Good afternoon and welcome to Tieto 2025 Capital Markets Day. It is great to see so many of you here in London, and a warm welcome to all of you joining us online. Today is more than an event. Today marks a reset, a restart, a new era for our company. We are making a fundamental shift toward sharper execution, stronger discipline, and a relentless focus on value creation. We are changing how we work, how we compete, and how we win. This is not just a strategy update; it is a mindset shift. To symbolize that shift, yesterday we brought back the Tieto name, reconnecting with our heritage while signaling a bold, forward-looking future. We also introduced new financial targets, and today we will show you exactly how we plan to reach them. You will hear from our top leaders across the business.
This is a unique opportunity for you to learn how we intend to deliver and why we are confident in our path forward. Throughout the day, we want your questions and your challenge. We will open the floor for Q&A after each presentation, and then we'll finish the day with a final Q&A with our CEO and CFO. We will take questions from the audience here, as well as from those of you joining online. Please submit the questions through the platform. We have an exciting afternoon ahead, and I hope you're ready. Let's get started. Please join me in welcoming our President and CEO, Endre Rangnes.
Thank you, Tommi, and a warm welcome to Tieto's 2025 Capital Markets Day. Thank you for joining us here in London and also on the web. Like Tommi touched upon, today is an important moment for Tieto. It is not just another event. Today is a moment to look forward with new focus and also with a new purpose. I would like to start off also acknowledging that we, during the last decade or so, have not delivered the growth and shareholder returns that our shareholders should expect. I would also say that we are acknowledging that we need to be more transparent going forward, so we have learned from the past. Today is a new beginning for Tieto, a new beginning anchored in three main principles. One is customer's focus, customers first in everything we do. Secondly, operational excellence. Thirdly, sustainable shareholder returns.
This is really not about a new strategy. This is about a mindset shift. I can tell you, we are changing gear to deliver future growth. I will go through three main sections in my next 25 minutes or so. Tieto has a very strong foundation to capture the market opportunities and the market growth. We are today launching four new strategic priorities in terms of ensuring that we are accelerating the growth and execution going forward. Thirdly, we are committed to deliver more than 5% top-line growth, CAGR 2027-2028, and also then more than 16% margin by the end of 2028. Having now been in the position as the CEO since six months, I have spent a significant time with our different stakeholders, vendors, investors, employees, and of course, clients. I would say that the feedback is quite clear.
We have not been sufficiently focused on our clients. We have been far too much product and tech-oriented, also partly pushing the products too hard. Thirdly, we have not been executing on the different, I would say, strategies that have been launched the last decade. The result of this is that we have delivered less than 1% organic growth, CAGR, during 12 years, while the market has been growing 5%-7%. That has also partly resulted in a build-up of a cost base that we could not afford. Today, we will spend the time on, yes, we have identified the challenges. We will spend the time now on what are we going to do, how to ensure execution, and to capture the future growth of this company. Also the business units will go in detail to visualize what is happening now with the company.
Having said this, I think it's also quite important to underline that Tieto has a very, very strong foundation. When we look at our client base, we have long-term relations with our clients, and we have a very solid client base. It is a good starting point for really having better interaction and also better and stronger partnerships with our clients going forward. Secondly, we have distinct capabilities as a company. We have invested a large amount into replatforming our software vertical products. We have renewed products now in more or less all the different product lines. I would say also that we have invested heavily into building AI competencies, both in terms of driving internal efficiency during the last couple of years. We will come back to examples on this, but also interacting with our clients related to AI.
We have a very strong nearshore/offshore delivery structure, which could be utilized better in the future. We have also started to simplify the structure and the setup of Tieto when we sold tech services. The closing was done, as you know, in Q3 of 2025. I think it is also the third point related to solid financial foundation. We have a pretty stable margin. We are a capital-light business. We have delivered solid cash flow historically. I would also say we have a very high level of visibility in terms of repetitive business, but also having a very strong backlog, which we carry now into 2026, 2027, and 2028. A good starting point for a company like Tieto.
When we also look then at the market share and how have we kind of developed the company during the last years, we have the leading position within banking. We have the leading position in the Nordics in healthcare. We have also a leading position globally in pulp, paper, and fiber software and associated services. We have also kind of a leading Nordic position within Nordic case management software. This is a good starting point. Within banking, we are delivering everything from core bank solutions to payment transactions to card transactions to fraud monitoring to AML. A full-stack delivery from core bank to end-user solutions. The same goes within Lifecare. We have a very strong position with our new Lifecare Portfolio, where we are delivering to hospitals, to home care, and also social care.
We have already started to see signs of positive development also in terms of expanding internationally with the Lifecare products. We are running mission-critical, society-critical transactions, millions of them every single day. We are fully aware of the responsibility that we have as a company. When I met with investors last month, it is also quite clear that many investors now regard AI as a disruptive threat to the IT services industry. I regard it as a big opportunity for those capturing and being able to leverage on the AI opportunity going forward. If you look historically, going 30 to 40 years back, we have had many examples of disruptive technologies entering the market. What happened in terms of IT spending during these last 30 to 40 years? Did it go down? Absolutely not.
The annual CAGR IT spending is growing, and it's been growing like 30-40 years, driven by the digitalization of the society. We saw clear examples of that, partly also having a kind of artificially high level of investment during the COVID period. From my point of view, I regard AI as a big opportunity for us going forward. Talking to clients, which I do more or less on a daily basis, it's not all about AI. It's really also about basic things. It's about cost optimization through also AI tooling. It's about process re-engineering. It's about focusing on cybersecurity, and not only for banking. This goes for more or less all businesses currently. We have also seen a lot of companies investing now heavily into skills upgrade of their employees in terms of meeting the AI wave coming.
