Welcome to this webcast presentation of Etteplan's Q2 results for 2022. My name is Juha Näkki. I'm the President and CEO for Etteplan, and at the end of the presentation, there will be a Q&A session where you will be able to ask questions to myself and also our CFO, Helena Kukkonen. If I look at a little bit the content, we will start now with the operating environment for Q2, then moving on to the highlights, a little bit more detailed on the financial development and our service areas for the quarter. Then to end the presentation, we'll look how we did against our targets. At the end of the presentation, there will be a Q&A session. If I start with the operating environment.
Of course, there were many things affecting our business and the operating environment. If we look at the demand in general in the quarter, the demand situation remained quite good. We did see fluctuations in demand with some customers, demand was increasing, with some customers decreasing, and this depended quite a lot on which industries the customers were working with and also the customer's own decision how to treat the uncertainty that is prevailing in the market currently. The pandemic continued to have an impact on the market. A little bit, especially in the beginning of the quarter, we did have quite significant amount of sick leaves, which had some impact on our revenue and profit.
At the same time, we also were pleased with the fact that the restrictions in our business related to the pandemic were lifted in most of our countries, which meant that we were also able to invest into our people more than during the pandemic. this increased the cost for the quarter a little bit, and also had some kind of an impact on the profitability. Of course, the war in Ukraine has had an impact on the market and of course, the geopolitical tensions are on a high level. also, the rising inflation as a result of the war is causing uncertainty in the markets and affecting our customers' decision-making and also the market demand in that respect.
Defense industry and green transition-related investments are growing, perhaps due to the situation. Of course, while the costs are rising, the willingness to invest into new projects, R&D and so on, is a little bit impacted in some of our customer industries. In some industries, the going is still very strong. With some industries, there is quite a lot of customer-specific variation. If we look a little bit on the country-level development, so Europe, Finland, Sweden, Denmark, Germany, Netherlands, follow a little bit the same pattern. Uncertainty is increasing. The inflation is affecting certain customer operations and having an impact on the decision-making, but still no major decrease in the demand in Europe.
If we look at China, of course, the shutdown due to the new wave of the pandemic had an impact in the beginning of the quarter. The impact was easing off towards the end of the quarter, and our business was starting to become a little bit more normal also in China. Still some effects from COVID, but overall demand situation was good, and we were able to continue our business pretty much as per normal. If we look at the highlights of Q2, definitely growth was strong and that was the highlight of the quarter. Also, organic growth was almost 10%, very strong, solid performance there.
We also continued to invest into our service offering and our capabilities. We made an acquisition in the quarter for DDCom, and we also made a strategic investment into machine learning technology, which I will talk a little bit about later on. We also, after right after the review period, we were able to move past one landmark of 4,000 employees, and this happened during July. Our employee number 4,000 is actually in Sweden. This was a very good positive landmark that we reached, and then hope to continue on our growth going forward.
On the negative side, the uncertainty caused by the war in Ukraine postponed start of certain development projects and had a little bit of an impact on our operational efficiency in some of our units. Due to this and increased cost levels and other factors, our profitability fell slightly short of our target level. Was at 9.1%, so slightly off the 10% mark that we are used to. If we look at the revenue development, so growth was 19%, organic growth at 9.7%, so very solid growth still. All of our service areas were growing with the highest growth in TechDoc, the second highest in software and embedded and engineering solutions at 10% growth.
If we look at the operating profit, EBITA, slight drop compared to the growth rate, 5% increase, a strong performance in Engineering Solutions, but then slightly declining profitability in software and embedded solutions and in TechDoc, or Technical Communication Solutions as well. If we look at the development of revenue and personnel by service area, engineering solutions was at 52%, software and embedded solutions at 28%, and Technical Communication Solutions at 20% of our revenues. Country-wise, Finland 52%, Scandinavia 25%, Central Europe 19%, and China 4% of the personnel or revenue, sorry. On the personnel side, 51% in Finland, 19% in Scandinavia, Central Europe 20%, and China 10%.
Slightly different numbers compared to last year due to the acquisitions that we have completed during the review and the comparison period. If we look at the development on the customer segments, this is a little bit affected by the add-ons, the acquisitions that we have made. In that respect, there are changes to the customer segments. I would say that the green transition-related investments were driving demand in the automotive and transportation area, which was growing, and also in the general industry where we have 18%. The other changes in this chart are more related to our mix, or let's say the different customer mix with the added companies that we have acquired.
