TietoEVRY Oyj

Good morning and welcome to Tieto Avery's third quarter earnings webcast. My name is Tommi Järvenpää. I'm the head of Tieto Avery's investor relations. This morning, we will be discussing our Q3 results, as well as progress with our actions to improve performance. The teleconference line is now open, and as always, we will be hosting Q&A after the presentation. With me here today are our CEO, Endre Rangnäs, and CFO, Tomi Hyröläinen. With this, I would like to hand over to Endre. Please go ahead.

Thank you, Tommy, and welcome to the Tea to Every Q3 2025 quarterly presentation. It's been a very active and I would also say a productive quarter marked by the execution of our cost efficiency program. Over the past few weeks, we have also held a large number of meetings with investors and clients to gather valuable data points and insights to preparation for our Capital Markets Day on November 25. And my message is clear. We don't need a new strategy. We just need an execution of the strategy that we already have. We have entered into a new era now following a major milestone in Q3, namely the successful completion of the tech services divestment. Our business now comprises of three focused software units and a consulting arm, and I would say each well positioned in their respective domains. We have a much more focused E2Every, We are excited to move forward. And then we look at now the current revenue split. Approximately 44% is coming from the create business, digital consulting. Banking represents 30%. Care, 12%. And then industry, approximately 14%. So in less than five weeks from now, we will unveil the next phase of plans for T2 Every at the upcoming Capital Markets Day. While the market environment was, I would say, a bit of a challenge also in Q3, we are starting to see early signs of margin recovery, mainly supported by the measurements taken then in Q2 and Q3. We delivered a top line growth of 4%. However, the underlying organic growth remained slightly negative, still impacted by a weak market. Then, Our transformation efforts are progressing well. Everything from cost optimization to our customer focus has resulted in improved profitability across all businesses, delivering a 19.3% margin in the quarter and 15.2% eliminating the banking court ruling effect. 75 million euros of the year end 2026, 115 million cost optimization target is already achieved by end of Q3. And we are now 1,500 colleagues or FTEs less compared to end of Q3 2024. So with the divestment of tech services now completed, we are operating with a sharper focus and a more resilient structure going forward. So these current developments gives us also a confidence that we are going to continue executing on our transformation agenda. As communicated in connection with our Q2 report, we have initiated a set of actions to get back on track with T8 Every. As the first step, we have started to strengthen customer-focused sales and delivery capabilities. As an example, we have launched a new governance structure with our clients to build trust and to ensure a better interlock with the clients. We have started the sales harmonization project across all business units in Teotihuacan, including our CRM reporting structure, and we have kicked off also a sales recruitment program during Q3. Then, of course, the AI Boost program has been initiated to harmonize AI governance and also then compliance across the group. It covers case and role-based AI education, sharing our best practices of embedding AI into our products, services, and also sales, and AI tools also for internal productivity, all of this with clear KPIs. We have also executed actions to reorganize or recreate business to strengthen our position as a local partner with global delivery capabilities. This transformation involves a significant competence shift that is already underway. It marks an important step towards a more agile and customer-centric operating model with a tight future link to strategic software partners. And we have also seen, already mentioned, that the cost optimization program is absolutely on track. Looking then at the Q3 performance, growth was partly driven by the core tooling in T2 over banking. This had a positive effect also on the margin. However, the underlying profitability improved also when excluding this additional revenue. The quarter ended with strong order backlog, especially in industry and banking. Organically, the order backlog is up 11% year-over-year, But then also partly due to a long lead time in some of the contracts, this will start contributing largely in 2027 and forward. But this is a good foundation for our future growth ambitions, of course. Over-operating cash flow was solid while the numbers are not fully comparable. While we are presenting now figures for continuing operations, cash flow includes tech services for two months only in Q3 of this year compared to, of course, three months of the last year. Leverage is at 2.4. If we exclude then the IFRS 5 effect, we are at 2.2 from a leverage point of view. Let's then have a look at the Q3 business highlights, starting then business unit by business unit, starting with Create. In our consulting business, Create, we still have a challenging market condition across the geos in which we operate. But capacity adjustment and SG&A reductions are showing results and we are able to improve profitability while we operate in an environment with zero inflation and also partly some price pressure. As part of Cr8's focus initiatives, we are now actively working towards an operating model to improve customer centricity, to become a strong local player with local and global deliveries, and with a strong link to selected strategic software partners. Also on the positive side, we won several new agreements during the quarter. For example, Park Holidays UK, which is a leading provider of holiday parks across the United Kingdom. They choose T2 Every Create as its three-year exclusive partner to accelerate the digital modernization. We will then focus on mobile apps, websites, data processing, and human-centered design services, among other things. The Finnish