How is now Tieto going to capture the market opportunities going forward? We are launching today four main strategic priorities. One, customers first. Everything starts with our clients. Everything starts in the market. Secondly, a simplified core to have a more agile organization and company going forward. Selective international expansion with selected products, software products, into selective European markets. Of course, we need to ensure that we have a competitive cost base going forward so that we are also from a pricing point of view, market pricing point of view, we are competitive going forward. Let's take this one by one and starting off then with customers first. What you see on this page is actually mirroring or a reflection of the input I've got from our clients.
When I was the Managing Director for banking, nine months before taking on the assignment as the CEO of this company, we spent a lot of time implementing a new governance model with our clients, meaning a clear definition of demand, supply, and a rigid follow-up in terms of KPIs, both operational, tactical, and then strategic level with our clients. That was one of the basic reasons why we were able to renew a lot of banking contracts during the second half of 2024 and also in 2025. It is not all about governance. It is a lot of practical elements that we are working on as we speak. It is about recruiting new sales resources. It is about rejuvenation of our key account management structure.
It's about launching, which we will do in January, a new sales incentive structure to also incentivize high performance in sales. It's also about involving our clients in product development. One example of that, which actually goes a couple of years back, is also together with SpareBank in Southern Norway, which is now part of SpareBank Norge, we developed a leading-edge mobile solution, which is now replicated into all the banks as we speak. I think we have good examples of also co-development, which we will put more effort into going forward. We can see that this client centricity is actually now bearing fruits. We saw during Q2 and Q3 new signings, local bank alliance, 16 banks signing up for full-fledged delivery from core bank to end-user solutions, 10 new banks, 6 existing clients of Tieto.
We saw big in Austria, where we also have embedded AI into their help desk to structure client requests and to improve also client service. Clearly, we see that we are moving in the right direction. The second point is then related to simplified core. We have seen the sales and closing of tech services as one step. You will see more to come in the near and long term. We are not disclosing anything related to that today, but you will see it coming. This is about creating a more agile organization and a more focused organization going forward. You also saw yesterday that we launched the new brand, Tieto. In that context, we also launched the new four names of the four entities, meaning Tech Consulting, Care Tech, Bank Tech, and In Tech. The go-to-market strategy is very clear.
We have the industry verticals covering the market and the clients with a distinct software and associated services. We will leverage tech consulting through those industry verticals going forward. This is basically feedback that we have received from our clients that ask us to be a bit more coordinated in the interactions with the clients. For those customers or prospects not requiring one-stop shopping, we will go directly with tech consulting directly to the market. I'm really lucky to have a new leadership team in place. The four business unit leaders will go through the go-to-market strategy entity by entity, including also financial targets, which you will see later on today. The third point is related to ensuring that we are focusing on the growth going forward.
First of all, we are coming from a very strong home base in the Nordics, like we have been presenting already. The ambition is to grow with the market or more going forward in the Nordic market. However, we have already seen opportunities in the European market with some of our selective software products into selected European markets. Examples of that is that we signed in Q2 an agreement with Basel Hospital University in Switzerland. You saw in Q3, we signed a deal with Catalonia Health Region, 8 million citizens, a deal with Entity Data as a systems integrator. You will see more to come from Bank Tech, In Tech, and Care Tech going forward. We have an ambition to deliver a total contract value of EUR 500 million by the end of 2028. You could say, okay, this is not a very ambitious target.
We need to keep in mind that it takes some time to penetrate new markets. We need to have a realistic approach on this and realistic expectations. That is why we are now shooting for the EUR 500 million TCV mark. Currently, we have approximately EUR 100 million from the software and associated services to that software outside the Nordics, approximately EUR 100 million. We still regard this EUR 500 million as a relatively ambitious and realistic target. Part of the go-to-market strategy, you will also see evidence of that in the future, that we are also emphasizing to really go with strategic partners going forward. You will see also some of the business units coming back to that during their presentations later on. All of this in terms of growing going forward, capturing the international growth needs to be done with a competitive cost base.
When I went through the Q2 cost base when I took on the assignment as Interim CEO, May 2025, also partly triggered by the sales of one-third of our business, namely tech services, I clearly saw that we had a far too high cost base. That is why we announced the cost efficiency program in connection with the Q2 results. We are tracking ahead of plan. You saw that evidence in connection with our Q3 results. You saw that on Thursday, we upgraded the guidance for 2025 outlook. We will come back to in connection with the Q4 Interim Report in February, how are we now tracking into 2026. As said, we have committed to deliver a EUR 115 million run rate by end of 2026, and we are ahead of that plan.
We are approximately 1,300 colleagues less as we speak today compared to one year ago, mainly driven by takeout in sales general administration, but also partly taken out from delivery capacity. We are, of course, focusing on all nitty-gritty details related to expenses and costs. We are looking at premises. We are looking at driving initiatives on streamlining procurement that take out synergies there as well. A lot of practical operational initiatives are ongoing. What will then be the effect of these four strategic priorities from a financial point of view? We have already communicated to the market several times that 2026 is going to be a year of transition and execution. Why are we saying that? First of all, we have seen now lately both McKinsey and Deutsche Bank came out with new updates in terms of 2025 outlook for the sector.
Also now looking at how the companies are taking down the outlook for 2026, we are experiencing a headwind currently in the general market spending. On top of that, when it comes to revenue, we as a company have a couple of unique headwinds which are related to our legacy within bank tech and also care tech. That has an effect in 2026 of approximately 3 percentage points negative growth. Big part of that will be out year-on-year comparison-wise when we are ending 2026. Even more important, when we look at how we are now growing our new services and new software offerings, we have an underlying growth already going out of 2025. We are quite comfortable that we will deliver the top-line growth, CAGR 2027-2028, in terms of more than 5% growth. That growth will fundamentally be driven by growing more in the Nordics.
