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Welcome to Sitowise Q4 and Full Year 2022 Earnings Presentation. My name is [indiscernible] and I'm Head of Investor Relations. I started in this role in late January, and I'm very happy to have joined such an ambitious, dynamic and collaborative team as we have here at Sitowise. My background is largely in Investor Relations and Financial Communications where I have held several in-house roles and worked as the consultants.
Today, I'm here with our CEO, Heikki Haasmaa; and our CFO, Hanna Masala, who will shortly start the presentation. Before that, I will briefly give you some technical instructions.
Here, you can see our agenda for today. And as you can see, after the Q4 and full year performance, we will discuss also our strategy for the period reaching to 2025. If you wish to comment, you can do that via chat box under the presentation. I will go through the questions you have sent after the presentation. We kindly ask you to provide your whole name also when asking questions.
And now we continue to the presentation, and I will hand over the stage to Heikki and Hanna.
Thank you, Maria, and welcome to the team. So here is our fourth quarter in a nutshell. The overall demand for technical consulting remained relatively healthy in our target markets in Finland and Sweden. We also continued a strong growth, and our net sales increased by 14% year-on-year and organic growth was 5% year-on-year.
Our order book hit a new record being at EUR 181 million at the year-end. And actually, we would have been on a record level, even organically, but acquisitions helped us with further increase. Fourth quarter profitability was slightly down year-on-year, ending up with a margin of 9.2%. And we'll go through the factors behind this development in more detail shortly.
I'm very proud of the ISO 27001 certificate for the information security management systems that was granted for the Finnish operations during the quarter. High information security is such a necessity for sustainable business, and that's why this is important for our clients and for us.
We also continued our inorganic growth and strengthened our expertise in Sweden by acquisition of Convia in October. Convia strengthens our position in bridge and tunnel construction and then overall Infra business in Sweden.
Looking then at the full year performance overall, the picture is very much the same. Also, there were some variation in the external and also internal factors driving our performance. Our net sales growth, both inorganic and organic were the same as in fourth quarter. Our net sales exceeded EUR 200 million. That was actually one of the targets set for the ending strategy period. So we feel very proud to have achieved this great milestone.
Our full year profitability margin ended up to exactly 10%, a bit down year-on-year. We consider this as a good level taking into account the market changes, what we are seeing over the year. Our high client and employee satisfaction are also very important and a sign of our ability to create true value for them. I really would like to thank all of our employees for their commitment and also the passionate work for the benefit of our clients. And of course, our existing and new clients on their trust to Sitowise.
In '22, we and the society at large faced many headwinds such as high sick leaves, mainly due to COVID-19; the shock from Russia attack on Ukraine, almost exactly 1 year ago; and the exceptionally burdening seasonal flu in fourth quarter. I'm pleased to see that in the midst of this turmoil, we have been able to keep our employees content and also to improve further our employee brand.
And as you can see, the Board of Directors is proposing a dividend of EUR 0.10 per share to the Annual General Meeting.
Last year was also really active with the M&A, and now Hanna will tell more about that.
Thank you, Heikki. And also very happy to be here with you today. As Heikki already mentioned, we were quite active in the M&A front also now in '22. The 6 acquisitions we completed during the year covered all 4 of our business areas and half of them were in our important growth market in Sweden.
Through these acquisitions, we have expanded in services that we consider being more and more important in future, such as the climate and sustainability services, SaaS business, specialized design and sustainable renovation services. During the year, we used close to EUR 29 million to acquisitions and got almost 200 new colleagues to our company as a result.
As you can see from our reporting, the impact of acquisitions in the revenue growth was 9% or some EUR [ 17 ] million in 2022. In pro forma basis, meaning that if we would have made all the acquisitions in the beginning of the year, the impact on net sales would have been EUR 9.5 million higher. The high activity in M&A and integration shows also in some additional costs, both in the items we adjust, which are the direct external costs, but also putting a bit of pressure in the adjusted EBITDA. As for example, integration actions sometimes show a short-term pressure on billing rates.