Patent and Registration Office, PRH, selected Theta Recreate as its partner for delivering low-code, no-code development platform. And this will be a platform that will enable rapid and efficient development of web applications without requiring deep programming expertise. So this agreement covers an eight-year period. And then the third example, a leading European tier one supplier selected Teater Recreate to support the development of the next generation automotive audio platform. The objective is to develop modular and generic audio solutions that can be easily customized for future weekly programs across major automotive manufacturers. And this approach is leading to reduced development cost and faster time to market. Looking then at banking, in banking, profitability improved also with all the revenue related to the court ruling. So underlying margin is over 16%, up from 13% last year. Then we are not satisfied with the underlying revenue growth. It's down by 2%, mainly impacted by an expired margin dilutive contract, a mainframe contract, having a negative impact of 2 percentage points. We have a positive development in banking as a service, mainly the core bank solutions in the Norwegian market, and then growth in financial crime prevention continues. Looking at also then the order backlog, it remained at a high level, well above 1 billion, which is a 20% increase versus Q3 2024. Again, the contribution to growth will mainly start in 2027 and forward because of a relatively long lead time for implementation. The agreements, examples, we can start off with the SAS agreement with IC Cash Services, which is a cloud-based ATM platform. So it's a five-year agreement with IC Cash Services marking their entry into the German ATM market. And the partnership provides IC-Cache with a fully regulatory compliant private cloud-based ATM platform designed to enhance security, scalability, and operational efficiency across its European network of more than 2,500 ATMs. And then also following the merger of SR Bank and SB1 South East Norway, they become Sparebank 1 Sørenorge, T2 Every Banking, then jointly with the client and other parties has completed a very complex technical consolidation covering approximately one million accounts. Sparebank 1 Sørenorge is currently now among top three banks in Norway. Then looking at care, also care turned back to growth in Q3, driven by a healthy growth in Finland of 6%. So by now we have won 16 out of 21 well-being services counties in Finland. However, due to transition periods, the full growth again, the contribution will come starting mainly in 2017 and forward. Four of these contracts coming from six last quarters, four of these contract wins are still waiting for the market court decision, which has an impact on growth and profitability of approximately two percentage points. Also, growth continued to be impacted by the legacy product business with a minus four percentage points effect in Q3. Then, we are very proud of the progress in international expansion with care. We announced yesterday a win in Catalonia, Spain. So with this strategic agreement, Tid to Every Care and NTT data will jointly participate in the development of Catalonia's new open health platform. This is one of the core projects of the region's digital health strategy from 24 to 30. So the project based on European open HR standards includes architectural components and application marketplace, platform services, etc. So the partnership reflects a shared commitment to openness, innovation and excellence in digital health. And of course, this is another significant step for us in the expansion into broader European healthcare market. We also signed a life care EHR contract with North Karelia Wellbeing Services County, a new customer of Tea at Every. Life care client and patient information system will cover specialized medical care, primary health care, social services, dental care, as well as mobile documentation and operational management for home care. The third example is a life care client information system that was signed with the Wellbeing Services County of South Savo with the value of 35 million euro. This will be Life Care EHR, which is streamlining the works of social and healthcare professionals to provide a real-time comprehensive view of client and patient information. Going then to industry, we made good progress in industry in the quarter. Revenue turned to growth. Development was healthy in all businesses except pulp paper. And I would say a kind of a market driven decline. Overall market activities are improving, visible in significant increase in the order backlog, which is up double digit, organically 34% growth. Also profitability improved, again mainly driven by the cost optimization initiatives launched in Q2 and also in Q3. And we have several wins, I would say, across the businesses in the Nordics. Some of them are the National Government Services Center, Statens Service Center, which is a central government agency in Sweden. Tieteware has signed a new long-term contract for a continued delivery of HR payroll system called Primula to Swedish government agencies. So for public sector organizations, this will be stability, ease of use, and security in all aspects, which is quite important also in this sector, of course. Kesko in Finland entered into a strategic agreement with TE2EVERY industry for provision of the TE2EVERY CRED big supply chain messaging services. for business transactions with customers and suppliers so these services enable smarter stock level management ensuring that the supply chain operate with speed agility and reliability demanded by today's market of course and then thirdly also city council in norway launched plan obig 360 I would say next generation digital solution developed by and with T2Every. This will replace a 25-year-old legacy system and this cloud-based platform supports 600 employees in streamlining planning and building applications. So key benefits again include automated invoicing, AI-powered decision support, and improved transparency for residents and businesses. That brings us to the CFO report. So, Tommy, please.