We will see the results coming from international expansion. We have also the shift that Per will come back to after my presentation today. We have also a shift ongoing withInTech consulting to really be more relevant in the market going forward. We have also communicated to the market that when we look at 2026, we will improve the margin. There will be a margin expansion happening, basically based on the cost measures and cost initiatives that we have taken in 2025. On top of that, when we look at 2027 and 2028, we are comfortable about delivering more than 16% margin end of 2028, driven by, first of all, cost efficiencies coming through, then Nordic international growth, and then also further kind of efficiency measures, also partly driven by what we do internally in terms of streamlining AI.
We saw also yesterday that we have launched a new brand. We have got a lot of positive feedback already today on the new brand. The point with the new brand is really that this is underlining the shift. This is supporting those four strategic initiatives. Keep in mind that Tieto really has a meaning. It means knowledge or information in Finnish. From my point of view, it's actually capturing also the heritage of the company. We have been in the Nordic market since 1968. This is kind of also underlining the positive part of the legacy that we are carrying as a company. It is more than a symbolic thing. For me, this is also underlining the mindset shift that we are going through.
It is also supporting our image, not image, but our ambition to also be the impact partner for our clients going forward. The most important asset we have is our 15,000 employees. First of all, we have changed the leadership team. Out of 11 in Group Executive Team, 9 are new to drive the focus and the shift going forward. We will invest more into leadership development, which we have not done the last years. It is quite important also to focus the organization much more on a fact-based discussion and also with sense of urgency, which is one of my favorites, because that is really what the clients require. Also in terms of accountability and responsibility, and then also back to my initial remark on transparency, we need to have also to ensure that we have a more transparent organization going forward.
Again, this is not going to be a quick fix. This is going to happen quarter by quarter going forward. This is about the cultural change that we as a leadership team have to drive. On top of that, we are actually investing in skills development. We have been through now around 14,000 employees with a basic education on AI. We have also invested heavily into product development, so tooling and kind of enabling our people with new tooling related to AI. We are coming back to that later on also by the business units. We are investing into the future and into also enabling our people. Specifically about AI, when we look at AI, we have structured that across the company now. During the last six months, we have actually three main areas that we are focusing. One is related to sales and value propositions.
We have already kind of bid bots. We are using R&D to develop RFPs, etc. Where we have kind of clear evidence already in terms of productivity improvement is within our product development. Ari will come back to this related to Lifecare product development, where we had AI embedded into product development the last three years, where we have documented a 30% productivity improvement. Second example is that we are running now COBOL, the last remaining part of the new or the old core bank solution to the new modernized one. We are running now AI tooling for COBOL conversion to Unix and .NET. We have invested in AI embedded into our fraud prevention systems in card monitoring, card transaction monitoring since two years. We can continue with these examples.
We will also go through this with In Tech, where we have also now invested into a public portal where the clients can actually use AI tools to develop their own applications. A lot of initiatives are ongoing. Of course, we are also now looking at internal efficiency. We have HR Assist as an example. We are looking at now also to streamline all the paper documentation that we have from a compliance point of view, doing machine reading, applying AI on top, and then we will drive this in a more efficient way going forward. Having said that, it is quite clear that AI usually starts with a kind of innovative project, R&D. Then we discover, and this goes internally and with our clients, we see that, yes, we are dependent on other technologies. We are dependent on data. We are dependent on infrastructure.
We are dependent on the legacy. Usually then we see the scale of the project ramping up. From my point of view, companies with a strong client base, a large client base with a lot of legacy are well positioned to leverage on the AI opportunities going forward. As you saw yesterday, we have also now launched a new capital allocation strategy or principles. Again, it is a very, very clear feedback from our investors. We conducted a quite extensive survey in June of 2025. Clear feedback from our investors. More than 50% said, you guys need to invest more into growing your company organically. We have listened to the investors, and I think that we still have a very lucrative dividend policy. It is a solid policy with 60%-80% of net profit as a dividend.
On top of that, I think it's quite important to underline what we have on the right side of this picture is that with excess capital, we will do share buybacks slash or extraordinary dividend going forward. We are keeping then the leverage less than 2 net debt EBITDA as target also going forward. Looking at then the targets that or the KPIs that we have set out for 2028, more than 5% CAGR 2027-2028 top line growth, more than 16% margin by end of 2028, 60%-80% dividend, and then also less than 2% leverage. The point of going through this now as a summary is that we are committed to deliver. We regard these targets as realistic, and these targets are more or less set independent of what's happening market-wise. Let me summarize.
First of all, we are coming from a situation where we have been lagging in terms of growth. We have identified the challenges. We have identified how to grow the company going forward. The growth will come from the Nordics and then also international selective expansion driving towards the revenue targets that we have set out for 2027 and 2028, and also looking then at the margin by end of 2028. Having said this, I am really looking forward to our capital markets day in 2028, where I can present the achievements and the results. Thank you very much. Q&A opening.
Thank you, Endre. We are now opening the floor for questions. If you would like to ask a question, raise your hand and please wait for the microphone and then state your name and company before speaking.
We continue to take questions over the online platform as well. We have first question, I think here on the second or yeah, go ahead.
Yeah, I'm here. Okay. Thanks for the presentation, Endre, and thanks for taking the question. It's Mark from Morgan Stanley. Can we just maybe start with the bridge to the 2027 and 2028 guidance? Obviously, there's an illustration here, but if you could be a bit more specific around how much of that 5%+ is coming from growth in the Nordics versus international expansion and then tech consulting, that would be great. I noted that on the slide it said mainly organic. What role will M&A play in the growth of the midterm?
