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Good morning, ladies and gentlemen. We are delighted to welcome you to follow the introduction of our first quarter results. We will start with a presentation by Kimmo Alkio, our President and CEO; and Tomi Hyrylainen, our CFO. [Operator Instructions] My name is Tanja Lounevirta, Head of Financial Communications. Let's move on. Kimmo, please.
Thank you very much, Tanja, and a very warm welcome to everybody, also on my behalf, to our Q1 results announcements. We are actually pleased to see that in our key markets, the pandemic is heading in a better direction currently. And we have started the year, on a group level, according to plan with some variability in the businesses. And naturally, we'll open this up throughout the session. Overall, solid profitability development in the company, driven especially by Industry Software and Digital Consulting. In light of the pandemic impact that has continued in Q1, revenues organically down by 6% as we had anticipated and we would like to confirm our growth outlook for the second half of 2021. Adjusted operating margin being at 11.5%. We are today talking a great deal about the Cloud & Infra transformation, how it continues and actually the additional efficiency measures that have been initiated Q1, healthy continued cash flow generation. In terms of the market, we're seeing degrees of market recovery and this is also supporting our objectives of continuously building on our growth profile, on the growth momentum and the opportunities for our business to be growing throughout year 2021. We have also seen during the first quarter, important wins in the marketplace, which tend to focus a great deal on the enterprise agility, supporting our customers' own strategic intent, utilizing extensively the benefits of cloud and data-oriented solutions. So market activity in these domains actually picking up. I would also like to confirm our consideration that the pandemic impact on customer activity, on overall market activity, we believe, is gradually reducing, and we currently foresee to have a normalized business environment for the second half of 2021. So naturally, the whole market assessment, the pandemic development, our customers' investment appetite continues to be a very important part of the dialogue with our customers and currently in our main markets, as reflected upon the pandemic development seems to be heading in somewhat a better direction. And this is quite tangible, what we see in the customer engagement. So hopeful that the normalized environment would be second half. I would also like to reflect on a high level a bit on the future of work. We do believe that there will be permanent changes in how work is conducted in the future. We have a very active agenda with our colleagues around the world in defining the future of work, supporting new ways of working, very important new ways of engagement, new type of tooling and overall, we are getting prepared for the post-COVID type of a new normal environment, like many other companies naturally are equivalently doing, very important part of building a great work environment of the future. I would also like to confirm that our integration continues to be fully on schedule. 2021, we focus extensively on our growth agenda, the solution competitiveness and synergy realization. So it will continue to be a very big agenda item for the management for the full year 2021, to ensure we follow the good execution of year 2020 as the first year of integration, to make sure the second year of integration goes at least equally well. During Q1, also a few significant customer wins, these both happen to be in the area of multi-cloud and enterprise transformation services supporting customers to go into a more cloudified world, rebalancing and balancing the legacy environments into more scalable, more automated environments. So examples here coming from Norway and Finland. Lyse in Norway, extensive usage of public and private cloud. While in the case of LocalTapiola, combination of infrastructure, multi-cloud end-user and application type of services, confirming overall competitiveness in the marketplace. And we see the feasibility to continue healthy win rates in the months and quarters to come. In the opening part, I would also like to touch briefly on sustainability. Sustainability agenda continues to be higher and -- of higher and higher importance towards all of our constituents. We believe we have a fantastic sustainability, the game plan, which was released also during the first quarter. In the recent months, we have received a few recognitions. One would be from EcoVadis, being amongst the top 1% on a global level, rating, actually, 75,000 companies, whereby we have been recognized for long-term commitments, especially in the CO2 reductions and the gender balance ambitions. And then in the CDP rankings, the Carbon Disclosure Project, recognition for progress in reductions of greenhouse gas emissions, the GHG, and specifically on hardware circularity. So we'll see a lot more activity around sustainability value and tangible cases also in the months and quarters to come. Next, time to go into the actual business performance and let us begin with the group level. Overall, as referred to earlier in the opening part, overall on plan, with some variability per the service lines. Organic growth of negative 6% in light of, actually, continued impact of the pandemic at the group level, approximately 3%, and the pre-merger lost customers in Cloud & Infra impacting by about 3.5 percentage points. So naturally, with this type of -- our ambition naturally much higher, significantly higher than how Q1 started. I do want to confirm it was according to our plans internally. Healthy improvement in profitability by 1 percentage point up to 11.5% level, so continued good overall execution in terms of profitability. Most significant drivers having been Industry Software and Digital Consulting. Furthermore, very important that operating cash flow of EUR 95 million, so continuing that favorable path. Then let us go into our Digital Consulting business. Q1 