Kreate Q2'24 flash comment: A turnaround in profitability at just the right time

Translation: Original comment published in Finnish on 7/16/2024 at 8:58 am EEST.

This morning, Kreate published its Q2 report, which was better than expected. Revenue was clearly down, but relative profitability improved well beyond our expectations. As expected, guidance remained unchanged and the market outlook was positive in our view. The order book has seen a good influx of new projects and market commentary was on the positive side. Kreate has clearly managed to reverse its earnings trend at just the right time, as the infrastructure market seems to be picking up, especially in the demanding infrastructure sector where Kreate specializes.

Clear decline in revenue

In Q2, Kreate's revenue decreased by 21% to approximately 68 MEUR, below our forecast of 72.1 MEUR. Contrary to our expectations, the decline in revenue has accelerated even more since the beginning of the year, since Kreate's new projects are not yet in full swing and older large projects have been completed. Nevertheless, it was known that H1 revenue would be lower than H2 this year. By business line, in H1, revenue decreased in Structural engineering by 28% to 87.5 MEUR. This was helped by an increase in business in Sweden (Sweden H1: 12.9 MEUR vs. 9.2 MEUR y/y), but revenue was reduced by the completion of major projects. In Transport infrastructure, revenue grew by 19% to 33.7 MEUR, as the market became less challenging and new projects got underway. As expected, the order book continued to decline by 24.5%, but the level is very good compared to recent years and the rate of decline has slowed.

Relative profitability significantly improved

Despite the markedly lower revenue, Kreate's EBITA of 2.6 MEUR was at the level of the comparison period (Q2’23: 2.6 MEUR), above our estimate of 2.2 MEUR. The EBITA margin rose up to 3.8% from the comparison period (Q2’23: 3.0%), also well above our forecast of 3.0%. Profitability improved for the third quarter in a row as old fixed-price projects no longer weigh on the cost side. In addition, the growth investments made in previous years in Sweden and in the rail business seem to be bearing fruit. In the lower lines, financial expenses were slightly lower than expected and the result before tax was well above our expectations. Earnings per share of EUR 0.16 were at the same level as in the comparison period (Q2’23: 0.17 MEUR) and also exceeded our expectations of EUR 0.14.

Guidance unchanged, outlook still picking up

According to Kreate’s guidance, revenue will decrease and amount to 270-300 MEUR in 2024 (2023: 320 MEUR). EBITA is expected to grow to 8-11 MEUR (2023: 7.8 MEUR). H2 of this year is expected to be better than H1, as both the outlook and order intake have taken a turn for the better. The market situation in infrastructure is currently very good, in particular for Kreate, and new projects are expected as bidding activity picks up. As a result, we anticipate that towards the end of the year, the order book and revenue will start to pick up. All in all, given the positive earnings trend, the improved market outlook, and the financial situation, the first half of the year seems to be off to a good start for Kreate.