Tieto Corporation · OMXHEX:TIETO
Tieto — Investor Day (May 2014)
70 slides from Tieto's investor day presentation, May 27, 2014
Slide 1: Tieto Capital Market Day 2014
Tieto Capital Market Day 2014
Slide 2: Table of contents
Table of contents Chapter 2: Re-orienting for growth Kimmo Alkio Focus on value creation Lasse Heinonen Driving customers’ business change Ari Karppinen Digital Customer Experience driving growth Satu Kiiskinen Industry products creating sustainable value Per Johanson Expanding customer base through
Slide 3: Programme
Programme 27 May 2014 Tieto office, Helsinki 12:30 Lunch 13:15 Welcome and opening Chapter 2: Reorienting for growth, Kimmo Alkio Focus on value creation, Lasse Heinonen 15:00 Coffee break 15:15 Driving customers’ business change, Ari Karppinen Digital Customer Experience driving growth, Satu Kiiski
Slide 4: Tieto Capital Market Day participants
Tieto Capital Market Day 27 May 2014 Tieto office, Helsinki Participants Company Petri Anttila Nordea John Burke Silchester International Investors Suad Cehajic Shareholder Value Management Bengt Dahlström Swedbank Jan De Jaeck ING Bank Mikko Ervasti Evli Bank Tal Grant UBS Truls Haugen Odin Förvalt
Slide 5: Chapter 2: Reorienting for growth
Chapter 2: Reorienting for growth Kimmo Alkio President and CEO 1 Summary: Solid execution of strategy • Growth ambition above market • Steadily progressing to 10% profitability • Significant resource and competence shift upcoming • Identity renewal 2
Slide 6: Market opportunities and Tieto's strategy
We are committed to develop enterprises and society through information technology Our services We continue to support invest more than operations that EUR 100 million* are critical for annually in the whole technology society Over 14 000 IT Recognized for professionals our achievements of which 800
Slide 7: Changes in human behaviour and technology driving industry disruption
Changes in both human behaviour and technology driving industry disruption Global Real time market Mobile Cloud place Behavioural Technology change disruption Customized Analytics Networked Social experience New normal for efficiency “Innovate or vanish” Higher clock speed 5 Digitalization is centre
Slide 8: Customer experience is driving financial performance and technology investments
Customer experience is driving financial performance and hence technology investments Delivered • 30% more cumulative returns than S&P 500 Key • Higher Net Promoter Score Customer measures • Lower customer churn experience CX-related IT • Lead-to-cash conversion rates companies spend to be • Time-to
Slide 9: The strategy (2012) continues to build competitiveness
The strategy (2012) continues to build competitiveness Strategy Choices • Preferred business and IT transformation Reinforcing industry expertise partner for enterprises and the public sector Building on our long customer Industries relationships and customer core • Leading full lifecycle IT service
Slide 10: Current state
Current state We are currently on track with the execution EBIT excl. one-off items Expand full lifecycle 10% IT services in core 9% markets 8% Qualify and build 7% Transition to industry future core markets 6% -driven structure Product 5% Accelerate CSI Development 4% expansion and MS Services purs
Slide 11: Way forward
Tieto’s transformation progressed as planned 2012 2016 ambition CSI success Slow start now on track Expanding to provide full MS automation On track lifecycle IT services Investments in place – initial New services and success with cloud alliances Industry-specific solution packaging Continued good
Slide 12: Basics are in place and ready for next chapter
Basics are in place and ready for next chapter while managing volatility remains 2016+ Expand markets 2015 Accelerate growth Expand proven growth portfolio bets beyond the Nordics 2014 New growth bets e.g. IPR Reorienting 2013 for growth Scale growth businesses – CEM, Execute the Industrial internet
Slide 13: We drive our service portfolio to match customer needs
We drive our service portfolio to match customer needs Quality and reliability Efficiency Business results New services & industry vertical solutions CSI Customer IP Lifecare Experience Current Consolidated Management application application operations operations Forest solutions Industrial Applicat
Slide 14: Investments focused on growth bets, cloud services and modernization
Our investments are focused on growth bets, cloud services and modernization Big and high growth market in the Nordics by 2020 CAGR ~20%, EUR >5B CAGR ~50%, EUR >5B CAGR >4%, EUR ~1B Customer Industrial Experience Lifecare Internet Management Creating competitive Supporting Leading Nordic advantage
Slide 15: PDS customer base expansion and scale
PDS customer base expansion and scale continue to be priorities, while managing efficiency vs demand Domain Semiconductor Mobile devices & Telecom infrastructure focus companies Consumer electronics Radio infrastructure and Devices and service small cells creation Core networks Technology Cloud and
