Tietoevry Oyj

OMXH:TIETO

Earnings Call Transcript 2020-Q4

[Tanja Lounevirta, Head of Financial Communications]

Good morning, ladies and gentlemen. We ended the unique year of 2020 with strong profitability. You will soon hear presentation by Kimmo Alkio, our President and CEO; and Tomi Hyryläinen, our CFO, discussing the highlights of the fourth quarter. [Operator Instructions] My name is Tanja Lounevirta, I'm Head of Financial Communications. I welcome you all on my behalf. Now happy to welcome Kimmo, please.

[Kimmo Alkio, CEO & President]

Thank you very much, Tanja, and a warm welcome to everybody also on my behalf. This time, we'll be sharing our perspectives on both the fourth quarter performance and for the completion of the first year operations for the combined TietoEVRY. What an exciting and a good year it has been.The highlights of the fourth quarter would be best characterized as following: As Tanja briefly mentioned already, strong profitability and cash flow. So several of our fundaments throughout the year have continued to be strong. The main message is regarding end of year the fourth quarter adjusted operating margin healthy at 15%, driven specifically by our software business, the Industry Software business, and Digital Consulting. Furthermore, fourth quarter revenues organically down by 6%, affected as anticipated by both the pandemic and the short-term decline in our Cloud & Infra business.We have reached a run rate of synergies of EUR 80 million, and our integration continues to be fully on schedule. Furthermore, the operative cash flow for the full year, very healthy, at EUR 355 million. And we now have the dividend proposal by the Board of Directors at EUR 1.32 per share. So overall dynamic end of the year, good end of the year and a good year overall.In terms of the core financial figures regarding the full fiscal year 2020, revenues of approximately EUR 2.8 billion, organic growth minus 2%, pandemic impact haven't been actually also -- to negative 2%, reaching EBIT adjusted EUR 355 million, 12.7% of revenues, and the operating cash flow, the aforementioned EUR 355 million and reaching the net debt-to-EBITDA of 2.5 at year-end. Overall, in the midst of both the integration and the pandemic, we believe, we have formed a good foundation for future performance and future competitiveness. And overall, the financial healthiness, including dividend attractiveness, continues to be heading in a good direction.A few other highlights, a bit on the overall operations throughout year 2020. And I'd like to reflect this in 3 categories. Integration, by nature, very demanding, very exciting. Throughout the year, independent of the pandemic, we have met all of our key milestones, key objectives regarding integration. Super important, having been continued improvement in trust creation and quality towards our customers, our employee engagement, especially during the pandemic, which has created additional needs for attention and adjustments on multiple fronts. And the extensive attention we have had throughout the year on both the competitive cost structure, which we aim to continue sustainably to make sure we remain price-competitive and in parallel driving the synergies according to our original merger objectives.Performance-wise, overall, we believe we have well mitigated the pandemic implications, both operationally and financially, as visible in the quality level of our services and in the overall trust and engagement scores we are receiving. And we have, throughout the year, experienced continued strength in our software businesses both in Financial Services as well as in Industry Solutions. And the level of attention throughout the year on synergy drive, as we have reflected on throughout fiscal year 2020.Very important, especially in terms of our future growth agenda, is the continued attention and improvement in competitiveness. Significant wins, especially towards year-end throughout the second half of 2020. And as we had highlighted also in the Capital Markets Day, very significant contracts, very specifically in Financial Services, during the fourth quarter. Naturally, very important for us that we are gaining good wins in all our core markets, a couple of examples in Norway, Telenor and the Eika group. These 2 examples would signify a combination of both highly advanced cloud and infrastructure services and very specifically in the domain of Financial Services.A couple of examples, very significant wins in the Finnish market. The Kesko Group, as announced towards the end of the third quarter, in a very, very extensive collaboration across the more or less the full value stack of technology, stepping into the world of automated end-to-end processes. And furthermore, Nordea in the Financial Services on the card side, very attractive growth potential moving forward. Couple of samples from the Swedish market, number of highly advanced references in the public sector, and maybe to highlight also the example of Cambio, whereby TietoEVRY deliver highly advanced hybrid cloud infrastructure for the software suites in question. So this is an area that we naturally, with our growth agenda, will continue to pay more and more attention towards.As we have reflected every quarter on a couple of the practical developments on the integration, so we'll do this still at the end of Q4 to try to be very transparent what is and is not happening on the integration, and I'll briefly describe these 5 core categories. In the whole area of integrated structure and leadership, we are already very far, and we have had good velocity throughout the year. And now the leadership development, the organizational attention, managerial development will be focusing a lot more on the growth agenda, all the fundaments in terms of becoming integrated in good shape.Regarding common processes and systems, very, very important foundations for enabling 24,000 colleagues to conduct the day-to-day operations, high quality and really focusing on the customers. And actually, '21, we will be realizing even more in terms of ERP and some of the common systems to become fully functional as intended to materialize '21.Integrated go-to-market and service portfolio, good advancement while we expect much higher market activity and impact to win market share based on the aforementioned integrated set of services.Employee engagement and cultural integration, in any merger, super important. We have been able to create a very good cultural foundation based on the Nordic heritage and receiving healthy employee engagement scores also throughout the year, and we'll be focusing a lot more in the dynamic nature of our culture, new ways of working and seeking for greater performance across all of our functions and businesses.And finally, as we'll recognize, synergy planning and realization overall proceeding well. I would say that we have been able to achieve good