Solid performance continues in the fourth quarter strong ... · Tieto expects the Nordic IT services market to grow by ~2% in 2018 ... 2016–2020 (CAGR) ~ 50% ... Cloud services

© Tieto Corporation

Public

Public

Kimmo Alkio, President and CEO

Lasse Heinonen, CFO

Tanja Lounevirta, Head of IR

6 February 2018

Q4 2017

Solid performance continues in the

fourth quarter – strong full year 2017


Q4 2017 in brief

2

Solid performance continues in the fourth quarter – strong full year 2017

• Strong cash flow and good profitability

• Order backlog provides healthy foundation for 2018

• Accelerated growth in Sweden – Avega acquisition completed

• Dividend proposal of EUR 1.40

© Tieto Corporation3

Tieto@2017!

2017 – Creating

value for all

stakeholders

CustomersAll-time high NPS

ShareholdersStrong cash flow and

increased dividend*)

EmployeesStrong improvement in

engagement

*) As proposed by the Board of Directors


Favorable financial development continues

4

Full-year net sales• EUR 1 543 (1 493) million, +3.4%, growth in local

currency +4.1%, organic growth in local currencies +3.0%• IT services growth 3.0%, growth in local

currency +3.6%, organic growth in local currencies + 2.4%

Full-year EBIT• EBIT EUR 139.2 (140.8) million, 9.0% (9.4%)• Adjusted*** EBIT EUR 161.5 (152.2) million, 10.5% (10.2%)

• Restructuring costs ~1.3% of sales • Savings based on automation and industrialization EUR 20

million• Includes EUR 4.3 (3.3) million in allocated acquisition-based

amortization

Dividend proposal• Proposed dividend EUR 1.40 per share

• Base dividend EUR 1.20 (1.15) • Additional dividend EUR 0.20 (0.22)

• Dividend yield 5.4%

0,90 1,00 1,10 1,15 1,20

0,30 0,25 0,22 0,20

0,0

0,5

1,0

1,5

2013 2014 2015 2016 2017

Dividend/share, EUR

*) Proposed dividend

*)

**)

**) Additional dividend

***) Adjusted for restructuring costs, capital gains/losses,

goodwill impairment charges and other items

1607 1522 1460 1493 1543

8,89,9 10,3 10,2 10,5

5,34,0

8,6 9,4 9,0

0

5

10

15

0

500

1000

1500

2000

2013 2014 2015 2016 2017

%MEUR Net sales and EBIT

Net sales, EUR million Adjusted*** EBIT,% EBIT, %


Outlook in the Nordic IT market remains healthyGrowth in the Nordic economies picked up in 2017

5

Source: Nordea Markets, Economic Outlook, 1/2018

IT market affected by economic outlook

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

2015 2016 2017e 2018e

GDP growth, %

Finland Sweden Norway

• Upcycle in Finland

• Swedish economy continues to be strong

Tieto expects the Nordic IT services market to grow

by ~2% in 2018

• Market change driven by investments in

digitalization and efficiency improvement

• Higher adoption of cloud and healthy demand for

consulting

• Good interest in adoption Artificial Intelligence

• EU GDPR taking effect in May 2018: opportunities

in Application Services and Security


2015 2020

Traditional services Emerging services

Business mix change driven by growth businessesApplication Services’ growth 4% in 2017 while decline in traditional infrastructure 5%

SALES GROWTH

2016–2020 (CAGR)

~ 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%

~ 50%

6

SHARE OF IT SERVICES

2017

Growth businesses**

Selected industry solutions and

growth services

Other services and

solutions

37%

21%

Traditional services42%

GROWTH

2017

8%

4%

-2%

IT services annual sales EUR 1 416 million in 2017

**Selected industry solutions comprise Lifecare, Case management, Payments and Banking solutions

Growth services comprise Customer Experience Management, Cloud services and Security Services


Technology Services

and Modernization

EUR 771 million

Business Consulting

and Implementation

EUR 150 million

Industry

Solutions**)

EUR 496 million

Selected growth businesses up by 8%SERVICE LINE

Annual sales 2017

Total

Growth 2017 Annual sales 2017

Selected solutions*

and DDB:

