Tieto Oyj (TIETO) Earnings Call Transcript & Summary

[Presentation] Good afternoon, and welcome to Tietoevry's 2022 Capital Markets Day. My name is Tommi Jarvenpaa. I'm the Head of Tietoevry's Investor Relations. I am extremely excited to see so many of you attending our event, live here in Stockholm. Also, a warm welcome to everyone following our day over the web. Today is all about accelerating value creation. We will provide insights into our strategy execution, our business portfolio and uplifted financial ambitions. Our businesses will provide details about their market opportunities and outlook going forward as well. This morning, we announced big news; a strategic review of Tietoevry Transform and Tietoevry Connect as a combined business will reposition our company. How? This, you will find out in the next few hours. Regarding the practicalities, we will be having a Q&A session after each presentation. And then at the end of the day, we'll have a joint Q&A hosted by our CEO and CFO. We will be naturally taking questions from the audience here in Stockholm, and then also over the web. We will start the day with the theme of the day, accelerating value creation. I'm pleased to invite our President and CEO to the stage, Kimmo Alkio. Please welcome.

A very warm welcome to a very exciting Capital Markets Day here at our new Arenastaden office in Stockholm. What an exciting afternoon, I believe we will all have. Our focus today is to share our perspectives to accelerate value creation for the company. In this opening session, I'll be providing an overarching view on the opportunities on hand, and the concrete steps to drive shareholder value. Naturally, a great deal of business-specific insights will be provided by the respective executives during the afternoon. I'd like to, in the beginning, actually emphasize all of my main messages and to a large extent, the theme of the day. First of all, the market dynamics continue to be attractive, and call for specialization. We are making fine progress in becoming a highly specialized and a highly competitive company per business area. Second of all, we are actively reshaping our portfolio and seek for optionality to maximize the potential of each business. The core of today is around reconfiguring the longer-term portfolio and identity towards higher growth software and digital engineering. In addition to the strategic review of banking, as announced in July, we have today announced the strategic review for the combined Transform and Connect businesses, recognizing the specific needs and opportunities for the managed services business. And furthermore, the third core part of today, naturally around our updated financial ambition for 2025. Revenue growth based on some of the specialized businesses, 8% to 10%; profitability, EBITDA adjusted, 15% to 16%; and capital allocation, focusing on reinvesting in businesses to accelerate profitable growth and continued attractive increase of dividends, annually. And I'll be diving into the respective areas during my opening presentation. I'd like to first start with a bit of a high-level perspective of our role in the market and society. We play a very significant role and part in helping the society to advance to be more competitive, to be more sustainable. Our role tends to vary depending on the customer engagement in question all the way from supporting welfare societies through our software solutions, managing the data assets across the Nordic Society, furthermore, for providing the technology backbone for many industries and financial institutions. And our 24,000 professionals globally take enormous pride in developing the digital futures with our clients and enjoying the type of a learning as a lifestyle concept in advancing in all of our professional careers and ambitions, extremely meaningful role in supporting our clients and the society at large. A part of our role-enabling sustainable and digital societies is to ensure adequate shareholder returns. We have delivered solid, consistent financial results over the last years. This would be visible in terms of our consistent development in profitability, cash flow development, dividend attractiveness, fair also to highlight the rapid deleveraging within 18 months of the merger. We have believed and continue to believe in the importance of continuous and sustainable financial performance improvement. And naturally, we expect to continue this and look for even accelerating further. Next, I'd like to confirm some of the main customer and market drivers as this is kind of the core of our profession on a daily basis. The customer dialogues tend to be very consistently around the types of things around building enterprise efficiency, building agility, building competitiveness for our clients. Competitiveness through embedding data, data insights into our customers on products and services, increase agility through cloud adoption, driving efficiency through automation, utilizing the likes of machine learning, artificial intelligence to make our clients more nimble extremely meaningful insights provided by Tietoevry to our clients to achieve their own ambitions and strategies. Second fact I'd like to pinpoint to, which is not necessarily new news, but important to confirm. The market dynamics are attractive the shift towards cloud-native technologies, towards investments into data, data-related insights is gaining continuously very favorable speed. And this naturally opens up new opportunities for ourselves. In parallel, fair to recognize the more traditional side continues to see type of price erosion that we have seen historically. Market momentum, I would clear and the main drivers are very consistent and clear in the industry. With these factors in mind, we usually believe in the importance of specialization, creating trust and insight in every client engagement and the specialization has started to work already in our favor. This is visible in the customer relevance, winning more type of business in the identity sales, talented attraction and naturally value creation as well. We continue to capture market share and competitiveness through our specialization based strategy as announced in October of last year. We address the market through our specialized businesses in the categories of digital engineering throughout Tietoevry Create business. We addressed the market in the category of software and software platforms through our 3 software businesses, and the managed services type of business structure, business model through Tietoevry Transform and Tietoevry Connect. Businesses went live in January of this year and first 3 quarters, absolute defined progress as such. As a company at the group level, we naturally seek for ways of gaining further speed in looking at the growth scale and optionality of each business. I wanted to confirm the strategic intent as announced 1 year ago. Based on the discoveries and insights of the respective businesses, we naturally identify highly unique type of growth and expansion opportunities by business area, whether we think about the growth profile of the market worldwide. Whether we think about the geographical expansion opportunities which the businesses will be sharing during the afternoon. So these are some of the factors. But by nature, within a specialized strategy, these are the discoveries. Furthermore, important to highlight that each one of our businesses have a highly distinctive peer group that naturally we seek to actually be profiled against and looking for actually competing extremely well within the peer group. By nature, the respective peer groups have also their own value profiles. Historically, Tietoevry, we would have been identified a bit more in the category of IT services towards the lower part of the page shown. And with the ambition we have is naturally to be recognized within the categories where we aim to be one of the best in the world. I wanted to also highlight that the foundation that we've built over the years opens up new opportunities to accelerate our growth scale and financial returns. The background being that the merger in 2019, as announced in 2019 created new type of scale. Our search and main message in 2019 was that, that this would be by far the best intermediate step for both companies. What followed in -- practically last year, end of '21, we announced our new specialization based strategy, focusing on increasing competitiveness of all the businesses. And with this in mind, and the market development worldwide, we see a tremendous opportunity to reconfigure our portfolio for higher scale and value. Set of businesses having a quite distinct profile from a growth and scale standpoint. Practically, the businesses that make up the software businesses and digital engineering actually enabling the type of pure-play software and digital engineering to be participating in the rapidly growing and expanding global marketplace, and separating the managed services and transformation businesses as a combined entity. I'd like to open up furthermore a bit more the distinct dynamics between the business types. When we consider the software business, digital engineering, these are businesses with significant international expansion opportunities, software, IPR and global talent pools in the centerpiece of scaling, expanding