copyright © 2006 tietoenator corporation tietoenator q3 2006 20 october 2006 cfo timo salmela svp...

Copyright © 2006 TietoEnator Corporation

TietoEnator Q3 200620 October 2006

CFO Timo SalmelaSVP Päivi Lindqvist

IR Manager Paula Liimatta


Q3 progress and strategy ››Performance and outlook ››

Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006

Market situation

Overall demand and market activity is high

Pricing trends are positive outside the telecom sector and ICT operations services

Consolidation in the Nordic market has taken a new speed

For TietoEnator the biggest competition comes from the global and Indian players

Global sourcing is getting traction in more and more customer industries

Labour market activity is intensifying


TietoEnator status at the end of Q3

Progress in profitability and organic growth in a seasonally weak quarter Telecom & Media: return to growth and margin in-line with Q3 2005

– prices were lower than a year ago, but did not decline from the first half– utilization at a good level

Banking & Insurance: strong underlying organic growth continued and margin recovering in the international business

– UK improving with good prospects– plans for Germany are being finalized

Processing & Network performs very strongly boosted by strong Q3 seasonality in the infrastructure business

Postponed or underperforming projects still burden a few business areas


TietoEnator’s high-cost/low-cost transition

Transition toward long-term vision of 60/40 (high-cost/low cost) will continue– expansion of existing sites: Ostrava, Pune, Russia– acquisitions, subcontracting and partnering

0

500

1000

1500

2000

Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 060.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Czech and Poland Baltics and Russia

India, China, Malaysia and Indonesia Low cost of total %


Headcount growth addressed to low cost countries; net recruitment is limited in high-cost countries

Recruitment to cover leaves continues at high levels (980 employees recruited in high-cost Jan-Sep)

Employees in high-cost countries will move to roles with higher customer intimacy (consulting, sales, customer specific development and implementation)

Net recruitment (excluding terminations)

-50

0

50

100

150

200

Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2'06 Q3'06

High Cost Low Cost

Managing the low-cost transition in home markets


Recent newsflowNew contracts

1. Outsourcing contract with Siemens Com in telecom R&D 2. Outsourcing of mobile content services from DNA Finland3. ICT infrastructure hosting services for Stora Enso globally4. Life insurance system for Finnish OP Life Assurance and Pohjola Life

Insurance5. Complete systems replacement for Nottingham Building Society in the UK6. Production and development of Automatia’s centralized IT services, Finland7. IP Contact Center for O2 in Germany

Acquisitions

1. RTS Networks in Poland, a provider of telecom R&D services 2. Topas Consulting in Germany, SAP consultancy for the utilities industry3. Laps Care in Sweden, IT support for resource optimization in elderly care,

home care and home nursing4. Cymed in Germany, hospital information solutions and hygiene software5. Quickclic in Finland, wireless communication in welfare and healthcare


Divestment of non-core assets

Government businesses in Sweden, Denmark and Norway are sold to Sirius IT owned by Icelandic Siminn and the Danish management of the business

TietoEnator will release resources and capital to further develop its international business in its selected customer industries

The businesses are small and only in the starting phase of the partnership business unlike the Government business in Finland

The transaction will improve Government, Manufacturing & Retail business area’s operating margin

Does not include healthcare and welfare or processing and network services

Key facts

Net sales of the business EUR 45 million in the first nine months of 2006

Operating profit EUR 1.7 million Around 420 employees currently Closing expected at the beginning of

November Enterprise value EUR 26.4 million,

expected capital gain around EUR 9 million

Key facts

Net sales of the business EUR 45 million in the first nine months of 2006

Operating profit EUR 1.7 million Around 420 employees currently Closing expected at the beginning of

November Enterprise value EUR 26.4 million,

expected capital gain around EUR 9 million


Going forward

Focus on organic growth, profitability and cost control continues

Sales, marketing and acquisitive efforts will be intensified in international focus areas: banking, telecom, healthcare and forest

Home market businesses drive strong profitability and cash flow


Q3 progress and strategy ››

Performance and outlook ››


Financial highlights Q3 2006

Net sales growth 5% to EUR 397.0 million

Organic growth 2%

Operating profit (EBIT) before capital gains EUR 31.2 (34.6) million

Operating margin before capital gains 7.9% (9.1)

EPS EUR 0.26 (0.24)

Comparable EPS 0.31 (0.26)

Comparable EPS before intangibles, capital gains and stock options


Net sales by industry segment 9M 2006

Banking is growing the strongest and increasing its share of TietoEnator’s net sales

Healthcare and government are also growing strongly

Telecom sector is still the be biggest industry segment even though its share has declined due to price pressure