EUR ~ 340 million

CEM**:

EUR ~ 40 million

Cloud***:

EUR ~ 150 million

Security:

EUR ~ 10 million

6%

13%

10%

19%

26%

GROWTH

BUSINESSES

Selectedindustry solutions

Data-Driven Businesses

Customer Experience Management

Cloud services

Security Services

5%

SERVICE LINE

Growth 2017

8%

1%

*** Includes both infrastructure cloud and selected services such as cloud-enabled consulting and shared

integration services. Infrastructure cloud (Infrastructure as a Service and Platform as a Service) sales in FY

up by over 15%

** CEM/Financial Services not included as that transferred to Industry Solutions as from 1 July 2016 – growth comparable to 1–12/2016

* Incl. Lifecare, Case management, Payments, Banking solutions

8%

6

Infra cloud growth

over 15%


367 381 341 404 388 381 352 406

5 53

4

8,69,4

10,4

12,3

9,0 9,2

11,612,0

0

2

4

6

8

10

12

14

0

100

200

300

400

500

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

Net of divestment and acquisitions

Customer sales adjusted

Adjusted* EBIT, %

Q4 2017 key figuresNet sales• EUR 410 (404) million, +1.5%, growth in local currencies +2.4%

• Acquisitions added EUR 4 million• Currency impact EUR -4 million

• In IT services, sales growth 0.8%, or 1.7% in local currencies• Organic growth in local currencies 0.6%

EBIT• EBIT EUR 48.0 (45.1) million, 11.7% (11.2%)• Adjusted* EBIT EUR 49.3 (49.5) million,

12.0% (12.3%)

Order backlog • Order backlog EUR 1 860 (1 847) million• Contract Value EUR 543 (613) million• Book-to-bill 1.3 (1.5)

Earnings per share • EPS EUR 0.50 (0.46)• EPS EUR 0.51 (0.51), adjusted*)

8

MEUR %

*) adjusted for restructuring costs, capital gains/losses,



46,9

-13,7

13,8 50,2 79,7

-6,110,8

66,6

-9,4

-11,9

-16,1 -24,3-9,3

-16,9-9,2 -11,6

-25

-5

15

35

55

75

95

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

Net cash flow from operations and capital expenditure

Net cash from operations Capital expenditure

13200 13381 13758 13876 13822 13754 13851 14329

46,7 47,2 47,4 47,9 48,6 49,0 49,6 48,7

0

10

20

30

40

50

60

0

5000

10000

15000

20000

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

Number of full-time employees and offshore ratio

Number of personnel Offshore ratio

Quarterly development

9

Number of personnel up by a net amount of 453

Offshore ratio: IT services 46.2% (46.2%) PDS 69.8% (64.7%)

%

MEUR

Employees

MEUR

367 381 341 404 388 381 352 406

5 5 3 4

0100200300400500

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

Net sales

Net of divestment and acquisitionsCustomer sales adjusted -0,1

0,50,7

0,6

0,2

0,90,8 0,8

-0,5

0,0

0,5

1,0

1,5

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

Net debt/EBITDA


4% / 2%* 1% / 1%*-1%

11%

-1%

11% / 1%*

1%

Growth in local currencies by Service Line

and Industry Group

10

Service

Lines

Industry

Groups

(IT services)

*) Organic growth in local currencies (not shown for businesses where acquisition impact is not significant)

MEUR

MEUR

101 135 137100 136 1400

255075

100125150175200

Financial Services Public, Healthcare and Welfare Industrial and ConsumerServices

Q4/16

Q4/17

197 38 138 31199 42 135 340

255075

100125150175200225

Technology Servicesand Modernization

Business Consulting andIntegration

Industry Solutions Product DevelopmentServices

Q4/16

Q4/17


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


190 196 179 197 198 194 180 199

10,2 10,8

13,414,1

10,911,9

13,8 13,2

0

2

4

6

8

10

12

14

16

0

50

100

150

200

250

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

%MEUR



Adjusted* EBIT, %


Customer sales in Q4• EUR 199 (197) million, +1%, growth of 1% in local

currencies

EBIT• EBIT EUR 24.7 (26.2) million, 12.4% (13.3)• Adjusted* EBIT EUR 26.3 (27.7) million, 13.2% (14.1)

