Earnings Call: Q3 2020

Oct 27, 2020

Good morning, ladies and gentlemen. We have today announced our 3rd quarter report. And to introduce the highlights of our progress during the quarter, we have here Kimo Allkio, our President and CEO and Tomi Hureleinen, our CFO. If you have any questions, please dial into our conference call. My name is Tanja Lowne Wirtha, Head of Financial Communications. I warmly welcome you on my behalf. Now time to hand over to Kimmo, please. Thank you very much, Tanja, and a very warm welcome also on my behalf to our Q3 results announcement. The main highlights being that we did again experience a good quarter, a strong quarter. Main factors behind the 3rd quarter being good development in the underlying operating margin of 14%. We are being impacted like any of the peer group through the pandemic and organic revenue growth being minus 4%, good continued development in our industry software with profitability over 20% level and we continue to make strong progress in the total merger integration, both in terms of quality, in terms of our employee engagement and naturally continuing the very firm synergy drive, very much at the anticipated levels. And as noticed by, I'm sure, all of you, we did restore our guidance on the 20th October. It is also fair to highlight the recent considerations around the challenges of the pandemic and what type of signals are we reading and interpreting from our markets and from our customers. We maintain our prior perspective of the industry sector decline of within the range of minus 3% to minus 7%. So we are not changing in that sense how we read the overall market signals as interpreted primarily by the industry analysts. Furthermore, we have experienced, as we had predicted and I think shared 3 months ago, we have anticipated higher impact on revenues, approximately 4% in the 3rd quarter. We had about 2% in the 2nd quarter, and we expect the 4th quarter be at the levels what we have seen in the Q3. So clearly, the pandemic, as we have anticipated, seems to have very clear higher implications in the behavior of the market than we experienced in the earlier quarters. We would also like to confirm that the negative profit impact due to the pandemic, we continue to very, very actively and fully mitigate through rigid cost saving activities. Furthermore, we naturally work kind of continuously what we call the future work amongst our employee base worldwide, developing the ways of working, being extremely mindful of employee safety, overall productivity, overall well-being and naturally a huge degree of focus around delivering to our customers in a predictable manner and maintaining high service levels. With these considerations in mind, we have so far coped from the employee standpoint quite well. We are happy with the progress and also when we listen to the feedback from our customers around the quality of our services. I would also like to highlight a few considerations now as we are 3 quarters into the actual merger integration that what type of considerations and activities are we currently working on in order to turn to the next very interesting chapter when we enter 2021. First of all, as well recognized, I believe, by all of our constituent groups, we've been very open around the year of integration with the whole objective of actually taking to the market highly competitive set of services, gaining customer trust, build following the full agenda of the integration as we had originated the whole consideration for the merger success and also adding the whole considerations, which we reflected upon around COVID mitigation. 2nd important factor that we may not have touched on that much in the quarterly dialogues with the analyst community is the cultural foundation. I'd like to confirm that the beliefs around the Nordic heritage as a common value base for 24,000 colleagues around the world is a very, very good and strong foundation. We have taken forward recently our diversity charters, our culture code work that was actually crowdsourced within the colleague community. We have released internally new leadership aspirations and continue very, very active employee engagement and pulse surveying exactly how our people feel, very important part always. And I would like to also confirm, this is especially important given the overall uncertainty that people feel due to the pandemic in the world. And then a very important part that many of us and myself very used to working on the growth and innovation agenda in the technology sector, while we are running with the year of integration as we communicated already 9 months ago, year of integration is anticipated to be a era of low growth. It's very important companies look into future, pinpoint the investments for future growth. And this is something that we are currently working on, looking at the growth drivers around the full cloud transformation, around automation, AI ops, data science, artificial intelligence and the likes, which are clearly significant market drivers today and greater opportunities, I believe, we will be seeing in the future. And as a firm, we shall be as we then enter 2021, be talking a lot more around the shift towards a growth agenda and naturally these type of growth investments, growth bets and program plans, something that is very natural for us to be currently working on. Next, I would like to provide, as usual, a brief update on the integration progress. And just as a kind reminder, we do have a centrally led 12 to 18 month program after which many of the responsibilities will then move towards business usual in the respective businesses and functions. During the Q3, regarding the integrated structure and leadership, we took very firm good big step forwards in the full integration of the financial services service line comprising of very important business domains, capabilities and software assets from the both ex companies. So there, we are very far already in regarding our total objectives of being integrated in structure and from a leadership standpoint. Common Processes and Systems, we continue to make good progress. This is an area that certainly will take at least 18 months in order to make sure toolings, the processes are fully implemented all across the new combined company. Go to market and service portfolio, good positive feedback from customers. I'll share a few very good win examples in a couple of minutes, and the common value propositions will