Tieto’s Interim Report 2/2019: Major transformation initiated in the quarter

  • Strategy implementation progressing as planned – transition to a new operating model completed
  • Complementary merger with EVRY announced
  • Revenue up by 1% in local currencies
  • Adjusted EBIT margin at 8.4% – impact of a shorter quarter and currencies 1 percentage point
  • Efficiency improvement programme on schedule – EUR 15 million cost savings anticipated to materialize in the second half 

The full interim report with tables is available at the end of this release.

Key figures for the second quarter

  • Sales declined by 0.2%, sales in local currencies were up by 1.0%
  • Adjusted operating profit amounted to EUR 34.0 (36.2) million, 8.4% (9.0) of sales – negative impact of the shorter quarter and currencies around EUR 4 million, representing 1 percentage point
  • In local currencies, the order backlog for 2019 provides support for Tieto’s growth ambitions for the year
4–6/2019  4–6/2018  1–6/2019 1–6/2018
Net sales, EUR million  403.2 404.1 811.6 810.5
Change, %  -0.2 4.8 0.1 4.1
Change in local currencies, %  1.0 7.9 1.7 7.1
Operating profit (EBIT), EUR million   18.1 31.3 54.9 68.6
Operating margin (EBIT), %   4.5 7.7 6.8 8.5
Adjusted[1] operating profit (EBIT), EUR million  34.0 36.2 74.9 74.1
Adjusted[1] operating margin (EBIT), %  8.4 9.0 9.2 9.1
Profit after taxes, EUR million  18.0 24.7 45.2 54.6
EPS, EUR  0.24 0.33 0.61 0.74
Net cash flow from operations, EUR million  37.1 12.3 80.4 73.8
Return on equity, 12-month rolling, %   27.6 30.5 27.6 30.5
Return on capital employed, 12-month rolling, %   19.2 24.1 19.2 24.1
Capital expenditure, EUR million  12.5 10.5 21.9 18.7
Acquisitions, EUR million  - 4.0 0.7 10.2
Interest-bearing net debt, EUR million  362.5 209.2 362.5 209.2
Net debt/EBITDA [2]  1.5 1.0 1.5 1.0
Order backlog  1 800 1 731 1 800 1 731
Personnel on 30 June       15 101 14 956 15 101 14 956

1) Adjusted for amortization of acquisition-related intangible assets, restructuring costs, capital gains/losses, goodwill impairment charges and other items affecting comparability
2) EBITDA is 12-month average and is modified to reflect the impact of IFRS 16 on depreciations
  

Full-year outlook for 2019 unchanged
Tieto expects its full-year adjusted1)operating profit (EBIT) to increase from the previous year’s level (EUR 168.0 million in 2018) added by the impact of IFRS 162)to maintain comparability after the adoption of the new standard.

1) Adjusted for amortization of acquisition-related intangible assets, restructuring costs, capital gains/losses, goodwill impairment charges and other items affecting comparability
2) The company estimates that the adoption of IFRS 16 will have a positive impact on operating profit in 2019. In the first half, the impact on EBIT was EUR 2.0 million. Comparative periods are not restated.
  

CEO’s comment
Comment regarding the interim report by Kimmo Alkio, President and CEO:

“The second quarter was a transformative one as we began implementation of our new strategy by changing the operating model – aiming to reposition us to be in the forefront of digital renewal for our customers. We also announced the planned merger with EVRY – the most significant event in our company’s history. The merger announcement has created a great deal of interest among all our stakeholders.

Our second-quarter performance was impacted by the major operating model change taking place in the quarter and by the lower number of working days – most visible in our Digital Experience business. The Hybrid Infrastructure business continued its good performance with 11% adjusted profit and 3% growth. For the quarter, our growth was 1% in local currencies and adjusted operating margin was 8.4%, affected by the shorter quarter and currency headwinds. This quarter was unique in many ways and performance-wise did not meet our longer-term ambition. During the second quarter, we also substantially completed our cost efficiency programme, which is expected to contribute around EUR 15 million to our second-half performance.  

