TietoEVRY Oyj

Good morning, and welcome to Tieto Evri's second quarter earnings webcast. My name is Tommi Järvenpää. I'm the head of Tieto Evri's investor relations. We have lots of exciting topics to discuss this morning. Yesterday, we announced our permanent CEO appointment, and earlier this morning, we introduced our new near-term focus areas in connection with our Q2 report. Naturally, we will be also discussing the second quarter highlights and results in this call. Our teleconference line is open, and as always, we will be hosting a Q&A after the presentation. With me here today are our CEO, Enre Rangnäs, and CFO, Tomi Hyryläinen. And at this point, I would like to hand over to Enre. Please go ahead.

Thank you, Tomi. And welcome to the Tito Every Q2 2025 quarterly presentation. So I'm really, really honored to take on the role as the CEO of the company, having been the interim since the beginning of May. So, in addition to the financials, I will come back to some of my observations and then also actions initiated during these close to three months and also some of our near-term priorities. When we look at the messages, the overall messages are the following. This company has a very solid market position, a strong software and services portfolio, and also highly talented people. However, lack of revenue growth over a long period of time has resulted in a too high cost and SG&A base. So based on this, we have taken some immediate actions. One, new leadership team is in place. Two, cost initiatives has been initiated and will be initiated. And three, we will refocus the organization towards the market and our clients with sales focus. And like I repeat every single day to my colleagues, everything starts in the market. We should never, ever forget that perspective. Since I joined beginning of May, I have spent a lot of time engaging with our customers, my colleagues and also our partners. And it has become clear that our company stands on a very solid foundation. First of all, we have a leading position in our core markets in the Nordics. For example, a very competitive software product base. We have a strong customer base in many industries with active innovation agenda in place. Also, more and more we see AI embedded in new cases. Thirdly, we have a portfolio of leading-edge software and digital consulting capabilities. And we clearly see that we can unlock even more potential in these areas going forward by being more relevant compared to the market demand. And then, last but not least, we have a global team with highly talented people. However, it's also clear that we have failed to deliver adequate performance We have had lack of growth for an extended period of time. The average organic growth during the last 12 years is close to 0%, while the market has been growing a CAGR of 4 to 7%. And then according to our clients, we have been missing customer and client interactions and sales focus. And then the cost base has been growing too heavy. So consequently, we are introducing three main focus areas or what we call near term top priorities. One, customers first, two, restoring growth, and then also set a competitive cost base going forward. We just have to become much more market and customer oriented, and this will be crucial to get back on growth trajectory for this company. We have identified a set of actions to get back on track. First step, we are strengthening customer-focused sales and delivery capabilities. So as an example, we have launched and we are continuing launching a new governance structure with our clients. And this is mainly to build trust again and to ensure a better interlock with our clients. This governance structure was tested out extensively during my time period as a managing director for banking, and it really works. We have also started a sales-focused sales harmonization project across the different business units of T2 Every, and we have kicked off a sales recruitment program to strengthen the sales structure in T2 Every. To secure competitiveness, we are also launching a cost optimization program aiming to achieve a total cost saving of 115 million euros by year end 2026. As you probably have seen, we have already initiated savings of 40 million during first half, mainly in the second quarter. And we are taking new measures targeting savings of 75 million euros by end of 2026. We have also earlier this morning confirmed our new leadership team, which is then focused to execute and to deliver. And their main tasks are to strengthen customer orientation and to drive efficiency. This is the new leadership team focusing on execution. Since May, we have onboarded several new members to the company leadership team. We have also extensively renewed the leadership team for continuing businesses, as well as extended the scope of the team with new roles, including legal and communication. Then upcoming in the near future, the new head of HR will join us as Trond Winne has resigned and will be leaving at end of August. And then naturally, Satu will be excluded from the team upon the tech services closing, which is expected to happen in Q3. We are on a track towards that, as earlier communicated. So this team is focused on steering the company through the challenging times ahead. And we will ensure our meeting cadence and the structure supports the close teaming needed for execution. On the positive side, we have also the latest agreements and recognitions, which really demonstrates our good market position and potential for growth. We are proud of continued partnership with the leading European energy company, Vattenfall. At EGIG in Austria, we can help them improve customer service through automated AI-based handling of customer emails. And then we have also Lokalbank, a constellation of 16 different saving banks in Norway, where we deliver our full stack technology platform, which enables a new modernized, cost-efficient, and robust banking platform for these 16 banks, of which 10 are win-backs, or new clients for T2 Every. Then also the