TietoEVRY Oyj

Good morning and welcome to Tieto's Q4 and full year 2025 earnings webcast. My name is Tommi Järvenpää. I'm the head of investor relations at Tieto. This morning we will present our financial results for the quarter and for the full year and provide an update on the progress of our strategy execution. We will open the line for questions after the presentation. With me here are our CEO Enre Rangnäs and CFO Tomi Hyryläinen. And now I would like to hand over to Enre. Please go ahead.

Tomi, thank you so much. And then welcome to TE-Tools Q4 and full year 2025 presentation. I must say that 2025 has been a year of significant changes and transformation within Tieto, positioning the company for future profitable growth. And in Q4, we can clearly see the effects of the cost efficiency program implemented last year coming through. We improved the profitability by almost four percentage points, Q4-25 versus Q4-24. CMD in November was an important event with launch of the rejuvenated strategy, new financial targets, and also capital allocation principles. And then we also launched our new Tieto brand. I would say that we are well positioned to deliver on our 2028 strategic ambitions and targets. I would also like to start off with a reminder of the strategy we introduced at our Capital Markets Day a few months ago. And it's clear the direction remains unchanged. OverAB's ambition is clearly to become a leader within selected industries in the European software and technology consulting market. Execution is focused through over four main strategic priorities, ensuring clarity, accountability, and also disciplined capital allocation. In the end, of course, our success is measured by financial outcomes, more than 5% revenue growth, CAGR 2728, and also profitability, about 16% by 2028, also clearly communicated in connection with the Capital Markets Day in November. Then also looking then at the four main strategic priorities. So across all of them, execution is well underway and we make good progress and we have delivered substantial results already. On the customer side, number one, we have strengthened long-term visibility through large contract wins, particularly in bank tech and also lately in care tech. We have significant focus on sales with strengthened client ownership, new hires, new sales incentive plan implemented from January, sales forums, CRM monitoring, and also investing in AI skills building. On the second point, we have taken actions to simplify the core, including a new operating model, portfolio optimization, and a clear accountability. One example is then the divestment of Beck Consulting in Norway, which then enables to simplify our tech consulting business. On the third point, we have targeted our selective international expansion with partnerships and a small Bolton acquisition in Spain, supporting our future international growth. At the same time, number four, we have reset the cost base, delivering substantial run rate savings and progressing ahead of plan, and that's why we have announced today that we are uplifting the 115 originally communicated to 130 million run rate by end of 2026, and we have delivered 95 million by end of Q40, according to plan, or ahead of plan actually. When we are summarizing 2025, it was absolutely transformative year for the company, marked by significant structure and leadership changes. We simplified the portfolio through divestments of tech services and also strengthened leadership with a renewed leadership team. And also at the same time, we actively re-engaged with key stakeholders and reset the cost base to support long-term profitability. Yes, organic growth remained at negative minus 2% and we're coming back to that point also during the CFO section. However, we saw early signs of recovery in terms of order backlog buildup and also improved profitability. So I would say that these actions lay the foundation for improved cash flow, stronger execution, and clear strategic directions going forward. So we still have a way to go. We are fully aware of that to regain stakeholders' confidence, but we are making good progress. AI is absolutely a key priority for our group and also for our clients. And I would also say that with the large client base we have, our strong industry knowledge and proven technical capabilities, we are well positioned to capture the emerging AI opportunity. And we clearly see significant potential in assisting our clients to apply AI in a very practical way as well, while also using it to strengthen our own operations, including product development. Sustainability remains high on our agenda with focus on climate actions, social impact, and also then ethical conduct. So just a few highlights from 2025. We again made good progress. We received the highest rating, rating A, from Carbon Disclosure Project, CDP. Over new long-term targets were validated by the science-based targets initiative. We received encouraging recognitions as a top employer and workplace for women in several of our key markets. So we will publish our annual report and the sustainability statement for 2025 a bit later today. So we are referring those Being interested in the details, go into this. We have all this disclosed during the day of today. Then let's then look into the Q4 results. In Q4, we delivered strong profitability and we continued execution of the new strategic priorities. Yes, organic growth remained at a negative minus two, reflecting continued market weakness, known headwinds in bank tech and care tech with their legacy product runoffs. At the same time, adjusted