was still a negative growth of 5%, pandemic impact having been actually around 5% level and negative working day impact also 1.5% roughly. Profitability continues to head in the favorable direction, 15.1% compared to 13% 1 year ago. And profitability development is a result of the continuous efficiency improvement, productivity focus that we have had in this business ever since the innovation began 5 quarters ago. I would also like to reflect briefly on the market momentum. We have experienced healthy order intake towards the end of Q1, contributing to our full year outlook and towards a growth potential already as of Q2. And we do firmly believe that Digital Consulting will be returning to growth during the second half of the year. Overall momentum picking up in this business. Regarding Q2, we do believe adjusted operating margin to be above the level of second quarter last year. Next, on the Cloud & Infrastructure business, while clearly challenged in the first quarter, we do believe this has bottomed out in the first quarter of 2021. Drivers also significant decline of 17% in revenues, 3 main factors: Pre-merger lost customers, no surprises in that figure, approximately 10%; high comparative from the first quarter '20, approximately 5 percentage points; and continued pandemic impact, 2 percentage points. Naturally, significant activities are underway to improve profitability, which was only 4% in the first quarter. Very tangible actions underway. Short, main impact will come from reducing production capacity and headcount in the shared environments where customers have exited. I would also like to confirm that the end of IBM-related quality improvement cost shall be and will be reduced by this summer, fully on schedule and furthermore, a bit longer-term program to transform the legacy IBM workloads to new, scalable and automated technologies and environments will also contribute to profit for the quarters to come, a bit longer term. And also fair to highlight that we do have growth businesses within Cloud & Infra and which are also higher-margin, new type of cloud, public cloud management services and further add-on volumes. So with these considerations in mind, we do expect clear improvement in this business for the quarters to come. Very specifically, second quarter revenue decline, we expect to be less than in the first quarter and adjusted operating margin to be above Q1 level, in all of these comments regarding '21. We would also like to highlight that the second half '21 adjusted operating margin is expected to be above the level of H1 '21 and to be fair, clearly above. So this would be the considerations on Cloud & Infra. As commented, clearly challenged in the first quarter. Revenue development, very close to our own expectations; cost base a bit higher. With this in mind, very specific cost-reduction activities underway. And I would like to confirm our belief this business has bottomed out Q1 of this year. Industry Software, good development, organic growth of 3%, even when the pandemic impact was about 2 percentage points. Profitability development continues favorably, adjusted EBITA 20.1% and overall profit development. It continues to follow the same systematic approach, how we had driven the Industry Software business for a couple of years. So the profitability and efficiency drive continues favorably. Also from a growth standpoint, very interesting growth pockets, growth in welfare, approximately 16%; and healthcare, 10% level. And more specifically regarding expectations for Q2, we expect the adjusted operating margin to be above the Q2 '20 level. Next, let's go into Financial Services. So Financial Services, somewhat similar development as in the Industry Software. I call this solid, while we continue highly mindful investments for future growth and scale. In the case of FSS, organic growth of 3% while pandemic still impacted by about 3 percentage points. Profitability at 10.9%, roughly the same as 1 year ago. This also being the profitability driven by the continued investment level to support the already-won contracts and fully in support of our growth and future profit ambitions. Good opportunities and momentum in this business. Overall, regarding second quarter, we expect the adjusted operating margin to be at or above Q2 2020 level. So as commented, good opportunities and we continue to invest based on the good momentum we have. Product Development Services, good profitability. Market, Q1 was still a bit slow due to the pandemic and we see clear signals of PDS business, from a top line standpoint, also picking up. In practice, Q1 growth, negative 8%. Pandemic impact significant at 5% level. While, as commented, market picking up, we are seeing both in automotive and in the overall telecom 5G type of demand, fully supporting our growth outlook for the remaining part of the year. Profitability healthy at 12% level. Regarding Q2, we expect the adjusted operating margin to be approximately at the level of Q2 2020. We also wanted to open up 1 of our Q1 highlights and the potential around our international operations serving primarily European and U.S. customers. So this is a very interesting business. We tend to be leading through our expertise centers in India and Ukraine. 2020 revenue base, just to add a bit of background, approximately EUR 130 million level. This business actually focuses on the -- purely on the future digital, a significant focus overall on a cloud-native type of software development, fully DevOps working models, active role in cloud and cloud-related application transformation and the extensive usage of data, data embedded into customers' businesses, customers' business processes. And in this type of business, we have significant partnerships with the like of SAP and Microsoft and this business impressively growing at 22%, also signifying the opportunities in the new digital and also outside of our more traditional Nordic markets. So good development here and we are bringing it forward as we have seen sustainable development in this direction already for a several quarters. With this in mind, next over to Tomi for the CFO side.
