0RFO Siili Solutions Oyj

Siili Solutions Plc Half-year report 1 January – 30 June 2024 (unaudited)

Signs of improvement in Siili's profitability, despite the decreased revenue

Siili Solutions Plc Half-year report 13 August 2024 at 8.45 EEST

JANUARY-JUNE 2024

• Revenue EUR 59,186 (65,288) thousand
• Revenue growth EUR -6,103 thousand, or -9.3%
• Adjusted EBITA EUR 3,309 (5,010) thousand, -34.0%
• Adjusted EBITA margin 5.6% (7.7%) of revenue

_{¹ The figure for the comparison period has been retroactively corrected.}

APRIL-JUNE 2024

• Revenue EUR 29,362 (31,664) thousand
• Revenue growth EUR -2,302 thousand, or -7.3%
• Adjusted EBITA EUR 1,719 (1,661) thousand, +3.5%
• Adjusted EBITA margin 5.9% (5.2%) of revenue

_{¹ The figure for the comparison period has been retroactively corrected.}

OUTLOOK FOR 2024 AND FINANCIAL TARGETS FOR 2024−2026

The financial guidance of revenue for 2024 is estimated to be EUR 120-140 million and adjusted EBITA EUR 7.5–10.5 million.

Long-term financial targets for the period 2024–2026 are as follows:

• Annual revenue growth of 20%, with organic growth accounting for about half.
• EBITA 12% of revenue. Operating profit before amortisation and impairment for fair value adjustments on acquisitions.
• Net debt / EBITDA < 2. The target for the ratio of net debt and EBITDA below two.
• Dividend policy: target to pay a dividend corresponding to 30–70% of net profit annually.

CEO TOMI PIENIMÄKI:

In the first half of 2024, our profitability already showed signs of improvement, although in terms of revenue growth, the period was challenging for Siili, as expected.

The revenue for the year-half amounted to EUR 59 million, representing a decline of some 9% from a strong comparison period. Adjusted EBITA ended up at EUR 3.3 million and 5.6% of revenue. We adjusted capacity to the market conditions, leading to a decline in revenue. Despite the reduction in revenue, profitability in the second quarter came in higher than in the comparison period and in the previous quarter. The higher profitability in the second quarter stemmed in particular from improved efficiency, in which we have quite successfully taken measures over the past months in order to secure our competitiveness. In practice, this has meant, for example, development of an offering aligned with market demand, reinforcement of the capability to forecast demand, accurate timing of recruitments and flexibility in capacity through partners. For the second half of the year, the objective is to accelerate growth, and hence we have resumed a more active stance in recruitment.

Siili’s first year-half included several successes that lay a solid foundation for growth once the conditions strengthen again. In June, Siili got selected as one of Yle’s contract suppliers in the competitive tender for a framework agreement amounting to EUR 35 million. The subject of the tender was application development, design and maintenance services in the period 2024–2028. This contract offers us an outstanding opportunity to continue and extend cooperation with an interesting existing customer. As one example of our cooperation with Yle, I could mention Yle’s Viki & Köpi show, where we used AI last year in a completely new way in the entertainment industry.

Today, we published a new strategy for Siili, putting artificial intelligence into the core of Siili’s business. We aim to be leading in AI-assisted software development and a leading provider of data and AI solutions. Siili’s competitive advantage comprises solid expertise in software development, artificial intelligence and industry understanding. This unique combination makes us a frontrunner in developing generative AI solutions and in strengthening business competitiveness for our customers.

Going forward, Siili will have three strategic priorities that strengthen our position as a leading company in the utilization of artificial intelligence.

1) Significant growth in data and AI business

2) Forerunner in AI-assisted software development

3) Community of top experts

Siili’s skilled and committed personnel plays a key role in the implementation of the new strategy. Siilis contributed actively to the new strategy in internal strategy workshops arranged over the spring. In the first half of the year, we continued to invest in AI-assisted software development, and we have trained over 400 of our employees in generative artificial intelligence during the year.

Going forward, the core of our activities will also be shaped by our strong corporate culture, fair conduct and drive to reduce our carbon emissions even further from their already-low level. Going forward, we will communicate more extensively on our sustainability targets and efforts. We are making great strides to prepare for the EU’s corporate sustainability reporting requirements. We will publish our first sustainability report for the financial year 2024.

According to our view, the demand of digital services continues to be strong in the long term, as artificial intelligence creates new growth opportunities. We believe in the normalization of the market, although the turnaround has been delayed from the initial expectations.

I want to extend my thanks to the Siili team and our customers for the past first half of the year. We are in a good place to embark on the rest of the year with confidence.

REVENUE

In the first half of the year, the Group’s revenue decreased by 9.3% (+10.9%) year-on-year. Revenue decreased by EUR 6,103 (+6,413) thousand, totalling EUR 59,186 (65,288) thousand. Organic revenue change was -9.3% (5.6%), or EUR -6,103 (3,484) thousand. The share of international operations of the Group’s revenue for the review period was 28.0% (25.9%). The decline in revenue was driven by challenging market conditions and a decline in the number of personnel due to efficiency-improvement measures.

PROFITABILITY

Adjusted EBITA in the first year-half totalled EUR 3,309 (5,010) thousand, representing a decline of EUR 1,701 year-on-year. The Group’s profitability weakened, and adjusted EBITA was 5.6% (7.7%) of revenue. Most significantly, the decline in profitability was driven by the reduction in revenue. The company continued the efficiency-improvement measures launched in the previous financial year to improve profitability, and adjusted EBITA improved in the second quarter year-on-year. The calculation of adjusted EBITA is shown under Reconciliations of alternative performance measures.

