Tietoevry Oyj

OMXH:TIETO

Earnings Call Transcript 2018-Q1

[Tanja Lounevirta, Head of Investor Relations]

Good morning. We are delighted to be here with you today. During the following hour, we will introduce the highlights of our first quarter results and will be available for any questions you may have.Here in our Stockholm studio, we have Kimmo Alkio, our President and CEO; and Lasse Heinonen, our CFO. And my name is Tanja Lounevirta, I'm Head of Investor Relations.So without any further delay, I would like to hand over to Kimmo, please.

[Kimmo Alkio, Chief Executive Officer and President]

Thank you very much, Tanja, and a warm welcome also on my behalf. Today, we are hosting the session from our Stockholm office.Very practically, the beginning of 2018, we are happy to report on a good momentum and strong overall performance. So it's been a good continuation of a number of initiatives started during 2017. Very practically, we are satisfied given the somewhat shorter quarter, delivering growth in local currencies of 6%; organic, 3%, driven especially by strong performance in 2 of our businesses: Technology Services and Modernization as well as our Product Development Services.Even in light of the strong total performance, glad to see that there is clearly further room for improvement, practically in our Industry Solutions business, which I will reflect upon a bit later on, and furthermore in our Business Consulting business as well. My other kind of a main message that the total backlog for 2018 clearly supports the aim and ambition level we have for this fiscal year.If I next go briefly, kind of start from the big picture from the kind of macro perspective, short reflections as usual, market remains absolutely healthy, no significant differences, a very dynamic sector overall. And naturally, in the current environment with the current currency trends, these kind of do provide a degree of headwind with our type of geographical and business mix. And we maintain our view of the Nordic market growing by approximately 2%.A few words on the market dynamics itself. And as we had launched our vision around the data-driven world 2 years ago, we believe this notion of being the highly innovative business partner for our customers in renewing our customers' businesses and, in parallel, driving continuous improvement in agility and efficiency, our services, beginning from the design-led way of thinking through our customer experience management practice, as an example, our investments into advanced analytics and artificial intelligence, the customer agenda and our competitiveness continues to be building based on kind of software-driven capability, software-driven assets. And in the world of open APIs and open systems, the role of ecosystems becoming more and more prevailing.On the other hand, the lower part of the world of duality for driving efficiency to a world which is naturally extremely familiar to Tieto as we continue to drive our customers' infrastructure and application modernization, very active role in the hybrid clouds and actually bringing forward new capabilities, as an example, through RPA. So overall, the market tends to be really, really dynamic in my perspective, also emphasizing the importance of companies such as ourselves having adequate investment capability into a number of these future domains into which we have stepped into really, really rigidly and, in my view, at a really good point in time as well. Furthermore, regarding the longer-term development of the IT software and services market, we continue to see the type of a market change in traditional services, I do believe, in the industry worldwide. In our case, traditional services combination of application services and infrastructure services declining by about 1%. Our growth businesses delivering about 9% growth for Q1, further upside does exist clearly in that category as well. While the other services and solutions with the 17%, it actually includes the Avega acquisition, giving, in that sense, an abnormally high perspective or a growth number. Outside of Avega, we actually had, in this other category, a number of challenges I will come back to separately. Our competitiveness continues to be good, and the drivers of our competitiveness is naturally through the capabilities of our 14,000 people and the types of solution practices and assets we continue to develop in Tieto. From a growth standpoint, usual subject or categories around customer experience management, digitalizing both the citizen experience, driving omni-channel in retail and more and more in the B2B environment as well. The data-driven businesses, quite healthy growth, a relatively new initiative in the past year. Cloud services actually accelerating to a bit over 20% during Q1. Security services actually declining by 2% due to delivery capacity gaps that we actually had in the beginning of the year.Furthermore, our very strong software suites, actually, we are now highlighting a bit more broadly the 7 domains, starting from Lifecare and ending with hydrocarbon management. And currently, which I will reflect in more detail when I go through the financials in just a minute, we actually have 3 of these solution areas undergoing significant technology renewal. And these technology renewals, from an architecture, from a platform, from a business model standpoint, naturally are multiyear programs, which we have reflected upon earlier as well. A number of these businesses will actually see important releases being taking place to the market later this year. But this, as a foundation of competitiveness, scale and future growth are important investment areas for us.Moving on to the actual financial performance. Overall, we are quite satisfied with the beginning of the year. So overall, good momentum, strong momentum. Local currency growth, as mentioned earlier, 6%. Profitability level, adjusted EBIT, EUR 36.6 million, 9% level in light of the dynamics of the quarter, shorter quarter, combined with the currency implications, that kind of -- does indeed drive a, as a combination, a good performance. Now fair to highlight in the order backlog of close to EUR 1.8 billion. As we have reflected in prior quarters as well, in the market, we are seeing less of the large, long-term contracts taking