progress in all critical elements of the integration and this simply enables the continued attention, continued drive to actually achieve a highly successful merger. And so far, we have -- we are where we should be at the end of 2020.One other highlight as part of the introductory session before I go to the practical financials and business dynamics, as announced Monday this week, the divestment of our oil and gas business to Aucerna, a Quorum Software affiliate, enabling this type of a business to have greater market reach and growth potential in the world by being part of the total Quorum Software group, with a very significant contribution from the energy components software suite from TietoEVRY.This is also a very natural step, which I touched upon at the CMD, regarding the consideration of portfolio development, portfolio optimization, to be driving focus and scale for the company. And this was fully according to our own schedules to begin the type of portfolio development towards the end of '20 and expect it to do even more in the years '21 and '22. And this deal had an enterprise value divestment of EUR 155 million implied the revenue multiple of 3.2.Next, I'd like to go into the kind of the heart of -- specifically of the fourth quarter. For TietoEVRY, fourth quarter continued strong profitability drive, adjusted EBIT of 15%, and as mentioned earlier, driven specifically by good profitability development in Industry Software and Digital Consulting. On the revenue side, we do have a temporary, fully as expected, revenue decline organically of negative 6%, pandemic contribution being approximately negative 4%. And overall, we are satisfied with the total financial performance of the fourth quarter, including the developments from a sales standpoint with strong order intake, healthy book-to-bill of 1.3 and continued strong operative cash flow in the fourth quarter being EUR 125 million.Next, moving over to Digital Consulting, strong profitability development, which has been one of the primary areas of attention for Digital Consulting given the heavy cost structures we had entering the integration in Q1 of 2020, relatively high impact from the pandemic, thus, the organic growth of negative 6%. And we do anticipate Digital Consulting to return to growth during '21, specifically during the second half, as we also expect the pandemic situation to improve. And we also, today, as usual, do provide considerations and expectations for the first quarter. For Digital Consulting, Q1, we expect the pandemic impact to remain at the Q4 '20 level, and we expect the operate -- the adjusted operating margin to be at or above the level of Q1 2020.Regarding Cloud & Infra, and as you would expect, I will cover this quite thoroughly. In Cloud & Infrastructure business, we have a major transformation underway fully as announced during the second quarter of 2020. Revenues and profitability temporarily down due to a number of factors and all factors being fully consistent with the announcement, as earlier mentioned, that we did towards the end of second quarter 2020 of reshaping the operating model, reshaping the core partnership with IBM that was not functional in the past.I'd like to be open on the factors behind the revenue decline. Lost customers premerger impact approximately negative 7%. We also had high comparatives from Q4 '19, approximately 5%, and the pandemic impact continued furthermore. Very important for us operationally that the quality improvements have been gaining trust throughout second half of 2020 and no new contract losses of any sizable customers since the mid-2020 time frame. So our full transformation in Cloud & Infra expected to be completed and advancing specifically in the summer time frame of this year, again, as we did earlier announce.In Q1 '21, we actually estimate the premerger customer losses to peak in the first quarter impact approximately negative 11%, revenue decline to be slightly more than in the fourth quarter and to be bottoming out during Q1 and the adjusted operating margin to be below Q1 '20 level. Huge degree of attention naturally in revenue development for the business, cost optimization and, as mentioned, the profitability turnaround expectations towards midyear.Industry Software. Really good continued strong profitability development. Revenue trend line remains solid. We also had high comparables in the -- from the fourth quarter of 2019. Pandemic impact, about 3%. And the profitability development, as a result of the systematic transformation of our R&D practices and efficiency improvement, exactly the agenda we have also shared in prior quarters. Regarding IS, we expect actually good developments throughout the year 2021. Specifically for Q1, we expect the pandemic impact to remain at the fourth quarter '20 level and adjusted operating margin to be above the Q1 '20 levels.Furthermore, regarding Financial Services Solutions, overall, well, as expected, performance in the fourth quarter. We have a degree of impact by the pandemic and also continued investments to support the future deliveries of the won businesses during second half of 2020. And we do expect that the payouts -- payoffs from the investments we are making on the new contracts will be supporting our full year growth objectives as well as leading then into also further growth potential in year 2022.Specifically regarding expectations for the first quarter '21, here, as you noticed, we have a very consistent message in all businesses. Pandemic impact expected to remain at the fourth quarter level. This is with us, we believe, for some quarters, and we have full readiness to adjust accordingly. Adjusted operating margin anticipated to remain at the Q1 '20 levels for Financial Services.Product Development Services business. Strong continued operational quality overall, and long -- including the longer-term revenue trend line, good continued development in profitability. We have seen in the fourth quarter some volume volatility in the automotive sector and some ending telecom projects. Pandemic impact approximately 6% at a very similar level as in the third quarter. So quite significant impact in the current era.Overall market activity level, pipeline development in the telecom side, the 5G radio, 5G core, continues to be high in the market. And our role and recognition as a very high-quality partner in outsourced R&D, we believe, will benefit us in the quarters to come. Regarding Q1 '21, we expect pandemic impact to remain similar levels, and we expect the adjusted operating margin to be below Q1 '20 level as we had really high comparables from the Q1 -- from Q1 '20 in Product Development Services.So that would conclude the overview of the opening, the main summary of the quarter, main summary of the year as well as the financial and service line descriptions and overviews. At this point, I'll hand it over to Tomi for the CFO report.