In year '22, we also had some unrealized acquisition projects, which resulted in costs shown in the items affecting comparability. As we have always said, we are selective in our M&A approach. And therefore, it's clear that not all the cases are realized at the end of the day.
On this slide, we can see the top line development of all the business areas. I'm really happy to see that we continue clearly on the growth path. Highest growth figures were seen in the Digital Solutions and in Sweden. Some examples of especially fast-growing business include the renovation business, which we report under the buildings area and also the team in Sweden achieved strong growth. In both of these areas, the growth was coming both organically as well as from acquisitions.
It is good to note that the net sales growth in Sweden would have been even higher if we measure that in the local currency. The Swedish krona weakened during the year against euro. And without this impact, the Swedish business area growth would have been as high as 29% instead of the 21% in euros.
The highest growth percentage is shown for the Digital Solutions business. There, the growth is boosted among others, by the acquisition of Bitcomp in summer '22. As you probably will remember, Bitcomp is a SaaS provider in the forest sector.
Now handing back to Heikki.
Thanks, Hanna. Let's look still briefly about the fourth quarter performance in our business areas. In Buildings, we saw strong growth, supported by the acquisition of Rakennuttajakaari earlier last year. The renovation business continued to be active and demand in the public sector remains strong. Both helped our net sales growth. However, the general economic uncertainty resulted in an increasing number of new construction projects that were either discontinued or postponed.
The market was more stable in our Infra business, which continued to outpace the market growth. There were some signs of weakening demand in this market, especially in respect of road projects, but demand for energy and environmental projects relating to the green transition was still growing rapidly.
In Digital Services, the growth in net sales was boosted significantly by the acquisition of Bitcomp. Market demand for Digital Services overall remained strong. I also would like to highlight that we won a notable new contract, national information system for the built environment. This is developed together with the Ministry of Environment in Finland and the Finnish Environment Institute. In addition, sales from the Bitcomp's lease point SaaS service has been increasing clearly well.
And then Sweden, the demand for the technical consulting remained quite steady and better than in Finland, and the order book remained overall at the high level. The effect of the economic uncertainty were also evident in the residential or new development market, but the infrastructure sector was clearly stronger.
Our business in Sweden was also impacted by the Integral integration efforts, mainly IT migration of the acquired businesses that continued in fourth quarter. And then the financial performance was impacted by the Swedish krona-euro exchange rate, as Hanna already mentioned.
When we look at the growth on the whole supervise level, we continue on double-digit growth figures, which is fairly in line with our target. We had both strong continued organic growth, but also the recent acquisitions boosted the growth. At the same time, several factors were also slowing it down. So in addition to market uncertainty in the construct sector, the other major factors slowing out growth was number of working days in Finland during the fourth quarter and then the weakening Swedish krona.
Let's move on then to the order book, which is on the record high level, and that grew by 12% year-on-year. It includes several sizable long-term projects that contribute to the stability and predictability of our business. The order book is mainly driven by acquisitions, but the order book development was solid also on an organic basis, which is actually really great in this kind of market environment.
I'd like to also share a couple of great wins recently. First, underground parking in This project combines our expertise in our Buildings and Infra business areas. Second one, the built environment information system boosting the Digi business growth, so which I already mentioned. And then the third one, cycling path alliance project in Vaasa, Finland. And in Sweden, as a fourth item, the frame agreement with AstraZeneca in Sweden. So all of these are really, really great wins.
Technical Consulting is most of all people business. And there are 3 relevant items here to consider. So the first graph here shows our headcount and FTE growth, which tells about our capacity to grow. Second graph sickness absences play a key role in the picture as well reduce the available capacity. And then the third one, utilization rate tell us about our ability to build available hours. When we look at the fourth quarter, we had stable headcount and FTE, but the sickness absences had a EUR 600,000 negative impact on our results as they were clearly higher than in the comparison period in '21. For the full year, sickness absences were 1 percentage point higher than in '21. And the total impact on our EBITDA for the full year was EUR 2 million.