If we look at the financial guidance, we keep our financial guidance intact. We still expect the revenue to be between EUR 340 million and EUR 370 million, and the operating profit EBIT to be between EUR 28 million and EUR 32 million, intact. On the market outlook, I guess it is pretty much the same. Of course, the war has continued and now the sort of inflation which has been rising is starting to cause some delays in our customers' decision-making and projects. Still for this year, we see that our customers' orders received has developed fairly positively on most of our key customers.
With that, we do expect this year to remain with a fairly good demand level throughout the rest of the year. If we then go more in detail into the financial development. Revenue growth at 18.9%, all the other key figures growing as well. Operating profit EBITA not as strong growth, 4.6%, and EBIT only 1.3%, so slightly disappointing there. Cash flow was negatively developing compared to last year, but due to growth there was quite a lot of capital tied into the business. Our investments and increased costs were affecting this a little bit.
If we look at revenue development, growth at 18.9%, organic growth of 9.7%, which was a very solid performance for the quarter. Acquisitions, of course, had an impact on the growth. We had impact from the sickness-related absences. There was more COVID-related sicknesses, especially in the beginning of the quarter. This had an impact. We did see more vacations during this quarter compared to last year. This had a little bit of an impact on our revenue development. Also, of course, the slightly weakening demand for certain customer industries and certain investment delays having an impact on the revenue accumulation.
Revenue from key accounts was increasing by 6.9% in Q2. The acquisitions affecting the numbers in this quarter and also the comparison periods are listed here. During the quarter, we acquired DDCom in the Netherlands, which strengthened our technical documentation offering, especially in the individualization area, 15 persons, and will be in our numbers since June 1st.
Then also after, right after the comparison or the review period, we made a strategic investment into a Swedish startup company, Ekkono, which is a machine learning technology company with an edge computing solution, which we believe is a very healthy addition to our offering in the digitalization area. We will use this technology as an integral part of certain parts of our offering and service solutions going forward. We see this collaboration as a good potential for us to grow and really bring in new kind of value for our customers.
EBITA was at EUR 8.1 million, 9.1% of the revenues, and slightly disappointing, of course, dropping from our 10% target level. Profitability was affected by the cost increases. Now that we were finally able to get our people together, travel to, for example, the acquired companies, meet with our people, and also organize trainings, et cetera. We made that investment for our personnel. It was important and needed. During the pandemic, we had built up a sort of backlog for this kind of activity. This was now relieved a little bit.
Now going forward, we, of course, the cost level will be on this kind of normalized new hybrid work model, but we don't expect such high costs to occur in the coming quarters as they were occurring in this quarter. There was about EUR 1 million more cost for the personnel and travel in this quarter compared to last year. Of course, this kind of trend should not continue. Also, there was some more holidays, sickness-related absences, and some organizational restructuring in the software business, which caused the slight dip in the profitability. On EBIT, it was EUR 6.8 million or 7.6%, and amortizations related to acquisitions was also increasing to EUR 1.3 million.
Earnings per share was at EUR 0.22 for the quarter and EUR 0.46 for the H1. Cash flow was EUR 4.4 million compared to EUR 12.4 million last year, so a clear drop. This is mainly driven by the fact that we are growing and our business is tying a little bit more capital and the trade receivables were increasing and also some of our acquired companies are tying more capital, which we are currently working on. Of course, the cost levels had a little bit of an impact here as well. On the personnel side, we were at 3,993 employees at the end of the quarter, out of which 1,944 were outside Finland.
We are quite close to reaching our 50% target on the revenues as well. We were very pleased that right after the review period, we were able to reach and exceed the 4,000-person mark, which has been some kind of a target for us internally. We were happy that we were able to go over that number, and we will continue growing also going forward. If we look a little bit then in detail on the service areas. We start with Engineering Solutions, so very solid performance, revenue growing by 10% and an EBITA of 10.6%, which was a great performance from the unit.