and the likes. For managed services and transformation, having a strong Nordic-level position with long-term customer relations, continuously seeking for drive for scale and efficiency, highly differentiated type of business logic. As of today, 60% of the business mix is software and digital engineering with strong growth and profitability, naturally 40% in the managed service and transformation. And today, as mentioned already a few times we have announced a strategic review for the managed services and transformation type of businesses in order to be able to successfully build both the higher growth, higher scale and the managed services and transformation-centric business. Furthermore, each one of our businesses aim to be amongst the best in the market. More will follow in the afternoon, I'd like to do a short synthesis of each one. Basically, the foundation and the competitiveness today is already at a competitive level. In the case of banking seeking for becoming a leading European banking and payments with the company, significantly software, software platform-driven. For Tietoevry Create within digital engineering, a leading digital engineering player globally with a very distinctive peer group and global market opportunity. For Care, specializing healthcare, welfare, a leading health tech software provider initially in the Nordics, over time within Europe. And then finally, the industry software, a portfolio of fine performing well positioned, a bit smaller software businesses. And furthermore, for the combined Transform and Connect, a leading Nordic, potentially European, focusing on enterprises, public sector, multi-cloud and total modernization agendas for the enterprises. So really distinctive opportunities unique in nature. I'd like to furthermore carefully go through the 2 strategic reviews that we have announced. In July related to Tietoevry Banking with the objective of realizing the value of the banking software business as a potentially independent listed company. And I'll go into the status update on the next page. And to confirm, I'll also talk about the foundation in a bit more detail of the announcement of this morning. I'd like to confirm the progress and schedule, planned next steps for the banking strategic review. As announced, Tem is to potentially operate as an independent listed company. This is progressing fully on schedule, and towards second half 2023 conclusion. Main actions currently are related to carve-out and public company readiness, including legal structures, strategy as an independent company and long-term business plans. Listing preparations and potential transaction structures to be evaluated and concluded during the second and the third quarter, summer time frame. And implementation shall follow the potential deal structure conclusions, and naturally subject to existing market conditions at that point in time. Then I'd like to go through, carefully, also the announcement from this morning, the strategic review for Transform and Connect, combined that could result in a potential sale or listing as a spin off. Combination today is highly competitive in this domain, covering services across business processes, platforms and infrastructure with the largest Nordic customer base and multi-cloud platform available for each one of our core markets. As a starting point, 90% of Transform's key customers are also Connect customers, ample amount of existing collaboration and even dependencies between the businesses. We have very significant capabilities with approximately 8,700 professionals across Nordics, Baltics, Czechia and India, and also attractive combination of onshore closed with customer proximity, offshore for price competitiveness. Process and way forward expected to take 12 to 18 months, and combining the operations will be the first step very much in the first thing as we enter 2023. And very important, as we've done dialogues with our customers in the recent hours that the customer engagement and overall market operations continue fully as normal, with a very strong agenda delivering high-quality services, driving expansion in the marketplace, no expected disruption to the market activity on either business. I'd like to move now to the next stage of my presentation, the financial plans and ambition. Based on the combination of our belief on continuous performance improvement, market potential and our specialized businesses, we are further elevating our ambition levels. As mentioned in my early summary: revenue, 8% to 10%; profitability, 14% to 16%; leverage target to be between 1 and 2 in; and the dividend attractiveness to continue with the aim of increasing base dividend -- increasing dividends annually, very important objectives. And Tomi, our CFO, will actually elaborate in further details regarding also the capital allocation. Then to the business views, which will be really interesting throughout the afternoon. Our ambition will reflect the distinct dynamics of the different businesses and the market opportunities, and well visible are the factors that the -- the software businesses, digital engineering, very healthy growth profile and continued improvement in profitability. We are actually seeing performance improvement in all of our businesses. Naturally, software and digital engineering expected to be leading the performance acceleration and value creation. Overall, we aim at a step change in our growth profile while consistently improving profitability. With this in mind, and in consideration of reshaping the portfolio and longer-term identity of the company, it's fair to highlight also the performance profiles, the ambition levels for the 2 types of businesses, software and digital engineering with a global reach, growth between 12% and 14%, adjusted EBITDA up 17% to 19%. And I would claim very much in alignment with the market opportunity on a global landscape within the respective businesses. Similarly, when we look at the managed services and transformation relative to market development, growth of 1% to 3%, and continued improvement in profitability between 9% and 11%. This is very interesting from a standpoint of very firm performance improvement and the identity development towards higher growth, scalable businesses over time, especially in software and digital engineering. Implementation, we believe will follow also very naturally. We embarked on the specialization-based strategies, end-to-end businesses in January. We are fairly well on track with all expectations for 2022. In the next cycle, '23, '24, we naturally expect to be concluding the strategic reviews and accelerating M&A in the businesses where we expect the greatest combination of growth and scale. And then from there onwards, looking into next wave of market development, by that time, leading edge businesses, and looking at the next stage of opportunities. The digital agenda in the world market will continue to be attractive. I think we leave fantastic doors open for further innovation in the next cycles to come. I would also like to highlight the importance of the foundation of our agenda coming through our people and values. Values serving very well our employee base worldwide and tangibly benefiting client engagement, values of openness, trust and diversity as well as transparency. Our focus on employee well-being and engagement has continued at a really high level throughout also the highly turbulent times of the pandemic, and followed by the war in Ukraine. I want to take a special note that we have done our utmost for employee safety, and are proud of our Ukrainian colleagues for tremendous resilience. Continuous learning is actually the name of the game in our business, in our professional lives, in tech sector. And it is extremely positive to see that our colleagues in the company are discovering further opportunities at an elevated level for continuous professional advancement and continuous learning of new technologies, new type of business models. I also want to highlight that we have progressed really well in attracting talent in a highly, highly active market. I'd like to conclude my -- some of my consideration with the topic of high importance, ESG, which is an integral part of our business agenda, whether through enabling digital solutions to our customers or reducing our carbon footprint or driving ethical practices across entire -- across our own entire business operations even to our subcontractors, it's very important priorities for the company. We have ambitious targets, as an example, gender neutrality by 2030, and we strive to reach these on a daily basis. Furthermore, the ESG targets are also part of our long-term incentive plans. Now I'd like to recap my and our main views of this opening session, and to a large degree of the day. Our employee and sustainability agendas are very integral parts of our future aspirations. We are making good progress with our specialization based strategy, opening up avenues for further innovation and business expansion. We are taking very precise and active decisions with our portfolio and related identity. It's time to renew the company even faster. And as recognized, we have updated our financial ambition for higher shareholder value. What a very exciting agenda we have, exciting, highly transformative, highly energizing. Thank you.

