TIETO 
By TietoEnator Corporation Quarterly Report 16 April 2008, 2.00 am EET To download the PDF file, please use this link: http://hugin.info/3114/R/1209005/250200.pdf Highlights * The Performance Improvement Programme has progressed well. The actions taken by the end of March amount to annualized savings of EUR 36 million. * First-quarter net sales grew by 6% to EUR 468.3 (442.2) million. * Operating profit, excluding capital gains and one-off items related to the Performance Improvement Programme, rose by 15% and amounted to EUR 37.6 (32.8) million, representing an operating margin of 8.0% (7.4). There were no capital gains (EUR 1.7 million in 2007) in the quarter. * Operating profit including one-off items of EUR 13.1 million related to the Performance Improvement Programme amounted to EUR 24.6 (34.5) million. * Profit after taxes was EUR 16.3 (24.1) million for the first quarter. * EPS amounted to EUR 0.23 (0.33). * Hannu Syrjälä started as the Group's new President and CEO on 15 February. * On 20 March, Cidron Services Oy made a public tender offer for all the outstanding shares and stock options in TietoEnator. Market development and TietoEnator's business transactions The market situation remained positive and in most sectors growth prospects remained unchanged. In some areas, such as banking and telecom, there are some signs of cautiousness regarding the economic slowdown and its impact on IT investments though. Price level was either stable or slightly higher than the year before. The labour market is active resulting in a higher attrition rate and an increasing salary level. Increasing personnel costs have put pressure on margins. Banking and insurance Overall demand in the financial services sector is at a healthy level, but the market is very competitive in certain areas. Price pressure persists, partly due to offshore competition from territories such as India and Eastern Europe. Regulatory changes in the European Union are creating new demand in the payments and capital markets areas. Telecom and media The overall market situation in the telecom and media sectors is currently good, but price pressure continues. The accelerating convergence in telecom services is driving up demand for IT services. The challenging market conditions in the telecom sector, however, might create some uncertainties towards the year-end. The R&D market is being restructured and relocated as customers increase their presence in countries with favourable cost-structures, especially in Asia. Due to consolidation of telecom equipment manufacturers in Europe, growth in demand for network R&D services will decelerate in Europe. Consolidating R&D service purchases to a few key contractors may favour TietoEnator though. In the operator market, the situation has eased and today, operators are focusing on services and customer care. In January, TietoEnator opened a new office in Chengdu to expand its operations in China. The Chengdu centre serves TietoEnator's telecom customers and offers services mainly in the area of mobile devices, networks and operators. TietoEnator has acquired 30.5% of the shares in TietoEnator Italy S.p.A and now owns 95.5% of the company. The transaction was completed on 18 March and the purchase price was EUR 5 million. Government, manufacturing and retail Overall demand is solid in all of these areas as customers are seeking to improve performance and productivity. Government customers plan to start several large development projects in the coming years. However, the new framework arrangement for the sourcing of technical IT consulting established by Hansel Ltd, the central procurement unit of the State of Finland, has led to more demanding terms in contracts. The positive trend in the manufacturing industry is expected to continue. Retail customers are in the market for IT systems to help them provide new ways to manage customer needs and changes in customer behaviour towards multi-channel buying. Healthcare and welfare Demand in the Finnish healthcare market has been steady as self-services are gaining more momentum. In Sweden and Norway, the market is fragmented and develops slowly. The general trend is to consolidate systems within the regions, but mainly based on running systems. The Nordic welfare market however has shown a clear growth trend with growing demand for e-services. In March, Sjukvårdsrådgivningen SVR AB (the Swedish Healthcare Advisory Organization) chose TietoEnator as a supplier of a solution for a national patient overview (NPO). The agreement will run for five years with an option to extend for a further two years. The total value of the agreement is at least EUR 12.2 million. Forest and energy In the forest sector, Nordic customers are restructuring their operations and closing down excess capacity, but they are interested in expanding business in Asia and Russia. Demand is stable in North America and very brisk in South America and Asia. In the energy sector, the market situation remains favourable for the oil and gas segment as well as for the utility segment. Larger investments in finding new oil reservoirs and utilizing old ones, growing demand for energy and the good economic situation of energy companies ensure IT investments in the coming years. Infrastructure outsourcing The market for infrastructure outsourcing in the Nordic countries is active especially in service based outsourcing. Customers