TietoEVRY Oyj

Good morning and welcome to Tietoevery's first quarter earnings webcast. My name is Tommi Järvenpää, the head of Tietoevery's investor relations. Today, we will go through our earnings development and outlook. In addition, we will discuss the news from this morning regarding Tietoevery Banking's strategic review conclusions. With me here today are our President and CEO Kimmo Alkio and CFO Tomi Hyryläinen, who will next go through the highlights and results of the quarter. Kimmo, please go ahead.

Thank you very much and a very warm welcome on all of our behalf to our exciting results announcement. Q1 characterized as performance as anticipated and naturally we'll go through thoroughly the conclusions of the strategic review of Tietoevri Banking. Furthermore, to open up the characteristics of Q1, we had growth of minus 2%, impacted by the soft macroeconomic environment, high comparison figures, and fewer working days. Overall, very much as anticipated. We did experience healthy growth in Tietoevri Banking of 8%, and in Tietoevri Industry of 4%. Indeed, Q1 was characterized by exceptional headwinds, and we'll be today sharing our perspectives that we do expect to be returning to growth in the second quarter. Profitability-wise, resilient performance, 12% profitability supported by improvements specifically in tieto-evri banking, and continued healthy profitability level in tieto-evri care. Regarding tietoevery banking, strategic review concluding, timing currently not optimal to maximize shareholder value through a listing or sale. Furthermore, the strategic review of tietoevery tech services on schedule with the previous announced timeframe aiming for conclusions in the second quarter. And we'll talk about the strategic reviews naturally a great deal more. In this era, good to provide perspectives the company has on the market side. Market characteristics remain consistent, very similar. Practically, the softness impacting specifically- The shorter-term consulting engagement is very much a phenomenon we see, I believe, in the industry across regions around the world. Furthermore, customer agenda, given the macroeconomic conditions, customer's attention continues to be a great deal on resilience, optimizing run costs, seeking for investments for future technologies. We do see stable demand for software and the technology services, whereby optimisation agenda is active. And we are highly mindful, I'm sure, like any company currently on the geopolitical environment, and we continue our maximum support towards our colleagues in Ukraine. And we confirm the perspective and good to see the momentum customers have On artificial intelligence and the combination of cloud modernization, these continue to be the top drivers and opening up interesting future opportunities. From a customer reference standpoint, pleased to report exciting wins across all the businesses in the first quarter. More and more characteristics around artificial intelligence, more and more characteristics around automation. Maybe one case to share here openly is around this very exciting Tieto Every Care AI-based development for rare disease research. already starting to provide tangible benefits for the hospital staff, very close collaboration with the Helsinki University Hospital. That's just an example whereby our teams go very deep with the client on improving the capabilities through artificial intelligence. This is one characteristic of the deals we are winning. Second factor would be on cloudification across the businesses, whether we think about SaaSification and software. whether we think about the impact of cloudification in the categories of managed services. So overall competitiveness Q1 at the healthy level. Then we move to a big topic naturally for today, updates on the strategic reviews. And I'd like to begin naturally with the banking side. The strategic review has been concluded. As mentioned earlier, timing currently not optimal to maximize shareholder value through a listing or a sale. And I'd like to naturally elaborate on this a great deal further. The current capital market conditions are not seen optimal for a sale or listing of a fintech software business. We have seen fintech peers trading significantly below their long-term valuation levels. Furthermore, we anticipate to be achieving higher value of theater banking in a more favorable market and by developing its performance further within the group as a specialized business towards a leading and a strong position within the category of fintech software. And we'll naturally and are aiming for continuous performance improvement, building also on a solid start for the year 2024. Tieto Every Banking has become more advanced in its operational independence as part of the strategic review process and the business is well prepared for strategic value creation opportunities that may arise in the future. We naturally have monitored the capital markets dynamics throughout the strategic review process, and the process proceeded with both listing and sale options as communicated earlier, and the final conclusions were made now, prior to starting formal EGM process. I'd like to confirm that we continue to develop the independence and resources of banking to pursue the international fintech market opportunity. The banking operational agenda and focus remains fully intact, building competitiveness on the platform and software side, seeking for further growth and scale opportunities and naturally continued performance improvement being on the horizon. So these would be the main highlights behind the decision, and to confirm, which mentioned earlier, very importantly, the market opportunity in fintech software for our banking business operational agenda fully intact to continue the attractive opportunities we have in the marketplace. Regarding tieto-evri tech services, the strategic review is progressing on plan, and naturally in this aiming at a potential sale or listing as a spin-off, and we'd like to confirm that the sales process is proceeding with a high engagement level, and we remain firm with the objective of reaching strategic review conclusions in the second quarter, within which we naturally are in already. So that would be a prompt update on tech services. And we'd be naturally coming back on the topic when conclusions are reached. If I may move forward to our business highlights. The basics on the growth side, profitability mentioned earlier. I'd like to confirm healthy cash flow from operations of 72 million. Backlog stable from the fourth quarter level, somewhat impacted in the first quarter by the timing of large contract renewals. and, naturally, the market dynamics are a factor. We did comment, naturally, earlier in the opening, we anticipate to be returning overall to growth in the second quarter. Then, naturally, of a lot of interest per business, how the year has started, Tieto Every Create, this is naturally the type of digital consulting domain. This is the business with the highest impact from the software market and fewer working days, as this is time and material-based typical consulting business model. And Overall, as we reported, exceptional development in the growth side, negative 5%, profitability of 13.1%. We are engaged in a number of very interesting and increasing number of AI-centric projects. business cases and project with customers, and naturally are anticipating in this business to be seeing somewhat of a bounce back on the economy and then be getting back into a real growth trajectory. That objective naturally remains intact. On the banking side, absolutely continued healthy performance, healthy growth, improved profitability from the prior year. Within banking, growth from the banking as a service, the core banking side, also from financial crime prevention, as well as in the cards business. Strong portfolio overall. Profitability improvement supported by also cost optimization measures, which are partly offset by high inflation and also cost resulting from the legal separation conducted. And to confirm here also, which mentioned earlier, very, very important in all our thinking, continue to be developed the business towards a strong position in international fintech, and that agenda remains fully intact. In the case of Tieto Every Care, we had quite an exceptional quarter on the revenue side due to high comparables from a year ago, eight percentage point impact from last The professional service is specifically driven a year ago by the social reform in the country of Finland. Within the business mix, healthy growth in welfare, we have seen good progress and good win rates around the social care reform. We are comfortable with the future out-of-care business, and we'd like to highlight that we do expect to be returning to growth in the second quarter year. in the second quarter, which is well underway naturally. In the case of Tieto Every Industry, overall solid performance, very much according to our expectations, growth of 4% driven by the data platforms and education, that interesting business mix of software and platform-centric businesses within industry, and overall fair to highlight that the profitability A bit challenged due to higher subcontracting and impact of inflation. We see good opportunities moving forward also in the case of industry. Then we go into tech services, business with growth headwind, improved profit margin, very importantly. we did experience exceptionally low revenues of minus 7%, driven by the combination of slow market impacting the data and application services side, volatility in the hardware software resale as part of end-user services, and naturally by the fewer working days in the first quarter. On the other hand, on a positive note, cloud and security services growing 10%. That shall be a future growth contributor. And to confirm, we anticipate growth to improve in the second quarter moving forward. With this in mind, I'd like to conclude the summaries of the businesses and over to Tomi.

