TietoEVRY Oyj

And welcome to Tieto Average fourth quarter and full year 2024 earnings webcast. My name is Tommi Järvenpää, the head of Tieto Average Investor Relations. This morning, we will go through our earnings development, key highlights, and outlook. With me here today are our CEO, Kimmo Alkio, and CFO, Tommi Hyryläinen, who will next go through the highlights and results of the quarter. Kimmo, please go ahead.

Thank you, Tommy, and a warm welcome also on my behalf. Warm welcome to our fourth quarter and full year 24 interim report session. I'd like to begin by the overarching view of end of the year. Our end of the year is characterized by the challenging market environment and overall challenging era. As visible in our Q4 revenue development of negative 7%, with the weaker demand actually impacting all of our businesses. Furthermore, and very importantly, we have maintained high attention on efficiency and business resilience. This has enabled us to deliver healthy profitability of 12.8% for the fourth quarter and strong cash flow, 128 million for Q4 and 326 million for the full year. Furthermore, these are the foundations of the board's proposal to increase the dividend to 1.50 per share. Relating to Tieto Everytech Services strategic review, we have recently made tangible progress and are now in the final stages of the sales process with the non-industrial buyer. We expect the strategic review to be concluded in March. Next, I'd like to move into giving perspectives on our view of the market development, which in the current environment continues to be, I think, very dynamically interpreted by any company in the tech sector. Our main highlights would be that we have clearly seen and as expected that the market softness continues, has continued into 2025, and we do anticipate gradual recovery for the second half of the year, which we'll be talking later in the presentation. In terms of the market dynamics, I would like to further elaborate that the lower demand environment, as it did impact also the software businesses in the fourth quarter, it tends to be quite seldom that we would see an environment where the macroeconomic implications are that broad that all businesses are impacted. Customer focus, given the type of efficiency drive our clients have until their visibility in volume development, they continue to drive efficiency, highly conscious cost-saving programs, naturally emphasizing from a client standpoint short-term results, versus long-term transformation. And naturally, we are supporting our clients in meeting their objectives, and this naturally is correlated to our important initiatives on efficiency and resilience as well, which we will maintain high on the agenda. We continue to see positive development in the AI adoption in the marketplace. This is visible in demand from the data services side, specifically in our Create business, and naturally important what I call here the AI-embedded software, naturally providing solid opportunities for our three software businesses, banking, the industry, and care. Furthermore, I'd like to highlight, given the type of a total economic and geopolitical environment, we absolutely continue very high attention on cybersecurity, overall resilience with clients, and considerations for regulatory compliance, which is a very important domain or factor where we support our customers in industries which are highly dependent on aforementioned compliance initiatives. Regarding the full year, just as a highlight, organic growth of minus 2%, adjusted EBITDA 345 million, 12.3%, healthy cash flow, operating cash flow of 326 million, our order backlog up by two percentage points. This is just to highlight the full year basis. Next, I'd like to briefly again highlight our important initiatives on sustainability and areas where we continue to work very actively for the most significant impact, highly consistent progress and priorities in terms both of climate action and the circular economy. In terms of diversity, we are pleased to see the increase of female hires up to 34% in the year. Diversity fits our corporate culture extremely well, given the Nordic heritage around equality as a whole, so positive developments. Furthermore, in terms of the responsible AI, getting very close to 100% level on the responsible AI training, which is highly valued by all employees in the company. and sustainability will keep these initiatives naturally high on the agenda. During the fourth quarter, importantly, winning significant contracts in all of our businesses, all enabled by the core technologies, data cloud and AI. Maybe just a brief summary, continuous strength in our banking business, create gaining further ground in the U.S. New customers, here's just a sample. That's a very important initiative for our company, and we'll be talking more about the create initiatives in the U.S. more or less continuously. Furthermore, managed service and transformation, significant wins. Here's a sample in the case of Norrbotten, Sweden, but the number of important ones in the fourth quarter. I would then summarize briefly on the other software businesses covering both the care and industry. These businesses continue