Welcome to this webcast presentation of Etteplan Oyj's Q3 results for 2023. My name is Juha Näkki, and I will be joined by our CFO, Helena Kukkonen, for the Q&A session at the end of the presentation. The contents of the presentation will be as per the previous webcasts. So we'll start with the operating environment, look at a little bit the highlights of the quarter, our financial development, a little bit on the service areas, look a little bit on how we did against our targets, and then at the end of the session, there will be the Q&A. But if I begin with the operating environment, so the market situation continues to be challenging.
Of course, the war in Ukraine is still continuing and holding up the geopolitical tensions. And now, recently, on top of that, the conflict in the Middle East has further elevated the tensions and increased uncertainty in the markets. So far, we have not seen major impacts of this conflict into the market, but the tension is rising, of course, and uncertainty is definitely there. And of course, uncertainty, the continued inflation and the high interest rates are having an impact on our customers' willingness to invest. The decision-making from our customers is taking quite a lot of time. Our customers are cautious in deciding when to take investments.
We see a lot of projects, we see a lot of opportunities out in the market, but the decision-making from our customers is taking quite a lot of time in most of our customers' industries. There are, however, still industries where the demand situation is strong. In the green transition, investments are strong, and of course, in the defense sector, there is heavy investment, and this is something that is then helping the demand situation for us a little bit. We are trying to focus our efforts into these areas more. If we look at the different markets or market areas from our perspective: so in Europe, the situation is a little bit the same in all countries.
Our customers' orders received have declined in the second quarter and towards the third quarter. For this reason, the delivery volumes that our customers are delivering in Europe are declining, and this has an impact on the delivery-related engineering and the demand situation as such. Of course, still the willingness or the decision making and the slowness in decision making due to inflation, interest rates, et cetera, continues to have a negative impact on the markets in Europe. Also, China is in a difficult situation. The demand situation is actually quite weak, and the increased geopolitical tensions, and of course, the low level of Western investment and international trade from China is creating issues for us in the market.
And in China, we are more and more focusing on the business, the China-China business, and customer segments that are strong in that particular area. And in this challenging market, we did do certain very good things. If we start on the positive things, so our cash flow was at a good level for the third quarter. This was a little bit supported by the downturn in the market and not tying that much capital into the growth. But still, the cash flow was good and helping our financial position. Also, our Software and Embedded Solutions service area improved in its profitability.
The market continued to be challenging, but the efforts that we have taken and the measures that we have taken to improve the profitability are clearly working. We have had a better quarter now since we had two slightly slower quarters in the beginning of the year. Also, we saw in this service area in particular, we did see some increased activity in the product development area, and there was some more activity and some more projects starting, which was encouraging for the market going forward. Also, we did see still some investment projects starting, so this was, of course, positive for the market development. We did continue our acquisitions during the quarter.
So we acquired a German company, LAE Engineering, to support our engineering solutions business, in particular in automation in Germany. And we acquired a High Vision Engineering in Sweden to support our transportation and car industry-related services. On the negative side, of course, the declining delivery volumes from our customers had a negative impact on demand, which is particularly visible in our engineering solutions business, but also in our technical communication solutions business. As a result, our technical communication solutions service area did not develop as expected. The demand situation was weak, and the profitability was weak for our standards, and especially Central Europe was problematic for us in the service area.
And also, on the negative note, the growing uncertainty now in the market is making it really difficult to predict what will happen in the future, how demand will be impacting, and what will happen related to the inflation and also interest rates. But still, we do see opportunities in the market, and this is what we are taking forward. If we look at the revenue and operating profit, so at comparable exchange rates, we were still growing by 2.1%, but if we look at the comparable rates, so, sorry, the exchange rates as such, so we were declining by 0.4%. And on the operating profit side, we were declining by 10.6%.
Slight decline in engineering solutions and also in software, but a big drop in technical communication solutions service area. If we look at the split on the service area, in revenue by service area, e ngineering solutions was at 56%, software and embedded solutions at 24%, technical communication solutions at 20%. Revenue by area, Finland 51%, Scandinavia 24%, Central Europe 22%, clearly growing, and China 3%. Personnel, Finland 50%, Scandinavia 19%, Central Europe 22%, and China 10%.