Gartner hype cycle for healthcare well demonstrates our readiness to introduce our open modular data-driven care software beyond the Nordics. This is a quite key element into our strategy. The recognition for T2Every banking and T2Every as a total as an attractive employer also signified a high quality of our businesses. And then as you see to the right, we're continuing to deliver on our very high standards and ambitions on the sustainability area or areas. And it's now time to look into our second quarter results, which was, I would say, second quarter was really a challenging one. Our market remained soft, which was visible in a negative growth with revenue down by 4% year-over-year. And we are not at all satisfied with the revenue and profitability development. The adjusted profitability margin was 9.4%, which also includes the negative IFRS 5 impact related to temporary cost burden related to tech services. So due to long-term weak performance, we are now taking actions to get back on track. We have today announced a new cost optimization program targeting 75 million euros of savings by end of 2026. And then furthermore, based on regular reviews, we have also booked 80 million euro non-cash impairment related to the banking platform modernization program in Norway. as we are now aligning with future demand. And then we do impair all non-value adding or older components of the core bank system. And last but not least, we have appointed also a new leadership team that will help us in steering the company through the next phases. Let's then take a look at the business highlights and then we start off with the aggregated numbers. As mentioned, organic growth minus 4% year over year. Then following the strong Q1 cash flow, operating cash flow for the quarter remained healthy at 51 million euros. As you can see, we continue decreasing the net working capital. The quarter ended with a strong order backlog, especially in banking. Organically, the total backlog was up 14% year over year, and then also up 9% compared to Q1. And of course, this is a very good foundation when we're striving for future growth. When we then look at the different business units, we are starting off with Crate. And I would say that is probably where we had the biggest challenge in Q2. The market remained soft. And I would say that the consulting market as such has continued with a weakness across all geos. Some of the non-critical projects are being postponed or paused by our clients. mainly due to the geopolitical picture and then also partly due to low demand. And furthermore, we have seen continued price pressure impacting our margin development. However, the long-term market growth outlook remains strong as enterprises remain focused on optimization projects aimed to improving agility and also efficiency. We can see this across the GEOs. And then also continuous demand for projects related to AI will keep up the services investments over the forecast window. When we look at the numbers for T2 Every and then Create, the weakness is visible in our organic growth of minus 7% in Q2, also partly then impacted by less working days year over year, and then also lower internal invoicing, lower internal revenues. So to offset the market weakness, we have executed capacity and also SG&A reductions during first half. We have reduced personnel by 5% year to date. And we will also now, with new initiatives coming, continue to drive for even more efficiency within CREAT. On a positive note, the order backlog has remained stable, and we have new wins in Q2 with AI embedded. As an example, we already mentioned G&G, the Austrian fixed broadband access infrastructure provider, where we helped improve customer service through efficiency with the AI tools. Looking at the next business area, which is banking, In banking, we came in with minus 2% organic growth impacted partly by Norwegian bank mergers or one bank merger in Norway in first half 2024. Considering this impact, the underlying growth was flat with growth in BAS and financial crime prevention. BAS is our core bank solutions and FCP is the financial crime prevention. Profitability is slightly improving, supported by efficiency improvements that was executed in second half 2024 and also in first half 2025. It's also important that we have regained client confidence in the Norwegian banking market with multiple new wins. A couple of examples is Lokalbank and Sparbank Norge, and this has resulted also in a record high order backlog within the banking unit. When we look at care, growth was impacted by decline of legacy product business by four percentage points, and then also partly lower public sector demand in Finland. In Q2, there were three one customer contracts waiting for market court decisions, escalations impacting growth and profitability. The total revenue impact is assessed to be approximately two percentage points. Currently, we actually have six cases in the court system, which will be impacting also partly the Q3 numbers for care. We are increasing our focus on growth in care which is also slightly impacting the profitability near term, mainly due to higher investment related to our international growth. And one example of that is, or one example of the international expansion is that we have entered into collaboration project with Basel University Hospital in Switzerland. In industry, Q2 market slowness continued, mainly in pulp and paper and fiber and public 360, and that impacted overall growth development. At the same time, we had healthy performance in education and data platforms. And when we look into second half, we see improving market activity, and we have had multiple new wins end of Q2 and into Q3, which will support also our second half development. And as you have probably seen with regards to profitability, industry executed significant efficiency measures in Q2, which will start showing results in Q3 and onwards. So, Tommy, that brings us to the numbers and the details of the numbers and the CFO report. So, please, Tommy.