The demand here was strong, especially driven by the engineer-to-order related to customer projects and customers' delivery projects. Here we really had strong operational efficiency as well, which was then helping the result level. There was a change in one of our customer contracts which had a slight positive impact. On the negative side, of course, the increased cost levels, sick leaves, et cetera, which I explained earlier, had a slight impact on this unit as well. In the Software and Embedded Solutions, the revenue growth was 26.5%, so still healthy levels, but the profitability was disappointing. It was 7.4% on EBITA.
We did see some effects from our customers delaying mainly their R&D projects, not taking decisions to start the projects, and that did have an impact on our operational efficiency. we also did have certain issues with some of the business units, and we have taken corrective measures. we have done a little bit of restructuring in this unit. We've also done changes in the management, and we expect that with these changes, we will be able to correct the situation in the coming quarters.
Of course, here as well, the non-recurring costs related to sick leaves and training, et cetera, travel expenses did have an impact on the profitability as well, as it did in all the other businesses. In technical documentation, very good growth of 36.4%, driven of course by acquisitions as well. In the EBITA, slightly disappointing 8.7%. Mainly, the profitability here was the effects of demand fluctuations between different units and then slightly weaker profitability in some of our Central European operations, Cognitas, which we expected, and also in some other units there.
Overall, still, solid development, and we see positive opportunities here in the service area going forward. Again, some impacts from the sick leaves and travel and other personnel related costs. That had an impact on the profitability as well. If we then move on to our targets and how we did against the target setting, we have continued growth and the current run rate with the rolling 12 months is EUR 331 million. The target is EUR 500 million, so we are moving towards our target quarter by quarter. Revenue outside Finland was at 48%, so we are closing in on our 50% target fairly rapidly.
In the managed services share of revenue, we are at 65% for the first half year, compared to our 75% target. Moving forward in this area as well. Of course, we would hope to accelerate the pace in this area. On the profitability, EBITA now falling slightly behind our 10% target, so 9.6% for the first half year. Here we have a little bit of work to do, but we have proven in the past that we are able to reach the 10%. We are working on it to be able to be on these levels going forward. At this point in time, I would like to move to the Q&A session.
Operator, please.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you find its answer before it's your turn to speak, you can dial zero two to cancel. So once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Pasi Väisänen of Nordea. Please go ahead. Your line is open.
Great. Thanks. This is Pasi from Nordea. Well, I do have even four questions, so maybe it makes sense to take those one by one. If I start with the first one regarding utilization ratios. I do know that you don't actually give a figure for utilization ratios, but could you somehow kind of highlight or elaborate what were the utilization ratios in the second quarter compared to the ordinary level and what's going to be the expectations for the utilization ratios for the remaining part of this year? Thanks.
Well, there was a slight difference in the utilization ratios between different businesses. In the Engineering Solutions service area, the utilization ratios continued to be our normal level and are very healthy. This was mainly driven by the fact that there was still a lot of demand and good demand from especially the order to delivery type of work for our customers, and still our customers are having quite good order levels, so we expect this to continue. Our management in this area was very solid.
In the other two service areas, the fluctuations in demand, meaning that, in certain customers where we have assignments, the demand was dropping slightly, and then we needed to move our people and the projects into other customers where the demand was increasing. These kind of changes and fluctuations in demand do have a slight impact in the utilization ratio. That is visible in the TechDoc area and also in the Software and Embedded service area. Also in the Software and Embedded service area, we did see some R&D projects being postponed and some being delayed. That has an impact, a slight impact on the utilization ratio.
I would say that in these two service areas, the fluctuations will continue. We will do our best to manage that in the best possible way. We expect to be able to improve on the utilizations, especially in the software and embedded area where we clearly had issues in certain units. We have taken measures, we have done actions, and we will try to keep the utilization rates as high as possible.
Okay, great. Thanks. I hear you. Well, secondly, when looking at your biggest customers, well, I would like to know that, what's the main driver you are actually looking at inside your customer in terms of kind of a medium-term demand outlook? Is it the kind of order book or order intake or book-to-bill ratio or even these R&D investments or maybe even kind of sector-specific macroeconomic indicators then? What I'm kind of trying to find out is that, would it be even possible to see a kind of a negative organic growth ratios in the future if these order books are not going to hold up? Well, thanks.