If we look at the customer split by customer segment, so energy, automotive, transportation, growing industries where the green transition-related investments and electrification, energy efficiency is an impact or has a high impact, is growing, basically. Also, the defense sector is growing for us, even if the percentage is still the same. But we have a lot more projects in this area, and we are confident that the revenues are also starting to pick up going forward. But we have a lot more activity in this area, and there is a lot of opportunity due to the situation in the world. Then there are industries declining. ICT, lifting and hoisting are declining for us, and there is.
Decision-making from our customers is slow in certain areas, and that is having an impact on our business. If we then move on to the financial development, so overall, the trend is a little bit declining, which is not good. Most of the key figures are declining. Personnel was growing towards the end of the review period, and this is due to the acquisitions that we completed. Also, the Managed Services Index is growing 70%, which is highest to date, and this is sort of proving the strength of the managed services business.
It is still holding up, and we are also seeing quite positive, you know, demand for outsourcing solutions, which are, you know, helping our customers to improve their business in the current prevailing uncertain markets. And this is then helping us to grow the MSI business, which is positive for our business overall. But on the other numbers, unfortunately, the direction is a little bit down. If we look at the revenue, so of course, the demand situation was having an impact, and as a result, we have had declining businesses in certain parts of our market, and the growth has stopped.
If we look at the revenue from key accounts, it decreased by 5.8% in Q3, so clearly showing lower levels of demand from these particular accounts. If we look at the profitability, so clearly the weaker demand situation had an impact on our operational efficiency, which was slightly lower, and especially in the technical communication solutions service area, and this had an impact on our profitability. The non-recurring items for this particular quarter were at EUR 0.2 million, and overall, the profitability was at 7.9% for the quarter, and we are at 8.1% for the full year, which is a little bit modest for us, what we are used to.
EBIT was at 6.2% or EUR 5 million for the quarter, and EUR 17.3 million for the full year so far. The amortizations related to acquisitions have been growing slightly for the quarter, so EUR 1.4 million for the quarter, and EUR 4 million so far for year to date. Earnings per share were growing EUR 0.10 compared to -EUR 0.03 last year. Last year was, of course, heavily affected by the negative effects of our Semcon bid last year, so therefore last year, the comparison period was quite weak.
And also, if we look at the earnings per share, so there is an impact from the higher financial expenses that we have with the higher interest rates on our loans to date, and that has a clear impact on the earnings per share this year. Cash flow was positive for the quarter. As I said earlier, less capital was tied into the operation as the growth was not there, and this supported cash flow for the time being. And also, we have been at you know taking different kinds of saving measures to safeguard our profitability and help our cash flow in the business, which has paid off in the prevailing market situation.
So operating cash flow was at EUR 7.1 million for the quarter and EUR 23 million for the year so far. Personnel exceeded 4,000 people again, so helped by the two acquisitions. So these accounted for approximately 110-120 people, and this helped us to climb above 4,000 people again. And 50% of our people were outside Finland, which is according to our strategic targets. If we then look a little bit more in detail into the service area, so in engineering solutions, we still continued growing. Of course, the acquisition of Lae Engineering, which has an impact in this service area, that supported the growth, but still, we had a growing business.
Profitability was coming down slightly compared to the previous quarter, which was or the comparison quarter, which was particularly strong for a Q3. And here, we did have certain in certain projects in Central Europe, in particular in Germany, we had some issues, and also the weak market situation in China had an impact on this service area. However, even if the demand, especially in the customer project or customer delivery project-related engineering, has started to come down, we have taken measures, and we have been able to keep the operational efficiency on a good level in the service area, and this has supported the profitability.
Also, we have won during the quarter we have won several outsourcing deals, and also in the previous quarters we have won certain outsourcing deals, which is helping our business situation and of course proving as well the strength of our offering even in weaker market conditions. If we then move on to the software and embedded solutions side, so here the revenue was dropping by 12.5%. The market conditions have been difficult in the first half of the year and still continue to be difficult. But now with the measures that we have taken to improve our operational efficiency and also restructure the organization, we have been able to improve the profitability clearly to above 10% levels, which was encouraging.