place, much more into the world of smaller projects and more as a kind of subscription-based and DevOps where you're working. So that type of a change in the market continues to develop. Our backlog actually does provide -- the backlog that is expected to materialize during this year well supports our growth ambition, a backlog would be deriving approximately 5% local currency growth, 2% in constant -- in euro terms. So overall, a fine start for the year. And I think the only question that naturally, as management, we are thinking how to speed up the machine even further. Other factors on quarterly development on the main KPIs, I'll highlight I think 2 in this report. Offshoring continues to increase. And as our strategy has been for 5 years, we will apply offshoring exactly at the pace at which our customers would like to use offshoring capabilities. Very practically, during the -- during first quarter, we did add some 230 people on -- in IT services in the offshore category, and that continues to be a very important asset for us, high quality, high customer satisfaction, high trust, and that is proceeding fine. Cash flow, EUR 61.5 million. And as well known, the quarter-end over the weekend, so that kind of technically creating a degree of a delta compared to same year -- same quarter a year ago. Overall, very well in alignment with our own expectations. If I next go into the, I think, really interesting reflections per business, and we'll begin first by the service lines. Our Technology Services and Modernization delivering a strong quarter, 3% growth in local currency, profitability at 11.6% level. And we have seen consistent strong progress over the last 1.5-year time frame in our application services, up by 8% in local currency. The total infrastructure business, excluding cloud, down by 6%; including cloud services and total infrastructure, kind of flattish and very much in alignment with our own projections of the market as well.And we continue, naturally, the similar industrialization approach, as we have driven over the last 4- to 5-year time frame, price pressure, new technology adoption, especially in the infrastructure services and the necessity to gain some 5 to 8 percentage points a year on productivity, that will always continue to be on our agenda. And I think we have demonstrated to kind of a move at a quite healthy pace overall, a really healthy pace in the TSM business overall. Regarding Q2, we anticipate profitability to be close to the level of Q2 '17.Business Consulting and Implementation, a business area for us where we clearly are not yet meeting our own expectations, so this is one area where I expect clear improvement also during the second half of this year. Actually, organic growth somewhat challenged, negative 3% total growth in local currencies, driven by the acquisitions of roughly 30%. And this area actually has a number of service practices, as an example, customer experience management continuing to do well. Enterprise application side, a couple of demanding projects that have not yet ended, contrary to our earlier expectations. We have enterprise content management. We have the industry consulting businesses.The common factor, actually, why the performance is lower than our own plans were, is that the fourth quarter net recruitments were lower than we had originally anticipated, the market level kind of a hunt for talent is really active, which is well known. So the combination of lower net recruitment, good recruitment in Q1, but overall, leaving that type of a delta or dent regarding first quarter. I am confident this business will absolutely continue to improve. Furthermore, we have also, as you may have noted, appointed one of our leadership team members, Ari Järvelä, who heads the data-centric businesses, to formally run the Business Consulting and Implementation, while previously, the units around consulting used to be run within the distinctive industry groups. Thus, the opportunity for further scale and resource optimization we have recognized was not at the level we actually see potential of. And regarding BCI, we expect profitability to improve as of the second quarter.And then regarding the total Q1 announcement, in addition to the overall very good performance and results, I think the area that deserves quite thorough reflection is our Industry Solution, 3% growth in local currencies; profitability, below 8%. As reflected briefly earlier, a number of the software suites are undergoing fully as expected the pipe of a technology and platform renewal. We have good growth in a number of these areas, such as SmartUtilities, Production Excellence, Case Management and Lifecare side as well, while for the first quarter, very specifically in financial services, the payment suite, we were clearly lower than anticipated.With all this in mind, we do expect specifically 3 areas where the technology platform renewal is taking place. This relates to SmartUtilities, whereby the first releases will be happening during the summer time frame. We have also our payments side, where we expect the new releases to take place as well during the summer time frame. And Lifecare in the healthcare sector, we'll see a couple of releases, first ones here already in the early part of Q2 and then later in the fall.So the roadmaps are now experiencing, I think, good velocity, quite good predictability. And with all this in mind, we do expect that the Industry Solutions business will deliver improved profitability towards the year-end. And naturally, as everyone would expect, we expect the profitability level second half to be clearly better than in the first half. I do want to emphasize that when technology upgrades and platform upgrades and renewals do take place, that these are multi-quarter projects, that small degree of delay is not unusual. It is very good that we have the investment capability, and this will absolutely support our longer-term ambitions as far as growth, scale and profitability is concerned. We have no reason to change our long-term outlook regarding Industry Solutions.Next, on Product Development Services, as we have seen tremendous turnaround in the last 2-year time frame, PDS continues to perform really well, 11% growth in local currency, nearing 13% profitability. To be fair, Q1 was also