Translation: Original published in Finnish on 2/5/2025 at 9:26 am EET.

This morning, Kreate released its Q4 report, which was fully in line with our expectations. As expected, revenue was down in Q4, but margins and absolute earnings improved slightly year-on-year. Earnings per share grew stronger than expected, leading to a small dividend beat (7% dividend yield). Guidance and market outlook were broadly in line with our expectations, with revenue and earnings growth focused on H2. Overall, Kreate's order book is strengthening (the decline is slowing), the market is slowly recovering and the company’s positive earnings trend is strengthening, setting the stage for earnings growth in the coming years. 

Revenue down in line with expectations

In Q4, Kreate's revenue decreased by 5.9% to around 75.5 MEUR, which was more or less in line with our forecasts (forecast: 75.6 MEUR). The top-line decline slowed in the last quarter of the year as projects got underway and the comparison figures eased. By business area, sales of Structural engineering decreased by 23% to 46 MEUR, while the Transport infrastructure business increased by 33% to 28 MEUR, based on projects received. Large bridge projects have declined and railway construction projects have increased, which is reflected in the development of business. By country, revenue increased strongly in Sweden by 48% to 9.9 MEUR (forecast: 10.2 MEUR), and was down 11% in Finland, in line with our expectations, at 65.7 MEUR (forecast: 65.4 MEUR). The order book was down only 10% in Q4 at 177 MEUR and is expected to strengthen in the coming quarters as the railway projects under development enter the construction phase (estimated at around 300 MEUR).

Profitability continues to improve

Despite the lower revenue, Kreate's EBITA was just above the comparison period at 2.8 MEUR (Q4'23: EUR 2.7 MEUR) and fully in line with our forecasts. The EBITA margin rose to 3.7% from the comparison period (Q4’23: 3.4%). Profitability improved for the fifth consecutive quarter as legacy fixed-price projects no longer weigh on costs and the margin structure of the order book recovered. Further down the P&L, financial expenses were slightly above our expectations, but the lower-than-expected tax charge pushed net income above our forecasts. Earnings per share increased from the comparison period to EUR 0.20 (Q4’23: 0.18 MEUR) and also exceeded our expectations of EUR 0.18 by around 10%.

A small negative is the deterioration of cash flow due to working capital commitment (Q4 operating free cash flow: 3.9 MEUR vs. 19.7 MEUR). However, Kreate is in a strong financial position (net debt/adjusted EBITA: 2x) and typically working capital is tied up in projects prior to the growth phase and released as projects progress. However, the success of working capital management is an important part of this, so it will be worth monitoring cash flow developments as the year progresses.

For the full year, EBITA amounted to 8.8 MEUR, up 13% year-on-year. Earnings per share rose to 49 cents (2023: EUR 0.44) and the dividend increased moderately to EUR 0.50 (forecast: EUR 0.49, 2023: EUR 0.48). At the current share price, the dividend yield rises to a good 7%.

Guidance expects H2-driven growth

According to Kreate’s guidance, revenue will grow and amount to 290-310 MEUR in 2025 (2024: 275.5 MEUR). EBITA is expected to grow to 9-11 MEUR (2024: 8.8 MEUR, EBITA-%: 3.2%). Before the results, we expected revenue to increase by 4% to 287 MEUR and adjusted EBITA to reach 10.2 MEUR (EBITA%: 3.5%). In terms of revenue, we are at the lower end of the range, but in terms of profit, we are in the middle. In this sense, the guidance was well in line with our expectations and we do not see a significant upward pressure on our forecasts.

According to Kreate, the market situation in the construction sector remains difficult and competition in the infrastructure sector is still fierce. The near-term outlook for infrastructure is expectant, with better performance expected towards the end of the year. For Kreate, the Swedish market looks strong at the moment, but the situation in Finland is more neutral. In the case of Kreate, projects under development are expected to add to the order book in spring 2025, providing good prospects for growth despite market fluctuations. We believe that Kreate's good earnings trend, good market position in the challenging infrastructure sector and stable financial position provide a good basis for the eventual recovery of the construction market in the coming years.