Financial performance

Tieto’s new operating structure, effective from 1 July, will support Tieto’s strategy execution. This report is based on the new structure, comprising service lines and industry groups. New comparison figures and additional material bridging the current structure with the prior one are available at www.tieto.com/investors.

Full-year net sales increased by 2.2% to EUR 1 492.6 (1 460.1) million, growth of 3.2% in local currencies. In IT services, net sales were up by 4.3%, in local currencies up by 5.3%. In Product Development Services, sales were down by 17.3% partly due to insourcing by one key customer whose projects ended after the first quarter of 2015. The acquisitions added EUR 50 million in sales, affecting Industry Solutions (EUR 34 million) and Business Consulting and Implementation (EUR 16 million). Divestments implemented in 2015 had a negative impact of EUR 5 million, affecting Industry Solutions. Currency fluctuations had a negative impact of EUR 15 million on sales, mainly due to the weaker Swedish and Norwegian Krona.

net sales and growth
net sales and organic growth
net sales and organic growth
net sales by quarter

Full-year operating profit (EBIT) amounted to EUR 140.8 (125.2) million, representing a margin of 9.4% (8.6). Adjusted1) operating profit stood at EUR 152.2 (150.8) million, or 10.2% (10.3) of net sales. Further details on the adjustments are available in a table on page Reported alternative performance measures. For IT services, adjusted operating profit rose to EUR 141.1 (136.4) million, mainly due to the automation and industrialization programme in Technology Services and Modernization. Operating profit included allocated acquisition-based amortization of EUR 3.3 million. Additionally, customer debt restructurings had a negative impact of EUR 1.7 million.

Cost savings, mainly related to the automation programme and industrialization of application management services, had a positive effect of around EUR 29 million on IT services’ operating profit while the positive impact of gross savings was curbed by around EUR 18 million in salary inflation, around EUR 20 million in costs for recruitments in new service areas and the increase of EUR 15 million in offering development costs. The performance-based incentive accruals, including both short-term and long-term incentives, were EUR 25.6 (32.4) million. Currency changes had a negative impact of over EUR 3 million on operating profit. The negative effect was mainly attributable to the Swedish and Norwegian Krona.

Depreciation and amortization amounted to EUR 53.9 (56.6) million. Net financial expenses stood at EUR 4.0 (5.9) million in the full year. Net interest expenses were EUR 2.1 (2.2) million and net losses from foreign exchange transactions EUR 1.1 (2.4) million. Other financial income and expenses amounted to EUR -0.8 (-1.3) million.

Full-year earnings per share (EPS) totalled EUR 1.46 (1.23). Adjusted1) earnings per share amounted to EUR 1.58 (1.51).

1) adjusted for restructuring costs, capital gains/losses, goodwill impairment charges and other items

operating profit and margin
operating profit and margin excl. one-off items
operating profit and margin items by quarter
operating profit by service line
Financial performance by service line
EUR million Customer sales 1–12/2016 Customer sales 1–12/2015 Change, % Operating profit 1–12/2016 Operating profit 1–12/2015
Technology Services and Modernization 762 755 1 89.0 65.5
Business Consulting and Implementation 139 125 12 4.1 1.5
Industry Solutions 475 439 8 55.2 65.4
Product Development Services 117 142 -17 10.9 15.6
Support Functions and Global Management       -18.5 -22.8
Total 1 493 1 460 2 140.8 125.2
Operating margin by service line
% Operating margin
1–12/2016
Operating margin
1–12/2015
Adjusted1) operating
margin
1–12/2016
Adjusted1) operating
margin
1–12/2015
Technology Services and Modernization 11.7 8.7 12.1 11.7
Business Consulting and Implementation 3.0 1.2 1.2 2.5
Industry Solutions 11.6 14.9 12.5 14.0
Product Development Services 9.3 11.0 9.4 10.3
Total 9.4 8.6 10.2 10.3
 

In Technology Services and Modernization, sales of cloud services were up by 36% and represented 22% of infrastructure services sales. Additionally, shared, standardized workspace services posted strong growth. At the same time, the market for traditional infrastructure and application services continued to decline. Service standardization and automation continued, reflecting the shift from traditional services to emerging services. Adjusted operating profit was up due to the savings related to the automation programme, initiated in 2015.

In Business Consulting and Implementation, sales growth of 12% is supported by the acquisition of Smilehouse and Imano. Demand remained strongest in Customer Experience Management and consulting services. Organically, sales remained at the previous year’s level, partly due to some delays in decision making and lower project business volumes for one customer in the telecom sector, which resulted in an unsatisfactory utilization rate, especially in the Enterprise Applications area. Operating profit was also affected by investments in growth areas, comprising mainly increased sales costs.    

In Industry Solutions, sales growth of 8% was driven by the acquisition of Software Innovation and Emric. Organically, sales were up by over 6% in the Public, Healthcare and Welfare segment and by 4% in the Financial Services segment. In the oil and gas segment, market conditions remained challenging. Operating profit was down due to investments in growth businesses, including an increase of close to EUR 12 million in offering development costs as well as recruitments.

In Product Development Services (PDS), sales were down due to insourcing by one key customer whose projects ended after the first quarter of 2015 and a few anticipated end-of-life projects while Tieto has won new agreements in new growing areas. Operating profit was down due to the fact that the figure for the first quarter in 2015 was exceptionally high, as it included income related to temporary commercial terms. The utilization rate improved from the previous year and the existing business has a healthy cost structure.  

Customer sales by industry group
EUR million Customer sales
1–12/2016
Customer sales
1–12/2015
Change, %
Financial Services 370 347 7
Public, Healthcare and Welfare 479 439 9
Industrial and Consumer Services 527 533 -1
IT services 1 376 1 318 4
Product Development Services 117 142 -17
Total 1 493 1 460 2

In Financial Services, volumes with the largest customers were on the rise. New projects driving IT efficiency and digital services, especially in Finland, were the main contributor to the growth. Additionally, the acquisition of Emric had a positive impact of EUR 7 million on sales.

In Public, Healthcare and Welfare, growth was supported by the acquisition of Software Innovation. Industry Solutions posted growth of around 19%, organically 6%. Additionally, transition projects in infrastructure services in Finland contributed to growth.      

In Industrial and Consumer Services, sales were down due to lower project business volumes for one customer in the telecom sector and lower sales in the challenging oil and gas segment. Development in energy utilities was positive. The acquisition of Smilehouse and Imano had a positive impact of EUR 19 million on sales. 

M&A impact by service line
  Growth, %
(in local currencies)
1–12/2016
Organic growth, %
(in local currencies)
1–12/2016
Technology Services and Modernization 1.5 1.5
Business Consulting and Implementation 12.3 -0.6
Industry Solutions 9.8 3.1
IT services 5.3 1.9
Product Development Services -16.1 -16.1
Total 3.2 0.1
M&A impact by industry group
  Growth, %
(in local currencies)
1–12/2016
Organic growth, %
(in local currencies)
1–12/2016
Financial Services 7.3 5.3
Public, Healthcare and Welfare 9.9 4.3
Industrial and Consumer Services -0.4 -3.1
IT services 5.3 1.9
Product Development Services -16.1 -16.1
Total 3.2 0.1