Dear ladies and gentlemen, we have today announced our fourth quarter results. Kimmo Alkio, our President and CEO, and Tomi Hyryläinen, our CFO, will introduce the results and also discuss our outlook for this year and way forward. After the presentation, you can join the Q&A session. If you have any questions, please dial into the conference call. My name is Tanja Lounevirta. I'm Head of Financial Communications, and I warmly welcome you all into the call. Now hand over to you, Kimmo, please.
Thank you very much, Tanja, and a very warm welcome also on my behalf to our fourth quarter 2021 results announcement. What an exciting year and fourth quarter it has been. In the fourth quarter, we were able to follow our growth agenda with the 3% growth, and we were able to achieve record order intake since the merger, and we were able to deliver a very strong cash flow for the fourth quarter. Some of the main factors, main messages that we would like to share, the five as highlighted on this page, growth driven by software businesses and over 20% growth in product development services and international operations. With this in mind, four of our six businesses are doing really well.
Second very important factor, we have strong wins, strongest since the merger, we've seen in the fourth quarter, order backlog up by 5%, for the year 2022. We were able to deliver a healthy adjusted operating margin of 13.9% and the strong cash flow. We have the dividend proposal by the board of directors at EUR 1.40 per share. Furthermore, we are today announcing further performance acceleration in the Cloud & Infra business to drive cloud growth and achieve adjusted EBITDA margin of over 20% by 2023, targeting annual savings of EUR 50 million, and we do believe we can speed up the time it takes to improve the performance of this business in question. Furthermore, fair to highlight briefly the full year 2021 key financials practically improving across all main performance indicators.
Revenue, EUR 2.8 billion - EUR 3 billion. EBITDA adjusted, EUR 368 million, 13%. Operating cash flow, EUR 368 million. Order backlog, EUR 3.513 billion. Reported EBIT, EUR 382 million, 13.5%, and continuing to actively deleverage the company, net debt to EBITDA 1.1. Based on the dividend proposal, this would be representing a dividend yield of 5.4%. In addition to financials, I would like to highlight couple of important operational and strategic drivers and developments during the fiscal year 2021. Growth agenda has been very important for us, even with the challenges of Cloud & Infra. H2 acceleration has been very promising, practically across the four well-performing businesses, the two software businesses, product development services, and international operations.
Furthermore, important to highlight that our integration program, the two-year integration program, is completed with main targets achieved and operations and operational sanctity, operational quality, efficiency has developed favorably. Naturally, in some of the businesses, e.g. software businesses, roadmap consolidations, some of the tooling in Cloud & Infra will continue, but the centralized integration program, we believe, well completed. Furthermore, very important in the very active and hot talent market that we have continued to develop favorably our employer attractiveness and ability to drive recruitments. Over 5,700 recruitments in the year, and we also wish to share the consideration that female participation is up by 4 percentage points in the new recruitments.
Furthermore, very important, we believe less than two years from the merger that we did announce our new strategy, highly focused, specialized, and expansion driven through our six end-to-end businesses. On that implementation, I'll be touching briefly on a bit later on. Furthermore, we'd like to spend a minute on reflecting a bit on the wins during the quarter. As reflected briefly earlier, these are the strongest wins and strongest order intake since the merger, and we are pleased to see especially the development in the consulting side and the Cloud & Infra side. Software has been strong. It continues to be strong.
In the consulting domain, we have seen especially strong development, and order intake in the ERP domain, which, an area where we have both on SAP and MS Dynamics, very strong capabilities, and we did see a clear bounce back in the fourth quarter. Furthermore, in the consulting domains, and this refers a bit now to product development services, number of very interesting new customers. Customer names not public at this point in time, so the customer base expansion continuing on the PDS side. Furthermore, in the Cloud & Infra, we also did experience healthy order intake, highly modern multi-cloud services, and, we continue to see favorable development also in the pipeline into 2022 regarding the Cloud & Infra business. Overall, good developments from a market penetration and a customer win standpoint.
I would also like, in this opening part, briefly to reflect on the importance of our ESG agenda and the progress we are making. We do very firmly drive positive climate impact across our whole operations, across our totality of the value chain, and we'd like to highlight three main drivers. Us launching sustainability data services for our customers, co-innovating the future of sustainability data platforms, a tremendous degree of interest in the marketplace, a very exciting initiative. I'm sure we'll see a lot more of this in the future. Second important driver, reducing our CO2 emissions in our own operations and in the supply chain, aim to reach carbon neutral operations by 2025, and we are fully committed to the science-based targets as well. Furthermore, we are implementing the EU taxonomy within this whole notion.
