TietoEnator's Q3 growth 15%, 9.1% EBIT margin excluding capital gains

Wednesday, 19. October 2005 07:02

This is a press release without tables. You can download the complete
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This report has been prepared according to IFRS.

* Q3 net sales growth 15% to EUR 380.4 (331.4) million
* Nine-month growth 11% to EUR 1 217.5 (1 095.7) million
* Q3 operating profit excluding capital gains EUR 34.6 (23.7)
million or a margin of 9.1% (7.2)
* Q3 2004 included impairment losses of EUR 12.8 million
* Nine-month operating profit excluding capital gains EUR 111.6
(103.3) million
* Profit before taxes EUR 27.3 (102.0) million in Q3, EUR 120.0
(181.6) million in the nine months
* Q3 EPS 0.24 (1.09), nine-month EPS 1.11 (3.22)

General market overview
Demand for IT services and solutions is increasing, driven by systems
enhancements and extensions and consulting work rather than by big
renewal projects. There is a lot of activity in the development of
self-services, like internet banking, which typically is an early
indicator of growth in IT spending.

There are some early signs of modest price increases in the industry
generally. However, customers who are implementing cost-cutting
programmes are demanding further price reductions from their
suppliers. Consolidation is reducing capacity in the industry as
acquired units are quickly adjusted to meet the demand and pricing

The labour market has become more active and mobility is at a higher
level. At the moment there are no signs of increasing wage inflation
or shortages of qualified employees, however.

Development of customer industries
In 2005 all of TietoEnator's vertical business areas have been
growing, with the highest growth levels in the international
verticals: telecom, banking and healthcare. These are also the
segments where the biggest acquisitions have taken place during the

Q3 net sales growth% Q3 EBIT%
Banking & Insurance 55 12.2
Telecom & Media 29 7.2
Government 7 5.3
Healthcare & Welfare 25 14.9
Production & Logistics 16 11.5
Processing & Network -9 11.1
Personec Group 1 13.0

In the banking sector TietoEnator's partnership customers are still
focusing on efficiency improvement. There is a gradual, but slow
shift to investments of the business development type. There is
constant price pressure in partnership services. The solutions
business has returned to growth with customers showing most interest
in corporate cash management, card and payment solutions. Demand for
partnership services in the pension insurance sector in Finland
continues to be high.

In April TietoEnator made an offer for the UK AttentiV Systems Group,
whose shares were listed on the London AIM (Alternative Investment
Market). The acquisition process was completed in late June and
AttentiV was consequently de-listed. AttentiV is an experienced
provider of software solutions and associated services to the
financial services sector in the UK and employed around 330 people at
the end of September. AttentiV's integration into TietoEnator has
progressed well. The integration of the administration and business
infrastructure will be finalized by the end of the year. Business
integration has been started with common strategic planning and the
integration of sales functions.

AttentiV was consolidated from the beginning of July and in the third
quarter it contributed EUR 16 million of net sales and EUR 6.4
million of operating profit. AttentiV's performance in the past two
years has been the following:

GBP million Oct 2004 - Sep 2005 Oct 2003 - Sep 2004
Net sales 29.5 32.1
Operating profit 3.9 3.2

In the insurance sector TietoEnator has won several new contracts.
The TietoIlmarinen joint venture with 140 employees started
operations at the beginning of the year. In March TietoEnator and the
insurance company If made a Nordic outsourcing contract covering
server management operations and end-user services. TietoEnator's
contracts for processing services with Sampo were renewed for a
period of 5 years in June. Additionally, TietoEnator and the owners
of Esy Oy, a Finnish supplier of employee pension IT services, have
signed a letter-of-intent on the start of cooperation and a joint
venture structure, where TietoEnator would own 80% of the shares of
Esy. The cooperation is planned to start at the beginning of 2006.
Esy had net sales of around EUR 24 million in 2004.

Growth has continued in the telecom sector despite constant price
pressure. In the third quarter especially Central Europe grew
strongly. To meet the price pressure TietoEnator is accelerating its
usage of low-cost resources. TietoEnator's low-cost capacity increase
for telecom operations, both at its own site in Ostrava, Czech
Republic and with the Russian strategic sourcing partner Mera has
progressed successfully.