Thank you very much, Kimmo, for an interesting presentation. As a reminder, we will take questions both from the live audience here and also from the webcast. But let's start here from the room. And when you have a question, please raise your hand then wait for the microphone and then state your name and the company. So...

Yes. My name is Daniel Djurberg from Handelsbanken. And first, I would like to congratulate on this decision. I think it's really interesting. And -- but looking at -- if you see any negative, so to say, in this potential new structure with regards to overhead functions that might be common for all the group, i.e., would you -- would it be fair to use some kind of shared service company for this -- to minimize the potential overhead that will be tripled going forward.

So we are already highly mindful of making sure we continue to optimize, the centralized functions of the company. Work has already started.

Interesting. And also a little bit on timing, why -- I have several questions today from customers that was asking. Okay. But why right now ahead of this recession, perhaps around the corner and so forth.

So overall, if you look at the combination of how the -- our industry is developing worldwide, what is the potential we have given the 6 different type of businesses we have, I think it's a fantastic time to move ahead. There's no reason to wait. The market is there and we can do better and take the specialization a few inches forward.

Thank you, Daniel.

Sami Sarkamies, Danske Bank. I have a question on the target setting. What gives you the confidence if we look at track record on growth before this year, you've been typically around 3% organic growth. So why do you think you can keep up the current good level and even improve on that going forward? And then secondly, on margins, during the past few years, you haven't made as much progress towards targets as you would have liked to. Now you are targeting quite a material step up in the coming few years. So where does the confidence come from, this time?

So I think of common nature regarding the growth and margins are 2 factors. One is that naturally the perspective of the 6 businesses foundation that we'll be hearing more about. That's super important. If I may, I wouldn't now give a company average because the real is very different per business. From a -- and I'll, of course, address both in a bit more detail. From a growth standpoint, traditionally, we have had such a significant kind of a dependency on the legacy side, on the much more on the proportionately. And now we just see software -- and digital engineering, accelerating kind of that is moving tangibly forward. And then from a margin standpoint, naturally, in the current era, we are all impacted by the inflation. And nevertheless, we are -- we continue to make consistent progress. And question is the trajectory of the curve. But again, going back to the potential of each one of the businesses and the business mix towards more scalable businesses.

Okay. And then secondly, if I may, also the timing is quite aggressive. We think about 2025, it comes fairly quickly as mentioned, you will be quite busy with this structural changes until '24, next year will probably be quite tough regarding business conditions. So there's not that much kind of like room for the actual improvement to take place.

So naturally, we are all mindful of the macro environment. Currently, we are not seeing slowdown. So that's 1 factor, and the comfort and confidence of the businesses to be progressing. Now of course, we now talk only about '25. We'll talk later -- at a later stage on '23. So it gives us good comfort that now we have 4 quarters of accelerated growth behind us. So I think we are starting to turn the corner in quite a favorable manner.

Felix Henriksson from Nordea. I have a question regarding the revenue growth target. So just wanted to confirm that what role does M&A sort of play in achieving that target. I know you mentioned something about Create & Care specifically. And then obviously, your target commence acceleration in your revenue growth. So I'm just wondering how sort of linear do you expect this acceleration to be, especially when we consider that the next year will likely -- there is a recession, and there potentially has been some sort of pull forward in IT spend as well over the pandemic.

Just to be clear, in our revenue ambitions, it is, to a very, very large extent, organic may include smaller M&A, our typical definition. And then on the potential linearity, if I may, that's a bit -- I wouldn't like to guess that answer currently, there will be a slight difference per business. So some of our businesses have good growth velocity, and it's a bit dependent on how fast the business mix evolves. But no, I don't believe in any of our plans ever on like ad hockey sticks at the end. So we'll come back, of course, maybe a bit later on. But I think we have fairly fine track record and believe on the importance of sustainable performance improvement then the curve, of course, no details yet.

Right. And then a quick follow-up, if I may, on creative banking, where you see the addressable market, also being global in a sense. So you might address this later in the segment presentations, but I just wonder if you wanted to highlight a bit on the go-to-market strategies globally for each of these businesses as well as the sort of traction that you've had so far?

