Interview with Kreate Group’s CEO Timo Vikström

For those who have not heard about Kreate Group, could you tell us about your business, what you do, and what markets you are active in?

The companies that Kreate Group consists of a combined history of nearly 300 years in the construction industry, all of which is focused on infrastructure.

At our beginning, a private equity investor identified an opportunity to position a company between the large and small players in the market. As part of this strategy, three prominent companies were acquired as a foundation: the leading bridge-building company in Finland, one of the top firms in ground engineering, and a significant player in road and street construction. These acquisitions formed the core of what Kreate is today – since then, Kreate has made seven additional acquisitions to fuel its growth, including acquisitions related to railway construction and the Swedish market.

In terms of market presence, Kreate is active in both Finland and Sweden. In 2022 we  acquired a Swedish company specializing in rock engineering and concrete work in tunnels, which has facilitated our growth in the Swedish market. Currently, around 15% of our revenue comes from Sweden, with the remaining 85% from Finland.

Kreate is recognized as a leader in Finland’s infrastructure sector. We are particularly known for our expertise in bridge building, ground engineering, and geotechnical solutions. Currently we have a joint venture with Keller, a global leader in geotechnical services, which strengthens our position in Finland. In terms of size, we rank as the third largest infrastructure company and the tenth largest in the broader construction industry in Finland.

Kreate Group is entirely focused on infrastructure. We went public on the Helsinki Stock Exchange in early 2021. Presently, approximately 50% of our shares are held by our board and personnel, reflecting the strong commitment of our team.

How does your business differentiate itself from competitors, and how does this help you in winning contracts?

When comparing the building construction market to infrastructure, the infrastructure market is notably stable and resilient. While the building construction sector experiences considerable volatility, infrastructure projects tend to have a much more consistent volume. This stability provides us with a predictable outlook, which is advantageous for planning and growth.

What really sets Kreate apart from other players in the market is our selective approach to project acquisition. Unlike competitors who take on a broad range of assignments, we focus exclusively on a few specialized areas where we aim to be among the leaders. We leave the bulk of standard projects to others, choosing instead to concentrate on technically demanding projects where we can truly excel.

This selective strategy requires a higher skill threshold among our team. We believe we have some of the most skilled professionals in the market, enabling us to successfully undertake complex and challenging projects. Consequently, Kreate is more likely to be involved in projects with high technical demand.

With technically demanding and complex projects comes a need for high level of expertise, including not only technical expertise but also systematic process for evaluating risks. Our thorough approach to managing and mitigating risks allows us to tender and handle complex projects effectively, giving clients confidence in our ability to deliver quality results under challenging conditions.

You mention in you Q3 report that the market outlook for Sweden looks strong in the short term, whilst the Finnish market remains neutral. What are the main trends that you are seeing in both markets today, and how are you positioned to capitalize on these trends?

We’ve observed similar trends in the construction markets of both Sweden and Finland. Both countries are currently experiencing challenges in building construction, especially in the residential and housing sectors, where the numbers are particularly weak. However, the infrastructure sector remains robust in both markets.

In terms of market size, Finland’s infrastructure market is approximately 9 bnEUR, whereas Sweden’s market is over twice as large, providing significant opportunities for growth. By focusing on our core competencies and carefully selecting projects that align with our expertise, we see substantial potential in the Swedish infrastructure market. Since entering this market two years ago, we have more than tripled our  revenue, likely exceeding our 2024 target of SEK 320 million. Our Swedish operations are profitable, even outperforming our Finnish business in terms of profitability.

Currently, we are a niche player in Sweden, specializing in  rock and concrete construction. Currently we are expanding in the geotechnical sector and have also recruited key personnel to strengthen our team in Gothenburg. In addition, we are expanding in the Stockholm area, where we see considerable growth potential.

Sweden’s infrastructure investments are supported by long-term public investment programs from the national government and major cities like Gothenburg and Stockholm. These programs provide ample room for expansion, allowing us to grow strategically in our target segments. I am confident in the potential of the Swedish market, both in the areas we currently operate and in new opportunities moving forward.

Can you tell us more about the projects you have in Sweden and your strategies for expanding your presence in the region?

Our largest project in Sweden to date has been Bohusbanan, where we have successfully renovated ten railway tunnels. This project highlights our commitment to leveraging our established capabilities as we expand in the region.

