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© Tieto Corporation
Public
Public
Tieto Q4 2016Year of increased investments ends
with solid performance
2 February 2017
Kimmo Alkio – President and CEO
Lasse Heinonen – CFO
Tanja Lounevirta – Head of IR
© Tieto Corporation
Q4 2016 in brief
2
Year of increased investments ends with solid performance
• Strong order intake with fourth-quarter book-to-bill 1.5
• Sales growth 2% in the fourth quarter, IT services up by 3%
• Adjusted operating margin over 12%
• Increased competitiveness driven by investments, continued automation and efficiency programme
• Dividend of EUR 1.37 proposed
© Tieto Corporation3
Outlook in the Nordic IT market remains solidSomewhat improved economic outlook in Finland
3
• Positive outlook in Sweden continues
• Somewhat improved outlook in Finland
Tieto expects the Nordic IT services market
to grow by 2–3% in 2017
• IT services market strongest in Sweden
• Market change driven by investments in
digitalization and efficiency improvement
• Emerging services expected to experience
double-digit growth – decline in
traditional services will continue-2%
-1%
0%
1%
2%
3%
4%
5%
2013 2014 2015 2016e 2017e 2018e
GDP growth, %
Finland
Sweden
Norway
Nordic region
Source: Nordea Markets, Economic Outlook, 1/2017
IT market affected by economic outlook
© Tieto Corporation
2015 2020
Emerging services - software & digital*
Traditional services
Sales growth in
2016–2020 (CAGR)
Industry solutions
Cloud and modernization
services
New data-driven businesses
Other integration and services
~ 50%
UP BY
10–20 %
DOWN BY
5–10%
Tieto's growth ambition for IT services:Faster than the market** (CAGR 2015-2020)
**Market growth expectation (CAGR) for the Nordics at 1.5–3%
Traditional infrastructure
and application services
*Includes high-growth businesses and internal start-ups which represented ~20% of IT services sales in 2015
Business mix shifting towards high-growth services
~ 50%
High-growth
businesses*)
• ~EUR 330 million, 24%
of IT services sales
• Growth 18%
Other emerging services
and solutions
• ~EUR 455 million, 33%
of IT services sales
• Growth 8%
Traditional services
• ~EUR 590 million, 43%
of IT services sales
• Down by 5%
Development
1–12/ 2016
4
IT services sales EUR 1 375 million
in 2016
*) Cloud services, Security Services,
Customer Experience Management,
Data-Driven Businesses and Lifecare
© Tieto Corporation5
Investing in competence renewal in 2016
2012 2015 2020
5
Emerging services
Traditional services
Our long-term renewal
supported by evolving
competence mix
2 700 total recruitments
Over 130 consultants recruited in Nordics
Close to 900 software developers recruited globally
Close to 100 architects
Gross recruitments in Sweden 370, in Finland 300
Headcount in India and Czech increased by 500
Net
increase
of 800
employees
© Tieto Corporation
Strong solution foundation to accelerate performance
– offering investments up to 75 mEUR
Selected
Industry Solutions
High-growth businesses
as from 2014 - Cross-industry solutions
Cloud &
orchestration
Financial services:
Banking and
payments Energy:
SmartUtility
Manufacturing:
Production
Excellence
Public sector:
Case
management
Oil & Gas:
Hydrocarbon
accounting
*) Growth in 2016
~10 mEUR
16% growth*)
~ 110 mEUR
36% growth*)
~170 mEUR
6% growth*)
Customer
ExperienceSecurity
servicesCloud &
orchestration
Data-driven
businesse
Healthcare:
Lifecare
~40 mEUR
34% growth*)
Started in
H2/2016
6
© Tieto Corporation
362 363 330 396 352 366 330 396
2 22
16 15
11
8
8,48,3
11,5
13,0
8,69,4
10,4
12,3
0
2
4
6
8
10
12
14
0
100
200
300
400
500
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
Net of divestment and acquisitions
Customer sales adjusted
Adjusted* EBIT, %
Q4 2016 key figuresNet sales• EUR 404 (396) million, +2.0%, growth in local currencies +3.5%
• Acquisitions added EUR 8.3 million• Currency impact EUR -6 million
• In IT services, sales growth 2.7%, or 3.9% in local currencies• Organic growth in local currencies 1.6%