EBITDA improved significantly to 16.2%, driven by execution of our cost optimization program. We progressed on strategy implementation through a targeted acquisition in Spain and also further simplification of the portfolio. So then, strong profitability, and strong cash generation enabled us to propose an attractive dividend and also to launch a share buyback program at 150 million euros enabled by the divestment of Beck Consulting. This was announced also this morning. Turning them briefly into the group key figures for the fourth quarter, revenue, as you can see, was 464 million with organic growth of minus two, reflecting the same market conditions discussed earlier. Adjusted EBITDA increased to 75 million, corresponding to a margin of 16.2%, again, demonstrating strong profitability. On the positive side, we also increased the order backlog by 13% year-over-year, supporting improved revenue visibility into 2027. Sorry, 2026. And it's also worthwhile when you look at the total order backlog that we now have for bank tech and also for care tech that is also supporting the long-term growth, 27-28. Cash flow remains solid. we are stable on leverage like 2.2 times net debt on EBITDA. And I would also kind of look at the cash flow numbers comparable because in the 128, as you can see at the bottom right, that also includes the cash flow from tech services as part of the cash flow in 2024. And comparable, this is like 14% also improved cash flow if you take out the discontinued business. Let's then look at the different business units, starting off with tech consulting. In tech consulting, we continue to operate in, I would say, a challenging market environment, and we expect those conditions to persist into 2026, and the CFO will come back to a bit more of visibility for all the business units in terms of the 2026 outlook. In Q4, organic growth remained negative, reflecting then the macro uncertainty and also lower client spending across the IT consulting market. At the same time, I would say that we have also taken actions now to turn the business around, fully aligned with the strategy presented at our Capital Markets Day. We have a new country-based operating model with a clear accountability and responsibility in terms of profit and loss measurement by each market in which we operate. And this has also been supported by changes in leadership in key markets like Norway and then also in Americas. The divestment of Beck Consulting further also simplifies the portfolio and sharpens our strategic focus going forward. So this is an addition to integrations of Every India, InfoPulse, AVEGA in Sweden, and then MentorMate in Americas. You can also see at the bottom of this page that we were winning several deals during Q4. So we are developing a national pharma repository for the Finnish Medicines Agency. We were selected as a SAP consulting partner for Getax Rail in Europe. Then on the bank tech side, we delivered strong profitability. And I would say also, like I already mentioned, a solid order backlog build. Why organic growth came in at minus 3%? That includes a 5 percentage points technical impact from the expire of margin dilutive mainframe contract. So excluding this effect, Underlying growth was modestly positive, so in line with the current market environment. It's also worthwhile looking at the softer portfolio that continues to grow well, demonstrating the long-term strength of the bank tech offerings. Profitability was strong, reflecting our good progress in cost-saving measures, or the backlog continues at record high level and will support Banktech's growth from 27 and onwards. And I would also say that our recent acquisition in Liberia will be an important enabler for Banktech's selective international growth. A couple of wins also during Q4 worthwhile reflecting on, we were selected by D&B as a partner for renewal of part of their payment infrastructure. T2O CareTech again came in with very solid profitability while top line growth was impacted by continued decline in the legacy solutions. However, growth in the modern life care software portfolio remains strong, but was then largely offset by legacy decline and with some impact also from ongoing market court cases. Underlying demand for our modern care tech solutions continues to develop well, supporting then the long-term growth outlook also presented at Capital Markets Day in November. We signed a partnership agreement in Austria, supporting the international expansion ongoing. And in Finland, we strengthened partnerships with private care providers, including contact extensions and then also renegotiations to replatform to modern dynamic health platforms. And you see also at the bottom here, several of the wins that came through in Q4. Then Intech. delivered a very good performance in the quarter with solid growth and improved profitability. So organic growth was 6%, supported by, I would say, improving market activity. We had revenue growth across six products units, while pulp, paper, fiber, and energy and utilities remained softer, largely due to weaker market conditions in those sectors. Profitability improved to 17%, driven by, I would say, strong business momentum and growth, and then continued cost optimization. Interesting win as well. We are enhancing Bank Norwegian's digital multi-channel invoicing and payment integration in the Nordics, Germany, and Spain. So before going into the CFO details, I would say that we are delivering a very strong momentum in our software businesses, and we will come back to more details through the CFO report. So Tommy, please.

