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Edited Transcript of TIE1V.HE earnings conference call or presentation 19-Jul-19 7:00am GMT

Q2 2019 Tieto Oyj Earnings Call

Espoo Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Tieto Oyj earnings conference call or presentation Friday, July 19, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kimmo Alkio

Tieto Oyj - CEO & President

* Tanja Lounevirta

Tieto Oyj - Head of IR

* Tomi Hyryläinen

Tieto Oyj - CFO

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Conference Call Participants

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* Christoffer Wang Bjørnsen

DNB Markets, Research Division - Analyst

* Daniel Djurberg

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Hannes Leitner

UBS Investment Bank, Research Division - Equity Research Analyst of Software

* Panu Laitinmäki

Danske Bank Markets Equity Research - Senior Analyst

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Presentation

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Tanja Lounevirta, Tieto Oyj - Head of IR [1]

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Good morning from sunny Helsinki. We are happy to be here with you today and discuss our second quarter results. We will start with the presentation by Kimmo Alkio, our President and CEO, and then continue to the Q&A session. If you have any questions, please dial in to our conference call. My name is Tanja Lounevirta. I'm Head of Investor Relations.

Kimmo, now floor is yours, please.

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Kimmo Alkio, Tieto Oyj - CEO & President [2]

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Thank you very much, Tanja, and a very good morning to everybody, and welcome to our Q2 results announcement also on my behalf.

What an exciting quarter we had. This was a very significant one in terms of both stepping up our long-term competitiveness and in ensuring our short-term efficiency is in place as a near-term profitability driver. Thus, a number of very interesting and actually big initiatives and activities taking place during the second quarter. We call it a major transformation that has been initiated within a very broad agenda. As such, our strategy implementation is progressing as planned, and we did experience a large-scale transition to a new operating model and that is, to a large extent, completed in the last 3-month time frame.

The quarter, as in the industry in Europe seems to be the case, the quarter has specific dynamics given that it's a shorter quarter and, in our case, also quite significant currency impact. Revenues were up by 1% in local currencies. Adjusted EBIT margin at 8.4% impacted by the short quarter and currencies by actually about 1 percentage point equaling to about EUR 4 million.

Our efficiency improvement program is fully on schedule, and we anticipate approximately EUR 15 million in cost savings to materialize during the second half, thus giving us a good degree of comfort regarding the outlook for the second half. And naturally, the largest and most significant event taking place in our case in recent history is the announced highly complementary merger with EVRY. And I will reflect on that as well throughout -- towards the end of the presentation.

As usual, I would like to begin with a short perspective on the market. The market remains positively dynamic, and we believe that it is a very interesting mixture of opportunities between the data-rich services. We continue to play a more and more active role in data science, data analytics, data platform side. We are doing very interesting projects in a broader set of industries, most advanced even to the research level happens to be in the health care sector. We'll hear very interesting information in the months and quarters to come on the advancement of medical treatment.

I would also like to highlight on the kind of a more traditional side on Hybrid Infrastructure continues to be a very important part of enabling our customers to run their businesses efficiently. And we have also experienced good development and significant wins in the traditional infrastructure side during the second quarter. And in between the data-rich services and infrastructure is the more active public cloud adoption where we are also gaining good speed. So with these, actually added the encouragement overall that the strategic choices we have made are the right ones in regards to where the market is moving.

Macroeconomy, as such, we believe that the IT market will continue to grow in the Nordics approximately 2% to 3% measured in local currencies. And overall opportunities, given the demand for data-rich services, drive for efficiency through infrastructure and application management that their investment appetite continues to be healthy.

If we go into next to the very practical parts of the performance at the Tieto group level, as very briefly highlighted in the opening part, quite visible in the numbers, the shorter quarter and the currency impact, revenues up by 1% in local currency. Adjusted EBIT at EUR 34 million, 8.4%. And actually the impact of -- the combined impact of currency and shorter quarter at EUR 4 million, thus being an equivalent to EUR 38 million compared to the EUR 36 million level in Q2 of the prior year.

The reported EBIT includes the expected restructuring charges and some initial M&A cost totaling approximately EUR 16 million. We are also pleased to see that the quarter ended with a strong order backlog, approximately EUR 1.8 billion and a 4% growth from the prior year.

