TietoEVRY Oyj

This morning, we will go through our earnings development and outlook. 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, Tomi.

A warm welcome also mine and Tomi's behalf to our third quarter results announcement. Our third quarter performance characterized as a bit provided insight already a week ago, given that we did the guidance change, let us go through the main drivers of the current environment and third quarter performance. Our main message being that improved profitability in a weakening market environment. The weakening market environment contributing to our revenue development, revenue decline of 1%. Furthermore, high degree of attention on the resilience of the company, resilience of all the businesses, a lot of attention on the cost-based management, enabling us to improve profitability to 13.5% level. Today, we are also confirming that the strategic review of Tieto EveryTech services is progressing, and we have advanced to an exclusive process with a non-industrial buyer. Just to move forward again, I want to reiterate, confirm the message from a week ago in terms of the guidance change, organic growth around minus 2% from the prior 0 to 3% level, and just to confirm, which we are elaborating on today by business as well, that the softening market environment contributing to the revenue challenges when we talk about the short term. While the profitability level, the guidance at the 12.3 to 12.7 range from the prior 12.0 to 13.0. And the driver for the profitability guidance narrowing and development naturally has to do with the resilience and the profitability development overall. I'd like to also confirm our perspective, given the dynamics in the marketplace. This is good to spend a minute on. One of our main messages today is that during the third, especially towards the end of the third quarter, we have seen weakening of the market environment. And we anticipate this to continue into and meaning as we enter 2025. The market demand for IT services, likely not a surprise, continues to weaken. Some of the shorter cycle consulting tend to be much faster impacted in a softer economic environment. And the lower demand environment has started to impact also software businesses. And we confirm, as has been the case in prior quarters, very high degree of attention on the customer side on their own efficiency, on their own resilience, thus emphasis on short-term ROI. versus longer-term transformation. I do believe that this is visible in the industry as a whole as well. And we confirm our attention and activity level increasing on AI and Gen AI intensity, cloud and data being the foundation. Volumes are still relatively low. Thankfully, the activity levels are up. I think the confidence that this will be a future value generator continues to improve. And we confirm, in the case of our company, the tension on the instability of the geopolitical environment, and we highlight this, as everybody is well aware, due to the exposure of Ukraine. From a customer side, very importantly and positively, we have strong customer wins in all of our businesses, highly modern technologies, cloudification, data centricity, AI, so important to see good progress in winning new footprint. We are talking more and more an increase in the level of visibility on the AI front. Just to confirm what we are sharing today, both from a customer reference standpoint, the readiness of the company overall, readiness of the company including the responsible AI training we are running for all employees. and at the faster and faster pace releasing really interesting customer cases to the marketplace. I'd like to also confirm that Tieto Every Create will be launching a kind of next generation AI lab during the latter part of the year, productizing innovation cycles and including design thinking and responsible AI into our value proposition. I would also like to share with everybody that nowadays we have all of our businesses have been releasing their value propositions. Every business has the value proposition that consists of both the expected value delivered towards customers through our software and services. And the second dimension being the potential implications, contribution of AI, GenAI technologies towards operational efficiency in own operations. So these user stories are being released at an accelerated pace. All the information is available on the website naturally and being communicated actively towards current and future clients. and specific section also on responsible AI and how we link this to our overall sustainability objectives. Then to go into our more financial view and the business highlights, we've already highlighted organic growth of minus 1%, just the debit at 13.5%. Important to see a healthy cash flow of 58 million or the backlog at the plus 8% level. Here I would like to highlight that the primary contributor is, as we also communicated in the second quarter, the record high backlog in the banking side, and that backlog to be realizable over next several years. That's a prime contributor to the strong backlog generation. Our commentary would also be that in terms of third quarter order intake, quite typical as the seasonality on third quarter, slightly better than the third quarter a year ago. Then if we go into Tieto Every Create, organic development on the top line, negative 4%, healthy profitability continues. We'd like to be very clear that this type of a digital engineering, primarily shorter cycle consulting engagement, is experienced a weakening market across geographies. This is much more profound at this point in time than in prior quarters. And we continue to highlight the challenges we have had in Sweden, a lot of attention going in. We are also sharing that the decreasing internal revenues is impacting growth as we began the specialized businesses running as independently as possible a couple of years ago. It is from our standpoint very understandable. Each business decides what type of business partners one uses, and this internal revenue development is with us for a couple of quarters, and then it will be normalizing, we believe, across the businesses. And to confirm, in the case of CREATE, in light of the weaker market environment, softness in revenue development, Very importantly, we have ongoing, really active capacity management actions underway and significant degree of attention, especially on the non-billable side of the create business. While we are highlighting quite a bit on the implications short-term on the market environment, very positively I want to add that significant contracts in the telecom side and a US-based pharmaceutical client, the team is working very actively in increasing the pipeline in the US, and we continue to be committed and believe that once the economy bounces back, we'll be playing a much bigger role in the US market. And here, as highlighted earlier, the next AI lab to really increase the speed towards client value and increase activity level on the AI side. For banking, main highlight being stable profitability. We had 4% organic growth, growth driven by part of the portfolio, specifically the credit, the cards and financial crime prevention. And we are also highlighting openly that the Norwegian bank merger that took place one year ago is impacting revenue negatively. and that will be with us for a couple of quarters in light of the very high comparables from a year ago. Stable profitability, and we'd like to remind everybody, increase in depreciation of capitalized R&D impacting by approximately 2 million. In this business also, a high degree of attention on efficiency measures, both in terms of slightly lower growth era, and to ensure that we have the right core structure post-strategic review, and to confirm Enri Rangnäs began as the managing director 3rd of September. Then to go into Tieto Every Care, here the highlight being solid performance, softening demand in certain markets, I would say only 3% organic growth in terms of our historical top-line development. We are seeing very tangibly growth being affected by the public sector deficits in Finland, and then in Sweden, practically in the municipality sector. And we have some legacy software exposure in Norway and Sweden. Just wanted to highlight these developments. And we remain very committed and positive of the strong competitiveness. If we think about the first nine months of this year in winning new footprint with the life care software solution, and as an example, double digit growth in the data and analytic side of care. And we confirm, we absolutely continue to drive our investments for market expansion, I think more to come in the subsequent quarters, but this is highlighting Norway, and to confirm the healthy profitability level supported by our long-term investments and attention on R&D, scalability, and continued attention on efficiency. In the case of care, we are releasing at a very healthy pace new use cases, very specifically strengthening actually our life care solution suite. Samples include the GenAI assisting classifying customer feedback data, and we have GenAI-enabled speech-to-text recognition already improving in the proof-of-concept stage. the workflows of doctors in the sample hospitals where these are running. In the case of Tietoevri industry, we are highlighting softening demand in certain markets, and very specifically in the paper pulp and fiber industry and public sector Finland. These are factors why we are seeing only 1% growth. While the larger part of industry, the data platforms, did continue to grow, profitability level of 16.3 does deserve further efficiency measures, which are currently being worked on and will be taken forward during the latter part of the year. Then when we go into tech services, here are a couple of very important considerations. Improved profitability from 9.5% level a year ago now to 10.5%. And very importantly, business mix is developing favorably. Cloud platforms and security, 20% growth. Data and applications, 4% level. While the traditional infrastructure solidly in our expected range of minus 7 to minus 9% was at minus 8% level. End-user services tends to be, as expected, highly volatile, much lower profit level, declining by seven percentage points as a cumulative sum, organic growth of negative 3%. And as recognized, a profitability improvement achieved through systematic attention on cost efficiency, and that attention will naturally continue. We'd also like to highlight that the ransomware customer settlement impact on growth was approximately one percentage point. With this in mind, I'll hand over to Tomi.

