tieto q4/2014 · • recruitments, e.g. data analysts, industry consultants, information architects...
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Tieto Q4/2014Solid profitability and strong cash flow
Kimmo Alkio – President and CEOLasse Heinonen – CFOTanja Lounevirta – Head of IR
5 February 2015
© Tieto Corporation
Q4 2014 in brief
2
Solid profitability and strong cash flow
• Growth emerging in IT services driven by cloud services
• Increased investments in growth businesses
• High one-off restructuring costs in Product Development Services as guided
© Tieto Corporation3
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2012 2013 2014e 2015e
GDP growth, %
FinlandSwedenNorwayNordic region
Nordic IT services market expected to grow by 2%
• Tieto expects the Nordic IT services market togrow by around 2% in 2015
• Positive outlook in the Swedish economy whilethe Finnish GDP continues to contract
• IT services market strongest in Sweden• In infrastructure outsourcing, the market for
traditional services flat• Long-term growth (CAGR 2013–2018) in cloud
services around 30% – market size still small
IT market affected by economic outlook
Service Demand and economic cycles
Project services More volatile
Application management Less volatile short-term
Infrastructure outsourcing Less volatile, even positive impactduring downturn Source: Nordea Markets, Economic Outlook, December 2014
© Tieto Corporation
Renewing services and competences
4
Emergingservices
2012 2015 2020
Over-5%
Over20%
CAGR2-5%
Traditionalservices
Proactive measures to improve servicecompetitiveness announced in January• Recruitments, e.g. data analysts, industry
consultants, information architects andother CEM experts
• Planned reduction of 840 positions
Tieto’s growth drivers• Over 40% growth in Customer Experience
Management (CEM) in 2014• Industrial internet in start-up phase – first
pilots ongoing• Cloud services growing by 153% in 2014• Healthcare growth at 9% in 2014
Development in traditionalservices follow the market trend• Infrastructure management• Application management
Source: Multiple sources, Tieto estimates
Financialdevelopment
© Tieto Corporation
Q4 2014 key figures
6
Net sales• EUR 403 (405) million, -0.5%, organic growth in local
currency +0.9%• Divestments EUR 1 million• Currency EUR -9 million
• In IT services, organic growth in local currencies 3.5%EBIT• EBIT EUR 9.5 (17.3) million, 2.4% (4.3%)
• EUR 34.8 million restructuring costs• EBIT excluding one-off items* EUR 44.4 (42.0) million,
11% (10.4%)Order backlog• Order backlog EUR 1 784 (1 540) million
• 50% (56) to be invoiced during 2015• Total Contract Value EUR 672 (551) million• Book-to-bill 1.7 (1.4)Earnings per share and dividend proposal• EPS EUR 0.09 (0.21)• EPS EUR 0.47 (0.48), excluding one-off items*• Dividend proposal EUR 1.00 (0.90) per share, additional
dividend EUR 0.30 *) Excluding capital gains, impairments and restructuring costs
MEUR %
403 398 359 403 386 380 340 397
21 19
22 1 6
6
6
7.3 7.3
10.4 10.4
8.97.8
11.9 11.0
0
2
4
6
8
10
12
14
0
100
200
300
400
500
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Net of divestement and acquisitionsCustomer sales adjustedEBIT, % excluding one-off items*
© Tieto Corporation
Offshore ratio: IT services 43.8% (41.3%) PDS 62.0% (60.2%)
0.1 0.4 0.2 0.0 -0.1 0.2 0.2 -0.4
-0.50.00.51.01.52.0
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
15845 14933 14778 14318 14102 14126 13878 13720
43.1 44.2 44.1 45.3 45.4 45.9 46.3
0102030405060
0
5000
10000
15000
20000
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Quarterly development
7
MEURNumber of full-time employees and off-shore ratio
Net debt/EBITDA
-4%
Number of personnel down by a net amount of 598
%
Net salesMEUR
Employees
Net cash flow from operationsand capital expenditure
403 398 359 403 386 380 340 397
21 19 22 1 6
66
0100200300400500
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14Adjusted for divestments and acquisitionsNet of divestments and acquisitions
50.0 10.7 40.8 57.5 50.0 16.6 11.1 90.2-13.3 -15.7 -11.7 -17.8 -13.4 -7.2 -9.6 -12.8
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14Net cash from operations Capital expenditure
46.2
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Performance improvement continuesacross businesses
8*) Utilization improvement, quality and offshoring
8
Profit related totemporary
commercialterms
Salaryinflation
Q4 2013EBIT excl.