are looking for more flexible solutions and request broader service agreements that provide coverage for entire business processes. Prices for traditional infrastructure services are under continuous pressure. In March, TietoEnator, OP Bank Group Central Cooperative and Ilmarinen Mutual Pension Insurance Company signed a letter of intent on combining the ICT operations centres of OP-Pohjola Group and Ilmarinen. The target of the negotiations is to provide the ICT operations management services through a joint venture that is built on the current subsidiary of OP Bank Group Central Cooperative called FD Finanssidata. In March, TietoEnator agreed a contract with the Swedish Tax Agency to supply highly secure server centre services. Furthermore, the contract includes options for other services. The contract will run for five years with an option for two extension periods of two years each. TietoEnator estimates the total value of the order to be around EUR 7 million during the first five years. Net sales First-quarter net sales grew by 6% to EUR 468.3 (442.2) million or by 7% in local currencies. Organic growth totalled 6%, which was in line with market growth. Net sales growth was impacted by the timing of Easter, which resulted in approximately 4% fewer working days in the quarter than in the first quarter of 2007. In certain areas, the high attrition rate has limited growth. 2007 net 2007 Q1 net sales Q1 organic sales organic growth, % growth, % growth, % growth, % Banking & Insurance -3 -1 3 2 Telecom & Media 8 6 23 22 Government, Manufacturing 1 2 -22 -1 & Retail Healthcare & Welfare 5 5 -2 -2 Forest & Energy -1 -1 11 8 Processing & Network 17 17 9 9 Total incl. Group 6 6 8 8 eliminations Processing & Network's strong performance was supported by the active Nordic ICT infrastructure market, especially in service based outsourcing. Approximately one third of growth is accounted for by the timing of two large contracts. In the first quarter, Telecom & Media's and Forest & Energy's growth slowed down after several very strong quarters. Comparison figures are high for Telecom & Media due to a few major agreements concluded at the beginning of 2007. Sales to current large customers have continued to grow. Forest & Energy's sales declined mainly due to the weak development in the utilities sector. On top of this currency impact of approximately 2 %-points weakened net sales development. Healthcare & Welfare and Government, Manufacturing & Retail returned to a growth track. In Healthcare & Welfare, most areas were growing. In Government, Manufacturing & Retail, TietoEnator has experienced steady demand in all sectors. The closure of the German operations and decline in net sales in the UK were main contributors to Banking & Insurance's net sales decline. TietoEnator's first-quarter growth was 10% in Finland, 8% in Sweden and 31% in Norway. In Germany, net sales declined by 9%, mainly due to the closure of Banking & Insurance's operations in 2007. Telecom and media increased its share of consolidated net sales to 36% (35). The banking and insurance sector generated 22% (23) of net sales, whereas the public sector's contribution was 15% (15). The forest sector's contribution was 5% (5) and the energy sector's 6% (5). The order backlog, which only comprises services ordered with binding contracts, amounted to EUR 1 061.3 million (1 341.5) at the end of the period. Processing & Network's share of the order backlog is 33%. In total 55% (49) of the backlog is expected to be invoiced in 2008. Performance Improvement Programme In October 2007, TietoEnator decided on an accelerated Performance Improvement Programme to generate annual cost savings of more than EUR 100 million as from the end of 2009. The benefits are expected to materialize with an over 50% run-rate effect from the end of 2008 and in full from the end of 2009. The programme has progressed well. The actions taken by the end of March amount to annualized savings of EUR 36 million, which will gradually impact cost base starting from the latter part of 2008 and fully in 2009. Approximately two thirds of this amount will be generated by utilization improvements. The rest will come from decreased use of subcontractors and better purchasing conditions. The restructuring costs, provisions and impairments related to the programme amount to approximately EUR 160 million of which one-off costs of EUR 104.7 million materialized in 2007. TietoEnator booked EUR 13.1 million of one-off items related to the programme in the first quarter of 2008, and the rest will be booked during 2008 and 2009. The Performance Improvement Programme covers all of TietoEnator's business areas, horizontal units and Group operations. The programme includes different components including improving the quality of services, reducing administrative costs, restructuring underperforming or unsustainable operations and projects, improving the utilization of staff and facilities, as well as accelerating offshoring. Actions will be continued in all of these areas, offshoring being one of the most important development areas. Currently 20% of TietoEnator's personnel is working in offshore locations, and the company is well on its way in reaching its 40% target. Profitability In the first quarter of 2008, TietoEnator booked EUR 13.1 million of one-off items related to the Performance Improvement Programme. Out of the one-off