Good morning, everyone. I'm pleased with our Q1 performance overall. Despite the expected revenue decline of minus 6%, we delivered a good 11.5% profit driven by Digital Consulting and Industry Software. Synergies contributed to profit, EUR 20 million, which was partially offset by temporary lower profitability in Cloud & Infra. Consistent with prior quarters, we continued with cost discipline to mitigate negative profit impact from COVID. We have updated our '21 onetime items estimated to include a positive impact from oil and gas divestment and slightly increased other onetime items to include Cloud & Infra profit improvement plan as discussed today. FX tailwind in Q1 was approximately EUR 12 million, with SEK and NOK appreciating against the euro. In Q1, we continued to deliver healthy cash flows. This EBITA bridge explains why synergies are not fully visible currently in the P&L. Overall profit improvement for the quarter was EUR 4 million from EUR 78 million to EUR 82 million. So starting from the left-hand side, synergy contribution was EUR 20 million, net operational improvements from the businesses, EUR 5 million; a small FX, M&A impact of plus EUR 1 million; a negative EUR 6 million working day impact from 1.2 days working days less in Q1; and we estimate Cloud & Infra temporary lower profit to impact approximately minus EUR 15 million. This is using a more normalized profit level of Q1 last year. With the measures discussed earlier, including today's restructuring announcement, we will turn Cloud & Infra profitability and be able to show full synergies in the P&L as promised. We continue to deliver healthy cash flows in Q1. So cash flow from operations was EUR 95 million, driven by improved profitability and stable working capital development. Factoring level was slightly down from Q4 at EUR 28 million. Our free cash flow was EUR 56 million, representing cash conversion of EUR 1.5 million from net profit. Our good cash flows have allowed us to deleverage in accordance with our plans and we reached 2.3 net debt/EBITDA by the end of Q1. Following the closing of the oil and gas divestment, which is expected during Q2, we will be close to our deleverage target of below 2 net debt/EBITDA. Synergy takeout continues as planned and we confirm that we are well on track to reach EUR 100 million target with run rate of EUR 90 million to EUR 95 million being achieved at the end of this year. We keep the integration cost estimate of EUR 110 million to EUR 120 million unchanged with accumulated integration cost at the end of Q1 of EUR 90 million. Our Q1 onetime items were EUR 14 million, fully as expected. As I mentioned, we've updated our '21 estimate to include the oil and gas divestment estimated positive impact of EUR 70 million and on the cost side, we've increased other onetime cost estimate range by EUR 5 million to include actions announced today to improve Cloud & Infra profitability, as mentioned. Integration cost estimate remains unchanged. So the '21 onetime items estimate is now positive EUR 8 million to EUR 23 million. Then specifically on the oil and gas divestment, we are progressing well with the closing procedures and expect the closing to happen during Q2, in line with the original plan. In this Q1 report, oil and gas business is classified as held for sale following the accounting rules. We expect the divestment to have positive P&L impact of 70, as mentioned. And as the transaction is nontaxable for the group, it will drive a reduction in the group effective tax rate of approximately 4%. CapEx for the quarter amounted to EUR 22 million, which is a more normalized level and a good approximation for the coming quarters. We expect the full year CapEx to be at the same level as 2020. Next, I'll summarize the Q2 performance drivers. We estimate the COVID impact for Q2 to be less than Q1, reflecting the signs of recovery seen in the market today. The impact of the pre-merger lost customers in Cloud & Infra remains at the level of Q1. Synergy contribution will be slightly above EUR 20 million and Cloud & Infra adjusted profit is expected to increase from Q1. COVID mitigation continues as needed, shifting, of course, focus to getting back to new normal levels towards the second half of the year. FX tailwind is expected to continue and working days will have a 0.5% positive impact on revenues. Now back to you, Kimmo.