supported by license sales, which is not big part of PDS and clearly does not happen every quarter, so that gives a bit of an upward tick regarding Q1. And we, naturally, we are very active in new customer acquisition. We are active, as an example, in the automotive sector and very positive dynamics in the PDS side all along. And we do expect the second quarter margin to be at the level of Q2 2017. We are under also a very active recruitment. And naturally, as we have reflected upon earlier, this is extensively labor-based business model, so we cannot expect the profitability curve to continue to kind of grow with the same steepness of the curve. But the outlook remains, indeed, positive.A couple of words regarding our industry groups, which is our go-to-market. Financial Services, 3% growth in local currency. Good progress specifically regarding Technology Services and Modernization, application management, as an example. And here, as I commented earlier, the payments side naturally does create a short-term challenge for Financial Services, while we do see ample, really interesting opportunities for Financial Services as a whole as well as for the software businesses of Financial Services. So the market activity, market presence, the pipeline, as such, does provide good encouragement for the outlook. And really good, also, new announcements, new agreements. Kraft Bank, as an example, in Norway, applying artificial intelligence and machine learning for their operations, are really stepping into the future domains really well. Public, Healthcare and Welfare, performing strongly, 7% growth in local currency. Similarly as in Financial Services, TSM performing well. Cloud adoption, cloud dialogue, cloud penetration proceeding well. And application services here as well moving forward really well. And new agreements taking place specifically in Sweden. Our role in Public, Healthcare and Welfare, both from a local government, central government standpoint, covering the breadth of our services, does give us a very strong presence in this industry group.Our Industrial and Consumer Services, 6% growth in local currency; organically, quite flat. As we had anticipated, a number of contract renewals driving price erosion that do kick in, in the first quarter, that tends to, every year, impact specifically this industry group. Our overall market momentum in ICS, and specifically in Sweden, continues to be nicely supported by the Avega capabilities acquisition, which was completed in the fourth quarter. And Avega continues to perform really well. And we are very satisfied having had the pleasure of joining forces with the colleagues from Avega. And we continue to see good development specifically in the energy sector and specifically also supporting the market opportunity for SmartUtilities, a bit more kind of a future-centric growth driver there. We have the delivery capacity challenge we have had, which we reflected earlier we are fixing. And also, the Production Excellence, which is one of our software areas, performing actually really, really well. Also, very good wins during Q1: the postal services of Finland, modernization, very extensive modernization of full infrastructure services; in the retail side, S Group; and in Sweden, Sodexo. So providing also signals of, indeed, good momentum.So that concludes the short assessment of the service lines and our industry groups. I would like to next move -- go ahead with the commentary on future outlook and the performance drivers. And here, our view continues to be very consistent with the industrial drivers of our business and the sector. Our ambition of over-delivering or kind of outperforming the market from a growth standpoint, that ambition and kind of a track record kind of is indeed encouraging. Naturally, as reflected upon earlier, based on current run rate, currency does actually provide a degree of headwind. Let's see how the currency fluctuations might change.Efficiency programs, we well recognize and have said this for a number of years: productivity increase, improvement in our type of business continues to be really important. And our businesses actually have it fully on their agenda. And we believe it is actually really important to maintain our offering development cost around 5% of group sales. It is driving in a really good way the whole competitiveness of Tieto opportunity for new revenue streams in the future as well as kind of further enhancing the identity of Tieto in the eyes of recruits as we are searching continuously for more colleagues, more talent. And we maintain the view on restructuring cost being between 1% and 2% of group sales.Regarding second quarter, naturally, everybody is mindful of the potential of the negative currency effects. And compared to Q2 2017, a higher number of working days. And as expected, our guidance for '18 remains unchanged. In summary, we have had a really nice start for 2018. The momentum around the company is good. We are extremely happy that we are investing for the future, stepping into the data-driven world, as an example, utilizing artificial intelligence, machine learning, robotics process automation, on top of the existing capabilities we have. During the year, in all Tieto locations, we shall be celebrating our 50-year anniversary, again, being thankful for 14,000 employees what has been accomplished up to now.Furthermore, I think it's an interesting development in the market, from a shareholder standpoint, we believe there's a lot to gain based on sustainability, whereby actually -- or sustainability development, we actually have a long tradition. We are starting to have more and more active dialogues with current and future investors whom are focusing more and more on sustainability. And that's an area where we have a lot to say and a lot to deliver. And naturally, icing on the cake, positive momentum is further supported by the nomination in early Q1 by Thomson Reuters, Tieto being nominated to Global Technology Top 100 category.So overall, momentum good. A good performance, Q1. And as mentioned very openly, good to see that there is further improvement to be foreseen, specifically in Industry Solutions and Business Consulting and Implementation.So this would conclude the CEO summary of Q1. And now, as usual, let's go into a Q&A.

