For Tieto, economic responsibility means striving to ensure that we are profitable and hence able to create long-term sustainable value for our stakeholders and contribute to a global and sustainable economy. Tieto's profitability remained at a healthy level in 2017 and net cash flow from operations was significantly up over the year.
Tieto s financial objectives are to growrevenue from IT services above the market (CAGR), achieve a 10% reported operating margin (EBIT), increase dividends annually in absolute terms, and to have a net debt/EBITDA of 1.5 as an upper limit in the long run.
In 2017, sales growth was over 3%, or over 4% in local currencies. It is estimated that the IT services market relevant to Tieto grew by 2–3%. Full-year operating profit (EBIT) amounted to EUR 139.2 (140.8) million, representing a margin of 9.0% (9.4). Tieto’s profitability is relatively sensitive to the level of restructuring measures. Operating margin adjusted for items including restructuring costs increased to 10.5% (10.2). The proposed dividend is up by 4% to EUR 1.20 (1.15) and additionally, an extra dividend of EUR 0.20 is proposed. Dividend yield is 5.4% and the payout ratio 96%, including extra dividend. Tieto’s capital structure remained strong and net debt/EBITDA was 0.8. The proposal to pay extra dividend addresses our objective to achieve a level close to 1.
Tieto will maintain its capacity to invest in future growth both organically and inorganically after dividends. In 2017, the company continued to accelerate innovation through offering development for high-growth businesses as well as acquisitions. Tieto’s offering development costs remained at the previous year’s level at close to EUR 75 million, representing 5.0% of Group sales. Net payments for acquisitions totalled EUR 49.3 (37.6) million. Additionally, the company continued to invest in standardization and automation to drive improvements in productivity and quality. Full-year capital expenditure totalled EUR 50.8 (61.6) million. Capital expenditure represented 3.3% (4.1) of net sales and was mainly related to data centres.
Tieto’s economic contribution to stakeholders is summarized in the graph below. It illustrates our economic impact on customers, employees, suppliers, governments and society at large.
|Economic value for different stakeholders, EUR million|
|Revenues||1 562.1||1 514.5||1 492.5|
|Employee wages and benefits||873.1||827.1||828.3|
|Payments to providers of funds||105.7||104.3||100.6|
|Payments to governments 1)||21.5||22.7||22.3|
|Economic value retained||65.0||66.6||56.6|
|1) of which|
Our tax strategic aim is to comply with all local tax legislation and other regulations in all jurisdictions. Tieto is committed to operating in a responsible way and to complying with ethically acceptable principles in all of our activities. This means that Tieto fulfils all its reporting requirements and pays all legally imposed direct, indirect and other taxes in those countries where the Group has operations. Furthermore, Tieto shall always operate with full co-operation with the authorities and aim to disclose all information that is needed for determining tax consequences. Tieto’s general objective is to avoid uncertain tax positions. In case of uncertainty, all tax positions taken should be supportable.
Tieto's Tax Strategy is approved by the Audit and Risk Committee (ARC). Group Tax Team reports on the status of group tax issues biannually to the ARC. Tieto also has a written Tax Function Model including roles, tasks and responsibilities of Group Tax Team and other relevant internal and external stakeholders in managing taxes. External tax advisors are used, for example, in complex M&A cases. Tax risks are identified and managed as part of enterprise wide approach to risk management.
In December 2017, Tieto Corporation entered into a co-operative compliance programme with the Finnish Tax Authorities after the Large Taxpayers' Office of Finland conducted a compliance scan assurance of all tax management processes and controls including internal controls related to tax reporting at Tieto during 2017.
During the year, Tieto received financial assistance from local governments in some of our operating countries. In Austria, we received EUR 0.1 million from the EU for research funding. In Sweden, we received EUR 0.1 million, of which the majority is for employment support and a smaller proportion from Vinnova, the Swedish Innovation Agency. In Finland, we received EUR 0.3 million from TEKES, the Finnish Funding Agency for Technology and Innovation for projects to support digitalization in various industries and the adoption of a real-time experimental business model, as well as for product development purposes in our Product Development Services unit. In addition, in India Tieto received tax relief of EUR 1.6 million because of a tax holiday.
|Significant financial assistance received from government, EUR million|
For a full description of our financial performance, please read our Financial Review 2017.
In Tieto, Group-level finance operations are handled by our Chief Financial Officer’s (CFO) office. In addition, each Industry Group and Service Line has a dedicated Finance partner, who works closely with business and supports management in financial processes and reporting. Our shared service centre in Riga, Latvia, supports accounting and master data maintenance services to fulfil Group reporting and statutory reporting needs and requirements.
Tieto has a common accounting and reporting platform, Tieto ERP. Group consolidation and reporting are based on the reporting system, which facilitates common control requirements for all legal entities reporting to the Group. Financial reporting consists of monthly performance reports, including all the key performance indicators, rolling forecasts and interim financial reports.
The correctness of Tieto’s financial reporting, including interim and annual reports, and the compliance of financial reporting with regulatory requirements are ensured through our internal control practices. The Audit and Risk Committee of our Board of Directors has the role of oversight in our external financial reporting.
Tieto’s financial reports are regularly reviewed by the Leadership Team and the Board of Directors. The follow-up is based on a thorough comparison of the actual figures with the set objectives, forecasts and previous periods. If there are deviations in the figures, the Leadership Team members are responsible for initiating corrective actions.
Our Financial Handbook includes internal financial information that is directed at people involved in the financial planning and reporting or working with finance matters. The information covers a broad spectrum from the steering system to detailed timetables for reporting, as well as descriptions of reporting systems and financial guidelines.
Tieto’s financial reporting follows the International Financial Reporting Standards (IFRS) as adopted by the European Union. As a listed company, we are compliant with the regulations of the NASDAQ Helsinki and Stockholm Stock Exchanges.