Dear ladies and gentlemen, we have today announced our Q2 results and also had some exciting news to share. Kimmo Alkio, our President and CEO, and Tomi Hyryläinen, our CFO, will introduce the highlights of today's announcements and will be available for your questions after the presentation. To ask questions in the Q&A session, please dial in to our conference call. My name is Tanja Lounévirta, Head of Financial Communications. Now, happy to hand over to Kimmo, please.
Very much, Tanja, and a very warm welcome to all participants on behalf of the company. Glad to share exciting developments within the second quarter of 2022. Our second quarter indeed exciting, reporting organic growth of 5%, and we have upgraded our growth outlook for the year. The main messages and deliverables out of second quarter growth driven by our two fastest-growing businesses, Tietoevry Create up by 12% and our banking business up by 10%. Furthermore, our adjusted operating margin of 10.7% naturally being influenced or impacted by overall inflationary environment, and we have ongoing efficiency measures expected to be driving a profitability uplift for the second half of the year. We continue to successfully recruit new talent, 1,200 new joiners. We are seeing the personnel attrition rates stabilizing.
We have, as mentioned, upgraded the full year growth outlook to 3%-5% from the previous range of 2%-4%. Furthermore, we are today announcing the initiation of a strategic review for the Tietoevry Banking business to further unlock its full value potential in relation to the opportunities of the global fintech market. I'd also like to take a brief moment to describe a bit on the overarching market and macroeconomic considerations that we have as a company. First of all, I'd like to confirm our perspective of the market growth estimate for our addressable market to continue to be 3% in light of the two factors.
One factor, the growth-driven segments in the market, cloud native, data management, data platforms, B2B software, which we are delivering well on, while we continue and fully as anticipated to see the decline in traditional managed services. In relation to the macroeconomy, we naturally also recognize uncertainties, especially for the mid and long term in terms of the global economic development. We continue to see healthy activity level in the market, and we have not observed any significant changes in customer behavior. With this in mind, we continue to see growth opportunities in the marketplace and naturally will be thinking on and acting on considerations for resilience, in case and when the macroeconomic risks might be materializing in the world economy. Furthermore, want to continue, confirm that our talent market from our standpoint continues to be active.
Attrition and salary inflation does impact growth and profitability very much as at our anticipated levels, and we continue high recruitment pace and that demonstrating also really good talent attraction. Overall, in terms of the market dynamics of the second quarter, there is really no significant change to what we reported three months ago. I would like to deepen the consideration of part of the very exciting news of today. As mentioned, we have initiated the strategic review of Tietoevry Banking to unlock full value potential as an independent listed company. For the audience who know the company well, you'll know the background of our banking business. I'd still like to summarize that briefly.
We are very strong and have a leading position in financial services software, especially in the Nordics and already having to some degree more global footprint in selective areas of our banking portfolio. Annual revenues approximately EUR 500 million with 3,600 professionals serving over 400 customers globally. We do have highly competitive software and software-related platforms for the Nordic and global financial institutions, and we have demonstrated already financial performance and recognize further expansion potential. We have very clear objectives for the strategic review, and I'd like to summarize these as well. First of all, to further uplift the identity in a global fintech software market, naturally increasing the addressable market. Furthermore, driving focused investments into even more scalable software to actually meet the opportunities of the software scale at large.
Naturally attracting best global talent, with the fintech type of capabilities and overall look to increase growth, expansion, and value potential of this business, all building on the foundation of the global fintech market opportunity. The process and way forward are quite typical for this type of a process strategic review, including carve-out and potential listing expected to take 12-18 months. Meanwhile, very important we continue to operate as is and continue to execute on the existing market opportunity and performance trajectory. Overall, what we look for in this type of a strategic consideration naturally is to further unlock value for Tietoevry shareholders. Next, I would like to go into summarizing all essential factors of Q2 financial performance. At the group level, revenues of EUR 739 million, organic growth of 5%, adjusted EBITDA 10.7%.