The acquisition of S.E.S.A. Group was completed in January,
increasing TietoEnator's personnel by around 480 employees in Germany
and by 120 in France. Financially, S.E.S.A. has been performing very
well: its nine-month net sales totalled around EUR 62.3 million,
which represents organic growth of 28% for the company. S.E.S.A.'s
operating profit totalled EUR 7.1 million in the nine months.

In March TietoEnator and TeliaSonera Finland agreed on the transfer
of certain software development and service production activities to
TietoEnator. 101 of TeliaSonera's employees moved to TietoEnator. In
June TietoEnator announced an agreement to take over the
administration of all TeliaSonera's billing systems for fixed
telephony, mobile telephony and internet connections in Sweden.

In August TietoEnator agreed to acquire 51% of SIA IT Alise in
Latvia. IT Alise was the largest independent IT professional services
company in Latvia with strong relations to the telecom operators. The
staff of around 200 increased TietoEnator's low-cost capacity
further. The acquisition was completed in early October.

In the Nordic government sector business growth has been moderate and
pricing continues to be competitive. For TietoEnator the highest
growth markets have been Denmark and in the third quarter also

In Finland and Norway the healthcare sector is looking for regional
or in some areas even national solutions to modernize healthcare IT
systems. TietoEnator is clearly benefiting from this development. In
Sweden the market structure is more fragmented and market growth is
lagging behind the other Nordic countries.

At the end of September TietoEnator and the Swedish Axiell Bibliotek
AB established a joint venture, in which TietoEnator has a 51%
holding. At the same time TietoEnator's Finnish library business with
its 24 employees was sold to the joint venture.

The acquisition of the German ITB, a healthcare information systems
specialist was closed in January. The ITB Group brought to
TietoEnator around 50 people in Germany and 120 software developers
in India. In August TietoEnator acquired Zait IT Services AB, an IT
specialist within healthcare and welfare sector in Sweden. Zait
employs 43 people.

TietoEnator's energy business is benefiting from the strong industry
development. Oil and gas companies especially are investing heavily
in new systems. The Nordic electricity business also continued to
perform well. TietoEnator's forest business returned to growth in the
third quarter as activities with European customers recovered. The
retail business is rather stable. The manufacturing segment is
growing strongly as customers' financial performance is good and
investments are back at normal levels.

The processing and network services market continues to be active.
Customers are concentrating heavily on cost reductions and
consolidating infrastructure. In April TietoEnator's Processing &
Network business area announced a consolidation process to adjust its
service offering and cost base to the competitive environment. At the
end of September all of the current mainframe production was
consolidated in Helsinki and the centralization of the other
infrastructure is on-going.

In the Personec Group, growth in the human resources management
business, Personec, was low and the financial management software
business, Economa was rather stable.

Net sales
Third-quarter net sales grew 15% to EUR 380.4 (331.4) million.
Organic growth was 2%. Nine-month net sales increased by 11% to EUR
1,217.5 (1,095.7) million. Organic growth totalled 2% in the first
nine months. Changes in foreign exchange rates did not affect growth.

The organic growth figures have been adjusted for the discontinuation
of the zero-margin pass-through invoicing, which in the first nine
months decreased the Processing & Network business area's net sales
in Finland by approx. EUR 9 million. The business areas growing
organically were Banking & Insurance (12% in the nine months),
Telecom & Media (10%), Healthcare & Welfare (4%) and Government (3%).
Acquisitions completed in 2005 generated around EUR 96 million of net
sales in the nine months.

Nine-month growth was 3% in Sweden, 12% in Norway and 1% in Finland.
Excluding the discontinued pass-through invoicing the Finnish growth
was 2%. Germany grew strongly at 156% due to the two acquisitions -
S.E.S.A. and ITB.

The banking and insurance sector accounted for 18% (17) of Group net
sales in the first nine months. Telecom and media increased its share
to 33% (29) with the help of the S.E.S.A. acquisition and strong
organic growth. The public sector contributed 19% (20) of sales, the
forest sector 5% (6) and the energy sector 5% (4).

The order backlog, which comprises only services ordered with binding
contracts, amounted to EUR 998 (803) million at the end of September,
24% higher than a year ago. Approximately 29% (33) is expected to be
invoiced during the year.

Operating profit amounted to EUR 36.3 (105.2) million in the third
quarter. EBIT includes capital gains of EUR 1.7 (81.5) million.
Impairment losses were EUR 12.8 million in the third quarter of 2004.
Third quarter operating profit (EBIT) excluding capital gains and
impairment losses totalled EUR 34.6 (36.5) million, corresponding to
a margin of 9.1% (11.0).