So naturally, as I highlighted in the very opening part, quite unique dynamics in terms of impact of currency and shorter quarter. We believe the underlying business performance of the group as a whole is indeed sound. And added by the backlog development, we look positively towards the second half of the year.

Other main performance indicators I would like to very briefly touch on. First, on the offshoring side, we continue to do well. Customer quality, customer sat, scalability of offshore capacity, good, 51% level. Now no dramatic shift, continues to be a very important factor in terms of price competitiveness and resource availability.

A word on net debt to EBITDA. Naturally, second quarter includes the dividend payout. And throughout this year, comparing to the figures of last year, the IFR impact is visible there, impacting by about 0.5 factor. Cash flow, good, and as we have -- as management anticipated, approximately EUR 37 million. And we do fully expect a good cash flow generation to continue also throughout the second half.

Couple of comments regarding our growth investments, growth businesses. Customer Experience Management, 13% growth. Yes, there is more upside in the marketplace, some delivery capacity challenges in the second half, some projects postponed, still about 13%. Yes, we believe there's more upside in this business.

On Hybrid Infrastructure, the cloud services, 10% growth for the second quarter, and Security Services growing nearly 30%. So fairly good pace of growth both in cloud and security.

Regarding couple of the main software businesses. Our Lifecare on the health care side, 6%, fairly good performance. Payments has really bounced back well in the past year time frame as we have reflected upon in prior quarters, 11% growth second quarter. And oil and gas, 5% growth specifically for Q2.

Now given that we have done the change in strategy, change in operating model and, as expected and communicated earlier, the new reporting segments, we cover Digital Experience, our Industry Software, Hybrid Infra and Product Development Services. I'll talk through these in more detail and then offer short commentary by the go-to-market component to countries afterwards.

Digital Experience as a business during second quarter was clearly the most challenged of our businesses. And this was also clearly impacted in the largest manner due to the currency and working day. Within the Digital Experience business, we also experienced -- went through a quite a significant operating model change, large-scale rotation, nominations for key people leading the respective practices within Digital Experience, covering all of our main countries. And we had a decline of 2% in local currencies, I'll explain in a second. The profitability level, adjusted EBIT, EUR 10.6 million at 8.6%. To be fair, the combined impact of currency and working day is over 1 percentage point; excluding that, would be very close to or at 10% level.

Within the Digital Experience business, we have number of practices. We have our Customer Experience Management, 13% growth in local currencies. We have the well-performing and large business or enterprise applications. We have businesses around data platforms and data advisory. And we have our application services which, in recent years, has been performing well. Second quarter, we grew only by 1%, and this was impacted by one specific larger customer insourcing, which was clearly known to operating management in advance. Just wanted to be clear that the application services business created a bit of a dent in the second quarter. We've done well on application services in recent quarters and years, and I absolutely believe we have ample opportunities to grow in that domain as well.

And then regarding a bit of a soft perspective as we tend to do per business on what to anticipate in the next quarter, in the third quarter, we expect the operating margin to be at or above the third quarter level of 2018 when it was at the level of 10.9%.

Hybrid Infrastructure business had a good second quarter, 3% growth in local currencies. Adjusted EBIT at 10.8% level. Infrastructure cloud, around 10% growth. Security Services, growing healthily. And by the way, the traditional infrastructure services has been in recent quarters and years declining about 4% to 5%. Now the decline was less at 2% level, very much in our case as it is the case in the industry due to the price erosion and more standardized set of services. So really well adapting to the market development. And the EBIT margin was at the level of Q2 '18. Somewhat higher personnel cost in the second quarter, and the efficiency measures have been done in a very active way within our Hybrid Infra business and shall have positive impact towards the second half. And with that -- this in mind, we expect the third quarter adjusted operating margin to be above the level of comparable period.

Regarding Industry Software, a bit of a two-folded story. Growth in local currency is 1%. From a gross standpoint, we are doing better and better on the Payments side and on the Lifecare side. Lifecare, we also have actually really positive customer feedback on the implementations that are taking place in a higher and higher frequency. The currency, as is the profitability level, impacted by the pre-decided higher investment level around SmartUtilities. With this in mind, the growth was only 1% in local currency. Once the deployments on SmartUtilities begin, which will take place over the next 18 months, we believe that the whole Industry Software will be actually performing well.