Just finally, could you talk to us a little bit about what investments you've already made in international expansion, both on the go-to-market side and the product side? What further investments do you plan to make in 2026? What confidence does that give you in achieving that EUR 500 million target? Thanks very much.
Let's start with the last one first. First of all, we have invested now into generating more like industry, European industry standard Lifecare platform. That's why we clearly see the results now with a huge interest internationally. We have selected a kind of international go-to-market strategy with partners for Lifecare in order to not carry too much cost in terms of the international expansion. We are quite confident that we will succeed because there's a huge demand for these types of products across Europe.
In terms of bank tech, we are also looking now at international expansion in selective markets. We have pinpointed U.K., Ireland, and we have pinpointed also Spain. This is all, of course, based on a very thorough mapping of the European market and with our product portfolio, which products are applicable by each market. For example, ATM, Spain has the highest per capita penetrations of ATMs. That is one of the products that we are looking at. We are looking at card issuing, card monitoring, fraud monitoring, AML, etc., where we have leading edge products already up and running. That is the kind of main focus. The investment will be fairly limited. In terms of M&A, we are not going to do any big M&A. That has been also clear feedback from our investors.
Don't do any big M&A because you have a disastrous track record in terms of doing M&A. When I'm talking about M&A, I'm talking about small, small bolt-ons, which is more or less like, from my point of view, a rounding and organic growth. We are looking now, when you look at the growth trajectory that we're looking now for 2027-2028, it's, I would call it purely organic growth. We are not disclosing which pockets of growth are coming, but you will see clearly after my presentation, you will see the breakdown business unit by business unit. As you can see from the chart of financial performance 2027-2028, the majority is coming still from the Nordic growth, repositioning ourselves there, capturing the opportunities there. We get the effect, for example, in banking of legacy out of the books by end of Q3.
Not legacy fully out of the books, but the negative 2%, 3%, 4% effect that we have in banking will be out of the books in end of Q3 2026. Of course, also within care tech, you will see also a huge difference between 2026 and 2027 in terms of the effect of legacy. The majority coming from then the Nordics and then partly also coming from software expansion internationally. We also have the shift that is happening, Paris coming back to that to illustrate what shift are we going through to be more relevant in terms of market demand. This goes very closely back to we are coming from a situation, again, to be transparent, that we have had too much CV sales and time and material.
The market is moving quickly in another direction, namely more like building services on industry standard software like Microsoft Dynamics, etc. That is also part of the game plan, which pie will come back to, how we are going to work closer with a set of strategic partners to enable the expansion for tech consulting going forward. As you will clearly see, at least get some more meat on the bone when you see the different business units coming with their kind of graphs. Let's see at the end if you still have the same question.
Okay, Sami Sarkamies Danske Bank Markets, also wondering about growth. Can you somehow try to explain that, what explains this step change from historical 1% organic growth to above 5%? There has been the portfolio change from divestment of tech services, but it does not fully explain it.
You still have the same people, the same products, and the same businesses except for tech services. Maybe secondly, can you put those growth rates into some sort of context? 1% has probably been well below the market growth, but looking ahead, what kind of market growth are you expecting in 2027, 2028 timeframe?
Yeah. First of all, I think this, like I said, it's about a mindset shift. Why do I believe that we will succeed? Because we succeeded in banking to turn around that business. We are doing more or less replicating what we did in banking now for the totality of Tietoevry. We do not have the same people. It's not correct. We have a complete new leadership team in place. Like I said, we have nine out of 11 in the leadership team are new.
We have a team that is prepared to show leadership and to drive on a fact-based basis and to ensure that we are executing what we are told the market. I think the early evidence of this, and it takes time, like I said, to regain the trust of our investors. We have seen clear evidence already looking at Q3, looking at what we announced on Thursday last week in terms of being ahead of plan on the cost-saving program. This is not coming by itself. It is a lot of operational doing to get there. I am 100% confident that we have the right leadership team in place. This is about leadership and walking the talk and structuring the business in a different way going forward, but also keeping people responsible and accountable. This is new in my books.
Also, looking back at how we built up an artificially high cost base. Yes, it's okay. It's one of the reasons why we had to look at the cost was, of course, the sales of tech services, but it was far too high anyhow. Monitoring the cost base versus the benchmark in the market, etc., that is kind of the fact-based driven business that you will see from Tieto going forward.
Let's take one question from the online audience as well. Yeah. First, congrats to prudent ambitions and relevant new financial targets. How autonomous will the four divisions be? Slide 10 shows that tech consulting will supply the foundation, if needed, IT services to care tech, bank tech, and InTech. How to secure that now no sub-optimization processes are built in? Yeah.
From my point of view, at least, it's a very clear new go-to-market strategy. The industry verticals are responsible for the market penetration and their clients. They will hopefully benefit from having technical consulting to deliver generic services, integrations, etc. We can deliver what the clients are asking us, deliver more of what you have, take responsibility, and do this in a coordinated way. At least when we look at how we have prioritized now strategic accounts and strategic prospects, we believe that this is the right model going forward and that I have seen this before, we get results. We still have tech consulting to go directly if the client doesn't require one-stop shopping.
We have time for one more quick question. Go ahead.
Good afternoon. It's Matti Riikonen, DNB Carnegie.
You mentioned earlier in your presentation that you for 2026 expect a headwind of three percentage points internally from issues. When you guide flat or slightly declining top line in 2026, what is the positive element compensating that 3% negative then coming from?
That's a very relevant question because we clearly see that our new software offerings, so we have a lot of new products. It's not the old products and the same people. We have new product offerings which will drive, and we clearly see evidence of it already, will drive the underlying growth through 2026 already, meaning that we have the right traction into 2027. This goes for banking, it goes for care tech, and it goes for InTech, and it goes for tech consulting as well.
