at EUR 6.9 million, still fairly okay, but the one-offs or the non-recurring costs that we incurred during the quarter had an impact here. There is fluctuation between the different quarters, but still fairly solid cash flow given the weak situation in the market. Personnel at the end of the period stood at 3,870, a slight decline compared to last year, and basically 0.8% less. In Finland, we have the temporary layoff possibility, so there were 121 temporary layoffs compared to 111 or none last year. There's also a slight drop throughout the previous quarter in the temporary layoff employees, but also there is a fairly high attrition with the sort of prolonged temporary layoffs, and this also creates a slightly higher cost when people are leaving after a longer temporary layoff period. That had an impact on the one-offs as well.
On the income statement, there are no major changes. Of course, the impacts of the profitability and revenue development are visible. On the balance sheet, Novacon has been added, but no other major changes in the balance sheet either. If we then move on to the service areas a little bit more in detail, engineering solutions, the overall picture remains the same. A weaker demand situation, less investments from our customers, and a lower number of delivery projects had an impact on our demand, which then had an impact on the operational efficiency and revenue development. Novacon Powertrain acquisition, of course, increased the revenue, and we ended up with a + 3.9% revenue development, but organically, of course, then a lower number. The adaptation measures that we took in this service area were quite wide.
We had to do certain things in many countries and in different areas of the organization, so there is no one single source for it. The total amount amounted to EUR 0.5 million, which is fairly high. Without that, the EBITDA percent would have been 8.5%, so slightly better performance compared to the previous quarters, where our previous restructuring efforts and our turnaround efforts are starting to show a little bit. Given the weak market, this is the level of which we were now able to reach. In the Software and Embedded Solutions, we saw also a weaker market situation, and here especially in the investment side, in the R&D investments of our customers, we saw quite many postponements and even cancellations of projects that had already been agreed on, and the demand situation remains on a very moderate level.
We also had restructuring here, so EUR 0.1 million in Q2, and without this, the service area profitability would have been 8.1%. We also made a change here in the leadership of the service area, so Harri Saikkonen has been appointed the new SVP for Software and Embedded Solutions service area. He will start in the first of September, and with this change, we would like to have a higher or accelerate the development of the service area and accelerate the pace of change that we need to see in the service area to be successful in the future. Revenue was down by 13.9% in the weak market condition, and EBITDA was at 7.5% and then 8.1% adjusting with the one-off, so decent, but we can do better. Technical Communication Solutions and data solutions was performing, operating profit-wise, EBITDA-wise still on a weak level.
There is clearly weaker demand due to the fact that there are less project deliveries from our customers, and we start to suffer a little bit from the volume drop, but then we are winning market share in certain countries, and especially with our AI-driven service solutions, we are making good ground. We have been mainly driven by this service area. We have been able to increase the AI-driven revenue to 4%, and here we have had, in most of our new cases, we have the AI components very visible in the market. This makes us highly competitive in the market, and we can bring a lot more value to our customers. This development in the service area is encouraging, and we are looking forward to that helping us to improve the profitability and also growth going forward.
In the weak market, we still had some non-recurring costs at about EUR 1.1 million, and without those, we would have been at 5.3%, which is not an acceptable level, not something we want to see, and we have work to do. Still, with the AI-driven revenue development, we feel confident that in the coming quarters and moving forward with the strategy implementation, we will be in a position to improve on that. If we then look at, to end with, look at a little bit of strategy, just to remind you of our ambition levels and what we want to do. Our transformation with the AI strategy is driven by the AI technology empowered service solutions, and now we are starting to clearly see also progress. Small numbers, early days, but still progress is clearly visible.
If we look at the sort of financial and strategic targets, so now AI-driven solutions share of revenue, where our target in the end of 2027 is 35%, we are now at 4%, so a small number, but starting to move, and that's a good sign and encouraging to see. With this development, once we're able to move forward, we anticipate that with that, we are also able to improve on our managed services share of revenue, which is currently at 6%, and that should also help in our growth. Moving towards the target that we have, we expect that to be visible in the profit once our converted business starts to exceed or the higher margins of the converted business start to exceed the investment levels that we have to put in to build the new demand and train our people to utilize the new demand.
Overall, I would say that we are now moving. The market is still weak, but we are now moving with the strategy, and this should help our business development going forward. In the prevailing market, of course, we did issue the profit warning, and now the new range that we have given for our revenue is EUR 365 million- EUR 385 million, where it was a drop. We dropped the top from EUR 395 million to EUR 385 million. The operating profit range is EUR 19 million- EUR 24 million, and here we clearly see the uncertainty, the development of the demand affecting our operational efficiency, and thus the operating profit. The range is fairly high given the fact that we only have half a year left, but it's really, really difficult to estimate what will happen now with the trade war. How will that impact our customers' decision-making?