one-off items
Efficiencymeasures andsalary inflation
(net)
Q4 2014EBIT excl.
one-off items
Incentives Offeringdevelopment
Currencyimpact
Performanceimprovement in
SL/IG*)
Decreasein businessvolumes
IT servicesProduct Development Services
42MEUR
44MEUR
Increasein businessvolumes
© Tieto Corporation
130 102 111 63131 107 107 580
255075
100125150
Managed Services Consulting and SystemIntegration
Industry Products Product DevelopmentServices
Q4/13Q4/14
ServiceLines
IndustryGroups(IT services)
4% 8% / 2%*) -1%
-13%
4% 3%12%
-11%
Organic growth in local currencies byService Line and Industry Group
9
*) Comparable growth 2%
89 81 105 6890 82 115 590
25
50
75
100
125
Financial Services Manufacturing, Retailand Logistics
Public, Healthcareand Welfare
Telecom, Mediaand Energy
Q4/13Q4/14
© Tieto Corporation10
Service LinesFinancialServices
Public,Healthcareand Welfare
Manufacturing,Retail andLogistics
Telecom,Media andEnergy
Consulting and System Integration
Managed Services
ProductDevelopmentServices
Industry Products
© Tieto Corporation
Managed Services
11
MEUR %Customer sales• EUR 131 (130) million, up by 1%• Organic growth in local currencies 4%
EBIT• EBIT EUR 8.2 (0.4) million, 6.2% (0.3)• EBIT excluding one-off items*
EUR 9.0 (9.0) million, 6.9% (6.9)
Q4 highlights• Strong sustainable development throughout the year, also in Q4• Cloud services drive growth – Q4 sales up by 184% vs 2013
• In the full year, up by 153%• Represents 13% of MS sales in Q4
• Solid development in underlying operating margin continued• Service competitiveness and automation programme initiated in
January
*) Excluding capital gains, impairments and restructuring costs
120 125 117 130 127 132 121 1310.3
4.65.1
6.9
8.4
5.8
9.1
6.9
0
2
4
6
8
10
0
50
100
150
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Net of divestement and acquisitionsCustomer sales adjustedEBIT, % excluding one-off items*
© Tieto Corporation
Consulting and System Integration
12
MEUR %Customer sales• EUR 107 (102) million, up by 5%• Organic growth in local currencies 8%, comparable growth 2%
EBIT• EBIT EUR 10.4 (-1.6) million, 9.8% (-1.6)• EBIT excluding one-off items*
EUR 10.2 (7.7) million, 9.5% (7.6)
Q4 highlights• Good growth in Customer Experience Management services,
industry consulting and ERP-based solutions• Reduced revenues in traditional application management• Organic growth partly attributable to non-recurring items –
comparable growth around 2%• Healthy development in underlying operating margin continued• Increased investments in CEM and AM standardization, offering
development investments in early 2015 to be maintained at Q4level
• Strong order backlog expected to contribute to growth later in2015 *) Excluding capital gains, impairments and restructuring costs
101 101 91 99 99 95 83 106
7 72
2 1 11
1
4.7
8.9
10.4
7.6
11.2
7.4
11.69.5
0
5
10
15
0
50
100
150
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Net of divestement and acquisitionsCustomer sales adjustedEBIT, % excluding one-off items*
© Tieto Corporation
Industry Products
13
MEUR %Customer sales• EUR 107 (111) million, down by 4%• Organic growth in local currencies -1%
EBIT• EBIT EUR 17.4 (28.3) million, 16.3% (25.5)• EBIT excluding one-off items*
EUR 19.6 (28.5) million, 18.3% (25.7)
Q4 highlights• Financial Services sales in Eastern Europe down
• Q4/2013 included a large delivery in Ukraine• Weak demand in oil & gas sector reflected in sales• Healthcare and welfare continued to grow• Profitability declined from exceptionally strong levels in Q4/2013
• Increased investments in offering development• Negative sales development and currency effect
• Challenges in Eastern Europe and oil and gas sectoranticipated to continue in Q1
*) Excluding capital gains, impairments and restructuring costs
104 100 91 111 100 97 91 107
5 516.1 15.8
22.125.7
15.4 15.6
22.3
18.3
0
5
10
15
20
25
30
0
50
100
150
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Net of divestement and acquisitionsCustomer sales adjustedEBIT, % excluding one-off items*
© Tieto Corporation
Product Development Services
14
MEUR %Customer sales• EUR 58 (63) million, down by 8%• Organic growth in local currencies -13%
EBIT• EBIT EUR -4.4 (-1.3) million, -7.5% (-2.0)• EBIT excluding one-off items*)
EUR 11.9 (2.7) million, 20.5% (4.2), mainly driven by temporarycommercial terms
• Normalized margin expected to be below 10%