We are part of the players in the world of the kind of industrial landscape of having a low environmental impact to begin with and us contributing with a very large potential to support our clients in their transition to greener operations through our services. To be fair, also our recently launched brand and identity also supports our purpose statements calls for the creating purposeful technology that reinvents the world for good. This fits our value base also tremendously well. If we next go into maybe the main part of today, or one of the main parts which relates then to the fourth quarter performance, we'll summarize first the group level.
Revenues of EUR 742 million, organic growth before mentioned 3%, adjusted EBITDA EUR 103.3 million, 13.9%. As already mentioned, strengths in four of our six businesses, we continue to have negative contribution from the pre-merger impact in the Cloud & Infra side, that has been with us for the full year 2021. Fair to highlight that also in the case of Tietoevry, similarly to the full industry peer group, the higher attrition levels and higher salary inflations do impact overall productivity. Our point being, even more we believe is possible. Operating cash flow very strong at EUR 169 million and, as mentioned earlier, on the back of favorable backlog development. Regarding Digital Consulting, our growth did not yet realize while we see really favorable progress.
We did report growth of -1%, adjusted EBITDA at 14.1%, and the challenge from a revenue standpoint driven by few ending larger contracts while starting to win very interesting and important ERP business and continuing to see attractive growth in the modern and highly future-related cloud data and analytics domains. Very practically, the other factor on the overall development for Digital Consulting, as we have had flat capacity and higher attrition levels, this by virtue does impact the overall productivity, especially in this type of a consulting business. The part of from a standpoint of us seeing favorable progress with the strong order intake in the fourth quarter confirming our competitiveness and laying an really interesting foundation for growth for the year 2022.
Furthermore, moving into Cloud & Infra, today we are very openly sharing that further performance improvement and acceleration is required, which we are sharing more of during this session. We continue to improve quarter-over-quarter in performance, and we do believe performance acceleration can be faster and maintaining our longer-term target levels. For the fourth quarter in Cloud & Infra, we had growth of -7%, adjusted EBITDA 9.5% level, and our revenue side, the contribution from some of the pre-merger loss customers -3%, reduced hardware sales -2%. These are some of the main factors, and the highly predictable decline in traditional infrastructure services.
While we are seeing attractive development in the multi-cloud domain, where our primary big driver is the private cloud services, growth of 5%, and security services, growing over 50%. As mentioned earlier, very important that order intake was strong and we have a healthy increase in the order backlog. With this in mind, the possibilities for 2022 look better. I'll come back to the performance acceleration in a few minutes. We follow with the remaining businesses which are actually all performing very strongly. We begin with industry software, growth of 7%, adjusted EBITDA 25.8%. Here we continue a very steady, very consistent progress with strong performance across all our main businesses.
We would like to highlight, regarding fourth quarter, especially the growth and wins in Public 360°, and we continue to develop favorably in the health and care software domain. Overall, our message remains the same as throughout 2021. The drivers around industrially developing the research and development, software development capabilities and practices, naturally in the software arena, important to continue with high degree. We confirm, as mentioned, during last year, the smaller divestments, that they are closed in December. Furthermore, regarding financial services, healthy organic growth of 12%, adjusted EBITDA 14.4%, and the goodness of the fourth quarter, we continue to see growth across the portfolio. This would include, or especially on the credit banking as a service and the card side, so this is an area that has strengthened in our case, actually throughout the merger era.
We maintain the investments to support further growth opportunities and expansion of this business overall. Product development services, strong growth of 20%, not quite 70%. Pardon me, 20% growth. To be fair, excluding the Nanjing operations, this was very healthy as well. Very healthy, around 7%-8%. Naturally, the Nanjing operations joining, creating the 20% growth. Overall, profitability development, quite favorable at 12% level. Profitability naturally impacted by the attrition and salary inflation levels. That's also impacting clearly in this type of business logic. Our development overall in the business has been favorable. The operations in the Nanjing R&D center developing favorably. All short-term objectives met or exceeded, and good news being that the customer base expansion has very firmly, positively continued.
Into our international operations, one of our very nice success stories for the year 2021. Very healthy growth continuing at 26% level. These are the highly modern services, fully according to our new strategy. Here, we talk about the cloud-native, data-oriented services, and here we continue to see interesting expansion within the Fortune 500 category, especially in the U.S., and we are experiencing a degree of positive network effect given the high-quality references we have been able to achieve in the customer base. We see this indeed being the core of our future around the cloud-native, data-oriented DevOps ways of working. This is where the industry investments are going into. Will be very interesting to see in the new businesses how this business model we aim to expand further.
Today, as mentioned earlier, we are announcing the actions to accelerate performance in Cloud & Infra to drive cloud growth and achieve over 10% profitability. In practice, we are announcing cost savings measures aiming at annualized savings of EUR 50 million. I would like to briefly highlight the full picture of the current state of this business and related market drivers. The prevailing market drivers call for multi-cloud growth acceleration, and that's an area where we also have a very important play within. While in the market worldwide, we continue to see decline in the traditional infrastructure services, our way forward is to align our cost structure and accelerate our multi-cloud growth. Very practically, we align our cost structure to volume shift from traditional to cloud and to the current volume levels in the traditional infrastructure services.