items, costs from personnel restructuring totalled around EUR 11 million. First-quarter operating profit, including one-off items, amounted to EUR 24.6 (34.5) million. There were no capital gains/losses (gains of EUR 1.7 million in 2007) in the quarter. Despite the Easter effect and higher personnel and subcontracting costs, the profitability of the underlying business improved from the first quarter of 2007. Operating profit, excluding capital gains and one-off items related to the programme, rose by 15% and amounted to EUR 37.6 (32.8) million, representing a margin of 8.0% (7.4). First-quarter profit is impacted negatively by the cost of approximately EUR 4 million related to the ongoing public tender offer. Operating margin of Operating profit of the the underlying underlying business (1) in business (1) in Q1/2008 Q1/2008 Banking & Insurance 7.0 9.2 Telecom & Media 13.6 7.8 Government, 4.7 9.3 Manufacturing & Retail Healthcare & Welfare 0.9 2.5 Forest & Energy 3.8 8.6 Processing & Network 13.7 12.0 1) Excl. one-off items related to the Performance Improvement Programme, capital gains/losses and impairment losses Processing & Network's operating profit, excluding one-off items related to the Performance Improvement Programme, rose to EUR 13.7 million (8.4). Thanks to improved cost efficiency and a higher utilization rate, the operating margin of the underlying business rose to 12.0% (8.6). Management of risk projects was positively reflected in Banking & Insurance's and Government, Manufacturing & Retail's profitability. In the business area Healthcare & Welfare, there was improvement in the healthcare business in Scandinavia and Central Europe, but the sector is still struggling with unsatisfactory profitability. Telecom & Media's operating margin for underlying business declined to 7.8% (9.2). Easter effect was a major contributor to the decline in the margin. Net financial expenses stood at EUR 2.9 (2.1) million in the first quarter. Net interest expenses were EUR 2.3 (1.5) million and one-time net losses from foreign exchange transactions EUR 1.4 (0.5) million. First-quarter earnings per share (EPS) totalled EUR 0.23 (0.33). Operating profit (EBIT) includes EUR 2.5 (2.5) million from amortization on allocated intangible assets. The costs arising from share-based payments of EUR 1.3 (0.5) million are included in employee benefit expenses. The 12-month rolling return on capital employed (ROCE) was 7.2% and the return on shareholders' equity (ROE) -7.7%. Financing and investments Net cash flow from operations amounted to EUR 64.6 (38.8) million in the first quarter. Operating profit contributed EUR 41.7 (49.1) million and the decrease in working capital EUR 20.7 (increase consumed 6.8) million. Tax related cash flow was positive due to refund. Payments for acquisitions totalled EUR 8.0 million in the first quarter. The equity ratio was 38.0% (44.5). Gearing increased to 31.0% (12.9). Net debt totalled EUR 139.7 (72.6) million, including EUR 219.8 million in interest-bearing debt, EUR 16.1 million in finance lease liabilities, EUR 11.1 million in finance lease receivables and EUR 85.0 million in cash and cash equivalents. The interest-bearing debt consists of one seven-year bond at EUR 100 million and one seven-year private placement at EUR 50 million and usage of EUR 69 million from the short-term EUR 250 million commercial paper programme. At the end of the quarter, unused credit facilities totalled about EUR 431 million. Accrual-based investments totalled EUR 36.2 (27.3) million for the period. Capital expenditure, including financial leasing, accounted for EUR 30.1 (12.1) million and investments in subsidiary and associated company shares for EUR 6.1 (15.2) million. Personnel The number of full-time employees totalled 16 351 (15 182) at the end of March. Acquisitions and new outsourcing contracts did not add employees during the first quarter. The personnel negotiations initiated in January have been concluded in Finland. As a result of the negotiations and other personnel adjustments, approximately 190 jobs will be cut. When initiating the negotiations TietoEnator estimated that some 400 people in Finland will be affected by redundancies or internal transfers during 2008. Due to good growth, natural attrition and internal transfers the total number of affected personnel came down during the negotiation process. The negotiation processes that have been started in other TietoEnator's operating countries continue. Employee turnover has increased. The 12-month rolling figure stood at 11.8% (9.7) at the end of March. The average number of full-time employees was 16 391 (15 026) in the first quarter. As a result of the national salary raises agreed in the collective labour agreements in Finland and Sweden, the wage inflation in Finland and in Sweden is expected to be about 4-5% in 2008. At the end of March, the number of people in global centres of excellence totalled about 3 530 (2 300), or 20% (14) of the total headcount. Annual General Meeting TietoEnator's Annual General Meeting on 27 March 2008 re-elected the Board's current members Mariana Burenstam Linder, Bruno Bonati, Bengt Halse, Kalevi Kontinen, Matti Lehti, Olli Riikkala and Anders Ullberg. The meeting elected Risto Perttunen as a new member. The Board of Directors elected Matti Lehti as its chairman and Anders Ullberg as its vice chairman. The Board also appointed a Compensation