Thank you, Enre, and good morning. So, I would like to begin by confirming the good progress made with tech services closing activities. We expect the closing to happen in Q3, aligned with our original timeline. One of the key messages in Q2 is our cost optimization activities to build an even more competitive cost structure and mitigate against the tech services cost burden. Combined with the cost saving decisions that we have already taken in Q1 and Q2, we aim to achieve 115 million run rate savings by the end of 26. As a result, we expect our full year one time items to increase to approximately 3% of revenues from our earlier estimate of 1 to 1.5%. Then, specific Q2 events for banking. We received a Court of Appeal ruling related to Sparebank e-dispute. The ruling was positive to us, although not at the level of our claim. However, if the ruling will stay without appeal to the Supreme Court, we will be booking the fixed fee increases to revenue of 24.5 million in Q3, 2.2 million in Q4, and 8.6 million during 2026. Then the already mentioned non-cash impairment of 80 million into banking platform in Norway. This was a result of recent large customer contract wins and renewals, including our extensive customer pre-studies, which confirmed the future demand of our developed technologies. The technologies that did not have future revenue streams were accordingly written off. Lastly, we executed a 300 million bridge loan for our expired bond, and we will be initiating refinancing activities post tech services divestment. More details on the cost optimization activities. As mentioned, we aim to achieve 150 million run rate savings by end of 26. That translates into 70 to 80 million run rate savings by end of 25. This base year comparable is end of 24 cost baseline. There are two main buckets. First one, the already decided Q1 and Q2 actions, which aim for 40 million run rate savings by end of 2025. This includes potential reduction of approximately 800 employees. That is 50-50 from SG&A and delivery capacity, and includes tech services transferred employees. OTIs, so one-time items associated to this, are approximately 20 million, which majority have been already booked by end of H1. Second, the new program, 75 million. So we estimate the run rate by end of 26 by 75 million. There are two elements to it. potential reduction of up to 450 employees, both from group functions and in the businesses, and this mostly relates to SG&A employees. And the related OTIs are estimated to be 15 to 20 million. And then an external cost bucket where largest share comes from facilities rationalization, and that will require OTIs of approximately 5 to 10 million. Consistent with Q1, the reported figures in Q2 do not reflect the underlying profitability of the continuing business. On revenue, the growth of minus 4% is correct. Adjusting tech services out is very straightforward. No adjustments needed on top of that. However, profit includes approximately 6 million or 1.3% negative cost burden from tech services. which relates to costs that cannot be allocated to tech services segment under IFRS 5 rules. Then for illustrative purposes, we have included post-closing TSA income assumption, which simulates the post-closing profitability level during the TSA period. We continue to deliver healthy operative cash flow in Q2 following the strong Q1. Our net working capital decreased slightly despite some seasonal headwinds in Q2. Our interest bearing net debt and leverage increased due to 89 million of dividend payment in April and our net debt debit DA was at 2.4 at the end of Q2. Then as a reminder, tech services divestment will decrease our group net debt by the transaction proceeds, plus approximately 100 billion reduction in lease liabilities. On employee matters, the LTM attrition has remained at low levels, being 8% at the end of Q2. This reflects the soft market environment. As a result of the continued soft market, we have reduced capacity on a net basis by approximately 350 FTEs during Q2. This has particularly been in CREATE and in industry. With the new decisions, we will be making further reductions during H2. We expect salary inflation for the year to be 4 to 4.5%, which would be slightly lower than in prior year. Next, I'll summarize the performance drivers for Q3. On growth drivers, CREAT will continue to be affected by weak demand across all its markets. Banking is impacted by ending of a significant, although margin dilute, the mainframe contract by negative 2%, and there is a potential positive impact from Sparebank En, as mentioned. Care growth is supported by well-being county wins in Finland and market expansion in Sweden, especially with Karolinska. Headwind from legacy product decline and 6-1 customer contracts waiting for market court decision. Industry growth is supported by strengthened order backlog, while pulp paper fiber will continue to be impacted by customer investment postponements. Working day will have negative impact of 0.2 percentage points. On profit drivers, CREAT will continue to see price pressure Our new and existing cost optimization activities start to contribute to profit and negative working day impact is minus 0.2 percentage points. On other drivers, there's a positive FX impact to revenue of 6.1 million. Then to Q3, profitability outlook per business. We expect tietoevery create and care to be below prior year level and banking and industry to be above prior year profit level. To note, banking soft guidance here does not include the potential positive impact from SpareBank EN court ruling. Then to H1 and H2 performance dynamics, we expect the group performance to improve from H1 to H2. The drivers are very similar to Q3 performance drivers. So in CREAT, we do not expect market to recover. Slight growth recovery is expected due to easier comparable. The already executed cost optimization activities will support H2 profitability. Banking's record high order backlog supports H2 growth with headwind from ending of the significant although margin diluted mainframe contract with negative 3.5 percentage points. Profitability is supported by cost optimization activities and there is the potential impact from SpareBank N. CARE is benefiting from its strong wins in Finland and market expansion in Sweden, with headwind from legacy product decline and large magnitude of one customer contracts waiting for market court decision. Also with CARE, cost optimization activities support profitability in H2. Market activity in industry is improving, and with multiple wins and improved backlog, the H2 growth is supported. The significant cost optimization measures already implemented in H1 support H2 profitability. Now back to you, Endre.