Thank you. And good morning, everyone. Q4 highlights were clearly the significantly improved profitability and solid execution of our four strategic priorities. Our improved profitability was primarily driven by the successful execution of our cost optimization program, which aims for a significant cost-based reset while mitigating the cost burden from tech services divestment and reducing overcapacity, primarily in our consulting business. At year end, we were ahead of our cost-saving plan, as mentioned, and we have increased the target from 115 million to 130 million. Our annual dividend proposal, which is paying from the upper end of the range, amounting to 88 cents per share, combined with the 150 million share buyback program, is set to deliver double digit shareholder returns in 2026. We're also today announcing a proposal to simplify our listing venue structure with delisting from Oslo Stock Exchange and a consideration, which we're currently looking through, to delist from Nasdaq Stockholm. Main driver for the proposal is the low trading volumes and shareholdings in these stock exchanges, as the main trading happens in Nasdaq Helsinki. Then our annual dividend proposal. This is aligned with the CMD communication and our new dividend policy. I have included in the right hand side a table to illustrate the dividend proposal logic. As you remember, our dividend policy is to pay 60 to 80% of net profit, which we adjust with non-cash items. Our net profit for the year was 26 million, which we have adjusted for non-cash impairments of 86 million and the IFRS 5 cost burden of approximately 19 million. This gives us an adjusted net profit of 130 million. Our proposal is to pay at the upper end of the range, meaning 80%, which gives us the total dividend of 104 million, or 88 cents per share. This represents a dividend yield of approximately 5% using the recent share price. Then to our announced share buyback program. So we announced 150 million share buyback program which is connected to the sales proceeds from the divestment of PEC Consulting which was closed 2nd of February. In accordance with our capital allocation policy, we aim to keep our leverage level close to 2x and distribute excess capital to our shareholders. This 150 million share buyback program will ensure continued efficient capital structure and deliver solid shareholder returns in a tax-efficient way. The shares will be bought in public trading in Nasdaq Helsinki and canceled on a monthly basis. The execution of the program can take up to 12 months depending on the trading volumes of our share. Then on cash flow, so we deliver strong operative cash flow of 103 million in Q4. Our networking capital decreased by 30 million, primarily due to seasonality. Good to note, as Endre also mentioned, that Q4 cash flow is the first quarter without discontinued operations, and the cash flows are not restated for prior periods, so they are not comparable. On a comparable basis, Q4 cash flows were slightly higher compared to prior year. Our net debt debit DA improved slightly from Q3 being 2.1x excluding the discontinued operations impact. When we look into Q1, our net debt EBITDA will decrease significantly. This is due to the BEC divestment proceeds decreasing net debt and the gain on disposal increasing the EBITDA. During the year, on the other hand, while executing the share buyback program, our leverage will gradually increase. So as mentioned, we've been very successful in our cost optimization program execution, and we're ahead of plan with 95 million run rate savings by Q4, and we were able to increase our target to 130 million. The program already delivered 22 million savings in Q4. With this program, we aim to permanently set the cost base 50 million lower, while mitigating the cost burden from tech services divestment and reducing overcapacity, primarily in consulting business. We estimate the total one-time cost from the program to be 55 to 60 million, of which we have already booked 45 in 25. On employee matters, LTM attrition remains at low levels, 7.8%, reflecting the soft market environment. Impact from cost optimization measures are visible in reduced personnel across the company with 450 FT net reduction in Q4 and approximately 10% reduction year over year. Group salary inflation ended up being 4% for the year compared to 4.5% in prior year, and we estimate 2026 salary inflation to be below the 25 level. Next, some outlook remarks for Q1 26. On growth, we expect group revenue growth to be at Q4 level. Tech consulting will continue to be impacted by weak demand across all markets. Bank tech continues to be impacted by the ending of the significant margin diluted mainframe contract with negative 5% impact. However, revenues are supported by growth in the software portfolio. Care tech continues to be impacted by legacy contract runoff by negative 6% compared to 4% in Q4. However, revenues are supported by continued underlying growth in the modern software portfolio. Intech growth continues to be supported by strong backlog. On profit remarks, cost optimization program continues to contribute to profit improvement across the company. On other remarks, there's only minor impacts from FX and working days. Then as usual, Q1 profitability outlook per business. We expect all businesses to be above prior year profit levels. Then to 26 outlook. So our 2026 guidance is fully aligned with our CMD communication. We expect the current soft market environment to continue into 2026, which will impact primarily the growth of our consulting business. We expect our growth in 2026 to be slightly negative between minus two to zero. And in profit, we expect a step change to 14.8% to 15.8% adjusted EBITDA. With this, we're guiding an underlying growth of plus one to plus 3% when we exclude the known legacy contract run-offs in bank tech and care tech, which have approximately 3% headwind to our organic growth for the year. Our profitability step change is primarily driven by cost optimization program resulting from cost-based reset as discussed earlier. The profitability impact in 2025 from the SB1 compensation and an IFRS 5 cost burden combined amounts to net zero. As the year 2026 includes some specific headwinds, we have created this table to help everyone to navigate the growth dynamics of 2026 on a quarterly basis. On BankTech, you can see the quarterly impact of the mainframe contract runoff, which ends in Q4, and the impact of the SB1 one-time compensation, which was received in Q3 2025. On CareTech, you can see the legacy runoff impact per quarter, which are overall higher than in 2025. This impact will gradually decrease and will only be minor in 2027. Then we have aggregated the specific headwinds at group level, which for the full year amounts to negative 3%, as mentioned earlier. Now I'll hand over to Endre.