Q4 highlights• Sales continued to decrease due to insourcing by one key
customer• Q1 sales expected to substantially reduce
• Sales for the key customer are expected to account forless than 2% of the Group revenue in Q1
• Cost base aligned in parallel with the reduction inbusiness volumes
• Promising new customer wins, e.g. Samsung
77 71 60 63 60 55 46 54
9 8
55
411.6
2.6
7.94.2 2.6
6.1
8.9
20.5
0
5
10
15
20
25
0
25
50
75
100
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
Net of divestement and acquisitionsCustomer sales adjustedEBIT, % excluding one-off items*
*) Excluding capital gains, impairments and restructuring costs
© Tieto Corporation15
Industry Groups
Consulting and System Integration
Managed Services
ProductDevelopmentServices
Industry Products
FinancialServices
Public,Healthcareand Welfare
Manufacturing,Retail andLogistics
Telecom,Media andEnergy
© Tieto Corporation
Financial Services
16
MEURCustomer sales Q4• EUR 90 (89) million, up by 2%• Organic growth in local currencies 4%
Sales split by service line
2014 2013MS 45% 44%CSI 21% 18%IP 34% 38%
Q4 highlights• Good development with several large existing and new
customers in the CSI and Managed Services• In Industry Products, Financial Services sales in Eastern
Europe down• Q4/2013 included a large delivery in Ukraine
• New major agreements with If Insurance and Veritas PensionInsurance
*) Excluding capital gains, impairments and restructuring costs
79 83 77 87 82 83 76 89
2 11
11 1
1
1
0
25
50
75
100
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14Net of divestement and acquisitionsCustomer sales adjusted
© Tieto Corporation
Manufacturing, Retail and Logistics
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Customer sales Q4• EUR 82 (81) million, up by 1%• Organic growth in local currencies 3%
Sales split by service line
2014 2013MS 51% 48%CSI 38% 41%IP 11% 11%
Q4 highlights• Good development attributable mainly to outsourcing activities
• Strongest growth in the manufacturing sector• Increase in sales somewhat curbed by some expiring
contracts, especially in the retail segment• Strong order intake throughout H2/2014, contributing mainly in
H2 2015• New major agreements with Kesko and RAY
*) Excluding capital gains, impairments and restructuring costs
MEUR
75 76 69 80 79 78 73 82
1 21
1
0
25
50
75
100
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14Net of divestement and acquisitionsCustomer sales adjusted
© Tieto Corporation
Public, Healthcare and Welfare
18
Customer sales Q4• EUR 115 (105) million, up by 10%• Organic growth in local currencies 12%, comparable
growth 10%
Sales split by service line
2014 2013MS 38% 37%CSI 24% 24%IP 38% 39%
Q4 highlights• Healthy growth in both public sector in Finland and Sweden
and healthcare and welfare• In Finland, deliveries related to national interoperability to
healthcare customers in the public sector to be completed inQ1
• Several new agreements, e.g. Finnish Parliament andJämtland County Council
*) Excluding capital gains, impairments and restructuring costs
MEUR
101 97 90 105 100 104 91 115
5 5
0
25
50
75
100
125
150
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Customer sales adjustedNet of divestement and acquisitions
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Telecom, Media and Energy
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Customer sales Q4• EUR 59 (68) million, down by 14%• Organic growth in local currencies -11%
Sales split by service line2014 2013
MS 19% 20%CSI 43% 44%IP 38% 36%
Q4 highlights• Interest in starting new projects is low in all segments, the
demand in oil and gas segment has remained weak• In energy utilities, customers starting to prepare for regulatory
changes and harmonization in the Nordics, delaying ITinvestments
• A number of new customer wins in energy utilities*) Excluding capital gains, impairments and restructuring costs
MEUR
70 70 63 68 65 60 54 59
5 4
0
25
50
75
100
Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14
Net of divestement and acquisitionsCustomer sales adjusted
© Tieto Corporation20
Accelerating growth in focus
2012Build the
foundation
2013Execute the
structureand
efficiency
2014Reorientingfor growth
2015Accelerate
growthportfolio
2016+Expandmarkets
• Accelerate customer renewal throughdigitalization
• Scale growth businesses – CEM, Industrialinternet, MS cloud, IPR
• Accelerate modernization AM and Infra
