TietoEnator cuts full year guidance; CEO Heikkinen departs

Source: TietoEnator

According to preliminary information, TietoEnator's third quarter net sales grew by 10% and amounted to EUR 404 (369) million.

Third-quarter organic growth was 12%. Operating profit excluding capital gains and restructuring costs for the third quarter stood at EUR 25 (28) million.

Third-quarter profitability of the underlying business developed in line with the company's expectations. However, TietoEnator foresees that the development mainly in product-based businesses in Banking & Insurance and Healthcare & Welfare business areas is resulting into a lower profitability. Therefore TietoEnator's full-year operating profit will not reach the 2006 level of EUR 124 million. On 20 July 2007 TietoEnator stated that it will be difficult to reach an underlying operating profit guidance of over EUR 124 million in 2007. The underlying operating profit does not include potential capital gains, capital losses and restructuring expenses.

A More focused strategy

TietoEnator's Board of Directors has approved the company's revised strategy, which aims at restoring the company's profitability and securing a sustainable basis for future growth. Based on the Board's decision, TietoEnator will implement several changes related to the sources of future growth, operational efficiency and organisation. The basic elements of the new strategy are the following:
  • focused growth path
  • repositioning of repeatable solutions, and
  • accelerating quality and productivity improvement.

Regarding growth, TietoEnator will have a separate global and regional strategy. Global growth initiatives will be refocused. The company is planning to invest in expanding its leading position as a Telecom R&D partner, as well as strengthening its strong market position in Forest and Oil & Gas businesses.

TietoEnator's regional strategy is based on the company's strong position in the Nordic countries. The aim is to even further strengthen the company's leading position as a full-scale IT service provider to Nordic-based core customers in their main markets, including Russia.

Repositioning of repeatable solutions

Outside the global businesses, TietoEnator will seek growth primarily in services by packaging the offerings from vertical Business Areas, Processing & Networks and Digital Innovations. TietoEnator aims to grow especially in services that provide high value to customers, such as application service management and focused business process outsourcing.

TietoEnator will increase co-operation with key global application platform providers. In addition to service development, focus will be on reusable software creation that complements these platforms.

As a result of the shift in strategy, current product and service portfolios are being refocused, mainly in the Banking & Insurance and Healthcare & Welfare business areas.

Push on quality and productivity improvement

To respond to rapidly increasing cost and price pressures, TietoEnator will speed up and expand the current performance improvement programmes by expanding the Profit 2007 programme to a substantially higher level. The improvement potential and restructuring costs will be quantified during the final quarter of 2007.

Cost-efficiency will be sought by improving the utilization of staff i.e. by turning around low-performing units, emphasising staff efficiency and by reducing overhead activities. TietoEnator will also accelerate its off-shoring with the target of reaching a 40% share in the coming 3-5 years. Corporate-level administrative costs will also be streamlined.

At the same time TietoEnator puts specific emphasis in maintaining and improving customer intimacy and the quality of services and operations. To be able to efficiently implement the revised strategy and to achieve quality improvement TietoEnator is also reviewing its organisational structure.

Change of Chief Executive Officer
TietoEnator's Board of Directors and Pentti Heikkinen, President and CEO of TietoEnator, have today agreed on the change of leadership of the company, effective immediately. The decision is based on mutual understanding and is due to TietoEnator's financial performance. The Board of Directors is in the process of selecting a new President and CEO from outside of TietoEnator in the near future.

"I would like to thank Pentti Heikkinen for his personal commitment and contributions over the years as President and CEO as well as for his long career in several important management positions in TietoEnator. During Pentti's leadership, TietoEnator has achieved significant improvements in a number of areas including successful development of the Telecom & Media business, establishment of substantial global sourcing operations in new market areas and consistent drive towards one TietoEnator", says Matti Lehti, Chairman of the Board.

Åke Plyhm, Deputy CEO, will act as interim CEO until the new President and CEO has been appointed. For the time being, Pentti Heikkinen will continue in special assignments defined by the Board of Directors.

TietoEnator will publish its third quarter result and additional information about the revised strategy on 26 October 2007 at 8.00 am EET/ 7.00 am CET.

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