Furthermore, we would like to highlight we have now available market-leading private cloud services across our main markets, Norway, Sweden, and Finland. During the integration era, it has taken a bit of time to get the leading technologies fully operational in three markets, and we have onboarded first customers already also in Norway and Sweden. Given the operating model of the end-to-end businesses, we already have in place a dedicated cloud-focused sales and solutioning teams, and we expect to have a much higher activity level and win rates in the market for 2022. Very practically, just to confirm the measures initiated aiming at annualized savings of EUR 50 million. Savings are related to personnel and external purchases, including subcontracting.
We anticipate the potential impact up to 600 roles, primarily in Norway, Sweden, and Finland, and the planning naturally has been initiated according to country procedures or related to personnel negotiations. We would also like to confirm that these announced actions are in full synchronization with our announced strategy and our plans to reach our financial targets for Cloud & Infra by 2023. This would conclude the fourth quarter summary, highlighting the background and considerations behind the performance acceleration for Cloud & Infra. Now over to Tomi.
Thank you, Kimmo, and good morning, everyone. I'm pleased with our Q4 performance overall. We delivered solid 3% growth and healthy 13.9% profit margin. The market was positively active, however, characterized by continued high salary inflation and attrition levels impacting both growth and profitability. Our reported operating profit was strong at EUR 113.4 million or 15.3% compared to 10.9% prior year, reflecting solid underlying profitability combined with reduction in one-time items and positive impact from divestments. We delivered strong operating and free cash flow and improved our leverage metric net debt to EBITDA to 1.1. Our dividend proposal of EUR 1.4 per share reflects our strong financial position and strong overall performance of the company. We reached EUR 97 million synergy run rate at year-end, substantially completing the program. FX revenue tailwind for the quarter was EUR 25 million.
As mentioned, we delivered strong operative cash flow at EUR 169 million compared to EUR 125 million of prior year. Working capital development was favorable by EUR 68.5 million, mainly relating to increase in AP, accounts payable, and seasonal working capital changes primarily from vacation accruals. Our free cash flow was also strong at EUR 165 million, representing cash conversion of 1.9 for the quarter and 1.35 for the full year. Adjusted for divestments, full-year cash conversion would be also strong at 1.1. As a result of strong cash flow, our net debt ended up at EUR 611 million and net debt EBITDA at 1.1, as mentioned, compared to 2.5 in prior year. As mentioned, we reached EUR 97 million of run rate at year-end, substantially completing our EUR 100 million synergy program.
Remaining synergies will be rolled into normal business performance reporting in 2022. Accumulated one-time integration costs amounted to EUR 110 million at the end of the year. The remaining EUR 7 million will be incurred in 2022, ending up to EUR 117 million of total integration cost, unchanged from our estimate earlier. The remaining cost, EUR 7 million, relate mainly to our brand and identity program, which we are currently doing. With this Q4 report, we end the era of separately reporting on integration-related synergies and costs. Our Q4 one-time cost amounted to EUR 11 million, fully as expected, with one-time full-year cost amounting to EUR 43 million. Total one-time items, however, were positive EUR 61 million, driven with our divestment gains of positive EUR 104 million. We have earlier believed to reach 1% one-time items level during 2022.
However, due to Cloud & Infra performance acceleration program, as we just went through, we estimate the one-time items for 2022 to be slightly elevated at 1.5%-2% level. CapEx for the quarter amounted to EUR 25 million. The higher CapEx level compared to previous quarters was a result of normal purchases of software licenses and data center investments. CapEx for the full year was EUR 81 million, which is at the same level of prior year. As mentioned, we closed the sale of three smaller software businesses in December as planned, and the divestment resulted in capital gain of EUR 31 million and positive net cash impact of EUR 38 million. Effective tax rate for the quarter of...
For the year ended up to 17.6%, which was impacted by non-taxable divestment gains of approximately 5 percentage point impact, so the normalized level would have been between 22% or 22.6%. We expect for 2022 the effective tax rate to be between 22% and 23%. Next, I'll summarize the Q1 performance drivers. We expect good momentum to continue in our software businesses, PDS, and international operations. Cloud & Infra pre-merger loss customer impact has ended. However, the decline in traditional infrastructure services is expected to continue. On profit drivers, salary inflation and attrition are expected to continue at high levels, continuing to impact the speed of performance improvement. The normalized operating environment post-COVID will drive higher cost levels, primarily in travel cost category.