Thank you, Tomi. Thank you very much. So in light of our agenda shifting from integration to growth orientation, I'd like to talk a bit about what are we actually doing about the growth orientation and what type of signals during the first quarter we have already experienced in a somewhat favorable direction. First of all, I'd like to confirm the market-centric growth drivers that we touched upon also in the Capital Markets Day in December. Clearly, in the marketplace, the accelerating digital, cloud and data is something that we talk with all of our customers about. There's a very active technology renewal agenda to actually drive also the efficiency side of the enterprise IT, again, in order to fund more and more of the accelerating digital. And furthermore, the opportunity for the data-driven products and operations we see in the marketplace. In the early part of the year, around the digital solutions, we saw a decrease of acceleration in the cloud and data-driven services. So pockets of growth have become visible, especially through the order intake uptake towards the end of Q1. We, this time, wanted to open up a bit further the international operations, organic growth of about 22% and quite sizable business. And furthermore, we're seeing the activity level heading exactly in the right direction in the new ways of working, that is referred to as DevOps, actually the ways to deliver the benefits of cloud and data. Furthermore, based on our competitive and scalable software businesses, the healthcare and public software growth overall above 10% level and Payments and Cards growth approximately 8%. So interesting pockets also on the software side. Regarding the digital product development, we do anticipate the return to growth in automotive and consumer electronics. We did see a bit of a slowdown there for the last few quarters. Signals are clearly in the right direction. And also, the growth momentum in the telecom and 5G as well. So these continue to be very high in the agenda of the company overall to advance with the opportunities and reap the benefits of the market, which we do believe is also rebounding. Furthermore, we'd like to add a bit of depth and an update to what we looked at 3 months ago. So what is the practical view and the foundation of how we believe we will get back to growth during the second half of 2021. A few commentaries I'd like to offer per business. How we look at the Industry Software and Financial Services Solutions overall, to be clear, growth contributed throughout the year. On the IS side, high activity level, good wins, specifically in welfare, healthcare and actually, the public domain with our Public 360° services. FSS, our outlook continues to be supported by good backlog and overall strong momentum in both banking-as-a-service and the Cards side. Furthermore, regarding Product Development Services, as commented a few times already, demand in both the telecom and the automotive sector, we anticipate and already see signals of recovery there. And a bit of an update as reflected also a few times already on the Digital Consulting side, favorable growth momentum towards the end of Q1 and our confidence level of speedy growth recovery in Digital Consulting has become better during the first quarter. And furthermore, the Cloud & Infra, naturally, the pre-merger lost customers is impacting this year while the impact will be decreasing during the second half of the year. And I would also like to confirm in the Cloud & Infra, overall, our long-term game plan that we talked about Capital Markets Day, remains fully intact while we run this temporary era of challenges. Regarding international operations, growth potential continues and driven exactly by the types of services customers are investing into and providing healthy scalability and profitability impact as well. So with this in mind, the agenda per quarter, I think we'll see favorable developments towards our growth orientation. And as a summary regarding our first quarter announcement, I'd like to summarize where we began. Overall momentum building up. Q1 according to the company's plan, variability per business. With this in mind, revenues were down by 6%, growth agenda clear, growth second half of the year anticipated. Adjusted operating margin healthy. Cash flow continues to be healthy as such. And overall, I'd like to confirm currently, we do see the market momentum developing favorably, subject, naturally, to how the pandemic will then end up evolving. With this in mind, this completes the CEO and CFO view of Q1 and the report. And now we have time for Q&A. Thank you.
Thank you, Kimmo and Tomi. We are ready to proceed to the Q&A session. Moderator, please go ahead.