and Nomination Committee comprising Kalevi Kontinen (chairman), Bruno Bonati, Mariana Burenstam Linder and Bengt Halse, and an Audit and Risk Committee comprising Anders Ullberg (chairman), Risto Perttunen and Olli Riikkala. The Annual General Meeting authorized the Board to repurchase the company's own shares to develop the company's capital structure. Under the authorization, up to 7 202 317 shares, corresponding to 10% of the aggregate number of shares, may be purchased. The Board was also authorized to decide on issues of shares, stock options and other rights entitling to shares to enable and finance corporate transactions, acquisitions and other co-operation arrangements. Under the authorization, up to 14 404 634 new or existing shares held by the company, corresponding to 20% of the aggregate number of shares, may be issued. The Board has not exercised these authorizations. Dividend The Annual General Meeting resolved to distribute a dividend of EUR 0.50 (1.20) per share. The total dividend payment of EUR 35.8 million took place in mid-April. Management Hannu Syrjälä took on the position of TietoEnator's President and CEO on 15 February 2008. In February, Timo Salmela, former CFO, and Matti Viljo, former President of the Banking & Insurance business area, left TietoEnator by mutual agreement with the company. Monica Ek-Lindblom was appointed as acting Chief Financial Officer (CFO) of the TietoEnator Group and Seppo Haapalainen as acting President for the Banking & Insurance Business area effective 18 February. Transactions with related parties The related parties of TietoEnator are its Board of Directors, President and CEO, the Corporate Management Team (CMT) and the Group's associated companies. The bonus levels of the President and CEO and CMT members were reviewed with effect from the beginning of 2008. The President and CEO's bonus is a maximum of 100% of his annual base salary and is based on the Group's net sales and operating profit. The reward factors for the CMT members are based on the financial performance of the Group and their own units. In addition, a number of key managers of the company and the president and CEO have a retention compensation connected to the ongoing public tender offer. In February, TietoEnator's Board of Directors decided on an allocation of 35 000 stock options 2006 B and approximately 390 000 stock options 2006 C to key employees of TietoEnator based on performance. In March, the Board decided on an allocation of 363 450 stock options 2006C. The President and CEO was allocated a total of 115 000 options and the Corporate Management Team members a total of 135 000 options. In February, the Board approved the performance criteria and allocation principles of the share-based incentive plan for 2008. The President and CEO is entitled to a maximum of 6 000 shares and other Corporate Management Team members to a total of 20 900 shares if the set performance criteria are met. Transactions with associated companies are not considered to be material. Shares and options On 20 December 2007, TietoEnator's Board of Directors decided to cancel 1 935 000 own shares that were acquired by the company in 2007. The cancellation of these shares was registered in the Trade Register on 9 January. At the end of March, the total number of shares amounted to 72 023 173 and the share capital to EUR 75 841 523. TietoEnator has 361 650 shares in its possession. The outstanding number of shares, excluding the shares in the company's possession, was 71 661 523 at the end of March. In the first quarter, TietoEnator converted a total of 153 450 2006A and 2006B stock options, which are in the possession of TietoEnator Corporation, into 2006C stock options. Nordic Capital's offer for TietoEnator's shares Cidron Services Oy has made an offer for all the outstanding shares and stock options in TietoEnator. Cidron Services is a company indirectly owned by the Fund VI of Nordic Capital. The offered price per share is EUR 15.00 and EUR 0.01 per stock option payable in cash. The offer period is expected to close on 28 April 2008. TietoEnator's Board of Directors will publish its statement and recommendation to shareholders concerning the offer not later than five working days before the offer period ends, as required by the Securities Market Act in Finland. This timing allows shareholders to review the statement and the quarterly report thoroughly before making decisions concerning their ownership in TietoEnator. The preliminary view of the Board is that the offer does not reflect the true value of TietoEnator, its revised strategy and the Performance Improvement Programme. Events after the reporting period TietoEnator has entered into an agreement on acquiring the shares of Primasoft Oy, a joint venture owned by TietoEnator (60%), Sampo Plc (20%) and Sampo Bank/Danske Bank (20%). TietoEnator now owns the entire share capital of Primasoft. In 2007, Primasoft Oy's net sales amounted to approximately EUR 62 million. Risks and uncertainties Potential economic slow down and the availability and the cost of resources are the main near-term risks. Increasing salary levels combined with unchanged price levels resulting from a more commoditized market and offshore competition are putting pressure on margins. On top of these, customers' demands for tighter contract terms and the ability to control challenging deliveries are TietoEnator's