Financial performance

Comparison figures in this report have been restated according to the new standard IFRS 11, Joint arrangements.

Full-year net sales were down by 5.3% and amounted to EUR 1 522.5 (1 606.8) million. Divestments had a negative impact of EUR 43 million and acquisitions added EUR 17 million to sales. Currency fluctuations had a negative impact of EUR 42 million on sales. Organically, net sales in local currencies declined by 1.1%. In IT services, net sales in local currencies were organically up by 2.6%. Clients in Product Development Services continued to cut external spending.

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Operating profit (EBIT) amounted to EUR 61.1 (85.7) million, representing a margin of 4.0% (5.3). Operating profit included EUR 39.6 million in goodwill impairment charges, EUR 49.8 million in restructuring costs and EUR 0.3 million in capital gains. Operating profit excl. one-off items1) stood at EUR 150.2 (141.2) million, or 9.9% (8.8) of net sales. The efficiency measures taken in 2013 and 2014 had a positive effect of around EUR 47 million on operating profit compared with 2013. On the other hand, personnel expenses were strained by salary inflation of around EUR 21 million and the increase in bonus accruals of around EUR 18 million. Additionally, Tieto increased its investments in offering development by EUR 10 million. Currency changes had a negative impact of EUR 6 million on operating profit.

1) Excl. capital gains, goodwill impairments charges and restructuring costs

Operating profit (EBIT) and margin
Operating profit (EBIT) and margin excl. one-off items
Operating profit (EBIT) an dmargin excl one-off items by quarter
Operating profit (EBIT) and margin excl one-off items by service line

Depreciation, impairment and amortization amounted to EUR 104.0 (89.7) million. The figure includes goodwill impairment of EUR 39.6 (8.0) million. The decrease in depreciation is mainly due to a major mainframe and software agreement. Due to this agreement, depreciation is decreasing while software costs are up. Net financial expenses stood at EUR 4.5 (6.6) million in the full year. Net interest expenses were EUR 2.8 (6.5) million and net losses from foreign exchange transactions EUR 0.8 (positive 0.8) million. Other financial income and expenses amounted to EUR -0.9 (-0.9) million.

 

Full-year earnings per share (EPS) totalled EUR 0.48 (0.86). Earnings per share excluding one-off items1) amounted to EUR 1.56 (1.48). The non-recurring taxes related to the divestment are excluded from the 2013 figure.

Financial performance by service line
EUR million Customer sales 1–12/2014 Customer sales 1–12/2013 Change, % Operating profit 1–12/2014 Operating profit 1–12/2013
Managed Services 512 492 4 37.6 10.2
Consulting and System Integration 387 410 -6 34.9 9.0
Industry Products 395 416 -5 68.1 81.2
Product Development Services 229 289 -21 -42.9 8.4
Support Functions and Global Management       -36.5 -.23.0
Total 1 522 1 607 -5 61.1 85.7

 

Operating margin by service line
% Operating margin 1–12/2014 Operating margin 1–12/2013 Operating margin
excl. one-off items
1–12/2014
Operating margin
excl. one-off items
1–12/2013
Managed Services  7.3  2.1  7.5  4.3
Consulting and System Integration 9.0 2.2 9.9 7.8
Industry Products 17.3 19.5 17.8 19.9
Product Development Services -18.7 2.9 9.5 6.7
Total 4.0 5.3 9.9 8.8
Organic change in local currency by service line
EUR million Customer sales adj. for acquisitions and currency
1–12/2014
Customer sales adj. for
divestments
1–12/2013
Change, %
Managed Services 525 491 7
Consulting and System Integration 390 394 -1
Industry Products 412 406 1
IT services 1 326 1 292 3
Product Development Services 222 272 -19
Total 1 548 1 564 -1

In Managed Services, sales in local currencies grew organically by 7%. The market for projects to transform IT infrastructure to cloud-based environments remained strong and sales of cloud services amounted to EUR 48 million, up by 153%. Growth is partly attributable to revenue recognized from equipment sales Tieto being the lessor and an internal transfer of some business operations in Tieto's joint venture. Comparable growth was around 5%. Solid development in the underlying operating margin was attributable to improved efficiency.

In Consulting and System Integration, good demand for Customer Experience Management services and industry consulting continued throughout the year while traditional application management experienced price erosion and reduced revenues. Further investments were made to increase standardization and efficiency in application management and offering development for Customer Experience Management. Healthy development in the underlying operating margin was attributable mainly to improved efficiency.

In Industry Products, the healthcare and welfare sector was the strongest growing sector. Sales in the financial services sector were down, partly due to the negative development in Eastern Europe. Demand in the oil and gas sector also weakened towards the year end. Profitability of the underlying business declined mainly due to investments in offering development as well as negative currency effect.

In Product Development Services (PDS), sales decreased in 2014 mainly due to insourcing by one key customer. The new customer wins are promising, but their overall financial impact is still limited. PDS adjusted resources to the decline in business volumes during the year to improve profitability. Profit improvement is driven by certain temporary commercial terms in the fourth quarter.

 

 

Customer sales by industry group
EUR million Customer sales
1–12/2014
Customer sales
1–12/2013
Change, %
Financial Services 335 331 1
Manufacturing, Retail and Logistics 311 305 2
Public, Healthcare and Welfare 410 403 2
Telecom, Media and Energy 238 279 -15
IT services 1 293 1 318 -2
Product Development Services 229 289 -21
Total 1 522 1 607 -5
Organic change in local currency by industry group
EUR million Customer sales adj. for
acquisitions and currency
1–12/2014
Customer sales adj. for
divestments
1–12/2013
Change, %
Financial Services 342 328 4
Manufacturing, Retail and Logistics 315 301 5
Public, Healthcare and Welfare 428 393 7
Telecom, Media and Energy 248 270 -8
IT services 1 326 1 292 3
Product Development Services 222 272 -19
Total 1 548 1 564 -1

In Financial Services, sales in local currencies grew organically by 4% mainly due to good development in Consulting and System Integration and Managed Services with several large customers, both existing and new. Around half of growth is attributable to revenue recognized from equipment sales Tieto being the lessor and an internal transfer of some business operations in Tieto's joint venture. In Industry Products, comparable sales remained at the previous year's level due to negative development in Eastern Europe. 

In Manufacturing, Retail and Logistics, sales in local currencies grew organically by 5% growth mainly coming from outsourcing services. Both the manufacturing and retail sectors saw healthy development due to several new agreements concluded during the year.

In Public, Healthcare and Welfare, sales in local currencies were organically up by 7%. The healthcare and welfare segment and the Swedish public sector posted strong growth. In Finland, the initiative to create national interoperability in the healthcare and welfare sector proceeded well during the year and created new cases for Tieto.

In Telecom, Media and Energy, sales in local currencies were down by 8%. In the telecom, media and energy segment, expiring projects affect volumes, as few new projects are being started up. Growth in the oil and gas segment also turned negative due to reduced investment levels. Advanced metering infrastructure in Norway was progressing well with a number of additional new agreements.