[Operator Instructions] Our first question is from Gautam Pillai of Goldman Sachs.
Great. Firstly, I just wanted to kind of come back on the business environment that you saw in Q1. You did comment on an improving environment towards the end of Q1. But some of the other global IT services players have already returned to growth in Q1, especially in the digital business across geographies. So can you kind of comment on what specifically you saw in the region? And if there are any kind of specific pockets which kind of was a drag on growth, especially on the digital side? Secondly, on Cloud & Infra, can you comment on the -- can you split the growth between the contract loss, which you had talked about earlier, versus the underlying performance? And how should we expect Cloud & Infra growth to kind of -- or what are your kind of anticipations for that business in terms of the performance for the remainder of the year? And finally, on margins. And again, related to Cloud & Infra, the actions you are taking today, is that required to hit your '23 targets? Or is that -- do you think there is upside on that?
Okay. Thank you very much. So maybe I'll take the first and the third one here to begin with. You have 3 good points there. So over on the digital, so we did experience still quite a significant pandemic impact in our landscape across the Nordic market. So interest -- that's one factor why we have highlighted in the pandemic impact, about the 5%. On the other hand, the international business, 22% growth. So outside the Nordics, we saw tremendously positive momentum. So these were some factors -- a couple of the factors. Within the Digital Consulting business, we are seeing healthy demand in the type of cloud advisory, cloud-native, data-oriented areas. We see actually strong demand in areas around SAP, so certain factors are moving really well. With our background in Digital Consulting, we also do have legacy application services exposure, as we've always been open about. So the legacy application services, more traditional application outsourcing side, that is the one that kind of is not currently enabling us in Q1 that we would have gone even faster. So regarding the future-oriented where the market is moving, exactly in those domains we are seeing favorable development. And like we commented, visible also through our order intake. Then regarding the third point on longer-term margin for Cloud & Infra. So we are absolutely firm regarding Cloud & Infra and all other businesses, the 2023 target level for the businesses. And I'd like -- we'd like to confirm that this is a temporary situation we have in Cloud & Infra, driven extensively by the factors we highlighted, pre-merger lost customers impacting 10% and also pandemic impact a couple of percentage points. Maybe the other part I want to add, that the high comparative in Q1 '20 also had a great deal of so-called hardware-software resale as a factor. So those were a bit the exceptional items regarding this profile. Was there anything else? And I probably addressed all those 3 points or any other clarifications you'd like?
No, that's -- I think that's very clear. So just to be clear, so the contract loss impact was 10 points in the quarter?
Exactly.
Our next question is from Daniel Djurberg of Handelsbanken.
Sorry if this has already been asked, I have 7 reporting today, so it's a bit tricky to be everywhere. I was wondering a little bit if you can comment on the Cloud & Infra outlook. You talked about new measures. And I was wondering if you have seen -- we'll see any more substantial restructuring charges or any other changes on the previous targets? I listened to you, that you looked quite positive on the second half still, was that correct? And also if I may, on Financial Services Solutions, you had really strong order intake in Q4 last year, et cetera. I guess it's hampering margins a bit in the short term here, but it could be really positive for the second half. Is this the correct assessment? So that, and if you can say something about salary inflation for this year, would be all.
So for the Cloud & Infra, we feel very comfortable the way we look at it now that these measures, which we now talked about today, will take us to the normalized levels as discussed. And second half, to confirm, will be significantly better in profit terms than the first half in Cloud & Infra. On the second one, Kimmo?
Yes. And then the FSS, absolutely. So based on the strong order intake in the fourth quarter, that confirms our, I'd call it, the multiyear plan to build a higher revenue, higher scale, more -- even more competitive, more attractive FSS business. And indeed, we are on purpose, we believe, with very good reason, maintaining that investment level. With that mind, one could say profitability only at the 11% level for the time being. And we believe this is a fundamentally attractive reason that this absolutely needs to be done. Overall, during the first quarter, the progress in Financial Services with the key customers, with the total core and payment renewal as a program, things are heading absolutely in a good direction. Regarding salary...
And it's much fuller -- sorry.
So salary -- so then you had a question on salary inflation as the last item.
So salary inflation, we currently look at it slightly maybe higher than prior year. One would say 2-plus percent, in that range, for the full group.