near-term risks. A comprehensive description of risk management is available in the Annual Review 2007. Prospects for 2008 TietoEnator expects the IT market to remain active. The turbulence in the financial markets has created some uncertainty for development in 2008. Price pressures exist, but on average, prices are expected to stay approximately on the same level or be higher than in 2007. TietoEnator expects the labour market to remain active also in 2008. A major part of the actions related to TietoEnator's Performance Improvement Programme will take place during 2008. The costs related to these actions have impacted and will continue impact TietoEnator's profitability during 2008. The positive impacts of the Performance Improvement Programme will start to materialize during the second half of 2008. TietoEnator expects its full-year revenue growth in 2008 to follow the overall development in the relevant market. The estimate does not include divestments or closures of businesses. TietoEnator is pursuing the full turnaround of the company by the end of 2009. The revised strategy, the Performance Improvement Programme and the actions taken so far will have a positive impact on the company's profitability in the future. Financial calendar in 2008 Interim report for January-June 2008 on 18 July Interim report for January-September 2008 on 28 October The interim report has been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the EU. The accounting policies adopted are consistent with those used in the annual financial statements for the year ended 31 December 2007 and as described in the annual financial statements. The figures in this report are unaudited. Key figures 2008 2007 2007 1-3 1-3 1-12 Earnings per share, EUR - basic 0.23 0.33 -0.44 - diluted 0.23 0.33 -0.44 Earnings per share, EUR 1) 0.36 0.30 0.77 Equity per share, EUR 6.29 7.70 6.67 Return on equity rolling 12 month, % -7.7 17.5 -5.7 Return on capital employed rolling 12 month, % 7.2 21.8 7.8 Equity ratio % 38.0 44.5 40.2 Net interest-bearing liabilities, EUR million 139.7 72.6 164.5 Gearing, % 31.0 12.9 34.4 Investments, EUR million 36.2 27.3 87.7 1) Excluding one-off items related to the Performance Improvement Programme, goodwill impairments and capital gains and losses. Income statement, EUR million 2008 2007 change 2007 1-3 1-3 % 1-12 Net sales 468.3 442.2 6 1 772.4 Other operating income 4.5 4.6 -2 13.3 Employee benefit expenses 277.0 253.3 9 1 021.3 Depreciation and amortization 16.3 16.0 2 77.0 Impairment of goodwill - - 40.0 Other operating expenses 154.9 143.0 8 646.2 Share of associated companies' result 0.0 0.0 0.1 Operating profit (EBIT) 24.6(1) 34.5 -29 1.3 Net interest expenses -2.3 -1.5 53 -7.1 Net exchange losses/gains -1.4 -0.5 180 -0.7 Other financial income and expenses 0.8 -0.1 -900 -2.1 Profit before taxes 21.7 32.4 -33 -8.6 Income taxes -5.4 -8.3 -35 -22.6 Net profit for the period 16.3 24.1 -32 -31.2 Net profit for the period attributable to Shareholders of the parent company 16.2 24.0 -33 -32.3 Minority interest 0.1 0.1 0 1.1 16.3 24.1 -32 -31.2 1) Including one-off items of EUR 13.1 million related to the Performance Improvement Programme. Earnings attributable to the shareholders of the parent company per share, EUR Basic 0.23 0.33 -30 -0.44 Diluted 0.23 0.33 -30 -0.44 Employee benefit expenses include rental payments on company cars and non-statutory employee benefits, such as meals, healthcare and leisure time activities. The result-based bonuses were EUR 6.5 million (4.5 previous year) and stock option expenses (share based payments) were EUR 1.3 million (0.5). Number of shares 2008 2007 2007 1-3 1-3 1-12 Outstanding shares, end of period Basic 71 661 523 73 596 462 71 661 523 Diluted 71 661 523 73 654 512 71 661 523 Outstanding shares, average Basic 71 661 523 73 596 462 72 941 089 Diluted 71 661 523 73 654 512 72 941 089 Company's possession of its own shares, End of period 361 650 500 000 2 296 650 Average 531 760 965 333 1 203 733 Balance Sheet, EUR million 2008 2007 change 2007 31 March 31 March % 31 Dec Goodwill 415.9 451.8 -8 415.7 Other intangible assets 62.5 82.2 -24 66.4 Property, plant and equipment 92.2 86.8 6 76.8 Deferred tax assets 64.2 71.9 -11 66.4 Investments in associated companies 1.7 2.2 -23 1.6 Other non-current assets 1.5 1.4 7 1.5 Total non-current assets 638.0 696.3 -8 628.4 Trade and other receivables 558.8 536.3 4 560.2 Current income tax receivables 9.7 23.3 -58 9.9 Interest-bearing current assets 11.2 9.8 14 11.3 Cash and cash equivalents 85.0 89.6 -5 72.9 Total current assets 664.7 659.0 1 654.3 Total assets 1 302.7 1 355.3 -4 1 282.7 Share capital, share issue premiums and other reserves 115.6 142.6 -19 115.4 Retained earnings 332.5 417.5 -20 358.2 Parent shareholders' equity 448.1 560.1 -20 473.6 Minority interest 3.0 3.9 -23 4.0 Total Equity 451.1 564.0 -20 477.6 Finance lease liability 16.1 10.5 53 1.4 Other interest-bearing loans 150.1 150.6 0 150.5 Deferred tax liabilities 22.2 20.1 10 23.4 Pension obligations 21.9 43.5 -50 22.0 Provisions 38.7 2.1 1743 35.9 Other non-current liabilities 1.8 3.1 -42 1.7 Total non-current liabilities 250.8 229.9 9 234.9 Trade and other payables 514.4 528.4 -3 461.7 Current income tax liabilities 16.7 22.0 -24 11.6 Interest-bearing loans 69.7 11.0 534 96.9 Total current liabilities 600.8 561.4 7 570.2 Total equity and liabilities 1 302.7 1 355.3 -4 1 282.7 Trade and other