So if I may, sparing and guidance to our businesses is to be very mindful on the timing and readiness of global market expansion to make sure that the investments and revenue streams always come roughly at the same time. So I don't think we'll be investing too fast before we verify that the scalability of the products and services are there.

Thanks, Felix. And then next one. It's over there. Yes.

George Webb from Morgan Stanley. Two questions, maybe one, which is always a bit dangerous first. But when you think about 2023, potential downturn. To what extent do you think this time could be different from a demand perspective because cloud, digital, et cetera, so central to companies visions and their strategies that actually supports demand through next year, even if there is a mound recession? And do you see that in your work pipeline? So I'll start with that one, and then one follow-up.

My current belief in my mind, my data points and many other people in the industry that kind of a cloud movement investing into data, data assets will likely not be that much impacted. Time will prove. But the probability of investment levels being high, I think it's fairly high. One factor. The second point I want to highlight that in the case of a downturn, we are likely one of the more resilient companies given the business mix, what's in the backdrop of the business mix is for a lot of our businesses, long-term contracts, long-term commitments. So -- but we are, of course, always mindful of the -- reading the signals ASAP, what might be coming.

Very clear. And then secondly, on M&A competency. To what extent does each of the individual business units have that competency already in place? Or does that still have to be built out?

On purpose, this is very centralized. We have a very good small team that is active on M&A, of course, supporting the business leaders in this.

Will that change moving forward? Or will that structure remain in place in the same way?

We'll rethink of course, however, the faster scale each of the businesses, so optimizing has to do with the other question earlier ensuring that we don't bring duplicate typical structures too fast, total efficiency. We -- I expect we can be very mindful of.

Thank you. Then in the back row, there's one question. Okay. Right there.

Jaakko Tyrvainen from SEB. Regarding the growth ambition in Create segment, how you are prepared and how you're going to solve kind of the challenge regarding the talent need to deliver such growth? We know that market is very tight on that side as well.

I'd love to give you a long answer, but I'll leave it for Christian. I know he'll want to talk about it. So very briefly on the Create side, the likelihood of very attractive global demand, very high. We have already a good footprint of capabilities around the world, actually to build and expand the talent pool. And that is already actually working in our favor, having a light kind of front end in the respective market like North America, very strong back end. So we expect that we can turn that machine even to a higher clock speed. He'll talk more about it.

Okay. Great. Then another one on the planned strategic review on the Connect and Transform businesses, if we assume that those will be ended up in some kind of a consolidation game, what are the key synergy sources if you end up in marriage with the same kind of a peer company. What kind of a level of synergies should we assume for such a deal?

So understandably, I will not speculate on the potential outcomes. What I can confirm from the customer dialogues in the recent hours and recent days that people tend to understand scale is important, scalability, the right investment needed for that type of business model, totally different from software. So the understanding that scale is important, the required investments exactly which outcomes -- I don't go and speculate into, we'll discover them throughout the rand customer commitment and importance of that continued client engagement at a very high level, and we look at as we make progress with the strategic review.

Okay. Let's take one question from the online audience as well. There's a lot of services sold internally within Tietoevry. How big of a challenge do you see in a situation where the units are separate companies? How does that change the dynamic of the company?

So this question was a fair one, already in January this year, as we shifted to the specialized end-to-end businesses. And we've been very clear that all the businesses partner with any other business or company which creates value for the business in question, and that will continue. So subcontracting internally or subcontracting with external parties, standard procedure within all the businesses.

This is Aditya Buddhavarapu from Bank of America. Just a couple from my side. In terms of the structure of the potential disposals or spin-off, would you be looking at keeping maybe a stake in some of those assets to participate in future value creation? And then second, when you think about the structure of the group after you dispose of Transform and Connect, how does -- how do the software and Create businesses fit together? And why is banking maybe separate from that? And you've also done -- bring a review of banking. So why not keep banking as well within the structure given it's growing faster than, let's say, industry as well.

Thank you. So first of all, regarding the strategic review for Transform and Connect. So the outcome of the alternatives we will see during the process, I wouldn't speculate exactly which one. We'll discover and consider within the program itself. And then regarding our software and digital engineering, we've talked about for the past year on the optionality for each business to become one of the best in the world. So we'll be looking at that very dynamically for the quarters and years to come and -- meaning that the best possible path for all the business is the scale. So with that in mind, I wouldn't paint a picture of any type of endpoint model at this point in time.

All right. Thank you. Thanks, Aditya. Any more questions? I guess we are then done with the first Q&A. And obviously, there will be more opportunities questions from Kim at the end of the day. We will now move to the first business section of the day. We will start with the theme the Nordic leader in Managed Services and transformation. And our first speaker will come from the Transfer business. She will explain how focused market approach is enabling performance improvement. Satu Kiiskinen, please welcome.