Very good, Tommy. Thank you. Very quickly summarizing what we have been through, looking at the way forward, as mentioned, Our direction going forward is clear. We must become much more customer oriented and then strengthening our customer focus will support our future growth. We have to become more competitive and as a consequence, we have also to constantly work on the cost control So we are now taking decisive steps and we will be evaluating more actions related to growth and other priorities going forward. We will come back to this in the upcoming Capital Markets Day. So please pencil in. We will have the Capital Markets Day, T2 Every Capital Markets Day in London on November 1st. So that concludes the Q2 presentation as such, and then we are opening up for the Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Mark Hyatt from Morgan Stanley. Please go ahead.

Hi, thanks for the presentation and thanks for taking my question. Congrats, Andrew, on the permanent appointment. I've got a few questions, please. Firstly, you've reiterated the FY25 guidance, which given the first half performance, obviously requires a 2H3 acceleration and a bit of inflection in margin. I know you've talked about some of the drivers in the second half, Tommy, around base comps, cost-setting factors, et cetera. But could you just give us a bit more clarity on your confidence and the ability to deliver in line with expectations for FY25? If you think about the low end of the guide, what are you assuming in terms of underlying market activity and how de-risked is that? Secondly, you've outlined 150 million euro run rate cost savings target by the end of 2026. You've got some workforce reductions already underway. Could you elaborate on how you're balancing these cost cuts with the need to maintain innovation capacity and customer delivery quality, especially in growth areas like AI and, of course, in international expansion areas as well? And then finally, perhaps a longer term question for you, Andrew, as you think about the business over the next two to three years, what is the most exciting growth area that you see in the business and what steps are you taking to position the business to success in that area? Thanks very much.