continue to deserve attention from us. Employee engagement and cultural integration, briefly referred to actually a few minutes ago, we believe we are actually in a good shape. We'll continue to deserve a huge degree of attention continuously. I think we are currently and have been on a constructive path together with our colleagues worldwide. And finally, synergy planning and realization, we are tracking well relative to our ambition of 100 delivering €100,000,000 synergies to the bottom line of the company as well as then reaching the €70,000,000 to €80,000,000 run rate by the end of 20 20. So integration, as always, continues to be demanding. We believe we are tracking relative to our main objectives and outcomes quite, quite well. I'd like to also share, as referred to, a couple of the important and really interesting customer wins. First, I'd like to share example from the public sector in Sweden regarding the city of Ovestros, an area where and as in the public sector, the whole notion of digital acceleration and contactless interaction becomes extremely important and being emphasized now in the era of the pandemic as well as the drive overall for the digital workplace related demand. So this example, with city of Vasteras covers a broad set of services regarding the total digital transformation use of data science and analytics and very specifically around delivering the workplace to infrastructure and the types of security services. And as highlighted briefly earlier, this is an example of success in the public sector and all across the Nordic countries as Tieto Evri. It is one of our strongholds and also very dynamic positively dynamic also in the era of the pandemic. The next example I would like to refer to is the is Keesko recent naming convention, the K Group, very interesting and an important expansion of our prior relationships for greater business opportunities also for Theatoevery to really boost the productivity and cost efficiency of K Group through automation and new technologies. A very extensive set of services covering next generation application services, analytics, data services, DG operations, multi cloud and capacity services. And this example is a normal, I would call, a competitive case, whereby any and all of the global competitors would have been present. And something that continues to send a very good signal, a confirmation in the marketplace that Theatoevery is actually becoming even richer in the set of services and well able to compete and win. Next, very interesting and probably the most important part of today's dialogue is around the Q3 financial performance and financial highlights. Revenues of SEK644,000,000, organic growth of negative 4.3 percent. And here it is already very good to just to be very clear, we our sizing says that the COVID-nineteen impact is indeed minus 4% on the revenues. We continue to make solid progress regarding our profitability improvement trajectory, systemic improvement in adjusted EBIT at 14% level, €90,200,000 Reported EBIT, €28,600,000 naturally being impacted by the onetime items of 61 500,000 fully as planned by the management. First of all and furthermore, it is good to confirm the profitability improvement is fully supported, driven by the synergy contribution and strong performance, especially in our Industry Software business with profitability over 20%. I would furthermore like to confirm that the backlog is healthy at SEK 3,200,000,000 supporting our short term revenue objectives and furthermore strong operative cash flow in the Q3 of 108 €1,000,000 And then we move on to a few very interesting considerations of the service lines. In digital consulting, we have seen strong profitability improvement to nearly 15% level, while volumes revenues are being impacted significantly, especially by the pandemic. Revenues were €143,000,000 organically minus 9 percent, adjusted EBIT €21,000,000 at the 14.7 percent level as mentioned earlier. Number of interesting important new agreements won during the quarter, as an example, the before mentioned Keesko Group and Sverigro Systems in Norway. COVID impact, as mentioned, negative 7% and currently, we this to remain at similar level for the Q4. And we believe from the industry peer group on digital consulting, we are seeing very, very much similar signals. Furthermore, the revenue level is temporarily impacted by integration and project portfolio quality improvement with extensive focus on profit as crafted in the business plan for digital consulting in the beginning of this year. Profitability development continues to be driven by the efficiency improvement and cost mitigation activities around COVID-nineteen. I would like to also offer a perspective that we do expect to be returning to a growth mode as COVID-nineteen situation improves and we proceed with the integration. And we expect to be very far in the integration by the end of this year. Furthermore, we do anticipate our growth mode to be returning by mid-twenty 21 for digital consulting, assuming diminishing commit impact. Furthermore, we have added a consideration for our service lines to be very open on what has been the full game plan objectives for the Service Lines regarding the full year 2021, the broader agenda. The longer term agenda, you'll be hearing more about in the Capital Markets Day in December. For digital consulting, the focus for this fiscal year has been to for integrating the diverse set of services, service practices and capabilities with extensive efficiency and profitability drive, while preparing for future growth. Next, we move into cloud and infrastructure. Profitability remaining at a good level of 11%, while revenues being impacted by a number of factors. Revenues being €220,000,000 organically minus 8.6 percent and adjusted EBIT at the 10.9% level and the COVID-nineteen impact being approximately minus 1% on revenues, and we anticipate this to be slightly higher during the Q4 as we are seeing early signals on impact on add on volumes. Furthermore, it is fair to highlight that the negative 9% being impacted by really high comparative Q3 of 2019 impacting by about 3 percentage point and the aforementioned considerations on lost customers during 2019 due to quality issues that existed at that point in time impacting by about 5%. I would also like to confirm that the IBM transition regarding the people and assets has been completed on schedule, quality improvement and process harmonization is fully