[Tomi Hyrylainen, Chief Financial Officer]

Thank you, Kimmo, and good morning, everyone. I'm pleased with our Q4 performance overall. We delivered a 15% profit driven by synergy contribution and strong profit, specifically in Digital Consulting and Industry Software, as mentioned. And we did this during fast-paced integration and COVID-19. We continued with strict cost control during Q4 and successfully mitigated negative profit impact from COVID. Our onetime items were on planned levels and estimated to be significantly lower in '21, as we have stated earlier. Synergy execution, which aims to build a competitive cost structure for the company, is progressing well. We reached EUR 80 million run rate by year-end. FX headwinds continued during Q4 with minus EUR 12.6 million or minus 1.8% impact. And as mentioned, we delivered solid operating cash flow of EUR 125 million.Next, I'll summarize year 2020, which was exceptional in many ways. Our reported revenues were down by minus 5.6%, impacted by COVID of approximately minus 3%. FX impact was similar level at minus 3%, primarily driven by Norwegian and Swedish currencies. Cloud & Infra lost customers prior to the merger, impact of minus 1% for the full company. We delivered profit improvement from 11.6% to 12.7%, supported by synergy contribution through P&L EUR 30 million and reached a run rate of EUR 80 million at year-end. And we mitigated negative COVID impact through temporary cost savings.During 2020, we took significant steps to derisk the integrated company. We issued a EUR 300 million bond, securing a balanced debt portfolio, which completed merger-related financing arrangements. Renewed IBM partnership, build a foundation for future, enabling the needed service quality improvements and settling of past disputes. End-of-life TSU platform development eliminated future profit leakage and contributed already in Q3 and Q4 profitability.We delivered strong EUR 355 million operative cash flow, as mentioned, which represents 2.3 free cash flow conversion from net profit. Our net working capital improved by EUR 67 million during the year, driven by lower receivables and increase in provisions. We have improved our DSO and DPO metrics throughout the year, and our overdue receivables were at all-time low levels. Our leverage improved from 2.7 to 2.5 net debt/EBITDA, and the announced sale of oil and gas software will have positive impact to our net debt/EBITDA of approximately 0.35. Our strong profitability and cash flow formed the foundation for dividend proposal of EUR 1.32 per share, continuing our commitment to dividend attractiveness.Our Q4 and full year onetime items were at planned levels. Q4 onetime items amounted to EUR 28 million, consisting of EUR 9 million of integration cost, EUR 8 million of other costs and PPA amortization. Q4 cash flow impact was lower than estimated at EUR 35 million, which will impact the '21 cash flow by EUR 15 million to EUR 20 million. Our estimate for '21 onetime items is significantly below 2020 levels and in line with our earlier communication at EUR 42 million to EUR 57 million. As discussed in the CMD, we will from now on report our onetime items at EBITA level, so excluding noncash PPA amortization.As mentioned, we've made good progress with merger integration and the related synergies. We reached EUR 80 million run rate and delivered EUR 30 million through P&L in 2020. We expect to reach EUR 90 million to EUR 95 million run rate by end of '21. Our onetime integration cost estimate remains unchanged at EUR 110 million to EUR 120 million. With the good progress made in 2020, I can confirm that we are well on our way to realize the EUR 100 million of merger synergies as planned.We delivered a solid EUR 125.2 million of operative cash flow, as mentioned, for the quarter. It was driven by good profits and decrease in working capital. Working capital improvement was a result of favorable development in receivables and seasonal increase in personnel accruals. We did not experience any delays in receivables collection due to COVID-19. CapEx for the quarter amounted to EUR 17.9 million. The lower level of CapEx during H2 '20 was driven by end-of-life -- primarily driven by end-of-life of TSU platform and lower development cost in the banking platform as a result of R&D road map consolidation. We estimate CapEx levels for '21 to be slightly above the levels of 2020.Now back to you, Kimmo.

