Accelerating innovation and growth November 2017
Financial facts Customer sales in 2016: EUR 1 493 million Adjusted *) EBIT margin: 10.2% Tieto s market position: Market leader in Finland Among top 3 in Sweden Among top 7 in Norway Sales by Service Line Technology Services and Modernization 51% Business Consulting and Implementation 9% Industry Solutions 32% Product Development Services 8% Sales by industry group Financial Services 25% Adjusted *) EBIT by Service Line Public, Healthcare and Welfare 32% Industrial and Consumer Services 35% Product Development Services 8% Technology Services and Modernization 56% Business Consulting and Implementation 1% Industry Solutions 36% Product Development Services 7% 2 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Continuous renewal driving consistent value creation 2012 2013 2014 2015 2016 2017 2018 2019 2020 Build the foundation Reorienting for growth Growth-driven strategy Con Actively expand internationally Focus & efficiency Accelerate growth portfolio Drive innovation and growth Well positioned to become the preferred partner for customers business renewal Market opportunity based on customers agenda to accelerate innovation and efficiency Healthy company with strong balance sheet Focused investments, especially in industry solutions based on our own software, to drive growth faster than the market Continued focus on consistent profit improvement Strong dividend policy continues 3
Good long-term performance while having increased investments IT services sustainably driving growth MEUR 2000 Net sales, EBIT and offering development % 15 Increased investments in offering development Annual offering investments up to EUR 75 million from EUR 40 million in 2013 1500 1000 500 8,8 7,6 2,1 2,5 9,9 10,3 10,2 5,0 4,1 3,3 10 5 Other investments in 2016 Net recruitments 800 employees Acquisition of Emric Capital expenditure EUR 62 (51) million 0 2012 2013 2014 2015 2016 Net sales, IT services Net sales, PDS Adjusted* EBIT,% Offering development costs/net sales % 0 4 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Market opportunity Public
We continue to drive growth and efficiency for our customers and us Innovation Accelerate investments in innovation and growth Duality New opportunities to support customers in their business renewal Efficiency Continuously optimize operations for scale and efficiency 6
High-growth businesses driving growth Application Services growth 6% in Q3 while decline in traditional infrastructure 3% TIETO'S GROWTH AMBITION FOR IT SERVICES: FASTER THAN THE MARKET* (CAGR 2015-2020) SALES GROWTH 2016 2020 (CAGR) SHARE OF IT SERVICES 1-9/2017 GROWTH 1-9/2017 ~ 50% UP BY 10 20% 37% 20% High-growth businesses ** Selected industry solutions and high-growth services Other services and solutions 10% 4% ~ 50% 2015 2020 DOWN BY 5 10% 43% Traditional services -1% Traditional services Emerging services *Market growth expectation (CAGR) for the Nordics at 1.5 3% IT services annual sales EUR 1 376 million in 2016 7 **Selected high-growth industry solutions comprise Lifecare, Case management, Payments and Banking solutions High-growth services comprise Customer Experience Management, Cloud services and Security Services
High-growth businesses up by 10% SERVICE LINE Annual sales 2016 SERVICE LINE Growth 1 9/2017 HIGH-GROWTH BUSINESSES Annual sales 2016 Growth 1 9/2017 Industry Solutions**) EUR 475 million 7% Selected high-growth industry solutions Data-Driven Businesses Selected solutions*: EUR ~ 320 million DDB: Started in H2/2016 8% 8% Business Consulting and Implementation EUR 139 million 7% Customer Experience Management CEM**: EUR ~ 30 million 30% 13% Technology Services and Modernization EUR 762 million 1% Cloud services Security Services Cloud***: EUR ~ 100 million Security: EUR ~ 10 million 10% 24% 98 Breakdown of TSM sales: Cloud services 18% Other emerging services 2% Application management 27% Traditional infrastructure services 53% * Incl. Lifecare, Case management, Payments, Banking solutions *** Sales for cloud services including Value Networks (solution for the management of financial value chain) amounted to EUR 120 million Total ** CEM/Financial Services not included as that transferred to Industry Solutions as from 1 July 2016 growth comparable to 1 9/2016 10%