Our next question is from Panu Laitinmäki of Danske Bank.
I have a couple of questions. Firstly, on Industry Software, 2 questions there. On the margins, so it was quite good in Q1. Is this a level that you expect to kind of be able to maintain? And how much of that improvement came from closing down the SmartUtilities business? That's the first question.
Okay. So let's take that first one. So overall, I think we are within the range that we have reflected, Panu will remember very well, for quite some time, where this type of a software business should be in profitability terms and within the range that we commented at the Capital Markets Day. Naturally, we are looking into the -- when business scale-wise is relatively healthy, naturally, we will -- we are continuously looking into optimizing the growth profile and scalability of the business. So that's a happy challenge to be looking into. But we are roughly at the levels where we want to be. So balancing, naturally, then further growth potential and what type of investments needed, but roughly right range. And then regarding the impact of TSU...
It was approximately 2%.
Okay. And then on the growth in that division, it was 3% organically, but then you mentioned double-digit growth in these 2 areas. What about the other areas? So probably you had negative growth in some to make 3% on the whole division. So what's -- what are the kind of weaker spots? And is this COVID-related or something kind of more permanent? What's the outlook there?
So nothing really exceptional. So where -- if we think about in the IS portfolio, the main domains that we have around health and care, there's the public sector and there is the industrial sector, that has a number of software businesses. So the industrial sector in the first quarter -- I mean normal fluctuation, so nothing unusual. But naturally, then all were not growing when the total growth was, in that sense, "only 3%," but nothing of worrying signals currently.
So it's mainly how we look at it. It's from the COVID. And when we get away from the COVID, we will see normal growth in that industrial sector as well.
Okay. My third and final question is still on Cloud & Infra. Just to kind of clarify, is the outlook worst now than you thought at the time of Q4 report? And I'm looking at Slide 23 in your presentation, where you have these indications of the divisions. So now it's full year negative for Cloud & Infra, but previously, you were expecting kind of more neutral second half. So question is like what has changed there if you noticed customer losses 3 months ago and -- yes, so what's changed?
So a very good question there. So let me offer a couple of main considerations from my side. So just to be clear, that regarding first quarter, the revenue development was very much as we had anticipated. Cost base was a bit higher, including some third-party costs, as an example, non-IBM, but very practical things. With that whole logic in mind and the pre-merger lost customers, we do need to cut capacity. And further capacity cuts were actually announced this morning. So that's something that we have been in how to scale the Cloud & Infrastructure business over multiple technology cycles. We believe we have a good understanding on how it needs to be done. So that's just one part of it. Regarding the full year outlook, we are commenting clearly that the profitability level will naturally -- we believe will be improving and very tangible improvement in the second half of the year. Regarding Cloud & Infrastructure on the top line side, this is one of the businesses that does experience decrease of price erosion. There's a well-recognized movement towards the cloud world. So we are a bit more conservative in that sense regarding the growth outlook for the year. But big attention on ensuring profitability bounce-back.
Our next question is from Christoffer Bjørnsen of DNB.
So my first question is on the Cloud & Infra business. So as far as I understand, you're basically now incurring a lot of extra costs related to the transition, you have all the moving trucks, you have 2 hotels, that kind of thing. So just trying to understand beyond kind of the cost defined as nonrecurring costs, can you try to help us understand how much of the cost in that business will go away from Q3, as you are kind of completed the moving phase into the new setup? Just to kind of gauge, are we then back at 9% margin like last year? Is it higher? Is it lower? Just trying to understand that dynamic.
Okay. We're fully -- thank you, Christoffer, for the question. I think we heard about 80%, 90%. The line was a bit breaking. So I'll do my best that I heard the right question. So first of all, on the -- regarding the whole Cloud & Infra and how permanent, your point, that the cost cuts are and what level we will be ending up. So first of all, the 2 very tangible activities underway that we naturally, internally have a very quantified and timed view on the cost savings that will materialize. They are actually the first 2 bullets on Page 8, reducing production capacity and related headcount. That's a hard measure. Naturally, these measures have been taken before and they need to be done now. And the second is the -- which we announced at the end of Q2 of last year, around this whole transformation and the program regarding the rearrangement with IBM, that the additional quality improvement costs will be done with this summer and we are confirming the positive development in how customers experience TietoEVRY quality and those additional costs will be cut. So these are the very tangible profitability drivers short term. We naturally have a full view on at what levels we plan to exit this year to ensure we maintain a healthy trajectory on Cloud & Infra profitability. We don't offer externally guidance per quarter per business. We comment only the next quarter. I would like to confirm we fully maintain our 2023 view for what we expect from Cloud & Infra.