[Kimmo Alkio, CEO & President]

Thank you very much, Tomi. And now the time and opportunity to be looking into the exciting agenda for year 2021. So I'd like to open up a bit further the components to our growth agenda and our reflections on the market.A couple of the drivers we see continue to be really attractive in the marketplace driven by the type of cloud-first strategies, the data-oriented agendas, data science, data platforms and the multi-cloud services that are very, very important, from our standpoint, to all customers in the enterprise as well as in the public sector. So drivers continue to be normal to what we also highlighted in our Capital Markets Day.Furthermore, we do have a belief that the market signals such that the pandemic impact will be with us in the first half of the year, we so far believe at very similar levels as we experienced in the third and fourth quarter of 2020. And we are anticipating currently the market conditions to be normalizing for the second half of the year. And as we have reflected upon a number of times, the integration focus in 2020 was extensively of becoming integrated on quality, on cost structure, on synergies. Now it is the perfect time to actually be stepping in with our growth agenda, and that has actually been launched already during the month of January across TietoEVRY.In our consideration, we expect the market to be growing 0% to 2%, reflecting the impact from the pandemic and recognizing the businesses within which in the marketplace we participate in, as an example, the infrastructure business. We do also expect all service lines, except Cloud & Infra, to be growing during this year. I'll come back with some more reflections on the next page. With this consideration in mind, we expect to be growing between negative 1% to plus 2% range, impacted by both the lost customer headwinds of Cloud & Infra actually by negative 2.5% as well as the implications of the pandemic that we briefly talked about. So pandemic is with us. Our growth agenda, we are stepping and activating rapidly.A couple of the factors regarding the growth agenda itself in 2021 and what can be expected from our businesses. So we put this in 3 categories. First of all, the software businesses. We do expect a solid growth contribution throughout the year and the foundations and competitiveness, scale factors all in good shape.Furthermore, the product development services, as we highlighted, first quarter has very high comparables from the prior year, to be more neutral in the beginning of the year relative to the growth contribution and then actually contributing to our overall ambition level, more specifically during the second half of the year. The Digital Consulting side, in the beginning of the year, we expect to be -- to continue to be significantly impacted by the pandemic and returning to growth during second half of the year. And Cloud & Infra starting the year on the negative territory, and we expect the top line view to be developing favorably throughout the year.Currently, we don't anticipate positive contribution on the growth side, unless we win a significant new footprint during the first half of the year. And with this in mind, I would like to confirm that we do expect the growth to be accelerating specifically in the second half of 2021 with the recognizable business factors and service line developments we are highlighting.Furthermore, and as usual, we'd like to offer a consideration of the practical performance drivers for the next quarter, meaning Q1 2021. Pandemic impacts we highlighted a number of times. And naturally, we continue high degree of attention on the impact of the pandemic on revenues to be very mindful on the cost base. Synergy impact, full attention continued here. And we expect to be -- have the year-end run rate, EUR 90 million to EUR 95 million, up from the EUR 80 million at the end of last year. Currency impact, currently, we anticipate for Q1 to be positive EUR 8 million on revenues.And to confirm the other operational drivers that we have with us, the Cloud & Infra premerger lost customer impact peaking in Q1, having approximately 3.5% impact on group revenues and very important from our standpoint that the peak would be taking place now in Q1. And in Q1, we have 1.2 working days less, having a element of impact as usual based on the fluctuation of the working days.With this in mind, we have our guidance for the year 2021. We expect organic growth to be between negative 1% to plus 2%, and we estimate our full year adjusted operating margin, adjusted EBITDA to increase to the level of 13% to 14% from the 12.7% level in 2020.As a summary of our first year of being an integrated TietoEVRY, we look into '21 and the longer-term future, I would say, as a combination of being highly determined to continue our successful integration, highly determined to build continuously more and more competitive TietoEVRY. In this era, we also need to be humble. The pandemic does continue to create uncertainties. We believe we have a good degree of resilience and are adjusting accordingly as we have demonstrated during 2020, and we are building on our strengths, our strengths on advanced digital services and the capabilities on our multi-cloud capabilities, very significant strengths in our software businesses, enabling us to really step into the future with a growth-oriented agenda.Thank you very much, and this would conclude the CEO and CFO summary of Q4 and the full year.

[Tanja Lounevirta, Head of Financial Communications]

Thank you, Kimmo. Thank you, Tomi. We are ready to proceed to the Q&A session and take the calls -- take questions from the conference call. Moderator, please go ahead.

[Operator]

[Operator Instructions] Our first question comes from Sami Sarkamies from Nordea.

[Sami Sarkamies, Senior Analyst of TMT]

I've got a couple of questions. Starting from Cloud & Infra. We saw the organic revenue decline to increase to 13% in the fourth quarter, which came as a surprise. You're now flagging a 4% higher headwind into Q1 from contract losses. Does this mean that the total headwind will be even somewhat bigger than in Q4? And how should we think about growth following completion of insourcing mid this year?

[Kimmo Alkio, CEO & President]

Sure. Thank you, Sami, for the question. So indeed, so just to confirm, so we are expecting to be peaking in Q1 on the negative impact of premerger lost customers. Since last summer, no losses have taken place. So this is indeed the headwind we are facing. And we do have naturally a perspective that, as this will be peaking in Q1 and we have offered a view that H1 will be challenged in growth terms and we expect the top line to be improving throughout the year. And as we make progress, we'll naturally be opening that up further.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. Then on Financial Services Solutions, you seem to have built a strong order backlog, but when will this convert into revenue and kind of put you on a faster growth track? And secondly, at which point should we expect operating leverage to kick in and improve margin profile similar to what's happening in the software at the moment?