Industry Solutions in our investment focus Revenue growth 7% investments geared towards HCW and FS Selected high-growth industry solutions annual sales 2016 ~ 320 meur Healthcare: Lifecare Data-Driven Businesses Intelligent Healthcare Leading in Nordics Public sector: Case management Intelligent Building Leading in Nordics Industrial Equipment Financial services: Banking solutions Gaining share Financial services: Payments* Globally among top5 Global footprint annual sales 2016 ~ 75 meur Manufacturing: Production Excellence Globally leading in pulp and paper Oil & Gas: Hydrocarbon accounting Global market share 40% Regional solutions annual sales 2016 ~ 80 meur Energy: SmartUtility We continue to drive scale Partner networks in innovation and sales Global expansion of selected solutions Well-targeted offering development Selective bolt-on acquisitions Leading in Nordics 10 9 * Payments sales included in 320 meur
Infrastructure cloud market driven by multi-cloud solutions We recently expanded our public cloud portfolio through OneCloud Annual market growth (CAGR 2016 2021) in the Nordics *) Our growth in 1 9/2017 Way forward Total infrastructure cloud services 15 20% Public cloud 25 30% Incubation of cloudborn applications Market expansion through Tieto OneCloud Private/ enterprise cloud 10 15% 10% e.g. Tieto Cloud Server, Tieto Productivity Cloud, Tieto Dynamic landscape a multi-cloud solution seamlessly orchestrating workloads across private and public clouds *) Source: Gartner and Tieto analysis 11 10
Strategy 2016 2020 Public
Tieto strategy 2016-2020 We aim to be our customers first choice for business renewal Services to accelerate customer value Build solutions and capabilities to accelerate our customers business performance and renewal. Nordic leadership and international expansion Further accelerate our strong market position in the Nordics and expand industry solutions internationally. Openness and co-innovation Co-innovate with customers and partners, access open talent networks and drive continuous skill and capability development. Business choices building on our strengths Vertical industry solutions Technology services and modernization New data-driven businesses * Product Development Services strategy follows global expansion objectives 12
We implement the strategy in phases 2017-2018 2019-2020 Actively expand internationally Expand productized services internationally Drive large-scale expansion to adjacent markets Drive innovation and selective market entry Scale chosen industry solutions internationally Accelerate and commercialize data-driven businesses Operationalize open talent networks and innovation ecosystem Standardize service architectures and cognitive automation 2012 2016 Accelerate capabilities in Sweden and industry solutions Accelerate capabilities and growth in Sweden Implement new operating model Invest into SIAM*, service productization and cognitive automation Expand selected industry solutions internationally Pilot data-driven businesses 13 *Service Integration and Management
Tieto announced a public offer for Avega - aims to strengthen its position as the preferred business renewal partner Avega Group The Avega Group creates services, products and business models for the modern society by offering specialist consultants in business development and IT 350 business and digitalization consultants Net sales EUR 45.2 million (SEK 428 million) in 2016 Balanced and attractive customer portfolio Avega and Tieto together Strong local consulting capabilities, especially in business transformation, digital consulting and customer experience management Extensive capabilities to provide both consulting services and deliver large projects to accomplish business transformation objectives Wide-ranging business renewal proposition covering consulting, system integration, industry-specific software and industrialized managed services 14
Value creation Public
Increased growth focus and continued attention on profitability dividend policy unchanged Ambition 2020 IT services revenue growth above the market (CAGR) Focus on new businesses and expansion of industry solutions increased investments Organic growth at least at market rate 10% reported operating margin (EBIT) Adjusted *) margin sustainably above 10% Offering development below 5% of sales (OPEX) Aim is to increase dividends annually in absolute terms Strong cash flow driving attractive dividend profile Net debt / EBITDA 1.5 as an upper limit in the long run Investment capacity for organic and inorganic growth CAPEX expected to remain below 4% of sales 16 16 *) Adjusted for restructuring costs, capital gains/losses, impairment charges and other one-off items