All right. That's fine. And the next question is more towards capital allocation. So you said that you've been nearing your leverage target by the end of the year. But like with the divestments and the proceeds from the oil and gas business, you should be significantly below 2x as far as I can tell. So is there any reason why we shouldn't expect you to kind of return that cash from the divestment to shareholders? Or do you have any other plans for that in terms of investing it in acquisitions? Or just trying to understand that would be helpful.
Yes, good question. So first of all, yes, we have made really good progress in deleveraging as we can all see. Now below 2 as a target, it means that we want to be below. It doesn't mean that we aim to be at that level. So we are sort of looking at that as when we are below it, we are okay. So then sort of I wouldn't raise a question of, we would have a capital now to allocate somewhere else once we are below 2. So that type of dialogue, I don't think is necessary because that's not the intent of the -- our target of net debt below 2. Now what comes with the M&A, of course, we're looking at the market and the opportunities which are in accordance with our strategy. And if we have those ones which are identified, of course, we carefully look at those, whether we should be investing in those or not. From the capital point of view, we have less and less restrictions, of course, when we have deleveraged so well.
Yes. And then in terms of M&A, I would prefer to see you guys spin out things and sell off more assets. I was wondering to see if you are now identifying more or further assets that could be better off as a separate unit and that you could raise more capital from selling off more assets, like the oil and gas business, at attractive valuations?
Yes. So we don't speculate on those type of things, unfortunately.
Our next question is from Michael Briest of UBS.
A couple from me. Just looking at attrition, it's still at 10%. I think some of the peers, particularly the Indian heritage companies, have seen increases. And you talked about higher salary inflation. Can you talk maybe around your hiring expectations for this year and how you expect attrition to trend? And if you are seeing more competition for staff, indeed, today? And then just going back to the Industry Solutions and the strong margin performance. Can you say whether there was any particularly strong license performance that drove that? You talked about R&D efficiencies, but was it also the mix of business that was favorable? And then just finally, Tomi, one for you on cash flow. When I look at the balance sheet and then the trade creditors are up EUR 200 million quarter-on-quarter and trade debt is up EUR 20 million. So that really points to a very strong cash flow. And I know you -- working capital movements were flat, which is better than last year. But I'm just trying to understand why the balance sheet doesn't reconcile with the cash flow around working capital movements, if you could explain that?
Okay. Thank you, Michael, for those 3. So I'll take the first 2. So overall, attrition. So yes, we are -- we have entered a market where attrition in certain skill domains is higher. So I think that is very likely a worldwide phenomenon. So we are also are highly mindful that in certain business practices, solution practices and in certain locations, attrition is higher. We are highly mindful of this. And we have also, with that in mind, elevated our recruitment speed, given that we do see, as I reflected a few times on this call, in certain areas around cloud data, the DevOps, cloud native, incremental demand and, of course, for our software businesses, software developers. So yes, this is also high on our agenda. Then maybe a bit more difficult to address, because it's a bit of a moving target, on how will this influence salary inflation. Actually, we come from the era of the pandemic, there was a lot of uncertainty, elements of conservatism on all cost elements by all or most companies. Now we get into more normalized environment, salary increase expectations by tech professionals everywhere goes up, attrition up. So it's a moving target that we will work this very diligently. Also in light of the pyramid -- continued attention on pyramid development to make sure we remain price competitive and highly efficient. So that's, I think, on the attrition. And I'm sure, Michael, you'll reflect back if I wasn't clear enough. On the IS side, nothing unusual in Q1. So that's the short answer.