[Kimmo Alkio, CEO & President]

So very practically that I fully follow your thought there and confirm that the backlog is healthy, activity level high, opportunity is actually very solid in the marketplace. And we anticipate initial contribution towards year-end and then materializing with much more significant impact than '22, but already end of this year.Operating leverage, of course, that will come with the top line development, so we remain firm with our consideration at the CMD and in terms of the investment that is taking place. So I do not expect a step-function change short term. This would be fully according to our plan, as we also shared, as mentioned at CMD.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. Then on the divestments, you recently announced the oil and gas divestment. Are you working on potential other similar divestments? And then can you elaborate on the use of proceeds? Will you just pay down debt and grow dividends? Or is the idea to deploy the cash into bolt-on acquisitions in the Nordics?

[Kimmo Alkio, CEO & President]

So thank you. For that I would like to break my consideration back to you on 2 parts. So naturally, we never speculate on anything we may or may not be working on, standard good practice. In light of thinking about the competitiveness of the firm, which we have done for many, many years, naturally, we'll be thinking about which type of businesses will be most competitive, greatest growth potential, scale potential with our continuously higher ambition. So this is a normal part of thinking about -- strategically about your portfolio. And as everyone would expect, we do that also continuously. And as we have the first year of integration behind us, we'll be thinking in the next couple of years more and more naturally also from a portfolio standpoint.Use of the proceeds, so of course, we'll see an element of deleverage. And as we have highlighted in both Tomi's and my consideration at CMD, so over time, we do believe, as we've done in the past 5-, 6-year time frame, the type of innovation agenda and considerations for bolt-on M&As, over time, become naturally again relevant for us as we have demonstrated in the past.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. And then finally, on the outlook, how much visibility do you have for the areas that are currently suffering from COVID-19 headwinds to improve after Q1?

[Kimmo Alkio, CEO & President]

So we do, of course -- that's a good point. So naturally, we also get the kind of sensing of the market more or less on a daily basis and activity levels. So we are comfortable with our current -- naturally, our current predictions and outlook. What will we learn in 2 and 3 months' time, we'll all learn that together. So far, we are -- we do believe that this plan is fully feasible.

[Operator]

Our next question comes from Michael Briest from UBS.

[Michael Briest]

A few from me as well. Just on the synergies, I mean, you exited the year with a run rate of EUR 80 million versus the EUR 30 million that you achieved. And you're planning, hopefully, for another EUR 10 million to EUR 15 million this year. I'm just puzzled why the low end of the profit guidance isn't higher. I appreciate there's a bit of a headwind from the disposal, but an extra EUR 50 million already in the bank, and that's going to grow a little bit this year, I would have thought there would be more profit progress. Can you just address that?

[Kimmo Alkio, CEO & President]

So overall, when we look at the type of business mix and what type of investments we are putting in place, of course, to also step in with the growth agenda, so -- and we have the natural, as Michael you super well know, the type of headwinds and tailwinds of the business. So we believe that this type of range is relevant as the ambition level for '21. And for us, very important that we have shared every year is the continued improvement in profitability, consistently doing that, and that would be our perspective at this point in time.And naturally -- part of this agenda, maybe one other addition, naturally, the type of big transformation we are taking in the Cloud & Infrastructure business, which had to be done, this is one factor in that equation naturally.

[Michael Briest]

Understood. And then just on the R&D. I mean, on the capitalization element of that, that's increased from EUR 17 million to EUR 51 million. Amortization has gone up from EUR 10 million to EUR 15 million, so that's quite a big increase. And it seems as though that's mainly around Financial Services or Financial Solutions. Can you talk about when you'll start amortizing that? And I think, Tomi, you said CapEx was going up a little this year. Is that around the R&D or around the physical CapEx?

[Tomi Hyrylainen, Chief Financial Officer]

Yes. So as I commented, the overall CapEx levels for the year is roughly 1/3 is fixed assets and 2/3 is the software development CapEx. Overall, the CapEx level will be slightly above the 2020 level during 2021. When we start to depreciate, it's tied to the development cycle of the banking platform, and we expect the development to be finalized towards the end of '21, so then it would be early '22 when we would start the amortization of that asset.

[Michael Briest]

And would the capitalization start to come down as well at that point because the later project is ended?

[Tomi Hyrylainen, Chief Financial Officer]

Yes. Exactly.

[Michael Briest]

And then just a final one from me, Tomi, actually, maybe 2 more. But just on Page 27 of the press release, there's some quite big changes in the fair value of EVRY. Looking at trade receivables, they dropped by EUR 36 million from your first assessment of the balance sheet, and trade creditors have increased by EUR 40 million. So about EUR 75 million all in. And I guess these are all cash items. So what happened there? And isn't this basically Tieto shareholders giving an extra EUR 75 million to the EVRY shareholders at the time of the deal?