All right. Thank you.
Thank you. Thank you, Endre, and thank you for the questions.
As a reminder, we will have a chance to ask more questions from Endre then at the end of the day as well.
Absolutely. Thank you.
We will now continue the program and dive into the consulting business and see how tech consulting is changing to capture future opportunities. Welcome, Pär Johansson .
Good afternoon. Very happy to be here. Good to meet you all. I started this assignment in the middle of the summer. To get a good understanding about our business, I spent a lot of time together with our most important customers, our employees, and our strategic partners. It has been quite clear feedback, and it's mainly related to three things. First, our customers choose us because of our local proximity in the way how we understand the customer. That's why the customer comes to us, otherwise to choose someone else.
Secondly, we have a broad portfolio which needs to be aligned with the recent market trends. Thirdly, we have been operating with a high cost structure. We have started activities connected to all these areas immediately here during last year and during the autumn. Just to take a couple of examples, we are operating now in November in a new both organization and operating model setup where we've been moving from a global operating model into a more local operating model, creating country-based consultant units. This is to get very close to our customer and get a much more close interaction between supply and demand. Secondly, we also completed here in October the integration of our largest subsidiary, Infopulse. As Endre also mentioned, we are also running a lot of cost optimization programs as such as well.
Before moving into all the details here, I just want to go through a little bit on what it is that we're going to talk about today. We are driving change in three main areas: customer centricity, service mix, and efficiency. There is a huge opportunity out there in the market related to AI, cloud, and data. We will be aiming to capture that. Before we are able to do that, we have to go through a refocus. During this period, we will deliver a growth of 3% or about 3% and a profitability about 12%. Before going into deep diving into the numbers, I just wanted to give you a little bit more understanding on what is tech consulting. Tech consulting is a consulting unit, and we operate in three different regions: Nordic, Central Europe, and US.
We are supporting five industry segments where several of these industry segments are directly connected to our software businesses. In the service portfolio, we are splitting that into different areas. One of the areas is what you would call maybe classic IT consulting, so customer experience, AI, cloud data, etc. The other area is what we call engineering services. Engineering services might need a little bit of more explanation. We are developing software for OEMs. This could be that we are developing a sound software for boats, and then boats sell the full package to a car manufacturer. Or we are developing software for telecom equipment providers, and then they sell it to an operator. A very special kind of business compared to the classic IT business. We have a very solid base for further expansion InTech consulting.
As I already, with 1,500 customers and 8,200 employees. As I already indicated in the last slide, we have some challenges that we need to take care of, which have been there for a long time. Our customer portfolio is our largest asset, but it is also our largest challenge. It is too wide, so we can't really work with our clients in the way we really want. This is also leading to transactional engagement. The issue with transactional engagement is that we need to resell this engagement time after time. You need, of course, some transactional engagements to manage the highs and lows in the market, but we have too much of them. We are also quite heavy into the engineering areas.
As I already explained a little bit on engineering, this is a very global market with global competition and heavy price pressure, especially where we stand right now in the market. Tech consulting has been operating in a federated manner for a long time, with many fully owned subsidiaries. This creates a non-optimal, optimized cost structure, too heavy, basically. It also drives service fragmentation. All these things we have to deal with at the moment. What is it? Our financial performance is a testament to the situation and that we have to do something with this. What is it then that we do?
We are focused on three main areas: customer centricity, which is mainly a focus on strategic customers; service mix, that is a transition into the high-growth areas within the service mix; and thirdly, operational efficiency, which is mainly related to simplification. I will go through a little more detail what it is that we actually do. We are focusing on 60 strategic customers. This is the customers which we will implement full governance on. They will also get a new, as Endre mentioned it, a new governance model which we are implementing at the moment. Our focus is also on the regulated industries. This is really our sweet spot, both because it's connected to our software businesses, but also because it drives the customer proximity.
If I just take one example from banking, because that's an area I know the best, maybe, and in the lending area, it's not enough to understand lending generically or mortgages if you are in the U.K. You have to understand, of course, both the process in the U.K., the regulations in the U.K., as well as the ecosystem in the U.K., as these things vary between countries. This is really areas where we can show our customer proximity and that we understand the environment the customer operates in. We are doing also changes and strengthening our key account management. This is mainly related to people, process, and tools. To drive our change in the service mix, we are also investing in hunters and increasing the amount of hunters in the unit.
I really believe in the AI cloud data area, but I also very much believe in the enterprise application area. The reason for this is that this is very much connected because what we see is that many AI projects are creating a lot of downstream revenues today. Usually, it starts with a smaller project in the AI space. Quite quickly, you are in a data project. You need the technology, which is usually cloud, and you also come down to the enterprise layer or into the core systems. I just want to take an example from a customer we have in Europe. They are responsible for the expressways and motorways in the country.
We set out together with academia and the customer to create an AI solution which would help them to predict queue situations, both from an environmental point of view, but then, of course, from an efficiency point of view in general. This starts as a fairly small project to start with. Quite quickly, it becomes quite complicated. First, you need to integrate thousands of cameras through the country to get the video footage from the traffic. Secondly, you need to manage regulations because you are not allowed to store video footage. It's not theirs, which means that they have to, in real time, it has to be translated into synthetic data. Then you can start training your AI models on top of that.
Then you also need to update the core systems because they need to be able to act on the analysis and recommendations it gets. All of a sudden, you're moving from a fairly simple situation and a smaller project into a very complicated project. This is the real opportunity, as we see today, around all these AI cases, that it brings a lot of things with you in the end. To focus in these areas and increase our footprint, we are driving a competence shift of 1,400 people through the unit. On the operational efficiency side, it is more about simplification.
