Earnings call transcript: Tietoevry Q2 2025 reveals cost-cutting and AI focus

Tietoevry Corp’s recent Q2 2025 earnings call highlighted significant strategic shifts and financial performance metrics, including a 4% year-over-year decline in revenue and a focus on cost optimization and AI integration. The company’s stock closed at 168.8, marking a 1.6% increase, reflecting a cautiously optimistic market reaction. According to InvestingPro analysis, Tietoevry currently appears undervalued, with a "GOOD" overall Financial Health score of 2.51 out of 5.

Key Takeaways

• Revenue declined by 4% year-over-year.
• Adjusted profitability margin stood at 9.4%.
• Cost optimization aims for €115 million savings by 2026.
• Focus on AI integration and international expansion in the Care segment.
• Workforce reduction of approximately 1,250 employees.

Company Performance

Tietoevry reported a challenging quarter with a 4% decline in revenue year-over-year, highlighting the impact of a weak consulting market and soft demand in its Create segment. Despite these challenges, the company maintained its leading position in the Nordic markets, supported by a strong customer base and a competitive software product portfolio. The company is focusing on restoring growth and maintaining a competitive cost base.

Financial Highlights

• Revenue: Declined by 4% year-over-year.
• Adjusted profitability margin: 9.4%.
• Operating cash flow: €51 million.
• Net Debt/EBITDA ratio: 2.4.
• €80 million non-cash impairment in the banking platform.

Outlook & Guidance

Tietoevry is maintaining its full-year guidance and expects performance improvements in the second half of the year. The company is focusing on a customer-first approach, restoring growth, and ensuring a competitive cost base. Key growth areas identified include the Banking and Care segments, with potential positive impacts expected from a recent court ruling involving SpareBank 1. InvestingPro data shows 4 analysts have revised their earnings upward for the upcoming period, with net income expected to grow this year despite current challenges.

Executive Commentary

CEO Endre Rangnes emphasized the importance of customer orientation and executing existing strategies, stating, "We must become much more customer oriented" and "This company doesn’t need a new strategy. We need to execute on what we have." Rangnes also noted, "We are taking decisive steps to become more competitive."

Risks and Challenges

• Continued price pressure in the market.
• Weakness in the consulting market across geographies.
• Challenges in achieving revenue growth with a 0% CAGR compared to the market’s 4-7%.
• Workforce reduction and restructuring efforts may impact operational efficiency.
• The ongoing need to modernize the banking platform.

Q&A

Analysts inquired about the company’s confidence in maintaining its full-year guidance, with management expressing optimism about growth in the Banking and Care segments. Questions also touched on the potential impact of the SpareBank 1 court ruling and the company’s ongoing portfolio simplification efforts. For deeper insights into Tietoevry’s financial health and future prospects, investors can access the detailed Pro Research Report, available exclusively on InvestingPro, which provides comprehensive analysis of over 1,400 top stocks.

Full transcript - TietoEVRY Corp ST (TIETOS) Q2 2025:

Tommi Järvenpää, Head of Investor Relations, Tietoevry: Good morning and welcome to Tietoevry’s second quarter earnings webcast. My name is Tommi Järvenpää, I’m the Head of Tietoevry Investor Relations. We have lots of exciting topics to discuss this morning. Yesterday we announced our permanent CEO appointment and earlier this morning we introduced our new near term focus areas in connection with our Q2 report. Naturally we will also be discussing the second quarter highlights and results in this call. Our teleconference line is open and as always we will be hosting a Q&A after the presentation. With me here today are our CEO Endre Rangnes and CFO Tomi Hyryläinen and at this point I would like to hand over to Endre. Please go ahead.

Endre Rangnes, CEO, Tietoevry: Thank you Tommi and welcome to the Tietoevry Q2 2025 quarterly presentation. I’m really, really honored to take on the role as the CEO of the company, having been in the role since the beginning of May. In addition to the financials, I will come back to some of my observations and also actions initiated during these close to three months and some of our near term priorities. When we look at the messages, the overall messages are the following. This company has a very solid market position, a strong software and services portfolio, and also highly talented people. However, lack of revenue growth over a long period of time has resulted in a too high cost and SG&A base. Based on this, we have taken some immediate actions. One, new leadership team is in place. Two, cost initiatives have been initiated and will be initiated.

Three, we will refocus the organization towards the market and our clients with sales focus. Like I repeat every single day to my colleagues, everything starts in the market. We should never ever forget that perspective. Since I joined at the beginning of May, I have spent a lot of time engaging with our customers, my colleagues, and also our partners. It has become clear that our company stands on a very, very solid foundation. First of all, we have a leading position in our core markets in the Nordics, for example, a very competitive software product base. We have a strong customer base in many industries with an active innovation agenda in place. More and more, we see AI embedded in new cases.