[Tomi Hyrylainen, Chief Financial Officer]

Yes. I think one should look at this more of a normal purchase accounting adjustments. So when we adjust the accounting policies and align the 2 companies, that's where these bookings come from.

[Michael Briest]

But I mean, they're all cash-related. I mean, trade receivables and trade creditors. So was there any change in the consideration? I guess not?

[Tomi Hyrylainen, Chief Financial Officer]

No, no. It's purchase accounting-related bookings.

[Michael Briest]

Okay. Maybe we'll take that off-line. And then just finally, on currency, I think you said it's an EUR 8 million benefit for Q1. You've obviously made an assumption on exchange rates. What would the benefit for the full year be, if rates are as they are in Q1?

[Tomi Hyrylainen, Chief Financial Officer]

Yes, I don't have that number with me now. It's going to be slightly more. So what we use as a proxy for the EUR 8 million is the average P&L rate for January with this EUR 8 million.

[Operator]

Our next question comes from Panu from Danske Bank.

[Panu Laitinmäki, Senior Analyst]

I have a couple of questions. First of all, on the guidance for revenue growth, you expect from minus 1% to 2%, but that includes the impact of lost customers of 2.5%. So without that, the upper end would be 4.5%. Can you kind of give any color on the expectations for the growth rate for the different businesses at the high end of this guidance? So like what do you expect the Industry Software to grow this year, roughly? And what kind of scenario do you have for consulting, like first half down, but how much will second half grow? Can you comment on that?

[Kimmo Alkio, CEO & President]

Yes. Thank you. So just to confirm our consideration on the market development and our view, so the pandemic is impacting the market and pandemic is impacting our outlook. That -- and we so far have a firm view that the first half that it would be similar, very much same level as we saw Q3 and Q4. So that's quite significant.And then we have the premerger lost customers. So overall, of course, our aim is to step into the future with the growth agenda. These are now headwinds that we have, which, of course, as you know, we aim to fix through our organic -- good execution. We do not give more detailed guidance at this point in time. And we do hope that the Page 23 we have offered that exactly what dynamics we have in our current predictions in the businesses, the point being that the growth would materialize in all businesses in the second half, the dark blue on 23, while Cloud & Infra would be more neutral at that point in time.So with this in mind, you are hopefully getting a very clear view from us that we do foresee a good opportunity to actually begin delivering on the growth agenda second half of the year. And at this point, and if I may, as usual, we don't offer more detailed guidance per service line.

[Panu Laitinmäki, Senior Analyst]

All right. I agree that Slide 23 is very helpful. Second question is on the customer losses. So still coming back to the kind of impact. So you are basically saying that it will impact you for 4 quarters, which started in Q3, but then the impact is much bigger? So are these customers kind of ending the business with you at different times? Or why is this like varying so much in Q1 compared to what the impact was in Q3?

[Kimmo Alkio, CEO & President]

Yes, indeed. So the background would be such that if one wins a new customer, there's about an 18-month window, so the type of lead time for winning business is 12 to 18 months before revenues materialize in our industry. If and when you lose a customer, there's also a 12- to 18-month window in the transition period out. So with this in mind, exactly, we are hitting the peak now in Q1.

[Panu Laitinmäki, Senior Analyst]

All right. And the final question is on the kind of sustainability of the margins. I mean, can you comment on how much temporary cost savings did you have, for example, in consulting, that had a good margin in Q4? So do you have something that will come back? And -- but will that be offset by the synergy contribution going forward? So can you comment on that?

[Kimmo Alkio, CEO & President]

So maybe 2 factors, if I may. So for us, the way we look at overall cost efficiency of all the businesses, we talk about the competitive cost structure. So whether -- so competitive cost structure, very important, recognizing that there can be volatility on the revenue side, be mindful on when to increase investor cost base to support growth if there's uncertainty on top line, looking at any mechanism to make sure that the cost base is managed very tightly.Now that's a bit of a -- not philosophical, but logic, the point being that whether it's temporary or other mechanisms, it's important we all the time maintain eye on the cost structure. If and when the pandemic impact continues, we will continuously keep a tight lid on the cost structure. And then, of course, I always try to answer your good consideration. So the impact of the temporary cost-saving activities in Digital Consulting, if we think about the full year, not very significant, more in the summer time frame, but that's depending, of course, then as we look into the future on the volume development.

[Operator]

Our next question comes from Daniel Djurberg from Handelsbanken.

[Daniel Djurberg, Research Analyst]

First, I was wondering a little bit on the Digital Consulting. You expect the negative growth first half and then to gain a positive growth contribution second half. And I guess you started with recruiting. I think you mentioned January here. But I guess also most competitors is also quite aggressive. And I was wondering what you see, is it a big risk that you will either need to hike salary? So if you can talk about salary inflation, but also the trend you see in the employee turnover in your geographies would be great to understand what you're looking for.