We have also seen a little bit better activity in the product development, related activities, and there has been a little bit more project starting, which is of course encouraging. But still, the market situation remains challenging, and we will need to see how this continues, especially now with the uncertainty in the markets and the world increasing. But still, this is a positive sign and a clear sign of our actions clearly working for the business, as we were able to improve the profitability above the 10% mark. In the technical communication solution side, we had issues with the demand.
Our customers' weaker orders or weaker deliveries were impacting the demand situation, and especially in Central Europe, where we have more consumer-related, direct consumer-related customers, we had a fairly difficult market situation, and thus, the operational efficiency was weak. In Finland and Sweden, we have been able to manage the situation quite well, but in Central Europe, we have had a more difficult situation. And in Central Europe, and in particular in the Netherlands, we have also had certain issues with sickness-related absences, which has not really helped the profitability situation either. We have taken corrective measures, and we see opportunities. We are developing AI-related related offering in this service area, and we see a lot of opportunities going forward.
But right now, the market situation is difficult, and we need to implement measures to correct the operational efficiency of the business and then continue driving forward. Then after all this, the financial guidance, we did take the financial guidance down during the quarter. And currently, the estimated revenue is between EUR 355 million and EUR 370 million. And the operating profit EUR 26 million-EUR 28.5 million. For this report, we are keeping the lowered guidance intact. The market situation, of course, continues to be challenging, and the new conflict in the Middle East is of course increasing uncertainty.
But we still believe that working and focusing more on the customer industries where we have strong demand, being energy efficiency-related investments, energy in general, demand in defense industry, et cetera. So focusing into these areas, we do believe that the overall demand for us is still on a moderate level, and we do believe that we will be able to reach the guidance that we have given. Looking at the targets that we have, EUR 500 million, of course, is still the target. Seems quite difficult to reach at this point in time. When the target was set, we didn't know of COVID, we didn't know of the war in Ukraine, we didn't know of the conflict in the Middle East.
So of course, this is a little bit tough for the moment, but we still haven't given up on it. It will require a large acquisition, but we are still seeing possibilities, and we will see how it goes. If we look at the revenue outside Finland, we are currently at 49%, and for the third quarter, we were first time above 50%, so here we are progressing according to our targets. And also, the managed services share of revenue is currently at 68% and 70% for the quarter, so we are progressing into the right direction. And I do believe that currently, in the current uncertain market situation, our managed services business is proving its value as more sustainable demand is there.
Of course, still difficult, even in this area. On operating profit, EBITA, we are this year falling behind a little bit, so now currently at 8.1%. At this point in time, I would like to open the session for questions that you may have.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Atte Pitkäjärvi from Evli. Please go ahead.
Hey, this is Atte Pitkäjärvi from Evli. I was just wondering that we see now the organic growth declining in Q3. It's flat year to date. How would you describe the development of your market share during 2023 and Q3?
Well, I would say that the our market share development is actually positive. There has been a drop in demand. We see clearly lower level of deliveries from our customers, so I believe that with our outsourcing solutions and with the sort of concentrating the services more towards us, I actually believe that our market share has slightly increased, not decreased. But this is, of course, a guess, and I cannot verify that. But we do see that there is a clear decline in the market, and thus, our revenue has stopped growing.
Okay, thanks. Then another one on you saw signs of recovery in product development, towards the end of the review period. Did you secure any major deals like you did, at the end of Q2?
We have had a sort of a constant order flow coming in, and towards the end of the quarter, there was clearly more activity. We had quite a lot of quotations, and there were some very positive orders as well. But clearly, there seems to be more activity, and especially for us in the sort of embedded solutions area. Still, the sort of software and system-related investments are on a low level. But in the sort of product development area, meaning basically for us, the embedded solution side there, we did see better activity levels and more quotations, et cetera. But of course, will that last?
That's a big question, and we of course hope that it does, but it is quite difficult to say at this point in time. But still, it was encouraging that there was clearly better activity levels.