In the fourth quarter, the utilization rate was on a good level, taking into account the tough construction market, which impacted our -- especially our Building business utilization rate. And the impact of the vehicle market on us can be seen in the need to reorganize some of the work for our people, and that has impacted then on the utilization rate and fast profitability.
But now back to Hanna.
Thanks. As was already mentioned, our adjusted EBITDA was down on last year's level at EUR 5.3 million. Considering the very good top line growth, we could have done better with the EBITDA. There are 3 main reasons which led to this. Firstly, as Heikki has mentioned, the uncertainty in the construction industry has led to some delays in some of our customer projects. And this reorganizing the work leads to an impact on the utilization rates and thus, profitability.
Then as also Heikki mentioned, we really had an unusually high sick leave absences due to the seasonal flu in Q4, and this had an impact on the working hours that we were able to deliver. Thirdly, we had a somewhat higher integration costs than usually this quarter, especially in Sweden. As the acquisitions have a big role in our growth, this is obviously a normal part of our operations. But in this quarter, there were some more of these costs than in most quarters. We migrated the IT environment in Sweden to the same environment as in Finland.
We continue to strive to be the most profitable business in our industry. We have 4 main priorities to improve further our profitability and these remain the same as we have presented earlier. First of all, as the inflation is high, we look carefully to all the levers to improve pricing. And at the same time, we put a lot of effort on the cost awareness in all parts of our organization to respond to the challenge we have.
Secondly, there is a clear focus to improve further on billable project work. In practice, this means that we need to stay very close to our clients and ensure that our work adds value to them. At the same time, we want to ensure that our experts have a chance to focus on their work and are selective with our internal activities and events to ensure that the time is spent on the most important matters.
Thirdly, we continue to look for new ways of working. We believe that Sitowise is unique digital platform, Voima, and our motivated employees and strong management culture create a solid foundation for this. And fourthly, we obviously expect to see a positive contribution to the margins also from the recent acquisitions.
From this key figures page, we cover the net sales and EBITDA already. The same factors that burdened our adjusted EBITDA impacted our net results as well. But in addition to those, there were rather high amount of items affecting comparability in Q4. In this line item, we record the costs related to acquisitions, integrations and internal restructurings.
The full year earnings per share remained at the previous year's level, and our Board is proposing a EUR 0.10 dividend per share, which is the same as was paid a year ago. This represents a payout ratio of 45%, and this is in line with our dividend policy of 30% to 50% payout. The dividend will obviously be decided in the shareholders' meeting, and that is planned to take place in April.
One topic I still want to mention is our balance sheet and the net debt level. As you can see, the net debt has increased during '22 due to the strategic acquisitions we've decided to conclude. Our cash flow generation is typically seasonally strongest around the year-end, both before and after. And consequently, our leverage was down in the fourth quarter. At year-end, it was just a bit above our long-term target of 2.5%.
Another topic I want to mention is the extension of our financing agreement. Our financing package originates from 2 years ago when Sitowise was listed on the stock exchange. We have now used the option to extend the maturity -- to extend the maturity of the existing financing package and the maturity is now until March '26. The terms remained the same as the earlier. We are comfortable with the current balance sheet structure.
And now back to Heikki.
Thanks, Hanna. And then market outlook and our guidance for this year. So firstly, about the market. Demand for our services is supported by the megatrends, urbanization, renovation backlog, digitalization and also the climate change. There are still uncertainties in the market, which may continue to impact our clients' short-term decision-making. But we don't see that the impact our business so significantly. Demand for the digital solutions remains strong. Infrastructure business outlook is also relatively more stable than in the Building. Construction markets the uncertainty has increased further, especially in Finland. And then Sweden, the outlook has remained overall more stable.
I also would like to mention that the other impacting factors in '23, such as pretty high cost inflation, wage inflation, less working days than in '22, which had an impact on our business, clearly. Potential currency fluctuations and then also higher interest expenses. For all of these, we have also actions ongoing and they are progressing well.