+25%

-6%

+2%

+3%

-1%

+10%

+10%Share of net salesChange

*Incl Retail, Logistics, Manufacturing

+10%

8%

13%29%

21%11%

5%

5%

8%

Banking and insurance Telecom and media Government Healthcare and Welfare Forest Energy Nordic regional verticals*) Non-allocated


29%

6%

6%

13%

45%

Finland

Sweden

Norway

Germany

Other

Net sales by country 9M 2006

Areas outside Finland and Sweden are growing the strongest at 19% and are now representing more than one quarter

Growth in Finland stronger than in 2005

Growth in Sweden is recovering

+4%+21%

-1%

+12%

+21%

Share of net salesChange, local currency


Top 10 customers account for around 35% of net sales– Ericsson telecom

– Kesko retail

– The National Board of Taxes (FI) government

– Nokia telecom

– Nordea banking and insurance

– Ruukki manufacturing

– Sampo (+ If) banking and insurance

– Siemens telecom

– Stora Enso forest

– TeliaSonera telecom

Top 10 customers 9M 2006


Banking & Insurance

Organic growth -1% based on tough comparison Margin improving mainly due to the recovery of

UK operations Good demand in banking solutions Joint venture TietoEnator Esy started January

2006 Insurance sector performing very well in Finland Profitability challenges in Germany

EBIT excluding capital gains

71 637267

8.7%6.2% 6.9% 7.4%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %

Q3 2006 Q3 2005Net sales, MEUR 63 64

Growth, % -1% 51%

EBIT, MEUR 4.7 8.0

EBIT, % 7.4% 12.6%

Employees 2 204 2 063


Telecom & Media

Back to growth in a seasonally weak Q3 Organic growth -2%, improvement mainly

due to the new outsourcing contract with Siemens

Profitability and utilization are improving and margin now in-line with Q3 2005

Price pressure continues, but not getting worse


150 135 119134

7.1%5.7%6.8%

16.5%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %

Q3 2006 Q3 2005Net sales, MEUR 119 114

Growth, % 5% 30%

EBIT, MEUR 8.5 8.2

EBIT, % 7.1% 7.2%



Q3 2006 Q3 2005Net sales, MEUR 51 52

Growth, % -2% 7%

EBIT, MEUR 2.3 4.1

EBIT, % 4.5% 7.8%


Government, Manufacturing & Retail

Q3 seasonally weak Organic Growth -1% Project overrun EUR 2.1 million reduced

growth and margin Good demand in all Nordic countries Government businesses in Sweden, Norway

and Denmark divested

– improves margin of the business area


65 66 51614.5%

8.1%7.5%8.5%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %


Healthcare & Welfare

Organic growth 6% Customers’ demands for functionality

postponed projects and licence revenue recognition

Investment in building up business in Continental Europe

Several small acquisitions finalized Fourth-quarter seasonally strong


Q3 2006 Q3 2005Net sales, MEUR 30 27

Growth, % 8% 25%

EBIT, MEUR 1.4 2.2

EBIT, % 4.6% 8.1%

Employees 1 232 1 09442 34 3036

4.6%5.3%4.4%

22.9%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %


Forest & Energy

Organic growth -3% Project overrun EUR 1.1 million reduced

growth and margin Big customer projects ending in the utility

sector Oil and gas business performing well Acquisition of German TOPAS Consulting


Q3 2006 Q3 2005Net sales, MEUR 36 38

Growth, % -5% 21%

EBIT, MEUR 1.6 4.1

EBIT, % 4.3% 10.9%

Employees 1 236 1 301413942

9.2%

6.7%

3.6% 4.3%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %


Processing & Network

Organic growth good level at 8% Profitability improvement continues based on

the consolidation process in 2005 Q3 seasonally strong for margin Good demand in the Nordic countries Restructuring EUR 0.6 million


Q3 2006 Q3 2005

Net sales, MEUR 89 82

Growth, % 8% -12%

EBIT, MEUR 12.3 9.0

EBIT, % 13.8% 10.9%

Employees 1 965 1 982 94 899190

6.9%

9.8% 9.6%

13.8%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %


Personec Group

Organic growth 4% Manpower acquisition boosted growth Strong growth in consulting, outsourcing

and ASP services continues Licence sales behind last year’s levels but

compensated by growth in consulting services

Restructuring EUR 0.6 million


Q3 2006 Q3 2005Net sales, MEUR 33 29

Growth, % 16% -1%

EBIT, MEUR 3.7 3.7

EBIT, % 11.2% 13.0%

Employees 1 189 1 02538 333737

11.7%13.7%

5.5%

11.2%

Q4 2005 Q1 2006 Q2 2006 Q3 2006

Net sales EBIT %


Employees

Gross recruitment at high level Most of net recruitment takes place in low-cost countries Employee turnover continues to increase