Okay, thanks. Then, has there been any further cancellations of projects during Q3 like you saw earlier in Q2?
Not major ones. In Q2, there were clear cutbacks and when the market situation was weakening. Now, it's been sort of stable. New projects are not really started, and are bigger this kind of system-related investment projects are not started in the software side. And I would not, I don't remember that we would have had any major cancellations of orders. It has remained at this kind of slightly lower level, a little bit of pick up in the sort of embedded side. And then, if we look at the other service areas, the projects that we have are still continuing. There have even been some new projects and some new investments, and so on. So there is some demand, that there are certain projects starting, especially in certain customer segments.
But overall, it's a slightly more difficult market.
Okay, thanks. Then last one from me. Are you expecting kind of similar improvements in profitability now for engineering solutions and technical communications as we saw with software embedded this quarter as you are kind of implementing these adaptation measures for these segments? Thanks.
Well, we, of course, have Q4 coming up. Q4 is normally the best quarter for us, and there are long months starting, or we are running in October, so it's long months and we do see possibilities and we are looking to improve the profitability in these service areas. But in technical communication side, we do expect improvement, but perhaps not to the sort of 10% levels that we saw in the software side there due to certain issues in Central Europe. And the lack of possibilities to impact the operational efficiency. No possibility for temporary layoffs, et cetera.
So, it will take a little bit more time to get those kind of profitability levels in the TCS area.
The next question comes from Juha Kinnunen from Inderes. Please go ahead.
Hello, gentlemen, this is Juha from Inderes. A couple of questions from me. Let's start with pricing, which is always interesting when the demand is getting weaker. Have you or your competitors pushed down the prices, and that could be behind this lacking growth?
I would say that at this point in time, the prices are not the issue. I would say that it's the lack of demand, lack of projects, more than the prices. Of course, now when we're selling new projects and if there are fixed-price projects so that the competition is tougher and this is something that we need to work with, but this is something that we are used to working with, and I think that we can still hold up our margins quite well. We have long-term customer relationships, and the pricing is mainly this kind of annual-based pricing. So we have tough negotiations with our customers at the beginning of the year, and then the prices are sort of intact for the full year. Our customers are our professional buyers.
They are keeping the prices at certain kind of levels, so then we live with that, good or bad. That's how it goes. But clearly there is pressure whenever you're offering a new project, if the customer wants fixed price, so there is increased competition in certain areas, and this is something that we need to work with. But so far, I wouldn't say that the drop in revenue would be a price issue.
All right. Thank you. About outsourcing, you told that you have won some outsourcing deals. Could you give us some kind of impact of these deals to your net sales? And also, what kind of opportunities are you seeing right now? Is this going to be a significant growth driver for you?
Well, I think that, it is definitely a significant growth driver. This is an uncertain situation where some customers have a declining market situation, and with the outsourcing solution, we can help them to fix the sort of cost issues, but at the same time, maintain the capabilities and the competencies that they have built up for personnel. And this helps our customers significantly in this kind of a situation, and also for the future, then we will be more engaged to help them to develop their operations and create flexibility and to bring in new technologies into their, as a part of their operation, et cetera.
So there are many benefits, and once we get this kind of a collaboration model going, it's a, it's a good, good engine for growth in the future. And as a company, of course, we have several customers. We have lots of customers, and we can then. This kind of flexibility we can deliver by cross-utilizing the resources with different kinds of customers. So I think it's a great model that has proven its worth here in this kind of a difficult, difficult market condition, and I do see potential for future growth. Unfortunately, most of these cases are such that we are not really allowed to talk about the customer names or the amounts or number of people, but it's a significant opportunity for us.
The deals that we have won so far are already good, and there is more in the pipeline. So we feel quite confident with this business model, and it's working out well for our customers and also for us.
All right. Interesting. One last question from me, which is probably a difficult one. I know that the visibility is low, but could you comment anything regarding the outlook for next year? What are the kind of key drivers that you see forming up?