For Cloud & Infra, the annual price discounts kick in typically in January, and the profit improvement from the announced performance acceleration program will start to contribute to profit mostly in the second half of the year, so not yet in the Q1. Needless to say, but the transition to the new operating model will potentially impact our performance during the early part of the year. We naturally try to make sure that activity level stays up and the interruption to our business will be as limited as possible. FX tailwind is expected to be small at EUR 2 million level, and working day impact to growth +0.6%. Next, a brief look at where we stand in relation to our long-term financial targets.
We will naturally update our targets to reflect the new existing business structure in the CMD, which we aim to range during the second half of the year. Overall, it's fair to say that most of our businesses are tracking well towards their targets. Our software businesses are almost fully meeting or exceeding the target levels already. PDS performance during the second half of 2021 was at target levels both in growth and profitability terms. Digital Consulting profit is developing fairly towards the target levels, however growth, which in 2021 was impacted by COVID and high attrition, is recovering, while not yet at desired levels. The activity level in the market, driven by cloud and data, continues to support our growth ambition. As an example, we have been able to deliver over 20% growth in our international operations.
Cloud & Infra is not performing at desired levels, and performance turnaround is essential for us to reach our target levels of 5% growth and 15% margin by 2023. With this, I turn back to Kimmo.
Thank you, Tomi. Let us move forward to considerations on 2022 guidance and overall strategic considerations. I would like to briefly confirm that our strategy implementation is proceeding currently on schedule. We have four main strategic choices, as highlighted mid-October, starting a very transformative era for the company, betting on the future around cloud native and data-related and software-related services, and shifting to end-to-end responsibility for our six businesses. We did go on schedule live on January 1st with the end-to-end businesses, and as Tomi highlighted, naturally, a transition of this magnitude will take a few months. We are highly mindful. We do believe we have fair experience in such transformations. We have updated our brand and identity internally at the end of December and externally during the third week of January.
Good feedback we have received from customers regarding the clarity of the identities of the businesses and, mostly, I would say, on the clarity of ownership and the speed in the interaction with our clients. We do expect that we are able to at least maintain, even short-term, the market focus, and we expect to actually increase the market activity level. So far, we have experienced good employee engagement regarding the strategy implementation. In the beginning of the year 2022, it's good to provide our perspective also in terms of the market growth. We have a few drivers. We believe our considerations continue to be very consistent around the thinking on software and cloud-native services in the industry, growing around 10% level.
The traditional managed services, meaning managed infrastructure, managed application services, that in the industry at large declining 5% and 10%, and we believe that the Tietoevry addressable market is growing approximately by 3% with these factors behind. To recap some of the drivers behind our guidance, and let us then summarize the guidance itself. Entering 2022, we have a strong order backlog and healthy market activity, market dynamics that are supporting our overall growth ambition. Our software businesses are performing well, and as highlighted earlier in 2021, four of the six businesses performing really well. We have had underperforming Cloud & Infra due to traditional volume decline and price erosion, and we have a significant turnaround underway as announced today.
Furthermore, as Tomi has highlighted, the type of a talent market with the salary inflation will continue to be with us. With these considerations, we expect our organic growth to be between 2% and 4%, and the estimate of the full year adjusted operating margin to be between 13.1% and 13.6%. Currently, we do anticipate that the second half of the year will likely be stronger than the first half of the year, especially due to the contribution of the aforementioned turnaround plan and savings contribution from Cloud & Infra. We expect year 2022 to be very exciting and good for the company. We have seen initial signs of the growth agenda materializing. We believe a lot more is possible, and execution shall be through our fast-moving six end-to-end businesses.
We do have a solid financial position as a foundation for strategy execution, and we are already and naturally continue to be better and better as the go-to place for tech professionals, as highlighted also in our new identity. We are the developers of digital futures. This would conclude the perspective on the fourth quarter and full year reflections and the guidance from Tomi and myself. Thank you, and likely time to shift over to Q&A.
Yes. Thank you, Kimmo and Tomi. We are now happy to proceed to the Q&A session. Moderator, please go ahead.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The first question comes from George Webb from Morgan Stanley. Please go ahead.
Morning, Kimmo, and Tomi. I have a few separate questions, please. Firstly, coming to the point of wage inflation for 2022 and your 3% expectation there, can you give us a sense of the dynamics around that? How much risk is there in your view that it could actually end up higher than that assumption? And how have the kind of employee and union discussions been around that topic? Secondly, just looking back at those 2023 targets, you know, aside from Cloud & Infra, the other division that needs to materially step up its margins is financial services solutions. You're targeting 18%-22%, you're just under 14% in FY 2021. What will drive that more material step up in FSS over the next couple of years?
Then just lastly on, just on Ukraine, you've obviously got some employee-based exposure there. Have you seen any impact so far from the geopolitical concerns? And what sort of business continuity plans do you have in place should the situation deteriorate? Thank you.