EBIT• EBIT EUR 45.1 (46.8) million, 11.2% (11.8%)• Adjusted* EBIT EUR 49.5 (51.4) million,
12.3% (13.0%)
Order backlog • Order backlog EUR 1 847 (2 030) million• Total Contract Value EUR 613 (640) million• Book-to-bill 1.5 (1.6)
Earnings per share • EPS EUR 0.46 (0.47)• EPS EUR 0.51 (0.51), adjusted*)
7
MEUR %
*) adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
© Tieto Corporation
Long-term financial development favorable
8
Full-year net sales• EUR 1 493 (1 460) million, +2.2%, growth in local
currency +3.2%• IT services growth 4.3%, growth in local
currency +5.3%
Full-year EBIT• EBIT EUR 140.8 (125.2) million, 9.4% (8.6)• Adjusted*** EBIT EUR 152.2 (150.8) million, 10.2% (10.3%)
• Restructuring costs ~1% of sales • Savings based on automation and industrialization EUR 29
million• Includes EUR 3.3 (1.2) million in allocated acquisition-based
amortization
Dividend proposal• Proposed dividend EUR 1.37 per share
• Base dividend EUR 1.15 (1.10) • Additional dividend EUR 0.22 (0.25)
• Dividend yield 5.3%0,83 0,90 1,00 1,10 1,15
0,30 0,25 0,22
0,0
0,5
1,0
1,5
2012 2013 2014 2015 2016
Dividend/share, EUR
*) Proposed dividend
*)
**)
**) Additional dividend
***) Adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
1825 1607 1522 1460 1493
7,68,8
9,9 10,3 10,2
3,5 5,34
8,6 9,4
0
5
10
15
0
500
1000
1500
2000
2012 2013 2014 2015 2016
%MEUR Net sales and EBIT
Net sales, EUR million Adjusted*** EBIT,% EBIT, %
© Tieto Corporation
7,68,8
9,9 10,3 10,2
2,1 2,53,3
4,15,0
0
5
10
15
0
500
1000
1500
2000
2012 2013 2014 2015 2016
%MEUR Net sales, EBIT and offering development
Net sales, IT services
Net sales, PDS
Adjusted* EBIT,%
Offering development costs/Net sales %
Consistent performance improvement while
having increased investments
9*) adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
IT services sustainably driving growth
Increased investments in offering development• Annual offering investments up to EUR 75 million
from EUR 40 million in 2013• Offering development costs up by EUR 15 million in
2016
Other investments in 2016• Net recruitments 800 employees – impact on cost
base ~20 mEUR• Acquisition of Emric• Capital expenditure EUR 62 (51) million, around 4%
of sales
© Tieto Corporation
13456 12949 13179 13083 13197 13329 13709 13876
45,5 46,0 45,8 46,2 46,7 47,4 47,6 47,9
0
10
20
30
40
50
60
0
5000
10000
15000
20000
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
Number of full-time employees and offshore ratio
Number of personnel Offshore ratio
-0,6
0,0
0,4
0,1
-0,1
0,50,7
0,6
-1
-0,5
0
0,5
1
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
Net debt/EBITDA
Quarterly development
10
Number of personnel up by a net amount of 793
Offshore ratio: IT services 46.2% (44.6%) PDS 64.7% (60.7%)
%
MEUR
Employees
MEUR
362 363 330 396 352 366 330 396
2 2 2 16 15 118
0
100
200
300
400
500
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
Net of divestment and acquisitionsCustomer sales adjusted
36,712,4 16,4 67,1 46,9
-13,713,3 50,2
-11,6 -10,5 -8,7 -12,9 -9,4
-11,9-16,1 -24,3
-25
-5
15
35
55
75
95
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
Net cash flow from operations and capital expenditure
Net cash from operations Capital expenditure
© Tieto Corporation
0% / -2%*3%11% / 6%*
-1%
5%/ 1%*
12% / 2%*
2%
Growth in local currencies by Service Line
and Industry Group
11
Service
Lines
Industry
Groups
(IT services)
*) Organic growth in local currencies (not shown for businesses where acquisition impact is not significant)
196 34 133 33200 38 139 330
255075
100125150175200225
Technology Servicesand Modernization
Business Consulting andIntegration
Industry Solutions Product DevelopmentServices
Q4/15
Q4/16
93 134 137103 137 1370
255075
100125150175200
Financial Services Public, Healthcare and Welfare Industrial and ConsumerServices
Q4/15
Q4/16
MEUR
MEUR
© Tieto Corporation12
Service Lines
Technology Services and Modernization
Business consulting
& implementation
Industry solutions
Industrial and
Consumer ServicesPublic, Healthcare
and WelfareFinancial Services
Product Development Services
New