As mentioned earlier, growth driven by Tietoevry Create and Tietoevry Banking. We recognize and are very open, profitability has been impacted by higher inflation. We have ongoing very firm performance acceleration programs in place for three of our businesses, Tietoevry Connect, Tietoevry Banking, and Tietoevry Transform, the areas where the overall inflationary impact have been the highest. Operating cash flow EUR 8 million, same level as last year, and following our typical seasonality. We do have healthy order backlog, up by 4% in the second quarter. Next, to go into the businesses, Tietoevry Create continued very sound progress, organic growth of 12%, adjusted EBITDA 12.6%. We continue to experience high market activity in cloud native data and software engineering, very much in a similar manner as we commented end of Q1.
We continue to see strong growth in international businesses, and we continue to have only limited impact so far from the war in Ukraine. Profitability was slightly above Q2 2021 level. Want to as usual provide our softer perspective on the following quarter, meaning that for the Q3, we anticipate the adjusted operating margin to be at the level of Q3 of last year. Next, to go into our banking business, solid organic growth of 10%, adjusted EBITDA 10.3%. I'd like to also be clear that the profitability was below Q2 2021 level. We have had temporarily higher SG&A and temporarily higher delivery cost related to customer onboarding for future volumes. All in, actually plays in relation of the delivery capacity and to build greater growth for the future.
Growth driven especially by our cards business and financial crime prevention. Overall strength, I believe, across the portfolio. Regarding the third quarter, we anticipate the adjusted operating margin to be above the third quarter level of last year. Next, into our care software business, good underlying growth of 6%, -4% as reported due to high comparables, as we had also reported earlier. Profitability at 30.1% level. While we have healthy profitability, we are highly mindful of continuously increasing and improving the competitiveness of our software suite. We are investing into the roadmap acceleration for more competitive, more attractive software and reinforcing our go-to market.
Furthermore, we anticipate the third quarter adjusted operating margin to be below Q3 2021, and as you noticed, the profitability third quarter last year was up to 35%. Next, into Tietoevry Industry, very much as expected, 3% growth. Growth driven by our Public 360° software suite, as well as the pulp and paper solutions side. Profitability healthy at 17%, and slightly above the Q2 2021 level. Regarding the third quarter, we anticipate the adjusted operating margin to be below Q3 of last year, and as recognized, was slightly over 20% a year ago. Regarding Tietoevry Transform, organic growth of 0% and very importantly, we have now had several quarters with strong book-to-bill, meaning adding to the comfort of potential further scale and overall profitability improvement, which is required for this business.
Really healthy growth in the industry and software segment, while naturally the combination of flat growth and high inflation has impacted profitability for the short term. We do have enhanced measures to be driving performance and profitability improvement for the second half. We anticipate the third quarter adjusted operating margin to be at the level of Q3 last year. Then into Tietoevry Connect, with organic growth of 1% and very good to see continuation of higher growth in our cloud platforms and security, which was up by 14%, one of the main growth and scale drivers of this business for the future. To be fair, the traditional infrastructure volume revenues declining by 6%, very much at our anticipated level.
Naturally, as profitability for the second quarter has been impacted by higher inflation, and we have very firm efficiency measures in place, as announced in February, and are on schedule, fully anticipate to be contributing to our second half profitability. Regarding third quarter, we anticipate the adjusted operating margin to be above the third quarter level of last year. With this, performance background of the second quarter of 2022, I would also like to, reiterate and clarify the guidance for the year. Growth guidance, as mentioned earlier, upgraded to 3%-5% from the prior 2%-4% level. Following the strong organic growth of 4.6% in the first half and anticipated revenue development for second half, we are pleased to upgrade the growth outlook for the year.
As mentioned, the new estimate and guidance being 3%-5%. I'd also like to confirm that we do anticipate over 4% growth to be feasible, while we do recognize the macroeconomic-related risks. In terms of profit, our profit guidance remains unchanged. Our first half profitability of 11.1% supports the trend towards lower end of the guided range. Furthermore, important to recognize that in the big picture, second half profitability has been historically approximately 3% higher than the first half of the year. We have following factors that support our performance uplift for the second half of 2022. The performance acceleration programs in the three businesses expected to contribute between two and 2.5 percentage points to profitability.
