For us, economic responsibility means striving to ensure that we are profitable in order to create long-term value for our stakeholders and the wider economic system. Our underlying profitability continued to improve in 2014 as a result of the strategy implementation and reshaping of the company.
The transformation of Tieto continued as planned in 2014. During the year, we started to shift focus into more growth-oriented activities, involving investments in offerings such as Lifecare, Industrial Internet and Customer Experience Management as well as cloud services. We prepared for the ongoing IT industry change by renewing our services and competences, and conducted restructuring measures by initiating personnel negotiations in Product Development Servces (PDS) and Consulting and System Integration (CSI). The restructuring measures were to address changes in demand, especially in PDS, and the new norm of efficient delivery.
Our financial goals for the current strategy period (2012–2016) were updated in May 2014, and are to achieve a 10% EBIT margin, increase dividends annually in absolute terms (payout ratio at minimum 50% of net results), and to have a net debt / EBITDA of 1.5 as an upper limit in the long run.
In 2014, profitability remained below our target levels due to continued restructuring activities and high goodwill impairment charges. Our operating margin (EBIT) was 4.0% (5.3). However, the margin excluding one-off items rose closer to the target level and was 9.9% (8.8). The improvement reflects the efficiency measures initiated during 2013 and 2014 and we continue to see good opportunities to improve margins in IT services even further.
Our dividend has risen by 15% on average during the past years (CAGR 2009–2014). In 2014, the proposed dividend is up to EUR 1.00 (0.90) and, additionally, an extra dividend of EUR 0.30 is proposed. The payout ratio is 271%, including extra dividend.
Our capital structure is very strong and net debt/EBITDA declined to -0.4. The proposal to pay extra dividend addresses our objective to achieve a level of close to 1. We will maintain our capacity to invest in future growth both organically and inorganically after dividends.
Our economic contribution to our stakeholders is summarized in the graph below. It illustrates the economic impact of our operations on customers, employees, suppliers, governments and society at large.
|Economic value for different stakeholders, EUR million|
|Revenues||1 541.8||1 630.2||1 689.1||1 862.1||1 847.0|
|Employee wages and benefits||846.0||923.7||957.9||1 089.0||1 028.7|
|Payments to providers of funds||100.1||78.1||78.2||76.1||70.7|
|Payments to governments *)||20.7||15.5||17.9||16.9||19.4|
|Economic value retained||40.1||79.7||87.4||98.6||114.0|
|*) of which|
Our tax strategic aim is to follow in all jurisdictions local tax legislation and other obligatory rules. We are 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, we have received financial assistance from local governments in some of our operating countries. In Finland, we received EUR 0.4 million from TEKES, the Finnish Funding Agency for Technology and Innovation for product development purposes. In Poland, we received EUR 0.2 million from the Polish Ministry of Economics for R&D investments. The government of the Czech Republic offered EUR 2.3 million to support employment and business activities.
|Significant financial assistance received from government, EUR million|
For a full description of our financial performance, please read our Financial Review 2014.
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.
We have 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 cost centres and 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 our 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.
Our 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 which 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.
Our 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.