Adjusted profit M Revenue M Public Accelerated value creation and further upside 2500 Revenue growth Market average 2012 2015 Further potential 0 2012 2015 2020 Strategic objective Adjusted EBIT margin from 7.6% to 10.3% 300 2016 2020 Profit growth Growth-related profit improvement Margin improvement Profit improvement mainly driven by growth 0 2012 2015 2020 17 17
Dividends Net Debt/ EBITDA Public Strong balance sheet dividends increasing while maintaining flexibility to invest in growth 1,5 1,0 0,60 0,5 0,2 0,1 0,1 0,0-0,4-0,5 2012 2013 2014 2015 2016 Net Debt/EBITDA 120 80 22 18 16 Debt capacity for M&A while maintaining dividend policy ~ EUR 200 million Assuming Net debt/ebitda <1.5 40 60 65 73 81 85 0 2012 2013 2014 2015 2016 Dividends, EUR million Additional dividends, EUR million 18 18
Ambitions by Service Line Technology Services and Modernization Target profitability 2015 2020 Business Consulting and Implementation Target profitability 2020 TSM Cognitive automation and standardization while price erosion continues Industry Solutions Target profitability 0% Average market growth 2015 2020 Product Development Services Target profitability 0% Average market growth 0% 0% Average market growth Average market growth 2015* 2015 2020 2015 BCI Pre-packaged services improving scalability Industrialized delivery IS Scalable industry solutions New data-driven businesses PDS Flexible resourcing for targeted utilization rates 19 *) excluding the business related to the key customer insourcing R&D
Q3 2017 Public
Q3 2017 key figures Net sales EUR 355 (341) million, +4.2%, growth in local currencies +4.5% Acquisitions added EUR 3 million Currency impact EUR -1 million In IT services, sales growth 3.8%, or 4.0% in local currencies Organic growth in local currencies 3.1% EBIT EBIT EUR 41.1 (35.1) million, 11.6% (10.3%) Adjusted* EBIT EUR 41.2 (35.4) million, 11.6% (10.4%), currency impact EUR -0.3 million Order backlog Order backlog EUR 1 689 (1 722) million Contract Value EUR 271 (406) million, affected by the timing of large contracts Book-to-bill 0.8 (1.2) Earnings per share EPS EUR 0.46 (0.37) EPS EUR 0.46 (0.38), adjusted *) MEUR % 500 400 300 200 100 0 8,6 9,4 10,4 12,3 5 5 9,0 9,2 11,6 367 381 341 404 388 381 352 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Net of divestment and acquisitions Customer sales adjusted Adjusted* EBIT, % 3 14 12 10 8 6 4 2 0 21 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Significance of order intake and backlog is changing The total market is expected to remain dynamic and to continue to grow Market trends affecting order intake Q3 characteristics Total market expected to continue to grow while shifting towards agile methods and consumptionbased business models traditional development programmes cut into smaller projects binding durations and values in new contracts reduced while frame agreements pose revenue opportunities Q3 order intake affected by timing of some large contracts: some large contracts postponed to Q4 Q3/2016 included a large agreement worth over EUR 100 million Book-to-bill 0.8 (1.2) Book-to-bill rolling 12m 1.0 22
Quarterly development MEUR 500 400 300 200 100 0 Net sales 5 5 3 367 381 341 404 388 381 352 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Net of divestment and acquisitions Customer sales adjusted 1,5 1,0 0,5 0,0-0,5-0,1 0,5 Net debt/ebitda 0,7 0,6 0,2 0,9 0,8 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Employees 20000 15000 10000 5000 0 Number of full-time employees and offshore ratio 46,7 47,2 47,4 47,9 48,6 49,0 49,6 13200 13381 13758 13876 13822 13754 13851 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Number of personnel Offshore ratio Number of personnel up by a net amount of 93 Offshore ratio: IT services 47.4% (45.9%) PDS 68.7% (62.5%) % 60 50 40 30 20 10 0 MEUR 95 75 55 35 15-5 -25 Net cash flow from operations and capital expenditure 46,9-9,4-13,7-11,9 13,8 50,2 79,7-16,1-24,3-9,3-6,1-16,9 10,8-9,2 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Net cash from operations Capital expenditure 23