underway and the automation and productivity gains shall follow. With these considerations in mind, we expect cloud and infrastructure profitability to be temporarily lower until summer 2021 due to the combination of volume development and incremental costs in IBM related quality improvement and process harmonization, fully as announced earlier. We fully expect that through these transformations in cloud and infrastructure, the cloud and infrastructure business shall be accretive to the financial objectives of the company. I would also like to confirm that when we have talked about this full program transformation regarding IBM, the temporary cost increase impact is approximately 2% on profit until mid-twenty 21. And even when we have seen this type of dynamics in the business, it's been important to see that the cost saving activities are working and cloud and infra delivered nearly 11% profitability. Furthermore, the future growth we believe is supported by recent new customer wins and larger renewals. Regarding year 2020, overall agenda, huge degree of attention on reshaping the service delivery model, the full technology backbone and the drive for automation and efficiency. That will then take cloud and infrastructure towards the business performance and trajectory that we have fully had in mind, both prior to merger, during the merger and as we speak here. Next, regarding performance of Industry Software, strong progress very much as anticipated by the management, Organic growth, minus 1.4 percent adjusted EBIT, €25,000,000 at 21.7 percentage points. And we were impacted in the software business by 3% due to the pandemic. Healthy growth in number of our software businesses, specifically in welfare and the public sector, public solutions up by 17% 7% within the public sector. Pleased to share a bit of a data point for the full transformation in the architecture and the business model to a software as a service, business logic, the Public 360 solution gaining 75% annual revenue growth in this SaaSified world. And the profit improvement, I do believe, is driven by the systematic transformation of the global software R and D practices that we have been working on for approximately a 2 year time frame. And furthermore, I would like to confirm that all the considerations we shared at the end of Q2 regarding smart utilities, the end of life is progressing fully as planned and as shared earlier. Regarding full year 2020, the focus of Industry Software for integrating the software businesses, the R and D, the practices and building to selective domain expertise and SaaS business models, again in anticipation of further future growth ambition and opportunities. Next, on Financial Services, continued good momentum, organic growth of 3.1%, COVID impacting by approximately negative 3%, adjusted EBIT at 15.2% level and we are seeing the top line drive being supported, the continued development in the card services especially and profitability remaining strong, while investment level maintained at a somewhat higher level than we would do longer term to actually support the delivery of one contract, one business throughout 2020. The primary focus for our Financial Services Solutions business for year 2020 is to integrate the software and utility models of the both ex companies and to drive the common software R and D practices and actually aim at accelerating growth businesses, growth opportunities and should already be visible as we shall see 2021. Product Development Services as the last service line sharing, strong continued execution, organic growth be minus 4%, while being impacted by the pandemic at negative 6% level, specifically in the automotive sector, very much at similar levels as we saw in Q2 adjusted profitability at 12.3 percentage point level, and we continue to see good market activity level in the telecom 5 gs, radio 5 gs core, activity level good and overall customer interaction across the sectors continue actually 3rd quarter at a good pace and increased profitability driven by effective cost based management. The overall agenda for PDS for this year, building new markets, expanding the customer base and continuing to drive operational efficiency within which PDS has done well already for a longer period of time. So this would conclude the summary of the business performance and service line views. And now over to Tommi. Thank you, Kimo, and good morning, everyone. I'm pleased with our Q3 performance overall and specifically in our ability to deliver 14% profitability during high activity period in the integration and COVID-nineteen. Our synergy execution, which aims to build a competitive and sustainable cost structure for the company, has progressed well, confirming our ability to reach the target of EUR 100,000,000 of synergies during 2022. We have continued successfully to mitigate the negative profit impact from COVID-nineteen through rigid cost management. FX headwinds have continued during the quarter with minus €16,000,000 or minus 2.5 percent impact to revenue compared to prior year. Our operating cash flow was solid, supported by effective working capital management. As mentioned, we estimate the COVID-nineteen impact on top line for Q3 to be approximately minus 4% and that we have been able to mitigate the negative profit impact as visible in our Q3 profitability. In practice, our cost base mitigation in euros was in the range of €20,000,000 to €23,000,000 This cost base reduction was achieved through delivery cost management and rigid cost control of our operative costs. On delivery cost, we have carefully managed the usage of external consultants and subcontractors as well as temporarily laid off our own employees to respond to the decrease in demand. Cost based reduction from temporary layoffs have been relatively minor, roughly at the same level as at the end of Q2, representing less than 1% of the workforce in FTE terms. Secondly, in the operative cost side, we have continued with rigid cost control over short term spending as well as started to take a longer term view on post COVID era, specifically as it relates to future of work and the needed facilities to support it. This quarter again demonstrated to us that we have the ability to mitigate negative short term financial impacts from COVID. We have made good progress with merger integration and related synergy contribution, as mentioned. In Q2, we were able to increase our synergy target from €75,000,000 to €100,000,000 And today, I can confirm that we are well on our way to realize the €70,000,000 to €80,000,000 run rate at the end of 2020 as planned. This means a €25,000,000 to €30,000,000 profit contribution in the P and L already in 2020. In addition to making sound progress in the synergy delivery, we aim to complete the integration with less cost than our original estimate. We are lowering and narrowing the range of our estimate of the onetime integration cost from EUR 120,000,000 to EUR 140,000,000 to €110,000,000 to €120,000,000 We're able to do this as we are far enough with the progress of integration and the maturity of our plans for the remaining integration activities is sufficiently high. Next, I'll give you an update on our onetime items. First of all, it's important to state that our estimate for 2020 is unchanged. Q3 one time items of €62,000,000 were as planned, consisting of €42,000,000 of integration related costs, €9,000,000 of IBM service transition cost in addition to PPA amortization. Q3 integration cost consisted primarily of restructuring related costs from September announcement. IT system integration costs as well as onetime non cash cost of SEK 17,400,000 from R and D Roadmap Integration in FSS service line. The FSS R and D Roadmap Integration was one of the areas already identified in the early stages of the merger and has now been executed, delivering merger benefits in a form of decrease in R and D spending over next 1 to 2 years. In Q4, we expect only €25,000,000 to €30,000,000 of onetime costs. However, a higher cash flow impact due to delayed cash flow profile of the items as discussed earlier. Our view for 2021 remains unchanged with significant decrease in one time items as planned. As already stated, we delivered a solid SEK 108,400,000 of operative cash flow for the quarter. Consistent with Q2, we did not experience any delays in receivables collection due to COVID-nineteen. This is likely due to our relatively high exposure towards the public and financial services sector as well as share of large corporations in our customer base. Our working capital developed favorably with a decrease of €31,500,000 from Q2. It's fair to recognize that we don't expect this strong cash flow generation in Q4 as the cash flow impact from onetime items increases into Q4, as mentioned. Capital expenditure was temporary at lower level in Q3 amounting to SEK 17,600,000. We estimate the Q4 CapEx to be back on a more normalized levels of H1, maybe even slightly higher level. Now back to you, Kimo. Very well. Thank you very much, Tommy, for the good views, good CFO perspective and continued extensive focus, very important to us on the synergy drive, one of the foundational factors for the merger benefits. In the next section, I'd like to briefly, as usual, first begin by the performance drivers and recap the full performance summary. The performance drivers for the Q4, our typical categories, COVID-nineteen that Tommy and I have both touched on already, Q3 impact having been negative 4%, Q4 estimated to be at a similar level and the profit impact mitigation we continue to have big on our agenda. Accelerated synergies, exactly as Tomi just summarized, we continue to be on that path very rigidly. And furthermore, the negative currency impact estimated for Q4 revenues from €14,000,000 and about €80,000,000 on revenues and €30,000,000 full year adjusted EBIT. And then also important to confirm and summarize the other operational factors, drivers that we do believe that the backlog is in full support of our revenue ambition for the Q4. And as we gave a few highlights regarding cloud and infra, the revenue and profitability temporarily impacted due to lost customers in 2019 and incremental cost in the IBM related quality improvement and process harmonization according to the plans that were originally announced in May and further specified in the Q2 report as well. With this in mind, we expect that we shall have all the opportunities to conclude year 2020 by being successful in the merger integration, driving rigidly performance improvement as well as preparing for exciting opportunities for year 2021. You have noticed last week the reissuance of guidance. We expect the comparable full year adjusted operating profit to increase from the previous year's level. Furthermore, I'd like to give a bit of an overview of the upcoming CMD for the 3rd December. Our consideration is by nature to outline our future strategic and financial ambitions, the combination of Tommy and myself to go through the long term ambition, the merger progress and combination of growth, profitability and capital allocation objectives. I think we'll have a very interesting and exciting dialogue regarding the future. Furthermore, the service lines shall be describing the market opportunity, the services within the service line, how we differentiate as well as offering insights to the business objectives and drivers of competitiveness. And then the country team perspectives through a roundtable dialogue on how the aggregate value propositions are working in our main markets. And this shall be a virtual event given the context of the pandemic broadcasting taking place from our 3 main locations. And our plan is to send the invitations by the 11th November. And then to conclude our session and then we move to Q and A, we believe we have had in the post merger era 3rd good quarter, strong quarter, guidance restored, strong delivery in the underlying margin of 14%, organic decline of 4%. Over time, absolutely, we will be a growth company. This is also being impacted by the pandemic. In the software, really strong progress. Merger on schedule, including Synergy Drive and from a confidence standpoint, good that we were able to also restore our guidance. With this in mind, this is probably the best time to switch it over to a Q and A. Thank you. Thank you, Kim, and thank you, Tommy. So we are ready to proceed to the questions from the conference call. Moderator, please go ahead. Thank you. You. Our first question is from Daniel Juveig from Handelsbanken. Please go ahead. Thank you. Good morning and thanks for taking my question. Congratulations to a solid underlying margin. Question on the total integration costs lowered to €110,000,000 to €120,000,000 And to me, it seems like you have €50,000,000 to €40,000,000 left to recognize in the P and L. You state you will have granted to €25,000,000 in Q4. You also have some €37,000,000 in