[Kimmo Alkio, CEO & President]

Good point. So we have a couple of main drivers from the standpoint of the type of growth programs we have already launched. We talk about the program on cloud anywhere that brings capabilities from the cloud advisory in the consulting side, our cloud architects from the infrastructure side really taking advantage of this multi-cloud, public cloud driving the marketplace. We have highly, highly advanced capabilities in the company that -- and we are able to recruit good talent.Other similar area would be the data, data science, data platform side, which we are also kind of increasing the investment level very consciously to support the growth ambition in these areas we have. We believe we are able to attract good talent as we have the very exciting projects on hand, given the type of footprint in all key markets within each market or key industries and including the public sector.So I say this very humbly. Of course, we are always super mindful that the hunt for talent is everywhere. We are so far fairly fine. By the way, also in terms of the very demanding integration last year, and we have not seen any significant concerns on the attrition levels. I do believe and I follow your point that the market will likely become more active in these hot areas.

[Daniel Djurberg, Research Analyst]

Yes. And should we be afraid that the COVID-19 hold back dramatically on the attrition level and that we will see a large uptick when that starts to ease, if it starts to ease -- still hope.

[Kimmo Alkio, CEO & President]

So good point. So I think there are a couple of factors that I believe how we are addressing the whole consideration that 24,000 colleagues. We were very active that this would be one of the best, best places in the world to be. We have the value base, we have training curriculums, very interesting projects on hand, and we work on this continuously. So I think I would rather play this in not defense, offense, that we will become better, a better place. And we are mindful that, of course, the hunt for talent has been active for many years, and it will probably get even more active in the years to come, and we plan to play offense also in this game.

[Daniel Djurberg, Research Analyst]

Perfect. I might ask you on your view on the Industry Software. The divestment in oil and gas, was that also seen from an ESG perspective that even if it's positive from one perspective within the carbon accounting, et cetera, it's long term perhaps not as attractive oil and gas segment? Was that partly behind? Or should we -- was it more that they had a better holding company with -- in terms of getting better market opportunities outside TietoEVRY?

[Kimmo Alkio, CEO & President]

Yes. Good point. So these are, I would say, these are truly, and as I think everyone would expect these are really holistic considerations. Very holistic. So all potential and possible factors that you also mentioned are part of the consideration. And as I would like to pinpoint still the 2 main ones, which I highlighted earlier as well, that the portfolio planning in our industry has to be a very essential part of the management agenda and that it is and will be in our company because we want to be leading-edge, drive for growth and scale in the businesses we are in. And of course, our appetite needs to go north continuously.Second factor that this business, with this arrangement with Quorum Software, will actually be the most significant software company dedicated for the energy sector globally. So the asset potential there is more significant and weak at fair value for the assets sold. So that would be my short comment.

[Daniel Djurberg, Research Analyst]

Yes. Perfect. And just -- I think you said -- just to recalculate, I think you said that you have not lost anymore -- or new customer losses in Cloud & Infra since last summer. Was that correct? Or...

[Kimmo Alkio, CEO & President]

Yes.

[Daniel Djurberg, Research Analyst]

Was it right?

[Kimmo Alkio, CEO & President]

Yes.

[Daniel Djurberg, Research Analyst]

Okay. Great. And my last question, if I may, would be, if you do see any more segments in Industry Software where you can -- that you perhaps don't have the -- do you consider to have the right R&D resources in all the remaining segments? And of course, you can't pinpoint a segment, but as such -- but you have still quite a lot different industry verticals that you support for good software, but any comments on that, if you have ready...

[Kimmo Alkio, CEO & President]

I think the only -- fully follow. I think the only reflection we can provide is that we continuously look at uplifting the performance of all the businesses we are in. And I -- impossible to speculate on exactly which ones are we assessing and when.

[Operator]

Our next question comes from Jaakko Tyrvainen from SEB.

[Jaakko Tyrvainen, Analyst]

Most of my questions have already been asked, but a couple of follow-ups, if I may. Firstly, on Financial Services, you are indicating flat year-over-year profitability for the first quarter. As I understand, this would mark a significant drop from Q4. Could you elaborate a bit more here? Is it just a seasonality impact? Or is the investment level higher than normally? Or what is behind there?

[Tomi Hyrylainen, Chief Financial Officer]

Yes. So software business, you should actually look at the cyclicality of that. And typically, Q4, you end up with the higher profit ranges and then Q1, the lowest of the year. So that sort of explains it.

[Kimmo Alkio, CEO & President]

It has to do with most often the license peaks end of year. So that's part of exactly what Tomi commented. I do not see any fundamental -- just to confirm, in FSS, we have -- we think we have a very solid view of the future. And as an example, how we have reflected on FSS development. So our comfort and aim to play a big game in that and scale well very firm.

[Jaakko Tyrvainen, Analyst]

Right, right. Then on the oil and gas divestment, could you indicate the EBIT level of the business at this point of the transaction process as well as the possible expected onetime item on P&L?