Then about the guidance. So we estimate that our net sales in euros will increase compared to 22% and that our adjusted EBITDA margin will be broadly at the same level as the margin was last year.
So this was more about the financials. And now let's move on to our new strategy for the -- for the next 3 years. So firstly, I'm really excited about launching our new strategy. I've been now in the company for 10 months, and I feel that this is exactly the right moment to come out with new strategy and then, of course, start to execute it. The strategy builds on our clients' needs, our core competencies and the achievements of the previous strategy period that ended last year. We have a really solid foundation to continue.
Then let's look at our one page and first on the left-hand side. What stays the same is that who we are and what drives us in Sitowise. As part of our strategy process, we defined for the first time our company purpose. Empowering passionate experts to solve complex challenges. This means that we at Sitowise go to work to solve problems for our clients. Our experts who see challenges as inspiration are the heart of our company. And challenges as well as opportunities presented by the megatrends create a growing need for open-minded thinking. As a company, we want to offer the best environment for capturing the opportunities. Our 5 values, which you see also on the left-hand side remain unchanged, and they built the foundation for our company culture.
Then moving on to the right-hand side. Our vision was revised to reflect the direction where we want -- direction we want to grow. We want to redefine smartness in cities. And to reach this vision, we build our expertise on innovation, sustainability and efficiency. Let's look at this more closely.
So redefining smartness in cities. When thinking about the future, we see a growing need for redefining how smart is seen. We need to understand the big changes going on globally. Actually, the changes are so big that they are even hard to craft such as climate change, urbanization, growing maintenance backlog digitalization, declining biodiversity and urgent need for the circular economy. We need to be able to see how all these affects the every day of people leaving in the build environment. How it impacts our clients' needs and finally, the projects that we do and the services we will be providing.
With our new vision, redefining smartness in cities, we voiced our ambition to be the pioneer and partner whose expertise brings added value in the middle of this continuous change. We built our expertise on 3 strategic pillars. So we want to be the most innovative, most sustainable and most efficient.
The most innovative. Our goal is to develop and engage our people and also our partners to innovate smart solutions that accelerate the industry transition.
We have 3 directions here: Firstly, we will expand Smart City solutions in all of our business areas. This will be done by capturing new growth opportunities by leveraging our strong competencies around organization to create value-adding digital services by improving efficiency and by helping our clients to solve productivity issues. We want to bring smart and sustainable solutions to the forefront of our sales.
Secondly, we continue building a scalable SaaS business, leveraging our broad expertise throughout the life cycle. We will develop and engage our people and partners to innovate towards client and end user needs. And thirdly, we will enrich design environments and processes with new solutions. To do this, we will implement new customer applications to our Voima platform, which is our operating model for the expertise. We will also build company-wide data and analytics capabilities to develop new use cases for design data and then optimize also workflows. And here, you can see some examples of the KPIs what we have for this strategic pillar.
The most sustainable. So sustainability has been in the core of our operations already in the previous strategy period. We truly believe we can make an impact. We want to lead the way to sustainable future by understanding our clients, existing and also the emerging needs and by solving them. Sustainability will be an integral part of our expertise and all client projects. In more concrete terms, we will grow our database strategic sustainability services for the built environment. We will also consider extensively how sustainability affect everyday work and develop our own operations as responsible as possible. We will also continue to develop our own operations in line with our sustainability strategy targets, which have been said earlier.
And then the third one, the most efficient. We will optimize our ways of working, including sales, customer processes, tools and meaningful data creation and usage, to provide the best value for our customers and to maintain the industry-leading profitability to be able to grow and develop further.
Then about the KPI still. Developing of our experts is the foundation for our meaningful and sustainable work. We continue to monitor our key KPIs for our brand, people and culture and to ensure that we can attract and keep the best talent in our industry working for us and for our clients. We also have strong commitments for being the most profitable company in our industry. Our financial targets and our dividend policy, they will remain the same as earlier.