provisions, restructuring provisions, so you can use that in the cash flow. So in terms of history, how sure are you that at least roughly €70,000,000 cash flow buffer for the integration would be enough and not raise again later to meet this every €100,000,000 cost efficiency target? And will the €10,000,000 to €50,000,000 that remains for 2021 be enough? Thanks. Sorry, the line was broken at one point in time here. So we did not quite get the question fully. If you can repeat The question is how sure you are that you will not need to raise your restructuring cost? To me, you have roughly €70,000,000 in buffer if you take the remaining €30,000,000 €40,000,000 for the P and L and what you have in the provisions. So given your comment on Q4, dollars 20,000,000 to $25,000,000 errors in restructuring charges, That leaves €10,000,000 to €15,000,000 for 2021. So my question is, how sure are you that this will be enough to meet the €100,000,000 target? Yes. So thank you. Now we heard it properly. So we are very comfortable with our current numbers. As I mentioned, our remaining integration active plans are mature enough that we feel very comfortable. Just to recap the numbers, just that we get them right, so integration costs for this year, euros 80,000,000 to €85,000,000 We have never specifically said now what is restructuring of that. I have referred to those numbers as you have heard as well. For 21, €30,000,000 to €40,000,000 and then for 2022, EUR 5,000,000 to EUR 10,000,000. These are the components ending up to the EUR 110,000,000 to EUR 120,000,000 And as I said, very comfortable with these numbers. Perfect. And one more question, if I may. With regards to the smart utilities exit exit in Q2, can you comment on the aftermath from the customer reactions and so on? Everybody satisfied with the outcome or how is? Thanks. Yes. So while the topic whenever you end of life platform is a difficult topic, we did reach agreements in really good faith and full agreement with all of our customers. On the competitive outlook and pricing indication in the public sector in the Nordics. So thank you for that question as well. So there are a number of kind of variants or variables in the market place when the pandemic is creating fluctuations in demand. So, what I now summarize is kind of very typical in this type of a macro demand fluctuation. We are so far coping fine. We need to be really price sensitive, delivery efficiency sensitive. And yes, there are some cases here and there, not many where kind of price disruption exists, but I would not like to portray that it would be a market practice. But we are mindful this can also happen. Okay. Thank you very much, and good luck in Q4. Thank you. And our next question is from Sami Sakamir from Nordea. Please go ahead. Hi, thanks. I have a couple of questions. Firstly, starting from the COVID-nineteen headwind for this year. Previously, you've been expecting 2% to 5% negative impact. What is the current estimate based on Q4 outlook? So maybe so currently by the way, the reason we did not so far kind of want to do an annual average, because right at the background being Q1 hardly any Q2, 2%, Q3, 4%, our prediction is 4% for Q4. So, of course, we can so that so I think that is probably hopefully a bit more insightful than an annual average that we look at exactly what we have what we try to share openly what is our belief also in the shorter term. Okay. And then I would actually continue on Q4 outlook. Are you seeing any pickup in demand for your services in any business areas as you do not seem to be more positive on Q4 revenue outlook on the group level yet? So a couple of factors. So yes, we are seeing actually in several of our main markets improved good win rates, good activity level, winning big contracts. So these are the factors. And as you have noticed here, we wanted to be very open about the magnitude of impact of the lost customers in 2019. And by nature, that will take a bit of time that we actually win new landscape in the market and return to growth. So those are the factors that impact in Q4. Okay. And how do you see demand kicking up next year? What sort of recovery are you currently planning for? So we will, of course, do our best to offer perspectives then in the CMD. But if I of course, we are thinking and working on the business plans by nature at this point in time. And the greatest the factor that we try to do the smartest possible estimate is that how will the pandemic impact market behavior. And so far, what we are reading into this is our impact seems to be very similar as the global peer group is announcing with this type of business mix. So we did offer a view, as you noticed in the case of digital consulting, that absolutely we believe in longer term growth, and we wanted to offer a perspective that that would likely be mid-twenty 21. So these are some of the drivers and we'll offer some perspective certainly then also in CMD. Okay. Thanks. And then my final question would be on Cloud and Infra segment, where you're flagging transformation to burden the operations until next summer. Just wanted to understand if Q3 was the low point thinking of margin and top line pressure and if this should sort of gradually ease going into next year? Or will the development be something different? So as we did comment I'm sure you Sami noticed in the cloud and infra commentary that the temporarily lower profitability until summer 2021, So that perspective, we did want to offer. I would like to furthermore just offer further commentary that we have indeed in the Q2 report and in the May sharing tried to offer views that the cost base increase would be higher, as an example, in H2 due to this transition. And now we offer the perspective impact by about 2 percentage points on profit. So, these are the factors. By the way, as you notice, I'm not I do not want to offer guidance on current infra profit now. Sami, you will recognize that in the history, the cloud and infra business, specifically from the ex theater side, very systemic profit improvement consistently over kind of multiple years. So we expect to be back on that track. I do not wish to speculate how fast. And Sami, I guess it's fair to add to Kimo's comment that as we have said that the add on volumes have been impacted and we see it already. And now the uncertainty is that how much of that impact is in Q4, which we obviously as of now don't know. Okay. Thank you very much. I don't have