Nine-month operating profit (EBIT) amounted to EUR 128.8 (184.8)
million. Operating profit (EBIT) excluding capital gains and
impairment losses totalled EUR 111.6 (116.1) million.

The third quarter is seasonally weakest for TietoEnator, especially
for those business areas with high professional services exposure
like Telecom & Media. Telecom & Media's performance was also affected
by lower prices. In the third quarter of 2004 the operating margin in
the business was exceptionally good. Telecom & Media did not have any
performance based rewards from partnership customers in the third
quarter as they are potentially realized in the second and fourth
quarter only.

For the less labour intensive business areas Processing & Network and
Personec Group, the third quarter is strong. The costs related to
Processing & Networks' consolidation process were lower than expected
at around EUR 4 million in the third quarter and are included in the
business area's operating profit.

Banking & Insurance benefited from AttentiV's seasonally strong third
quarter, which represented the end of its fiscal year before the
acquisition by TietoEnator. AttentiV recognized substantial licence
income in the period. On the other hand Banking & Insurance had
one-time restructuring and other cost reservations mainly in Germany,
Norway and the UK totalling EUR 3.3 million in the quarter. In the
third quarter of 2004 Banking & Insurance's operating profit (EBIT)
was burdened by an impairment loss of EUR 12.8 million.

The project over-runs in Government continued to have a negative
effect on the business area's operating profit. Licence sales in
Healthcare & Welfare are seasonally low in all other quarters except
the fourth. In the third quarter the operating profit of Healthcare &
Welfare benefited from a EUR 1.7 million (EUR 1.3 million after tax)
capital gain from the sale of the library business to the joint
venture with Axiell. Excluding the capital gain the business area's
operating margin is 8.0%.

TietoEnator has continued investments in Group-level synergies and
efficiencies. These include the development of service offering,
customer relationship management and delivery processes. Investments
in harmonization also led to higher expenses in Group Functions,
which stood at EUR 4.7 (4.1) million for the third quarter.

The capital gains in June resulted from the divestment of the on-line
information services business, the joint venture in direct marketing
(together EUR 5.8 million in Processing & Network) and the divestment
of the associated company, Dotcom AB (EUR 8.9 million). In the third
quarter of 2004 TietoEnator had EUR 81.5 million of capital gains
from the divestments of the minority holding in Personec Group and
real estate.

Operating profit (EBIT) included EUR 1.9 (0.8) million from
amortization on acquired intangible assets in the third quarter and
EUR 5.0 (2.2) million in the first nine months.

Stock option expenses (share based payments) of EUR 1.1 (0.4) million
in the third quarter, and EUR 1.9 (0.8) million in the first nine
months were included in personnel expenses.

Operating profit of entities acquired in 2005, including amortization
on acquired intangible assets, totalled EUR 13.0 million in the first
nine months.

Net financial expenses were higher at EUR 9.0 (3.2) million in the
quarter. Net interest expenses were EUR 2.9 (0.9) million and
one-time net losses from foreign exchange transactions EUR 6.2 (1.2).

Third-quarter earnings per share (EPS) totalled EUR 0.24 (1.09). EPS
was affected by capital gains of EUR 0.02 (0.93), an impairment loss
of EUR 0.16 in 2004, amortization on intangibles of EUR 0.03 (0.01)
and stock option expenses of EUR 0.01 (0.0). Excluding these items
EPS amounted to EUR 0.26 (0.33). Nine-month earnings per share
totalled EUR 1.11 (3.22) and excluding the above mentioned items EUR
1.01 (1.04).

The rolling 12-month return on capital employed (ROCE) was 24.8% and
the return on shareholders' equity (ROE) 18.2%.

Financing and investments
Cash flow from operations continued strong and amounted to EUR 118.3
(96.6) million in the first nine months. Operating profit contributed
EUR 151.9 (150.8) million and the decrease in working capital
generated EUR 15.4 million. Typically working capital has a negative
effect on cash flow in the third quarter, but this year some of the
one-time items in the second quarter reversed and working capital
decreased. Tax payments were only EUR 14.3 (18.1) million as the
deferred tax asset was employed.