Q4 highlights• Two-fold development in traditional services

• Application services growth 4% • Decline in traditional infrastructure services 6%

• Full-year cloud sales up by 10%, infrastructure cloud by over 15% – Security Services up by 19%

• EBIT margin supported by• Service standardization and automation• Strong add-on sales

• Q1 adjusted margin expected to be below Q1/2017 • Number of working days affecting application

services• Q1 seasonally lower

12*) adjusted for restructuring costs, capital gains/losses,



35 37 30 38 39 38 32 38

43,7 3,3

-4,9

1,8

7,1

4,02,8

4,8

-6

-4

-2

0

2

4

6

8

0

10

20

30

40

50

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

%MEUR



Adjusted* EBIT, %

Business Consulting & Implementation

Customer sales Q4• EUR 42 (38) million, +10%, growth of 11% in local

currencies• Organic growth in local currencies 1%


Q4 highlights• Growth supported by the acquisition of Avega• Healthy growth in Customer Experience Management

across industry groups• In CEM, full-year sales up by 26%

• Enterprise Applications negatively affected by few large ending contracts

• Improvement in adjusted operating profit • Billing rate improved• Offering development investments reduced

• Q1 growth and profitability affected by the number of working days




113 117 106 138 119 117 111 135

5 53

10,4 10,9

12,5

15,5

8,09,0

14,415,8

0

2

4

6

8

10

12

14

16

18

0

50

100

150

Q1/16Q2/16Q3/16Q4/16Q1/17Q2/17Q3/17Q4/17

%MEUR



Adjusted* EBIT, %

Industry SolutionsCustomer sales Q4• EUR 135 (138) million, -2%, growth of -1% in local

currencies• Organic growth in local currencies -1%


Q4 highlights• Sales affected by

• Large delivery related to Tieto’s Intelligent Transportation Solution in Q4/2016 affecting comparison number

• High comparison number for sales in FS• Lifecare and SmartUtility remained strong with growth of

7% and over 20% in Q4• Investments specifically for Lifecare, Payments,

SmartUtility and Public 360° to drive future growth• Adjusted EBIT affected by sales development• 2018 outlook supported by strong order backlog

• Q1 growth is expected to remain at a relatively low level, partly due to negative currency effects

• Adjusted EBIT margin anticipated to remain at Q1/2017 level




29 31 26 31 32 31 29 34

8,4

11,1

6,5

11,3

13,6

8,37,5

10,3

0

2

4

6

8

10

12

14

16

0

5

10

15

20

25

30

35

40

Q1/16Q2/16Q3/16Q4/16Q1/17Q2/17Q3/17Q4/17

%MEUR



Adjusted* EBIT, %


Customer sales Q4• EUR 34 (31) million, +10%, growth of 11% in local

currencies


Q4 highlights• Strong volume development with key customer • New partnership with HERE and further opportunities

in the automotive segment • Good development especially in the Radio and Smart

Traffic areas• Strong EBIT margin – excluding the negative working

day impact remained at the level of Q4/2016.• Q1 adjusted EBIT margin anticipated to stay close to

10%




Industry Groups


Business consulting

& implementation

Industry solutions


New

data-driven

businesses *)

Public, Healthcare

and WelfareFinancial Services

Industrial and

Consumer Services

*)Reported in Industry Solutions


88 93 88 101 92 92 89 100

5 53

0

25

50

75

100

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

MEUR



Financial ServicesCustomer sales Q4• EUR 100 (101) million, -1%, growth of -1% in local

currencies• Organic growth in local currencies -1%

Sales split by service line

Q4/2017 Q4/2016TSM 57% 56%BCI 5% 5%IS 38% 39%

Q4 highlights• Positive development in Application Services • Decline in Industry Solutions, affected by high

comparison number• Investments, specifically in the Transaction Banking

area, to drive future growth• New agreement with Elo, strategic partnership for

developing and managing Swish

17


Public, Healthcare and WelfareCustomer sales Q4• EUR 135 (135) million, +1%, growth of 1% in local



