copyright © 2006 tietoenator corporation tietoenator q3 2006 20 october 2006 cfo timo salmela svp...
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Copyright © 2006 TietoEnator Corporation
TietoEnator Q3 200620 October 2006
CFO Timo SalmelaSVP Päivi Lindqvist
IR Manager Paula Liimatta
Copyright © 2006 TietoEnator Corporation
Q3 progress and strategy ››Performance and outlook ››
Page 3Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Market situation
Overall demand and market activity is high
Pricing trends are positive outside the telecom sector and ICT operations services
Consolidation in the Nordic market has taken a new speed
For TietoEnator the biggest competition comes from the global and Indian players
Global sourcing is getting traction in more and more customer industries
Labour market activity is intensifying
Page 4Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
TietoEnator status at the end of Q3
Progress in profitability and organic growth in a seasonally weak quarter Telecom & Media: return to growth and margin in-line with Q3 2005
– prices were lower than a year ago, but did not decline from the first half– utilization at a good level
Banking & Insurance: strong underlying organic growth continued and margin recovering in the international business
– UK improving with good prospects– plans for Germany are being finalized
Processing & Network performs very strongly boosted by strong Q3 seasonality in the infrastructure business
Postponed or underperforming projects still burden a few business areas
Page 5Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
TietoEnator’s high-cost/low-cost transition
Transition toward long-term vision of 60/40 (high-cost/low cost) will continue– expansion of existing sites: Ostrava, Pune, Russia– acquisitions, subcontracting and partnering
0
500
1000
1500
2000
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 060.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Czech and Poland Baltics and Russia
India, China, Malaysia and Indonesia Low cost of total %
Page 6Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Headcount growth addressed to low cost countries; net recruitment is limited in high-cost countries
Recruitment to cover leaves continues at high levels (980 employees recruited in high-cost Jan-Sep)
Employees in high-cost countries will move to roles with higher customer intimacy (consulting, sales, customer specific development and implementation)
Net recruitment (excluding terminations)
-50
0
50
100
150
200
Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2'06 Q3'06
High Cost Low Cost
Managing the low-cost transition in home markets
Page 7Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Recent newsflowNew contracts
1. Outsourcing contract with Siemens Com in telecom R&D 2. Outsourcing of mobile content services from DNA Finland3. ICT infrastructure hosting services for Stora Enso globally4. Life insurance system for Finnish OP Life Assurance and Pohjola Life
Insurance5. Complete systems replacement for Nottingham Building Society in the UK6. Production and development of Automatia’s centralized IT services, Finland7. IP Contact Center for O2 in Germany
Acquisitions
1. RTS Networks in Poland, a provider of telecom R&D services 2. Topas Consulting in Germany, SAP consultancy for the utilities industry3. Laps Care in Sweden, IT support for resource optimization in elderly care,
home care and home nursing4. Cymed in Germany, hospital information solutions and hygiene software5. Quickclic in Finland, wireless communication in welfare and healthcare
Page 8Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Divestment of non-core assets
Government businesses in Sweden, Denmark and Norway are sold to Sirius IT owned by Icelandic Siminn and the Danish management of the business
TietoEnator will release resources and capital to further develop its international business in its selected customer industries
The businesses are small and only in the starting phase of the partnership business unlike the Government business in Finland
The transaction will improve Government, Manufacturing & Retail business area’s operating margin
Does not include healthcare and welfare or processing and network services
Key facts
Net sales of the business EUR 45 million in the first nine months of 2006
Operating profit EUR 1.7 million Around 420 employees currently Closing expected at the beginning of
November Enterprise value EUR 26.4 million,
expected capital gain around EUR 9 million
Key facts
Net sales of the business EUR 45 million in the first nine months of 2006
Operating profit EUR 1.7 million Around 420 employees currently Closing expected at the beginning of
November Enterprise value EUR 26.4 million,
expected capital gain around EUR 9 million
Page 9Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Going forward
Focus on organic growth, profitability and cost control continues
Sales, marketing and acquisitive efforts will be intensified in international focus areas: banking, telecom, healthcare and forest
Home market businesses drive strong profitability and cash flow
Copyright © 2006 TietoEnator Corporation
Q3 progress and strategy ››
Performance and outlook ››
Page 11Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Financial highlights Q3 2006