Thirdly, we have a portfolio of leading edge software and digital consulting capabilities, and we clearly see that we can unlock even more potential in these areas going forward by being more relevant compared to the market demand. Last but not least, we have a global team with highly talented people. However, it’s also clear that we have failed to deliver adequate performance. We have had lack of growth for an extended period of time. The average organic growth during the last 12 years is close to 0% while the market has been growing a CAGR of 4% to 7%. According to our clients, we have been missing customer and client interactions and sales focus. The cost base has been growing too heavy. Consequently, we are introducing three main focus areas, or what we call near term top priority: 1. customers first, 2.

restoring growth, and also set a competitive cost base going forward. We just have to become much more market and customer oriented, and this will be crucial to get back on growth trajectory for this company. We have identified a set of actions to get back on track. First step, we are strengthening customer-focused sales and delivery capabilities. As an example, we have launched and we are continuing launching a new governance structure with our clients, and this is mainly to build trust again and to ensure a better interlock with our clients. This governance structure was tested out extensively during my time period as a Managing Director for Banking, and it really works. We have also started a sales-focused sales harmonization project across the different business units of Tietoevry, and we have kicked off a sales recruitment program to strengthen the sales structure in Tietoevry to secure competitiveness.

We are also launching a cost optimization program aiming to achieve a total cost saving of €115 million by year end 2026. As you probably have seen, we have already initiated savings of €40 million during first half, mainly in the second quarter, and we are taking new measures targeting savings of €75 million by end of 2026. We have also earlier this morning confirmed our new leadership team, which is then focused to execute and to deliver, and their main tasks are to strengthen customer orientation and to drive efficiency. This is the new leadership team focusing on execution. Since May, we have onboarded several new members to the company leadership team. We have also extensively renewed the leadership team for continuing businesses as well as extended the scope of the team with new roles, including Legal and Communication.

Upcoming in the near future, the new Head of HR will join us as Trunvinje has resigned and will be leaving at end of August, and naturally Satu will be excluded from the team upon the Tech Services closing, which is expected to happen in Q3. We are on track towards that as earlier communicated. This team is focused on steering the company through the challenging times ahead, and we will ensure our meeting cadence and the structure supports the close teaming needed for execution. On the positive side, we have also the latest agreements and recognitions, which really demonstrate our good market position and potential for growth. We are proud of continued partnership with the leading European energy company Vattenfall. At Ergig in Austria, we can help them improve customer service through automated AI-based handling of customer emails.

We also have the Lokalbank constellation of 16 different savings banks in Norway, where we deliver our full stack technology platform, which enables a new modernized, cost-efficient, and robust banking platform for these 16 banks, of which 10 are winbacks or new clients for Tietoevry. The Gartner hype cycle for healthcare well demonstrates our readiness to introduce our open, modular, data-driven care software beyond the Nordics. This is quite a key element in our strategy. The recognition for Tietoevry Banking and Tietoevry as a whole as an attractive employer also signifies high quality of our businesses. As you see to the right, we’re continuing to deliver on our very high standards and ambitions in the sustainability area. It is now time to look into our second quarter results, which was, I would say, a really challenging one.

Our market remained soft, which was visible in a negative growth with revenue down by 4% year-over-year, and we are not at all satisfied with the revenue and profitability development. The adjusted profitability margin was 9.4%, which also includes the negative IFRS 5 impact related to the temporary cost burden related to Tech Services. Due to long-term weak performance, we are now taking actions to get back on track. We have today announced a new cost optimization program targeting €75 million of savings by end of 2026. Furthermore, based on regular reviews, we have also booked an €80 million non-cash impairment related to the banking platform modernization program in Norway as we are now aligning with future demand. We do impair all non-value-adding or older components of the core bank system.

Last but not least, we have also appointed a new leadership team that will help us in steering the company through the next phases. Let’s then take a look at the business highlights, and then we start off with the aggregated numbers. As mentioned, organic growth minus 4% year-over-year. Following the strong Q1 cash flow, operating cash flow for the quarter remained healthy at €51 million. As you can see, we continue decreasing the net working capital. The quarter ended with a strong order backlog, especially in banking. Organically, the total backlog was up 14% year over year and also up 9% compared to Q1. This is a very good foundation when we’re striving for future growth. When we look at the different business units, we are starting off with Create, and I would say that is probably where we had the biggest challenge in Q2.

The market remained soft, and I would say that the consulting market as such has continued with a weakness across all geos. Some of the non-critical projects are being postponed or paused by our clients, mainly due to the geopolitical picture and also partly due to low demand. Furthermore, we have seen continued price pressure impacting our margin development. However, the long-term market growth outlook remains strong as enterprises remain focused on optimization projects aimed at improving agility and efficiency. We can see this across the geos, and continuous demand for projects related to AI will keep up the services investments over the forecast window. When we look at the numbers for Tietoevry and then Create, the weakness is visible in our organic growth of -7% in Q2, also partly impacted by fewer working days year over year and also lower internal invoicing, lower internal revenues.

