Siili Solutions Plc updates its long-term financial targets for the period 2025-2028
Siili Solutions Plc Stock Exchange Release 26 November 2024 at 9:30 a.m.
The Board of Directors of Siili Solutions Plc has approved the company’s updated financial targets for the period 2025-2028. The financial targets remain unchanged, but the target period is extended. Previously, the financial targets were for the years 2025-2026.
Targets 2025-2028
20 percent annual revenue growth, of which organic growth accounts for approximately half
Adjusted EBITA 12 percent of revenue
Net debt / EBITDA < 2
The aim is to pay 30-70 percent of the financial year’s profit as dividends
“The general situation in the IT services market has remained challenging, and the market recovery has taken longer than expected. We are committed to keeping the financial targets unchanged, but due to the market situation, we see that achieving the growth and profitability targets will take longer than we previously estimated," says CEO Tomi Pienimäki.
I’m watching Siili’s Capital Markets Day.
It was nice to hear from others besides just the CEO. And in many respects, a positive feeling emerged, even though the market is clearly still uncertain.
One highlight is that Siili has come up with the idea that AI Agents can lead to billing based on business value creation rather than expert hourly billing.
So the idea is apparently to build AI Agents for different tasks, develop and maintain them, and bill according to their value creation.
A good idea, although still partly theoretical, as enterprise-level agents are only now being more widely adopted.
It’s good to be involved in the development of AI Agents, because often in them, an LLM reads the task requirements and interprets them into functionalities it uses to perform the task. Their development can be faster than traditional AI models for tasks they are suited for.
I myself am trying to identify the strategy of an IT service company in relation to all the services that customers have in their entire IT development processes.
Nowadays, everything should start from business needs and strategy.
Here are, very roughly, the areas I have associated with client companies’ IT development:
The company’s strategy and business needs guide the functionalities that need to be developed for internal and external services.
The target state of enterprise architecture is based on the above, identifying common elements and processes of the entire architecture.
Common technical architecture solutions supporting the overall architecture: Data architecture, microservices architecture, etc.
System/Solution development and architecture
Software development and architectures, common practices for building software
DevOps, i.e., agile development teams dedicated to business-critical development, responsible for coding and partly for operations and infrastructure. As well as other xOps like MLOps.
“ITIL”, there must still be common processes and services for IT infrastructure that must work together with DevOps.
Management of all the above processes. On a small scale, something like Scrum, but companies should tie their strategy to development, so some enterprise-level Agile process like SAFe.
Until now, IT service companies, like Siili, have often primarily done software development, and the scope has been a defined system.
AI and its required data architecture strongly influence the overall architecture. Inference also often requires consideration of enterprise architecture (event architecture in real-time data, etc.).
So, in my opinion, Siili should clearly define its role within that entire scope, as, for example, hiring the right experts requires it.
Furthermore, the current shift towards companies wanting to manage the entire process themselves, including some architecture and coding roles, must be recognized.
However, not all clients have all the expertise, so the IT service company must provide the missing parts.
Joni has updated the company report after yesterday’s Capital Markets Day.
Siili held a Capital Markets Day yesterday, where it delved deeper into its AI-driven strategy, which it announced in the autumn. In addition, the company reiterated its financial targets but extended the timeframe. In our view, achieving these targets would require support from a better economic situation. We also added the small acquisition announced last week to our forecasts. Based on our forecasts, the stock’s valuation picture is challenging in the short term (2025 EV/EBITA 12x). As the economy and the IT services market recover, there is upside potential in the company’s operational performance and stock, but now is not yet the time.
What do Siili Investors (Siilisijoittajat) think about this company’s current valuation level? Gone are the days when Siili was praised in model portfolios for 7 years as a quality company yielding 22% p.a., for which it was worth paying P/B 4. Also gone are the days when a 12% EBITA margin was discussed, which, compared to the current P/S ratio of 0.38, seems at least interesting. Siili’s P/B ratio also currently appears to be 1.05, which seems ridiculously low compared to the fact that just a few years ago Siili was making a 20% return on Book.
Based on the valuation figures, the sentiment seems to be as depressed as, for example, with Kamux and Neste (both had ROE 20%+ a couple of years ago and now P/B~1).