[Tanja Lounevirta, Head of Investor Relations]

Thank you, Kimmo, and welcome, Lasse. So we are ready for your questions. We would like to open for question from the conference call. Moderator, please go ahead.

[Operator]

[Operator Instructions] We will now take our first question from Victor Höglund of SEB.

[Victor Höglund, Analyst]

First, could you just repeat what you said on the backlog? If you adjust for the length of the contracts and structure and so on, did you say that it was up 5%, and 2% organic, FX adjusted? Or what was those numbers you said there?

[Lasse Heinonen, Chief Financial Officer]

Yes, exactly. So most of the order backlog -- or more of the order backlog is to be invoiced in the shorter period. So the average contract periods have been shortened, as we have commented already last autumn. So 2% of the order -- or the current order backlog indicates 2% growth or 5% growth in local currencies, as it's mentioned in the report.

[Tanja Lounevirta, Head of Investor Relations]

For '18.

[Lasse Heinonen, Chief Financial Officer]

For 2018, exactly.

[Victor Höglund, Analyst]

Okay. It's 5% in local and 2% in reported?

[Lasse Heinonen, Chief Financial Officer]

Exactly. For '18.

[Victor Höglund, Analyst]

And then the second question here. Yes. I was just wondering here, given that you have a pretty good start in some of the areas and that there are more working hours in Q2, could you just explain why you don't expect margins to improve year-over-year in TSM here in Q2, and the same in Industry Solutions? Could you just explain what's holding back those 2 areas? And how should we think about the second half of the year? Is it that cost savings are coming in slower now in Q2, and then you expect that to improve in the second half? Or is there anything that's holding back here throughout the year? Or just -- yes, I'm just a bit puzzled here why you don't see better margin expansion.