To offset the market weakness, we have executed capacity and also SG&A reductions during the first half. We have reduced personnel by 5% year to date, and we will also now, with new initiatives coming, continue to drive for even more efficiency within Create. On a positive note, the order backlog has remained stable, and we have new wins in Q2 with AI embedded. As an example, we already mentioned ERT GNG, the Austrian fixed broadband access infrastructure provider, where we helped improve customer service through efficiency with the AI tools. Looking at the next business area, which is Banking. In Banking, we came in with -2% organic growth, impacted partly by Norwegian bank mergers, or one bank merger in Norway in the first half of 2024. Considering this impact, the underlying growth was flat with growth in BAS and financial crime prevention.

BAS is our core bank solutions, and FCP is the financial crime prevention. Profitability is slightly improving, supported by efficiency improvements that were executed in the second half of 2024 and also in the first half of 2025. It is also important that we have regained client confidence in the Norwegian banking market with multiple new wins. Couple of examples is Lokalbank constellation and SpareBank Norge and this has resulted also in a record high order backlog within the banking unit. When we look at Care, growth was impacted by decline of legacy product business by 4% and then also partly lower public sector demand. In Finland in Q2 there were three customer contracts waiting for market court decisions, escalations impacting growth and profitability. The total revenue impact is assessed to be approximately 2%.

Currently we actually have 6 cases in the court system which will be impacting also partly the Q3 numbers for Care. We are increasing our focus on growth in Care which is also slightly impacting the profitability near term mainly due to higher investment related to our international growth. One example of the international expansion is that we have entered into collaboration project with Basel University Hospital in Switzerland. In Industry, Q2 market slowness continued mainly in pulp and paper and fiber and Public 360 and that impacted overall growth development. At the same time, we had healthy performance in education and data platforms and when we look into second half we see improving market activity and we have had multiple new wins end of Q2 and into Q3 which will support also our second half development.

As you have probably seen with regards to profitability, Industry executed significant efficiency measures in Q2 which will start showing results in Q3 and onwards. Tommy, that brings us to the numbers and the details of the numbers and the CFO report.

Tomi Hyryläinen, CFO, Tietoevry: Please, Tommi, thank you. Good morning. I would like to begin by confirming the good progress made with Tech Services closing activities. We expect the closing to happen in Q3, aligned with our original timeline. One of the key messages in Q2 is our cost optimization activities to build an even more competitive cost structure and mitigate against the Tech Services cost burden. Combined with the cost saving decisions that we have already taken in Q1 and Q2, we aim to achieve $115 million run rate savings by end of 2026. As a result, we expect our full year one-time items to increase to approximately 3% of revenues from our earlier estimate of 1% to 1.5%. Specific Q2 events for Banking: we received a Court of Appeal ruling related to Sparta Bank end dispute. The ruling was positive to us, although not at the level of our claim.

However, if the ruling will stay without appeal to Supreme Court, we will be booking the fixed fee increases to revenue of $24.5 million in Q3, $2.2 million in Q4, and $8.6 million during 2026. The already mentioned non-cash impairment of $80 million into Banking platform in Norway was a result of recent large customer contract wins and renewals, including our extensive customer pre-studies which confirmed the future demand of our developed technologies. The technologies that did not have future revenue streams were accordingly written off. Lastly, we executed a $300 million bridge loan for our expired bond and we will be initiating refinancing activities post Tech Services divestment. More details on the cost optimization activities: as mentioned, we aim to achieve $150 million run rate savings by end of 2026. That translates into $70 million to $80 million run rate savings by end of 2025.

This base year comparable is end of 2024 cost baseline. There are two main buckets. The first one is the already decided Q1 and Q2 actions which aim for $40 million run rate savings by end of 2025. This includes potential reduction of approximately 800 employees, that is 50/50 from SG&A and delivery capacity, and includes Tech Services transferred employees. One-time items associated to this are approximately $20 million, which majority have been already booked by end of H1. The second, the new program, $75 million, so we estimate their run rate by end of 2026 by $75 million. There are two elements to it: potential reduction of up to 450 employees, both from group functions and in the businesses, and this mostly relates to SGA employees.

The related OPEX are estimated to be $15 to $20 million, and then an external cost bucket where the largest share comes from facilities rationalization, and that will require OPEX of approximately $5 to $10 million. Consistent with Q1, the reported figures in Q2 do not reflect the underlying profitability of the continuing business. On revenue, the growth of -4% is correct. Adjusting Tech Services out is very straightforward, no adjustments needed. On top of that, however, profit includes approximately $6 million or 1.3% negative cost burden from Tech Services, which relates to costs that cannot be allocated to the Tech Services segment under IFRS 5 rules. For illustrative purposes, we have included post-closing TSA income assumption, which simulates the post-closing profitability level during the TSA period. We continue to deliver healthy operative cash flow in Q2.