Thank you for the introduction, and a warm welcome on my behalf as well. I will -- I'm excited now to share with you what we do in Transform, what our team of transformers do, where we focus and how we drive performance. I have -- I will walk through 3 main elements in my presentation. Kimmo talked about specialization. So I will explain what our specialization in Transform means, and where we focus on. Secondly, I will open up the dynamics for growth, and how we grow. And thirdly, I will talk about our strengths, how we win in the market, and why I believe that we have actually carved out a very unique position for ourselves in the Nordic market. And I will summarize our financial ambition towards the end of the presentation. At Tietoevry Transform, we are driving enterprise-wide transformation for our customers. So what does that actually mean? Our customers are sort of driving 2 agendas at the same time. First, they need extreme efficiency. And secondly, they want business agility to be successful and competitive in their markets. We support them in complex, large multiyear projects that aim at, first of all, modernizing their application and infrastructure. And secondly, we are helping them to improve their total cost of ownership in their operations. And thirdly, it's all about data and technology. We help them improve customer experience, and improve their decision-making with the help of data and analytics. We're in Stockholm today, and I cannot start with any other example, but city of Stockholm. I'll share 2 examples, and city of Stockholm is the first one. City of Stockholm is driving an ambitious initiative on smart city and becoming climate-positive by 2040. We are building a next-generation IT solution for the city's administration as well as municipal-owned companies that enables them to free up capital in their operations and then reinvest it to build a smart and sustainable city. My second example is all about data and technology. And Kesko is one of the largest retailers in Finland. Among other things, we are helping Kesko in their grocery retail division in real-time retail. So when you or I, any one of us, order groceries online, one of the most critical things for us is that we want to know when exactly is that delivery on our front door. In real-time retail, we are building a comprehensive data solution that empowers Kesko to improve their logistics as well as the customer experience in terms of predictable deliveries. So in order to be successful in what we do, we have a very clear focus, and I'll talk about -- in terms of customer services and capabilities. And I'll talk about that next. Our customer focus is on the Nordic headquartered enterprises as well as public sector organizations that have a relevant IT spend between EUR 30 million to EUR 300 million. We estimate this market to be approximately EUR 10 billion. And to these customers, we want to provide a complete set of services. So we advise we develop we run and we transform their entire IT portfolio. And to do this, we have a unified model covering infrastructure services, application services, business process transformation using data. And we use our capabilities, covering IT managed services, core ERP renewals and data-driven digital services. This is, like Kimmo mentioned, 90% of our customers we have a unified model with Connect in terms of application and infra services. And this frame of -- these capabilities, I will come back to when I talk about our growth and the dynamics for growth. It's important to keep in mind. Our selected customers really are the cornerstone of Nordic society, and they play a really crucial role in all of our daily lives. Let me share some examples. What impact our team from Transform has on a daily basis? So first of all, 62% of all roundwood in the Nordics go through our systems and find its way to the mills. Secondly, 31% of the pensioners in Norway get their pensions on time with the support of our team. And we ensure that 5 million invoices are processed annually to keep city of Stockholm running. And 83% of daily grocery trade in Finland run smoothly when our team supports our retail customers in Finland. How impressive is that? Quite remarkable. So let me now elaborate on the dynamics for growth. As you see, our portfolio is really like a sample set of the Nordic IT market. It includes both the fast-growing data and digital services as well as the traditional services where growth is more moderate. We grow through increasing our wallet share with our existing customers. And secondly, the nature of our business requires that we close new large deals and acquire new customers. We select customers where we can deliver a full set of services. And typically, the contract period is from 3 to 5 years. Large customers and large account management is one of our key capabilities, and we invest in it. We are also experts in renewals. We have been with our customers over several technology waves and business model changes, and this deep custom knowledge actually becomes a key asset for us in the marketplace. And this gives me a great bridge to talk about our strengths, and how we win in the market. I mentioned that I believe that we have a unique position in the Nordic market. We help run cities. We keep the wheels for manufacturers rolling. We're in the middle of the retail supply chain. We maintain the legal system that supports our democracy. So our customers really truly are the cornerstone of our Nordic economy. So in order to bring value to our partnerships, our teams have really deep knowledge of our customers' businesses and processes. We are committed to long-term cooperation beyond the contract period. Almost half of our customers have been with us for more than 20 years. So that's definitely one of our key strengths in the market. Secondly, we do what is right for our customers, and we are open to use partnerships, including best-of-breed technology partners. We have a very balanced delivery mix. 1/3 of our experts of our resources are in the Nordics. 1/3 in nearshore, and 1/3 in offshore country in India. And we are flexible to adjust our delivery mix to have the right delivery mix for the customer in question. We also have a repository of best practices and a comprehensive set of services to drive real business efficiency. And finally, sort of we have been awarded 2 times in a row for our automation solution which, by the way, I have mentioned our recent large wins, was one of the key criterias for Aker BP when a couple of weeks ago, we announced that they selected us as their IT services and transformation partner. So our peer group is in this market, as you can see, are some of the largest names in IT. I come to scale. So in order to be successful, we are driving scale through unified global delivery, automation and selected partnerships. I talked about our delivery mix, over 50% of our professionals and experts are outside Nordics. I mentioned about our automation solution. So AI-driven automation is really starting to play a bigger part in driving scale in our managed services deliveries. As we automate in fixed price deliveries, our labor needs reduce, and we are able to redeploy those professionals then to billable work with -- in other projects. And this year, we have increased our automation with 150% in -- during last year in terms of automation. We're also driving scale through reusable assets. This is extremely important, by the way, for example, in Cloudified ERP implementations. And in delivery, our delivery model enables us to work in an open ecosystem, and without locking. So we also may work jointly with our peers to create value for our customers. So I'll come to the financials and our financial ambition. By 2025, we aim to grow around the range of 2% to 4%, and we are committed to deliver adjusted EBITDA around 10% to 12%. Our growth is really driven by increased volunteering with existing customers as well as these new customer wins that I talked about earlier. Growth is also driven by -- through business mix change. So we are really, really keen to get the growth in cloud-driven next-generation services, and we are betting on that. In terms of profitability, I will address our short-term profitability on the next page. Overall, in profitability terms, also, increased share in cloud, enables us to drive automation and therefore, an important driver. And we are driving a continuous way of working, where we are able to redeploy people and be agile in talent deployment and, therefore, increase efficiency. Customer pricing increases are also 1 element for our profitability as a driver. So we have been facing some challenges in terms of profitability during the first part of the year, and we have taken clear actions to mitigate that. We have an ongoing performance improvement program, and we have been driving the price increases with our customers, and we are continuously optimizing our delivery mix in terms of redeploying our professionals to billable work and optimizing the pyramid. And I believe that with these actions, we are able to sustain the margins and drive our ambition towards the 2025 profitability range of 10% to 12%. All right. I have come to the end of my session, and I am summing up with these three messages. To go back to the specialization that we are so excited about, so we specialize in driving the enterprise-wide transformation using technology. And I want you to remember that we focus on large customers with multiyear contracts. And that, I think, brings us stability even though there might be some turbulent times as the questions already indicated during Kimmo's session. We do have a really unique position. Our margins are really driven by continuous efficiency, and we are committed to drive that, our financial ambition, to finish 2% to 4% revenue and 10% to 12% in terms of adjusted EBITDA. Thank you for your interest in Transform. I will now be open for questions.