Thank you, Kimmo, and good morning. So as mentioned, our Q1 performance came in very much as anticipated with minus 2% growth and healthy 12.1% profit margin. We did have quite significant headwinds during the Q1, impacting our performance as mentioned. Our working day adjusted growth for Q1 was negative 0.6%. One-time items of 15 million for Q1 consisted mainly of strategic review costs and capacity reduction costs to address the lower market demand. Financial impact of the ransomware incident for Q1 was, as earlier communicated, revenue impact being approximately 1.2 million and incremental operating cost to restore customer services of approximately 1.1 million, which we are reporting in the category of one-time items. We have received some customer claims and have an ongoing dialogue with our insurance company. In Q1, our corporate income tax percentage was 24%, which is slightly higher than normal. This is due to the legal entity restructuring activities, and the impact is one-time nature, so this is only impacting our Q1 corporate income tax rate. On cash flow side, we delivered healthy cash flow in Q1 with 72 million of operative cash flow. Our working capital developed favorably with decrease of 3 million. And to note, this quarter also ended on a weekend, same as in Q4, which increases the AR levels, the sizing, you recall, 50 to 60 million. Compared to prior year, our net financials paid, so impacting the cash flows, were up by 9 million, driven by higher net debt. This is mainly due to the acquisition of MentorMate, as this is comparing to prior year, as well as increase in interest rates and timing of interest payments. Interest-bearing net debt decreased from Q4 to 880 million, with net debt EBITDA being at 2.2. On personal side, our rolling 12-month attrition continued to decrease, being 9.4% at the end of Q1. However, the quarterly attrition remained stable from Q4. Net personnel decreased by approximately 270 FTEs from Q4. This is mainly driven by the capacity management performed in CREAT to address the current market conditions. Our new higher level of approximately 600 FTEs in Q1 also reflect the lower attrition levels as mentioned and the current market conditions. We expect the group level salary inflation for the year to be 4.5%. Previously, we said between four to five. So this is specified more towards the middle point of that compared to 5% in 2023. Next, I'll summarize the performance drivers for Q2. On growth driver side, Most importantly, we expect to be back to growth in Q2, as mentioned. Consistent with Q4, the weaker economic environment will continue to impact create and tech services. We do see continued good momentum in banking and industry into Q2, and care will return to growth. This is supported by the normalized comparable and a small tailwind from the working days as well, despite the healthcare reform continuing to impact the demand in the care business. Tech services growth is expected to improve from Q1, which is supported by normalized hardware software resale, comparable, and tailwind from working days. On profit drivers, we see continued benefit from the efficiency measures, which we executed during 23, and consistent with prior quarters, high technology cost inflation continues to impact especially banking and tech services. Similar to prior year, annual salary increases take full effect from 1st of April, so full impact into Q2. On the other drivers, FX impact is expected to be positive 5 million on revenue level and working day impact to be positive plus 1.2% impact to growth. Then to Q2, profitability outlook for business. Tech services is expected to be above prior year profit level with banking and industry expected to be at or above prior year level, and create and care expected to be at or below prior year profit levels. Back to you, Kim.