We also have defined 6 focus areas, strategic focus areas that guide the strategy execution. The first 3 ones are the growth engines, creating new smart services for all of our business areas, accelerating growth in Sweden and then further expanding the already sizable digital solution business what we have. And the next 3 are the enablers for the growth. We want to become the thought leader in sustainability. We also want to be well known and desired employer. And then we want to find the smartest ways to work. We will discuss actually all of these in more concrete terms as well as the performance metrics shown earlier in our Capital Markets Day, which will be held on Wednesday, 7th of June.
And then here are all the elements of our strategy gathered on one page. So just as a repetition. So left-hand side is about who we are and who we want to be. Right-hand side, what do we want to reach? Where are we going? And also the strategic pillars are seeing there, also measuring our progress. And then the focus areas are seen in the bottom. And as I said, we'll discuss this in more detail in the Capital Market Day, which will be held on the 7th of June. And then a formal invitation, including agenda details will be distributed closer to the event, but please mark this to your calendar already.
But now it's time for questions.
Yes, we have received some questions from the audience. And let's start with the ones related to financial performance. So first, we have a few questions from Olli Koponen, Inderes. The first goes, your expenses grew ahead of your revenue in Q4. When do you see this trend turning around? And are there some one-off items that should be taken into account?
Do you want to take, Hanna, these ones?
Yes, I can at least start then you can complement if I miss anything. Yes. Well, as I said, there were some kind of integration costs and, let's say, inefficiencies that we saw in Q4. For example, this IT migration in Sweden caused some loss of working hours when people were moving from one system to another. So that's just one example. Then I think we are kind of facing this cost inflation pressure that we have talked about all the time, but we are kind of trying to fight it and then, of course, move as much as we can to the prices. And then I think, overall, kind of these market impacts are more on the top line. But then, of course, when you compare costs and top line, then that's visible in the ratio.
Yes. And really about this cost side, we have several actions ongoing to like impact on that ratio there. So -- and I'm confident that we will be successful with that one this year.
Okay. And then the next one is related to forecast and margins. Margins are projected to be roughly flat during 2023 in your guidance. What is the scenario behind this development? And why are you not seeing that you couldn't improve your performance?
Yes. Of course, we want to capture the growth opportunities and there are several of those, which can be supporting us like Digital Solutions, growth and a bit better market situation in Sweden renovation business growth and also, of course, our ability to escalate prices. Still, having said all of that, we see that the overall market uncertainty, which is impacting our -- Building business is something that is a bit more difficult to see what is the impact of that one. And then, of course, like the high cost inflation, especially the wage inflation will be impacting us as well. And maybe I still mention this number of working days as well because in our business model, it has a clear negative impact for this year.
And then as an additional question to that. Are there any internal challenges that would impact the forecast or the margin forecast given?
I would say that not any internal.
No, I think we will obviously have this kind of integration activities. And we -- as we are buying companies and integrating them, that's, of course, something that we need to kind of also put efforts on but that's part of the normal business, and I wouldn't say there are any kind of issues with that.
Okay. And then turning to an other topic, still a question from Olli Koponen. M&A activity has slowed a bit during H2 '22. How do you see the market and opportunities there?
Yes. We see that, of course, we are keeping our eyes open all the time. There are clearly, of course, opportunities. We naturally want to be really selective with our M&A. We only go for the cases where we see that there would be like a good strategic fit. And also that the financial performance of the company is strong and the management would be really engaged, then we only see that there will be like a good fit to us overall. Of course, we've had a bit higher leverage lately. So we're also working -- we are also now working with that one. So -- but we'll keep our eyes open as said.
Okay. Then we have a question about the -- related to the strategic pillars and especially efficiency and innovation. So efficiency comes from streamlining required tasks and maybe discarding less important tasks, innovation means entering the unknown and areas which are none of us knows well yet. Is it possible to combine innovation and efficiency? Or how do you see this?
