Kreate Q3'24 flash comment: Good margin improvement

Translation: Original published in Finnish on 10/25/2024 at 9:16 am EEST.

Kreate published its Q3 report this morning, which was overall in line with our expectations. Revenue was down as expected, but relative profitability improved well. As anticipated, the guidance remained unchanged, expecting a decline in revenue and an increase in the result. The long-term market outlook is good, but infrastructure construction in the short term is not yet moving full steam ahead. Nevertheless, for Kreate, the order book already indicates that significant projects worth several hundred million are on the way, at a time when the earnings trend for Kreate seems to have turned upwards.

Significant decline in revenue as expected

In Q3, Kreate's revenue decreased by 12% to approximately 78 MEUR, slightly exceeding our forecast of 76 MEUR. In line with our expectations, the revenue decline slowed down compared to the first half of the year as projects started to ramp up and comparison periods started to become easier. By business line, revenue decreased by 28% to 49 MEUR in Structural engineering and increased by 24% to 27.1 MEUR in Transport infrastructure construction, as the more challenging market period receded and new projects were launched. By country, revenue increased strongly in Sweden by 55% to 10.1 MEUR (forecast: 7.7 MEUR), but decreased in Finland, as expected, by 17% to 67.5 MEUR (forecast: 67.9 MEUR). The order book was still 31% down at 153 MEUR, but several railway projects received are still to be included in the order book for the execution phase (total project value around 300-400 MEUR). 

Relative profitability significantly improved

Despite the markedly lower revenue, Kreate's EBITA of 3.1 MEUR was above the comparison period (Q3’23: 2.9 MEUR), in line with our predictions. The EBITA margin rose up to 4.0% from the comparison period (Q3’23: 3.3%). Profitability improved for the fourth 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 increased from the comparison period to EUR 0.20 (Q3’23: 0.16 MEUR) and also exceeded our expectations of EUR 0.18.

Guidance unchanged, with some short-term weakening in outlook

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). In terms of earnings guidance, the situation looks very good, but in view of the more challenging short-term outlook, revenue needs further work. The infrastructure market situation is currently very good in Sweden, but more neutral in Finland. The outlook for basic infrastructure construction in particular is still uncertain, which will keep competition intense until the first half of next year. Decisions on both public and private projects are also taking longer than usual. In the longer term, the market outlook and Kreate's order intake appear strong. 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.