Highlights of the first quarter
- Net sales growth 8% to EUR 440.6 million
- Organic growth 4% in local currencies
- Operating profit excluding capital gains but including restructuring EUR 30.2 (35.1) million
- Profit before taxes EUR 31.9 (35.0) million
- EPS at EUR 0.29 (0.31)
Commenting on the first-quarter performance, TietoEnator's President and CEO Pentti Heikkinen notes:
"We cannot be satisfied with TietoEnator's performance in the first quarter, but we have areas with good news as well. Price declines and the speed of the shift to low-cost countries in the telecom business surprised us, and having this many projects underperforming at the same time is not acceptable. On the other hand, we have made an excellent recovery in our 2005 problem area, Processing & Network, and organic growth in most of our other business areas is developing well. Another highlight of the quarter is gaining the European leading position in telecom R&D with our recent agreement with Siemens. We will continue to drive our existing plans for the year at full speed and top that with extra attention on project control."
TietoEnator's first-quarter net sales grew 8% to EUR 440.6 (406.9) million. Organic growth in local currencies was 4%. Organic growth improved in most of TietoEnator's businesses, in Banking & Insurance, Government, Manufacturing & Retail, Healthcare & Welfare and Processing & Network. However, in telecom business organic growth was negative due to declining prices and lower demand for new projects.
First-quarter operating profit excluding capital gains was somewhat lower than in 2005 at EUR 30.2 (35.1) million. The biggest reasons for the lower profit were the costs of underperforming projects (around EUR 6 million), restructuring expenses (around EUR 7 million) and the decline in the profit level of the telecom business. In the first quarter TietoEnator recognized a capital gain of EUR 4.7 million from setting up a new joint venture in Finland in the defence area together with Saab, the Swedish defence, aviation and space company. Operating profit including capital gains was close to last year's level at EUR 34.9 (36.0) million. Profit before taxes totalled EUR 31.9 (35.0) million and earnings per share were EUR 0.29 (0.31).
For 2006 TietoEnator expects organic growth to improve from 2005. Achieving high growth levels is increasingly challenging as price pressure in the telecom business is heavy and more and more of the work is delivered from lower cost regions. For the full-year 2006 TietoEnator expects net sales growth of 5-9%.
TietoEnator will start personnel negotiations in the telecom R&D business in Sweden. Currently the company expects that the need to reduce the cost base in the unit corresponds to around 75 jobs. These actions are needed due to too low utilization of personnel and the change in the competence mix that customers are demanding. The costs related to this process are estimated to be around EUR 5 million in the second quarter.
As the personnel adjustment processes continue to burden profitability, TietoEnator now expects its full-year operating margin to range between 8% and 10%.