payables end of March include EUR 35.8 million (88.3) unpaid dividend. Net working capital in the balance sheet, EUR million 2008 2007 change 2007 31 March 31 March % 31 Dec Accounts receivable 353.4 324.1 9 391.2 Other working capital receivables 204.1 212.2 -4 168.4 Working capital receivables included in assets 557.5 536.3 4 559.6 Operative accruals 230.0 230.9 0 225.4 Other working capital liabilities 244.6 200.4 22 228.6 Pension obligations and provisions 60.6 45.7 33 57.9 Working capital liabilities included in current liabilities 535.2 477.0 12 511.9 Net working capital in the balance sheet 22.3 59.3 -62 47.7 The change in net working capital in the balance sheet does not equal to that in the cash flow due to acquisitions and disposals. Cash flow, EUR million 2008 2007 2007 1-3 1-3 1-12 Cash flow from operations Net profit 16.3 24.1 -31.2 Adjustments Depreciation, amortization and impairment 16.3 16.0 117.0 Share of associated companies' result 0.0 0.0 -0.1 Share-based payments 0.8 0.5 2.3 Profit/loss on sale of fixed assets and shares 0.0 -1.7 0.0 Other adjustments 0.0 -0.2 1.3 Net financial expenses 2.9 2.1 9.9 Income taxes 5.4 8.3 22.6 Change in net working capital 20.7 -6.8 8.4 Cash generated from operations 62.4 42.3 130.2 Net financial expenses paid 0.8 -1.7 -4.6 Income taxes paid 1.4 -1.8 -9.9 Net cash flow from operations 64.6 38.8 115.7 Cash flow from investing activities Acquisition of Group companies and business operations, net of cash acquired -8.0 -9.3 -28.3 Capital expenditures -14.5 -12.1 -48.6 Disposal of business operations and associated company - 1.9 4.6 Other investing activities 0.1 0.4 8.0 Net cash used in investing activities from operations -22.4 -19.1 -64.3 Cash flow from financing activites Dividends - -0.2 -88.5 Repurchase of own shares - - -32.1 Payment of finance lease liabilities -0.9 -2.2 -12.1 Change in interest-bearing liabilities -27.5 -69.2 17.1 Change in loan receivables 0.0 -0.2 -1.2 Net cash used in other financing activities -1.4 3.2 0.5 Net cash used in financing activities from operations -29.8 -68.7 -116.3 Change in cash and cash equivalents 12.4 -49.0 -64.9 Cash and cash equivalents at beginning of period -72.9 -138.9 -138.9 Foreign exchange differences 0.3 0.3 1.1 Cash and cash equivalents at end of period 85.0 89.6 72.9 12.4 -49.0 -64.9 Statement of changes in Shareholders' equity Parent shareholders' equity Minority Total interest equity Share issue Trans- premiums lation and Share other Own diffe- Retained EUR million capital reserves shares rences earnings Balance at 31 Dec 2006 75.8 68.8 -52.3 -6.6 536.7 4.0 626.4 Translation difference -2.0 -4.7 8.3 1.6 Minority interest -0.2 -0.2 Cancellation of own shares 39.9 -39.9 0.0 Share based payments recognized against equity 0.4 0.4 Dividend -88.3 -88.3 Net profit for the period 24.0 0.1 24.1 At 31 March 2007 75.8 66.8 -12.4 -11.3 441.2 3.9 564.0 Balance at 31 Dec 2007 75.8 39.6 -41.1 -12.5 411.8 4.0 477.6 Translation difference 0.2 -8.2 1.1 -6.9 Minority interest -1.0 -1.0 Cancellation of own shares 32.1 -32.1 0.0 Share based payments recognized against equity 1.0 1.0 Dividend -35.8 -35.8 Net profit for the period 16.2 16.2 At 31 March 2008 75.8 39.8 -9.0 -20.7 362.2 3.0 451.1 Net sales by business area, EUR million (primary segment) 2008 2007 Change 2007 1-3 1-3 % 1-12 Banking & Insurance 76 78 -3 293 Telecom & Media 173 161 8 664 Government, Manufacturing & Retail 50 50 1 184 Healthcare & Welfare 36 35 5 141 Forest & Energy 44 45 -1 177 Processing & Network 114 98 17 409 Group elimination incl other -26 -24 9 -96 Group total 468 442 6 1772 Country sales, EUR million (secondary segment) 2008 Change Share 2007 Share 2007 Change 1-3 % % 1-3 % 1-12 % Finland 218 10 46 197 45 802 7 Sweden 131 8 28 121 27 495 9 Germany 35 -9 8 39 9 152 23 Norway 23 31 5 17 4 88 8 Great Britain 13 -12 3 14 3 55 15 Denmark 9 -54 2 19 4 26 -49 Italy 8 65 2 5 1 31 84 Netherlands 7 17 1 6 1 23 -7 France 6 8 1 6 1 24 32 Other 19 5 4 18 4 78 1 Group total 468 6 100 442 100 1772 8 Net sales by industry segment, EUR millio n 2008 Change Share 2007 Share 2007 Change 1-3 % % 1-3 % 1-12 % Banking and insurance 104 1 22 103 23 390 4 Public 71 9 15 65 15 273 -7 Telecom and media 167 8 36 155 35 650 26 Forest 22 5 5 21 5 84 -4 Energy 28 23 6 23 5 100 27 Manufacturing 25 7 5 24 5 99 11 Retail & Logistics 29 39 6 21 5 89 1 Other 21 -29 5 30 7 87 -29 Group total 468 6 100 442 100 1772 8 Operating profit (EBIT), EUR million 2008 2007 Change 2007 1-3 1-3 % 1-12 Banking & Insurance 5.9 5.6 5.7 -53.3 Telecom & Media 6.6 14.8 -55.1 53.2 Government, Manufacturing & Retail 2.8 5.0 -43.1 -6.1 Healthcare & Welfare 0.5 1.2 -57.4 -5.2 Forest & Energy 4.2 3.6 18.4 8.5 Processing & Network 11.8 8.4 40.3 32.8 Business areas 31.9 38.5 -17.2 29.9 Group operations incl other -7.3 -3.9 84.7 - 31.5 Group capital gain 0.0 0.0 2.9 Operating profit (EBIT) 24.6 34.5 -28.8 1.3 Operating profit, EUR million excl capital gains/losses, impairment losses and Performance Improvement Programme related costs 2008 2007 Change 2007 1-3 1-3 % 1-12 Banking & Insurance 7.0 5.6 25.4 1.7 Telecom & Media 13.6 14.8 -8.5 58.9 Government, Manufacturing & Retail 4.7 5.0 -6.6 11.2 Healthcare & Welfare 0.9 -0.6 259.8 3.2 Forest & Energy 3.8 3.6 6.6 13.2 Processing & Network 13.7 8.4 63.5 38.8 Business areas 43.7 36.8 18.5 126.9 Group operations incl other -6.0 -3.9 52.4 - 19.3 Operating profit (EBIT), excl capital