Very good. I think first of all, we can start off with the last one. I think that this company really doesn't need a new strategy. What we need is to execute on what we have. So when you look at the areas ahead of us, I would say that we are very well positioned now within banking, having been managing director for banking the last eight months before taking on the assignment. As the new CEO, we... We kind of stabilized banking, and we have also now set out a clear strategy on international growth for banking, and we will probably come back to that in connection with the capital market. So banking, I think we have a very solid foundation for growing the business going forward, and I think also we have a very solid business plan to execute on in banking. When it comes to care, We have already seen some early signals of international growth with our new modernized open industry standard software. So we have also high expectations in terms of care and the growth going forward in care internationally. Of course, we have a strong home market, but we should also benefit from that in terms of the international expansion. And then I think it's more like a market phenomenon that we are seeing challenged in the care area, but it's also partly in that specific area, partly also lack of sales focus. So I believe that we will open up that space going forward by being more relevant in the market. So it will partly also be a shift of competence when we look into those areas. Then we have a lot of kind of software entities within industry where we are And it varies from unit to unit, where we also are quite well positioned. But I would say that banking, care, and then create, and then of course niche products within industry, are kind of what we have ahead of us to execute on going forward. Having said that, of course there are a lot of interest but also a lot of hype around ai but we clearly see the signals that we get more and more interest from the clients and ai is not only kind of one specific project which is also including legacy and transformational legacy i would say that that's the quite interesting part of this When it comes to the, before Tommy is going into the 115 number, I would say that we have been now through the last two and a half, three months, very, very extensive work. detailed analysis of where do we stand in terms of KPIs, in terms of SG&A, for example. And it's clear that when you look at the aggregated number of corporate business support functions and what we have in the business units, We have big room for improvement, and that's what you see now in the program launched for second half, that we have room for improvement to be much more competitive from an SG&A point of view. Having said that, the S is of course where we also need to reinvest, but we need also to invest in hunters. We need to reinvest in the rejuvenation of the sales population. And then we also need to look much, much clearer into what are the top priorities within the different business units in terms of sales. So we have been through a very detailed mapping of what to do in cost and expense calibration without kind of hurting the delivery structure in the market. Of course, when we have the demand that we have currently in crate we need to do reduction based on on that current picture it's a combination i would say that parts of crate we are not relevant part of crate is also a very weak demand in general so we need to to cope with that from a delivery point of view but then to the details of 115 tommy

Maybe to add, of course, Enri covered the big picture. There is no trick to it. 115 million, when we take cost out, we try to protect the growth areas. And that's what we're very mindful now when we have executed and start to execute even more of these reductions. Growth areas, we are actually investing more, not reducing. So we're very mindful of that. In terms of the guidance, we feel really comfortable now, as I went through the drivers for the second half, that we will be seeing improvement, specifically due to the strong backlog in banking, industry and care. Of course, care's growth is somewhat hindered now with this market court decisions, which we're still waiting for, and there's a quite significant growth headwind. But still, even with those, we will be seeing positive growth momentum there. Creatis is the only business where we don't see, for the remaining of the year, a sort of better market and better growth opportunities.

Okay, very helpful. Thanks very much.

Thank you, Mark.

The next question comes from Daniel Gerberg from Handelsbanken. Please go ahead.

I cannot hear you.

You're breaking up.

Can you hear me now? Can you hear me?

Yeah, yeah, good.

Yeah, I'm sorry for that. Try again. Looking at the group management team, I can't find the head of strategy anymore. Is that the change that you did back in April?

First question.

Head of strategy was part of the group leadership team until May 5. And as already mentioned, this company doesn't need a new strategy. We need to execute on what we have in front of us. I'm taking care of strategy myself, having been through rejuvenation of the strategy within banking. For example, we launched the international go-to-market strategy within banking when I was there. And this is also part of what we're looking at for all the parts of the business. So I'm taking care of strategy myself.