any further questions. Our next question is from Christopher Johnson from DNB. Kim, I think you're a bit away the mic. The sound is quite bad. If you could go for close it out, it would be helpful. Thank you. Good hint. First question is on the cloud and infrast. So you had temporary decline in profitability there. But over time, you can reflect a bit around the margin potential there. Surely, we'll come back to previous levels. But then beyond that as well, you have peers that are pure play infrastructure like Rackspace that are doing close to the 20% EBIT margin. Is there any structural reason why you should not be able with your scale to achieve the same EBIT margins towards the 20% over time there? That's my first question. And then my second question is on Industry Software, which was great to see that uptick in operating profitability. But is that kind of the new run rate level where you expect to be an improved going forward? Or was there any nonrecurring tailwinds on the margin there that we should not extrapolate in our model going forward? Yes. Thank you, Christoph. Very good point. So let's take first the cloud and infra kind of the Rack space. So there, I would have 2 first comments. I think that our consideration industrially, which I think we actually should understand this really well as a company and as few of us as individuals, that longer term development in cloud and infra is extremely important to aim at standardizing the architectures in order to drive automation, consistency and quality, really important factors for driving scalable, more profitable growth. And so far, historically, we have proven that our type of companies can do that by doubling the profitability of some of our businesses pre merger, one factor. 2nd factor, it's now been a while since I looked at in more detail on Rack Space, but it's a very good example, Christopher. I do agree. The very likely difference is extremely standardized architecture, standardized technologies, standardized tooling and also extremely standardized set of services that are procured in a more standardized manner. When we simplify the IT infrastructures of enterprises where architectures were invented 12, 15, 18, 20 years ago, It takes time to transform our customers. That is the opportunity we have because it's worth a lot of business and money for our customers, and we think we will be amply rewarded by driving that very important transformation. 2nd question was IS 1. Yes. And then on the IS, so just kind of Rackspace and C and I called an in for profit. So there's a bit of correlation. I correlated these two perspectives a bit that, yes, we will have a good ambition that we'll be industry leading in this domain, and Johan will share these perspectives then in CMD. On the IS side, nothing surprising. It's been a consistent industrial renewal and upgrading of standardized methodologies industry software businesses. And this is now getting to be at the levels where we'd like to see the software businesses. Thank you. That's very encouraging actually. Moving on to restructuring charges and then final one on CapEx. You maybe tried to touch upon this earlier, but the line was a bit choppy. So on the Financial Services side, could you just elaborate a bit on why the kind of the one offs were so significant there? And what kind of activities and initiatives they were related to beyond the headcount reductions? And then my next question, maybe the last one for now, is on capital expenditure, which was significantly down in Q3. Was there any kind of one off effect there taking it down due to delays due to COVID-nineteen or whatever? Or should we expect that the kind of the current capital expenditure level to be the new revenue rate for the company? Yes. Thank you for the question. So restructuring, SEK 62,000,000, that was as planned. So there was, as I mentioned, nothing particularly in that number. In the FSS side, as I mentioned, the SEK 17,400,000 noncash write off, which we detected early on in the merger process. This, we executed now, and that will deliver the benefits over 1 to 2 years from now. Nothing specific on that one either, as planned, as I said before. On the CapEx, of course, in the CapEx, there are, let's say, normal variations in the levels from months to quarters, and now we were on the sort of lower cycle, let's call it that way, then the summer period actually impacts slightly as well. But nothing sort of extraordinary there in addition to holiday period and the sort of normal variation in the activity of investments. Specifically, in the data center side, you can see these bigger changes during the quarters. Thank you, guys. Very helpful. And our next question is from Michael Priece from UBS. Please go ahead. Yes, thanks. Good morning. Just a couple for me. I mean, I take on board what you say on the book to bill or the bookings being affected by smaller deal sizes. When I look at some of your peers, particularly the Indian vendors, they've talked of remarkably strong bookings momentum, Accenture as well. Can you sort of explain why you and they are seeing different trends? And then just in terms of the cash flow, I see that the factoring has gone up another €5,000,000 from Q2 to Q3. Can you just remind us what your program for factoring is and why you sell receivables? What was the business reason for that? Because I assume with interest rates where they are, there's not going to be much of a financial benefit. Yes. So on the order backlog and book to bill, as you were referring to, we with €3,200,000,000 we're at the same level roughly as last year. Now nothing specific. We think it's a strong backlog and brings us the momentum for our revenue numbers for the coming year years, at the normal level as expected. On the factoring, so you rightly pointed out, there was a €5,000,000 of increase from Q2 to Q3, so only a minor one. We have our standard program, standard principles how we do it. We have the identified number of customers whom receivables we factor, and that typically is when we have big extended payment terms and very recurring transactions with these customers. We have not changed our policies or principles. Therefore, there might be variations from quarter to quarter. But I mean, you say that you've not changed your policies, but it's gone from, I think, €9,000,000 to €33,000,000 over the course of the year. So I mean, the historical Tiator business was sort of €1,000,000 or €2,000,000 a quarter. So