I would also like to confirm that the soft -- our whole Industry Software business group is performing outside the SmartUtility continuously in a sound manner. The predictability of our software releases, predictability of implementations continue to develop really favorably. And I would like to also highlight that as we have decided in advance to increase the offer in development in SmartUtilities supporting the deployments given the very good order backlog we have and, thus, we are awaiting that software is fully ready and we begin customer deployments.

We have 2 areas, as well known, where we invest in common software platforms where we anticipate attractive longer-term financial returns, very specifically in Lifecare and SmartUtilities, platformatized shared code bases that are used as the foundation for serving customers over the next years. We do believe that both businesses will have good traction in the marketplace. Traditionally, the contracting periods range from 5 to 7 years while the revenue streams actually extend easily even to a 15-year period. With this in mind, the total offer in development cost that have been capitalized at EUR 4.1 million supporting the longer-term returns we expect.

In the third quarter, the adjusted operating margin anticipated to be slightly below the level of third quarter '18. It was actually on comparable terms, actually a very good quarter 1 year ago. I would also like to confirm that our second year -- second half outlook for Industry Software is well supported by the healthy revenue outlook as well.

Regarding Product Development Services, 5% growth in local currencies. Profitability at 7.9%, naturally impacted in this case as well given the dynamics of the shorter quarter. We continue to see attractive volume development with the largest key customers, also in the automotive sector. Excluding the impact of currency and the shorter quarter, the EBIT margin remained at the level of Q2 '18.

During the second quarter in PDS, we had a bit of extra bench, and this actually has been resolved already during the first couple of weeks of July. With this in mind, we anticipate the operating margin to be at or below the level of Q3 '18, and also the Q3 '18 was actually a very strong one. We fully expect the PDS to continue to perform very solidly throughout the second half.

I'd like to also offer a few commentaries on our go-to-market, customers sales by country. Regarding Finland, country growth of 1%. There, actually positive development in Industry Software with a 10% growth in health care solutions. Infrastructure services demand and volume development, strong, whereby in the Finnish market, this notion within the Digital Experience and application services by the one large customer insourcing, and this tend to happen very seldom, but that is a factor impacting this year.

Regarding Sweden, growth of negative 2%. Decline driven by the Tieto SmartUtilities as we await for and get prepared for the deliveries to be taking place over the next 18 months. While the Digital Experience and Hybrid Infrastructure businesses, slightly up. In regards to Sweden, we also foresee a healthy growth outlook for the second half of the year.

Norway growth, 4% across all businesses. Health care and welfare, double-digit growth. Digital Experience, growth of 9%, driven by exactly the areas we'd like to see more on around data analytics, API management and related consulting services.

So naturally, any questions on business performance will continue then to through the Q&A. Next, I would like to offer a perspective on how have we proceeded from the reshaped strategy, which was announced on February 6, and what has practically taken place during the second half. Overall, we are progressing, I would say, fully on schedule. I'd like to offer commentaries in 3 domains: one, the businesses; second, the reshaping of our go-to-market; and third, the development of the new operating model.

Regarding Digital Experience, a bit over 250 people joining this business, thus confirming the direction we have taken. On the Hybrid Infrastructure side, continued important attractive customer wins to drive cloud transformation. And we have also, to a very large extent, completed the intended rationalization regarding Hybrid Infra to also drive the productivity and efficiency.

In Industry Software, we have also fully set up the common software business functions which will add to the predictability, efficiency, quality of software R&D, thus efficiency within the business as a whole. And the renewals in specific businesses comprising specifically TSU side progressing well on schedule.

Product Development Services, the momentum and expansion opportunities remain very solid as in prior quarters. And we have announced the new delivery center in Ukraine with a key customer, which actually adds opportunities to serve customers in adjacent sectors, adjacent industries as well.

Regarding the reshaping of our go-to-market. So we've actually completed the full resegmentation of our main markets, assigning either existing or new client partners, and growth initiatives are actively being worked on through the country networks. And I naturally expect to see results as we make a bit more progress time-wise.