I already mentioned that we made a change into a new kind of structure where we focus more on the country-local aspect with the very closeness between supply and demand that helps us to make sure that we have exactly the amount of consultants that we need. Secondly, it is very much about the simplification. We are continuing and we are continuing to do integrations of our subsidiaries. In the end, what is it? Where are we going? What are we trying to become? We are trying to become a leading tech consulting company or unit. With the customer in the middle, we are focusing on Nordic, Sweden, Norway, Finland, Central Europe, which is mainly a focus on DACH. We have, since many years, a very good and established operation in Austria, which has been growing very nicely, where we also have created a beachhead into Germany.
Their task is to continue to drive and expand Germany. If we can find the growth we're looking for in Germany, we don't need to really go to many places in the coming years. Of course, we also have the U.S. We are doing this together with our strategic partnerships: Microsoft, IBM, Databricks, Snowflake, super important in its journey, but then also our software businesses within Tieto, Bank Tech, Care Tech, In Tech. Here is a huge potential for us to work much more closer. The same thing as for the enterprise application, as well as our core system we have in our software units, these are the software which is creating pretty much all the data. Here we see a great opportunity to extend those offers with these other areas.
This connects, of course, also directly to the competence shift we are driving right now from the engineering areas over to these new high-growth areas. There is a bit of headwind in the market at the moment, but I am certain that we will see growth in this market for many years to come. We are also aiming at the segment of the market which grows twice as fast as the general market as such. We do that, as I mentioned, by taking and utilizing and taking care of the investments in AI, cloud, and data and going for the downstream revenues. As I said, we do this both with our strategic external partners as well as with our software partners in the company. We are approaching this refocus in three different steps. During 2025, this year, it is about to build a foundation to work from.
This is very much related to the change in our structures and the new operating model with a much higher customer centricity and a lighter overhead. Secondly, of course, it is about the integration of our subsidiaries. We also started a sales performance program to increase and make both our hunting sales as well as our key account management much better. Several of these activities will continue to move into 2026, but gradually during 2026, we will expand more together with our strategic partners and accelerate our competence shift. In the later part of this period, we will see growth from the strategic customers, and we also will have improved the service mix as such. How does this look like in numbers? As I mentioned earlier on, we are coming from a low-growth situation, and I expect a small decline also during next year.
We should be in a good phase and shape to start growing with our strategic customers, but also from the service mix change as such, as this is more high-priced areas. During this refocus period, I expect a quite moderate profit expansion. To recap, AI cloud and data creates a huge opportunity and the downstream revenues it drives. To capture that opportunity, we need to drive change through tech consulting. We are focusing our change into three areas: customer centricity, the business mix change, and then a simplified cost structure or lower cost structure. We have already started execution in all these areas, and I'm certain that when we are through this, we are in a good shape for further growth and also margin expansion. Thank you very much for listening to me. I think see you later on in the break. Yeah, we have questions.
Thank you very much, Pär. Let's take a couple of questions. We have a little bit of time left here. Here on the second row, I see one hand from Sami.
Thanks. Sami Sarkamies, Danske Bank Markets. Looking at the financial targets, you seem to aim for quite modest growth, below 5% market rate, with margin level that is below the level you had in 2022 and 2023. Are you planning to pull out from some business areas, or what explains the cautious target setting? Can you assume that internal targets are much higher than what you are presenting to us?
As I tried to explain, if you look at the last 12-month performance, we're coming from a pretty bad growth situation. It will take a bit of time to change this and making sure that we get the shift into the AI cloud and data area.
This is more an effect of the actual change that we need to drive rather than the external factors as such. Of course, I get a higher target from Endre than what I present to you. That's, of course, correct.
Hi, good afternoon. Jaakko Tyrväinen from SEB. Regarding the continuously improving productivity thanks to AI, how do you see the overall demand for consulting hours to develop in the markets overall? Meaning that will the kind of increasing demand for outputs and outcomes be able to more than offset the improving productivity and reducing hours in that sense?
In the manner Endre answered his question or talked about this earlier, we see this more as a big opportunity for us, and we have not really seen that kind of impact yet.
If we think about create, sorry, tech consulting, as a consulting unit where we're selling sort of our experience to customers, we are also, of course, utilizing these experiences and tools to deliver to the customer. I don't see any, at the moment, we don't see any such risk, and it's more about productivity that you can increase the productivity and get more done. It's not like it becomes less. If we look into the legacy situation of our customers, it's huge. There is so much work out there. I'm not so nervous about that. I just want to answer as well that to hedge this a little bit, we're also doing this competence shift from traditional engineering areas, which is more about just development into the AI cloud and data area.
That's our way to hedge this and also jump on to a more higher growth train.
Let's take one question from the online audience next. What can you do to avoid giving away the productivity gains from AI to the customers in a business heavily based on time and material billing?
I think that all development we do in this industry has always been about automating manual work. This is not a new thing with AI. This is what the IT industry has always done. It doesn't matter if it has been coding a manual process or if it's AI which does it. As usual, it's a matter for us to making sure that we have our way of working and our APRs and doing the work better than competition. There is a possibility to take out premium.
Thanks, Pär .
It's time to move on now, so thank you for the answers and thanks for the questions as well. We will now move to our unique software offering and hear how we plan to expand our Lifecare product across growing European markets. Please welcome the Head of Care Tech, Ari Järvelä.
Good afternoon. Tieto Care Tech is one of the technological leaders in healthcare digitalization. We belong among the largest European healthcare software providers with our 1,600 dedicated professionals and 1,000 customers. We are ready to introduce our Lifecare software to a wider audience and capture opportunities in European health reforms. Our success in the Nordic reforms has secured our leadership position. This brings us the opportunity to continuously introduce our latest software to this extensive customer base and increase the wallet share. Building on this Nordic success, we are expanding to European markets.
