Welcome to Inderes TV! Sitowise published its Q3 earnings report this morning, and I have the company's interim CEO Jannis Mikkola here with me for an interview regarding that. Hi there, Jannis. Hello, hello. Shall we start by going through the main highlights of the quarter in your own words?

Okay, thank you. There are always three points to find. Point 1 was that we started the quarter with the finalization of the sale of Sweden. That is, on the first of August. We have had strong operations in infrastructure and buildings in Finland, and digital operations that operate in Finland and also on the Swedish market.

Then perhaps the second thing is that we spent the spring building a new strategy, and now in this Q3, we have emphasized its rollout, meaning how we push forward and how we target the growth sectors we have announced. And then perhaps regarding the earnings report itself, I must say that I am personally proud of it. This was already the second quarter in a row where we improved our earnings. And quite clearly so.

Right. Looking shorter-term toward the future, you still haven't provided guidance with one quarter left, so is the outlook for the short term still that foggy or what is the background here?

Well no, perhaps this—we haven't given guidance this year, and now it's a short period. No major changes are expected here. The market is certainly very polarized, so that at the same time we have it really cold in some areas and then really hot in other areas, meaning that residential construction is not picking up and then on the other hand data centers, for example, are picking up. So we have a pretty clear picture of what the market looks like for the rest of the year and all the way into next year.

Right, at the group level your billing rate was practically in line with the comparison period, so thinking about the different business areas and considering the market outlook you just mentioned, where do you see? The billing rate was practically in line with the comparison period, so thinking about the different business areas and considering the market outlook you just mentioned, where do you see? In which of these do you see the most potential to raise that billing rate?

Well, perhaps I would say that the market isn't currently the bottleneck for the billing rate, meaning we have very few places where demand causes low demand to mean we wouldn't have work. The question is more about at what price that work is done. But regarding the improvement of the billing rate, I would say that we certainly need to focus on getting our experts to do more expert work in projects. And what they often call bureaucracy can be handled through automation. With that we will certainly achieve the biggest impacts on the billing rate, and that applies to all of us. Our business operations, no one is in a special position there.

Right, somewhat related to that, the order backlog was also roughly in line with the comparison period. So how? If you think about the margin level of the order backlog, for example compared to the comparison period, how does it look?

Yes, I can say that it has indeed developed positively. That is, we have now systematically directed our operations toward growing markets where demand and therefore also pricing are better. And then as the share of those jobs in our order backlog increases all the time, the margin level is also rising.

Right, moving on to the buildings business, it was still far from your targeted level in terms of margin, so on what timeline do you see that it could recover to your targeted level or above it?

Well of course, any change—large ships don't turn around overnight for next year. We have initiated an action program of this kind, and for next year we are clearly targeting an improvement in earnings. But perhaps not quite yet with that. We won't reach the group-level target next year yet, that will be looked at in the following years.

Considering the current capacity of the buildings business, is it in line with market demand or are further measures expected there, for example?

We do have adjustment measures underway, as I just said in the beginning, for example housing production is not picking up at all. We are shifting our expertise on an accelerated schedule to those growing markets, meaning energy, data centers, and related infrastructure, so those are our focus areas. And those are the changes we are currently making.

Right. How about on the buildings side, are there paused projects in the order backlog? If I understand correctly, still to the tune of five million euros, so what kind of potential do these projects have to start up now?

There are indeed a few projects, where economic cycles look like they could start up, but I don't believe that all of them will start up in the near future.

Is there any risk of write-downs on these then?

Well, we made those write-downs earlier in the year related to these, and on that scale we are not seeing any needs to make more. Write-downs of that magnitude.

Right, then on the infrastructure side, you are now completing significant alliance projects in the public sector, among others, so how about filling this gap? Is there enough momentum in the private sector, for example? How do you see the infrastructure market demand?

Well, perhaps I will answer a bit like politicians do, meaning I get a good question, but I answer a bit sideways. Perhaps I will return to the actual answer as well. That is, on the infrastructure side, the markets have been heavily characterized by framework agreements generating a large part of the work, even the majority of the work. I have mentioned in previous broadcasts as well that price competition has been tightest precisely in framework agreements.