Slide 16: Recruitment for growth businesses and higher offshoring
Recruitment for growth businesses and higher offshoring improves competitiveness Key drivers Competence and resource mix 100% • Develop/recruit new roles e.g. 80% architects, industry experts, project 60% Industry products managers, usability experts, 40% CSI software development and product 20% Man
Slide 17: Financial objectives – dividend policy updated
Financial objectives – dividend policy updated 10% 8.8% Target 7.6% 2016 6.3% 6.4% 6.4% 5.3% 5% 5.4% 3.5% 4.4% 4.2% 10% EBIT margin*) by 2016 0% 2009 2010 2011 2012 2013 2014 2015 2016 EBIT margin excl. one-off items EBIT margin Aim to increase 200% 80 +7% +39% +8% +11% dividends annually in 150% 10
Slide 18: Focus on value creation
Focus on value creation Lasse Heinonen CFO 4/11/14 Tieto Corporation Summary: Attractive shareholder returns • Growth by focusing on emerging services • Competitive cost structure, business mix change and industrialization of services as profit improvement drivers • Healthy cash flow profile and str
Slide 19: Financial facts
Financial facts Customer sales in 2013*): EUR 1607 million Sales by Service Line Managed Services 31% EBIT margin excl. one-off items**): 8.8% Consulting and System Integration 25% Tieto’s market position: Industry Products 26% #1 in Finland Product Development #2 in Sweden Services 18% #7 in Norway
Slide 20: Nordic IT services market expected to grow
Nordic IT services market expected to grow 10% 8% 6% 4% 2% 0% 2008 2009 2010 2011 2012 2013 e2014 e2015 Project services -2% Outsourcing services -4% -6% Nordic GDP growth -8% -10% Source: Nordic IT Services Spending by Services Market, Country, and Vertical Industry, 2012–2017; IDC, 2014 5 Forecast
Slide 21: Value creation: focus on profitable growth
Focus on profitable growth High-growth offerings TSR 2012–2014 Cloud Up by 97% Growth Application and infra Median for the reference modernization group, comprising Selected industry products selected IT services companies: up by 58% New customers and markets Total Cost structure Steady performance
Slide 22: Business mix and cost structure
What was said in 2012 and where are we today? 2012 2016 Profit drivers ambition Competitive cost structure Improved productivity and utilization rate Business mix More focused operations Restructuring of non-profitable businesses Full lifecycle IT services More integrated and efficient use of assets
Slide 23: More focus in operations achieved
More focus in operations achieved Share of net sales (based on country EBIT) 2012 Current EBIT margin EBIT margin More than 10% More than 10% Range of 5–10% Range of 5–10% Range of 0–5% Range of 0–5% Loss-making Loss-making 11 Share of the high-margin businesses is expected to increase Service Lines
Slide 24: Quality costs decreasing, offshoring increasing
Quality costs gradually decreasing # of incidents down by 22% during the past 12 months System downtime decreased to new levels – clearly less than half of the downtime one year ago Project overruns show improving trend – still room for improvement 13 Offshoring gradually increasing Offshore rate at
Slide 25: Ambition by Service Line and 10% EBIT bridge
Ambition by Service Line Managed Services Consulting and System Integration Tieto target Tieto target profitability 2016 profitability 2016 2016 2016 2013 2013 Average market growth Average market growth Industry Products Product Development Services Tieto target 2016 Tieto target 2013 profitability
Slide 26: Reskilling, recruitments and restructuring
Reskilling, recruitments and restructuring needed to drive competitiveness Emerging, Traditional IT cloud Industrialization and new technologies based IT 100% drive competence transformation and efficiency improvement in the long term 34% 73% New roles 80% Drivers for restructuring 60% Traditional •
Slide 27: Cash flow and balance sheet
Value creation Cash flow and balance sheet 19 Healthy cash flow profile Healthy cash flow profile enables good dividends and increase in investments Cash flow totalling EUR 154 million in 2013 MEUR % Cash flow % of net sales 200 10 9.5 8.9 Investing activities 8.3 8 150 7.4 6.7 6 100 Dividends 4 50
Slide 28: Capital expenditure and increasing dividend trend
Capital expenditure less than annual depreciation MEUR Capital expenditure % of net sales % MEUR 150 100 150 Capital expenditure Depreciation % of cash flow 84 70 80 100 100 60 46 44 39 40 50 100 104 50 58 63 68 20 3.4 5.8 5.7 3.4 4.3 58 71 100 71 104 91 63 85 68 82 0 0 0 2009 2010 2011 2012 2013 20
Slide 29: Optimal capital structure
Optimal capital structure 1.5 1.0 0.5 0.4 0.5 0.3 0.2 0.1 0.0 2009 2010 2011 2012 2013 Net Debt/EBITDA Balance sheet efficiency • Net debt/EBITDA to be maintained below 1.5 in the long run • Currently over EUR 200 million debt capacity • Investments incl. M&A • Target to retain investment grade shad
Slide 30: Tieto. Changing perspectives.