Well, of course, we are, as everybody else, is subject to the market demand. If the market demand starts to go very much down, then we will need to work extremely hard to keep up organic growth. I think our offering is very strong. We are continuously building up new solutions, which will help us to win market share. The investment in Ekkono, just as an example, is one of them. We, of course, try to keep our organic growth up. What we're looking at in our customers is, of course, the order book development, which gives some kind of a view on the overall economic situation.
We are quite extensively and intensively discussing with our customers on what is driving their own activity and what kind of investments, and especially R&D investments and other kind of operative investments they are planning on making. There is a clear trend that this kind of cost reductions are being worked on, green transition-related investments are strong, and these kinds of things we are looking at in our customers. We are trying to balance our efforts towards the customers that are working in these areas and really try to increase the value of our offering towards these segments so that we can really maintain a strong position within our customers and even grow further when we see opportunities.
I mean, even in a declining market or a stable market, there are still opportunities because our customers are also having to rethink how they are operating and what do they do themselves, where do they utilize partners. For example, outsourcing discussions are part of this equation in a weakening market. I think our offering in that area in particular is exceptionally strong, and we have a great value that we can add to our customers in this respect. With these measures, we hope to keep up our work and continue growing also organically.
Yeah, I see. Then thirdly, regarding the cash flow, I mean, it was obviously quite weak in the second quarter. So what are the main reasons here? Because I do assume that, like inventories or working capital should not be a problem for a company like Etteplan, and especially what will happen to the cash flow in the third quarter or fourth quarter of this year. Thanks.
Well, this quarter, of course, was a little bit shorter than the previous one, and we also had more vacation in this quarter. These had a little bit of impact on the cash flow, but also strong organic growth is tying capital. There is more trade receivables and there is more capital tied into the company when we are growing like this. That is the main reason behind the weaker cash flow here. We expect the cash flow to normalize and reflect our EBITA performance going forward. I would say that there is no major issue here.
We've also seen some customers postponing their payments a little bit, but we do not have any write-offs or anything else like this related to bad debt. We are not that worried about the situation.
Okay. I hear you. Lastly, regarding the kind of acquisitions, so in the case we are going to see kind of a weaker market environment or the kind of a decline in the demand, are you still going to kind of continue with the current speed of acquisitions we have seen recently going forward to 2023 next year?
Well, of course. I mean, this is a consolidating industry and we will continue, but at the same time, we need to be very careful with the acquisition so that we only make deals that will create shareholder value immediately once we are making the acquisition. In order for us to reach our targets, we do need to continue, and the market is consolidating, so we will continue to be one of the players consolidating the market and look for opportunities which will really benefit the company and especially benefit our customers in terms of offering development, market position development, et cetera. Yes, we will continue, but we will need to be, of course, very cautious in this respect.
I think that the prevailing market and the situation is also affecting the acquisition related activities with the expected valuations, et cetera, and so on. I think there still will be opportunities, but we need to careful each of them very carefully as we have always done. We will continue in that respect.
Okay. That's understood. Thanks. Maybe that was all from my side. Okay. Thanks.
Thanks.
Thank you. Our next question comes from the line of Jaakko Saarukoti of Evli. Please go ahead. Your line is open.
Hi, this is Jaakko from Evli. Hopefully you can hear me.
Yes.
Good. I just want a question. You noted that the kind of increase in personnel event-related costs and travel were EUR 1 million in this quarter. I'm kind of assuming that that's somehow roughly split based on employees. Just looking at Engineering Solutions, that would be roughly EUR 500,000 . Kind of just excluding or including this impact, the kind of performance would have been exceptionally good, like, over 1% EBITA margins both quarter-on-quarter and year-on-year. Are you seeing kind of a level shift in profitability, or is this kind of exceptional for this quarter?
I mean, of course there is some if we compare to last year, which was a full COVID quarter, so there is some level shift, but not to this extent that we saw in this quarter. I wouldn't draw the conclusion of this being split equally between the service areas because the fact is that for example acquisitions we have made more into the other service areas and of course we needed to visit the companies that we have acquired. We needed to organize events, et cetera. It's not equally distributed over all the service areas. That being said, the operating efficiency and profitability and operations in the Engineering Solutions area was really good in this particular quarter.
Okay. That answers my question. Thank you.
Thanks.
Thank you. We currently have one further person in the queue. Just as a reminder to participants, if you do wish to ask a question, please dial zero one on your telephone keypads now. The next person is Joakim of Inderes. Please go ahead. Your line is open.