Thank you, Satu, for a very inspiring presentation. Let's take questions. Daniel here in the front row.

Daniel Djurberg, here again, from Handelsbanken. A question a little bit on pricing on the cost level also that you see in the market. Obviously, we see higher cost levels across the board. And energy, I guess, is one of your cost items that has been impacted. Can you comment a bit on this? And also if your contracts contain some kind of CPI adjustments in the terms that you have so far? So you can give an overview of the pricing versus the cost implication here.

Yes. So our contracts are, of course, unique and -- but depending on the customer, we have different terms in terms of, for example, cost of living. When we talk about the sort of application management that is very sort of labor-driven, and then I will leave it to you to comment on -- from Connect side on the energy.

Yes. That's fair enough. And another question, if I may, is the automation, you mentioned was up 150%, I think, year-over-year. How do you measure this? It looks like you are up to some 60%, while targeting 80%. So what is the automation measurement?

Sure. We are driving automation in terms of automating all sort of transactional work and ticketing and so on. And that is the sort of basis for the labor reduction intensity as well as the KPI.

Okay. Sami Sarkamies, Danske Bank. Can you please talk about some of your main challenges in the recent years? Why have you lost customers, not won too many new customers, and there's been also quite severe margin erosion.

Yes. I -- interesting interpretation. I mentioned that actually, we have actually very good customer attraction, 40% of our customers have remained with us for over 20 years. So I think we are actually really good at renewals. We have a very strong order intake during the last 12 months. And I think we have a sort of good position to be competitive in the market. The market is actually very competitive.

And are there any improvement measures you have taken? And when do you think this will bear fruit?

Sure. In terms of margins, like I mentioned, the first half of the year has been challenging for us in terms of profitability. And we have initiated the performance program where we are addressing 250 roles, and driving the performance. So the first impact of this program was -- seen towards -- only towards the end of Q3. So that -- those initiatives continue.

Felix Henriksson form Nordea. As one of your profitability drivers, you also described the delivery mix and the competence permit. So I just wanted to dig into that a little bit more. So I'm just wondering if this means sort of deploying more sort of junior talent and so on. How sort of long of a lag should we expect from these actions to improve profitability? And how do you sort of see yourself as an employer for example, for junior talent, and your competitiveness on that front?

Yes. We have a graduate program, and we are sort of recruiting graduates on an annual basis. And I think in that, we are sort of gaining a lot of attraction as an employer. When it comes to the pyramid change, for us, the nature of our business is that we are in a continuous cost optimization. This also gives great career paths for our personnel. They are sort of able to move from sort of application management type of deliveries into project work and vice versa. So I see the pyramid and the kind of like redeployment or we call it smart redeployment positive in terms of our personnel. And it is, of course, important for us in terms of efficiency as well.

Okay. So continuous work.

Thank you, Felix. And last question then, over there.

Hello. [ Mats Wilander ] [indiscernible]. So if you're going to grow in 2025 by 2% to 4% and achieve 10% to 12% EBITDA margin. Do you -- I mean you need to decline some business in order to get to profitability. So do you expect the growth to be like accelerating first coming down and then accelerating? Or how do you expect the growth pattern to look like?

So the business mix and our portfolio includes the traditional services part that is by default in the market, declining business. So we do have high-growth businesses where demand is high. For example, data currently Cloudified ERP is in great demand. So I think the business mix change over the years is 1 key driver for the growth.

And growth to 4%, is that in 2025 then? Or will it be sort of 2 to 4 every year? And -- I mean do you see what I mean? You will trim some of the business to get a higher margin, but that means you will take out some business.

So that I will leave then -- I think now we have given the long-term growth. So I wouldn't speculate on the fluctuation.

Thank you. Thank you for the questions, and thank you, Satu. The second business presentation will continue the theme, Nordic leader in managed service and transformation. Our next presenter will tell us how our unique Nordic multi-cloud services are driving scale and value. Johan Torstensson, please welcome.