@exai Good write-up on the market, but what do you personally think about the valuation? In my opinion, emotions have completely taken over, and despite the market being dismal and projects with dismal prices coming up, all of this has at least been factored into the pricing, and in my opinion, the stock is clearly undervalued. @exai Yes, P/S 0.38 means about P/E 4-5 with a 12% EBITA margin, if the company ever even gets close to historical profitability levels. This reflection is because, under the sway of emotions, investors think that the current poor performance will continue forever, which is why investments are not made at a time when the stock’s valuation is incredibly cheap. For example, Neste, Kamux, etc. @exai I personally don’t feel bad about the company at all; instead, I see it as a very good investment opportunity due to the collapse of valuation multiples, and I invested in Siili for the first time ever a couple of weeks ago. I don’t even understand much about the IT consulting industry, but the current valuation level is attractive. And yes, a 12% EBITA margin was discussed at least in this video
The sector in general is gloomy and highly competitive domestically. Siili encountered a market in crisis, apparently with low public sector sales, which is why there has been little buffer for these times. Now, many long projects with weak hourly rates may be ahead. Let’s hope that the most desperate price competitions have not been entered into with many smaller boutiques. Next year still looks weak. Perhaps private investments will start to recover with interest rate policy, but the government continues to tighten its belt. Business in this situation is sadly focused on the domestic market (2023 90/123meur), where internationalization seems to have been more about trying to find cheaper labor from mainland Europe.
The talk about AI at the core of the strategy generally feels questionable to me, and the communication on the topic has not convinced me of expertise or vision. Marketing materials have been printed, but the company’s reputation in my circle of acquaintances is, also due to this (“towards a ten-day work week!”), a bit embarrassing. The company doesn’t seem to know itself. True top experts in the latest technology generally don’t want to work for consulting firms like Tieto or Siili, which are a bit graying business types and marketing folks; instead, so-called bleeding edge expertise flows to them either with a delay or at a steep price. Consultants copy and propagate, they don’t particularly invent new things. And with the new trendy genAI, nothing substantial has really been done globally yet. Who knows how this expertise has been developed internally, or if it has been developed at all.
The “published” “book” looks nice, but no one reads it now, let alone later. Consultants who read anything will find similar material for their needs elsewhere, with a clearer focus and more up-to-date. A slightly more critical client would probably prefer to believe in thought leadership if Siili’s consultants’ CVs contained actual AI projects instead of just marketing material. This would probably be talked about if it existed. I understand very well why Gofore’s long-term public sector sales focus has worked, and I can guess why this won’t work. I wonder how much has been invested in the strategy, and how much new sales it has generated. I suspect ugly numbers.
So, these are my general thoughts on why I understand Siili’s valuation well: for a developer-investor, the company has not seemed high-quality for years, and it won’t change with advertising. Profitability has been weak since before COVID, and through several CEOs since then. I wouldn’t expect a miraculous recovery next year, even considering the markets. I see that in this competition, Siili has calcified, and it does not enjoy the scale advantages of a player like Tieto.
On the other hand, unless something truly strange happens, the domestic software business will continue to be consultant-driven. That’s bad for innovation, but an advantage for service houses. Prices should be raised, salaries trimmed. If I believed otherwise, the buying decision would be easy. Since I don’t believe, it’s better to watch from the sidelines.
So, is a P/S approaching zero a big or small number?
In my opinion, instead of the markets, I wrote about why I expect Siili to underperform in the future: I don’t trust the company’s management or strategy, and therefore not the development of its culture or expertise either. The company doesn’t have a great reputation among those famous top experts. Of course, a low-quality company has a price at which it’s worth buying. Even then, one should find some justification for why the stock price would rise. You can get Vincit even cheaper with P/S. On the other hand, here we’ve been watching declining revenue. In addition to this, the company should also make a profit. In that regard, Siili has been weak since around 2017.
Projecting these bad feelings onto others feels inappropriate (as does this quoting method) in a discussion to which you yourself contributed a “pulled out of a hat” 12% EBITA. Now we are talking about a company whose profitability has been weak for almost a decade. I don’t know about eternity; I only predict, knowing something about this segment, that poor performance will continue. If the company’s current or projected business is not interesting for the emotion-free analysis you are demanding, then let’s continue talking about our different things.
Here are Joni’s preliminary comments as the company releases its results on Thursday.