[Tomi Hyrylainen, Chief Financial Officer]

So we, of course, don't comment specific profitability. What I can tell you, it's been on the average of the highest profitability over the years.

[Jaakko Tyrvainen, Analyst]

Okay. And will it have a positive -- will transaction have a positive impact on -- a onetime impact on P&L?

[Tomi Hyrylainen, Chief Financial Officer]

We will naturally -- when the transaction closes, we will exactly know what the accounting will look like, and we will naturally eliminate all the positive benefits from the P&L from the transaction.

[Jaakko Tyrvainen, Analyst]

All right. Then final one on Digital Consulting, which is expected to return to growth in the second half of the year. Which business lines are you seeing driving the growth in the second half, especially as COVID situation eases? And do you expect also the business lines which have been most hurt by COVID to return to growth as well?

[Kimmo Alkio, CEO & President]

Okay. Good point. So I think I can reflect in the following way that the areas where we anticipate this year and for the next few years that will be attractive have to do with the type of cloud advisory. There's a whole dialogue on the DevOps ways of working and very rapid development cycles. That's a very, very active marketplace.Second one, what we call the data and insight, how to gain value out of the maximum amounts of data, it has to do with data engineering, master data management, analytics side, embedding these into the customers -- customers' customers experience so that's the second very practical domain.Then if I mentioned the other part that where the kind of the history does bring elements of price erosion has to do with the, let's say, the old-style application services. So we -- so there are a couple of areas in the market where price erosion is visible. One is the legacy application services. The other one would be the legacy infrastructure services, which, in our case, is Cloud & Infra.So that was just a way to answer your good question that, in Digital Consulting, so part of the services, traditional application services, that is not foreseen to be short term a growth business. But that's why we have the balancing act of what growth will be delivered by when. Naturally, we'll be looking into all these areas how far we can accelerate growth itself.

[Operator]

Our next question comes from Christoffer Bjørnsen from DNB.

[Christoffer Wang Bjørnsen, Analyst]

I was wondering, on Cloud & Infra, if you could maybe elaborate a bit again on what particular activities is weighing down the profitability and the transformation that you're going through. And maybe help us understand the magnitude of those costs, just to kind of bridge a bit what Michael touched upon with regards to the surprisingly low selling through of the synergies to the EBIT target for the year. That would be helpful to see how quickly that will ramp up again in the Cloud & Infra side when the transformation is complete.

[Kimmo Alkio, CEO & President]

Sure. So I think that fully follow, Christoffer, for your consideration, part of it we'll answer, but not necessarily, we don't give detailed guidance at the service-line level. So first of all, the implementation plan regarding this Cloud & Infra partnership turnaround is well on schedule. So that's really important for us. And the additional cost that we are taking in have to do with the additional support mechanisms during this transitionary period as we take people back, one factor.Second, very important that, as there were not consistent service delivery processes, not consistent ITSM management tools, not consistent monitoring tools, they have to be put in place. And this is exactly what we saw. My reflection here, Christoffer, would be the same as in prior dialogues. That's exactly our game plan. And we believe that 12-month window that we'll be getting to in the summer time frame, we will then start to see the benefits materializing. And that's one factor.Second factor, of course, that we improve the total business performance. We need to be able to eliminate the negative impact of premerger loss customers. And naturally, as we, as a company, are stepping into the growth-oriented agenda, it means that we are putting a lot more energy into growing also this business. I think that's about as far I think we can go at this point, unless, Tomi, you want to add.

[Tomi Hyrylainen, Chief Financial Officer]

No. That was good.

[Kimmo Alkio, CEO & President]

[We will stop ] on that one.

[Operator]

Our next question comes from George Webb from Morgan Stanley.

[George W Webb, Equity Analyst]

Just one question for me, please. And it ties back to some of the cost-saving comments you mentioned earlier. I'm really focusing on those cost savings as more short term driven by lockdowns and areas like reduced travel. When you look through those shorter-term cost savings you saw in 2020, are you expecting those to phase out in 2021? And what sort of shape would you be assuming for that?

[Kimmo Alkio, CEO & President]

So if I offer consideration -- and thank you for the good point -- and very likely, every company is thinking and addressing that. So our logic into this is that we are maintaining high attention on the cost structure and, as necessary, cost controls, and in parallel looking into when does the growth start to materialize and balancing the growth outlook on the top line and when potential investments or SG&A might be, let's say, a bit further freed up. So I don't think there's a silver bullet answer. It is exactly this balancing point, when is growth visible, how soon to consider, as an example, adding headcount, but we expect to do this not either too aggressively, until we have more understanding of the pandemic.

[Operator]

There appears to be no further questions, so I'll hand back to the speakers for any other remarks.

[Tanja Lounevirta, Head of Financial Communications]

Thank you for active dialogue. We are ready to end this event. Thank you for joining us today. Have a sunny day.

[Kimmo Alkio, CEO & President]

Thank you very much also on my behalf. And as commented in the beginning, we have completed the first year of operations as TietoEVRY. It's been an exciting 2020, and it will be even more exciting '21. Thank you.