Now during last year and this year we have actively decreased project work done through framework agreements and shifted to such one-off competitive bidding. And in addition to that, we have also sought out the private market. So the share of those jobs has decreased significantly, and that is how we have been able to maintain the profitability of infrastructure as well, and we have secured more work and are able to fill the things you just asked about.

Right, then let us move on to this hot market area, data centers. Could you describe, building business grew this quarter as well, so surely data centers are a driver there, does this growth come from new projects in data centers or perhaps from ones started earlier in the year?

Well, the answer is certainly both and, that it is constant. If we look at our building business revenue and the share of data centers there, and then again the business in our order backlog growth, the share of data centers, it is always greater. That is, every quarter, every month our relative revenue concerning data centers goes up. So growth is still visible in the coming months.

Right, you are indeed significantly involved in data centers all the way from the preliminary study phase to implementation. So if you think about your potential in this business, is it more on the preliminary study side or is it also in implementation planning or elsewhere?

Well, the general project pattern is that in the early stages more money is spent on the project, and the closer we are to the investment decision and implementation phase. Then that spending increases. So perhaps for us these preliminary study phases, they are a bit like those coffee packages, that you get a foot in the door. There we get to know the customer, their processes, and we are able to successfully operate then in this implementation planning phase and construction phase. So the big volume still comes from the moment when we are in that. But our strength is that we have the whole lifecycle.

Could you also comment on the data center market now during the autumn? So how has the level of activity in that market developed?

Well yes, data centers have been in the publicity during the autumn both for better and for worse, and perhaps this fluctuation has not been reflected in our project operations in the same way, but it has been steadily growing. And of course preliminary studies are done in data centers, so every project does not proceed to the implementation phase. But we have not seen now that the amount would have suddenly dropped, so the market has continued in the same way.

Right, then if we go to digital solutions, profitability there was above your target level, so how big a part of this came from the seasonality of SaaS products and then on the other hand from those adjustment measures that were done earlier this year?

Well of course in our own estimates we had been able to anticipate these things, and those spring measures certainly had a significant impact so that we were able to maintain it. This is a good example of how this market changes very quickly, and we saw its change and were able to adjust in time, which is why we have now been able to maintain profitability, even though the market is very, very difficult. It is not solely thanks to SaaS.

Right, in your report you also highlighted the ending of long IT consulting agreements, so how significant a share of the digital solutions business is this type of activity?

Well, these are a bit like framework agreement types of things, meaning we have several agreements whose duration is then several years, and then they are renewed in cycles. And indeed part of ours are ending during next year. They will go out to tender again. Their share of our total digital revenue is however not so significant that we would find this a major problem. But of course in a market like this, which is uncertain, all work is welcome to us. And of course it is important for us to get new similar agreements as well.

Right, then the growth of recurring revenue slowed down further from the last quarter, so how will this trend be turned around?

Well of course we must also hope that external markets help us. That is, our customers, especially public entities, need more revenue so that they can then make investments that ultimately improve their efficiency with the help of our software. But we have also done our own measures, among other things we are actively entering our Swedish market. We have, among other things, this Foresta product of ours. So right now we already have a few municipalities that are interested in adopting it. And we have indeed tested it with certain customers.

Then you also announced that you became a Lovable partner earlier in the autumn, so what does this mean concretely? What kind of business initiatives might possibly arise from this?

Well, this was generally a big and great thing for us, as there are not quite that many such partners in Finland, and for us it is quite a testament that such a world's fastest-growing AI company wants us specifically as a partner through public entities. It gives us entirely new kinds of project opportunities, project deliveries, which we have had opportunities for previously. We are also able as their partner to sell their products to the public sector.

On the other hand, it streamlines our own existing operations, and it is not just a digital matter. Of course the development of our products and the development of our tailoring services speeds up with this, but also our other businesses, meaning building and infra, are able to utilize it. And next you are already going to ask what the others are able to utilize it for. So for example in infra we have a lot of tools that have been built to speed up customer data collection and the like, and we are able to develop these now much more agilely and quickly.

Understood. We will stay tuned to follow this development. Thank you for the interview, Jannis. Thank you.