Following the strong Q1, our net working capital decreased slightly despite some seasonal headwinds in Q2. Our interest-bearing net debt and leverage increased due to $89 million of dividend payment in April, and our net debt/EBITDA was at 2.4 at the end of Q2. As a reminder, Tech Services divestment will decrease our group net debt by the transaction proceeds plus approximately $100 million reduction in lease liabilities. On employee matters, the LTM attrition has remained at low levels, being 8% at the end of Q2. This reflects the soft market environment. As a result of the continued soft market, we have reduced capacity on a net basis by approximately 350 FTEs during Q2. This has particularly been in Create and in Industry. With the new decisions, we will be making further reductions during H2.

We expect salary inflation for the year to be 4% to 4.5%, which would be slightly lower than in the prior year. Next, I’ll summarize the performance drivers for Q3. On growth drivers, Create will continue to be affected by weak demand across all its markets. Banking is impacted by ending of a significant, although margin-dilutive, mainframe contract by -2%, and there is a potential positive impact from Spadebank EN. As mentioned, Care growth is supported by well-being county wins in Finland and market expansion in Sweden. Especially with Karolinska headwind from legacy product decline and six customer contracts waiting for market court decision. Industry growth is supported by strengthened order backlog while pulp, paper, fiber will continue to be impacted by customer investment postponements. Working day will have negative impact of 0.2 percentage points on profit drivers. Create will continue to see price pressure.

Our new and existing cost optimization activities start to contribute to profit, and negative working day impact is minus 0.2 percentage points on other drivers. There’s a positive FX impact to revenue of €6.1 million. To Q3 profitability outlook per business, we expect Tietoevry Create and Tietoevry Care to be below prior year level and Banking and Industry to be above prior year profit level. To note, Banking soft guidance here does not include the potential positive impact from SpareBank 1 court ruling. To H1 and H2 performance dynamics, we expect the group performance to improve from H1 to H2. The drivers are very similar to Q3 performance drivers. In Create, we do not expect market to recover; slight growth recovery is expected due to easier comparable. The already executed cost optimization activities will support H2 profitability.

Banking’s record high order backlog supports H2 growth with headwind from ending of the significant, although margin dilutive, mainframe contract with negative 3.5 percentage points. Profitability is supported by cost optimization activities and there is the potential impact from SpareBank 1. Care is benefiting from strong wins in Finland and market expansion in Sweden with headwind from legacy product decline and large magnitude of one customer contracts waiting for market court decision. Also with Care, cost optimization activities support profitability in H2. Market activity in Industry is improving and with multiple wins and improved backlog, the H2 growth is supported. The significant cost optimization measures already implemented in H1 support H2 profitability. Now back to you, Endre.

Endre Rangnes, CEO, Tietoevry: Very good, Tommi. Thank you. Very quickly summarizing what we have been through. Looking at the way forward. As mentioned, our direction going forward is clear. We must become much more customer oriented, and then strengthening our customer focus will support our future growth. We have to become more competitive, and as a consequence, we have also to constantly work on the cost control. We are now taking decisive steps, and we will be evaluating more actions related to growth and other priorities going forward. We will come back to this in the upcoming Capital Markets Day, so please pencil in. We will have the Tietoevry Capital Markets Day in London on November 25, 2024. That concludes the Q2 presentation as such, and we are opening up for a Q&A.

Moderator: If you wish to ask a question, please dial on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Mark Hyatt from Morgan Stanley. Please go ahead.

Mark Hyatt, Analyst, Morgan Stanley: Hi. Thanks for the presentation and thanks for taking my question. Congrats, Endre, on the permanent appointment. I’ve got a few questions, please. Firstly, you’ve reiterated the FY25 guidance which given the first half performance obviously requires a 286% acceleration and a bit of inflection in margin. I know you’ve talked about some of the drivers in the second half, Tommi, around base comps, cost saving factors, etc.

Endre Rangnes, CEO, Tietoevry: Could you just give us a.

Mark Hyatt, Analyst, Morgan Stanley: Bit more clarity on your confidence in the ability to deliver in line with expectations for FY25? If you think about the low end of the guide, what are you assuming in terms of underlying market activity and how de-risked is that? Secondly, you’ve outlined €115 million run rate cost savings target by the end of 2026. You’ve got some workforce reductions already underway. Could you elaborate on how you’re balancing these cost cuts with the need to maintain innovation capacity and customer delivery quality, especially in growth areas like AI and of course in international expansion areas as well. Finally, perhaps a longer-term question for you, Endre, as you think about the business over the next two to three years, what is the most exciting growth area that you see in the business and what steps are you taking to position the business for success in that area?

Thanks very much.