This strategic move aims to replicate our achievements, broadening our impact and bringing our Lifecare to wider markets. Tietoevry Care Tech remains dedicated to delivering robust financial results. Our targets, above 7% growth and 28% profitability, reflect our commitment to sustain growth and high operational efficiency. In this presentation, I am going to open you up our plans. Reforms, digitalization, and data utilization are driving the market growth in our industry. Aging population, together with the continuous demand of higher quality of care at controlled cost, is putting a lot of pressure to care systems. At the same time, the digitalization level in our industry has been lagging behind many other industries like retail or banking. When we are talking about reforms, typically there are two kinds. One is aimed to integrate so-called full care value chain from social care to primary care to secondary care.
The target is to get the visibility to this value chain and especially its resource utilization, avoid overlapping services and improve the citizen experience. The second type of a reform is aimed to move towards more preventive and cost-effective ways of doing care, like virtual care or home care. Regulation is evolving all the time, especially within the EU. As an example, European Health Data Space Regulation demands for openness and sharing of data. To a large extent, Nordic countries have this in place, but many other countries like Germany or the Netherlands do not. Better data utilization can improve the quality of care both in treatments as well as in research. Entering into the wider European markets opens us an addressable market of EUR 3.7 billion compared to EUR 650 million currently in the Nordic only. Healthcare market is in demand of open, modular, and interoperable software.
As a technological leader, we are ready to capture that opportunity. We at Tietoevry Care Tech believe that the time for monolithic, so-called all-inclusive systems is just over. They are too complex, too costly. There is no speed and no innovation. We have been undergoing a significant transformation, moving from a country-specific software approach to a platform-based, modular, and interoperable, scalable Lifecare Portfolio. Today, this Lifecare Portfolio consists of a comprehensive set of software covering social care, primary care, and secondary care settings. We claim our technological leadership since we have the only electronic health record software based on open standards and modular architecture in wide-scale production use. Furthermore, we have the only data platform certified under the EU's medical device regulation as a basis of our advanced data and AI solutions. This brings the compliancy and reliability to our customers' healthcare data management.
When looking at our key differentiators and what we promise to our customers, they include interoperability. Because of the open standards, open data models, open API interfaces, open user interface framework, we ensure seamless data flow without locking. This gives our customers full visibility to their viable healthcare data. We promise flexibility. Because of our modular approach, our customers can build their preferred tailored solution combination, avoiding monolithic solutions and vendor locking. This boosts our customers' ecosystem collaboration and innovation. We promise less complexity. We offer our customers a stepwise implementation approach, avoiding complex, costly, multi-year transformation programs before getting any tangible benefits. For the Nordic markets, naturally, we offer our full Nordic suite, covering social care and healthcare settings. Our data offering is available in all of our go-to-market countries and includes our Lifecare data platform and insights applications, as an example, resource optimization.
For the European markets specifically, we offer our modular clinical core applications like patient journaling and diagnosis management. This is the clinical component of our Nordic full suite. Tietoevry Care Tech is the pioneer and innovator of open and modular software that promotes interoperability. This approach has made us the winner in the Nordic health reforms. Nordics has been seen and is seen as a front runner in healthcare digitalization, and Tietoevry is playing the key role in building this. Even though we have approximately one-third market share in the Nordic countries, we still have a good amount of growth opportunities. In Finland, we have now secured 16 out of 21 well-being services counties and Helsinki University Hospital as our customers. This gives us the opportunity to continuously introduce the latest software, as an example in the area of AI, to this extensive customer base and increase the wallet share.
In Sweden and Norway, our approach is similar. In both of these countries, we have 50% market share in the municipal social care segment. To this specific segment, we are broadening our offerings by combining our social care and primary care software together to a wider solution. In addition, we have good growth opportunities in regional healthcare settings, especially with our data and AI solutions. While valuing Nordic countries as our home, we are also entering into a wider European market. When looking at the markets and customers, we have clear criteria. One, we are looking at customers who have high need for electronic health record modernization. Only in DACH countries, there are more than 1,000 hospitals having outdated system technologies. We are focusing on countries where national focus is on integrated care. Because Tieto is the company behind the Nordic interoperability, we can bring this expertise to these customers.
We are working with the customers who are interested in open standards. Our Lifecare is based on open standards and modular architecture, and we can bring this experience to our customers. To summarize the cornerstones of our go-to-market strategy, they include focusing on markets where national reforms require interoperability. Out of our vast portfolio, we are offering the modular clinical core, the clinical component of our Nordic full suite, and we are working through partners. We work with the partners, system integrator company who has existing extensive healthcare customer base. They are keen on working with the innovative software vendor, and they have strong local consulting capabilities. With partners, we get faster time to market without being forced to ramp up extensive own sales force. Partners are mostly responsible for sales, consulting, and implementation tasks, whereas Tietoevry Care Tech focuses on software and software support.
I'm extremely proud of our recently announced strategic partnership with Entity Data to build Catalonia's open health platform. Just last week, we signed a partnership agreement for software reselling and implementation with Austrian-based healthcare consulting and system integration company Extension. They have 2,000 hospitals as their customers in the DACH regions. To be able to capture these opportunities, we have also shifted our investments towards growth initiatives. As an example, partner network, international product support, and clinical core applications. Currently, the investment levels represent 17% of our revenue, and we are planning to maintain that proportion going forward. However, the capitalization is expected to reduce from the current 7% levels down to 3%-5% levels of the revenue due to the fact that a big part of our extensive modernization program starts to be over, and now we are focusing on enhancing our Lifecare with the new functionalities.