Sure. Okay. If salary inflation, George, just to clarify, were you referring to 2023 targets or 2022 targets?
On the salary inflation, how you think about 2022.
No, but on the next point. You had three points. Salary inflation, then around the 2023. The kind of-
Yeah, exactly. Yeah, exactly. The second point was on 2023 and the FSS target to get to an 18%-22% margin.
Yeah. On the salary inflation, as we all know, the talent market is active. That's why we, at this point in time, confirm that we think the inflationary component in the salaries will continue to be high. Currently, we see 3%. We were slightly above 3% last year, 3.1%-ish, somewhere there. We think that that's a reasonable proxy based on what we know now for 2022 as well.
Sure. If I comment on the other two parts. Financial services overall, naturally as we have reflected upon earlier, it's super important to continue to drive the growth of this business. We believe we have well-positioned investments regarding the scale and competitiveness, especially around the banking as a service, core banking platform itself. The foundation towards the higher performance levels, to be fair, similarly as we have done in the healthcare business in prior years, that the competitive scale of the software in question supported by the top line contribution. I think these are the pretty clear drivers for that performance improvement.
To be fair, naturally now when we go into the transition of the newly defined businesses, we'll need to be highly mindful around the efficiency of the go-to markets as there's a fundamental structural change. To be fair, I just highlight for all the businesses. Regarding Ukraine, so we have had for many weeks a very high degree of attention, more or less daily, actually chaired by one of our executive team members, looking at the employee safety, looking at the services continuity for our customers. We have done actually exercises already, how to move set of services to some of the adjacent countries where we have our operation centers and we have a multi-layered scenario on which plan to activate subject to the geopolitical challenge on hand.
That and that dialogue with customers is very active. We are so far able to well safeguard the business continuity there. But naturally, everybody has uncertainty as shared, as visible in the media.
Perfect. Understood. Thank you very much.
Thank you. The next question comes from Nicolas David from ODDO BHF. Please go ahead.
Yes. Good morning, and thank you for taking my question. I have a few. First is coming back on Digital Consulting, could you help us understand the growth trends here? Because, I mean, you managed to hire to have a positive net staff hiring in Q4, and I understand that count was up something like 2% year-on-year in Q4. You had a positive calendar effect or so in Q4, and presumably a positive price trend. Nevertheless, you are declining 1% organic, so I guess that you have a lower utilization. Could you share some data here and what you expect regarding this utilization rate in 2022?
Again, on Digital Consulting, another question is, I mean, you seem happy with the development of your profitability there, and you are trending towards those 2023 targets. Does it mean that you don't expect Digital Consulting profitability to decline in 2022, despite salary inflation and maybe a lower attrition rate at the beginning of the year? More broadly, when you look at this equation between salary inflation and maybe price increase, do you see it as negative all along the year or are you facing currently a negative phasing between salary which are increasing now while you are implementing price increase later or trying to implement them currently?
Is it negative phasing and you expect it to improve during 2022 as you increase prices or is it something that you expect to be negative all along the year? Thank you.
Okay. Thank you very much. Very good, I think two, three important points there. Let me first confirm around the headcount. Average headcount for Digital Consulting fourth quarter was flat, and for the full year it was - 4%. Just on the drivers because naturally this business is impacted tremendously by the attrition levels. I would like to also highlight before commenting the profit side that the primary driver for the decline was actually a few ending larger contracts and those were factors with the point being that we do not believe that the decline of any part of it would need to be that consistently or sustainably negative.
The whole consideration that the very strong wins in the ERP business, a strong continued growth in cloud data and analytics, and the overall really strong order intake in the business are giving us new type of comfort that this will rebound. Profitability, naturally, in a salary inflationary era, the profit improvement with the growth appetite would be even faster. We need to be mindful of exactly what is the progress in the fiscal year in terms of profitability, given that we will experience a higher inflation level. We are not giving up on continued improvement either on profit. Then your last point, regarding kind of salary inflation versus price increases.
We have also, as a company, worked through our plans for price increases and to be fair, that's a bit difficult to give a silver bullet answer given that the market will continue to be dynamic on the salary inflation side. We have seen stabilization of our attrition levels in the fourth quarter. On a quarterly level, Q3 was higher than Q4, so elements of stabilization. It'll continue to be a bit dynamic. Overall recapping, Digital Consulting, given the volume development from the win side, order intake side, overall, we are more favorable and we are mindful naturally working all the time offsetting the inflationary aspects with productivity increases and price increases.