Furthermore, and as usual, the vacation impact due to seasonality in the vacation periods impacting profitability 2.5-three percentage points. Furthermore, we do anticipate that the salary inflation continues impacting profitability by approximately one percentage point. This would be our, from a revenue standpoint, the updated and upgraded view and profit guidance remains unchanged. With this in mind, I'd like to hand it over to Tomi for the CFO report.
Thank you, Kimmo, and good morning, everyone. I'm pleased with our Q2 performance overall. We delivered strong organic growth of 5% driven by Tietoevry Create and Tietoevry Banking. Adjusted operating margin was at EUR 78.7 million or 10.7%, which is below prior year level. This was impacted by high attrition, high salary inflation, and high inflation overall in the market, and returning post-pandemic costs which relate primarily to travel costs. Reported operating profit was EUR 39.7 million or 5.4% compared to 19.4% of prior year. Now when comparing the prior year numbers, it's important to note that prior year Q2 included the sale of oil and gas software business, which had a capital gain of EUR 71.4 million and free cash flow impact of EUR 142.5 million.
I'll comment cash flow and net debt on the next slide. Our order backlog is healthy, up by 4% as reported year-on-year, operationally up by over 6%, providing us good foundation to continue grow. CapEx for the quarter was slightly up EUR 23.9 million, driven by slightly higher investments in Q2 in data centers. We expect Q3 CapEx to be back on the prior quarter levels. Our one-time items were EUR 27.1 million, impacted by performance acceleration programs in Connect and Banking, our exit from Russia, which we booked fully now in Q2, and the war in Ukraine. Operating cash flow for Q2 was EUR 8 million, which is at the same level as prior year EUR 11 million. Now Q2 cash flows are seasonally lower, primarily driven by the seasonality in the net working capital.
For this quarter, the net working capital increased by EUR 57 million, i.e. negative impact on the cash flows and slightly higher one-time items. Our free cash flow was EUR -34 million, which is at the same level as prior year EUR -27 million when adjusted with the sale of oil and gas, as mentioned before, of free cash flow impact of EUR 142.5 million. Our cash generation foundation remains healthy without any structural changes in the company. Net debt to EBITDA is slightly up 1.6, which is well below our target level of below 2. Now the increase is driven by two factors. First of all, EBITDA no longer has the capital gain from the oil and gas divestment, and then slight increase in net debt.
Net debt ended up being EUR 716 million, and the increase was driven by the dividend payment in April of EUR 83 million and negative free cash flow as mentioned, as well as some increase in IFRS 16 lease liabilities. During Q2, we signed new sustainability-linked revolving credit facility of EUR 250 million. This was a refinance of our earlier facility. The sustainability linkage is aligned with our science-based targets as it relates to CO2 emission reductions and our suppliers' level of commitment to science-based targets. Attrition levels continue to be high, although stabilizing. Our Q2 12-month rolling attrition was 16.3% compared to 16.5% of Q1. We increased net personnel in Q2 when adjusted for divestments driven by the good talent attraction of 1,200 new hires.
Specifically, Tietoevry Create during the past 12 months has increased employee base by approximately 11%, allowing us to grow and see the good growth rates from that business. On the other hand, Tietoevry Connect has reduced its employee base by approximately 6% over the past 12 months, while at the same time increasing offshoring ratio by six percentage points to 50%. We keep our estimate of the salary inflation for the year at 4%, recognizing that the annual process of salary increases took effect first of April, meaning that we have the full cost increase already impacting our Q2 results. Next, I'll summarize the performance drivers for Q3. We estimate the good momentum to continue in Tietoevry Create and Tietoevry Banking. Tietoevry Care will be back to healthy growth levels. Tietoevry Industry growth will continue to be impacted negatively by three percentage points.
On profit drivers, the efficiency measures in Tietoevry Connect, Tietoevry Banking, and Tietoevry Transform will contribute to profit improvement. Employee attrition and inflation will continue to be at high levels impacting the profit improvement pace, and vacation periods during Q3 will have positive impact to profitability. The negative effects is expected to be EUR 5 million at revenue level and no working day impact for Q3. Now back to you, Kimmo.