[Lasse Heinonen, Chief Financial Officer]

Well, first of all, the working days, just to comment on that. So Q1, there was 1 working day less than previous year. And now quarter 2, there is 1 working day more. That has about 1 percentage point impact for the growth rates. And I think the application services overall in TSM has a good momentum, so there is nothing -- no reason why that momentum will not continue in application services. But I think the guidance we have put in the decks is, of course, according to normal prudency principles.

[Kimmo Alkio, Chief Executive Officer and President]

Yes. So maybe a couple of reflections, I think, from my side. So naturally, in the infrastructure side, as anticipated, the other part of -- or the majority part of TSM, fully, as expected, in the market the type of price erosion, so coupling all these factors and, as Lasse mentioned, a usual degree of prudency. And regarding the software businesses, as commented, so we are in the midst of this significant technology renewal, requiring investments and actually the kind of upside, from a revenue stream and profit standpoint, to be materializing towards the year-end. And regarding the technology upgrades and market acceptance, we need to be prudent on when will that fly. To be fair, as commented, the kind of market demand and the type of engagement with customers is absolutely on a healthy level.

[Victor Höglund, Analyst]

So you do expect margins to pick up in the second half in general, is that how we should think?

[Lasse Heinonen, Chief Financial Officer]

Well, I guess we have said that the market growth is around 2 percentage points, and we have not changed our view on that. And of course, the currency, we were already commenting earlier. So I don't think there's anything -- the market is good today, and it's expected to be good also H2.

[Victor Höglund, Analyst]

No, I meant that the margins...

[Kimmo Alkio, Chief Executive Officer and President]

Oh, margins.

[Victor Höglund, Analyst]

The margins in...

[Kimmo Alkio, Chief Executive Officer and President]

Are you referring now to the software businesses or the total?

[Victor Höglund, Analyst]

I'm referring to TSM and Industry Solutions, basically.

[Kimmo Alkio, Chief Executive Officer and President]

So very specifically, regarding Industry Solutions, so as mentioned earlier, so as everyone would expect, so second half in Industry Solutions is expected to be clearly better than first half, and compared to last year, improvement at -- towards the year-end.

[Operator]

We will now take our next question from Daniel Harberg (sic) [ Djurberg ] of Handelsbanken.

[Daniel Djurberg, Research Analyst]

Someone calls me also Daniel Djurberg, but both works well. But I would like to start with BCI and if you can give some color on how the Avega acquisition has turned out. You mentioned a little bit that it was performing well. Can you say any KPIs or something that gives more clarity on the Avega? And yes, we can start there.

[Kimmo Alkio, Chief Executive Officer and President]

Okay. So maybe I think, first, on Avega, so I don't think we report the details, but I'm very happy to reflect. I have the details in front of me. So good performance, so a growth clearly above the market average. Profitability level also improving from the comparable period a year ago. And overall, good progress, good collaboration between the teams between the traditional Avega and specifically the enterprise application side of Tieto. So I think we have seen nice Q1 overall, both in terms of Avega performance as well as the overall collaboration.

[Daniel Djurberg, Research Analyst]

And in terms of turnover, number of employees and so on, you always had described with the initial effects, normally you see people leaving, especially in the good times like now?

[Kimmo Alkio, Chief Executive Officer and President]

So absolutely. Yes, so the short answer is yes, we are satisfied. We have been naturally aware of the type of market-level kind of attrition that exist. And our own consideration that attrition could be higher at the point of an acquisition. But this has, indeed, developed favorably. So we are fine for the time being. And very humbly, we have to think of every day. It's a very, very -- it's extremely important that the work environment we provide to everybody is extremely advanced, extremely modern. And we believe our open-source culture, which actually puts the utmost respect of every individual in the center of the corporate culture, is starting to actually kind of work nicely also in terms of the companies we have acquired.

