Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Improved profitability in a weakening market environment, with profitability reaching 13.5%.
- Strong customer wins across all business segments, particularly in modern technologies like cloudification and AI.
- Healthy cash flow of 58 million euros and a backlog increase of 8%, driven by record high backlog in the banking sector.
- Continued investment in AI and next-generation technologies, including the launch of a new AI lab.
- Stable profitability in the banking sector with 4% organic growth, driven by credit, cards, and financial crime prevention.
Negative Points
- Revenue decline of 1% due to a weakening market environment, with organic growth guidance revised to around -2%.
- Challenges in the Swedish market and a decrease in internal revenues impacting growth.
- Softening demand in certain markets, particularly in the public sector in Finland and Sweden, affecting growth.
- Impact of the Norwegian Bank merger negatively affecting revenue, expected to continue for a few quarters.
- Ransomware customer settlement impacting growth, with a full impact expected to be below 10 million euros.
Q & A Highlights
Q: Can you elaborate on the Q4 growth drivers and the impact of the ransomware incident on growth?
A: The ransomware incident is impacting tech services growth by approximately 1% this quarter, with a full impact below €10 million expected in Q4. Market weakening is now visible across all markets, affecting internal revenue drivers, particularly in banking, with a 4% headwind due to a merger. Budget deficits in the public sector are also impacting end-of-year license sales.
Q: What factors could improve the demand outlook for next year?
A: Besides macroeconomic drivers like interest rates, we are closely monitoring customer input and pipeline signals. We expect a weaker market at the start of next year but are hopeful for better signals and opportunities in the second half.
Q: Can you provide more details on the exclusive process with a non-industrial buyer for tech services?
A: We have advanced to an exclusive process with a non-industrial buyer, but due to the sensitivity of the topic, we cannot provide further details at this time.
Q: What are the main differences in operating cash flow compared to last year, and what is a sustainable level going forward?
A: Last year's cash flow was impacted by networking capital elements. This year, we experienced a recovery in accounts receivable, leading to a more sustainable level of around €215 million in free cash flow and €350 million in operative cash flow.
Q: Can you discuss the ongoing efficiency improvement program in banking and its potential impact?
A: We are removing strategic review-related excess costs and building competitiveness, including SG&A and capacity. We will provide guidance for 2025 in February, considering the need for market recovery to reach previous targets.
Q: What were the biggest surprises in segment performance during the third quarter?
A: There were no major surprises; however, we observed a decline in demand in September, leading to a guidance change. The softening market impacted our ability to meet initial forecasts.
Q: Can you elaborate on the weakness in the industry segment, particularly in the paper, pulp, and fiber industry and the Finnish public sector?
A: The Finnish public sector is impacted by budgetary cuts, affecting new projects. In the paper and fiber industry, cost optimization by customers is affecting the combination of licenses and professional services.
Q: How is the US market performing compared to Europe, and what are your plans for exposure there?
A: While there are some signals of potential improvement in the US market, we need more proof points before confirming an uptick. We continue to monitor the situation closely.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