Endre Rangnes, CEO, Tietoevry: Very good. I think first of all we can start off with the last one. I think that this company really doesn’t need a new strategy. What we need is to execute on what we have. When you look at the areas ahead of us, I would say that we are very well positioned now within banking. Having been Managing Director for banking in the last eight months before taking on the assignment as the new CEO, we kind of stabilized banking and we have also now set out a clear strategy on international growth for banking and we will probably come back to that in connection with the capital market. Banking, I think we have a very, very solid foundation for growing the business going forward. I think also we have a very solid business plan to execute on in banking.

When it comes to care, we have already seen some early signals of international growth with our new modernized open industry standard software. We have also high expectations in terms of care and the growth going forward in care internationally. Of course, we have a strong home market, but we should also benefit from that in terms of the international expansion. I think it’s more like a market phenomenon that we are challenged in the care area, but it’s also partly in that specific area, partly also lack of sales focus. I believe that we will open up that space going forward by being more relevant in the market. It will partly also be a shift of competence when we look into those areas.

We have a lot of kind of software entities within industry where we are and it varies from unit to unit where we also are quite well positioned. I would say that banking, care, and then Create, and then of course niche products within the industry are kind of what we have ahead of us to execute on going forward. Having said that, of course there is a lot of interest but also a lot of hype around AI. We clearly see the signals that we get more and more interest from the clients. AI is not only kind of one specific project which is also including legacy and transformational legacy.

I would say that that’s the quite interesting part of this when it comes to the before Tommi is going into the 115 number, I would say that we have been now through the last two and a half, three months, very, very extensive detailed analysis of where do we stand in terms of KPIs, in terms of SG&A, for example. It is clear that when you look at the aggregated number of corporate business support functions and what we have in the business units, we have big room for improvement. That is what you see now in the program launched for the second half, that we have room for improvement to be much more competitive from an SG&A point of view. Having said that, the S is of course where we also need to reinvest, but we need also to invest in hunters.

We need to reinvest in a rejuvenation of the sales population. We also need to look much, much clearer into what are the top priorities within the different business units in terms of sales. We have been through a very detailed mapping of what to do in cost and then expense calibration without hurting the delivery structure in the market. Of course, when we have the demand that we have currently in Create, we need to do reduction based on that current picture. It is a combination. I would say that parts of Create are not relevant. Part of Create is also a very weak demand in general. We need to cope with that from a delivery point of view. To the details of 1.15, Tommi.

Tomi Hyryläinen, CFO, Tietoevry: Yes. Maybe to add, of course Endre covered the big picture. There is no trick to it. $115 million. When we take cost out, we try to protect the growth areas and that’s what we’re very mindful now. When we have executed and start to execute even more of these reductions, growth areas we are actually investing more, not reducing. We’re very mindful of that. In terms of the guidance, we feel really comfortable now as I went through the drivers for the second half that we will be seeing improvement specifically due to the strong backlog in banking industry and care. Of course, Care’s growth is somewhat hindered now with these market court decisions which we are still waiting for. There’s quite significant growth headwind. Still, even with those, we will be seeing positive growth momentum there.

Create is the only business where we don’t see for the remaining of the year a bit sort of better market and better growth opportunities.

Aditya Buddhavarapu, Analyst, Bank of America: Very helpful. Thanks very much.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: Thank you, Marcus.

Moderator: The next question comes from Daniel Djurberg from Handelsbanken Capital Markets. Please go ahead.

Endre Rangnes, CEO, Tietoevry: We cannot hear you. You’re breaking.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: Can you hear me now? Can you hear me?

Endre Rangnes, CEO, Tietoevry: Yeah, good.

Mark Hyatt, Analyst, Morgan Stanley: Yeah.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: I’m sorry for that. Looking at the Group Management Team, I can’t find the Head of Strategy anymore. Is that the change that you did back in April?

Sami Sarkamies, Analyst, Danske Bank Markets: First question.

Endre Rangnes, CEO, Tietoevry: Head of Strategy was part of the group leadership team until May 5th. As already mentioned, this company doesn’t need a new strategy. We need to execute on what we have in front of us. I’m taking care of strategy myself, having been through rejuvenation of the strategy within banking. For example, we launched the international go to market strategy within banking when I was there. This is also part of what they’re looking at for other parts of the business. I’m taking care of strategy myself.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: Really good news. Thanks. Another question from my side would be if you also have talked about, you know, going from strategies into actions. Some of the decisions made, you know, with the U.S. expansion with Mentor made, for example, in Create and this global digital talent pool, is the ambitions still as high there or could.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: You.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: Think over those former strategies?

Endre Rangnes, CEO, Tietoevry: I think it’s also for Create. I would say, Daniel, that the strategy is set out. We will have a small adjustment coming from having a very global industry approach to being much more close to the clients, meaning that we will benefit from the strengths that we have locally. In the Nordic markets we are partly also represented, as you know, in DACH region, and then we have the local setup that we have in the U.S. with global deliveries. I would say that we are partly changing the focus in Create by strengthening the sales client focus and including the local vertical focus, which will be different from market to market. We will maintain what we have, partly changing focus by strengthening the local presence, but also benefiting, of course, from the global deliveries that we have.