Yes. We see that -- it's really possible. Of course, it's challenging, and we want to challenge ourselves. We have high ambition. But overall, of course, efficiency is something that relates to our like everyday project work. We want to help our people to perform even better in the daily work, remove waste from what we are doing and then being able to serve our customers even better. And those actions are already ongoing and will be a lot based on this. Voima platform, what we have been mentioning earlier.
Then the innovation side is that, of course, we are now building like a clear innovation culture. Screening the best opportunities from there and then making some selective bets. We believe that we can be successful with both of these.
Okay. Then we have a question from Mika Karppinen, Danske Bank. What kind of investments in personnel, the strategy requires?
I would say that, of course, it -- of course, it's really important that each one of our employees really understand what is our strategy? What is our goal? What do we want to achieve and that they see that they can fit to the picture or see their role in the big picture. So during this coming spring, naturally, we will be having roadshows internally and also externally. So they will have a certain impact, but they will be tied to the normal working practices what we have.
I can maybe also mention that, of course, this kind of innovation and sustainability and other things, they also require some training, but we are all the time being an expert company. We have different kind of trainings to our employees and, of course, now more and more tied to the strategic theme, so that they are all capable to kind of at the best level to provide this also to our clients. I think that's the
Really with our strategy now, we can clearly like a guide or focus, like maybe even better all of our events.
Okay. then Olli Koponen from Inderes asks. Can you name examples of your SaaS businesses? And what kind of recurring revenue are there going at the moment? Can you name some examples on the new sustainability businesses and which of those have potential in the future? And then -- or maybe we take the last question after these two.
Yes. About the SaaS, maybe the best example is what we have -- this leave point solution, which is meant for the forest -- how to maintain the forest, and that's the core of the Bitcomp company which we acquired, and that's now progressing really, really well the rollout, and we also see that business-wise, it will be a good opportunity for us.
Then we also have some other SaaS already in our other digital operations, but actually, now it's more about also screening the best ones from here onwards and focusing on them.
Then about the sustainability services, do you want to mention something?
Yes. Maybe sustainability. Of course, there are different kind of elements. They are really much related to the environmental consulting. So clearly about like the consulting work there, then now we are also thinking about new sustainability services, something that we can provide for our customers. Use the data what we have and provide insights for our customers. That's like a new item there, clearly.
Okay. And how will you utilize Voima platform? And how will that improve your efficiency?
Yes. So Voima is really the core of our project business, it's today used like really extensively in Finland and will be taken into use in, in Sweden. And of course, that really helps us to remove waste from all of our operations and make our people work easier. So in that sense, it improves further the efficiency. We will further develop Voima for our internal purposes, but are also using that in the future for the customer side as well. It will be then used for these new services, what we are talking about.
And then a question about working across the organization. How important is the collaboration between everyday engineering and digital services and programming going forward?
Yes. It's really important, of course. Of course, we have it away to some extent, but now with our new strategy, it's going to be really in the core. So that we really use all of the expertise, what we already have in the digital solutions team and our -- and the experts that we have there that we use experts, but also the competencies then to further build the smart solutions, which will be then used in all of our businesses.
Okay. And there is a question about AI. How do you see the role of AI, such as ChatGPT and the likes in Sitowise's business in future?
Yes. We are working with them. I see that they will be part of the business. And actually, maybe I'll mention again this because they're already in our AI, like R&D pipeline is a strong one. And so we are already working with those.
Okay. And then we have our final question, unless if there are more coming in. And that's about the growth focus going forward. Earlier, you were targeting growth, not only in Finland and Sweden, but on a more broad context and -- now it sort of sounds like you are more focusing on the existing markets. Is that right? Or whereby sort of pursue growth going forward?
Yes. Maybe like summarize it. So we want to further strengthen our position in Finland, clearly accelerate the growth and the profitable growth in Sweden. But actually, when it comes to the other countries, we are keeping our eyes open that we are ready to move on when there's an attractive opportunity.
Okay. So those were the questions. Thank you, Heikki and Hanna, and thank you for the audience for active participation to this webcast.
Thank you.