data-driven
businesses *)
*)Reported in Industry Solutions
© Tieto Corporation
Technology Services and Modernization
Customer sales in Q4• EUR 197 (196) million, +1%, growth of 2% in local
currencies
EBIT• EBIT EUR 26.2 (30.3) million, 13.3% (15.5)• Adjusted* EBIT EUR 27.7 (30.9) million, 14.1% (15.8)
Q4 highlights
• Cloud sales up by 23% in Q4, representing 22% of infrastructure services
• Strong growth in shared, standardized workspace services continues
• Service standardization and automation initiatives continue
• EBIT somewhat down due to exceptionally strong Q4/2015
• Measures to ensure continued competitiveness will affect operating margin mainly in the second half of 2017
• Q1 margin expected to be at the Q1/2016 level
13*) adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
190 192 177 196 190 196 179 197
8,7 9,3
13,2
15,8
10,2 10,8
13,4 14,1
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
0
50
100
150
200
250
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
%MEUR
Net of divestment and acquisitions
Customer sales adjusted
Adjusted* EBIT, %
© Tieto Corporation
Business Consulting & Implementation
Customer sales Q4• EUR 38 (34) million, +10%, growth of 12% in local
currencies• Organic growth in local currencies 2%
EBIT• EBIT EUR 2.0 (1.3) million, 5.3% (3.7)• Adjusted* EBIT EUR 0.7 (2.0) million, 1.8% (5.7)
Q4 highlights
• Growth supported by acquisitions of Smilehouse and Imano
• Demand strongest in Customer Experience Management and consulting services
• Investments in growth, incl. recruitments for eCommerce• Continued overcapacity in Enterprise Applications
• Significant agreements started during the quarter
• Utilization rate anticipated to improve based on the efficiency improvement programme
• Margin improvement expected to materialize as from Q2/2017
14*) adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
30 33 28 34 30 32 26 34
45
3
41,8
1,8-0,1
5,7
3,7 3,3
-4,9
1,8
-6
-4
-2
0
2
4
6
8
0
10
20
30
40
50
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
%MEUR
Net of divestment and acquisitions
Customer sales adjusted
Adjusted* EBIT, %
© Tieto Corporation
Industry Solutions
Customer sales Q4• EUR 138 (132) million, +4%, growth of +5% in local
currencies• Organic growth in local currencies 1%
EBIT• EBIT EUR 19.7 (20.8) million, 14.3% (15.7)• Adjusted* EBIT EUR 21.5 (21.5) million, 15.5% (16.2)
Q4 highlights
• FS growth supported by the acquisition of Emric, Lifecare up by 5%
• Strong order intake in all main businesses• Offering development costs up by EUR 5 million,
including data-driven businesses – impact of 3.6 %-points on margin
• Q1 margin anticipated to be at the level of Q1/2016
15*) adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
99 104 100 132 102 107 98 133
2 2 211 10
8
5
11,0
11,5
16,4 16,2
10,4 10,9
12,5
15,5
0
2
4
6
8
10
12
14
16
18
0
50
100
150
Q1/15Q2/15Q3/15Q4/15Q1/16Q2/16Q3/16Q4/16
%MEUR
Net of divestment and acquisitions
Customer sales adjusted
Adjusted* EBIT, %
© Tieto Corporation
47 33 29 33 29 31 26 31
14,0
9,6
6,2
9,48,4
11,1
6,5
11,3
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
0
10
20
30
40
50
Q1/15Q2/15Q3/15Q4/15Q1/16Q2/16Q3/16Q4/16
%MEUR
Net of divestment and acquisitions
Customer sales adjusted
Adjusted* EBIT, %
Product Development Services
Customer sales Q4• EUR 31 (33) million, -5%, decline of 1% in local
currencies
EBIT• EBIT EUR 3.3 (2.8) million, 10.6% (8.4)• Adjusted* EBIT EUR 3.5 (3.1) million, 11.3% (9.4)
Q4 highlights
• Business with largest key customers was growing mainly due to good development in the Radio area
• New customer acquisition continued – new business did not fully compensate for the anticipated end-of-life projects
• Q4 operating margin improved clearly due to improved utilization rate and healthy cost structure
• Q1 margin anticipated to be at or above the level of Q1/2016
16*) adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
© Tieto Corporation17
Industry Groups
Technology Services and Modernization
Business consulting
& implementation
