Good morning and welcome to Tietoevry's webcast related to the announcement the company made during the weekend. My name is Tomi Järvenpää, the Head of Tietoevry's Investor Relations. This morning we will discuss the agreement to sell Tietoevry Tech Services business to funds advised by Agilitas Private Equity. We will start with the presentation presented by Tietoevry's CEO Kimmo Alkio and CFO Tomi Hyryläinen, after which we will host a Q&A session. At this point, I would like to hand over to Kimmo. Please go ahead.
Thank you very much and a warm welcome to all participants. As highlighted in our fourth quarter report, we have expected this strategic review to be concluded during the month of March and glad to be sharing this positive outcome. To confirm, we have signed the agreement to divest Tech Services to funds advised by Agilitas Private Equity for EUR 300 million, of which EUR 70 million in the form of earn-out payments. This is naturally a major milestone in Tietoevry's specialization strategy to create higher shareholder value and to build a future as a high-performing software and digital engineering company. This furthermore positions Tech Services to elevate its scale and value proposition to customers and employees, building on the very strong Nordic leadership having formed the Nordic backbone of technology for a multitude of years.
Furthermore, the transaction is expected to be closed during the third quarter of this year, naturally with all customer and employee commitments remaining intact. Agilitas Private Equity naturally worked with very closely in the recent months and quarters, gotten to know the key individuals very, very well. Agilitas is experienced in both the Nordic region and in terms of technology-oriented investments, and we believe that Tech Services will be in good hands in this respect. Furthermore, and to confirm, I mentioned that the purchase price EUR 300 million, EUR 70 million as earn-outs, the earn-outs shall be based on years 2026 and 2027 performance, and the purchase price subject to customary adjustments at closing, including net debt and net working capital adjustments.
As mentioned also earlier, I want to confirm transaction expected to be closed during the third quarter, closing subject to fulfillment of certain closing conditions, including the regulatory approvals.
We'll talk more about the financial reporting a bit later on. I want to highlight that from Q1 2025, Tech Services will be reported as discontinued operations. In summary, we firmly believe this is the right decision for our shareholders, creating shareholder value, enabling the company to focus on software and digital engineering businesses as asset-light businesses with significant growth and scale potential also in the international arena. This decision balances the strategic rationale and expected future cash flow of this business within Tietoevry. To confirm with these considerations, we are pleased with the overarching agreement and the decision reached. To confirm, as a bit of a background, software and digital engineering-oriented future we believe will be very exciting with the three software businesses: Tietoevry Banking, Tietoevry Care, Tietoevry Industry, and the digital engineering-oriented Tietoevry Create.
Just as a kind reminder, Create already over 50% of revenues outside the Nordic countries and the international market attractiveness being positive. To confirm that the tech services, which is and has been an outsourcing and transformation-oriented business across applications, cloud, data, and the asset-intensive parts of infrastructure services. In consideration furthermore of tech services, it is a well-run good business. It is a different business than our software and digital engineering businesses. Tech services has formed the Nordic backbone with enterprises and the public sector. This is a leading managed services type of business across applications, cloud, data, and infrastructure with over 7,000 experts globally. The future direction expected to remain very consistent and building furthermore in the market opportunities within the managed services category and expected to create future value to all core stakeholders.
With these considerations in mind, we are fully expecting improved financial profile for the continuing Tietoevry Group. For illustrative purposes, looking at the figures for the software and digital engineering part, meaning the future revenues approximately EUR 1.9 billion, adjusted EBITDA approximately 13.5% compared then naturally to the full group past of nearly EUR 3 billion in revenues and 12.3% in adjusted EBITDA. I'll hand it over for Tomi for further views on the financials.
Thank you, Kimmo. This transaction will result in improved financial profile in terms of the growth and profit and also reduce the overall capital intensity of the group. Recapping the prior page, key highlights: with our simulated 2024 numbers, the revenue will decrease by EUR 920 million while improving organic growth by approximately one percentage point. Adjusted EBITDA increase would increase by approximately 1.2 percentage point as well.
Of course, important to highlight that we believe that over time there is significant potential for further financial profile improvement. In terms of the capital intensity, there is an expected significant reduction in terms of significant reduction in working capital employed, significant reduction in CapEx by approximately 40% due to the less capital intensive operations of the continuing operations. In addition, there is an expected significant reduction of the cash restructuring charges as Tech Services has accounted for the majority of one-time costs historically. Important to note that the net debt from the transaction will change quite a bit. The transaction proceeds naturally impacting the debt level, but in addition, there is a EUR 100 million reduction in lease liabilities of the group for the continuing part naturally. Short-term profitability will be burdened by the common group cost.
