TietoEVRY Corp (FRA:TTEB) Q4 2024 Earnings Call Highlights: Navigating Challenges with Strategic Resilience

Despite a 7% revenue decline, TietoEVRY Corp (FRA:TTEB) maintains strong profitability and proposes a dividend increase, signaling confidence in future growth.

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Feb 15, 2025
Summary
  • Q4 Revenue: Negative 7% growth due to weaker demand across all businesses.
  • Q4 Profitability: Healthy profitability at 12.8%.
  • Q4 Cash Flow: Strong cash flow of EUR128 million.
  • Full Year Cash Flow: EUR326 million.
  • Dividend Proposal: Increase to EUR1.50 per share.
  • Full Year Organic Growth: Negative 2%.
  • Adjusted EBITDA: EUR345 million, 12.3% margin.
  • Order Backlog: Increased by 2 percentage points.
  • Q4 Ransomware Impact: EUR6.2 million booked, total EUR7.6 million for the year.
  • Interest-Bearing Liabilities: EUR872 million at end of Q4.
  • Net Debt/EBITDA: Over 2, target range between 1 and 2.
  • Q4 Free Cash Flow: EUR108 million.
  • Q4 Net Working Capital Improvement: EUR44 million.
  • Q4 Attrition Rate: 8.3% at year-end.
  • Q4 FTE Reductions: Create: 200, Banking: 100, Tech Services: 50.
  • 2024 Salary Inflation: 4.5%, expected 4-5% in 2025.
  • Q1 Revenue Growth Expectation: Negative growth anticipated.
  • Q1 FX Impact: Negative EUR9 million on revenue.
  • Q1 Working Day Impact: Negative 0.7 percentage points on growth.
  • 2025 Guidance: Organic growth of -3% to 1%+, adjusted EBITDA range 12.0% to 13.0%.
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Release Date: February 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • TietoEVRY Corp (FRA:TTEB, Financial) maintained a healthy profitability of 12.8% for Q4 despite challenging market conditions.
  • The company reported a strong cash flow of EUR 128 million for Q4 and EUR 326 million for the full year.
  • The Board proposed an increase in the dividend to EUR 1.50 per share, reflecting confidence in the company's financial health.
  • Significant progress was made in the strategic review of Tietoevry Services, with the sales process in its final stages.
  • Positive developments were noted in AI adoption, with increased demand for data services and AI-embedded software, providing growth opportunities in banking, industry, and care sectors.

Negative Points

  • TietoEVRY Corp (FRA:TTEB) experienced a Q4 revenue decline of 7% due to weaker demand across all business segments.
  • The company faced price pressure in the marketplace, impacting profitability, particularly in the digital engineering market.
  • The industry segment underperformed expectations due to budgetary reductions in the paper, pulp, and fiber industries.
  • Ransomware-related settlements negatively impacted Q4 growth and profit by almost 1 percentage point.
  • The company anticipates continued market softness into 2025, with a gradual recovery expected only in the second half of the year.

Q & A Highlights

Q: What are the expectations for growth in 2025, particularly for the 'Create' segment?
A: Kimmo Alkio, CEO, explained that all business segments are expected to return to growth. The 'Create' segment, which faced challenges in 2024, is anticipated to see significant improvement. The market softness that impacted software businesses is expected to ease, allowing for a recovery in growth.

Q: How is the banking business expected to perform, and is the customer consolidation factored into the guidance?
A: Tomi Hyrylaeinen, CFO, confirmed that the impact of customer consolidation, which presents a 4-percentage-point headwind, is included in the guidance. This will primarily affect the first half of 2025, with minimal impact in the second half.

Q: What triggered the goodwill impairment related to tech services, and how does it compare to last year's impairment test?
A: Tomi Hyrylaeinen, CFO, stated that the impairment was driven by current market valuations for tech services, which have decreased. This reassessment of value in use is part of the normal annual impairment testing cycle.

Q: Can you elaborate on the industry segment's margin miss in Q4 and the customer settlement impact?
A: Kimmo Alkio, CEO, noted that budgetary constraints and temporary overcapacity in some businesses contributed to the margin miss. The customer settlement was due to longer client engagement durations, which occasionally occur.

Q: How does Tietoevry plan to manage FTE capacity and salary increases in 2025?
A: Kimmo Alkio, CEO, emphasized active management of FTEs and business pyramids. The company expects salary inflation of 4% to 5% and aims to optimize employee costs through efficiency measures. Pricing increases are challenging in the current market, particularly in service-type businesses.

Q: Is there a risk of further ransomware-related settlements affecting growth and margins in 2025?
A: Tomi Hyrylaeinen, CFO, mentioned that while some settlements are expected, they should be limited. The company has already booked reserves for anticipated settlements.

Q: What are the growth expectations for tech services in Q1, considering the headwinds from software and hardware resales?
A: Tomi Hyrylaeinen, CFO, acknowledged that the market remains soft, and the volatility in hardware and software resale is expected to continue, impacting growth in Q1.

Q: How does Tietoevry view the competitive dynamics in the banking sector, given recent M&A activity by peers?
A: Kimmo Alkio, CEO, reiterated the strategy to develop the banking business as an international fintech software entity. The company is focused on core banking modernization and sees healthy backlog development, positioning it well in the competitive landscape.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.