Regarding the new operating model. We talked about networked ways of working and leadership, the background being that customers expect their partners to be highly agile, expect to be faster, more lean. And that's very important that the full transition to the new operating model and organization has been completed. We have eliminated the very large extent to which we had the matrix operations in place. Management system updated. And actually, we are planning the most important activities of the firm, currently 90-day cycles, thus being able to respond to potential market changes even faster. Reduction of coordinating and administrative roles proceeding well on schedule and towards the approximately 700 range. And I think in our text, we have commented that a bit over 500 have been concluded by the end of the second quarter.

With this in mind, the strategy implementation Tieto standalone will naturally continue. A number of the experiences that we have will potentially serve as good insights also towards the merged firm, which we will then come back towards.

Regarding the performance drivers, as always, I would like to just carefully summarize. This is very consistent with our prior dialogues. Our growth projection, we aim to grow faster than the market in local currencies. And naturally, with this in mind, we anticipate the second quarter -- second half of the year growth to be more attractive than we experienced in the first half. First half naturally being influenced significantly by the dynamics and the longevity or shortness of Q2.

Operation simplification anticipated to result in annual gross savings, EUR 30 million to EUR 35 million, very relevant performance factor. And as communicated, approximately EUR 15 million anticipated to materialize during the second half of this year.

Given the merger announcement, we would also like to highlight that we expect the costs related to merger, subject naturally to approval of the transaction, to amount between EUR 15 million to EUR 20 million, affecting the reported EBIT in adjusted items during the second half of the year.

With this background in mind, we naturally confirm our guidance. We expect full year adjusted operating profit to increase from the previous year level of EUR 168 million added by the impact of IFRS 16 to maintain the comparability after the adoption of the new standard. So our guidance remains naturally firm.

So with this in mind, before I go and summarize the announced merger, I would like to just confirm that this was a very significant and a big quarter as we step up in terms of our longer-term ambition and we have also, in parallel, ensured our short-term efficiency is in place as an important profitability driver for the second half of the year.

Now then we go towards, in a way, the most exciting news of our recent history. We are, and I am very pleased to be part of actually the team of looking into how we create the -- a very, very attractive and competitive digital services company in the Nordics and Europe. We have a highly, highly complementary merger coming up in terms of the services, the markets we serve, the expansion opportunities we have and the capabilities we have as a combination.

We also have a very valuable foundation of common values that are based on openness, respect and diversity. The companies share these already in day 1 to a very large extent, and I'm sure we can do a lot more to create an even better future in terms of employee attractiveness and identity. And naturally, the growth and synergy potential, we believe, will be very significant.

Very practically, the combination will have nearly 24,000 professionals, 5,000 in digital consulting all across the Nordics, total of 10,000 including the global delivery capabilities. And naturally, the opportunities for higher scale, the so-called hyperscale potential regarding cloud and infrastructure services, and we have software businesses which are very significant. And naturally, the potential and appetite for selectively looking at international expansion for driving further growth and scale is a super, super interesting opportunity.

The complementarity, wanted to just again, as was the case on June 18, just highlight that day 1, the complementarity is very significant in terms of geographical presence. We become -- the capabilities become very rich in terms of the full presence in Norway and naturally, in terms of Finland, and especially Sweden as we combine the units we have in Sweden, being able to play a much bigger role in helping customers to digitalize their customers' experiences and businesses.

Furthermore, the set of services comprising of the consulting services, both companies have been developing this actively. Both companies have a strong history in the platform or infrastructure services and also the software businesses, specifically Financial Services. And then from Tieto heritage, specifically on the health care, and the utility side or energy sector will be really interesting to see as avenues for longer-term growth.

Also to summarize the strategic rationale and a couple of maybe more detailed commentaries. The strategic rationale is very, very extensive. I've touched on a few of these already. I would like to highlight a couple of items. The opportunity for employees to shape the future today, we believe this will become one of the most attractive employers in the Nordic market and very attractive also for our colleagues globally based on the Nordics set of values and especially focused on future opportunities and the respect at the individual level.

I would like to also offer a couple of words on the value creation for shareholders and confirm that we are -- I am highly confident on the EUR 75 million synergies. And just to confirm also, this does not yet include revenue synergies nor any potential infra partnerships. As to infra side, we'll take a bit of time to define a common way forward and then come back on that topic. We also do believe the significant proportion of the synergy shall be realized already during the first 12 months after the approval.