Thank you, Tomi. Towards the closing of our presentation, let us look at the recognitions and closing commentary. In terms of recent recognitions, I would like to share three of them. First one has to do with the Radar research in the country of Sweden, Tietoevry being recognized among the very best IT service providers in Sweden and very specifically measuring quality and value creation. Second, a partner of the year for 2022 for Microsoft in Finland following the multi-year path of close collaboration all across the Nordic countries and multi-year recognitions by Microsoft, very specifically for the active role in both retraining personnel and naturally driving change in the marketplace for multi-cloud, the combination of public and private cloud services and integrations.
Third very important and very interesting is the platinum level recognition for the EcoVadis sustainability rating. Out of 90,000 companies, for the second year in a row, Tietoevry being recognized in the top 1%, and very specifically for our sustainability agenda and related implementation. To conclude the CEO and CFO summary of Q2, we are very pleased to report an exciting second quarter, many important and positive developments. We anticipate the growth momentum to continue and as we have uplifted the full year revenue guidance. Also, I would like to confirm we do have efficiency measures in place to be driving performance in the second half of 2022, and we also focus on business resilience through enhanced performance management across all businesses.
Naturally, we continue high attention on employee engagement and talent attraction, very important in terms of continuing to accelerate the performance of the company. Very exciting as today we have announced the strategic review of Tietoevry Banking to unlock its full value potential also for the benefit of Tietoevry shareholders. This would be summarizing the second quarter report and glad to be going over to the Q&A.
Thank you, Kimmo and Tomi. Yes, we are ready to proceed to the questions from the conference call. Moderator, please go ahead.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypad now to enter the queue. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Sami Sarkamies of Danske Bank. Please go ahead. Your line is open.
Hi. Thanks. I have two questions. Firstly, on the review that you announced today, why have you chosen banking and not something else? I think you were initially planning on divesting Connect and Transform, but not banking. Secondly, you did already touch this in your presentation, but can you still discuss the visibility and risk factors when you think about the strong second half that will be required in order to reach the margin guidance, as you're behind after first half? Adding to this, you're expecting only banking and Connect to be in a position to improve margins in the third quarter, so it's leaving a tall order for the fourth quarter.
Thank you, Sammy. Short commentary. Our considerations in regards of the strategy and portfolio of the company, we are hopeful that the participants will see full continuity from our strategic announcement last October where we look for specializing in the respective businesses and considering the optionality in the world market to be growing, scaling, and expanding the businesses. I would like to confirm that we are very comfortable with the strategic intent, and at this point in time, we are naturally only talking about Tietoevry Banking.
Second consideration regarding second half margins. Hopefully it was valuable to add the background to the profit development and the main factors for the second half of the year, including the notion of approximately three percentage points historically higher profit in second half than first half. With these drivers, we are naturally comfortable keeping our profit guidance.
Okay. On the first one, I mean, why didn't you choose, for example, the care segment instead of banking? Just interested in understanding why we're talking about banking at this point.
At this point in time, we have gotten into a comfortable perspective as a company on the potential to unlock value in the Banking. I don't think it's worth speculating what we might do with other businesses. That's. I want to confirm the strategic intent from a market standpoint, from an execution standpoint. It looks to be very relevant in terms of where the market is heading and building a specialization. It actually leaves a positive number of doors open for us.
Okay. Thank you.
Thank you. Our next question comes from the line of Daniel Djurberg of Handelsbanken. Please go ahead, your line is open.
Thank you, operator. Yeah, thank you and congrats to strong set of growth number here in Q2. First, the question would be on Tietoevry Banking. I guess you will need to revisit your long-term financial targets, so 2023 if you do this divestment to shareholders or will you keep them?
Overall, we are comfortable with the level of ambition that we had shared in the prior CMD. Over time, when we do the full strategic review, naturally there will be a number of updates in terms of the future view.
Perfect. Also, question on. You can just guide us little bit more about your firm activities to better mitigate this in second half. Just to remind us about the activities.