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.
Slide 31: Managed Services
Driving customers’ business change Managed Services Ari Karppinen 1 Managed Services Customer sales in 2013*: EUR 492 million Sales by Industry Group EBIT margin excl. one-off items**: 4.3% Financial Services Public, Healthcare & Welfare Market position: Manufacturing, Retail & Logistics #1 in Finla
Slide 32: Customer priorities drive our IT solution portfolio choices
Customer priorities drive our IT solution portfolio choices Quality and reliability Efficiency Business results New services & industry vertical solutions CSI Customer IP Lifecare Experience Current Consolidated Management application application operations operations Forest solutions Industrial App
Slide 33: Industry dynamics open up new opportunities
Industry dynamics open up new opportunities for clients and IT vendors Business drivers are changing • Cost savings still comprise a major driver • Service quality and the business benefits become more important • IT budget shift from capital expenditure (Capex) to operating expenditure (Opex) Custo
Slide 34: Differentiation through new innovative services
Differentiation through new innovative services Leading cloud portfolio and services • Established vision and roadmap in combination with private/hybrid cloud services • Transformation services and change expertise • Innovation together with partners and customers • Over 90 cloud customers • Canniba
Slide 35: New innovation driving Tieto up the value chain
Ability to adjust Driving business Centralized IT delivery capacity in response to change with and operations fluctuations in demand IT transformation Scalable . ERP platform according to Reduce time to market Improve cost efficiency usage and needs of IT services Moving legacy IT to Renewal of enti
Slide 36: Industrialization and automation driving customer experience
Industrialization and automation driving customer experience, efficiency and quality Automation Customer Experience • Overall target to improve overall productivity by • Seamless and real-time user experience >25% by 2016 • Easy to consume services thru one digital channel • 30–50% of manual work in
Slide 37: Performance driven by cloud services and automation
Performance is driven by growth of cloud services and automation Managed Services Revenue drivers + Competitive cloud services driving double digit growth + Infrastructure modernization Tieto target - Traditional infra price erosion profitability 2016 2016 Cost drivers + Automation driving efficienc
Slide 38: Digital Customer Experience driving growth
Digital Customer Experience driving growth Consulting and System Integration Satu Kiiskinen 1 Summary: Digital customer experience driving growth • CSI business advancing through focus on customer experience management solutions • Demand of simplification of core applications providing a modernizati
Slide 39: Consulting and System Integration
Consulting and System Integration Customer sales in 2013*: EUR 410 million Sales by Industry Group EBIT margin excl. one-off items**: 7.8% Financial Services Public, Healthcare & Welfare Market position: Manufacturing, Retail & Logistics Clear leader in Finland, among top 3 in Sweden Telecom, Media
Slide 40: Digitally empowering the e2e customer journey
Tieto is digitally empowering the e2e customer journey – from vision to value Companies investing in customer experience delivered 30% more cumulative returns than S&P 500 Vision Non-digital customer experience Change and management Strategy and measurement Social Mobile Analytics Cloud Design Build
Slide 41: Customer experience focus needs standardized core applications
Tieto’s Customer Experience Management is a suite of prepackaged solutions integrating multiple technologies CEM consulting Customer Experience orchestration Industry focus Channels Contact Direct Banking center Retail Mobile marketing Uncontr. Web POS / Contact / Emerging (.Net, channels Branch/ Se
Slide 42: Industrialization drives productivity and quality
Further to standardized core applications industrialization drives productivity and quality Reduced Standard processes and tools delivery costs driving 30-40% uplift in productivity Activities grouped by complexity with clear structures and Productivity Quality interfaces Competences and distinct ro
Slide 43: Transformation services modernize application portfolio
Tieto’s transformation services modernize application portfolio and reduce IT costs Customer How we at What the business Tieto helped: customer -55% Up to 55% savings on IT challenge: • Tieto consultants achieved: operational • Large number of created a long-term • Roadmap to reduce expenses within
Slide 44: Growth in CEM drives CSI performance
Growth in CEM and industrialization of traditional AM drives CSI performance CSI Revenue drivers + Customer Experience Management investments + Application modernization + Cross-sell with IP and MS customers Tieto target profitability 2016 - Traditional AM price erosion 2016 - War for talent 2013 Co
Slide 45: Tieto. Changing perspectives.