Net sales growth 5% to EUR 397.0 million
Organic growth 2%
Operating profit (EBIT) before capital gains EUR 31.2 (34.6) million
Operating margin before capital gains 7.9% (9.1)
EPS EUR 0.26 (0.24)
Comparable EPS 0.31 (0.26)
Comparable EPS before intangibles, capital gains and stock options
Page 12Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Net sales by industry segment 9M 2006
Banking is growing the strongest and increasing its share of TietoEnator’s net sales
Healthcare and government are also growing strongly
Telecom sector is still the be biggest industry segment even though its share has declined due to price pressure
+25%
-6%
+2%
+3%
-1%
+10%
+10%Share of net salesChange
*Incl Retail, Logistics, Manufacturing
+10%
8%
13%29%
21%11%
5%
5%
8%
Banking and insurance Telecom and media Government Healthcare and Welfare Forest Energy Nordic regional verticals*) Non-allocated
Page 13Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
29%
6%
6%
13%
45%
Finland
Sweden
Norway
Germany
Other
Net sales by country 9M 2006
Areas outside Finland and Sweden are growing the strongest at 19% and are now representing more than one quarter
Growth in Finland stronger than in 2005
Growth in Sweden is recovering
+4%+21%
-1%
+12%
+21%
Share of net salesChange, local currency
Page 14Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Top 10 customers account for around 35% of net sales– Ericsson telecom
– Kesko retail
– The National Board of Taxes (FI) government
– Nokia telecom
– Nordea banking and insurance
– Ruukki manufacturing
– Sampo (+ If) banking and insurance
– Siemens telecom
– Stora Enso forest
– TeliaSonera telecom
Top 10 customers 9M 2006
Page 15Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Banking & Insurance
Organic growth -1% based on tough comparison Margin improving mainly due to the recovery of
UK operations Good demand in banking solutions Joint venture TietoEnator Esy started January
2006 Insurance sector performing very well in Finland Profitability challenges in Germany
EBIT excluding capital gains
71 637267
8.7%6.2% 6.9% 7.4%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Q3 2006 Q3 2005Net sales, MEUR 63 64
Growth, % -1% 51%
EBIT, MEUR 4.7 8.0
EBIT, % 7.4% 12.6%
Employees 2 204 2 063
Page 16Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Telecom & Media
Back to growth in a seasonally weak Q3 Organic growth -2%, improvement mainly
due to the new outsourcing contract with Siemens
Profitability and utilization are improving and margin now in-line with Q3 2005
Price pressure continues, but not getting worse
EBIT excluding capital gains
150 135 119134
7.1%5.7%6.8%
16.5%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Q3 2006 Q3 2005Net sales, MEUR 119 114
Growth, % 5% 30%
EBIT, MEUR 8.5 8.2
EBIT, % 7.1% 7.2%
Employees 5 006 4 295
Page 17Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Q3 2006 Q3 2005Net sales, MEUR 51 52
Growth, % -2% 7%
EBIT, MEUR 2.3 4.1
EBIT, % 4.5% 7.8%
Employees 1 954 1 983
Government, Manufacturing & Retail
Q3 seasonally weak Organic Growth -1% Project overrun EUR 2.1 million reduced
growth and margin Good demand in all Nordic countries Government businesses in Sweden, Norway
and Denmark divested
– improves margin of the business area
EBIT excluding capital gains
65 66 51614.5%
8.1%7.5%8.5%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Page 18Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Healthcare & Welfare
Organic growth 6% Customers’ demands for functionality
postponed projects and licence revenue recognition
Investment in building up business in Continental Europe
Several small acquisitions finalized Fourth-quarter seasonally strong
EBIT excluding capital gains
Q3 2006 Q3 2005Net sales, MEUR 30 27
Growth, % 8% 25%
EBIT, MEUR 1.4 2.2
EBIT, % 4.6% 8.1%
Employees 1 232 1 09442 34 3036
4.6%5.3%4.4%
22.9%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Page 19Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Forest & Energy
Organic growth -3% Project overrun EUR 1.1 million reduced
growth and margin Big customer projects ending in the utility
sector Oil and gas business performing well Acquisition of German TOPAS Consulting
EBIT excluding capital gains
Q3 2006 Q3 2005Net sales, MEUR 36 38
Growth, % -5% 21%
EBIT, MEUR 1.6 4.1
EBIT, % 4.3% 10.9%
Employees 1 236 1 301413942
9.2%
6.7%
3.6% 4.3%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Page 20Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Processing & Network
Organic growth good level at 8% Profitability improvement continues based on
the consolidation process in 2005 Q3 seasonally strong for margin Good demand in the Nordic countries Restructuring EUR 0.6 million
EBIT excluding capital gains
Q3 2006 Q3 2005
Net sales, MEUR 89 82
Growth, % 8% -12%
EBIT, MEUR 12.3 9.0
EBIT, % 13.8% 10.9%
Employees 1 965 1 982 94 899190
6.9%
9.8% 9.6%
13.8%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Page 21Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Personec Group
Organic growth 4% Manpower acquisition boosted growth Strong growth in consulting, outsourcing
and ASP services continues Licence sales behind last year’s levels but
compensated by growth in consulting services
Restructuring EUR 0.6 million
EBIT excluding capital gains
Q3 2006 Q3 2005Net sales, MEUR 33 29
Growth, % 16% -1%
EBIT, MEUR 3.7 3.7
EBIT, % 11.2% 13.0%