We will come back to this, of course, in more detail when we come to the Capital Markets Day in November.

Aditya Buddhavarapu, Analyst, Bank of America: Perfect.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: May I ask also on the workforce reduction you talk about, in total new and old program, some 800 employees in creating industry mainly. You also touched upon this. If you look at how many will be in admin and into the sales and delivery side, I’m trying to figure out how it will impact sales really.

Endre Rangnes, CEO, Tietoevry: The major part is related to SGA, but then mainly GNA. We are not making any big cuttings in sales as mentioned. That’s a quite important focus here. Going forward, however, we have to do the rejuvenation of the key account management and then also to invest more into hunters and new sales. It’s mainly driven by GNA, and then it’s of course overcapacity. When you look at the performance in Create, you can clearly see that we just need to shave also overcapacity. Also, a big part of the GNA element is related to Create as well because of the size of Create, which is quite obvious. We can give you the split.

We have been through a full mapping now based on first half initiatives, and then we have done a full mapping of what should we do by corporate support functions and then also by business unit, by every single SGA element. We have done that during the last two, three months, and that has been the foundation for 800 plus 450.

Tomi Hyryläinen, CFO, Tietoevry: Roughly 30% is delivery related capacity and 70% SG&A. As Endre said, it’s more of the GA.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: Yeah, you will also get high utilization, I guess, after this.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: It’s mitigating.

Daniel Djurberg, Analyst, Handelsbanken Capital Markets: Okay, thank you very much. That’s super helpful.

Endre Rangnes, CEO, Tietoevry: Thank you, Daniel.

Moderator: The next question comes from Aditya Buddhavarapu from Bank of America. Please go ahead.

Aditya Buddhavarapu, Analyst, Bank of America: Hi, good morning Endre, Tommi, and congratulations Endre on the appointment as CEO. Just a couple of questions from my side. Firstly, just going back to the question about the full year outlook, given where you are at H1, could you just talk about how you’re thinking about the shape of growth in H2, how you think about that sort of improvement in Q3 versus Q4, and when you expect that sort of backlog to start reflecting in the revenue growth itself during H2? Second, similar question on the margin as well. Do you expect that most of these cost savings related to will really come up more in Q4? There should be more H2 weighted or Q4 weighted than even usual. Finally, I guess one for you Endre. How do you think about the portfolio of the business today?

Are there any areas which you sort of think are probably less important for Tietoevry going forward, or maybe you sort of think you can refocus your activities on a few parts of the business? Are there any particular that you think as potentially being maybe non-core?

Tomi Hyryläinen, CFO, Tietoevry: Okay, I will start.

Endre Rangnes, CEO, Tietoevry: Off with the last one because we will come back to this in connection with Capital Markets Day. The way forward now, as we have been through in this presentation, we are working on immediate actions to really turn this ship around. We will come back to this. We don’t launch a new strategy currently. Let’s discuss this in Capital Markets Day. One general comment is that we probably need to simplify and refocus to have a sharper focus for the total Tietoevry going forward. Of course, part of this is that we have now sold Tech Services, but we need also probably to partly reshape but also simplify the structure going forward.

With regards to the second half and the full year outlook, as mentioned, we are quite comfortable with the guidance and then it depends also a bit on with or without Spirebanke and court decision, which is potentially happening in Q3, which has a huge impact on Q3 both top line and the bottom line, of course. Maybe you should elaborate a bit more on this, Tommi.

Tomi Hyryläinen, CFO, Tietoevry: Yeah, thanks Endre. Maybe to confirm. Spider bank N is not within our guidance expectation as of today. Just to confirm that one, then how you should think about Q3 and Q4 on the growth. You should think about acceleration profile for H2 on growth on profit. You will be seeing a bit more on the ones where we have already done cost optimization impact in Q3, so not that big acceleration. That will then have to do with the industry, banking, and create.

Aditya Buddhavarapu, Analyst, Bank of America: All right, understood. Thank you.

Moderator: The next question comes from Felix Henriksson from Nordea. Please go ahead.

Aditya Buddhavarapu, Analyst, Bank of America: Hi, thanks for taking my questions. I have a couple. Firstly, on the banking impairment, can you.

Endre Rangnes, CEO, Tietoevry: just further elaborate what triggered this right now?

Sami Sarkamies, Analyst, Danske Bank Markets: Have you sort of reviewed the other software business units for a potential need for similar actions regarding the software stacks?

Endre Rangnes, CEO, Tietoevry: I can start off with that. Of course, we are constantly reviewing all the software that we have, and basically, when we go back to banking, the situation is that we have been renewing the core bank solution in Norway for the saving banks mainly during the last 15 years to move out of mainframe and into a more flexible platform based on Unix and new modernized tools. That has taken a lot of time. During the last six to eight months, we have renewed a lot of these contracts based on the new software. We have decided that part of the old software legacy is not relevant anymore. That’s part of the explanation for the €80 million write-down, Tommi.