Yes. On the cash flow, yes, so maybe I would answer your point from the point of view that, of course, no company can convert over a long period time over one to free cash flow. So that's for sure. We have been doing really well now. And overall, the net working capital was flat to Q4. Typically, we do some -- see some negative working capital impact in Q1 because there are seasonal things happening in our business. That did not happen to that extent in Q1. In [ AP ], there was some sort of fluctuations, which are sort of normal in this type of business and out of, sort of -- some of the working capital changes, of course, are out of our control and depends on how our customers react and so forth. So -- but there's nothing sort of particular in it. We are driving strict measures to deliver strong cash flows.
But Tomi, the trade payables have gone from EUR 660 million to EUR 870 million, so that's EUR 200 million, big move. I don't understand why that's not coming through in the cash flow?
Okay. There's, of course, FX impact in -- so when you look at the balance sheet and you look at the appreciation of NOK and SEK, you should take the FX impact, of course, away from that number when you sort of size it to what the real change is. But it's normal fluctuation.
EUR 200 million?
No, the FX is not EUR 200 million, no.
Okay. I'll take it offline. Just on currency for the year though, you had a nice tailwind in Q1. What would you expect the FX tailwind for revenues to be for the year?
So they will be -- currently, if we use this FX, they are in the range of EUR 80 million to revenue.
Our next question is from Jaakko Tyrvainen of SEB.
Yes. Most of my questions have already been answered. But regarding your order backlog, which was still down year-over-year, how comfortable you are with this, given your guidance, i.e., is the current market activity clearly healthier versus the last year at this point? And what should we expect when looking at that number in the end of Q2?
Yes. So we, of course, look at that order backlog as well carefully. We did have a slow January, February. March, we experienced significant order intake, which builds the confidence for us that our H2 growth will materialize. So we're not -- I'm not concerned at all. I mean of course, there are, of course, variations from month-to-month as well depending on the timing of booking the orders as well.
Okay. Very well. And then on the Financial Services, you have rather good momentum in this domain in the Nordics. But could you elaborate how is your international expansion plans developing in this segment? And what should we expect from the international operations going forward?
Sure. So regarding the international business of the software businesses and specifically FS. So if we think of the history, it has been more with the payment software from the ex-Tieto with elements of international exposure. That continues to be there. We did comment in the Q4 report that the pandemic impacted some of the engagements in that global arena during the pandemic era. So no, nothing disruptive, nothing significant in the first quarter. So that's the -- I would say, the punctual reflection on your good question. Now I would like to continue with the thought that naturally, over time, we will make analysis and scenarios on what growth potential we have and actually, we will prioritize all the assets we have as a company. And the better we do with the software businesses and by virtue, we believe very much in the potential scale and competitiveness of our software businesses and FS, healthcare being very likely in the forefront of that potential, but nothing to share at this point in time.
Our next question is from George Webb of Morgan Stanley.
And given you've called out the international operations, can you talk a little bit more about your go-to-market there? Are you following customers that you've built up relationships with in the Nordics into other markets? Or is there a different strategy?
Sure. So this kind of development over the last quarters is something that has been further elevating during the integration process. So what is practically is that the highly advanced digital skills we have in our operations in some of our competence centers in Ukraine and in India, so part of these competence centers, having developed relationships in -- with large European customers extensively focusing on software application renewal from legacy to the cloudified world and then part of the operation, doing the same for U.S. customers. Over the last 2 to 3 quarters time frame, we have recognized that this is something that is one of the hottest domains in the market. We've done high-quality deliveries. We have high skill level and the opportunity with customers, the existing customers, is getting greater and then we are recognizing more opportunities. This is the reason we wanted to share. And as I referred to a couple of times, we wanted to share it because it is part of the new digital and it is also something that has evolved over several quarters, not just in Q1.
There are no further questions at this time. So I'll hand back over to our speakers.
Thank you very much. Before turning back to Kimmo, I would like to thank you for joining us today and wish you a sunny day. Any closing words, Kimmo?
Well, thank you very much, Tanja, and thank you very much for all the participants. Great questions. Wonderful to have this interaction. So as a bit of a closing commentary, our integration, TietoEVRY, continues to proceed well. We are on our way of fulfilling the opportunities of the merger. The pandemic concerns currently seem to be heading in a more favorable direction and our growth agenda is materializing. Thank you very much for today and looking forward to the next discussions. Thank you.