Very good, Tommy. So then looking ahead into 2026, Quite clear, our focus will be execution of strategic priorities and building momentum towards our 2028 targets. We will continue strengthening client relationships and build sales capabilities across the group, develop strategic partnerships, simplification initiatives, and finalization of the cost-based reset will be done as well. With the foundations now in place, our focus shifts from restructuring to consistent performance delivery. We are committed to regaining and strengthening stakeholder confidence through execution and measurable results. So with this, we are opening up now for Q&A. So please.

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 Felix Henriksen from Nordia. Please go ahead.

Hi, thanks for taking my question. Congrats on the strong results and thanks for the helpful guidance details. I have three questions. Let's take them one by one. Can you maybe Add a bit more color on the sources of cost cutting, because that's an area where you seem to be executing extremely well compared to the company's history, for example. Where are these specifically coming from? And are you sort of doing these by any means at the expect of revenue generation and growth?

So the cost-saving program that we initiated in second half was actually based on several key areas. So first of all, we had the benchmark on SG&A. We were quite high on that one, so that was the first area. It took SG&A analysis by group functions and then also by the business units. So we have reduced especially the G&A part significantly during the year. Secondly, we had overcapacity in our kind of tech consulting part. So there has also been a combination of SG&A and cost reductions within the tech consulting part. Then when we now are into 2026, it's more like focusing on some other elements in terms of sourcing, purchasing, locations reductions, capacity reductions, more like premises, et cetera. So it's a sum of a lot of activities that we initiated based on the very thorough mapping that we did in Q2 and into Q3 of 2025. And this has impacted more or less the total company, both group support functions, but also, like I said, business unit by business unit. But the majority in 2025 is coming from reductions of FTEs.

So I guess one of the main points is that we're actually now structurally resetting the cost base. So through simplification, we're creating a setup which is continuously at lower cost. And much of this external cost also relates to facilities and reduction of the space in facilities which will be staying. So we feel very comfortable with this 50 million visible in the P&L. We are forcing that coming in roughly, if you want sort of metrics, 15 million already visible in 2025, 25 million in 2026 and remaining 10 million in 2027. This is consistent with the guidance that we've given you as well.

Great, that's very helpful. Thank you. Then on the order backlog, you highlighted that that will start to yield growth towards the end of the year. Can you perhaps discuss a bit about the backlog composition on which segments that comment applies to primarily, and how is the phasing of that backlog expected to materialize compared to late this year and the years after?