Tieto. Changing perspectives. 15 28-May-14 Tieto Corporation
Slide 46: Industry Products creating sustainable value
Industry Products creating sustainable value Industry Products Per Johanson 1 Summary: Industry Products creating sustainable value • Industry products are vertical solutions and is the most profitable business in Tieto • IPR differentiates us from the competition and gives us a leadership position
Slide 47: Industry Products
Industry Products Customer sales in 2013*: EUR 416 million Sales by Industry Group EBIT margin excl. one-off items**: 19.9% Financial Services Public, Healthcare & Welfare Manufacturing, Retail & Logistics Market position: Telecom, Media & Energy Leading player in the Nordic Healthcare & Welfare sec
Slide 48: Number one position in the Nordics
Number one position in the Nordics – with a growing global footprint Market share Market position Key competitors Market in the Nordics in the Nordics share /relevant /relevant develop- segment (%) segment ment last year Capital Markets Solutions (incl. >30 #1 Calypso, Wizer, Broadbridge Securities,
Slide 49: Differentiation – product focus, full IT services house
Differentiation – Product focus, empowered by full IT services house • Strong industry expertise and know-how, built up over Value creation thru Tieto’s a long time. Market leadership positions full stack approach • Regional fit, but globally competitive Industry concept Smart Banking (M€ 20 in 2013
Slide 50: Industry Products' high performance to continue
Industry Products’ high performance to continue by moving towards solution suites Industry Products Revenue drivers + Enhanced competitiveness driven through solution suites + Accelerate global products growth e.g. 2016 through partner network Tieto target 2013 + Innovation towards SaaS and cloud pr
Slide 51: Expanding customer base through differentiating services
Expanding customer base through differentiating services Product Development Services Antti Vasara 1 Summary: Building scale and expanding customer base • Good market opportunity in product development services, which is a heavily competed field – insourced R&D is the main competitor • PDS seeking c
Slide 52: Product Development Services
Product Development Services Customer sales in 2013*: EUR 289 million Customers: EBIT margin excl. one-off items**: 6.7% More than 10 new global customers in 2013 – mainly from the USA Top three customers performing over 50% of PDS Market position: business Leading market position in telecom infrast
Slide 53: Ranking of most attractive markets for PDS
Ranking of most attractive markets for Product Development Services Software R&D Growth Automotive Semiconductors 15% Medical Devices 0.8B€ Automation 10% Smart Grids 1.8B€ 5% 3.9B€ Telecoms Consumer Infrastructure Electronics PDS ability 0% to capture Low Medium High market Source: GIA market analy
Slide 54: Sources of differentiation for PDS
Sources of differentiation for PDS • Telecom and embedded SW expertise Technical expertise • Next generation networks, NFV/virtualization, PD cloud, etc. as spearhead competences • Work close to customers with world-class tools & methods Quality and time-to-market • Reputation for high quality and t
Slide 55: PDS challenge: manage demand volatility while expanding
PDS challenge is to manage demand volatility while expanding customer base Product Development Services Revenue drivers + Expansion opportunities in all domains especially with US-based companies + Expansion opportunities with new customers added in 2013 Tieto target profitability 2016 - Insourcing
Slide 56: Financial Services
Expanding with full IT services stack in the Nordics and scalable product business Financial Services Per Johanson 1 Financial Services Customer sales in 2013*: EUR 331 million Sales by Service Line Industry Products CSI Market position: MS Top position in the Nordics/Baltics Growth partly based on
Slide 57: Positive industry and demand drivers
Positive industry and demand drivers Market opportunity Demand driver Needed IT solutions Outsourcing and Cost cutting Profitability cost-efficiency driving (New normal) solutions Consulting and Risk and Regulation Industry specific compliancy solutions Relationship Customer CEM & banking experience