I just don't what is it within the, I guess, the Edvard heritage business that causes that? For the earlier announcement, we had the restated number wrong in the factoring. So you might be looking at that number now. There's not that big increase in the factoring. Okay. And then just on the capitalization, can you say something about how much of that relates to development work as opposed to normal capital spend? Yes. The division is 2 thirds on the software development and 1 third on the, let's say, hard CapEx. You still questions on this factoring and if restatements have been, if any lack of clarity that can be gone through also, of course, separately? Yes, of course, if there is. Okay. Okay. And our next question is from Jakko Dovina from SEB. Please go ahead. Yes, good morning. Jacque from SEB. Your digital consulting was down 9%. However, the general view is that COVID should actually accelerate the digital transformation. Are you seeing also this trend and when did you expect the segment to return to growth track? And could you give any kind of indication on the future market growth you are seeing for that segment? Thanks. Sure. Thank you. So overall, the activity level on digital consulting to drive the type of contactless engagement and interaction in the world, we do very much believe it will accelerate over time. So the opportunities are there. The engagement level is good. At this point in time, we do believe that when we look at the aggregate market, it is being impacted most significantly of our software and IT service businesses. And what we have reported as the pandemic impact, it's very similar to when we look at the larger peer group with sizable businesses. So to the best of our understanding, our view happens to be very consistent as now commented. Now our ambition longer term absolutely will be to drive growth, and we wanted to offer the commentary in the service line view that we anticipate to be back to a growth mode by mid next year in digital consulting. And naturally, there is just a real impact on decision making speed of decision making and even potential postponement of investments a bit dependent on which industry sector we talk about. And with this in mind, this is exactly what is impacting the total industry view for the consulting side, which is being impacted the most. Yes, there are small consulting companies that can grow when business may have been won 9 or 12 months ago. There is just quite a bit of fluctuation in the marketplace. I think they should. I mean Okay, great. Thanks. Second question, could you elaborate more your performance from geographical perspective, I. E. Is your kind of a group level performance spread evenly out between the countries or is someone some country performing better and someone some country performing or having a more poor performance compared to the other ones? So it is actually such that we our consideration is to offer a bit broader perspective than on a full year level on the countries. Currently, of course, we'll comment openly and answer your very fair question that we are seeing very similar type of performance across our main markets, meaning Norway, Sweden, Finland being impacted at very similar levels due to the pandemic, one factor. And to be fair, international businesses outside the Nordics, which have been smaller, we are seeing a higher growth than in the Nordic countries at this point in time. Over time, we do believe, as we have reflected upon and will return to when we talk about the longer term growth ambitions, the opportunities, especially of our software businesses, our largest software businesses, we do believe, over time, we will have interesting opportunities also and more so in outside the Nordics. Okay, excellent. That's all from my side. And our next question is from George Webb from Morgan Stanley. Please go ahead. Good morning, Kimo and Tommy. I've got a couple of questions, please. Firstly, on the merger synergies and the costs, obviously, you revised up the synergies at the Q2. I think there was a comment at the time that maybe we should expect the implementation costs to be at the higher end of the range. And now that range is being reduced even from that previous level. So can you firstly discuss what's driving that? And then just quickly secondly, can you perhaps share the level of utilization you're running at within digital consulting today? Thank you. So if I take the first one. So first of all, to be clear, we have always said that we will be at the lower end of or aim to be at the lower end of SEK 120,000,000 to SEK 140,000,000 So this is roughly consistent with that statement. And that 120,000,000 140,000,000, we actually did over a year ago that estimate. We did not want to go and change that before we were mature enough with our full plan for finalizing the integration. And now we are at that stage and happy to say that we will be doing it in lower than originally expected. Nothing specific to comment on what would be the specific driver. It's the overall plan and the maturity. So maybe then comment on the kind of utilization and billability. If I first give an overall and then I go to your point on consulting, so when we look at the utilization performance measures in our first, I comment the global delivery centers, whether we think about the big sites in China, in India, in Czech or Poland. So utilization and billability levels continue to be good. I think we have a little bit more than in the Nordics, specifically in the digital consulting, a little bit of fluctuation given the way given what the market dynamics currently are. And we have a very extensive view on driving the efficiency, billability, the competitive cost structure, which has enabled us to, even in the era of the pandemic, to improve profitability of on the digital consulting side. And then when we think about the longer term in the digital consulting, absolutely, we have our norms on billability levels. And then as we then work through the growth agenda, I think that will actually create the exciting next chapter for that business. And in our past, if I may, we've also seen good improvement in the performance of digital consulting, meaning pre merger. And as we get a bit further in the integration, we are able to then start to actually run a much more post merger business profile in DC. Thank you. And is it just to squeeze one further in. When you think about the impact of this pandemic and how you kind of