If you look at bank tech, where we have a substantial backlog based on the signings that we did end of 2024 and then beginning also of 2025, meaning first half, that is kicking in 2027 based on a couple of factors. So there are kind of mergers happening in the core bank area. in norway there are mergers there are transitions happening with long-term planning we have some windbacks also coming in to a transition period during 27 and into sorry 26 and 27. so so i think the main part of close to one billion related to bank tech will come through end of 26 and into 27. Also then when we have replatformed some of these banks to the modernized platform and then getting new additional sales on that, which is part also of the backlog and the contracts that we signed up for several of the key clients in 2025. And it's more or less the same picture when you go to We signed substantial deals in Q4. And of course, there is a transition period from legacy to the new modernized platforms coming through in 26 and then 27. So that's the kind of backdrop for saying that the majority of this will come through in 27.

That's great. And then finally, you've now done a couple of these acquisitions in Spain. Can you perhaps discuss a bit on how these will sort of help you establish a platform for growth in the country? And should we expect similar bolt-on acquisitions in other European markets where you see potential for expansion?

So first of all, I think we have been quite clearly communicating in connection with Capital Markets Day that we are focused on some few selected markets with also products, SaaS-ready products that are ready to go internationally. So with regards to Spain, That company is around 200 people, mainly focused on financial services and I would say tech consulting to financial services. That's 70% of the current business, meaning that we now have established, first of all, the local presence. local competencies, local connections, positioning us also in the banking sector quite well, and insurance as well, so that we have a good foundation for channeling over bank tech products, the software products, through that organization locally, benefiting from the strong relations that company has with the banking sector in Iberia actually. When it comes then to the kind of care tech software portfolio, where we have decided to go with partners locally, so we have the breakthrough that we made last year in Catalonia, Catalonia Health Region. Now we will have a pre-sales organization to be set up in the Spanish market. And also quite important that when you look at the kind of market for health services in spain they have a special construction in terms of insurance companies handling the invoices etc and one of the big big constellations in Spain insurance company is also having a large number of hospitals across Spain. So there are different ways also going to the market now in Spain. I spent, was it two weeks ago, full day with client meetings in Spain. So there's a lot of activities now happening locally in that market.

Thank you. That's all from me.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Sami Sakamis from Danske Bank Markets. Please go ahead.

Hi, I have three questions. We'll be taking this one by one. Firstly, starting from savings, you have increased the target to 130 million euros. Can you elaborate your thinking here? Is this driven by weaker than anticipated market conditions or I just like finding new areas for savings here?

Thanks for the question. This is the new savings. So we have clearly identified more opportunities to simplify tech consulting and then we're driving more extensive external cost savings, including facilities. That's the driver.

Okay, thanks. And then regarding Intech, you've seen quite good growth even though you're not firing all the students yet. Do you think we could see even higher growth rates during this year if we assume recovery in areas where you're not performing yet? Or is it so that in Q4, You were supported by some one-time deals.

From a top-line point of view, I said that we were delivering growth year-over-year in six out of eight areas. Pulp paper, fabrics is a quite big part of the totality of intake. That area we still have headwind. And you know that approximately 50% of the revenues within PPF is related to services. And we have low production currently in that quite challenging market for PPF companies. So that's the one. And energy and utility is also an area where we didn't deliver growth the other year. So I think that We will come back to this, of course, a bit later on, but it's quite clear that we shouldn't expect a kind of dramatic improvement in terms of growth. I mean, we are delivering 6% in Q4, and you should expect growth in this area as well going forward, but not kind of significant ramp-up. When you look also at the... bottom line of intake you can clearly see that there is a combination of course of the top line growth but also the measures that were taken actually in q2 in terms of reduction of manning with this within this area okay and then my final question uh would be on divestment uh i asked about this uh already at the cmd but uh i don't think you really answered

Are you still planning on making further divestments in the portfolio or is it so that you're just like being opportunistic that some things might be for sale if there is a potential buyer?

Yeah, I think the latter one is probably the correct answer. We are working constantly looking at simplification of the structure of Tito. And this is also reflections coming from our clients. And then it depends on kind of what is the market conditions, what's the shareholder value creation. That's the kind of guiding factor on what we do.

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

Thanks Sami and thank you everyone for the questions. There's no further questions at this point, so I would like to hand over back to Enri for final remarks.

Very good, Tommy. So I would summarize the quarter and also 2025. We have made good progress with the four strategic priorities. And when we look into 26 prior to number one is, of course, to improve sales, then to finalize the cost reset program, and then to continue simplification to drive focus of the company going forward. Thank you for calling in.