[Daniel Djurberg, Research Analyst]

Sounds great. Another question, on PDS, you mentioned that you had some license placed in the quarter supporting the margin, of course. And can you -- but could you quantify on the top line area a little bit, how much that contributed with?

[Lasse Heinonen, Chief Financial Officer]

So it's a few hundred thousand, below EUR 1 million anyway. So we have one single [ in krone ] there.

[Daniel Djurberg, Research Analyst]

Okay, perfect. And also, if I may ask you, on the Industry Solutions, you're doing transaction banking coming here in Q2 or for the summer, you have the healthcare and welfare upgrades for the second half, I believe. Can you just say something about the visibility? Have you [ audited ] orders taken here, like upgrades? Or -- and how big do you think -- there's also a little bit of competition, what you see in the market, so we can have a better understanding on the opportunities.

[Kimmo Alkio, Chief Executive Officer and President]

Sure. So naturally, this is a kind of a unique case based on software suite by software suite, so that there are 3 main ones, and you indeed highlighted the 3 main ones. So as an example, Tieto SmartUtility, very specific customer agreements do exist, fully agreed time frames of deployment. So that does exist. And the demand, as we have commented in the past year, we have now won a number of very good contracts in the utility sector. So there, we just kind of make sure that the delivery -- that the software release and the delivery capability actually gets to be fully mature, and then we will see the benefits of the investment. On the payments side, we have -- naturally, we have a very good installed base on the payments side. Customers are absolutely interested in moving to the VAM, Virtual Account Management 2.0, which we believe will be potentially very, very attractive in the market. And the initial interest is already quite far. And we do understand exactly what type of, which contracts would give us actually even more upside over time. So proceeding fine. The Lifecare suite, where we have been for 20, 30 years in the healthcare business, naturally, we have a huge installed base. We do have pre-agreement down to the date level on when will the deployment of the new software releases happen. And now that was a bit long explanation. It's really tactical. And furthermore -- but we want to be very open also in these reflections. And then we come back and say these have happened. And as we have commented for over 4 years that our aim is to get the type of scale of software businesses as is possible in the Software as a Service world, where you run single instance for all your customers. We've never done that yet as Tieto. The opportunity over time, I continue to believe, is absolutely tremendous.

[Operator]

We will now take our next question from Sami Sarkamies of Nordea Bank.

[Sami Sarkamies, Senior Analyst of TMT]

I have one question. You had given the customary margin guidance for Q2 for all the divisions. Could you also discuss the full-year or Q2 growth outlook for the divisions in relation to the growth rates you have in Q1?

[Kimmo Alkio, Chief Executive Officer and President]

Sorry, Sami, can you clarify, was your question on growth rates? Or what -- can you please repeat, please? The line was a bit cut.

[Sami Sarkamies, Senior Analyst of TMT]

Yes. So I was asking about the divisional growth outlook for this year or for Q2 relative to Q1 growth rates.

[Lasse Heinonen, Chief Financial Officer]

Yes. Well, I...

[Sami Sarkamies, Senior Analyst of TMT]

So do you expect similar growth rate?

[Lasse Heinonen, Chief Financial Officer]

I don't think we'll give any -- so we have given quite some details on the quarter 2 outlook. So basically, we have been saying that BCI is expected to improve, and all the other segments are expected to be close to last year levels, in general. And then we have said that the working day, 1 extra working day in Q2, it's a roughly 1 percentage point impact, as it was also in Q1 other way around. I think that gives you a good ballpark about the kind of guidance for quarter 2 also per segment.

[Tanja Lounevirta, Head of Investor Relations]

And also, the negative currency effect during Q2, which is around the level, it was also in the first quarter at around EUR 2 million negative -- on EBIT level.

[Lasse Heinonen, Chief Financial Officer]

Yes. If the Swedish krona especially remains at the end of March levels, so the currency impacts are close to the same as they were in Q1.