Thank you. Just to come back on the Q4 growth. Yeah, I understand that the head count was flat. Nevertheless, I mean, you were supposed to have a positive calendar effect and maybe some price, maybe better price. I don't know, maybe due to offshore your price are also down. Could you help us to reconcile between flat-ish head count plus positive calendar effect versus negative organic growth? Is it price decline or lower attrition rate which are playing or something else I'm missing?
When the attrition levels are this high, there's—like I'm sure you are hearing from all of our peer companies as well—the kind of impact on productivity, onboarding new people and the like. That does create a dent in the productivity as such. These are some of the main factors.
Yeah.
Okay. Do you expect it to? Yeah. Yeah.
I think you went through from the capacity point of view. If we take a look at Q4 capacity, it was flat as Kimmo mentioned. Yes, we were 100 head count higher at the end of the quarter. But when we put in the higher attrition, which in consulting business is actually a bit higher than what we have on average in the company, it does impact quite a lot of the productivity. Now, I don't have a silver bullet model, but when I do a bit of simulation, it does impact in excess of 1% the current increase into our growth and profitability as well. That's just sort of a rough metric.
There's no sort of good formula to do it, but that's sort of roughly at the levels that the impact is what we're having.
That's clear. Thank you.
Thank you. The next question comes from Sami Sarkamies from Nordea Markets. Please go ahead.
Hi. Thanks. I would like to discuss two topics. First, starting from the order backlog growth. Can you give any color on which segments grow the 5% increase in order backlog year-on-year?
Overall, as was mentioned, it is very specifically visible in both Digital Consulting and in Cloud & Infra.
Okay. Thanks. Moving on to margin progression. If we look back to 2021, you ended up at 13%, which was the lower end of your guidance range. What were the main negative surprises during the year? When you think about the guidance for this year, have you been a bit more cautious with that in comparison with last year?
Thank you, Sami, for that one as well. If we look at the development of the company, the dent, clearly, as I think everybody does see, it is purely from the challenges we have had in Cloud & Infra. Many of the businesses are actually developing really favorably. I would like to offer a very simple, clear perspective, and these are the reasons why we are accelerating the improvement of Cloud & Infra.
Yeah. On the guidance side, of course, when you look at our guidance of 13.1 %- 13.6 %, so the main sort of drivers there are that when one looks at the consulting related business, there are headwinds in the market, as we have discussed, from the high attrition levels, the active talent market impacting and the inflationary component in the salaries impacting the speed of profit improvement in that business. Then there's the post-COVID related cost increases, which will likely now during 2022 be materializing. Most of the other cost elements than travel cost are already in the P&L. But travel cost, it is in millions, which one counts and should be sort of counting for those.
When you look at our highest margin for 2021, it is exceptionally high, and for 2022 we're looking to be closer to the CMD target levels. The main profit improvement will be delivered through the Cloud & Infra performance improvement program. Putting those sort of components together, you likely can see how we have thought about it.
Okay, thanks. That's very helpful. Finally, did I understand it right that you're still considering the 15% EBIT margin target for 2023 valid even though it requires quite the material step up after this year based on the guidance?
We are not giving in to that target. It does require, as we all recognize, very good execution on all of our businesses and particularly in the Cloud & Infra performance turnaround.
Okay, thanks. I don't have any further questions.
Thank you. The next question comes from Christoffer Bjørnsen from DNB Markets. Please go ahead.
Good morning. Thank you for taking my questions. My first one is on Cloud & Infra. It's been like almost like a race to the bottom and now again, you know, removing people there. Could you maybe help us understand the two things? Basically, when should we expect to see you guys kind of reaching a trough here where we see the revenue momentum turning around again? Is that already in the next couple of quarters? And then more specifically on the people affected and the cost that you are taking out, can you give some more granularity on what exactly those people are doing today and then what costs will be removed and what you expect with the net EBIT effect of that EUR 50 million? Thanks.
Thank you, Christoffer. I guess a couple of parts of this we can reflect very openly, but on the people side, naturally, these are subject to the negotiations. We cannot. I mean, those are purely preliminary considerations. But anyway, let us begin with the development overall expected on Cloud & Infra. In 2021, we did see a consistent improvement quarter after quarter, and clearly not to the levels we have expected. We expect this development to continue, and naturally, like Tomi has mentioned a few times here, that the contribution profitability-wise more towards the end of the year or the second half of the year. And also not forgetting that we did talk about the growth agenda, about multi-cloud, very specifically with our private cloud services.
These are the very important drivers in that business. With that in mind, the Cloud & Infra kind of a real uplift in performance from a profitability standpoint once the new savings program kick into effect more likely second or mostly second half. Regarding the considerations on where are the inefficiencies, very practically, when traditional infrastructure volumes decline, there is less work in traditional infrastructure architectural environments, and we are looking naturally at the roles where the volumes have declined clearly. We have ample room to increase our offshore rates and offshoring in this business.