gains/losses, impairment losses and Performance Improvement Programme related costs 37.6 32.8 14.7 107.6 Operating margin (EBIT), % 2008 2007 Change 2007 1-3 1-3 1-12 Banking & Insurance 7.8 7.1 0.7 -18.2 Telecom & Media 3.8 9.2 -5.4 8.0 Government, Manufacturing & Retail 5.6 10.0 -4.4 -3.3 Healthcare & Welfare 1.4 3.3 -2.0 -3.7 Forest & Energy 9.5 8.0 1.5 4.8 Processing & Network 10.3 8.6 1.7 8.0 Business areas 6.8 8.7 -1.9 1.7 Operating margin (EBIT) 5.3 7.8 -2.6 0.1 Operating margin (EBIT), % excl capital gains/losses, impairment losses and Performance Improvement Programme related costs 2008 2007 Change 2007 1-3 1-3 1-12 Banking & Insurance 9.2 7.1 2.1 0.6 Telecom & Media 7.8 9.2 -1.4 8.9 Government, Manufacturing & Retail 9.3 10.0 -0.7 6.1 Healthcare & Welfare 2.5 -1.6 4.1 2.3 Forest & Energy 8.6 8.0 0.6 7.4 Processing & Network 12.0 8.6 3.4 9.5 Business areas 9.3 8.3 1.0 7.2 Operating margin (EBIT), excl capital gains/losses, impairment losses and Performance Improvement Programme related costs 8.0 7.4 0.6 6.1 Personnel by business area (primary segment) End of period Average 2008 Change Share 2007 2007 2008 2007 1-3 % % 1-3 1-12 1-3 1-3 Banking & Insurance 2 118 - 6 13 2 244 2 180 2 145 2 233 Telecom & Media 5 952 11 36 5 351 5 990 5 994 5 268 Government, Manufacturing & Retail 1 528 - 3 9 1 581 1 542 1 538 1 575 Healthcare & Welfare 1 105 4 7 1 067 1 114 1 106 1 069 Forest & Energy 1 271 0 8 1 274 1 274 1 276 1 275 Processing & Network 2 125 3 13 2 059 2 124 2 122 2 032 Software Centres 1 679 60 10 1 047 1 548 1 641 1 011 Other Group Operations 574 3 4 558 553 567 562 Group total 16 351 8 100 15 182 16 324 16 391 15 026 From Jan 2008, 12 persons were moved from Government, Manufacturing & Retail to Forest & Energy. Figures for 2007 have been restated. The change had minor effect on Net sales and EBIT 2007 in the business areas. Personnel by country (secondary segment) End of period Average 2008 Change Share 2007 2007 2008 2007 1-3 % % 1-3 1-12 1-3 1-3 Finland 6 226 1 38 6 185 6 357 6 290 6 183 Sweden 3 347 0 20 3 347 3 381 3 366 3 332 Germany 1 304 - 5 8 1 370 1 325 1 307 1 360 Czech 1 265 48 8 853 1 186 1 250 823 Norway 686 - 7 4 741 720 697 751 India 632 138 4 265 594 616 263 Latvia 570 4 3 549 551 567 546 Poland 447 57 3 284 393 431 245 Great Britain 337 7 2 315 327 333 312 Denmark 324 3 2 314 344 334 280 Italy 240 7 1 224 233 241 204 China 154 105 1 75 124 144 72 Netherlands 137 41 1 97 137 135 94 Lithuania 137 47 1 93 125 135 89 France 130 8 1 120 129 130 117 Estonia 113 10 1 103 119 118 107 Other 303 23 2 247 280 297 248 Group total 16 351 8 100 15 182 16 324 16 391 15 026 The personnel figures for the associated companies under TietoEnator's management responsibility are reported according to our holding. Personnel figures including these associated companies to 100% give a total of 16 690 (15 580) at the end of the period. Total assets by business area, EUR million (primary segment) 2008 2007 Change 2007 31 Mar 31 Mar % 31 Dec Banking & Insurance 212.3 267.2 -21 215.8 Telecom & Media 471.0 427.5 10 474.9 Government, Manufacturing & Retail 53.4 65.2 -18 51.2 Healthcare & Welfare 89.7 88.6 1 96.0 Forest & Energy 114.2 118.9 -4 116.8 Processing & Network 192.1 178.8 7 178.1 Group elimination -23.0 -24.6 -6 -21.9 Business areas 1 109.6 1 121.6 -1 1 110.9 Group Operation 193.1 233.7 -17 171.8 Total assets 1302.7 1355.3 -4 1282.7 Total liabilities by business area, EUR million (primary segment) 2008 2007 Change 2007 31 Mar 31 Mar % 31 Dec Banking & Insurance 134.4 103.4 30 127.6 Telecom & Media 181.4 173.8 4 187.5 Government, Manufacturing & Retail 41.7 42.3 -1 49.4 Healthcare & Welfare 40.8 34.5 18 44.3 Forest & Energy 74.2 65.3 14 72.1 Processing & Network 89.1 68.8 29 64.4 Group elimination - 22.3 -18.0 24 -17.3 Business areas 539.4 470.1 15 528.1 Group Operation 312.2 321.2 -3 277.0 Total liabilities 851.6 791.3 8 805.1 Segment assets by country, EUR million (secondary segment) 2008 2007 Change 2007 31 Mar 31 Mar % 31 Dec Finland 365.4 320.4 14 348.4 Sweden 318.9 337.2 -5 333.8 Norway 92.0 100.7 -9 94.7 Germany 160.0 178.3 -10 160.9 Great Britain 43.7 90.5 -52 45.7 Other 129.6 94.6 37 127.5 Business areas 1 109.6 1 121.6 -1 1 110.9 Depreciation, EUR million 2008 2007 Changes 2007 1-3 1-3 % 1-12 Processing & Network 9.9 8.9 12 40.0 whereof Finland 8.2 7.4 10 34.1 Sweden 1.5 1.2 27 4.9 Other countries 0.2 0.2 -6 0.9 Other 3.9 4.7 -17 27.2 Group total 13.8 13.6 2 67.2 Amortization on allocated intangible assets from acquisitions, EUR million 2008 2007 Changes 2007 1-3 1-3 % 1-12 Telecom & Media 1.5 1.2 20 5.3 Other 1.0 1.2 -19 4.5 Group total 2.5 2.5 0 9.8 Impairment losses, EUR million 2008 2007 Change 2007 1-3 1-3 % 1-12 Banking & Insurance 0.0 0.0 - 40.0 Group total 0.0 0.0 - 40.0 Capital expenditure by business area, EUR million 2008 2007 Change 2007 1-3 1-3 % 1-12 Processing & Network 24.9 7.4 236 36.1 whereof Finland 22.4 5.6 300 29.7 Sweden 2.5 1.7 47 6.4 Other countries 0.0 0.0 - 0.0 Other 5.2 4.7 11 16.8 Group total 30.1 12.1 149 52.9 2008 2007 Commitments and contingencies, EUR million 31 March 31 Dec change % For TietoEnator obligations Pledges - - On behalf of joint ventures Guarantees 1.8 1.8 0 Other TietoEnator obligations Rent commitments due in one year 58.8 56.0 5 Rent commitments due in 1-5 years 126.7 129.4 -2 Rent commitments due after 5 years 24.1 25.6 -6 Operating lease commitments due in one year 24.6 9.3 165 Operating lease commitments due in 1-5 years 15.5 15.0 4 Operating lease commitments due after 5 years 0.0 0.0 Other commitments 1) 18.4 53.7 -66 Operating lease commitments are principally three-year lease agreements, that do not include buyout clauses. 