[Operator]

We will now take your next question from Matti Riikonen of Carnegie.

[Matti Riikonen, Financial Analyst]

It's Matti Riikonen at Carnegie. So a couple of questions. You already touched the topic of Industry Solutions new product ramp-ups. But I was wondering, could you give us a little bit more flavor on how you expect that those introductions to contribute to the top line going, let's say, from the second half to 2019, perhaps? So do you think that it would be more like a gradual start with the new products and you're making the projects ready, and then that will be reflected in revenue, perhaps offsetting some old products? Or do you expect kind of a bigger jump in the second half when the new products are ramped? I mean, you discussed that you have already clients for these products. So it's -- is it fair to assume that there would be immediate top line impact? So that's my first question.

[Kimmo Alkio, Chief Executive Officer and President]

Okay. So thank you, Matti. So a bit tricky, your question, as we -- it's a bit early to give guidance on '19. But naturally, our software businesses, that given the long-term nature of the software business and the type of traction you tend to have with the customer base, we expect a, kind of a combination of growth and profit improvement to kick in, as you would, I think, expect more gradually. And so that's, I think, the first part. It shall be gradual. Why I comment this now a bit prudently because your question is about the total software business for us. We can see some of the 7 that we have highlighted openly here. Some of these could actually see upticks even faster. But I need to maintain a degree of prudency regarding the -- how gradual the total improvement we expect. But that, in a way, goes also to comment on second half, if and when the uptake is even faster than we are predicting, we could see also positive surprises. But I won't repeat anymore. You are well used to the, hopefully, a fair degree of prudency we put into our judgments, both up and down.

[Matti Riikonen, Financial Analyst]

Okay, that's fair enough. That's helpful. And my second question is related to the FX impact on order backlog. I mean, you say that there was a negative impact from FX on the actual order backlog number, but you didn't quantify it. So how much was that exactly of the year-over-year decline?

[Lasse Heinonen, Chief Financial Officer]

Well, I think what we said actually was that if you look at how much of the order backlog will be invoiced for 2018, that is reflecting 2% growth compared to the situation a year ago, and around 5% local currency growth compared to the situation a year ago. I guess that gives you the ballpark of the FX impact.

[Matti Riikonen, Financial Analyst]

Yes, I got that part. But I was just curious about the absolute number and how much is the kind of actual effect of the impact was.

[Lasse Heinonen, Chief Financial Officer]

Well, that, we have not disclosed here, and I don't have that number in my mind. But that, basically, that 2018 impact should be probably quite good for your analysis.

[Matti Riikonen, Financial Analyst]

All right. Then perhaps a broader question. The revenue erosion in your traditional services has almost constantly been fairly low compared to your initial assessments a couple of years earlier. And I was just wondering, first of all, why does that happen so that you are actually not losing your traditional business as fast as you are generating new? And of course, the second part of that is that, can there be a change to that less negative trend so that we could anticipate at some point that traditional services start to lose more momentum so that the decline would hit you at some point? Any thoughts on that would be helpful.

[Kimmo Alkio, Chief Executive Officer and President]

That's a fair point. So there are 2 factors in this. And Matti, you shall remember, of course, that this -- as to 2 factors. If I comment first the infrastructure side. So we have seen over the last 4-year time frame, very -- 4-, 5-year time frame, a really significant turnaround in our infrastructure business. And that business will always continue to be business-critical for our customers. And infrastructure is the segment of this industry overall which has kind of experienced the greatest degree of technology-led disruption, thus price erosion. That's one factor. But we have continuously been doing that better and better. Now the second factor, which is creating that positive momentum for us, which has happened over the last 2- to 3-year time frame, is the significant turnaround in our application services business. So that is actually creating the positive momentum for us. And the more we -- the more successful we are in application services, naturally, our appetite goes only north. And that business on its own, globally, margin-wise, tends to be also healthier than traditional infrastructure. So these, all in all, are giving us actually good signals that give -- that we naturally look at ways of speeding up our enhancements, our automation productivity improvement, new technology adoption. It is fully feasible to actually continue to do good business there. Where I began my reflection, it is so business-critical for our customers, it is quite complex technically. The value we do provide, I think, is being also well recognized.