This has to be with the time from signing to the end of the TSA period, after which over time we firmly believe that we will be achieving even better SG&A ratio for the continuing business due to the simplified operations. To reporting implications. As of Q1 reporting, we will be classifying the operations as held for sale and report them as discontinued operations. This reclassification will mean remeasurement of the asset to fair value less cost to sell based on the IFRS 5 guidance, which will result in part of the goodwill being further impaired, currently being EUR 234 million. We will be publishing full reinstated group and segment level financial information for comparable years 2023 and 2024 prior to publishing our Q1 interim report. We will also naturally update our 2025 guidance for the continuing business operations as part of our Q1 interim report.
Thank you, Tomi. We practically go to the summary and then towards the Q&A. Very important milestone achieved now with the conclusion of the strategic review. This further accelerates the full transformation of Tietoevry in becoming a software and digital engineering company and really building on the future opportunities in the data and AI-oriented global marketplace. Agreement to confirm was signed with Agilitas Private Equity for EUR 300 million, EUR 70 million in the form of earn-outs. I talked about the major milestone already and very importantly continues to build a strong future for tech services, and we expect the transaction to be closed during the third quarter. This summarizes Tomi's and my overarching presentation, and glad to go into a Q&A. Thank you, Kimmo, and thank you, Tomi. We are now ready for the questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Daniel Djurberg from Handelsbanken. Please go ahead.
Thank you, Operator, and good morning. Can you hear me?
Good morning, absolutely.
Perfect, thank you. Yeah, I have a question on this process. If you have also considered a spin-off, a Lex Asea, similar to what you had in mind for the banking with this unit, to me it feels like if we look at the valuation multiples over the EBITDA margin, it was 12.8% for 2024, higher than Create actually, and it would be a multiple of last year, 1.8-2.3, depending on if you use the earn-out or not. To me, that is quite low multiples, to say the least. My question is really why you did not give this asset to the shareholder instead in a Lex Asea spin-off.
Thank you, Daniel. I would like to confirm that the reason we firmly believe this is the right decision for the company, for the shareholders, and it is the balance of the future of the company as software and digital engineering in an asset-light model and in consideration of the expected future cash flow of this business within Tietoevry. Maybe just to a bit reelaborate, we fully understand your considerations, very important to consider and recognize from the past as well, the type of asset intensity that this business has had and the magnitude of restructurings. If you look at the pure cash flow generation, I think those are some of the factors fair to be looking at. Overall, as said, with the totality of considerations, absolutely the right decision, we believe.
Okay. Also on the earn-out, can you give us some more indication on the growth levels or the margin levels that need to be seen here in 2026, 2027 to meet the high or the mid level of the EUR 70 million earn-out?
We will not be publishing those. Those are naturally between us and the buyer, but we definitely expect to achieve these earn-outs. That is how they are set up. Just to confirm.
They are in line with historical achievements, I guess, or?
Don't comment, as I said, the exact levels.
Perfect. If I may also have a question on the tech service strategic review, which was originated on November 30, 2022. Can you share with us a bit of how this process, the total cost of it, and also ballpark what the transaction will cost until you're done with the divestment, more or less, ballpark, obviously?
Sorry, ballpark from where we are today to conclude. Way back .
Yeah, actually from the beginning, if possible.
Unfortunately, I don't have that number now. What we have now left is the banker fees and lawyer fees relating to this closing of the transaction.
Okay. Okay, I'll leave it there. Yeah, I had hoped for a higher price, obviously, but thanks anyway.
The next question comes from Jaakko Tyrväinen from SEB. Please go ahead.
Yes, good morning. It's Jaakko here from SEB. I just want to clarify on the EV valuation of the transaction. You are talking about purchase price of EUR 300 million. How close is the EV, excluding the lease liabilities, to this purchase price, i.e., how much there is net cash or net debt in the segment? Did I get it correctly that on top of the EV valuation, there will be lease liability reduction of EUR 100 million?
Yes, thank you for the question. When we refer to EV 300, that's of course debt-free in terms of the assets given or assets divested. In addition, there's EUR 100 million lease liabilities, which moves over. One could call it a EUR 400 million EV if one adds the lease liability element to it.
All right, excellent answer. Could you comment how much there is, is the working capital kind of close to the group average working capital, or are there some key major differences within this segment compared to the other group?
Yes, as I commented, we expect significant reduction of the working capital. Tech Services is more working capital heavy, so there will be an improvement in that profile.
Okay, thank you. That's all from me.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay, thank you very much for joining. Very important milestone reached and starts a very exciting era for Tietoevry as a software and digital engineering company and in parallel continues to build a good future for tech services. This is a good moment in Tietoevry's history. Thank you for joining.