For us, economic responsibility means striving to ensure that we are profitable in order to create long-term sustainable value for our stakeholders and contribute to a global and sustainable economy. In 2016, our operating margin improved to 9.4%, thus close to our 10% long-term objective.
Tieto’s financial objectives are to grow IT services revenue above the market (CAGR), achieve a 10% reported operating margin (EBIT), increase dividends annually in absolute terms, and to have a net debt/EBITDA of 1.5 as an upper limit in the long run.
In 2016, IT services sales growth was over 4%, supported by acquisitions. It is estimated that the IT services market relevant to Tieto grew by 2%. Full-year operating profit (EBIT) amounted to EUR 140.8 (125.2) million, representing a margin of 9.4% (8.6). Tieto’s profitability is relatively sensitive to the level of restructuring measures. Operating margin adjusted for items including restructuring costs remained above 10% at 10.2%. The proposed dividend is up by 5% to EUR 1.15 (1.10) and additionally, an extra dividend of EUR 0.22 is proposed. Dividend yield is 5.3% and payout ratio 94%, including extra dividend.Tieto’s capital structure remained strong and net debt/EBITDA was 0.6. The proposal to pay extra dividend addresses our objective to achieve a level close to 1. Tieto will maintain its capacity to invest in future growth both organically and inorganically after dividends.
Tieto’s economic contribution to stakeholders is summarized in the graph below. It illustrates our economic impact on customers, employees, suppliers, governments and society at large.
|Economic value for different stakeholders, EUR million|
|Revenues||1 514.5||1 492.5||1 541.8|
|Employee wages and benefits||827.1||828.3||846.0|
|Payments to providers of funds||104.3||100.6||70.3|
|Payments to governments 1)||22.7||22.3||20.7|
|Economic value retained||66.5||56.5||69.9|
|1) of which|
Our tax strategic aim is to comply with all jurisdictions local tax legislation and other obligatory rules. Tieto is committed to operating in a responsible way and to complying with ethically acceptable principles in all of our activities. This means that Tieto fulfils all reporting requirements and pays all legally imposed direct, indirect and other taxes in those countries where the Group has operations. Furthermore, Tieto shall always operate with full co-operation with the authorities and aim to disclose all information that is needed to determine the tax consequences.
During the year, Tieto received financial assistance from local governments in some of our operating countries. In Austria, we received EUR 0.1 million from the government for research funding.In Sweden, we received EUR 0.1 million from Vinnova, the Swedish Innovation Agency, for the international research project within Eureka and EUR 0.1 million for employment support. In Finland, we received EUR 0.7 million from TEKES, the Finnish Funding Agency for Technology and Innovation to support digitalization and cloud services development in different industries as well as for product development purposes in our PDS unit. The government of the Czech Republic provided a grant of EUR 3.3 million to support economic development and employment. In addition, we have received tax relief and tax credits in some of our operating countries. In India, Tieto received a tax relief of EUR 1.9 million because of tax holiday. In Norway, we received a tax credit of EUR 0.3 million relating to a development project. Also in Lithuania and Singapore, minor tax relief was received.
|Significant financial assistance received from government, EUR million|
For a full description of our financial performance, please read our Financial Review 2016.
In Tieto, Group-level finance operations are handled by our Chief Financial Officer’s (CFO) office. In addition, each Industry Group and Service Line has a dedicated Finance partner, who works closely with business and supports management in financial processes and reporting. Our shared service centre in Riga, Latvia, supports accounting and master data maintenance services to fulfill Group reporting and statutory reporting needs and requirements.
Tieto has a common accounting and reporting platform, Tieto ERP. Group consolidation and reporting are based on the reporting system, which facilitates common control requirements for all legal entities reporting to the Group.Financial reporting consists of monthly performance reports, including all the key performance indicators, rolling forecasts and interim financial reports.
The correctness of Tieto’s financial reporting, including interim and annual reports, and the compliance of financial reporting with regulatory requirements are ensured through our internal control practices. The Audit and Risk Committee of our Board of Directors has the oversight role in our external financial reporting.
Tieto’s financial reports are regularly reviewed by the Leadership Team and the Board of Directors. The follow-up is based on a thorough comparison of the actual figures with the set objectives, forecasts and previous periods. If the figures deviate, the Leadership Team members are responsible for initiating corrective actions.
Our Financial Handbook includes internal financial information that is directed to people involved in the financial planning and reporting or working with finance matters. The information covers a broad spectrum from steering system to detailed timetables for reporting, as well as descriptions of reporting systems and financial guidelines.
Tieto’s financial reporting follows the International Financial Reporting Standards (IFRS) as adopted by the European Union. As a listed company, we are compliant with the regulations of the NASDAQ Helsinki and Stockholm Stock Exchanges.