So it's my pleasure today to talk about how we connect over the last 2 years, have built a unique Nordic multi-cloud services, which will drive both scale and value, not only for our customers, but for our shareholders. What is happening now in the market is that we're seeing the increased demand of what with something we call digital sovereignty. And we in Tietoevry Connect is capturing that part of the change right now. And let me just explain what we mean with digital sovereignty before we go on. Digital sovereignty is all about that we all now are demanding digital solutions to live our life, to drive our companies for society. And that is moving very fast, but there's 2 things our customers are now questioning and asking about. First, data. Who is managing my data? Where is it stored? Who can access it? Am I sure it's the right people who do this? Number one. Number two, how do I make sure we have resilient solutions? So if you have something bad happening, a cyber-attack or even worse, that somebody cut the network connection to the Nordic society. Can I still run my city, my company, my life? These things are now driving changes how our cloud transformations are going. And we have put ourselves in the Nordic-leading position for multi-cloud services to gain the growth in cloud. We are uniquely positioned to actually capitalize on this multi-cloud journey and the sovereign in each of our customers. By us driving this trend and driving this actively, you would see a large transformation of the service portfolio of Tietoevry Connect to more multi-cloud services, which will drive a sustainable profit improvement over the years. So we in Connect do mainly 3 things. We have unified and secured infrastructure and cloud platforms to take care of our customers' data. Number two, we have the people to help our customers transform from traditional infrastructure to the new modern cloud services on that journey in utilization. And finally, in the multi-cloud era, we have the modern, highly automated managed services to manage our customers' complexity across these different platforms. And one great example to talk about this, which I want to mention is actually customer, Able. Also customer who asked Tietoevry, I need to go on a much faster digital journey. I need a digital platform, a cloud platform for help with that. And my team in Connect, together with my colleague, Satu's team in Transform, joined forces and actually building the cloud platform, the hybrid cloud for them for the future. We're helping them transform, and we now are managing their solution. So Able can keep on being competitive in the market. The market is shifting and there is a healthy demand both for private cloud and public cloud because of the reasons of the sovereignty requests. It is the public cloud, which is driving the fast growth in making this market in Nordic a EUR 6.1 billion market. But there is a large part of the growth coming also from private cloud. So it's the combination of these 2, which drives it. While the traditional infrastructure continues to shrink as people are moving their workflows to cloud. Also, it's important to see the end-user part of this market, which is a part of what we are doing in Connect, which is growing slowly, but it's a stable market as people need demands of how to access the data for the people and making the people more efficient. But what happens then when the workloads go to cloud? How will that impact us in Connect? Well, what we are seeing is with our customers right now, and in the market, not everything is going to the public cloud. It's a large part, 50% to 60% of the volumes, the workloads are going to cloud, public cloud. But when it goes there, yes, the actual platform is the hyperscalers who are going to have that revenue. But all the projects and all the managed services on top of this is actually up to 40% to 60% of the same type of revenue as we had in traditional infrastructure. In addition, 25% to 30% of the volumes go to private cloud, where a company like Connect will still have the full product services, the managed services and the platform services. And then we have a part, which we nowadays call special purpose platforms. You can call it part of the traditional infrastructure. It's a certain part of the workloads, which you will never move to cloud. It will not perform. You need dedicated hardware for this part. And that's why as long as the customer keeps those applications, it will run on this, and we will continue to do this. This kind of change in the market will then drive this change of the portfolio of Tietoevry Connect. We will then go from in the past, having over 50% in traditional infrastructure, coming to a situation by 2025, where it's just over 25% of our portfolio is traditional infrastructure. The rest of the so-called capacity is in different clouds or in specialized services. This is driven by that we actively will move our customer now to the cloud. We will not sit and wait, we'll actually move them actively. It's a very important part of the story. What we also see is the demand, of course, of the cloud helping us to move this change, and we're also seeing that the whole cloud-first strategy will drive this and help us on the journey. When it comes to the end-user part, that one, we will follow the market and we're seeing we have a very attractive portfolio, but that will be the same part of our service performance before. So why should the customer choose us in Connect? Why not somebody else? Well, the point is that we have a full offering, end-to-end offering, for our customers through the whole cloud journey. That means that we can help them with their traditional infrastructure. We have the people who can actually help them to decide which platform to go to. So they don't make mistakes. Then we transform them with our 1,000 people we have in our professional services. And finally, we manage their multi-cloud across the whole part. We are then unique in the Nordic to actually being able to do this as we have a full scale service integrator. Our presence in the Nordic means that we also can help our customers who demands to have Norwegian people in Norway, Swedish people in Sweden, Finnish people in Sweden -- in Finland, I should say. I might be a little bit of a wish from a Swedish person here, but have them and actually even being security cleared. We can do that or if the customer says it's enough with EU. We drive it and we deliver from our big, large center in Ostrava, which have 1,800 people. In addition, strong partnership is important. We have -- again, have a long partnership with VMware. We have won their prices of the most innovative cloud, the first Nordic sovereign cloud in place. We have announced our new relationship with Google last week where we will drive the whole Google partnership across the Nordic countries, and Microsoft has been there for the last couple of years as a really strong growth partner. Finally, we have the flexibility, which customers demand. both when it comes to the data, where to have it, they can have our platforms in their data center if they need and if they're part of that part. They can have it in our data center or they can have it in the public cloud, where we manage it for them. And the great part is that this is nothing that we start right now. We have 600 of our customers now using our cloud services. And one of my favorite is actually 14 municipalities up in the northern parts of Sweden, which is called Norrbotten. They came together because they were too small go about cloud services themselves, but they understood the need of sovereignty and how to protect their inhabitants of those municipalities. They came together, looked for a partner who could actually build a modern private cloud in their facilities up north and then help them to move all the workloads and manage this. These are one of our best friends right now on how to do this. That's 14 municipalities out of 290 in Sweden, which is a great potential. Another great customer is Ilmarinen in New Finland. I think they have -- probably have one of the fastest move into public cloud. We have to move 80% of the workload into public cloud, in the growth part, we run the product with them, and we're now managing it. So as you can see, we are both in the private in what we call the Tietoevry Sovereign Cloud and we're doing this with public cloud. But in order to stay both price competitive and also to drive sustainable profit, this is, as you heard before, a game of scale. The game of scale starts with actually having workloads, having customers, having their applications and running them. We have the largest number of customers in the Nordic. We have the largest number of workloads, which are ready to be transformed with our customers. When you have that, you need to move them to scalable platform. We are the only company who has the same private cloud architecture in Finland, Sweden and Norway, which means that we can do sale over between these countries, especially with NATO coming, that is a very interesting part for a lot of our customers to have the possibility. And that means that you have the same architecture. Nobody has that for the private cloud in those 3 places. We have the strong partnerships, which both drives that we have the latest innovative solutions when it comes to cloud, but it also drives the price point that we make sure that we have the right price point for us, which we can share with our customers. Then you need to have a highly automated operation. This is about standardization. This is about building an IT factory based on AIOps, so you can reuse it over and over again. We have that now based out -- especially Ostrava, but at the same time of tooling can be used in all the countries and out of India. And finally, it's about competencies, people who can redo the transformation for the customers using structural capital in order for doing it faster and more efficient than anybody else in the Nordic. This kind of movement has already started and has been needed for us to change our financial situation. We have driven this over the last 2 years and again this year to actually increase automation, centralizing operations and driving, for example, down our SG&A cost. This part has led to that we now have a headcount reduction of 7%. Now productivity on the highest level, revenue per FTE has gone up by 5%. And this, of course, then lead to that the profitability moves in the right directions over the quarters. We are on this journey right now, where we have set the foundation. And I want to say that again, the last 2 years, we have set the foundations, both when it comes to technology, getting the platforms in place, but it actually had to do about gaining back the trust with our customers. The trust comes from 2 things: deliver to your commitments and having a future road map, which they think are attractive. That is now in place. So now we can accelerate the move of our customers' workload to the highly automated, more profitable cloud solutions. When we do that, we will consolidate data centers. We will also consolidate our legacy platforms, our old cloud platforms to fewer to actually mainly 2 to 3 old, the standardized ones. And what we will then do to drive growth right now and over 2025 is following the data. The data does not only come from the enterprises, but we have new segments which we are right now exploring and winning deals in. The software companies. The software companies who want to sell SaaS to the health sector in the Nordics, to the public sector, they need somebody to run it in Sweden, in Finland, in Norway. They come to us, we run it for them and their software is powered by Tietoevry Connect, just to quote one of our customers. In addition, we're seeing the possibility to use channel partners, to actually going after the SMB market where they want to have the standard cloud platforms, and they want to have a private cloud alternative to the public clouds. What we now are seeing is that with this change, we will move away from actually being an organic shrinking kind of business to go back to growth again. And the growth will come from the multi-cloud trends. It will also come from the technology partnership and go-to-market partnership with the companies you saw on the previous slide. We will also expand into these new market or segments, which will bring more data coming to our cloud platforms. And last but not least, it's all about solid customer retention because we build back the trust with our customers. The profitability is, as we said, coming from the shift into the cloud services that we go into the much more highly automated managed services part and the consolidation of data centers and platform to fewer. When we do this, we actually will also drive down the investment per revenue from 5% to 4% coming to from that our data centers will be more colo data centers where we don't own them anymore. And also, when we move our services to public cloud services is less investment in the actual platform that's done by the hyperscalers. I just want to finish off with saying that we, and actually together we transform, are running the Nordic society. We have a very important place to play. Right now, my people are down in the European Commission, where they have asked us to come and talk about Nordic and sovereignty. This is us as the partner to talk about in EU how this should be run. This is done in a market which is growing 9% year-over-year. We have established our platforms ready to take on the growth and the transformation. We will proactively move our customers to these platforms, which will drive the scales on platform, data center, partnership and automation. And this will lead to that we will have a profitability by 2025 of 8% to 10% EBIT adjusted, and we will have 1% to 3% growth. With that, I'm ready for some interesting questions.