The next steps we see, schedule-wise and a little bit of a process update, all preparations regarding the Extraordinary General Meetings are fully on schedule. We anticipate the invitations to be sent out in the next week. And the current plan is to have the EGMs during the first week of September. And naturally, with this as a process, we shall then await for, post EGMs, for the authority approvals. And meanwhile, we have the integration planning ongoing to the extent it is possible to do prior to approvals.

I would like to conclude here, and time for Q&A. Thank you.

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Tanja Lounevirta, Tieto Oyj - Head of IR [3]

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Yes. Thank you, Kimmo. So we proceed to the Q&A session, and I would like to invite Tomi Hyryläinen, our CFO, to join us.

So we are ready for questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We've received the first question. It is from Panu Laitinmäki of Danske Bank.

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Panu Laitinmäki, Danske Bank Markets Equity Research - Senior Analyst [2]

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I have 2 questions. First one is on the currency impact. You highlighted that Q2 was exceptional due to the currency impact, and it had a meaningful impact on the EBIT margin. My question is basically that why it had such an impact in Q2? If I look at the currencies kind of the Nordics compared to euro, it seems that the kind of changes were smaller than in Q1. And in Q1, it didn't seem to have similar margin impact to you. So could you please explain why it hit you so much in Q2?

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Tomi Hyryläinen, Tieto Oyj - CFO [3]

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Yes. So as you well know, the currency impact, it is well visible and easily explainable through the SEK, so the Swedish currency. But then you need to also be mindful of the working day impact, which is the most significant when we talk about the profit.

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Panu Laitinmäki, Danske Bank Markets Equity Research - Senior Analyst [4]

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Okay. So it was more about the working day and not the FX actually in Q2?

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Tomi Hyryläinen, Tieto Oyj - CFO [5]

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Exactly, in the profit.

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Panu Laitinmäki, Danske Bank Markets Equity Research - Senior Analyst [6]

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Okay. The second question is on the cost savings, of the EUR 15 million gross that you expect for the second half, basically 2 questions related to that. How does it split to the divisions? And then what kind of net impact sort of we'll be looking for given that you are kind of recruiting new people and have some inflation?

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Kimmo Alkio, Tieto Oyj - CEO & President [7]

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I think what we can comment on that one that -- well, first of all, it's a bit difficult to start to open up that part of business. We don't give, let's say, detailed profitability forecast per business. It's a very essential element when we think about the full performance of the company. And so that's one essential part that kind of gives a healthy degree of confidence that second half will be intact.

Now the commentary we did offer regarded the Hybrid Infrastructure side. So there, we have been -- have -- the business unit has been driving it very actively and making good progress. I will leave it at that for the time being given that there are so many different factors in terms of the performance variables by business, that if I comment one of them, one would need to talk about most of the components of the P&L.

I would like to maybe just go still a little back to thank you for your first question as well. And our reason we highlighted multiple times currency and working day, we feel that we probably need to open up the working day impacts more in advance in the future as it may have been very difficult to predict for many people. But it is the largest factor that created this EUR 4 million kind of a difference compared to -- or the impact overall EUR 4 million that we have commented on.

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Panu Laitinmäki, Danske Bank Markets Equity Research - Senior Analyst [8]

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Just a follow-up to the Digital Experience business. So is it kind of fully working day-related, the change in the growth trend? Or was there something else like market-related?

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Kimmo Alkio, Tieto Oyj - CEO & President [9]

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Yes. Thank you. Very good point. So it was, I would say, about half and half. And as always, to be very open, so in this case, the impact by one large customer insourcing within this application services, part of Digital Experience, as we had predicted, we had of course known that actually early part of the year already. So that had a very specific dent. Maybe the third factor I just want to mention that, yes, we do believe that the total growth profile within the DEX, there is clear room to improve and we should see that in the second half.

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Operator [10]

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The next question is from Dan Djurberg of Handelsbanken.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [11]

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Yes, I guess that was my name. Daniel Djurberg here from Handelsbanken. Yes, a question on Digital Experience again. And the question is you mentioned that 50-50 or something was working days on that -- on this insourcing and so on. But still, we will see -- you target a quite hefty improvement here for the Q3, coming back to around 11% that you saw last year or higher. Can you be specific on how to get this improvement quarter-on-quarter? Because already in Q3, it's working.