Net investments used EUR 164.3 (31.6) million of cash. The
acquisition payments net of acquired cash totalled EUR 153.2 (72.8)
million. The biggest payments have been S.E.S.A. EUR 77 million and
ITB EUR 9 million in January, and AttentiV EUR 82.7 million in
June-July. Divestments generated EUR 25.2 million in cash.

The total dividend payment of EUR 78.7 million was made in April.
Share repurchases were started on the 1 of September and by the end
of September the cash effect of the purchases was EUR 38.0 million.

At the end of September the consolidated balance sheet totalled EUR
1,348.9 (1,190.4) million, a 13% increase compared with September
2004. Most of the balance sheet increase was due to the acquisitions
of S.E.S.A. and AttentiV.

The equity ratio was 42.5% (58.5). Gearing increased further to 40.4%
(-9.0). Net debt totalled EUR 222.8 (-60.9) including EUR 268.9
million in interest-bearing debt, EUR 32.8 million in financial
leasing and EUR 78.5 million in cash and cash equivalents. EUR 91.0
million of the debt belonged to the Personec Group. The other
interest-bearing debt consists of a three-year EUR 50 million
bilateral credit facility, a seven-year EUR 50 million private
placement bond and usage of EUR 57 million from the short-term
commercial paper programme. At the end of September unused credit
facilities totalled EUR 348 million.

Accrual-based investments totalled EUR 247.8 (125.8) million for the
period. Capital expenditure including financial leasing accounted for
EUR 67.1 (35.1) million, investments in business activities for EUR
9.3 (2.7) million, and investments in subsidiary and associated
company shares for EUR 171.4 (87.9) million.

The number of full-time employees totalled 14,435 (12,435) at the end
of September. Acquisitions and new outsourcing contracts added around
1,500 employees during the first nine months. Recruitment has
increased from the previous year: a total of 1,305 (669) employees
were hired.

Personnel adjustments recuded staff by 270 during the first nine
months. In May Processing & Network started personnel negotiations
related to the consolidation process in Finland, Sweden and Central
Europe to reduce a maximum of 160 jobs. Negotiations in Finland were
completed at the end of August, but in Sweden they are still
on-going. In Finland the job reductions were achieved through
voluntary leaves, pension plans, internal job rotation and to a
lesser extent layoffs.

Employee turnover is on a slowly increasing trend. The 12-month
rolling figure stood at 6% at the end of September.

On average the number of employees totalled 14,024 (12,454) during
the first nine months.

At the end of September the number of people in low-cost countries
totalled about 870. With the acquisition of IT Alise in Latvia, this
number will increase to well over 1,000. TietoEnator is planning to
increase its low-cost staff to roughly 2,000 by the end of 2006.

Mr Ari Karppinen was appointed President of the Processing & Network
business area from 1 October 2005.

Shares and options
In July TietoEnator's Board of Directors decided to start a share
repurchase programme. Under the 2005 AGM authorization shares are
being purchased to develop the company's capital structure. The
maximum amount to be used under the programme is EUR 80 million to
purchase a maximum of 3.11 million shares. By the end of September 1
638 500 shares had been purchased. The price for the shares was EUR
45.8 million or an average of EUR 27.97 per share. The company now
holds 2.1% of its shares and voting power. TietoEnator will continue
the share repurchases and its Board of Directors will propose the
cancellation of all repurchased shares to the AGM in 2006.

The outstanding number of shares adjusted for the shares in the
company's posession was 77,103,622 at the end of September. The
average number of shares in the third quarter was 78,484,665 and in
the first nine months 78,655,360.

The average share price in the third quarter and in the first nine
months exceeded the subscription price of the 2002 options programme
thus resulting in minor dilution. The diluted number of shares was
77,292,189 at the end of period. The average diluted number of shares
was 78,631,428 for the third quarter and 78,711,172 for the nine

The Board of Directors' authorization to issue share and option
rights or raise convertible bond loans was not used during the

Prospects for 2005 and early 2006
TietoEnator expects that the positive development in the business
sentiment will continue in the last months of 2005 and early 2006.
The acquisitions finalized up to this date are expected to contribute
around 8% of growth in the fourth quarter of 2005. The
discontinuation of the zero-margin pass-through invoicing from
Processing & Network will reduce the Group's top line by close to 1%
for the full year 2005.

The amount of performance-based rewards from Telecom & Media's
partnership contracts is expected to be lower in the fourth quarter
than in the second quarter of 2005, when they totalled EUR 6 million.
In 2004 the fourth-quarter performance-based rewards were
exceptionally high at EUR 10 million. Licence sales are seasonally
strong in the fourth quarter, but are difficult to forecast. In 2004
fourth-quarter licence sales were very high.