to be competitive, although naturally there's some degree of savings that customers are driving in terms of competitiveness, especially in our care sector has been very compelling when we think of the new wins in the marketplace. Then before we go into the business-by-business views, I want to highlight a couple of factors in the whole adoption AI programs in the company. Very high priority. I confirm we have had for quite a long time, a couple of years already, each business driving value propositions and initiatives, both in terms of new products and new services, that they become visible to clients. and equally importantly driving internal productivity. I give a few samples. Tieto Every Create has launched in the US already a framework for AI ethics, safety and compliance. We think it's a very healthy angle that will work well in the US marketplace and fully supporting our growth initiatives in the US market. Regarding software businesses, care banking and overall the industry, here highlighting the public 360, more and more we will be seeing AI embedded core software releases very consistently moving forward, nice samples, more benefits moving on a fast pace in client engagements in software, tech services driving AI-centric innovation frameworks with clients, and very importantly, which we are used to driving efficiency through AI-enabled automation as well, just to name a few samples, and we'll continue to be AI domain very active in our agenda. Then, of a lot of interest, let's go into the real performance side. At the group level, the numbers have been visible already, so I shall not be repeating the minus 7%, 12.3%. 8% and so on already highlighted. Let me move over to the businesses. In terms of Tieto Every Create, impacted clearly by the softer market. We are seeing in the type of digital engineering market worldwide impacts from the macroeconomy. Overall, the performance in the fourth quarter was slightly softer than we have expected. We had weak points in performance in Sweden and Norway and quite rapid budgetary reductions in the telecom sector, some of the factors in the background. Furthermore, I want to highlight that the profitability has been impacted by price pressure in the marketplace, has to do with the overall demand demand outlook and demand view in the industry as a whole. And naturally, whenever there might be fluctuations in demand, capacity management will continue to be very active. I would like to confirm again, like we did a quarter ago, we continue to see indications of U.S. market recovery and our momentum overall continues to become encouraging. including recent wins and also improvements in the business pipeline. AI services, we are very active. I would say they are not yet extremely high in terms of the revenue contribution, activity level high. The projects tend to start small, but the number of projects that are being initiated is growing at a very rapid pace. So that's the overview on CREAT, so degree of dependency on the market recovery. In case of Tieto Evri Banking, performance very close to our expectations. We do have a bit high revenue comparables while stable profitability. In terms of comparables, actually four percentage point impact on that side. And very importantly, as we tend to see in the total portfolio of the banking business, we see number of the software businesses continue to grow in the fourth quarter, the combination of credit cards and financial crime prevention. And also very positively, we again see that we have a record high order backlog, which is being supported. I want to highlight also that by the longer term contracts, which gives the kind of a view for the longer term. stable profitability at 14.6% level, and overall, as mentioned, close to what we had also expected for the fourth quarter. Then we move over to our care business, continued strong profitability, and we'd like to highlight really significant and broad wins in the Finnish healthcare market, Overall, the performance was very close to our own expectations while highlighting also our predicted public sector budgetary constraints that impact the care business specifically in the Finnish and Swedish markets. Furthermore, we want to highlight that given the history of the care business, growth is being impacted by decline of legacy software products quite significantly. That's a factor in terms of how the full software suite modernization is happening, and it is a positive direction, but short-term creating a bit of a dent. We currently have, in the case of the Finnish well-being counties, 16 out of 21. We have been able to add a number based on the bids in the recent quarters. And we confirm, as previously, very importantly, continued investments into go-to-market activities. We'll be talking of those activities in the quarters to come more. And then the life care localization for Norway. We are also, from a Gen-AI standpoint, embedding into standard product release the smart nodes functionality, and the customer deployments are starting. And just to confirm the foundation for the healthy profitability level is the scalable Life Care software platform, as likely everybody well recalls as well. In the case