When will these decisions take impact on demand, et cetera? The uncertainty is high, especially now driven by the trade war and the development there. We, of course, will continue to work with our strategy despite the market conditions, and if we're able to move forward, as we now saw in Q2, we do believe that we have a good potential to move forward with our business and improve on our numbers as well. That's the presentation part. Now I'll be open for any questions that you may have.
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 Jortikka from Evli . Please go ahead.
Good afternoon, it is Atte from Evli Research. Thank you for taking my questions. First, on the market, looking at some of your public customers, it seems that their order flow is quite strong. How do you see that momentum will translate into your demand going forward?
It is very much varying between different customers. There are certain customers where there is quite strong order intake. There are some customers where there are one single large orders that are pulling the numbers up. There are quite many customers where the sort of service business order intake is increasing quite well. We do not see that much, these kind of new projects, large projects, which would bring more demand to us from our customer order perspective. Of course, the R&D investments and so on, if our customers' business starts to move forward, if there will be clarity on the sort of rules of the game, then we, of course, hope that the other investments will also move forward and there could be a better situation. At the moment, it is hard to tell.
There are certain customers where we see the demand situation is improving and will have an impact, but there are still customers where the demand situation is extremely low and there is very little in new investments. It is really hard to say how it will move forward. We certainly hope it will move forward. How exactly and when? That is the million-dollar question at the moment.
Yes, got it. On the market share, I think you said something about winning market share, at least in Technical Communication Solutions, but obviously the market is challenging. How did you see your performance against the market in Q2?
I think that with the new offering that we have now been developing, especially in the Technical Communication Solutions area, we see that there is clear progress. We have developed a very good AI offering into this service area in particular, others as well, but there we are the furthest. We see that that's highly attractive for our customers, easy to take into use, and bringing huge benefits. We do believe that we have won market share and we do believe that we will continue to do that with our new offering. This is, of course, our guess, but we have won nice cases. We have a strong pipeline of cases. Once the demand starts to improve, this will contribute to our revenue development. Especially in the sort of Technical Communication Solutions service area, that is very much volume-driven, delivery volume-driven from our customers.
Until those move up, it's difficult to say that there would be a clear increase. Winning market share is, of course, good. Once the deliveries really start, we do believe that we are in a stronger position.
Yes, thank you. On the automotive sector, you made the Novacon acquisition in January, and I think in Q1, you mentioned that you're doing relatively well in the industry. Now I think I saw that you put into the report that the demand is weakening. Is it just related to the uncertainty, or was there something else in that industry?
I think that some of our customers are cautious at the moment with the very clear uncertainty of the tariffs. It's been moving from 1% to another on a daily basis, basically for a period of time. Now there seems to be some kind of clarity, but is that firm? No one knows. It has been difficult for our customers, and they have been dropping their investment levels a little bit. With the example of Novacon, yes, we did see some kind of slowing down on certain activities, but on some other activities, we also saw more potential. We feel that the investments will continue. There might be a slight dip, has been a slight dip with certain customers, but overall, the electrification and the new development in that area continues, and we do see opportunities going forward. In Novacon, we've now completed the integration.
It's going according to our expectations. We feel that, yes, there might be some bumps on the road now in the near term, but for the longer term, we see that there's a good possibility to move forward.
Okay. On the project cancellations, you mentioned cancellations of projects that were already agreed upon. To what extent did you see these cancellations compared to just suspensions or postponements of projects?
Not that many cancellations. Some, yes, that this will be canceled, which will not be done, but lots of postponements. Quite many customers were saying that now it's completely impossible. We don't know. Let's see after summary if the situation has clarified. This is the majority of it, but of course, there were also cancellations that customers are saving money to be more profitable and so on, and there were clear cancellations as well, especially in the software side, but also in some other areas. This is unfortunately how it is at the moment in the market.
I think now that the trade uncertainty has at least somewhat decreased, has any of these previously delayed projects been already started or talks started about them?
It is very early to say. Many of our customers are still on vacation and just now returning, and we are starting to talk to them and meet with them. There are, of course, some projects that have been decided that, okay, this will now start, but it's too early to tell. We need to go a couple of weeks further so that people have really truly returned from vacation and they have assessed the situation and taken new decisions. We don't know yet exactly how this will play out. We're hopeful, but we don't know exactly how this will play out. That's why we have a long or a wide range for the H2 as well.