We announced the merger of Tieto and EVRY in June. Planning of the integration has started and once we are granted the approvals by both companies’ Extraordinary General Meetings and the competition authorities we will go into full merger implementation. The combined company will be well-positioned to accelerate the pace of change and innovation in the industry and bring the benefits of the digital world to our customers even faster. By combining the companies we will introduce new services and capabilities, and are together well positioned to drive higher performance and innovation. We strongly believe in the value creation potential for our customers and shareholders – also through the planned EUR 75 million synergies with further potential in both growth and profit.

With more than 5 000 digital consultants close to customers in the Nordics, and around 10 000 globally, the new company will create the largest digital services community in the Nordics. In the areas of digital consulting, industry software, advanced cloud and infrastructure services we have truly rich and complementary capabilities. As Tieto and EVRY share a strong Nordic cultural heritage and values promoting openness, respect and diversity, we are confident that together we will succeed in creating digital advantage for Nordic enterprises and society.”

Financial performance by segment

EUR million Customer
sales
4–6/2019
Customer
sales
4–6/2018
Change, % Operating
profit
4–6/2019
Operating
profit
4–6/2018
Digital Experience 123.2 126.6 -3 7.1 16.5
Hybrid Infra 133.8 130.7 2 6.2 12.0
Industry Software 111.2 112.7 -1 11.6 6.6
Product Development Services 34.6 33.7 3 2.7 2.9
Segments total 402.8 403.7 0 27.6 38.0
Other operations 0.4 0.5 -11 -9.5 -6.7
Group total 403.2  404.1 0 18.1 31.3

Operating margin by segment

% Operating
margin
4–6/2019
Operating
margin
4–6/2018
Adjusted[1] operating
margin
4–6/2019
Adjusted[1] operating
margin
4–6/2018
Digital Experience 5.7  13.0 8.6 12.8
Hybrid Infra 4.6 9.2 10.8 10.8
Industry Software 10.4 5.9 10.9 7.5
Product Development Services 7.8 8.7 7.9 8.7
Total 4.5 7.7 8.4 9.0
1) Adjusted for amortization of acquisition-related intangible assets, restructuring costs, capital gains/losses, goodwill impairment charges and other items affecting comparability.

M&A impact by business

Growth, %
(in local currencies)
4–6/2019
Organic growth, %
(in local currencies)
4–6/2019
Digital Experience -2 -3
Hybrid Infra  3 3
Industry Software  0 1
Product Development Services  5 5
Total  1 1

   
For further information, please contact:

Tomi Hyryläinen, Chief Financial Officer, tel. +358 50 555 0363, tomi.hyrylainen (at) tieto.com
Tanja Lounevirta, Head of Investor Relations,  tel. +358 50 321 7510, tanja.lounevirta (at) tieto.com
 

A teleconference for analysts and media will be held on Friday 19 July 2019 at 10.00 am EET (9.00 am CET, 8.00 am UK time). Kimmo Alkio, President and CEO, and Tomi Hyryläinen, CFO, will present the results online in English. The presentation can be followed on Tieto's website.

To take part in the question and answer session after the presentation you will need to dial-in by phone.
Teleconference numbers
Finland: +358 981 710 310
Sweden: +46 856 642 651
United Kingdom: +44 333 300 08 04
United States: +1 631 913 14 22
Conference code: 46117723#

To ensure that you are connected to the conference call, please dial in a few minutes before the start of the press and analyst conference. The teleconference is recorded and it will be available on demand later during the day.

Tieto publishes its financial information in English and Finnish.

TIETO CORPORATION

DISTRIBUTION
NASDAQ Helsinki
Principal Media

Tieto aims to capture the significant opportunities of the data-driven world and turn them into lifelong value for people, business and society. We aim to be customers’ first choice for business renewal by combining our software and services capabilities with a strong drive for co-innovation and ecosystems.

Headquartered in Finland, Tieto has around 15 000 experts in close to 20 countries. Tieto’s turnover is approximately EUR 1.6 billion and shares listed on NASDAQ in Helsinki and Stockholm. www.tieto.com

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About Us

Tieto aims to capture the significant opportunities of the data-driven world and turn them into lifelong value for people, business and society. We aim to be customers’ first choice for business renewal by combining our software and services capabilities with a strong drive for co-innovation and ecosystems. Headquartered in Finland, Tieto has over 13 000 experts in close to 20 countries. Tieto’s turnover is approximately EUR 1.5 billion and shares listed on NASDAQ in Helsinki and Stockholm. www.tieto.com

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