• Modernizing customers’ infra and apps• Expand customer base in the Nordics• Launch new cloud services• Improve customer experience and quality• Continue simplification and efficiency
• Expand proven growth betsbeyond the Nordics
• New growth bets e.g. IPR
© Tieto Corporation
Tieto targetprofitability 2016
Average market growth
Consulting and System Integration
2012 20142016
Tieto targetprofitability 2016
Average market growth
Industry Products
2042012
20142016 Tieto target
profitability 2016
Average market growth
Product Development Services
2012
2014 2016
IT service businesses progressing towardslonger-term ambition
21
Tieto targetprofitability 2016
Average market growth
Managed Services
201220142016
Note: 2016 describes the ambition set in 2012 (excl one-off items)
© Tieto Corporation
Cloud services, e.g. Tieto Cloud Server and Tieto Productivity Cloud
Targeted investments to accelerate growthInvestment level of EUR 50 million to be maintained in 2015 and new growthareas to be evaluated
22
Modernization of services in application and infrastructure management
Selected industry products: financial services, supply chain management, oil & gas
CAGR ~20%, EUR >5B CAGR ~50%, EUR >5B CAGR >4%, EUR ~1B
Big and high growth market in the Nordics by 2020
CustomerExperience
ManagementIndustrialInternet
Lifecare
9% growth inHealthcare
Over 40%growth in
CEM
*) Traditional services within the CEM practice excluded
Over EUR 20 million *)
sales in 2014
Customer pilots andsolution concepting(incl. IPR) ongoing,
pipeline growing
HCW aroundEUR 160 million sales
in 2014
153% growthin cloudservices
© Tieto Corporation
EBIT 2015
EBIT 2014
Performance drivers in 2015
23
• In PDS, sales anticipated to decline in the full year• Impacted by the insourcing decision by one key customer – sales to the customer less than 2% (5) of
the Group sales in Q1, contract ending in early Q2• Cost base planned to be adjusted in parallel with the reduction in business volumes• No major effect on total net cash flow due to the release of net working capital
• Profitability drivers in IT services• We aim to organically grow in line with the market• Gross savings of EUR 35 million, incl. measures started in 2014 and 2015• Recruitments of new talent in growth businesses• Investment levels (OPEX) in high-growth businesses maintained at least at the level of 2014• Restructuring costs for measures announced in January 2015 estimated to be EUR 35 million
Sales growth New hires Salary inflationPlanned
redundancies
Profitability drivers in IT services
© Tieto Corporation
Guidance for 2015
24
Tieto expects its full-yearoperating profit (EBIT)excluding one-off items toincrease from the previousyear’s level (EUR 150.2million in 2014).
© Tieto Corporation
Capital structure addressed – dividends increasingwhile maintaining flexibility to invest in growth• Proposed dividend EUR 1.00 (0.90) per share,
up by 11%• An additional dividend of EUR 0.30 is proposed
due to strong cash flow and targeted capitalstructure
• Dividend yield of 6%, or close to 5% excludingadditional dividend
25
0.70 0.75 0.83 0.90 1.00
0.0
0.5
1.0
1.5
2010 2011 2012 2013 2014
Dividend/share, EUR
*) Additional dividend of EUR 0.30
0.3 0.40.2 0.1
-0.4-0.5
0.0
0.5
1.0
1.5
2010 2011 2012 2013 2014
Net debt/EBITDA• Net debt/EBITDA to be maintained below 1.5 inthe long run
• Strong balance sheet offers strategic flexibility forgrowth, incl. M&A
Dividends andgrowth investments,
including M&A
0.30*
© Tieto Corporation
Q4 2014 in brief
26
Solid profitability and strong cash flow
• Growth emerging in IT services driven by cloud services
• Increased investments in growth businesses
• High one-off restructuring costs in Product Development Services as guided
Appendix
© Tieto Corporation
We enable enterprises to reinvent businessmodels through cloud services
Traditional - on premiseinfra and applications
Modernization of infra-structure and applications
Pay-as-you-go /freeservices
Flexible andalternativebusinessmodels
Public cloud
Private /enterprise cloud
Tieto Cloud ServerGovernment CloudTieto Productivity CloudSAP Dynamic LandscapeGoogleArchiving as a ServiceLifecare as a ServiceMill-in-a-BoxSmartUtility
© Tieto Corporation
Top 10 customers 2014
30
• City of Stockholm• Ericsson• Finnish Tax Administration• IF Insurance• Kesko• Nordea• Nokia• OP-Pohjola Group• S-Group• TeliaSonera