We may not have gotten as far as originally intended in 2021, so we have a quite granular view actually where the volume differences have taken place and where the cost base is not currently competitive, and these are the ones that we need to now fix. Practically the consideration on personnel, those are always very difficult measures, and these will be then subject to the dialogue with the workers' councils. I think those would be the reflections we can offer today.
That's helpful. Thank you. You already have 9%, you know, 9%+ margin in the business. And then you say like 10% + by 2023. What are the negative—With this improvement, you know, implying that we shouldn't be there already in the next couple of quarters. Just trying to understand the kind of development you're seeing in cloud and so on. I see you're not giving any guidance there because you're kind of shifting to a new structure from Q1. Yeah, I'm just not seeing how we get into, you know, worse performance from here into the next couple of quarters.
Sure. Some of the drivers in there, by the way, we take a prudent approach in the performance improvement. We do not, while we drive the growth agenda, we do not count on profit improvement on the growth side. Once that would materialize, then we'll actually end up being really successful in the business. Short-term, when we consider the type of drivers behind that we need to be continuously mindful, as we have highlighted, the usual price discounts kicked in in January like they do every year in the traditional outsourcing type of contracts. We have also, in this business, we have salary inflation. We have third party agreements that have certain pricing practices. Those are the normal factors behind that we are naturally prepared for.
We believe that these driving cost saving measures will naturally more than offset any of the headwinds that are typical in the type of a traditional infrastructure business. With this in mind, the faster we move to multi-cloud services with a much greater degree of automation, we will be able to run this business in the future with better scale and better profitability.
Thank you. That's helpful. I'll jump to the back of the queue.
Thank you. The next question comes from Daniel Djurberg from Handelsbanken. Please go ahead.
Thank you very much, operator. Yeah, congrats to the very strong cash flow and also to take down the gearing from 2.5 to 1.5 in just one year on that debt to EBITDA. My question is, to start with, on the Digital Consulting, if you need to prioritize in your 2023 targets, or we can talk Digital Consulting, the 7%-9% to 2%, or the growth or the EBITDA margin of 15%-17%, how do you prioritize your growth or margins?
To be fair, it is always both on the table. So far, when we look at the development of the company over the years, I have included my commentary pre-merger, we have been able to balance them both. In all businesses, of course, the market is driven by growth. Growth is important, and the better we do on the growth side, the happier the challenge is to consider exactly what investment level. The growth agenda, growth appetite important, managing the related investments properly that we anticipate that both the growth contribution profitability develop.
Yes, there can be an era where either is prioritized, but longer term, we do believe that those actually can go and need to go hand in hand.
Okay. If you're looking for 2022 then on Digital Consulting, will you need to further ramp up the recruitment pace to get these people onboarded so they can trigger this 7%-9% growth in 2023? We might see, you know, some negative impact on the EBITDA margin for 2022 to drive the 2023 growth.
In the whole area of cloud native services, data management, data platforms, software engineering, when we combine our operations in the future around these advanced services in the Nordic countries, our well-performing international operations, our product development services. Overall, yes, we do believe there's a good market-related growth opportunity. Us having good practices, we can execute more broadly. Yes, this will require further recruitments. With in this type of an era, naturally it will impact the productivity improvement. It doesn't mean it wouldn't improve, but it's a question of the slope of the curve, how quickly do you improve. Improvement is possible, but managing the type of recruitment on and the onboarding is very important. Those are some of the drivers.
Yeah.
Growth driven, we think, is a very good chapter to step into.
I guess by then you expect the attrition level to normalize a bit because now it's quite normal, it's very high right now given the post-COVID effect and so forth. Or am I wrong there?
Just to confirm, the base for our company, the third quarter was the highest in attrition, fourth quarter was slightly lower. We see elements of stabilization, and we humbly also expect that this environment will continue. When it stabilize more further, it'll become a few inches easier. We are prepared in our considerations and in our guidance also that this environment will continue for 2022.
That's great to hear. Also, if I may ask you a little bit, if you can-
Smaller business areas, the PDS and the international did really well in organic growth in the quarter and driven by telecom, automotive, and consumer electronics. Can you comment a little bit on whether this was a certain project that was ended or will we see, you know, this kind of similar growth trajectory in 2022?
Just to confirm related to product development services as we had shared in prior quarters, so expanding.
Yeah
... the collaboration with Ericsson, with the Nanjing operations, so that did contribute to growth. Excluding the Nanjing operations, it was around 7%-8% growth, so very healthy to begin with. These are some of the factors. Naturally, when the market is active, our reputation is good in the whole area of advanced software engineering. We see that's an interesting opportunity. Of course, this type of an inorganic case of Nanjing gives an extra boost. Let us see what extra boosters we may find.
Sounds great. Yeah, good luck in Q1.