Employees 1 189 1 02538 333737
11.7%13.7%
5.5%
11.2%
Q4 2005 Q1 2006 Q2 2006 Q3 2006
Net sales EBIT %
Page 22Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Employees
Gross recruitment at high level Most of net recruitment takes place in low-cost countries Employee turnover continues to increase
Q3 2006 Q2 2006Employees at the end of period 15 899 15 387Gross recruitment 639 483Leaves 393 385Layoffs 39 68Acquisitions and outsourcing 398 114Divestment 62 76Employee turnover (12-month rolling) 8.5% 8.1%
Page 23Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Balance sheet2006 2005 Change 2005
MEUR 30 Sep 30 Sep % 31 Dec
Non-current assets 732 720 2 717Loan receivables 15 12 31 11Current assets 555 469 18 485Cash 85 79 8 100Total assets 1,387 1,279 8 1,312
Equity 440 481 -9 501Interest-bearing debt 454 302 50 311Other non-current liabilities 80 91 -11 87Other current liabilities 413 406 2 413Total shareholders equity and liabilities 1,387 1,279 8 1,312
Net interest-bearing liabilities 355 223 200Gearing % 80 46 39Equity ratio % 33 39 40
Return on equity % (rolling 12 months) 24 20 27
Return on capital employed % (rolling 12 months)
21 27 30
Page 24Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Cash flow
Increase in working capital resulting in negative cash flow from operations Low investment activity Repurchase of own shares EUR 40 million in September
MEUR Q3 2006 Q3 2005 FY 2005
Cash generated from operations incl. financial net -18 59 223Income tax paid -5 -5 -18Net cash used in inv. activities -8 -11 -213Paid dividend 0 0 -80Repurchase of own shares -40 -38 -80Net cash used in other financing activities 47 -17 176Change in cash -23 -11 8
Liquid assets at end of period 85 79 100
Page 25Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Working capital development in Q3 2006
EUR million Jun Sep Change
Accounts receivable 308 311 +3
Other working capital receivables 194 225 +31
Working capital receivables 502 536 +34
Operative accruals 232 212 -21
Other working capital liabilities 210 182 -28
Pension obligations and provisions
41 57 +16
Working capital liabilities 483 450 -33
Net working capital in the balance sheet
19 85 +66
Related to the Siemens outsourcingEUR 20m pension receivable - to be paid in Q4EUR 10m working capital requirement - permanent
EUR 25m reduction in vacation pay- will increase back gradually
EUR 20m increase due to Siemens- permanent
High payments of payables, VAT, employee taxes - will increase back at least partly
Page 26Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Impacting on 2006 financials
The net of acquisitions and divestments is expected to contribute around 3% in the full year, which is less than in the 4% in the nine months
Divestment of government businesses in Sweden, Norway and Denmark expected to reduce net sales, impact on operating profit and margin is marginal
– 9M 2006 net sales EUR 45 million and operating profit EUR 1.7 million
– expected capital gain around EUR 9 million
No material restructuring expected for Q4
– EUR 12.9 million in 9M, around EUR 13 million for the full year
Partnership rewards in Telecom & Media EUR 4 million in Q4 2005, no material rewards expected for 2006
Page 27Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Outlook for 2006
Organic growth is expected to increase from 2005, but will be affected by the low growth prospects of the Telecom & Media business area and the increase in global sourcing
Financial performance is expected to be clearly better in Q4 than in the first nine months
Uncertainties in Q4 relate to the level of licence sales and to success in project control
Full year net sales growth is expected to be around 5% excluding potential new acquisitions
Full year EBIT margin excluding capital gains but including restructuring for around EUR 13 million expected to be around 8%
Copyright © 2006 TietoEnator Corporation
TietoEnator Q3 2006
Questions and answers »
Page 29Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Copyright © 2006 TietoEnator Corporation
Appendixes
Page 31Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
Q3 2006 income statement excluding Personec
TietoEnator will de-consolidate Personec Group at the beginning of 2007 Indicative income statement, not based on official Personec Group accounts
MEUR
TietoEnator Group Personec impact
TietoEnator without Personec
Net sales 397 33 364Expenses 366 29 336Share of associated companies' result 0 0 0Operating profit (EBIT) 31 3 28Financial items -3 -3 0Profit before taxes 29 1 28Income taxes -9 -1 -8Net profit 20 0 20Minority interest 0 0 0Net profit for the shareholders ofthe parent company 20 0 20
EPS 0.26 0.00 0.26
Page 32Copyright © 2006 TietoEnator CorporationTietoEnator Q3 2006
September 2006 balance sheet excluding Personec
Indicative balance sheet, not based on official Personec Group accounts
MEUR
TietoEnator Group Personec impact
TietoEnator without Personec
Goodwill 474 -30 444Investments in associated companies 3 5 8Shareholders loan receivable/investment 0 46 46Interest bearing current assets 15 0 15Other assets 802 -29 773Accrued revenues and prepaid expenses 8 -8 0Cash 85 -8 77Total assets 1387 -23 1364
Equity 440 71 511Interest bearing loans 454 -134 320Other liabilities 493 40 533Total shareholders equity and liabilities 1387 -23 1364
Gearing% 80 45