Thank you, Kimmo, and good morning, everyone. So the main highlight of the quarter was our improved profitability compared to prior year. In addition to improving adjusted profit, we did improve reported EBIT, both in nominal terms and in margin terms. Due to the slow market, we have proactively managed the cost base in all of our businesses to protect the margins and ensuring competitiveness. We will continue to reduce capacity in Q4, which is why we increase our OTI estimate for the year from previous 1.5 to closer to 2% of revenues. Other highlights of the quarter, as mentioned, healthy operative cash flow, and then closing of the bypass divestment, which we thought we would close already in Q3, it was closed 16th of October, so we will be recognizing gain on sale of four million in the Q4, which will be treated as one time item. So we delivered healthy cash flow, operative cash flow being 58 million, Networking capital, seasonal increase of 20 million, driven by vacation accrual releases and AP. Accounts receivable decreased 45 million, where we recovered the prior quarter weekend impact. Free cash flow was 26 million, which for a seasonally weak Q3 is at very healthy levels. Interest bearing net debt landed on 900 million, which contributed to net debt EBITDA being slightly lower at 2.1. Then to personnel topics, LTM attrition was stable from Q2 at 8.8%, which is at very low levels and reflects the current slow market environment. Our cost management measures drove capacity reductions of approximately 500 FTEs, out of which 300 in CREAT, 100 in tech services, and 100 FTEs in aggregate in the software businesses. We will be continuing managing our capacity into Q4 as commented. Our new hires reflect the seasonally high graduate intake, which is how we manage our competence pyramids. Our new hires were 600 in Q3. We keep our group level salary inflation expectation unchanged around 4.5%. Then I'll summarize the performance drivers for Q4. Our growth drivers on business level, the drivers remain very consistent with Q3, however, in a slightly weaker market setting. On profit drivers, The weakening market conditions place pressure on margins, while Q4 is typically supported by seasonal volume increases and end of year license sales. Now here's where the softening of the market will place likely a bit of uncertainty how this driver plays out. Our efficiency measures are expected to support Q4 profits. We expect that we will book majority of the ransomware event-related customer settlements in the fourth quarter. We expect only minor impact from FX and working days being positive 0.1% impact on growth. Then to Q4 profitability outlook per business. We expect CREAT to be below the 15% prior year level. Tieto Rebanking and tech services, we expect to be at or below prior year level. We expect industry to be at prior year level and care to be above prior year level of 30.1%. Back to you, Kimmo.