Hello, this is Joakim from Inderes. I also have questions about profitability and the drivers behind it. I'm just trying to understand there were plenty of moving parts. If you are really simplifying things, are you able to raise customer prices compared to the salary increase that you must have in your own expenses? That's the first question.
I think we have been quite good in transferring the cost increases into our prices. The same cost increases are taking place at our customer site as well, of course. Therefore, they are understandable, and in this respect, we are able to transfer this quite well into the prices. Of course, there is pressure on salaries, et cetera, so we need to do well in our negotiations and also with our MSI business where the models for invoicing and the, let's say, revenue generation models are slightly different.
There we need to continue to perform well and with that and with the increased value add of our new type of offering, we are looking to actually expand the margins and improve on the margins. That's what we are looking for.
All right. Fair enough. I will continue with the same line. I'm wondering about the market situation probably getting tougher in the second half of the year. Do you see increasing pressures that the clients are asking for lower prices? Do you see more competitive pressure? There's some competitor that is driving down the prices because they don't have the demand anymore.
Currently not. I'm sure if the market will continue to go down, then some competitors will act in this way. Of course, there will be pressure from the customers as well. Then we simply need to be able to increase the value add that we are providing for our customer, and then continue with the right kind of margin levels. Definitely, the pressure will increase if the market starts to go down. Then we just need to work very diligently and play with our strengths, with our strong offering, with the new value-adding solutions that we have to maintain the margins.
Previously, we have been able to do that, and I think that we should be able to do that also going forward.
All right. Finally, about the acquisitions and the profitability, could you comment on the effect of acquisitions on profitability, especially on the two business areas where it was a slightly worse situation than before.
Well, there were in Cognitas in particular, we have commented in our earlier reports and also now that the profitability was expected to be slightly weaker in the beginning, which it has been, and there we expect the situation to improve. On the other acquisitions that we have made, there have been certain cost-related items in some of them which have taken place now in the second quarter. In general, I would say that the profitability of the acquired businesses is similar to Etteplan's profitability, and we expect to actually have higher profitability in some of the businesses we have acquired. They are sort of neutral in this respect, or positive.
All right. Understood. Finally, I will ask one question that is not related to profitability. It's about the bigger picture. It's about China and the geopolitical, well, let's say tensions that have risen again. Do you see China as attractive as before when it comes to long-term investment? Or have you possibly changed your mind about your investments there and, is it still kind of a key part of your future?
Well, currently, we have made no changes, but of course, we need to evaluate the position of China within our business. Currently, it's still strong, and we have been after the COVID-related shutdowns and lockdowns in China, we have had a strong business. Our demand currently is more driven in China by the local or let's say Western companies operating in China and also now Chinese companies. The local demand situation has been good, and we have been able to move forward. Of course, the political risk in China is increasing and at least the tension is increasing. This is something that we carefully need to monitor and consider when going forward.
Should there be an escalation towards China from the Western world, of course, this will put our business under pressure, and then we need to reevaluate our focus. Currently, we are monitoring the situation and carefully following what is happening. Right now, especially the local business and the local drivers for growing the business are still strong, so we are continuing. We need to, as everybody else operating in China needs to follow the situation carefully and then draw conclusions once the situation develops.
All right. Many thanks.
Thank you.
Thank you. As there are no further questions from the phones at this time, I'll hand the floor back to our speakers.
Okay. Thank you very much. Yeah, just to conclude, of course, we are living in a little bit strange world after COVID, the war and all kinds of tensions on the geopolitical scene. There is, of course, uncertainties, and the uncertainties have increased. But nonetheless, there are still opportunities created through all of this. This is what we're trying to focus on, and we will try to continue on our growth path and playing with our strengths on our offering, combining our offering into service solutions, providing healthy value for our customers, helping them to improve their business in this kind of prevailing market conditions. This will help us move forward and will help us also move towards our target.
We are fairly confident that we will be able to continue on a good level throughout this year, and we will be able to tackle whatever is thrown at us going forward as well. Thank you very much for joining. If you have any questions to us, please feel free to contact our SVP for Marketing and Communications, Outi Torniainen, our CFO, Helena Kukkonen, or myself at any time. Thank you very much for joining.