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Kimmo Alkio, Tieto Oyj - CEO & President [12]

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Sure, indeed. So actually, there's one more element which I should have commented also in the prior question that when we went through this full operating model change, so we had hundreds of managers being rotated. And whenever you do that in a consulting business, it actually, by nature, unfortunately, does create an intermediate or temporary softness in terms of practical billability as the foundation of kind of revenue growth. So that is one other factor. And naturally, the magnitude and the level of completeness we have been able to achieve in the second quarter is one other factor that much more normalized performance we should be getting towards.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [13]

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Okay. And would you say that, that rotating procedure is now ready? It was ready in Q2, so it did not impact Q3 so much? Or...

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Kimmo Alkio, Tieto Oyj - CEO & President [14]

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Very large extent completed. I'll take it humbly, of course, that now the performance management, as you know, consulting business has to be taking place on a weekly basis, and that is naturally what we are doing by now.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [15]

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Yes. And a follow-up, if I may. Normally, when you do this kind of rotating things and also you talked about your reorganization, but also this merger being announced ahead of us with EVRY, how has the employee turnover been and also, within the year, mid-management layer in Digital Experience?

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Kimmo Alkio, Tieto Oyj - CEO & President [16]

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Yes. So nothing -- no unusual or no negative development. We have -- naturally, the digital consulting market, as such, has been and is and will be quite hot. So that is the area where the attrition tends to be a bit higher, but nothing unusual in the second quarter. As such, I would say we have actually received more than anything from any -- from all of our businesses and the market, as such, very positive encouragement and feedback regarding the merger. So a lot more opportunity than anything else.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [17]

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Okay. Perfect. And my last question would be on this customer insourcing. Do you see this as a -- well, now an item we're not having as often? Or should we see it as some kind of a trend in the market that we'll see more customer insourcing? Some thoughts on that would be interesting.

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Kimmo Alkio, Tieto Oyj - CEO & President [18]

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So I do believe this happens really seldom. But it's a bit difficult to say. Is it 1, 2 or 3, every 6 -- every 12 or 18 months? But it does not happen often.

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Operator [19]

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The next question is from Christoffer Bjørnsen of DNB Markets.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [20]

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Christoffer from DNB here. I just want to get your commentary on the synergies, the EUR 75 million synergies that you announced together with EVRY. The management group at EVRY, they commented on their Q2 presentation last week that they definitely saw this figure as potentially higher and that it's also a bit cautious as a result of being just kind of a top-down approach. Can you give some comment on, given these low synergies, how much that could be or how significant that would be?

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Kimmo Alkio, Tieto Oyj - CEO & President [21]

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Sorry, the line was a bit breaking. Did you say -- did you -- what's the last part on the infrastructure side? Can you just repeat, please?

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [22]

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No, not on the infrastructure department, just in general, how cautious have you been with the EUR 75 million in synergies? How much more is there to get out? Because EVRY's management was quite forward leaning on their Q2 presentation with regards to this.

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Kimmo Alkio, Tieto Oyj - CEO & President [23]

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So naturally, we have had a kind of -- the more time we are able to spend together, the more we will have a kind of more level of concreteness jointly, and that's of course 100% mutual interest. And to be fair, the EUR 75 million, if one looks at the statistics on post-merger integrations globally, we are at about 2.4% of the cost base. The global average is between 2 -- around 2.5% to 2.6%. So I wish not to leave a perspective that this would be overly conservative. But we have a very high degree of confidence given that we have had a chance in the DD phase to work through what we believe in. That's one factor, if I may.

Second factor, we have a super-high ambition to seek for additional synergies. I do believe it is possible. It will take time and more people from both companies to go into more detail, that we don't guess what is the potential further upside.

And then I would still like to just confirm that this does not have any potential infra partnership related. And as I have commented previously, the paths both companies have taken are quite different. And we have a great opportunity to look at what would be the best technology partners for the infrastructure given that we get roughly the duplicate scale for the combination. And that will be great to come back on once we are able to conduct that work jointly.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [24]

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Yes, sure. Exciting. And then just a follow-up on the merger. Let's say the price of Tieto is down significantly since the announcement, and it seems like some people are worried about the future dividend of the combined company, and I guess I understand that justification for the combined company. But could you say anything to provide some comfort for investors? Do you see anything that could kind of result in a worse-off dividend company than at the moment?