deploy employee resources, are there any structural changes or things you're thinking about today, whether it's levels of offshoring or levels of permanent remote workers? I mean, are there any of those factors that now come into your thinking? Very good point. And we do absolutely think about this very much holistically. So number of elements. So first of all, the resource agility based on customer requirements, because we have such a big role in keeping the society up and running. And there is an opportunity for really good trust creation, helping our customers to manage their businesses, their processes at this point in time. So we are seeing better trust creation and better vote of confidence already in the Q3 based on number of changes we have touched upon, one factor. So the research agility in this sense is very important. The ways of working, yes, we have a continuous kind of ideation underway on the future of work, how we support our people, how we also drive the type of dynamics that people can be innovative, have the type of a balance that they can do their jobs in the best possible way and firm view on company level productivity and the role of facilities. So I do believe that this will be a continuous kind of a process that we'll be tuning until we know more of what would a what would stability mean post pandemic. Until then, I think we need to be very humbly on our toes, talk extremely openly internally and drive a very systemic efficiency perspective given that the volume volatility, I do believe, will be prevailing in all industry sectors, not just technology, software and IT services. And I do believe we can be well resilient through these type of considerations. Great. Thank you. Our next question is from Christopher Johnson from DNB. So two final questions for me. Within digital consulting, there's a lot of different things going on there. So for me, it would be very helpful if you kind of give maybe some additional granularity on the development of the different segments, whether it's digital consulting or business technology advisory, system integration, managed application services? What are kind of pulling the total of that segment up and what is pulling down in the quarter. Okay. So absolutely. So in the digital consulting, if I think about the performance of the service practices and also the country dimension, what we are seeing consistently is that the area of cloud advisory analytics data platforms, there continues to be, even in the era of the pandemic, good volume opportunities and the creation. Then so that is that would be, I think, my main consideration on your very fair point. Then we do see both opportunities in the area like business application side, transforming supply chains, bringing automation into supply chain optimization. So there are areas that we see as pockets of opportunities, which we, by nature, are working and will be working more and more towards our growth agenda. The challenge for the digital consulting and I do very humbly, firmly believe it's not just a case for Theatoevery that there is a fluctuation in demand in the marketplace. And the COVID impact of about 7% is our perspective, I think there are other companies that are impacted even more than we are being hit, given that we also have the longevity in number of our application services kind of domains within digital consulting. Consulting. So those would be some reflections. And Christopher, happy to talk about or continue the spurring and the views. But I just want to highlight that the impact of pandemic is clearly the biggest in the digital consulting side as well as then we as you noticed, we are not talking about the impact of integration at kind of on with a big perspective. It is having some impact on digital consulting side, given that it is so labor intensive and especially the merged environment in Sweden has taken a bit of effort internally to get everything organized and in place. And we expect to become a lot more stable and complete by the end of the year. Thank you. And then one last one for me, and I'll let you go. There was New South recently, there was a lot of that. IBM is doing some structural changes to the organization, spinning off basically technology and their services business. Can you talk just a bit about around how that affects your business? Will there be kind of a more will there be less friction with them as a technology vendor and partner for you guys? And then on the other hand, will there potentially be tougher competition from their services part as that will be a standalone company that maybe will be more kind of forward leaning in the market than they've been thus far. I guess that's a long process before they're at that point in time where these are 2 separate companies. But any reflections would be very much appreciated. Sure. Sure. So I think first of all, I think it's good to see that we actually we both parties feel that we completed a very important and demanding reshaping of something that did not work. So what we started in May through that announcement is a path that the Teatro Evri we will become competitive and scalable also in cloud and infra business. So that's a I wanted to mention it's a path that both parties believe it's a good path and good for both parties. Now if I offer my perspective on the industrial logic of companies, in this case IBM, considering the requirements of distinct business logics between dependencies on investments on businesses purely driven by scale and businesses, but are more kind of driven by automation, software orientation, software insight. Industrially, naturally, it makes sense that they are separated because the business logic deserve different investment levels, different investment cycles, different ROIs and the whole thing. So naturally, we have a good view how and what we expect that how it to move forward. And then like you commented, it will be quite a lead time before it is complete. And nowadays, we have a good relationship with IBM. And assuming we create better value for our customers, for our shareholders and improve all of our measures, we'll continue to do fine. And as we currently have no further audio questions, I will hand the word back to the speakers for any final comments. Thank you. So we are ready to end this session. I would like to thank for participating today and hopefully we will meet in our Capital Markets Day virtually. Thank you very much for joining today. Thank you.