Thank you, Enri, and good morning, everyone. So, Q3 highlights where our improved profitability in all businesses, which was supported by our cost optimization program and closing of the tech services divestment. Our organic growth of 4% included a positive revenue contribution from the court ruling in banking of 24 million in total. Out of this 24 million, 22 million related to prior periods and 2 million related to deliveries in Q3. This 2 million price increase element is recurring and will continue also in the coming quarters. Our Q3 profitability was positively impacted by contribution from our cost optimization program with approximately 15 million of gross savings. Cost burden from tech services impacted margin negatively by approximately 4 million or 0.9 percentage points. As a result of cost optimization program, our one-time items were relatively high at 23 million. However, by the end of Q3, most of the restructuring costs are now booked. Closing of the tech services divestment had primarily two main implications in Q3. Firstly, we received consideration from the deal of 223 million with net cash impact of 201 million. The delta is primarily coming from transfer of debt-like balances and the cost to sell, which includes bankers' and lawyers' fees. Secondly, we de-recognized the tech services from the group, which resulted in a loss of 129 million, which is recognized in discontinued operations. This amount includes relatively small changes in the carrying amount of net assets from the initial recognition, and the majority relates to technical reclassification of FX differences from equity to discontinued operations P&L. These are the so-called cumulative translation differences in equity. On 15th of September, we updated our guidance for the year. We saw a strong September month and we currently believe that we're tracking towards the upper end of our profit guidance. As mentioned, we made good progress with our cost optimization program and reached 75 million run rate savings by end of Q3. This resulted the 15 million savings already realized in Q3. We expect to reach approximately 85 to 90 million run rate by the end of this year. By the end of Q3, we have recognized 41 million of the one-time cost from the estimated 45 to 50 million total program costs. In this slide, I'll highlight some of the key financial profile changes resulting from the tech services divestment. Upper left-hand corner illustrates the cost burden impact to each of the reported quarters, including the Q3, where we have still two months cost burden impacting our profitability. You can see that minus 4 million there in the picture. From Q4 onward, we expect the TSA income to offset the cost burden and relevant cost reductions to happen in line with the TSA services reductions. This can take over 12 months depending on the service being delivered. Upper right hand corner illustrates the capex change from tangible assets to intangible assets. However, the overall capex levels compared to revenue as a percentage are roughly at the same level being approximately 3% of revenues. Below on the left hand, you can see the significant reduction of net debt from 875 million to 552 million. However, due to reported EBITDA decline, the leverage remains at 2.4, excluding the IFRS cost burden. As mentioned, leverage would be at 2.2. Below on the right-hand side, you can see that networking capital level improves and changes from positive to negative, so the continuing businesses tie up less capital compared to the earlier group setup. So as mentioned, we continue to deliver healthy operative cash flow in Q3, which is seasonally a weak cash flow quarter. Our networking capital increased by 52 million due to seasonality. Prior year networking capital increase was abnormally high due to positive weekend impact in accounts receivable. Note that Q3 cash flows include two months of tech services and comparable periods include full three months. And of course, going forward, none of that will be visible. Free cash flow was impacted by tech services divestment, as commented earlier. And the leveraged net debt reduction to 552 million was driven by the tech services divestment with main elements being the received net cash on disposal of 201 million and the reduction of lease liabilities of 102 million. Net debt debit DA as mentioned 2.2. On employee matters, LTM attrition has remained at low levels, being 7.5% at the end of Q3, reflecting the soft market environment. Impact from cost optimization measures are visible in the reduced personnel across all businesses. Our net personnel reduction from Q2 was approximately 600 employees with over 9% reduction year over year. Group salary inflation is expected to be approximately 4% in 2025, which would be slightly lower than prior year. Next, remarks on Q4 outlook. On growth, CREAT will continue to be impacted by weak demand across all markets. Banking continues to be impacted by the ending of the significant margin dilutive mainframe contract with negative five percentage point impact. Care continues to be impacted by the legacy product decline by negative four percentage points. Then on profit remarks, banking is negatively impacted by increased non-deductible VAT due to tax services divestment by one percentage points. This impact is recurring and continues in the coming quarters. All businesses will benefit from savings delivered through cost optimization program. And then, as mentioned, cost burden from the IFRS 5 is mitigated by the transitional services agreement income. On other remarks, FX impact revenue is positive by 4 million. Q4, profitability outlook for businesses. Tieto Every Banking and industry are expected to be above prior year profit level, create at or above prior year, and care at or below prior year level. Now back to you, Endre.