Financial performance

Full-year net sales amounted to EUR 1 460.1 (1 522.5) million, down by 4.1%. Organically, net sales in local currencies were down by 2.6%. The decline was attributable to large projects that were concluded in Product Development Services, as announced in October 2014. Currency fluctuations had a negative impact of EUR 28 million on sales, mainly due to the weaker Swedish and Norwegian Krona and Russian Ruble. The acquisitions added EUR 17 million in sales, mainly affecting Industry Products, as detailed in the table published on Tieto’s website at www.tieto.com/investors. Divestments had a negative impact of EUR 15 million. In IT services, net sales in local currencies were organically up by 2.7%. 

Full-year operating profit (EBIT) amounted to EUR 125.2 (61.1) million, representing a margin of 8.6% (4.0). Operating profit included EUR 31.7 million in restructuring costs, EUR 6.2 million in capital gains related to the divestment of the Lean System business and a EUR -0.1 million in adjustment for the divestment of the UK forest business in 2013. Operating profit excl. one-off items1) stood at EUR 150.8 (150.2) million, or 10.3% (9.9) of net sales. Operating profit excl. one-off items for IT services amounted to EUR 136.2 (128.5) million.

Tieto increased its investments in growth businesses and profitability was also affected by costs related to the automation programme in Managed Services. Costs, including development and temporary overlapping costs due to the transition related to the automation programme, increased by EUR 15 million in the full year. Currency changes had a negative impact of EUR 9 million on operating profit. The negative effect was mainly attributable to the Swedish and Norwegian Krona and Russian Ruble. The result-based bonus accruals were EUR 29.7 (27.5) million.

Efficiency measures, including cost savings related to the automation programme in Managed Services and industrialization of application management services, had a positive effect of around EUR 30 million on IT services’ operating profit while the positive impact of gross savings was curbed by salary inflation of around EUR 20 million and recruitments in new service areas. Underlying personnel expenses (excl. cost savings and salary inflation) were on the rise in the fourth quarter due to recruitments in emerging service areas. Tieto recruited around 500 new competences during 2015.

In PDS, efficiency measures were taken mainly to align the cost base to the reduction in business volumes.

Depreciation, impairment and amortization amounted to EUR 56.6 (104.0) million. The comparison figure includes goodwill impairment of EUR 39.6 million. Net financial expenses stood at EUR 5.9 (4.5) million in the full year. Net interest expenses were EUR 2.2 (2.8) million and net losses from foreign exchange transactions EUR 2.4 (0.8) million. Other financial income and expenses amounted to EUR -1.3 (-0.9) million.

Full-year earnings per share (EPS) totalled EUR 1.23 (0.48). Earnings per share excluding one-off items 1) amounted to EUR 1.51 (1.56).

Financial performance by service line
EUR million Customer sales 1–12/2015 Customer sales 1–12/2014 Change, % Operating profit 1–12/2015 Operating profit 1–12/2014
Managed Services 511 512 0 29.9 37.6
Consulting and System Integration 398 387 3 30.0 34.9
Industry Products 410 395 4 72.5 68.1
Product Development Services 142 229 -38 15.6 -42.9
Support Functions and Global Management       -22.8 -36.5
Total 1 460 1 522 4 125.2 61.1
Operating margin by service line
% Operating margin
1–12/2015
Operating margin
1–12/2014
Operating margin
excl. one-off items1)
1–12/2015
Operating margin
excl.one-off items1)
1–12/2014
Managed Services 5.9 7.3 9.5 7.5
Consulting and System Integration 7.5 9.0 9.0 9.9
Industry Products 17.7 17.3 16.7 17.8
Product Development Services 11.0 -18.7 10.3 9.5
Total 8.6 4.0 10.3 9,9
 
Organic change in currency by service line
EUR million Customer sales adj. for
acquisitions and currency
1–12/2015
Customer sales adj. for
divestments
1–12/2014
Change, %
Managed Services 518 512 1
Consulting and System Integration 401 387 4
Industry Products 408 394 4
IT services 1 327 1 291 3
Product Development Services 142 216 -34
Total 1 469 1 507 -3

In Managed Services, sales of cloud services continued to grow while the market for traditional services was down. Sales of cloud services were up by 65% and represented 17% of Managed Services' sales. Operating profit excl. one-off items rose to EUR 48.5 (38.4) million, mainly due to the savings related to the automation programme aiming at improving customer experience, competitiveness and efficiency of delivery.

In Consulting and System Integration, the business developed favourably. Demand for Customer Experience Management services, industry consulting and packaged solutions was good while traditional application management experienced price erosion and reduced revenues. Operating profit excl. one-off items amounted to EUR 36.0 (38.3) million, somewhat down due to higher recruitments related to growth businesses and service and competence renewal. Investments are targeted at growth businesses and service delivery industrialization. Savings from personnel reductions related to service delivery industrialization contributed to profitability towards the year end. 

Industry Products saw healthy growth with the strongest development in Financial Services and Healthcare and Welfare, up by 7% and 6%, respectively. Additionally, the acquisition of Software Innovation added around EUR 16 million to sales. Demand in the oil and gas segment was weak and sales declined. Profitability was affected by the increase of EUR 9 million in offering development costs. Investments were targeted mainly at Lifecare and Industrial Internet.

In Product Development Services (PDS), the sales decline was attributable to insourcing by one key customer whose projects ended in the first quarter, as announced in 2014. Business development with the current customer base remained relatively stable. Combined sales to the current largest customers were at the previous year’s level. Furthermore, there is accelerated interest in telecom cloud network function virtualization. Thanks to the increased demand, PDS gained new wins in this area. Efficiency measures undertaken in 2014 resulted in a healthy cost structure for the existing business.

Customer sales by industry group
EUR million Customer sales
1–12/2015
Customer sales
1–12/2014
Change, %
Financial Services 347 335 4
Manufacturing, Retail and Logistics 307 311 -1
Public, Healthcare and Welfare 439 410 7
Telecom, Media and Energy 227 238 -5
IT services 1 318 1 293 2
Product Development Services 142 229 -38
Total 1 460 1 522 -4
 
 
 
Organic change in local currency by industry group
EUR million Customer sales adj. for
acquisitions and currency
1–12/2015
Customer sales adj. for
divestments
1–12/2014
Change, %
Financial Services 355 335 6
Manufacturing, Retail and Logistics 308 310 -1
Public, Healthcare and Welfare 430 410 5
Telecom, Media and Energy 234 238 -2
IT services 1 327 1 291 3
Product Development Services 142 216 -34
Total 1 469 1 507 -3

In Financial Services, growth was healthy across all service lines, Industry Products, CSI and Managed Services. Both existing large customers and a number of Industry Products’ customers outside the Nordic countries contributed to growth. Sales in Eastern Europe were still down due to the challenging market conditions.

In Manufacturing, Retail and Logistics, sales in local currencies remained at the previous year’s level. The manufacturing and forest sectors saw positive development due to several new agreements while the retail sector experienced negative development due to the expiry of some large contracts and delayed investment decisions in Finland.

In Public, Healthcare and Welfare, sales in local currencies were organically up by 5%, mainly due to new contracts concluded during the year. Additionally, the acquisition of Software Innovation added around EUR 16 million to sales. Organic growth was mainly attributable to the healthcare and welfare sector.

In Telecom, Media and Energy, sales in local currencies turned to growth towards the year end due to the positive development in the telecom and energy utilities segments. Sales in the media segment as well as the oil and gas segment were sliding due to challenging market conditions.