Tieto Q4/2014 · • Recruitments, e.g. data analysts, industry consultants, information architects and other CEM experts • Planned reduction of 840 positions Tieto’s growth drivers

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


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


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*


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


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


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


Service LinesFinancialServices

Public,Healthcareand Welfare

Manufacturing,Retail andLogistics

Telecom,Media andEnergy

Consulting and System Integration

Managed Services

ProductDevelopmentServices

Industry Products


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




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



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


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



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




Industry Groups


Managed Services

ProductDevelopmentServices

Industry Products

FinancialServices

Public,Healthcareand Welfare

Manufacturing,Retail andLogistics

Telecom,Media andEnergy


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


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


Manufacturing, Retail and Logistics

17

Customer sales Q4• EUR 82 (81) million, up by 1%• Organic growth in local currencies 3%


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


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


Public, Healthcare and Welfare

18

Customer sales Q4• EUR 115 (105) million, up by 10%• Organic growth in local currencies 12%, comparable

growth 10%


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


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


Telecom, Media and Energy

19

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


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 targetprofitability 2016

Average market growth


2012 20142016



Industry Products

2042012

20142016 Tieto target

profitability 2016


Product Development Services

2012

2014 2016

IT service businesses progressing towardslonger-term ambition

21



Managed Services

201220142016

Note: 2016 describes the ambition set in 2012 (excl one-off items)


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


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


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).


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*


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


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


Top 10 customers 2014

30

• City of Stockholm• Ericsson• Finnish Tax Administration• IF Insurance• Kesko• Nordea• Nokia• OP-Pohjola Group• S-Group• TeliaSonera

Documents

Tieto Q4/2014 · • Recruitments, e.g. data analysts, industry consultants, information architects and other CEM experts • Planned reduction of 840 positions Tieto’s growth drivers