Siili Solutions will publish its financial statements on Thursday, estimated by 9:00 AM at the latest. Siili’s last year was difficult. We expect the decline in revenue to have continued clearly and profitability to have been at a weak level in Q4. Additionally, we expect the company to guide revenue and profit to be at the comparison period’s level or to grow slightly. Siili held a capital markets day late last year, where it delved into artificial intelligence. The capital markets day video can be watched here and our comments can be read here.
You wrote in your text that Siili has almost never been profitable, and growth has been poor. You should definitely go look at the numbers again. I have followed and owned it almost since it came to the stock market. The emphasis has been too much on the private sector, and the business revenue has been too concentrated in Finland, which is why it is currently weak. The Gofore you mentioned is in a completely different business and is not a direct comparison, except perhaps by 10 percent. Then there’s the point that good professionals don’t go to Siili; it’s partly true, but at Siili, they specifically get to realize themselves, and research figures can be found online where this is proven. Siili has also shown these studies itself sometimes. So, it’s probably worth getting to know the companies instead of explaining the feelings of a single friend; we are talking about a workplace for 1000 people, and there are always individual bad experiences in every field from every company.
Regarding profitability and revenue, if the world doesn’t collapse, and if the economy in Europe alone, and consequently in Finland, improves even a little, then a small improvement this year is clear. Next year, if we can achieve, for example, 10 percent growth, profitability could increase significantly with it. Currently, no one is developing properly in Finland, which means that developers are defending their profitability the most here. As for AI and the lack of strategy, I encourage you to watch the entire Capital Markets Day; I myself got a very clear picture of a clear strategy.
I didn’t say that, but rather that the company’s profitability has generally been weak (e.g., compared to the sector). TietoEvry’s 15% EBITDA is not a dream; the aforementioned 12% is probably a record if one starts digging into the company’s reporting (I might be wrong about peak years). There’s no immediate return to that. It’s allowed for a growth company, but now there is no growth. And I don’t believe it will come with this management. Success is weaker than the market.
\u003e Then there’s the point that good experts don’t go to Siili, which is partly true, but at Siili, they specifically get to realize themselves, and research figures can be found online where this is proven. Siili has also sometimes shown these studies itself. So it’s probably worth getting to know the companies instead of explaining individual friends’ feelings; we’re talking about a workplace for 1000 people, there are always individual bad experiences in every field from every company.
Please show us that study, according to which employees at Siili “realize themselves”. It sounds like internal company propaganda (are you writing from there then?), which I have heard people scoff at. I have followed the company for a long time and owned varying amounts of its shares. It has about 800 employees, if even that anymore. Otherwise, I don’t see the need to defend myself or my background. Siili’s valuation speaks for itself.
Here are examples, and customer feedback can be seen publicly on customers’ own websites or Siili’s websites. Regarding experts, there is a lot of information that every second or sometimes I’ve read every third recommends it as an employer at least. And it’s worth looking at the latest results, it states the number of experts below, and it has been over 900 in-house staff, and external personnel are such that it breaks 1000. Go and check, the information is available. Every year it stays among the top contenders as an employer, even improving year by year.
I somewhat expected these to come up, but they have nothing to do with your claim of “self-actualization”. They are analytics metrics and polls that gauge the employer brand of a target group. Duunitori’s job postings are not read by top experts, but by poorly employed juniors.
My claim was rather that a company that won the Finland Young Professionals’ 10th most interesting workplace title (I could tell a story about this) is a firm that overqualified doctors or highly skilled and ambitious developers do not want, precisely for this reason. Here, the competition is primarily in the TietoEvry category.
Your communication is so off-topic that I don’t see the need to continue discussing your employer at this point. It’s good that you like your workplace. Hopefully, it will eventually show in the numbers.
Your comment is not only confusing but also inappropriate, but let me clarify that the number includes partially owned Supercharge and Vala, leaving the parent company and 100% owned One with somewhere around 800 heads. The number is certainly in decline, as I said. Edit: To be precise, the company has also acquired Haallas and, more recently, Integrations Group, so the number for direct parent company operations (and One’s close resourcing) is perhaps closer to 700.
I don’t work at Siili, but I follow the IT sector and have been following it for 10 years.
