Translation: Original published in Finnish on 10/11/2024 at 7:41 am EEST.

In the rest of the Nordic countries, organic revenue development turned upwards and profitability was at a reasonably good level in Q2. In Norway and Denmark in particular, the sector seems to have taken a tentative turn for the better. In Sweden, the market situation is still more difficult and uncertain as in Finland, but the Swedish economy has also taken steps for the better, supported by the interest rate cuts. We have previously published the Q2 summary of the Finnish listed IT services sector and the updated expectations for 2024.

Other Nordic countries back on growth track

In this review, we have included 12 Nordic listed IT service companies operating in the same service areas as the Finnish companies we monitor. The median working-day adjusted growth of the other Nordic companies was 5% and organic growth was 3%. The organic growth in the other Nordic countries was thus significantly better than that of the Finnish companies (-1% and -3%).

Denmark had 3, Norway 2, and Finland and Sweden 1 working day more than in the comparison period. The impact of one working day on revenue is around +1.7%. The working day adjustment we use is rather crude as it does not take into account the revenue generated by different companies in different geographical areas. However, this is not a major problem, as the domestic market is the largest for all companies. A summary table of the companies can be found at the end of the review.

Norwegians and Danes fare better

The market situation in Norway and Denmark in particular appears to have already improved, although uncertainty remains. Among the companies, the Norwegian Bouvet grew organically by 16% adjusted for working days and also Webstep's Norwegian revenue grew by around 5%, while its Swedish business shrank significantly. The Danish companies performed well too, with all three included Danish companies growing organically by 3-6% adjusted for working days. Their Danish operations developed even more strongly than this. Of the companies we follow, Witted has operations in Norway, and even there business picked up slightly in Q2, although the rest of the business was still very much down. Bouvet commented that its average hourly rates increased by 5.4% year-on-year, while the average wage increase was 4.0%. Thus, the positive leverage effect of customer price development is already quite evident for the company, which indicates a healthy market situation.

In Sweden, on the other hand, the market situation is still more difficult than in the other two countries, which was reflected in the development of the Swedish companies and, in turn, of the Swedish operations of the various companies. The main difficulties are in software development, as in Finland. In Sweden, however, the comments suggest that confidence in the improving economic situation and the turnaround next year has increased. This is also supported by a clear downturn in interest rates.

Profitabilities developed reasonably well

The profitabilities of Nordic companies improved on average, although there was considerable variation between companies. The median for companies was 7.2%, roughly the same level as in the comparison period, but the average increased by 1.6 percentage points to 8.1%. Profitability levels in Finland also improved over the comparison period, but were lower than in the Nordic peers (average 5.1% and median 3.5%). We estimate that profitability was supported in particular by improved operational efficiency (especially cost savings and improved billing rates). Several companies also benefited from higher revenues and improved gross margins (especially in Denmark and Norway). When comparing profitability, it is important to keep in mind the limited number of companies and their different business profiles, which are not examined in depth in this review.