Q4/2017 Q4/2016TSM 46% 44%BCI 8% 8%IS 46% 48%

Q4 highlights• Healthy development continued in Finland and

Sweden• High comparison number due to a large delivery in

Q4/2016 related to Intelligent Transportation Solution • Reforms in the social and welfare sector across the

Nordic countries provide growth opportunities• Large Electronic Medical Record procurements

ongoing in all Nordic countries • Several agreements, e.g. City of Stockholm, Tampere

and municipalities in the region, Haninge municipality

18

118 120 106 135 128 127 112 135

1

0

25

50

75

100

125

150

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

MEUR




132 138 121 137 138 132 122 137

3

0

25

50

75

100

125

150

Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17

MEUR



Industrial and Consumer ServicesCustomer sales Q4• EUR 140 (137) million, 3%, growth of 4% in local



Q4/2017 Q4/2016TSM 57% 59%BCI 18% 17%IS 25% 24%

Q4 highlights• Growth supported by the acquisition of Avega and

good development in Customer Experience Management

• Good development in strong Swedish markets • In energy utilities, good demand in the billing area

continued due to regulatory changes and investments in digitalized customer services

• New agreements include Göteborg Energi, Martela

19

Way forward


10–12% SG&A

of revenue

• Down from ~15% to a range

of 13–14%

Strategy execution progressing towards 2020 strategic ambition

21

40% of sw and

solutions

• Accelerated investments,

incl. acquisitions

~5% of revenues

as offering investments

• Investments increased to

5% of sales

100M+ from

data-driven businesses

• Promising innovation

pipeline

>5% IT services

revenue growth p.a.*

• Consistent growth of ~4%,

above market

80% shared

managed services• Consistent growth of

industrialized Application

Services

Tieto 2020 management ambition (strategy 2016–2020)

10% margin**

• Adj EBIT 10.5% (10.2)

• Restructuring down to less

than 2% of sales

1–2% increase

in Nordic market share

• Consistent growth and M&A

*Formal guidance: IT services revenue growth above the market (CAGR)

**Formal guidance: 10% reported operating margin (EBIT)

Customer’s

first choice!

Great place

for innovation

and growth

Above

industry

average

TSR

• New product launches in

2018• Drive scale • Accelerate OneCloud

• Aim to grow faster than the

market

• Investment level maintained• Aim to grow faster than the

market• Automation driving further

improvement

• Productivity and scale

improvement continues


Adjusted

EBIT 2018Adjusted

EBIT 2017

Performance drivers

22

Sales growth andbusiness mix

change

Growth relatedrecruitments

Salary inflation Efficiencyprogram and

other costmeasures

Performance drivers in IT services in 2018

2018 – IT services

We aim to grow faster than the market, growth supported by

acquisitions and software product launches

Efficiency programme: impact of around 20 mEUR, drive for

productivity continues

Offering development costs anticipated to remain at the 2017 level

at around 5% of Group sales

Restructuring costs 1–2% of Group sales

Quarterly dynamics

Q1 revenue and profitability affected by

• a lower number of working days

• currency effects negative based on year-end

exchange rates


Guidance for 2018

Tieto expects its full-year adjusted*) operating

profit (EBIT) to increase from the previous

year’s level (EUR 161.5 million**) in 2017).

*) Adjusted for restructuring costs, capital gains/losses,


**) Subject to revision according to IFRS 15 restatement


Q4 2017 in brief

24

Solid performance continues in the fourth quarter – strong full year 2017

• Strong cash flow and good profitability

• Order backlog provides healthy foundation for 2018

• Accelerated growth in Sweden – Avega acquisition completed

• Dividend proposal of EUR 1.40


Documents

Solid performance continues in the fourth quarter strong ... · Tieto expects the Nordic IT services market to grow by ~2% in 2018 ... 2016–2020 (CAGR) ~ 50% ... Cloud services