Thank you. Ladies and gentlemen, let me remind you, if you wish to ask a question, please press zero-one on your telephone keypad. The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Thank you. I have three questions. First one on the organic growth guidance of 2%-4%, can you comment how does it split to divisions? Like, which ones could be above that range, and which are within, and which are below the range? The second question is kind of an update to the plans that we heard related kind of in connection with the strategy revision. What are your current thoughts on structural changes related to infrastructure business? Kind of do you need to execute an operational turnaround in that business before you could kind of seek for bigger changes or what is the kind of thinking now? Then thirdly, about the non-core business divestments, how much should we expect that there is still left?
I mean, can you kind of, without identifying which ones are non-core, give an idea of how big part of the software is non-core in terms of revenues? Thanks.
Thank you, Panu, for that. Three considerations. Regarding the growth expectations, naturally, from a realistic standpoint, on the lowest end is Cloud & Infra. We have, as we have shared, the flying altitude of four of the six businesses already good, and we believe Digital Consulting will bounce back. Short commentary that lowest expectation on Cloud & Infra. Regarding strategy, if I understood your consideration, that was mostly related to Cloud & Infra. Very specifically, this type of reshaping the business operationally and rapidly is very important because we have not set our fairly set objectives for the business. Just to confirm, we first reset the cost base. We are activating market attack with very well competitive scalable private cloud services.
What other factors to follow, time will tell. It's very important that we take control and aim to improve the performance already short-term. To be fair, there is nothing that we can reflect on any potential non-core business.
Okay. Thank you.
Thank you. The next question comes from Christoffer Bjørnsen from DNB Markets. Please go ahead.
Yeah. Hi. Thanks for taking my question. There was some more time left, two quick ones. The first one is on the Cloud & Infra. How does this plan kind of impact your kind of lookout for strategic alternatives in terms of both partnerships or investments to kind of find the best home or solution for Cloud & Infra? That's the first question. Then the other question is, you mentioned that the attrition is actually higher than the group average if you look at the consulting business. Any kind of clarification you could give there on what that number is would be very helpful. Thank you.
First of all, your consideration, Christoffer, builds nicely on Panu's point, and my commentary would begin with the same notion, that most important we upgrade the performance of this business ASAP. Naturally, there's an industry-wide phenomenon on how the multi-cloud era between public, private, and traditional infrastructure services are kind of developing. This will continue to be dynamic. I wish not to speculate anything on what may or may not happen. The goodness is that as we shared in strategy, we consider both operational and structural alternatives for this type of business. Those doors are open.
Most important that however we look at this, we will improve the performance of the Cloud and Infra business and participate in highly modern technologies. To be fair, my reference here, we have one of the very first private cloud, highly secure, environments built with VMware, so highly advanced technology. That's very important. We are very competitive on a daily basis. On the
In terms of attrition, as I mentioned, consulting slightly higher than the average of the company. We don't want to sort of give specific business-related attrition levels. It remains to be true that there is geographical difference in terms of attrition, so specifically in India and some of our offshore, nearshore locations, there is higher attrition than in the Nordic countries.
Yes.
Thank you.
Thank you. The next question comes from Jaakko Tyrväinen from SEB. Please go ahead.
Yes. Hi, good morning. It's Jaakko from SEB. One question still from my side, regarding the Finnish healthcare reform and related IT system renewal, which should bring significant boost to the Finnish market for the coming few years. Have you analyzed what is the revenue potential for Tietoevry? On the other hand, do you see risks that you could lose some of your existing business because of the upcoming IT system renewals in the healthcare side?
Yes. Yes, thank you for that point. Absolutely, we have been deep in these considerations for several years, and I do believe there's somewhat favorable market momentum recently in light of some of the badly gone big projects, not with our company, but with some American healthcare software companies, and us having the open EHR standards, open architecture, open platforms. Actually, in the past year, I believe we started to actually gain share in the market. To be fair, it will be very dynamic, will be very competitive. We think, and I believe we have somewhat of a stronghold in the business, but we need to fight hard every day. I rather see it as an opportunity than a threat.
Okay. Great. Thank you.
Thank you. Ladies and gentlemen, there are no further questions. I will now give back the floor to our speakers. Thank you.
Thank you. Thank you all for active dialogue today. Naturally, we are available for any further questions you may have. Before Kimmo's closing remarks, I wish you a great day on my behalf.
Yes. First of all, thank you very much for joining today. Great considerations and great discussion, and what an exciting year 2021 it's been. It is ending in a bit of a kind of a positive footing, 3% growth, record order intake since the merger. Four of the six businesses doing really well. The future of Digital Consulting clearly brighter, and performance acceleration underway for the Cloud & Infra business. Thank you very much for joining, and we'll connect at the latest then at the end of the Q1 report. Thank you.