Here’s also that since you couldn’t be bothered to read the review
The average number of personnel during the review period was 956, to that it’s about 150 people short in procurement, let’s stop here, because you yourself don’t bring facts to your texts. Good continuation
Generative AI has been on everyone’s lips for a good two years, whether there was a business reason for it or not. Last summer, this was officially placed at the core of Siili’s strategy. Among consulting firms, this has been Siili’s self-defined specialization and differentiating factor.
Therefore, I would hope to hear something concrete from the management during the upcoming interview with @Joni_Gronqvist: how much of Siili’s recent sales and revenue comes from AI-related projects? Has AI business from the execution of the strategy amounted to, for example, over or under one million euros? Is AI-related project work over or under 1 or 5% of the company’s revenue, and with what trend?
In other words, what kind of fruit has the strategy borne? What kind of growth do we expect from the AI business this year? In the last interview, the strategy seemed to be completely forgotten, and now it’s probably time to show results.
I’m asking now because I expect the answer to be unfortunate, but not much in the way of positive signs would be needed for such a battered stock to start moving upwards. That’s why I’m following it here.
13.2. morning sentiments:
First impression of the report is lukewarm. Revenue slightly above my expectations, profitability weak but not catastrophic. Improving international business is a positive surprise, but is it coming from Corel or Supercharge?
Siili’s AI Strategy started in the summer of 2023. The focus was on AI-assisted programming and GenAI.
According to the Q324 results, this did not work well, because it is difficult to gain a significant competitive advantage from AI-assisted programming.
On the other hand, GenAI refers to the utilization of current GenAI applications (mainly language models).
Although customer-specific data can be fed to a language model and it can be fine-tuned, it does not bring endless benefits.
Siili acquired Integrations Group in November 2024. Integrations Group specializes particularly in the Boomi integration platform.
That clearly speaks of investing in corporate data architecture, and in my opinion, it’s a good direction.
Since then, Siili has hired various Integration Architects.
Now Siili can build data architecture for companies and make company data manageable for AI training and analytics.
Now, in addition to ready-made GenAI applications, they can build their own AI models to enhance business operations. They can, of course, use GenAI AI models for this (Transformer).
I would also add enterprise architecture expertise, as the production use of AI models may require comprehensive architectural considerations.
Of course, it would be good if Siili’s CEO could describe the current state of the AI strategy a bit more precisely in the Inderes interview.
I myself have reduced my holdings from just under 8 levels, but I moderately added today.
Edit Let’s put these from the results, before Inderes gives its comments
Revenue for October–December was 28.6 million euros. Inderes, which follows the company, expected a revenue figure of 26.8 million euros for October–December.
Siili’s adjusted ebita result for October–December was 1.4 million euros, while Inderes’ expectation for the fourth quarter was 0.5 million.
Quite strong guidance as adjusted EBITA is expected to be 4.7-7.7, meaning the midpoint is €6.2 million. Joni’s current forecasts, based on preliminary figures, are €5 million. Could adjusted EPS at that guidance midpoint be expected to be slightly under €0.6?
EDIT. The upper end of the guidance was stated incorrectly.
Let’s also include this information, because in addition to a reasonable result, Siili is reorganizing its organization through change negotiations. A good thing for the company. The news link did not work
Siili reorganizes its operations in response to market disruption brought by artificial intelligence Siili Solutions Oyj Press Release February 13, 2025 at 9:05 a.m.
Siili Solutions Oyj is initiating change negotiations in parts of Siili Finland’s and Siili Auto’s Finnish organizations. The aim of the negotiations is to better adapt the company’s competence profile to the strategy published last year and market demand, as well as to focus on supporting growth in strategically selected areas and to strengthen the company’s competitiveness and profitability.
A total of approximately 180 employees are covered by the change negotiations. The estimated need for staff reductions is a maximum of 35 people from Siili Finland’s operations and 11 people from Siili Auto’s Finnish operations, with some work possibly moving to Poland.
Through the change negotiations, Siili aims for total annual cost savings of 2.7 million euros by the end of 2026 compared to 2024. One-off costs resulting from the adjustment measures will be recorded in the company’s second quarter 2025 results.
Siili will announce the outcome of the negotiations once they are concluded. The change negotiations do not affect Siili’s guidance for 2025 revenue and results provided in its financial statement release.