Our primary strategy in Sweden is to integrate our current capabilities with those we’ve developed in Finland. Historically, much of our work has been underground, primarily in tunnels, which is a strong area for us. However, we are now expanding our focus to include projects above ground. We have recently started our first earthworks and have bid on bridgework contracts. Additionally, we are advancing in ground engineering, broadening our scope to include various types of civil engineering projects.

This approach of combining our skills is key. Having the best talent, the best minds and hands, drives our success. In Finland, we have established a strong reputation and brand. Our goal is to gain the same level of expertise and reputation in the Swedish market.

Currently, our workforce consists of approximately 600 employees, with just under 100 based in Sweden. This number is increasing steadily each month as we continue to grow and take advantage of the opportunities we see in the Swedish market. We are confident in the potential for expansion in Sweden and are committed to building a strong local presence.

What strategies are you employing to increase profitability in the coming years?

Since I joined Kreate in 2017, we have tripled our revenue to 320 mEUR as of last year, and we’ve also tripled our employee count. As is often the case in the construction industry, profit margins remain tight. Achieving consistent success is crucial for delivering the expected results in line with our operating policies.

Our target EBITA margin is over 5%. While we reached that level a few years ago, several factors, including COVID-19, the energy crisis, the war in Ukraine, and cost inflation, have put pressure on our margins. Despite these challenges, we have remained profitable, but our margin has been lower than desired. Last year, our EBITA was 2,4%, but now we are back on the right track with 12 months rolling EBITA of 3,1% at the end of Q3.

Our approach to achieve the 5% target during this 2024–2027 strategic period involves a straightforward but disciplined approach. Construction is not about miracles or shortcuts, it’s about being selective, planning well, executing according to plan, and keeping commitments. By adhering to these principles, we can improve our performance even amid challenging market conditions.

Our process begins with selecting the right projects. In Finland, we target an addressable market of approximately 4–5 bnEUR, of which about 1,5 bnEUR arouse our interest. We submit bids on about half of that, with a hit rate of around 20%, which is exceptionally high for the industry, where the norm is closer to 10%. This selectivity helps us focus on projects that align well with our capabilities and profitability goals.

When we secure a project, careful planning and operational efficiency are critical. This includes managing people, machinery, and agreements effectively. A thorough understanding of contract terms is essential to ensure we deliver as promised and receive appropriate compensation. Every construction company encounters challenging projects from time to time, but for us, over 96% of our projects are profitable. Our goal is to reduce the impact of the non-profitable projects.

Where do you see Kreate Group in three years?

In three years, I envision Kreate Group maintaining its dominant position in Finland while significantly expanding our presence in Sweden. We have a clear strategy in place for Sweden, aiming to double or even triple our size in the Swedish market. Additionally, I see us entering new business segments in Sweden, similar to those we already serve in Finland.

We also aim to be recognized as the top employer in the infrastructure sector. Our commitment to employee satisfaction is evident in our recent Net Promoter Score (NPS) of 63, averaged across Finland and Sweden, a notably high score that reflects our strong internal culture.

One of our strengths at Kreate is building long-term relationships with clients. Once we complete an initial project for a client, they often return to us for future projects. Our customer NPS is 76 and we’re focused on improving the level of satisfaction. This trust is built on consistently delivering on our promises, honoring contracts, and maintaining clear communication. Our approach is straightforward: do what we say we’ll do and uphold high standards, fostering lasting partnerships with clients.

In summary, I see Kreate as a larger, more diversified company with a strengthened presence in Sweden, a strong reputation as an employer, and enduring client relationships across the board.

Could you give three reasons as to why Kreate Group is a good investment today?

• Stability and Reliability: Kreate Group has demonstrated consistent stability in a sector where fluctuations are common. Our performance has been steady, even though we acknowledge there’s room for growth in profitability. This consistency provides a reliable foundation, which I believe is valued by the market.
• Attractive Dividend Policy: Kreate Group is among the top dividend payers on the Helsinki Stock Exchange, with a history of generous payouts to shareholders. Our policy is to distribute at least half of the annual net result as dividends, taking into account Kreate’s financial position, cash flows and growth opportunities. Last year, we distributed over 100% of our net results with corresponding dividend yield of 6.6%, which shows our commitment to rewarding our shareholders. 
• Competitive Margins and Niche Focus: We consistently maintain margins above industry averages, outperforming many competitors. With few infrastructure-focused companies listed in the Nordic markets, Kreate occupies a unique position, offering investors exposure to infrastructure with a solid track record of above-average performance.