EBITA for the review period was EUR 2,694 (5,010) thousand, or 4.6% (7.7%) of revenue.

Subcontracting costs arising from the use of external services in the review period totalled EUR 12,131 (14,236) thousand, or 20.5% of revenue (21.8%). Employee benefit expenses for the review period decreased to EUR 36,588 (37,826) thousand and amounted to 61.8% (57.9%) of revenue. The decrease in employee benefit expenses was driven by the reduction in number of the Group’s personnel. At the end of the year-half, the Group's number of personnel totalled 966 (1,061).

Other operating expenses decreased from the previous year to EUR 6,100 (6,541) thousand, or 10.3% (10.0%) of revenue. The largest expense items were IT expenses, voluntary personnel expenses and purchased expert services.

EBIT for the year-half was EUR 2,110 (4,149) thousand, or 3.6% (6.3%) of revenue. Net financial income totalled EUR 343 (415) thousand. In the review period, the Group recognised net financial income of EUR 695 (1,522) thousand due to fair value adjustment on contingent consideration liabilities. The profit for the period before taxes was EUR 2,453 (4,564) thousand and earnings per share were EUR 0.22 (0.44).

FINANCING AND CAPITAL EXPENDITURE

The Group’s statement of financial position totalled EUR 86,524 (100,267) thousand at the end of the first year-half. The Group’s equity ratio was 46.6% (40.9%), return on investment (ROI) was 9.3% (15.5%), and the net debt to EBITDA ratio was 0.44 (0.29).

The Group’s cash flow from operations year grew by 46.9% year-on-year to EUR 4,851 (3,301) thousand. The growth of the cash flow from operations was driven by the significantly lower operating capital than in the comparison period.

Cash flow from investing activities for the first year-half was EUR -10,127 (-4,488) thousand, including contingent considerations totalling EUR 9,422 thousand paid to the minority interest for the acquisition of additional stakes in Supercharge Kft and Vala Group Oy.

Cash flow from financing activities in the review period amounted to EUR -6,240 (-6,112) thousand. The shareholders of Siili Solutions Plc were paid a dividend of EUR 2,109 thousand, and the non-controlling shareholders of Supercharge Kft and Vala Group Oy were paid a total of EUR 884 thousand.

At the end of the review period, the Group’s cash and cash equivalents totalled EUR 17,497 (28,953) thousand, and the Group had EUR 2,500 thousand in unused credit facilities. At the end of the review period, the Group’s interest-bearing bank loans stood at EUR 7,487 (10,000) thousand, of which EUR 2,513 thousand consisted of short-term loans.

RISK FACTORS AND UNCERTAINTIES

Siili may be exposed to various risk factors relating to Siili’s operations and operative environment. Realization of such risks may have adverse effect to Siili’s business, economic position or to the company’s valuation. Key risks relating to Siili’s business have been described below. In addition, Siili has identified other risks that may become material in the future. Furthermore, there exists risk of which Siili is not necessarily aware of and which may become material.

• Losing one or more key customers, material decline in customer demand, customer’s economic difficuties or changes in their strategy that have adverse effects to Siili.
• Failure to meet quantitative or qualitative recruitment objectives or failure to meet customer demand in a timely manner.
• Failures in customer pricing, planning, delivery or improving cost efficiency. The propability and potential adverse effects of the aforementioned risks increase during the economically uncertain operational environment.
• Losing key personnel or decline in employee brand image.
• Realisation of information security risks, e.g. due human errors.
• General negative or weakened economical development and related uncertainties in customers' operative environment.
• General economic cycle and changes in customers' operating environment may have adverse effects in IT investments, e.g. due to postponed decision-making or postponed or terminated projects. These risks are mitigated by focusing on customer satisfaction and cost-efficiency.
  
  

The war in Ukraine neither has nor is anticipated to have a direct impact on Siili’s business.

More information on the company's risks and risk management are presented in the Annual Review 2023 as well as the Report of the Board of Directors and the Consolidated Financial Statements.

EVENTS AFTER THE REVIEW PERIOD

On 13 August 2024 the company announced its new strategy. Further information on the renewed strategy can be found in the stock exchange release published on 13 August 2024 and on the company website at https://sijoittajille.siili.com/en/.

The company’s management is not aware of any other events of material importance after the review period that might have affected the preparation of the half-year report.

FINANCIAL CALENDAR 2024

The company will publish a business review for 1 January–30 September 2024 (Q3) on 22 October 2024.

The company intends to organise a Captal Markets Day in late November 2024.

The company will expand the content of its business reviews to include an income statement and a statement of comprehensive income, a statement of financial position and a cash flow statement from the Q3 business review onwards.

In Helsinki 13 August 2024

Board of Directors

Siili Solutions Plc

Further information:

CEO Tomi Pienimäki
Phone: +358 40 834 1399

CFO Aleksi Kankainen
Phone: +358 40 5342 709

Siili Solutions in brief:

Siili Solutions Oyj is a unique combination of a digital design agency and a technology powerhouse. The starting point for all our work is a deep understanding of human behavior. Siili is the best partner for the customer when it comes to seeking growth, efficiency and competitive advantage through digital solutions. Siili has offices in Finland, Germany, Poland, Hungary, the UK, Austria and the USA. Siili Solutions Plc's shares are listed on the stock exchange list of Nasdaq Helsinki Oy. Siili has grown profitably since its inception in 2005.

Attachment

• Siili Solutions Plc, Half-year report, 1 January–30 June 2024 (unaudited)

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