Industry solutions
Product Development Services
New
data-driven
businesses *)
Public, Healthcare
and WelfareFinancial Services
Industrial and
Consumer Services
*)Reported in Industry Solutions
© Tieto Corporation
Financial ServicesCustomer sales Q4• EUR 101 (92) million, +10%, growth of 11% in local
currencies• Organic growth in local currencies 6%
Sales split by service line
Q4/2016 Q4/2015TSM 56% 58%BCI 5% 4%IS 39% 38%
Q4 highlights
• Acquisition of Emric support growth• Growth driven by new projects driving IT efficiency and
digital services, especially in Finland• Agreements with Arek, Folksam, Etera, Marginalen
Bank
18
85 88 83 92 89 92 86 96
2
5
0
25
50
75
100
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
MEUR
Customer sales adjusted
Net of divestment and acquisitions
© Tieto Corporation
101 107 98 133 107 112 101 135
11 84
0
15
30
45
60
75
90
105
120
135
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
MEUR
Customer sales adjusted
Net of divestment and acquisitions
Public, Healthcare and WelfareCustomer sales Q4• EUR 135 (133) million, +1%, growth of 3% in
local currencies
Sales split by service line
Q4/2016 Q4/2015TSM 44% 43%BCI 8% 8%IS 48% 49%
Q4 highlights
• Growth was strongest in industry-specific solutions – organic growth of around 4%
• Transition projects in infrastructure services in Finland contributed to growth
• Strong maintenance growth – price increases and good licence sales in 2015
• Reforms in the social and welfare sector across the Nordic countries provide growth opportunities
19
© Tieto Corporation
134 134 124 137 128 131 116 134
2 22 4 7
5
3
0
25
50
75
100
125
150
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16
MEUR
Customer sales adjusted
Net of divestment and acquisitions
Industrial and Consumer ServicesCustomer sales Q4• EUR 137 (137) million, remained at the previous
year’s level• Organic growth in local currencies -2%
Sales split by service line
Q4/2016 Q4/2015TSM 59% 62%BCI 17% 15%IS 24% 23%
Q4 highlights
• Sales supported by the acquisition of Imano and Smilehouse
• Organically, sales were down due to anticipated lower project business volumes for one Telecom customer
• Demand in the energy utilities segment remained good • Healthy order intake in Q4 – several new agreements,
e.g. Fortum and COOP Mitt & Väst
20
Way forward
© Tieto Corporation
We continue to drive growth and efficiency – for our customers and us
Duality
Efficiency
Innovation
Duality
Accelerate investmentsin innovation and growth
New opportunities to support customers in their business renewal
Continuously optimizeoperations for scale and efficiency
© Tieto Corporation
Public
Our prime objectives for 2017
Customer experience
Learning as a
Lifestyle
Accelerate growth and innovation
Quality & customer experience
Drive productivity
Develop skills forthe future
© Tieto Corporation
Adjusted
EBIT 2017Adjusted
EBIT 2016
Performance drivers
24
Sales growth andbusiness mix change
Growth investments Salary inflation Automation andindustialization and
other productivity gains
Performance drivers in IT services in 2017
2017 – IT services
We aim to grow faster than the market, growth supported by acquisitions
Efficiency programme: impact of over 20 mEUR, annualized gross savings close to 40 mEUR
Offering development costs remain at the 2016 level and around 5% of Group sales
Restructuring costs 1–2% of Group sales
© Tieto Corporation
Guidance for 2017
Tieto expects its full-year adjusted*) operating
profit (EBIT) to increase from the previous
year’s level (EUR 152.2 million in 2016).
*) Adjusted for restructuring costs, capital gains/losses,
goodwill impairment charges and other items
© Tieto Corporation
Q4 2016 in brief
26
Year of increased investments ends with solid performance
• Strong order intake with fourth-quarter book-to-bill 1.5
• Sales growth 2% in the fourth quarter, IT services up by 3%
• Adjusted operating margin over 12%
• Increased competitiveness driven by investments, continued automation and efficiency programme
• Dividend of EUR 1.37 proposed