Really good news, thanks. Another question from my side would be if you also have talked about, you know, going from strategies into actions, but some of the decisions made, you know, with the US expansion, with MentorMate, for example, in CREAT and this global digital talent pool, is the ambitions still as high there, or could you think over those?

former uh strategies i think it's it's uh also for create i would say daniel that the the strategy is set out but we will have a small adjustment coming from like having a very global industry approach to be much more close to the clients, meaning that we will benefit from the strengths that we have locally in the Nordic markets. We are partly also represented, as you know, in the Dux region. And then we have the local setup that we have in the US with global deliveries. So I would say that we are partly changing the focus in create by strengthening the sales client focus and including then the vertical local vertical focus which will be different from market to market but we will maintain what we have partly changing focus by strengthening the local presence but then also benefiting for of course from the global deliveries that we have we will come back to this of course in more detail when we come to the capital markets day in november perfect and may i ask also

On the workforce reduction, you talk about in total new and old programs, some 800 employees in creating industry mainly. You also touched upon this, but if you look at how many will be in admin and into the sales and delivery side, I'm trying to figure out how it will impact sales really.

So the major part is related to SG&A, but then mainly G&A. So we're not making any big cuttings in sales. As mentioned, that's a quite important focus here going forward. However, we have to do the rejuvenation of the key account management and then also to invest more into hunters and new So it's mainly driven by GNA and then it's of course overcapacity. When you look at the performance in Crate, you can clearly see that we just need to shave also overcapacity, but also a big part of the GNA element is related to Crate as well because of the size of Crate, which is quite obvious. but we can give you the split i mean we have been we have been through a full mapping now based on first half initiatives and then we have done a full mapping of what should we do by corporate corporate support functions and then also by business unit by every single sgna element we have done that during the last two three months and that has been the foundation for 800 plus 450

Roughly 30% is delivery-related capacity and 70% SG&A. And as Endre said, it's more of the GA.

And they will also get higher utilization, I guess, after this. So it's mitigating. Okay, thank you very much. That's super helpful.

Thank you, Daniel.

The next question comes from Aditya Budhavarapu from Bank of America. Please go ahead.

Hi, good morning, Andre, Tommy, and congratulations, Andre, on the appointment of the CEO. Just a couple of questions from my side. um just going back to the question about the full year outlook um given where you are at h1 um can you just talk about how you're thinking about the shape of growth in h2 so you know how you think about that sort of improvement in q3 versus q4 and when you expect that sort of or backlog to start reflecting in the revenue growth itself during h2 uh And second, so a similar question on the margins as well, that most of these cost savings related to will really come up more in Q4, so it should be more H2 weighted, so Q4 weighted than even usual. And finally, I guess one for you, Andre. How do you think about the portfolio of the business today? Are there any areas which you sort of think are probably less important for Kyoto going forward? Or maybe you sort of think you could refocus your activities on a few parts of the business? You know, so are there any particular that you think has potentially being maybe, you know, non core?

I will start off with the last one because we will come back to this in connection with Capital Markets Day, the way forward. Now we are, as we have been through in this presentation, we are working on immediate actions to really turn this ship around. So we will come back to this. We don't launch a new strategy currently. So let's discuss this in Capital Markets Day. One general comment is that we probably need to simplify and refocus to have a sharper focus for a total T2EV going forward. Of course, part of this is that we have now sold tech services, but we need also probably to... partly reshape but also simplify the structure going forward with regards to the second half and the fuller outlook as mentioned we are quite comfortable with the guidance so so so and then it depends also a bit on with or without spire banking court decision which is potentially happening in Q3, which has a huge impact and on Q3, both top line and the bottom line, of course. So maybe you should elaborate a bit more on this, Tommy.

Yeah, thanks, Henri. Maybe to confirm, so Sparebanken is not within our guidance expectation as of today. Just to confirm that one. Then how you should think about Q3 and Q4. On the growth, you should think about the acceleration profile for H2 on growth. On profit, you will be seeing a bit more on the ones where we have already done cost optimization impact in Q3, so not that big acceleration. That will then have to do with the industry banking and CREATE.