Growth in local currencies by Service Line and Industry Group Service Lines MEUR 200 175 150 125 100 75 50 25 0 MEUR 200 175 Industry 150 Groups 125 (IT services) 100 75 50 25 0 1% 5% / 2%* 7% 6% 9% / 6%* 1% 10% 179 180 30 32 106 114 26 29 Technology Services and Modernization Business Consulting and Integration Industry Solutions Product Development Services 88 92 106 112 121 122 Financial Services Public, Healthcare and Welfare Industrial and Consumer Services Q3/16 Q3/17 Q3/16 Q3/17 24 *) Organic growth in local currencies (not shown for businesses where acquisition impact is not significant)
Service Lines New data-driven businesses *) Financial Services Public, Healthcare and Welfare Industrial and Consumer Services Business consulting & implementation Industry solutions Technology Services and Modernization Product Development Services 25 *) Reported in Industry Solutions
Technology Services and Modernization Customer sales in Q3 EUR 180 (179) million, +1%, growth of 1% in local currencies EBIT EBIT EUR 25.0 (24.2) million, 13.9% (13.5) Adjusted* EBIT EUR 24.9 (24.0) million, 13.8% (13.4) Q3 highlights Two-fold development in traditional services Decline in infrastructure services 3% Application services growth 6% Nine-month cloud sales up by 10% Security Services and GDPR supporting growth Service standardization and automation supported margin improvement and Q3 typically the strongest Q4 adjusted margin expected to stay at around H1/2017 level Q4/2016 exceptionally strong and included other income related to periodic Government grant MEUR 250 200 150 100 50 0 10,2 10,8 13,4 14,1 10,9 11,9 13,8 190 196 179 197 198 194 180 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Net of divestment and acquisitions Customer sales adjusted Adjusted* EBIT, % % 16 14 12 10 8 6 4 2 0 26 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Business Consulting & Implementation Customer sales Q3 EUR 32 (30) million, +7%, growth of 7% in local currencies EBIT EBIT EUR 0.7 (-0.2) million, 2.3% (-0.6) Adjusted* EBIT EUR 0.9 (-1.5) million, 2.8% (-4.9) Q3 highlights Healthy growth in consulting services and Customer Experience Management across all industry groups In CEM, nine-month sales up by 30% Improvement in adjusted operating profit Billing rate improved Offering development investments reduced Q4 adjusted margin expected to clearly improve from Q4/2016 MEUR 50 40 30 20 10 0 3,7 3,3-4,9 1,8 7,1 4,0 2,8 35 37 30 38 39 38 32 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 % 8 6 4 2 0-2 -4-6 Net of divestment and acquisitions Customer sales adjusted Adjusted* EBIT, % 27 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Industry Solutions Customer sales Q3 EUR 114 (106) million, +8%, growth of 9% in local currencies Organic growth in local currencies 6% EBIT EBIT EUR 16.6 (13.0) million, 14.5% (12.3) Adjusted* EBIT EUR 16.5 (13.2) million, 14.4% (12.5) Q3 highlights Good growth across Industry Groups, especially in Financial Services, Energy Utilities and Manufacturing Adjusted EBIT improved due to better efficiency and growth Offering development costs at Q3/2016 level, including EUR 1 million for Data-Driven Businesses Q4 sales anticipated to temporarily slightly decline Q4/2016 included a large delivery related to Tieto s Intelligent Transportation Solution an impact of around EUR 5 million on year-on-year comparison High comparison number for Financial Services Q4 adjusted operating profit and margin anticipated to improve from Q4/2016 MEUR 150 100 50 0 10,4 10,9 12,5 15,5 5 5 8,0 9,0 14,4 113 117 106 138 119 117 111 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Net of divestment and acquisitions Customer sales adjusted Adjusted* EBIT, % 3 % 18 16 14 12 10 8 6 4 2 0 28 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Product Development Services Customer sales Q3 EUR 29 (26) million, +10%, growth of 10% in local currencies EBIT EBIT EUR 2.2 (1.7) million, 7.6% (6.4) Adjusted* EBIT EUR 2.2 (1.7) million, 7.5% (6.5) Q3 highlights Strong volume development with the largest key customers Good development especially in the Radio and Smart Traffic areas Resources in offshore locations continued to increased to meet demand Operating margin up due to improved billing ratio driven by growth while seasonally lower Q4 adjusted margin anticipated to be at normalized levels of close to 10% MEUR 35 30 25 20 15 10 5 0 8,4 11,1 6,5 11,3 13,6 8,3 7,5 29 31 26 31 32 31 29 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Net of divestment and acquisitions Customer sales adjusted Adjusted* EBIT, % % 16 14 12 10 8 6 4 2 0 29 *) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items