Well, that's a very, very difficult question, I need to say. It's now, with the new conflict in the Middle East, we don't really know what's going to happen with that one. There was an expectation that the inflation would gradually, during next year, start to come down. Also, the interest rates would follow, and had this happened, we do believe that our customers would have started to invest more, and the consumers would have had more sort of power to buy things, and that would help our demand as well. Now, with the new conflict, it's really difficult to say. Don't know what's going to happen and how will that impact the demand situation.
So, it's a very difficult question, and I don't really want to speculate on it. But we are now working with the market situation as is. We are seeing opportunities. We are focusing all our efforts into the areas where we see the opportunities, and we believe that we can drive forward even in this prevailing market and also next year, even if the market conditions don't improve.
All right. Thank you.
The next question comes from Hugo Voillaume from Gay-Lussac Gestion . Please go ahead.
Yeah, hi. Many thanks for your time and taking my questions. My questions are mostly related to your margin, mostly what do you expect for Q4, because just on the technical communication solutions, as you mentioned, it's mostly linked to Central Europe situation and mostly because of sickness and related absences and operational efficiency. So could you just elaborate a bit more on the operational efficiency, and if these two effects are mostly one-off or recurring effect running in Q4? And second question, do you think that the margin that you managed to have in software and embedded solutions is sustainable? Because it's quite higher than what you used to have in Q3 2022, and also because of the negative growth rate. So is that level sustainable also? Thank you.
Well, if I start with the TCS part, we do believe that there is definitely a possibility to improve. We have taken action to adjust our operations and also to improve the efficiency with the work that we do with our customers and in terms of sales. We still see opportunities. We still continue to win deals, so through effective management and, you know, reacting diligently into issues that we see, we can definitely improve the situation in Central Europe.
But due to the fact that we don't have in the Netherlands and in Germany, where we have the largest operations in Central Europe, we don't have similar tools that we might have in other markets to adjust the operation. So for that reason, we are not probably able to improve the margins as much as we did in the software side. But still we do expect a clear improvement. And how far can we go? That, I'm not willing to reveal at this point, but what we do expect a clear improvement, and we are taking diligent action to move forward. In the software side, I would say that the market was getting weaker on the first half year.
We did see a clear decline in the market activity. We saw in the second quarter, projects being stopped, even large projects, et cetera. And, in that situation, our operational efficiency came down. Now, in the third quarter, we didn't, the market was not declining for us anymore. We even saw some positive signs of recovery in the product development area. And with the diligent actions that we have taken to adjust our capacity and the organizational changes that we have made, we have been able to improve the operational efficiency, and I do expect that we should be able to keep that up, providing that the market continues to be as is or even slightly improve.
So we should be able to keep these kind of margins up and even improve on that, if the market holds up.
Okay, very clear. And just to tell on the cash flow generation, because the level for Q3 was quite good. Could you elaborate a bit more on what were the main drivers for such a good cash flow generation?
Well, basically two things. First of all, of course, due to to weaker results, so we have been initiating saving measures, and we have not spent as much as we maybe would have done in a normal condition, in invested into different kinds of things. But perhaps the more important factor is that now that the growth was not there, so our growth did not tie as much capital as it used to when we were organically growing. And for that reason, the cash flow was better. Also, some of the adjustment measures that we took helped the cash flow situation. So for these reasons, the cash flow clearly improved.
Okay, thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay, thank you. Of course, it was a difficult quarter. We had to issue a profit warning, which we have not done for a very long time, and the market conditions were clearly getting weaker. But now we have been able to adapt to it, and we have been able to take measures to improve the profitability in certain service areas, and we will continue to do that. The market situation is, of course, blurry with the new conflict in the Middle East creating even more uncertainty to the market. So it's difficult to predict what will happen. But nonetheless, we do see opportunities with our customers. We see a lot of development projects piling up.
It's just a matter of time when our customers take the decisions to actually start the projects and move forward. Will it happen in Q4? I don't believe so, but still, some projects will be started, and we will be able to capitalize on those. So we will drive forward in the uncertain market, and we expect to still be able to grow this year, and then next year continue our profitable growth. And here are the investor contacts that we have in the company. So, should you have any questions to our business, so please contact myself, Helena Kukkonen, our CFO, or Outi Torniainen , our SVP for Marketing Communications at any time. Thank you very much for listening.