Yeah, understood. Lastly from me, you said that the temporary layoffs in Finland have had an impact on the employee turnover. Do you see that you have lost any talent to your competitors?
I don't know competitors. Maybe some, yes. Of course, there's always a little bit of movement, but there have been people moving to other industries, even changing their occupation entirely, and that's unfortunate. It's understandable due to the prolonging temporary layoffs; it's understandable, very unfortunate. I don't think that a majority of the attrition is going to competitors, because for them, the market situation is equally difficult.
Yes, thank you. That was all for me.
Thanks.
The next question comes from Emil Immonen from DNB Carnegie. Please go ahead.
Hi, Juha. Thanks for taking my questions. Maybe I'd like to start on the new guidance of EUR 365 million at the lower end. What makes you confident that you can reach the guidance? Because when I look at the figures, it seems that organically the sales is declining faster now in Q2, especially in Software and Embedded Solutions. We need quite a clear trend change for you to actually reach the lower end of the guidance if I calculate correctly.
Yeah, that is correct. Of course, there is a pressure and possibility that we don't reach that, but we are now coming into hopefully a slightly better sort of clarity on the market. Much longer quarters are coming ahead of us, and we also had a quite difficult time last year, especially Q3 and also in Q4. The sort of comparison quarters are fairly weak. With the restructuring measures that we've done, with the new things that we have acquired, with the new offering, we do believe that we have a good possibility to be clearly within the range.
Okay, thanks for that. I'd actually like to jump to the AI revenue. Could you first start with describing a little bit more in detail what do the AI-driven business models exactly mean and how do they differ from previous business models?
With the AI-driven solutions, we mean a service where we have, as in Etteplan, developed our own AI component that has a clear impact on the delivery for the customer, thus creating a totally new kind of value for the customer. It does not mean that all the revenue comes from AI-related services, but it means that the services that are rendered towards the customer have an AI component which significantly improves the value creation that Etteplan is providing. That is what it means. We have been working with it quite a lot. We have been investing money and time into it for quite a while now, and now the development has started to also finally show in the numbers. Especially in the Technical Communication Solutions service area, we have been able to really move forward. There's a highly competitive offering that we have developed.
We are more efficient with the new offering and new tools, and these are Etteplan's proprietary tools that we are using, which make us more competitive in the market. That helps us to win market share and move forward. That's been highly appreciated by our customers and also giving us good opportunities going forward. Part of the business is winning new customers, new cases, new outsourcings. Part of the business of this 4% is also converting our existing businesses into AI-driven models. It's clearly visible that with these new solutions that we've developed, we can provide more value for the customer, and with that, we do expect that we will be able to improve on our business as well.
That's clear, but could you just specify if you convert the customer from one service to an AI-driven service, does that mean more revenue for you, or does it mean higher profitability, or what does it mean economically speaking?
If we look at converting an existing business, of course, depending on what kind of a customer, if we're able to provide higher value, our share of wallet can increase. If it's a fully outsourced service, it may mean that our margins can improve because we have higher value for the customer, but we are more efficient, so our revenue might actually, or the number of people that are used to deliver the services might decrease, so the cost for customer might decrease. In an individual account where we are doing all the services, there are such customers, the revenue might slightly drop and we improve on the margins. We do expect that with this highly competitive offering, we are then able to win market share and get new customers to compensate for the efficiency gain that we have within a certain customer.
That's great. Of the 4%, that's almost double what it was then as a share from Q1. Is that mostly converting existing customers, or is that actually having new customers?
It's a combination of these two. It's converting some of the customers, but it's also new customers. It's a combination of these two.
That's clear. That's all from me. Thank you, Juha.
Thanks.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay, thank you. Yes, it was a difficult quarter for us and we did need to issue a profit warning, which was very, very, very, very disappointing. However, we are now progressing with our strategy. We do feel that the work and investments that we've done in the past one year or even slightly more than that will have a positive impact on our business and we are extremely pleased to see that now finally also in the numbers we are seeing an increase in the AI-driven revenue. That's encouraging and with this kind of continuing on this trend, continuing on this development, we are confident that we will be able to move forward.
We certainly hope that the trade war will somehow get at least there will not be this turbulent environment and we certainly hope that it will help us also with the demand side, but it's too early to tell what is the impact and especially for this year. The uncertainty remains, but with solid strategy execution, we are able to move forward and that's what we are working hard with. Of course, if you have any questions outside this meeting, feel free to contact us at any time, to myself or our CFO, Helena Kukkonen, or our SVP of Marketing and Communications. Thank you very much for tuning in and have a great day.