Q3 2006 Q2 2006Employees at the end of period 15 899 15 387Gross recruitment 639 483Leaves 393 385Layoffs 39 68Acquisitions and outsourcing 398 114Divestment 62 76Employee turnover (12-month rolling) 8.5% 8.1%


Balance sheet2006 2005 Change 2005

MEUR 30 Sep 30 Sep % 31 Dec

Non-current assets 732 720 2 717Loan receivables 15 12 31 11Current assets 555 469 18 485Cash 85 79 8 100Total assets 1,387 1,279 8 1,312

Equity 440 481 -9 501Interest-bearing debt 454 302 50 311Other non-current liabilities 80 91 -11 87Other current liabilities 413 406 2 413Total shareholders equity and liabilities 1,387 1,279 8 1,312

Net interest-bearing liabilities 355 223 200Gearing % 80 46 39Equity ratio % 33 39 40

Return on equity % (rolling 12 months) 24 20 27

Return on capital employed % (rolling 12 months)

21 27 30


Cash flow

Increase in working capital resulting in negative cash flow from operations Low investment activity Repurchase of own shares EUR 40 million in September

MEUR Q3 2006 Q3 2005 FY 2005

Cash generated from operations incl. financial net -18 59 223Income tax paid -5 -5 -18Net cash used in inv. activities -8 -11 -213Paid dividend 0 0 -80Repurchase of own shares -40 -38 -80Net cash used in other financing activities 47 -17 176Change in cash -23 -11 8

Liquid assets at end of period 85 79 100


Working capital development in Q3 2006

EUR million Jun Sep Change

Accounts receivable 308 311 +3

Other working capital receivables 194 225 +31

Working capital receivables 502 536 +34

Operative accruals 232 212 -21

Other working capital liabilities 210 182 -28

Pension obligations and provisions

41 57 +16

Working capital liabilities 483 450 -33

Net working capital in the balance sheet

19 85 +66

Related to the Siemens outsourcingEUR 20m pension receivable - to be paid in Q4EUR 10m working capital requirement - permanent

EUR 25m reduction in vacation pay- will increase back gradually

EUR 20m increase due to Siemens- permanent

High payments of payables, VAT, employee taxes - will increase back at least partly


Impacting on 2006 financials

The net of acquisitions and divestments is expected to contribute around 3% in the full year, which is less than in the 4% in the nine months

Divestment of government businesses in Sweden, Norway and Denmark expected to reduce net sales, impact on operating profit and margin is marginal

– 9M 2006 net sales EUR 45 million and operating profit EUR 1.7 million

– expected capital gain around EUR 9 million

No material restructuring expected for Q4

– EUR 12.9 million in 9M, around EUR 13 million for the full year

Partnership rewards in Telecom & Media EUR 4 million in Q4 2005, no material rewards expected for 2006


Outlook for 2006

Organic growth is expected to increase from 2005, but will be affected by the low growth prospects of the Telecom & Media business area and the increase in global sourcing

Financial performance is expected to be clearly better in Q4 than in the first nine months

Uncertainties in Q4 relate to the level of licence sales and to success in project control

Full year net sales growth is expected to be around 5% excluding potential new acquisitions

Full year EBIT margin excluding capital gains but including restructuring for around EUR 13 million expected to be around 8%


TietoEnator Q3 2006

Questions and answers »


Appendixes


Q3 2006 income statement excluding Personec

TietoEnator will de-consolidate Personec Group at the beginning of 2007 Indicative income statement, not based on official Personec Group accounts

MEUR

TietoEnator Group Personec impact

TietoEnator without Personec

Net sales 397 33 364Expenses 366 29 336Share of associated companies' result 0 0 0Operating profit (EBIT) 31 3 28Financial items -3 -3 0Profit before taxes 29 1 28Income taxes -9 -1 -8Net profit 20 0 20Minority interest 0 0 0Net profit for the shareholders ofthe parent company 20 0 20

EPS 0.26 0.00 0.26


September 2006 balance sheet excluding Personec

Indicative balance sheet, not based on official Personec Group accounts

MEUR

TietoEnator Group Personec impact

TietoEnator without Personec

Goodwill 474 -30 444Investments in associated companies 3 5 8Shareholders loan receivable/investment 0 46 46Interest bearing current assets 15 0 15Other assets 802 -29 773Accrued revenues and prepaid expenses 8 -8 0Cash 85 -8 77Total assets 1387 -23 1364

Equity 440 71 511Interest bearing loans 454 -134 320Other liabilities 493 40 533Total shareholders equity and liabilities 1387 -23 1364

Gearing% 80 45

copyright © 2006 tietoenator corporation tietoenator q3 2006 20 october 2006 cfo timo salmela svp...

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