Slide 58: Manufacturing, Forest, Retail, Logistics and Services
Mastering demand supply networks in the Nordics Manufacturing, Forest, Retail, Logistics & Services Ari Järvelä 5 Manufacturing, Forest Retail, Logistic and Services Customer sales in 2013*: EUR 305 million Sales by Service Line Industry Products CSI Market position: Managed Services Market leader i
Slide 59: Key growth drivers
Key growth drivers Market drivers Tieto’s growth opportunities Investments in Change in consumer behavior “systems of engagement” towards ONLINE REAL TIME Supply Chain One day delivery demand management Service business enabled by Seeking product differentiation by industrial internet (M2M) adding I
Slide 60: Key bets capitalizing on Tieto's full stack
Key bets are capitalizing on Tieto’s full stack Offering example: Industrial Internet Vertical approach for Industrial Internet, Industries Manufacturing as a pilot Industry verticals drive Manufacturing Forest Retail Telecom Healthcare modernization Services based on Services industrial need Indust
Slide 61: Public, Healthcare and Welfare
Building an inspiring and caring society Public, Healthcare and Welfare Håkan Dahlström and Arto Ryymin 11 Public, Healthcare and Welfare Customer sales in 2013*: EUR 403 million Sales by Service Line Industry Products CSI Market position: Managed Services Market leader in Government and Healthcare
Slide 62: Key growth drivers and Lifecare
Key growth drivers Market drivers Tieto’s growth opportunities Digitalization and mobility Case Management Solutions IT outsourcing for government Cost pressure combined with very low authorities, county councils and percentage of outsourced IT operations municipalities Industrialization of AM Impro
Slide 63: Telecom, Media and Energy
Infrastructure and application modernization in the Nordics, scalable software globally Telecom, Media & Energy Kolbjorn Haarr 15 Telecom, Media and Energy Customer sales in 2013*: EUR 279 million Sales by Service Line Industry Products Market position: CSI #1 supplier of customer information system
Slide 64: Key growth drivers
Key growth drivers Market drivers Tieto’s growth opportunities Legacy IT solutions for Telcos are Modernize infra and application costly, lacking flexibility and delays portfolio, including CEM solutions time to market for new offerings Decreasing revenues from advertising and dramatically changed c
Slide 65: Tieto. Changing perspectives.
Tieto. Changing perspectives. 19
Slide 66: Tieto speakers in the Capital Market Day
Tieto speakers in the Capital Market Day Kimmo Alkio was born in 1963 in Finland. He holds a BBA degree from Texas A&M University and Executive MBA degree from Helsinki University of Technology. Kimmo joined Tieto in 2011. EXPERIENCE: 2006–2011 F-Secure Corporation, President and CEO 2005–2006 Nokia
Slide 67: Tieto speakers in the Capital Market Day
Tieto speakers in the Capital Market Day Kolbjørn Haarr was born in 1960 in Norway. He holds a MSc. (Eng.) degree from the University of Stavanger. Kolbjørn joined Tieto in 2009. EXPERIENCE: 2012– Tieto, EVP, Central, Eastern Europe and Russia 2009–2012 Tieto, Country Manager & Vice President, Tieto
Slide 68: Tieto speakers in the Capital Market Day
Tieto speakers in the Capital Market Day Ari Karppinen was born in 1957 in Finland, and he holds a MSc. (Eng.) degree. Ari has been working in Tieto since 1987. EXPERIENCE: 2011–2012 Tieto, EVP, Operations and Managed Services and Transformation Business Line 2011 Tieto, President and CEO (acting),
Slide 69: Tieto speakers in the Capital Market Day
Tieto speakers in the Capital Market Day Arto Ryymin was born in 1964 in Finland. He holds a MSc., Information Technology degree. Arto joined Tieto in 1995. EXPERIENCE: 2008− Tieto, Executive Vice President, Healthcare and Welfare 2004−2007 TietoEnator, VP/Senior Vice President, Healthcare & Welfare
Slide 70: Tieto IR contacts
Tieto IR contacts Tanja Lounevirta Head of Investor Relations Phone +358 20 727 1725 Mobile +358 50 321 7510 tanja.lounevirta@tieto.com Jelena Nevdaha IR Specialist Phone +37 16 751 0113 Mobile +37 12 639 0096 jelena.nevdaha@tieto.com Sirpa Salo Executive Assistant Meeting requests until 30 June 201