Of course, I mean, inflation, it's now everywhere. Every company is sort of trying to find ways to mitigate it. For us, naturally, there are two main components. One relates to price increases, so top line. How do we move the cost increases, the inflation impact into customer prices? The second one is, of course, has to do with cost control and the increased focus on managing cost in the company. This, as Kimmo referred to earlier as well, this is particularly important now at the time when macroeconomic risks are increasing. We are doing this extensively. It means that the time span, how often we track the cost, how we monitor them, how we manage them, the cycle time gets faster and faster.
Perfect. I have a question little bit on your I think it was two years back or something that you had the ambition to move I think it was two-thirds of your software assets to the multi-tenant cloud. My question is little bit how far you are in this journey. I think it was 2023 time level you were aiming for to be ready, but just understanding.
Regarding.
The plans here and where you
Sure. Naturally when we talk about the kind of R&D roadmaps and technology upgrades, we need to look at per software business. Naturally, the product roadmaps and cycle times will vary. I believe that we have always, right, highlighted. In terms of all the software businesses moving into modern architectures or common code base, remotely deployable implementations are becoming the standards. Investments are in place, but progress is positive in all the businesses. It's difficult to summarize it in any one or two sentences.
Sure.
As it differs per business. Very firm, very relevant investments. Investments being managed. We believe in the investments we are making in the software R&D side.
Perfect. Going back to the strategic review again. Do you aim to stick on as a long-term owner, or will it be a full legacy and divestment to shareholders, that is most likely there?
All of these considerations are part of the strategic review, and we don't comment those at this stage.
Fair enough. Okay. Thanks. That's all for me.
Thank you. Our next question comes from the line of Matti Riikonen of Carnegie. Please go ahead, your line is open.
Hi, it's Matti Riikonen, Carnegie. I have three fairly simple questions. The first is regarding the price increases to customers. How much of the inflationary pressure have you been able to put to your customers so far, and how much do you expect to do by the end of the year?
Maybe we take them, Matti, I guess one by one. Price increases, we do not share the exact numbers. We have done a significant exercise in the beginning of the year and are in the midst of the second exercise. The inflationary development is naturally higher at this point in time than we anticipated when the prior round was planned. We are addressing this very firmly. Naturally, the cycle time to implement price changes does vary a bit per business. The fastest implementation time would be the price books for the consulting businesses for the time and material work. That would be hopefully the appropriate reflection. This is one factor like Tomi reflected some minutes ago, part of the total menu, how we address inflation and also in support of our profitability objectives for second half.
Price increase is one fundamental factor in the equation.
Right. Do you expect to put 100% of the inflation that you are facing onto the customers by the end of the year? I'm just trying to figure out how the industry is making those price increases.
To be fair, it is not possible to give a very simple answer because we have six very different type of businesses. The main point is that the combination of price increases and the efficiency improvements we drive, we address the total inflation, kind of, impact that we have. We believe that the equation as such will work.
All right. The second question is regarding your EBIT margin guidance. Now, is it based on the assumption that the salary inflation, overall inflation and personnel attrition levels, which are high at the moment, they will remain as high towards the end of the year? Or do you expect some easing in these elements perhaps?
We have assumptions there, but in particular, attrition, inflation, we expect these high levels to continue.
Right. Finally, the easiest question. Have you been able to recruit as many people as you need so far? It's basically are you fully staffed?
Answer would be no. I don't think anybody in this group. As the market, the kind of talent market has been for about a year and a half very hot. It remains. It's more stable. In some of the businesses, there would be even more demand. Our recruitment is good. I don't think it's perfect for any company.
Right. Maybe related to that, can you comment on your utilization rates? I mean, if you're kind of shifting, people are coming and going, utilization tends to decline. Where do you think you stand? Are you able to put people into billable work efficiently when you get them in your payroll, and how is that equation working so far?