Outlook Public
Performance drivers in 2017 IT services 1 9/2017 Growth 4%, faster than the market Efficiency programme affected cost base by around EUR 12 million Investment levels in offering development maintained at 2016 level Restructuring costs EUR 19 million Q4 2017 Q4 dynamics Solid underlying trend Revenue: IS growth maybe temporarily negative EUR 5 million for large HSL project *) Q4/2016 Strong Financial Services in Q4/2016 Profit headwind of over EUR 5 million: Incentives anticipated to be above 2016 Q4/2016 Government grant not expected Full year We aim to grow faster than the market, growth supported by acquisitions Efficiency programme: impact of ~ EUR 20 million, annualized gross savings ~ EUR 40 million Offering development costs remain at the 2016 level and close to 5% of Group sales Restructuring costs 1 2% of Group sales Performance drivers in IT services in 2017 Adjusted EBIT 2016 Adjusted EBIT 2017 31 Sales growth and business mix change Growth investments Salary inflation Automation and industialization and other productivity gains *) Intelligent Transport Solution
Guidance for 2017 unchanged Tieto expects its full-year adjusted *) operating profit (EBIT) to increase from the previous year s level (EUR 152.2 million in 2016). *) Adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items 32
We continue to drive shareholder return above the industry average Positive financial development to continue Increased investments to support innovation and growth Attractive dividend policy Total Shareholder Return above industry average The leading Nordic software and services company with the aim to be customers first choice for business renewal 33 33
Appendix
Top 10 customers 2016 City of Stockholm Ericsson IF Insurance Kesko Nordea OP State Services (FI) S-Group Skåne Region Telia Company 35
Sales by Service Line IT services PDS not included Financial Services 36 % Technology Services and Modernization Business Consulting and Implementation Public Healthcare and Welfare 5 % 59 % Industry Solutions Technology Services and Modernization Industrial and Consumer Services 46 % 46 % Business Consulting and Implementation 23 % Technology Services and Modernization 8 % Industry Solutions 16 % 61 % Business Consulting and Implementation Industry Solutions 36
Sales by Industry Group IT services PDS not included Technology Services and Modernization 42 % 29 % Financial Services Public, Healthcare & Welfare Business Consulting and Implementation 29 % Industrial and Consumer Services 13 % Financial Services Industry Solutions 60 % 27 % Public, Healthcare & Welfare 25 % 28 % Financial Services Industrial and Consumer Services Public, Healthcare & Welfare 47 % Industrial and Consumer Services 37
Sales by Service Line 8 % Tieto Technology Services and Modernization 32 % 9 % 1 % 20 % 51 % Business Consulting and Implementation Industry Solutions Product Development Services Finland Technology Services and Modernization 28 % 17 % 8 % 47 % Sweden Technology Services and Modernization Business Consulting and Implementation Industry Solutions Product Development Services 10 % 69 % Business Consulting and Implementation Industry Solutions Product Development Services 38
Sales by Industry Group 8 % 25 % Tieto Financial Services 35 % 32 % Public Healthcare and Welfare Industrial and Consumer Services Product Development Services 17 % 22 % Sweden Financial Services Public Healthcare and Welfare 1 % 26 % Finland Financial Services 24 % 37 % Industrial and Consumer Services Product Development Services 42 % Public Healthcare and Welfare Industrial and Consumer Services 31 % Product Development Services 39
All information in this material is for informational purposes only. The opinions and viewpoints regarding, inter alia, the future of the company and markets are of Tieto and may not actually materialize. This information should not be construed as an investment recommendation or investment advice. All information expressed herein is subject to change without notice. Neither Tieto nor its officers nor employees shall have any liability for any loss sustained by anyone who has relied on the information provided.