of Tieto Every industry, here we have performance below our expectations. We have a degree of one-time headwinds, and pockets of market softness, very specifically budgetary reductions in the paper, pulp and fibre industry. I would say anybody following the paper, pulp and fibre industry would see that from the client standpoint that that has also impacted our short term. The public 360 business, the document management for public sector being impacted by public sector budgetary reductions. And furthermore, we actually have a one-time settlement Those are just factors behind this negative 5% level, naturally nowhere close to our longer-term expectations. And profitability also lower than our standards would be in expectations. Here we have, in addition to the revenue drivers, temporary overcapacity in a couple of the businesses, and with that in mind, and naturally efficiency measures are ongoing. Then we go into our tech services. Here we see positively resilient profitability in a soft market, and importantly, the type of business mix shift towards scalable services, very specifically cloud platforms and security growing up to 36% level. I would like to furthermore go through briefly the backgrounders to the organic growth at the minus 11%, ransomware impact, couple of percentage points, hardware, software, resale volatility. It tends to be a volatile market, about three percentage points. So that gives a bit of a flavor that the underlying at more or less at the levels that we tend to see. And I would like to highlight that profitability continues to be driven by high degree of attention on efficiency-oriented activities, which is required in the managed services type of business continuously. And there we have a fairly good track record. So strong profitability drive naturally to continue. With this in mind, I hand over to Tomi.

Thank you, Kimmo, and good morning. Our Q4 highlights are clearly strong cash flow and increasing dividend to 1.5 euros per share. Important to note that our Q4 growth and profit were impacted by one-time ransomware event-related settlements by almost negative one percentage point. If adjusted with the negative impact, our Q4 growth would be approximately minus 5.9% and profit approximately 13.6%. Overall, the impact from ransomware event related settlements was in line with our expectations with 6.2 million booked in Q4 and 7.6 million for the full year compared to our estimated 10 million maximum contractual limit of liability as communicated earlier. As a result of the soft market throughout 24, we have been actively managing our cost base. Our Q4 one-time items came in as we expected and ended up being 2.1% for the full year. We estimate 25 one-time items to be between 1 and 1.5% and the strategic review related one-time items to include only cash sorry, only cost to complete the tech services strategic review. As mentioned, we had a strong operative cash flow of 128 million. Our networking capital improved positively by 44 million, driven primarily by seasonal changes in vacation accrual and accounts payable. Our free cash flow was also strong at 108 million, supported by 13 million from bypass disposal during Q4. Our cash generation foundation is healthy. Our interest bearing liabilities decreased and were 872 million at the end of Q4. However, net debt EBITDA remained over two versus our target range between one and two. During Q4, we signed a 300 million two-year term loan to refinance our bond, which is maturing in July of this year. LTM attrition continued to decline, being 8.3% at year end, comparing to 8.8 at the end of Q3. These levels are well below normal markets, which are reflected by the current market conditions. In order to protect the margins and ensure continuous competitiveness of our businesses, we have continued with capacity reductions in Q4. Creators reduced approximately 200 FTEs, banking 100, tech services 50, and slightly less with industry and care. For 24, the group level salary inflation ended up 4.5%, and we expect similar levels into 25 between 4 and 5%. Next, I'll summarize the Q1 performance drivers. Overall, we expect the Q1 to be a soft quarter for us. Our Q1 revenue growth will be negative, We'll talk about later in the presentation of the dynamics of the full year 25 growth. Q1 growth drivers remain much of the same as in Q4, including the magnitude of the impacts, however, measured against slightly easier comparables. On profit drivers, soft market conditions increased, pressure on the margins while our efficiency measures, which we have executed during 24, support Q1 profitability. Increased mainframe software license costs will put pressure on banking and tech services margins in Q1. And as normal, tech services annual price discounts kick in in January. In Q1, we have 0.7 less working days, which impacts the margin negatively by half a percentage point in Q1. On other drivers, we expect FX impact to revenue being negative 9 million, and the working day impact to growth being negative 0.7 percentage points. Based on the prior page, Q1 drivers, tech services is expected to be at prior year profit levels and other businesses to be below prior year. Back to you, Kimmo.