Thank you, Johan. We have now time for a couple of questions. Who would like to go first?

Daniel again from Handelsbanken. I guess, it's better to rephrase my first question before -- to you, Johan, on the cost side versus what you have on [ CPIO ] and the terms you have with the customers today. And also, if I may, a little bit on security, while doing the hybrid cloud, the private -- and also with the hyperscalers, how do you secure the cybersecurity between those APIs, so to say?

So first, I think the question about, again, our cost versus our price and the contracts, if I understand right. Understood that. Yes, and actually, our managed services, contracts or long contract with usually fixed prices. So the energy part can be addressed in new contract. It actually will not -- it's not possible in the same way for that. We have certain indices for certain customers. So we have that as some standard, but there are also customers where we have promised our prices for a number of years. That's why we add the value to them on that part. So we cannot fully gain that into it. When it comes to security part, this is where how do you make sure that you have the right security between private and public cloud. First, I want to say one thing, nobody can ever beat the investments, the hyperscalers doing in the public cloud. That's why we will never argue about where you can get security. You can get that in the public cloud. The interesting part is how you do it across. And here's why our partnerships are important. We are working now closely, we announced with Microsoft, that we will be their partner using their technologies so they can use that in the Micro Cloud, together with our private cloud. So we will build those solutions with a hyperscaler, which goes across. VMware is another, who helps us to build the foundation across this. So it's very important for us to have the right partnership to build those, which we now have.

Sami Sarkamies, Danske Bank. In the recent years, you've lost important customers and have not been able to reach market growth with your multi-cloud offering have also suffered from weak profitability. Can you please explain what you have done to turn the course around and what measures still need to be done in order to reach the targets?

Yes. So if you look historically, we have been suffering for losing customers, as you said. That comes from dysfunctional relationship, especially which came from one of the companies from the EVRY side in the past, which drove down the trust with the customers, and that's why we got the churn happening. In order now, we have built back and build back that trust with customers to show that we are delivering to our promises when we in-source this back and have built up. So now we have gained the trust back. We're seeing that in our, we call, our survey with our customers. It's going up. They believe in our quality again. So that is our sign to do that. The other one is why should we now growing? The specialization of the businesses, which we have done in the last 9 months has been very beneficial for Connect. Because in order to sell the cloud, you need to understand cloud. And by now, we have the specialized salespeople who can actually sell our portfolio, whether it was in the matrix, they need to sell a larger portfolio. So this is them the way to gate. And we're seeing that in both our pipeline, our winning ratio that this is going in the right directions.

Thank you, Johan. I think it's now time to finalize this Q&A. So thank you very much for the answers. Thank you for the questions. And now it is time for our first break. Let's be back in 10 minutes. [Break]

Now welcome back to Tietoevry Capital Markets Day. We are now moving to the second part of business presentations. We will be hearing how we are accelerating value through software, and we will start with the banking business, Christian Segersven. Go ahead.