All right, understood. That's good. Thank you.

The next question comes from Felix Henriksen from Nordia. Please go ahead.

Hi, thanks for taking my questions. I have a couple. Firstly, on the banking impairment, can I just further elaborate what triggered this right now? And as a follow-up to that, have you sort of reviewed the other software business units for a potential need for similar actions regarding the software stacks?

I can start off with that. Of course, we are constantly reviewing all the software that we have. Basically, when we go back to banking, the situation is that we have been renewing the core bank solution in Norway for the saving banks mainly during the last 15 years to move out of mainframe and into a more flexible platform based on Unix and new modernized tools. That has taken a lot of time, and when we have seen now, during the last six to eight months, we have renewed a lot of these contracts based on the new software, and then we have decided that part of the old software legacy is not relevant anymore. So that's part of the explanation for the 80 million euro write-down, Tommy.

Yeah, exactly. Why now? It's because of the renewals that we have now done, confirming the need of these technologies in the future. And of course, as you know, these are technical accountings, so cash flows for these developed technologies are the ones which are being assessed.

Got it, fair enough. And then to Andrew, just to pick up a bit of a big picture question relating to capital allocation. As a new incoming CEO, how do you view the current capital allocation policies for Tietoebri when it comes to deleveraging and shareholder remuneration and balancing these two?

Thanks. We will come back to the details on the capital allocation in the CMD. However, we have a dividend policy which is there and we need to relate to that one. It's up to the board and up to the General Assembly to decide on that. But I think it's also quite important for us that when we look at the competitive environment in software, for example, we just probably, and this was back to, was it Mark's question, that we probably have to also reinvest a bit more into software development, for example, in banking. In banking, we are spending like 10% of revenue, in R&D, and we can see that some of the competitors are investing more. So it's a balancing act, of course. The important thing is that we start now growing the revenue of this company, starting growing the bottom line and the cash EBITDA, and hopefully that will impact the share price. So that's what I can say currently. That's the ambition. But we will come back to the capital allocation in connection with the capital market today. But the capital allocation dividend policy stands as it is.

Thank you. That's all from me.

The next question comes from Sami Sakamis from Danske Bank Markets. Please go ahead.

Hi, I have three questions. We'll take this one by one. Starting from the folio guidance, which was reiterated, you're estimating now 1.1% headwind from IFRS 5 from previously 1.4. It seems that you've updated timing for closing of the divestment. Did you previously assume that it would actually happen in Q4? Or can you be a bit more specific on why this estimate has come down?

So this estimate has come down because of the structure of the cost burden. So we have been moving some of the cost into tech services segment already. Therefore, the cost burden is not that big. That's the main driver for the change.

Okay. So allocation has changed, but not timing of the divestment? No. Okay. Then secondly, on the Q2 bill impairment, which was already discussed, can you specify the period during which you have made these R&D investments that are now written down?

As Henri mentioned, these are long-term investments. Some of these run back to 15-ish years. In this call, I have more details. We've done a very granular walkthrough of each of these elements.

This has been a very detailed walkthrough with the service banking as a platform. entity including their finance people including group finance so it's been a very very thorough study and of course we've been through the auditors with this one so it's but it's basically a software like legacy software going long time back like at like 15 years some some even more so so that's that's that's the basic reason replatforming from mainframe to unix that's that's the that's the story

Okay, so maybe we can say that the lifetime of those earlier investments turned out to be shorter than anticipated.

Or not relevant because we don't generate the cash flow expected. So it's more like that, that we have now, we have a shift. So we have started. So when you look at the new contracts that we have signed, this is also quite important to understand that we have signed now up more or less all existing saving banks in Norway with long term contracts. Practically 10 years, which will give us a very, very solid foundation for banking the following years. But the contracts are shaped in a way that all these banks are now moving towards the new modernized banking software, meaning that the legacy is going down, meaning that the cash generated from the legacy is then significantly going down. And that's why we are kind of

taking partly why we take the goodwill impairment now capitalized r d yeah yeah yeah okay uh thanks and then finally on the outlook for industry uh i think you will be against a much tougher uh comparable in the third quarter uh recent quarters have been very weak so where is this uh third quarter improvement coming from, was it top line driven or cost driven or both?