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Kimmo Alkio, Tieto Oyj - CEO & President [25]

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So if I offer a couple of considerations, so -- and I start with the perspective we offered on the 18th of June that we believe that the dividend capacity for the combination will also continue to be good. So as that is the kind of the recent path -- recent period from EVRY, specifically for the 2018 -- out of '18 -- year 2018, and actually we have a longer -- quite a long period of sustainably being attractive from a dividend standpoint. We do believe in the healthy combined cash generation for the companies. And so that interest, the potential is very clearly there. We believe that the balance sheet structure will be adequate to also support the dividend attractiveness. It's a bit too early to give a comment now as an example regarding the first year. We need to work through the details as a combined management. Or maybe Tomi wants to add some comments.

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Tomi Hyryläinen, Tieto Oyj - CFO [26]

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Yes, exactly. I fully echo with Kimmo. So we absolutely believe in the good cash generation ability of the combined company. And we will find a good way, healthy balance between deleveraging and paying attractive dividend to our shareholders. Absolutely.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [27]

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And last one from me, more on the strategic side. You mentioned on 18th and today that you see an opportunity to get the competitive hyperscale platform on the infra side. Can you just elaborate a bit more what you mean with that? Is that a third party? And is it your own? Is it a mix? Just what -- how do you define a competitive hyperscale platform? From my point of view, it's quite vague.

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Kimmo Alkio, Tieto Oyj - CEO & President [28]

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Yes, very good question. I'll try to do it in a brief manner. I'd like to do some whiteboarding on the architectures to explain it thoroughly. But the short version would be that we have, as Tieto stand alone for the last 18 months, been looking into the -- how could the scale of traditional infrastructure be uplifted a great deal. We have been in the dialogues with number of technology partners on how could we -- on alternatives on asset-light models, how to transition legacy infrastructure -- kind of architectures to very modern towards the type of a -- utilizing the combination of virtualized environments and actually the public cloud.

So that is -- so we looked at that from a technology evolution standpoint that gives higher scale, less capital-intensive, actually higher profit. And the path that -- we see a very fair path and well done by our EVRY colleagues, actually more of an outsourcing arrangement with IBM. So it's a very different path. Now as we combine our experiences, we will look at the new available services out there in the market. And naturally, any of the larger tech vendors are more than interested to talk with the combined Tieto EVRY on that opportunity. And like I commented, which is still my belief, that this type of a potential shall not be guessed. And that's an area that we'll be working between the management teams and looking into that in more depth as soon as we are allowed to do so.

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Operator [29]

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There are no further questions at this time. I would hand back to the speakers.

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Tanja Lounevirta, Tieto Oyj - Head of IR [30]

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Thank you, operator. So we are ready to end this call. I would like to thank you for joining us today -- there is one more question.

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Operator [31]

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Yes, we've received another question. It is from Hannes Leitner of UBS.

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Hannes Leitner, UBS Investment Bank, Research Division - Equity Research Analyst of Software [32]

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Could you please elaborate a little bit more on the book-to-bill? It was fairly weak in the quarter. And how do you see it progressing throughout the year? And then also, could you give us any color you have on initial feedback on the EVRY deal from your customer base? And can you speak also a little bit about attrition? You mentioned a hot consulting market, but how do you offset that? And how do you see that also, once you join forces with EVRY, how this will be evolving?

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Kimmo Alkio, Tieto Oyj - CEO & President [33]

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Okay, so 3 points: a bit kind of order intake or backlog, the feedback on the merger from customers and then the consulting market, right? Those were the 3?

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Hannes Leitner, UBS Investment Bank, Research Division - Equity Research Analyst of Software [34]

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Yes.

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Kimmo Alkio, Tieto Oyj - CEO & President [35]

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Okay. So maybe first, let's begin by the most exciting one, which is the feedback from customers on the merger. So actually, both Per and I received within the first 24 hours numerous messages from customers, purely positive, that the potential for actually having greater capabilities and more advanced technologies, greater critical mass and building on similar histories of the companies, seeing actually very, very positively. And of course, then we need to make sure that we actually, day 1, start to fulfill those kind of promises and opportunities that the combination does create. And time will, of course -- I take it humbly, we need to prove that we will create greater value for the combined customers. But to confirm, really positive, as is the case actually internally from both companies. We have spent a lot of time in the main offices about ways, and that type of sharing and engagement has been very active.