We naturally focus on that and pay close attention to that metric. When the attrition rates became higher, that's where we sort of started the recruitment pace, increasing that. That drove the utilizations down. Now we're of course working to improve the processes, getting people faster into billable work, and we have been managing it quite well. We are increasing the metrics all the time, getting used to these levels of attritions in our internal processes. It's getting better.
All right. Good. Thanks. That's all from me.
Thank you. Our next question comes from Deepshikha Agarwal of Goldman Sachs. Please go ahead, your line is open.
Hi. Thanks for taking my question. First one is on the top line growth guidance. Basically, if you look at the midpoint of your guidance, it implies somewhere around 3%-4% growth in the second half. What are the key factors that give you confidence, especially like, you know, given the comps get relatively tougher in the fourth quarter and given the macro uncertainty that we are seeing as of now? That would be my first question. The second one, this was just to, like, more of a housekeeping. Just wanted to confirm, the cash flow from operations was like seasonally lower. What we have seen in the prior years, at times it has been like, you know, one Q has been the weaker one when it comes to cash flow.
How should we think about the working capital outflow seasonality? CapEx was almost EUR 25 million per quarter. Is that how we should think about CapEx in terms of normalized levels per quarter there in the near term?
Thank you. Maybe I'll take the first one and Tomi takes the second one. I would like to confirm what I commented earlier that when now as we feel comfortable upgrading the revenue guidance, and that we do anticipate that that over 4% growth to be feasible. Now I answer your very fair point, recognizing the macroeconomic related risks that every company will talk about. With that in mind, we believe it's appropriate that we keep the two-percentage point range. On the cash flow, working capital, yes, there is seasonality. Typically, Q1, we receive prepayments from our customers. Obviously, that increases the liability side, so as a benefit from the working capital to cash flows. Q2, as I mentioned, it goes the other way around.
Towards the year-end, we typically improve the working capital from the trending point of view. On CapEx, we do think that around EUR 20 million is sort of the normal quarterly run rate plus minus something, depending on the investment levels for that particular quarter.
Okay. Okay. Thank you so much.
Thank you. Yes. Next question comes from the line of Jaakko Tyrväinen of SEB. Please go ahead. Your line is open.
Yes. Good morning, and thanks for taking my questions. Most of them have already been asked, but let me continue with the banking and recall your ambition level in terms of margin is notably higher where you are currently standing. My question would be what are the needed actions to get there to above, let's say 50% margin? Will it be streamlining. How big a role growth will play in your thinking there?
Yes. If we think about the current level of banking, first of all, it's important to understand that this 10% which we now deliver for Q2, that's not a proxy for the full year, which is the view for the sort of guidance and the ambition level. You should take all the quarters for the year. Q2 is now not the right benchmark. The full year H2 typically stronger, full year overall margin from the banking will be much higher. Second, the high SG&A levels, which we are working through now, and that improvement you will already see in Q3 and for the second half. The volume increases in our scalable software platforms, particularly in BaaS and cards, those will drive significant profit improvement.
Those are the sort of three primary components that you should be looking at.
Okay. Excellent. Thanks. Still continuing on banking and its growth strategy, how big role the international growth will play in your thinking there? i.e., what kind of opportunities you see outside the Nordics and which are the areas, service areas where you think you have a reasonable competitive edge going outside the Nordics?
If I comment on that one, first I would like to comment naturally on the current state and not to speculate on the future, because that will be subject to the strategic review. When we look at our past performance and business mix in banking, we had some of the some parts of solution portfolio, most specifically on the payment side, to some extent on the card side, that has been able to already accelerate the footprint outside the Nordic countries. So far, we've been relatively selective, in order to also verify that the readiness and maturity of the software suites in question are adequately scalable to actually deserve the expansion investments. We have a good feel for what is actually currently expanding outside the Nordics.
Naturally, when we look at the full entity as an independent listed company in the future, we'll be naturally looking into the broader world market and how to accelerate the growth potential.
Okay. Thank you. That's all from my side.
Thank you. Our next question comes from the line of Felix Henriksson of Nordea. Please go ahead. Your line is open.
Hi, guys. It's Felix from Nordea. Continuing on banking, just want to pick your brains a bit more on the potential separation. Compared to your thinking when you sort of added a bulk of the banking software business to your portfolio via the EVRY merger, what has sort of changed since then?