Tomi Hyryläinen, CFO, Tietoevry: Yeah, exactly. Why now? It’s because of the renewals that we have now done, confirming the need of these technologies in the future. Of course, as you know, these are technical accounting. Cash flows for these developed technologies are the ones which are being assessed.

Mark Hyatt, Analyst, Morgan Stanley: Got it.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: Fair enough.

Aditya Buddhavarapu, Analyst, Bank of America: A bit of a big picture question relating to capital allocation. As a new incoming CEO, how do you.

Sami Sarkamies, Analyst, Danske Bank Markets: You view the current capital allocation policies for Tietoevry when it comes to deleveraging and shareholder remuneration and balancing these two.

Aditya Buddhavarapu, Analyst, Bank of America: Thanks.

Endre Rangnes, CEO, Tietoevry: We will come back to the kind of details on the capital allocation in the CMD. However, I mean we have a dividend policy which is there and we need to relate to that one. It’s up to the Board and up to the General Assembly to decide on that. I think it’s also quite important for us that when we look at the competitive environment in software, for example, we just probably, and this was back to was it Mark’s question, that we probably have to also reinvest a bit more into software development. For example, in banking, we are spending like 10% of revenue in R&D and we can see that some of competitors are investing more. It’s a balancing act.

Of course, the important thing is that we start now growing the revenue of this company, start growing the bottom line and the cash EBITDA, and hopefully that will impact the share price. That’s what I can say currently, that’s the ambition. We will come back to the capital allocation in connection with the Capital Markets Day. The capital allocation dividend policy stands as it is.

Mark Hyatt, Analyst, Morgan Stanley: Thank you.

Aditya Buddhavarapu, Analyst, Bank of America: That’s all from me.

Moderator: The next question comes from Sami Sarkamies from Danske Bank Markets. Please go ahead.

Sami Sarkamies, Analyst, Danske Bank Markets: Hi. I have three questions. We’ll take this one by one. Starting from the full year guidance which was reiterated. You’re estimating now 1.1% headwind from IFRS 5 from previously 1.4%. It seems that you’ve updated timing for closing of the divestment. Did you previously assume that it would actually happen in Q4, or can you be more specific on why this estimate has come down?

Tomi Hyryläinen, CFO, Tietoevry: This estimate has come down because of the structure of the cost burden. We have been moving some of the cost into Tech Services segment already, therefore the cost burden is not that big. That’s the main driver for the change.

Sami Sarkamies, Analyst, Danske Bank Markets: Okay, so allocation has changed but not timing of the divestment?

Endre Rangnes, CEO, Tietoevry: No.

Sami Sarkamies, Analyst, Danske Bank Markets: Okay, then secondly, on the duty bill impairment which was already discussed, can you specify the period during which you have made these R&D investments that are now written down?

Tomi Hyryläinen, CFO, Tietoevry: As Henry mentioned, these are long-term investments. Some of these run back to 15-ish years.

Mark Hyatt, Analyst, Morgan Stanley: So.

Tomi Hyryläinen, CFO, Tietoevry: We don’t in this call now have more details. We’ve done a very granular walkthrough of each of these elements, and that’s how the decisions are.

Endre Rangnes, CEO, Tietoevry: This has been very, very detailed walkthrough with the banking as a service, banking as a platform entity, including their finance people, including Group Finance. It’s been a very, very thorough study, and of course we have been through the auditors with this one. It’s basically software, legacy software going long time back, like 15 years, some even more. That’s the basic reason, replatforming from mainframe to Unix, that’s the story.

Sami Sarkamies, Analyst, Danske Bank Markets: Maybe we can say that the lifetime of those earlier investments turn out to be shorter than anticipated.

Endre Rangnes, CEO, Tietoevry: It’s not relevant because we don’t generate the cash flow expected. It’s more like that, that we have now, we have a shift. We have started. When you look at the new contracts that we have signed, this is also quite important to understand that we have signed now up more or less all existing saving banks in Norway with long-term contracts, practically 10 years, which will give us a very, very solid foundation for banking the following years. The contracts are shaped in a way that all these banks are now moving towards the new modernized banking software, meaning that the legacy is going down, meaning that the cash generated from the legacy is then significantly going down. That’s partly why we take the goodwill impairment now.

Tomi Hyryläinen, CFO, Tietoevry: Capitalist R&D. Yeah, yeah.

Aditya Buddhavarapu, Analyst, Bank of America: Yeah.

Sami Sarkamies, Analyst, Danske Bank Markets: Okay, thanks. Finally, on the outlook for industry, I think you will be against much tougher comparable in the third quarter. Recent quarters have been very weak. Where is this third quarter improvement coming from? Was it top line driven or cost driven or both?