I take, next please, the consulting market. Consulting market, the kind of the whole digital services sector, we have said, by the way, for the last 2-year time frame becomes much more consulting-led. However, one thinks about helping to reshape whether it's infrastructure environment, TCO infrastructures, application landscapes, TCO of applications or highly modern data -- science-related data, platform-related services. Everything is more consulting-led. So it's not consulting not just a business, but it should be an inherent DNA in how the company is perceived in all interactions.

Now very specifically, I'll come back, of course, and comment your very good point on consulting market and the business. We are 80%, 90% synergistic on type of practices we have already today based on the development that both companies have had. So I do believe that we have an opportunity to get into a flying start, that very rapidly, more or less day 1, people see, ah, we do the same things, we have actually twice the resources. And naturally, we need to set a super-high ambition also in terms of growth profile, the identity and a very, very attractive place to be with the type of a Nordic set of values. So we'll be really [exiting] that path as well.

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Tomi Hyryläinen, Tieto Oyj - CFO [36]

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Then there was a question on order backlog. So we had some really good wins in Q2 which are boosting the order backlog. And we don't see any shift sort of towards the year-end. So we see good, good, strong orders also coming in for the rest of the year.

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Hannes Leitner, UBS Investment Bank, Research Division - Equity Research Analyst of Software [37]

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Okay. Just one quick follow-up on the overlap of customers. Did you do any detailed analysis yet of where you are, #1 or #2, with EVRY in their customer base where there's a risk that those customers might move then to a dual sourcing again?

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Kimmo Alkio, Tieto Oyj - CEO & President [38]

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Yes. So naturally, we touched on this topic as part of the due diligence process to the extent it can be done, and there is very little -- hardly any overlap. It happens to be very synergistic. And the reason truly synergistic, to be fair, the reason being that EVRY is really -- is very strong in Norway, and we have been trying to grow in Norway. And then on the other hand, Tieto has been very strong in Finland. EVRY has been trying to grow in Finland. And so in those 2 countries, there's really no overlap. And then the game plans in Sweden, however, the logic of competition has worked, we are in kind of I would call it adjacent sectors but not overlapping.

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Operator [39]

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We've received a follow-up question of Christoffer Bjørnsen of DNB.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [40]

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It's on -- also in EVRY's Q2 report, they mentioned that they, after the announced merger, they have received a brief notice or arbitration from their main supplier, IBM. Can you just give some commentary on that? And how investors should think about that now that they're going to be a part of Tieto?

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Kimmo Alkio, Tieto Oyj - CEO & President [41]

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Sure. Thank you for the question. So we had, as I think everyone would expect, a very open dialogue in terms of the full business profile and the good things and the challenges either companies have. As part of the due diligence process, I do believe we were both ways super open because the reality is very important to share. And with that in mind, we have been -- I have been aware of some of the challenges between EVRY and IBM. And this can be potentially characterized also as at least to somewhat typical challenges in an outsourcing arrangement. We serve our customers in outsourcing every outsource, practically the infrastructure operational part, to a large extent, to IBM.

So what those challenges have been, we have been aware of. And naturally, we were not aware of the details of the notification that came from IBM approximately 1 day after the announcement. And I fully trust that our colleagues at EVRY are handling it in the best possible manner. And when it becomes feasible, naturally, it will be interesting to look at the potential what the combined company can do with any of the potential technology partners. So I believe it is fairly -- it is actually well framed and EVRY management handling.

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Operator [42]

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Okay. Thank you. There are no further questions.

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Tanja Lounevirta, Tieto Oyj - Head of IR [43]

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Okay. If no further questions, I would like to thank you for joining us today. We will have an exciting autumn with the coming EGM. Talk to you soon again. Thank you. Bye-bye.

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Kimmo Alkio, Tieto Oyj - CEO & President [44]

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Thank you so much for joining us today. Thank you.

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Tomi Hyryläinen, Tieto Oyj - CFO [45]

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Thank you.