If I may comment, thank you for that point. I would like to remind everybody one of the core messages and pages in our strategy from last October, where we had the first category called Invest to Expand, where we had banking, we had create and care. Then we had the second category, which is around partnering for scale, and then further for more value maximization. This is fully following the strategic consideration, how we are reading the opportunities in the marketplace, and this confirms that from our firm belief that this is the opportune time to initiate a strategic review for Tietoevry Banking. We think the flying altitude and business success can be even higher, even better as an independently listed company.
Okay. In terms of sort of the need for the Connect businesses which have maybe been under consideration for something similar in the past, what's the sort of situation there when it comes to partnering for scale? Obviously, we've seen, you know, separations in the industry by IBM and now under consideration by Atos, where they're sort of planning to separate their managed services businesses. I'm just wondering what the current plan is for Connect in terms of its strategy as an independent business or as a part of your business or as a partnership for someone else.
Maybe a couple of comments on, of course, a very fair point as well, that one. First of all, I think everyone would appreciate that we do not speculate what the future may bring. That is not our practice. Second factor, you noticed the link I continuously and we as management, we are comfortable in the execution path of the strategy as a whole. The second factor on what do we practically do, your point on Connect, first and foremost, we fix the performance short-term. That's very important in terms of operational execution and the considerations for longer term, greater scale, greater value. We will be coming back when the time is appropriate.
Okay. Got it. That's all from me.
Thank you. Our next question comes from the line of George Webb at Morgan Stanley. Please go ahead. Your line is open.
Morning, Kimmo and Tomi. I had a couple of questions on Transform. Firstly, just on the Q2 margin at 4.5%, and then looking at the high-level margin guidance you've given for Q3, you're expecting to be back around the level of Q3 last year on 8.8%. You mentioned the cost efficiency measures that will help, but that sounded like it was more towards the end of 2022, which sounds more like Q4 versus Q3. Just trying to work out what's gonna drive that Q3 uplift in Transform. Were there any kind of one-offs in Q2? And are you expecting growth to rebound markedly to perhaps drive that Q3 improvement? Just tied to that as a second question, you've obviously got that new efficiency program in place for Transform.
Exceptional cost guidance is unchanged around 2%. Is that gonna be a relatively small program or can you size it or are you using up some of the buffer you might have had in that 2% level previously? Thank you.
Maybe the first one, the profit uplift in Transform from Q2 to Q3. Yes, we are expecting these activities that we already have started during Q2 to be impacting Q3 profitability. There's a big component which we highlighted that relates to vacation and the seasonality of the vacation impact, which in Q3 is highest. In the businesses where we have contracts which are not time and material invoicing contracts, the vacation impact is higher. Those would be the two primary components for the uplift of the profit for Q3. Yes, we feel comfortable with our soft guidance on that respect.
Okay. Perfect. On the exceptional cost guidance, did you have some buffer in that 2% you were looking for? Or is this a small program that doesn't really change the around 2%?
That Transform doesn't really change the guidance on the OTIs.
Okay. Thank you.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. We've had one further question come through from Christopher Bjornsson of DNB. Please go ahead. Your line is open. Christopher, I don't know if you've put yourself on mute, but we can't hear you at this time. Christopher, if you're on mute, you'll need to unmute. Maybe he's got bad reception actually, it sounds like. Okay. Yeah, once again, if there are any final questions, please dial zero one on your telephone keypads now.
To connect with Christian, then later on, indeed.
There seems to be no further questions on the line and Christopher is on a bad line it seems. Yeah, I'll hand back to you for the closing comments.
Thank you. Thank you all for joining us today. Before Kimmo's closing remarks, I take the opportunity to once more share the CMD date we have now announced. Please save November 30th for Tietoevry. Now, Kimmo, please.
Yes, thank you very much for everybody for joining today. Exciting second quarter, and will be nice to connect later then after the third quarter. I'm looking forward to a very exciting also second half. Thank you very much for joining today. Thank you.