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2012-03-20 07:00:00 CET 2012-03-20 07:00:10 CET REGULATED INFORMATION Tieto Oyj - Company AnnouncementTieto redefines its strategy to focus and simplify; personnel adjustments to create a competitive cost structure startedTieto Corporation STOCK EXCHANGE RELEASE 20 March 2012, 8.00 am EET Tieto launches its strategy for 2012-2016 with the objective of becoming the preferred partner in business and IT transformation based on its strong position in the Nordic countries. Tieto will build its competitiveness and future growth through industry expertise, geographical focus and simplified operations. Tieto will expand its capabilities to cover full IT lifecycle services by investing in Consulting and System Integration (CSI). Product Engineering Services (PES) will pursue global opportunities. In order to improve profitability and price competitiveness, Tieto will drive actions to simplify its operations and achieve a competitive cost structure by means of a planned net reduction of EUR 50 million in the company's cost base. Full IT lifecycle services and industry focus as customer value drivers Based on Tieto's long experience in selected industries, the company will emphasize industry-based knowledge in its operations. The company will create higher customer value by integrating industry knowledge with Consulting and System Integration services (CSI), Managed Services (MS) and industry products, including its own IPR. The company will expand from its strong position in managed services to provide full IT lifecycle services to cover larger IT needs and opportunities. Tieto aims to increase the share of CSI revenue from the current level of less than 20% to over 25% of total revenues towards the end of the strategy period. Growing CSI enables Tieto to increase its market share and become more resilient towards price pressure. Focus on markets where Tieto can be among the Top 3 IT service providers Within the current core market, the Nordic countries, expansion builds on the company's strong position in Finland and Sweden. The company has decided to revisit its expansion strategy outside the current core market. Tieto seeks to continue operations in countries or expand to markets where the company has the potential to be among the Top 3 vendors, has the ability to provide full IT lifecycle services and sees a strong fit with its industry offerings. Countries where the long-term outlook for EBIT is less than the company's 10% target will be optimized for profitability and evaluated for potential exit. In Russia, Tieto will focus on supporting Nordic customers and locally on the financial services and the oil and gas industries. A profit optimization programme is currently under way in Russia and it is expected to yield positive results during the first half of the strategy period. The scope of operations in Germany will be reviewed during 2012. Product engineering pursues global opportunities in the connected world transformation Tieto sees an opportunity to capitalize on the evolution of the connected world by utilizing its strong position in Telecom R&D services, global delivery capabilities and proven quality. Tieto has decided to operationally enable Product Engineering Services (PES) to pursue its global customer base and opportunities by reducing operational dependencies in the IT services business. PES acts as one of the key sources for Tieto's innovation, future growth and financial performance. The profitability of PES is expected to be in line with Tieto's profit objectives during the strategy period. Improved profitability and quality essential priorities Improved profitability and quality are top priorities during the strategy period. Key sources for the targeted level of operating margin (EBIT) and quality are as follows: -- simplified operations to create a competitive cost structure driving a significant part of the profit improvement -- efficiency and quality improvements in managed services through automation and offshoring driving price competitiveness and contributing to profit improvement -- growth of high-margin services in CSI enabled by investments in competencies for technology consulting and project management -- global expansion of PES -- rationalization of non-core country operations and product portfolio during the strategy period. Simplified operations to create a competitive cost structure - personnel adjustments started Tieto will continue to simplify operations and operating structure to create a competitive cost structure with a view to achieving annualized net savings of EUR 50 million by 2014. Around one fourth of these savings are anticipated to affect operating profit for 2012. Improving price competitiveness requires reduction of overhead costs and increased productivity across the company. Tieto has started Group-wide actions to reduce non-customer centric work, cut overlapping tasks and improve productivity. Additionally, the utilization rate is at an unsatisfactory level in some businesses. The negotiations are expected to lead to a reduction of about 1 300 employees of which close to 500 in Finland, close to 300 in Sweden and around 500 in other countries. The negotiations with labour union representatives will be started in accordance with the local legislation and labour practices in each country. The planned redundancies are anticipated to account for a substantial part of the targeted net savings and will mainly be implemented during 2012. The one-off costs related to the planned streamlining actions are estimated at around EUR 50 million, but will be specified during the negotiations. New financial targets for the strategy period 2012-2016 Tieto has reviewed its financial targets emphasizing profitability over growth. Tieto aims to reach the following targets during the strategy period 2012-2016: -- EBIT margin of 10% -- EPS growth of over 15% (CAGR) as a long-term incentive target during the strategy period 2012-2016. Additionally, the company aims at a minimum dividend payout of 50% of net results and net debt/EBITDA ratio of less than 1.5. Total investments during the strategy period are expected to remain at the average level of previous years. New structure To support the company's ambition to combine its industry expertise with integrated offerings (CSI, MS, industry products), Tieto will gradually transition to the refined operating structure during the second half of 2012, and officially adopt it as from 1 January 2013. The two dimensions of the new structure are Industry Groups and Service Lines. To enable global expansion of PES, it will be organized with reduced operational dependencies to the IT services business. Kimmo Alkio, the President and CEO: “The feedback from our customers, employees and shareholders has made it very clear to us that we need to clarify our focus and direction, while taking decisive actions to address our price competitiveness. Today, we are launching our journey to make Tieto a trusted IT services partner in the years ahead. Our capability expansion in Consulting and System Integration will also offer exciting new career opportunities for our professionals. We anticipate that we will maintain a high degree of focus on our 2012 operational targets, while systematically transitioning to our refined operating model towards the year end. Naturally, it is challenging in the short term to conduct the necessary cost reduction activities, which are necessary to create better price competitiveness and an overall competitive cost structure for the future. This strategy will create a focused and simplified Tieto that is well prepared for the future.” For further information, please contact: Media and investors Kimmo Alkio, President and CEO, tel. +358 2072 010 Investors Lasse Heinonen, CFO, tel. +358 2072 66329, +358 50 393 4950, lasse.heinonen (at) tieto.com Tanja Lounevirta, Acting Head of Communications and IR, tel. +358 50 321 7510, tanja.lounevirta (at) tieto.com Media interview requests Kia Haring, Acting Chief Marketing Officer, tel. +358 40 765 3700, kia.haring (at) tieto.com Press conferences Tieto will arrange two press conferences on Tuesday, 20 March 2012. The new strategy will be presented by Kimmo Alkio, President and CEO: -- Press conference in Finnish for analysts and media at Tieto's premises in Helsinki, address: Aku Korhosen tie 2-6, at 1.00 pm EET (12.00 noon CET, 11.00 am UK time). -- Webcasted conference in English for analysts and investors at www.tieto.com/investors starting at 2.30 pm EET (1.30 pm CET, 12.30 pm UK time). Viewers will have the opportunity to ask questions online. An on-demand video and presentation materials will be available after the conference at www.tieto.com/investors. TIETO CORPORATION DISTRIBUTION NASDAQ OMX Helsinki NASDAQ OMX Stockholm Principal Media Teto is the leading IT service company in Northern Europe providing IT and product engineering services. Our highly specialized IT solutions and services complemented by a strong technology platform create tangible business benefits for our local and global customers. As a trusted transformation partner, we are close to our customers and understand their unique needs. With about 18 000 experts, we aim to become a leading service integrator creating the best service experience in IT. www.tieto.com |
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