[Operator]

We will now take our next question from Michael Briest of UBS.

[Michael Briest]

A couple from me. The restructuring charge was very modest this quarter. You're still guiding for 1% to 2% in the year. Should we assume it's more likely to be at the low end of that range? Secondly, currency is obviously a meaningful headwind now relative to January. Are you expecting that with improvement in the business, you should be able to more than offset that? Or will that currency impact mean that in your internal budget, you have a lower profit number for the year-to-date than you did in January? And then just in terms of Lasse's successor, is there any update you can give there?

[Kimmo Alkio, Chief Executive Officer and President]

Okay, so maybe if -- maybe we begin in reverse order. So I'll take the last one. So the search and selection is proceeding well. And naturally, we shall come back when -- in due time. And we have already back-up arrangements well underway and in place internally.

[Lasse Heinonen, Chief Financial Officer]

So if I comment then on the currency. So of course, our guidance is just in euro, so we have considered also currency in our guidance. So Swedish krona is the biggest impact for Tieto. And of course, if the Swedish krona would get stronger, that would be positive for us, but we don't count on that. But I don't comment our internal budgets, as such. And then what comes to restructuring, Q1, as you well note, is actually -- we had also some capital gains there for one divestment, really. That's why the reported EBIT was actually slightly better than adjusted EBIT. So we have kept for prudence as I said also the restructuring assumption as before, so there's nothing more to comment at this stage. Of course, based on today's information, maybe you are right that it could be more on the lower side of the range. But I guess, there is time to come back at that then towards next quarters.

[Michael Briest]

And just on cash flow, you talked about the impact of the quarter falling on a Sunday. What sort of impact did that have? And how much will Q2 cash flow benefit?

[Lasse Heinonen, Chief Financial Officer]

Yes, I mean, normally -- last year, Q1 was very good, actually. It was exceptionally good because you had both inflow from Q4 and then you had also the last day was during the week. Now we had inflow from Q4 as well, but the last day was weekend. So it's normally anywhere more than EUR 10 million, closer to EUR 20 million impact, the working day being either weekend or during the week. So anyway, over EUR 10 million.

[Operator]

[Operator Instructions] We will now take our next question from Raul Etelämäki of Danske Bank.

[Raul Etelämäki, Analyst]

It's Raul from Danske Bank. I actually have just one clarification question. On the selected Industry Solutions, there, you are doing the platform renewal. Have you already started the renewal in all the sort of platforms that you actually want to start? So what I'm really asking is that should we expect that all the bad things are already in the Industry Solutions number and you will not start a new renewal in Q2, for example, which would decline the EBIT?

[Kimmo Alkio, Chief Executive Officer and President]

Regarding the total portfolio of the 7 software businesses we have, so we do not anticipate to initiate new technology renewals, no, we do not expect.

[Lasse Heinonen, Chief Financial Officer]

Maybe one add-on. So in Q1, the development of investment in Industry Solutions was more than EUR 1 million more than a year ago. In quarter 2, that will continue. It will be more than a year ago, the investments in Industry Solutions in quarter 2. But the full year investments is expected to be for the whole Tieto at the same level as last year, 5% of group sales. But quarter 2, still the investments continue.

[Operator]

There are no further questions over the telephone at this time. I would like to hand the conference back to our speakers for any additional or closing remarks. Thank you.

[Tanja Lounevirta, Head of Investor Relations]

Thank you so much. One more note before closing the event. Please pencil in the Capital Market Day we announced today, 24th -- sorry, 29th of November. And I would like to thank you for participating at the call today.

[Kimmo Alkio, Chief Executive Officer and President]

Thank you very much. Thank you for joining, and looking forward to our next discussions. Thank you.

[Lasse Heinonen, Chief Financial Officer]

Thank you.