1) Including in 2007 commitment mainly for purchase of hardware and software. In 2008 the commitment is presented in finance lease liabilities and operating lease commitments. Notional amounts of derivative financial 2008 2007 instruments, EUR million 31 March 31 Dec Foreign exchange contracts 195.6 249.1 Interest rate swaps 100.0 100.0 Includes the gross amount of all notional values for contracts that have not yet been settled or closed. The amount of notional value outstanding is not necessarily a measure or indication of market risk, as the exposure of certain contracts may be offset by that of other contracts. Fair values of derivatives, EUR million 2008 2007 The net fair values of derivative financial instruments at the balance sheet date were: 31 March 31 Dec Foreign exchange contracts -1.8 2.8 Interest rate swaps -1.0 -2.0 Derivatives are used for hedging purposes only. On-going legal disputes TietoEnator has an ongoing VAT disupute with the Finnish tax authorities concerning a sum of EUR 3.2 million. Certain other old legal disputes are also ongoing; as these are minor and insubstantial, no provisions have been made for them. Contingent assets The Finnish tax authorities have confirmed an additonal loss EUR 41.0 million (of which a deferred tax asset EUR 10.7 million could be recognized) on the loss incurred by the parent company in connection with the intra-group transaction carried out in April 2004, but the decision has been contested. Major shareholders 31 March 2008 Shares % 1 OP funds 2 990 315 4.2% 2 Didner & Gerge Aktiefond 2 335 000 3.2% 3 Swedbank Robur fonder 1 854 956 2.6% 4 Svenska Litteratursällskapet i Finland 1 404 000 1.9% 5 The State Pension fund 1 300 000 1.8% 6 Varma Mutual Pension Insurance Co. 1 042 180 1.4% 7 Skandinaviska Enskilda Banken AB 1 042 022 1.4% 8 Ilmarinen Mutual Pension Insurance Co. 1 005 751 1.4% 9 ABN Amro funds 832 098 1.2% 10 Danske funds 824 300 1.1% Nominee registered 45 751 015 63.5% Others 11 641 536 16.2% Total 72 023 173 100.0% Based on ownership records of the Finnish and Swedish central security depositories. In March Goldman Sachs Group, Inc. announced that its holding in TietoEnator Corporation had increased to 7 348 699 shares, which represents 10.20% of the share capital and voting rights. TIETOENATOR CORPORATION For further information: Hannu Syrjälä, President and CEO, TietoEnator, tel. +358 9 862 63020, hannu.syrjala@tietoenator.com Åke Plyhm, Deputy CEO, TietoEnator, tel. +46 10 481 3321, +46 705 65 86 31, ake.plyhm@tietoenator.com Reeta Kaukiainen, EVP, Communications and Investor Relations, TietoEnator, tel. +358 9 8626 3276, +358 50 5220924, reeta.kaukiainen@tietoenator.com Press conference for analysts and media will be held in Helsinki, Radisson SAS Royal Hotel, Runeberginkatu 2, cabinet Tallinn, at 3.00 pm EET (2.00 pm CET, 1.00 pm UK time). The results will be presented in English by Hannu Syrjälä, President and CEO. The conference will be webcast and published live on TietoEnator's website www.tietoenator.com/conferences and materials and there will be a possibility to present questions on-line. An on-demand video will be available after the conference. Conference call hosted by the management starting at 5.00 pm EET, (4.00 pm CET, 3.00 pm UK time) will also be available as live audio webcast on www.tietoenator.com/conferences and materials. Callers may access the conference directly at the following telephone numbers: US callers: +1 866 966 5335, non-US callers: +44 20 3023 4402, no code. Lines are to be reserved ten minutes before start of conference call. An on-demand audiocast of the conference will also be published on TietoEnator's website later during the day. A replay will be available until 23 April 2008 in the following numbers: US callers: +1 866 583 1035, non-US callers: +44 20 8196 1998, access code: 141833#. TietoEnator publishes financial information in English, Finnish and Swedish. All releases are posted in full on TietoEnator's website www.tietoenator.com as soon as they are published. TietoEnator is among the leading architects in building a more efficient information society and one of the largest IT services providers in Europe. TietoEnator specializes in consulting, developing and hosting its customers' business operations in the digital economy. The Group's services are based on a combination of deep industry-specific expertise and the latest information technology. TietoEnator has about 16 000 experts in close to 30 countries. www.tietoenator.com DISTRIBUTION Helsinki Stock Exchange Stockholmsbörsen Principal Media TietoEnator Corporation Business ID: 0101138-5 Kutojantie 10 PO Box 33 FI-02631 ESPOO, FINLAND Tel +358 9 862 6000 Fax +358 9 862 63091 Registered office: Espoo Kronborgsgränd 1 SE-164 87 KISTA, SWEDEN Tel +46 8 632 1400 Fax +46 8 632 1420 mail: info@tietoenator.com www.tietoenator.com http://hugin.info/3114/R/1209005/250200.pdf Copyright © Hugin AS 2008. All rights reserved.
TietoEnator Corp. : interim report 1/2008 (January - March 2008) - Good start for 2008; operating margin improved to 8%
April 16, 2008 at 07:01 am EDT
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