Endre Rangnes, CEO, Tietoevry: The answer is yes, it’s both. What we did in beginning of Q2 was to take quite tough actions in industry on SGA. That has been implemented partly also in cost. We signed several contracts in several of the software areas end of Q2 and into Q3, and that will have the kind of top line impact. Despite, like you say, you’re aware it’s a challenge, we are quite comfortable about our outlook for industry second half.

Sami Sarkamies, Analyst, Danske Bank Markets: Okay, thank you very much. I don’t have any further questions.

Moderator: The next question comes from Matti Riikonen from DNB Carnegie Investment Bank AB. Please go ahead.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: Good morning, it’s Matti Riikonen, DNB Carnegie. I have two questions remaining. First, related to the TSA bridge when supporting Tech Services. Do you expect to provide TSA services to Tech Services after the closing and for how long? Will these be on commercial terms? Will the TSA services allow you to phase down your cost that ultimately should decline to zero? Do you think that the transition will be smooth to your end regardless of how long the buyer will continue to keep up these services?

Tomi Hyryläinen, CFO, Tietoevry: Thank you, Matt. TSA services are governed by this TSA agreement. These can run up to 18 months. Assumption currently is that most of the services will run only three to six months. What you see on the slide which I showed is sort of the full TSA structure. Of course, in the first months when all the services are up and running, IT related services are the ones which are taking the longest time. I do expect that could be one year, up to slightly more than one year when that service will then end as well. Will that be a smooth transition? I will for sure try to make that as a smooth transition. Yes, we’re aiming to do that.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: All right, thanks. Secondly, related to group costs and CapEx for continuing operations after the Tech Services split, would you be able to give any guidance to what cost level you think the group costs would land in 2026 when Tech is divested? Also, what happens to CapEx to sales ratio or absolute CapEx as you remove Tech Services? I have understood that Tech has been basically roughly half of your total CapEx. Is that all going away and then benefiting you on the cash flow?

Tomi Hyryläinen, CFO, Tietoevry: Yeah, that’s actually Matti, the only part I can directly answer. Yes, half of that CapEx goes out, and then on the rest we do need to come back at the CMD to sort of outline the future structures of the company.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: Okay. I’m just trying to figure out what would be a good group level cost to use for the continuing operations because that is currently of course something which is impacted by the TSAs, and going forward it will not be. That’s a bit difficult to analyze from the outside at the moment. Any help that you could give.

Tomi Hyryläinen, CFO, Tietoevry: Would be good direction would be that we take at least the cost burden and even more out when we do the resetting of the competitive cost base discussed.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: All right, I have nothing further. Thank you.

Endre Rangnes, CEO, Tietoevry: Thank you, mate.

Moderator: The next question comes from Jaakko Tyrvainen from SEB Enskilda. Please go ahead.

Aditya Buddhavarapu, Analyst, Bank of America: Good morning, it’s Jaakko from SEB Enskilda. Most of the questions have already been answered, but could you elaborate a bit more in detail on the growth challenges that you are seeing in the Tietoevry Create segment? For example, how did the U.S. operation develop during the quarter? I recall that going into the year you saw some positive signs there. How are things developing in terms of geographical split in the Create segment?

Endre Rangnes, CEO, Tietoevry: We really don’t see, excuse me, any big difference between the geos. I would say that in general it’s been quite weak performance or not weak performance but weak demand across all the geos. That’s a general answer. We don’t kind of see any huge differences at all. I think that is also clear when you look at the Gartner reports, etc. There are no big variations between the expected demand in the geos. The question is how relevant are we by each market. That’s also another discussion which is more specific for Tietoevry.

Matti Riikonen, Analyst, DNB Carnegie Investment Bank: So.

Endre Rangnes, CEO, Tietoevry: That’s more kind of overall answer, and any comments from your side?

Tomi Hyryläinen, CFO, Tietoevry: Yeah, we did indicate earlier in the year of market activity signs of improvement in the U.S. there. That is gone, no longer. Just to confirm.

Aditya Buddhavarapu, Analyst, Bank of America: Okay, thank you. Finally, perhaps following up on the capital allocation and especially the level of leverage, your net debt to EBITDA is now 2.4. How comfortable you are with this level going forward, especially given your comments regarding possible further investment need in certain software.

Tomi Hyryläinen, CFO, Tietoevry: We keep our one to two target level. We will be improving towards the year end with the improved profit level, but naturally we’re not happy with 2.4.

Aditya Buddhavarapu, Analyst, Bank of America: Okay, fair enough. Thanks. That’s all from my side.

Moderator: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Tommi Järvenpää, Head of Investor Relations, Tietoevry: Thank you for the questions. Thank you, Andrea and Tommi, and thank you, everyone, for watching. Our third quarter results will be published on October 23. See you then.

Endre Rangnes, CEO, Tietoevry: Thank you.

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