The consolidation process investments in Processing & Network are
expected to total around EUR 12 million, of which EUR 8 million was
incurred in the first nine months. The remaining cost is expected to
take place in the fourth quarter and in early 2006.

In the fourth quarter sales are forecast to grow 7-10% compared with
the fourth quarter of 2004. The lower growth rate in the fourth
quarter compared with the third quarter is due to the very strong
organic growth in the fourth quarter of 2004 and lower expected
contribution from acquisitions. TietoEnator expects organic growth to
increase to a level of 5-10% in early 2006.

EBIT margin is expected to range between 10% and 12% in the fourth

Net sales guidance does not include potential new acquisitions. The
full-year EBIT is expected to include around EUR 7 million of
amortization on intangible assets and around EUR 3 million of stock
option expenses.

The full-year cash flow from operations is expected to continue
strong and is improved by the utilization of the tax asset.

Financial calendar 2006
Interim Report January - December 2005 on 2 February 2006
Financial Statement Bulleting for 2005 on 9 February
Annual Review and Financial Review 2005 in pdf in week 7
Annual Review and Financial Review 2005 printed 3 March
Annual General Meeting on 23 March
Interim Report January - March 2006 on 27 April
Interim Report January - June 2006 on 21 July
Interim Report January - September 2006 on 20 October

The figures in this report have been prepared according to
International Financial Reporting Standards and are unaudited.

Press conference for analysts and media will be held in Stockholm,
Nordic Sea Hotel, Vasaplan, cabinet Oceanen, at 9.00 am CET, (10.00
am EET, 8.00 am UK time).

The conference will be hosted in English by CEO Matti Lehti, Deputy
CEO Åke Plyhm, CFO Timo Salmela and SVP Investor Relations and
Financial Communication Päivi Lindqvist. Notification of attendance
to Therese Edehorn, therese.edehorn@tietoenator.com, +49 8 632 1411.

The conference will be webcast and published live on the Internet at
TietoEnator's website www.tietoenator.com/presentations and there
will be a possibility to present questions on-line. An on-demand
video will be available after the conference.

Conference call starting at 3.00 pm CET, (4.00 pm EET, 2.00 pm UK
time) will also be available as live audio webcast on
www.tietoenator.com/presentations. The call will be hosted by CEO
Matti Lehti, Deputy CEO Åke Plyhm, CFO Timo Salmela and SVP IR and
Financial Communication Päivi Lindqvist. Callers may access the
conference directly at the following telephone numbers: US callers:
+1 617 213 8897, non-US callers: +44 20 7365 8426, code
'TietoEnator'. Lines to be reserved ten minutes before start of
conference call.

A replay will be available until 27 October 2005 in the following
numbers: US callers: +1 617 801 6888, non-US callers: +44 20 7365
8427, access code: 7743 2176. An on-demand audiocast of the
conference will also be published at TietoEnator's website later
during the same day.

TietoEnator publishes financial information in English, Finnish and
Swedish. All releases are posted in full on TietoEnator's website
http://www.tietoenator.com as soon as they are published.


For further information:
Åke Plyhm, Deputy CEO, TietoEnator, tel. +46 8 632 1410, +46 705 658
Timo Salmela, CFO, TietoEnator, tel. +358 9 8626 2213, +358 400 434
timo.salmela@tietoenator.com or
Päivi Lindqvist, SVP, IR and financial communication, TietoEnator,
tel. +358 9 8626 3276, +358
40 708 5351, paivi.lindqvist@tietoenator.com.

TietoEnator is one of the leading architects in building a more
efficient information society and the largest IT services company in
the Nordic countries. TietoEnator specialises in consulting,
developing and hosting its customers' business operations in the
digital economy. The Group's services are based on a combination of
deep industry-specific expertise and latest information technology.
TietoEnator has close to 15 000 experts in more than 20 countries.

TietoEnator Corporation
Business ID: 0101138-5

Kutojantie 10 PO Box 33
Tel +358 9 862 6000
Fax +358 9 862 63091

Registered office: Espoo
Kronborgsgränd 1
Tel +46 8 632 1400
Fax +46 8 632 1420
e-mail: info@tietoenator.com

Helsinki Stock Exchange
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