The answer is yes, it's both. So it's actually what we did in beginning of Q2 was to take quite tough actions in industry on SG&A. So that has been implemented partly also in cost. Then we signed several contracts in several of the software areas end of Q2 and into Q3, and that will have the kind of top line impact, despite, like you say, year over year, it's a challenge, but we are quite comfortable about our outlook for industry second half.

Okay, thank you very much. I don't have any further questions.

The next question comes from Matti Rikkonen. from DNB Carnegie Investment Bank. Please go ahead.

Good morning. It's Matti Riikonen, DNB Carnegie. I have two questions remaining. First related to the TSA bridge when supporting tech services. So do you expect to provide TSA services to tech services after the closing and for how long? And will these be on commercial terms? And will the TSA services allow you to face down your costs that ultimately should decline to zero? So do you think that the transition will be smooth to your end, regardless of how long the buyer will continue to keep up these services?

Okay, thank you, Matti. So TSA services are governed by this TSA agreement, so these can run up to 18 months. Assumption currently is that most of the services will run only three to six months. So what you see on the slide which I showed is sort of the full TSA structure, of course, sort of in the first months when all the services are up and running. IT-related services are the ones which are taking the longest time. And I do expect that that could be one year up to slightly more than one year, when that service will then end as well. And will that be a smooth transition? I will for sure try to make that as a smooth transition. So yes, we're aiming to do that.

All right, thanks. And secondly, related to group costs and capex for continuing operations after the tech services split, would you be able to give any guidance to what cost level you think the group costs would land in in 2026 when tech is divested? And also, what happens to capex to sales ratio Or absolute capex as you remove tech services. I have understood that tech has been basically roughly half of your total capex. So is that all going away and then benefiting you on the cash flow?

Yeah, that's actually, Matti, the only part I can directly answer. Yes, half of that capex goes out, and then on the rest, we do need to come back at the CMD to sort of outline the future structures of the company.

Okay, so I'm just trying to figure out what would be a good good group level cost to use for the for the continuing operations because that is currently of course something which is impacted by the TSAs and and going forward it will not be but that's a bit difficult to analyze from the outside at the moment so any help that you could give would be would be good

direction would be that we take at least the cost burden and even more out when we do the resetting of the competitive cost basis discussed.

All right. I have nothing further. Thank you. Thank you, Matti.

The next question comes from Jocko Tervenen from SEB. Please go ahead.

Good morning, it's Jocko from SAP. Most of the questions have already been answered, but could you elaborate a bit more in details on the growth challenges that you are seeing in CREATE segment? For example, how did the US operation develop during the quarter? I recall that going into the year, you saw some Jan-Willem Wasmann, Some positive signs there but but how things are developing in terms of geographical space in in the create segment.

We really don't see any big difference between the geos. I would say that in general, it's been quite weak performance, or not weak performance, but weak demand across all the geos. So that's the general answer. We don't see any huge differences at all. And I think that is also clear when you look at the Gartner reports, etc. There are no big variations between the expected demand in the geos. The question is, how relevant are we by each market? But that's also another discussion, which is more specific for T2Every. So that's more kind of overall answer. Any comments from your side?

Yeah, so we did indicate earlier in the year of market activity, signs of improvement in the US. That is gone, no longer, just to confirm.

Okay, thank you. Then finally, perhaps following up on the capital allocation and especially the level of leverage, your net debt to EBITDA is now 2.4. How comfortable you are with this level going forward, especially given your comments regarding possible further investment need in certain software?

So we keep our one to two target level. We will be improving towards the year end with the improved profit level. So naturally we're not happy with 2.4.

Okay, fair enough. Thanks. That's all from my side.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you for the questions. Thank you, Enri and Tomi, and thank you everyone for watching. Our third quarter results will be published on 23rd of October. See you then. Thank you.