One key area is AI, where we have divided our investments into standalone AI products, AI embedded to our core suites, and any AI within our operations, especially in the area of product development. As an example, our smart notes tool in automated patient record transcriptions saves up to 50% of care personal time in documentation. 80% of our R&D engineers have been using GenAI tools since 2023, and we have gained more than 30% productivity improvement with notable improvement in the code quality. The shift in these investments also supports the healthiness of our portfolio mix. By 2028, 96% of the revenue is coming from the modern Lifecare portfolio.
The key levers to achieve this are continuing outpacing the market growth with our best of suite in the Nordics, expanding to the European markets with clinical core, and phasing out our declining non-core portfolio mainly by the end of next year. This portfolio mix helps us to better meet the customers' evolving needs and improves our competitive position in the markets. These growth levers, and especially expansion to the European markets and phasing out the non-core portfolio, accelerate our CAGR to above 7% level during 2027 and 2028. It's naturally that the political agendas and public sector procurement processes may impact the timing. We will keep our profitability to a very healthy above 28% level while steadily increasing the investments to our growth initiatives, decreasing the capitalization, and managing the rising depreciation. These very same growth levers also support our world-class performance.
Software recurring revenue will reach 78% by 2028, supported by growing software as a service part and our partners' contribution to consulting and implementation tasks in Central Europe. Good to be noted that the greater subscription license proportion and lower software as a service contribution to total revenue reflects the market trends and what we have seen in the latest reforms. We have been doing a portfolio simplification, transforming towards the modern Lifecare Portfolio. This development has been demonstrated with our wins in the Nordic markets. For us, the year of execution and transition means that we are gearing up the international sales to European markets. We are phasing out our declining end-of-life portfolio while we are keeping above market growth rate with our best of suite in the Nordics.
The next step is to accelerate by continuously advancing our clinical core software with the new functionalities and expand to new customers through partners. To summarize, we have the technological leadership by having the only electronic health record software based on open standards and modular architecture. We have proven our capabilities by our wins in the Nordic markets. We get access to a wider EUR 3.7 billion market through partners in selected European countries. With this, Tietoevry Care Tech remains dedicated to delivering robust financial results. Thank you.
Thank you, Ari. We are now opening the floor again for questions, and then Matti is the first one there.
Hi, Matti Riikonen, DNB Carnegie. I was really puzzled to see your profitability guidance, which is actually below what you have achieved in the past.
I mean, when you talk about growth in a software business, which should be scalable, then of course, operating leverage alone should imply that you are ending with higher margins. Also, if you talk about more SaaS kind of products sold to the European markets, then of course, the sales mix should be better. Also lifting the margin. When you also talked about the modernization of your key product coming to an end, I would imagine that that would mean that the profitability could then increase because the cost base is going to be lower. Is the pressure from these discontinued products really so big that it basically eats out everything that you achieve on the other side? No.
Do you expect that there would be perhaps more price competition, lower prices, or that sales mix would be inferior compared to the history, or more sales costs related to the new areas? Could you please explain why you think that your business actually is doing worse in the future when it should be doing the other way around?
Yeah, okay. Thank you. There are a few main explanations. You said it once. Of course, we are investing more to go to market. We are setting up the partner network, partner support organization. It is not only letting our partners go free, but of course, we are there to support our partners as well as the end customers to get to our platform. This, of course, requires OPEX expenses during the next this time period.
You are absolutely right that when we will get this international expansion truly to fly, our scalable software can be extremely profitable. That is one example. What we have seen now in the Nordic reforms, and especially those ones that we have won when we have won our existing customers to continue with us. The competition is hard in the markets, and everybody wants to hit us as a market leader. It brings to some extent, not hugely, but to some extent, cost pressure because of the lower prices. Thirdly, we are managing, in my opinion, smartly the capitalization also in our product development versus what are we taking as an OPEX cost. Like I said, compared to the current level, we are reducing the capitalization, and that has some few percentage point impact to our profitability. Those are the main things.
Next, we have time for one more question.
Hi, this is Aditya from Bank of America. On the chart where you showed the portfolio mix changing over time, you have the contributions from the non-core products at 4% even in 2028. Does that mean there's still some drag from that in 2027, 2028 as well? Coming to the underlying growth, which you said is still pretty strong, how does that look like in 2026, 2027, 2028? You know, just the core business which you have, how is that growing?
Yeah, okay. Thank you. Yes, in any business, there will be in the product business, certain long tail, and we expect that roughly 4% being this kind of, we call it legacy software that our customers still want to run during this time period. That is the reason for that.
We have reported during this year on a quarterly basis that this end-of-life portfolio will be roughly, that impact has had some 4% impact to our 4% impact to our growth. That will continue most likely as is next year. We have also informed that we have had several cases, one cases in the market court, and those have impacted 2%. We believe that we are extremely strong. We have a strong case for those cases, and hence the underlying growth has been, first of all, and will be above this 4%, plus then whatever we gain from these one cases.
Thank you, Ari. Excellent. Now it is time for a short break. Coffee and snacks will be served right outside the room, and then we will continue in 15 minutes at 3:45 P.M. See you in a bit. Welcome back.
I hope you all had an energizing break, and now we will continue with even more energizing presentations. We will next have two more software businesses presenting, and then after those, we will dive deeper into the numbers with our CFO. As a reminder, we will also have the final Q&A later with both CEO and CFO joining. Next, we will hear how In Tech is scaling its software products across new markets. Please welcome Johan Nygaard.
Ladies and gentlemen, good afternoon. I took on this role in late June, and in the past months, I have been looking into what InTech is. I have been listening. I have been learning. I have also taken those opportunities to take it with curiosity and maybe also some kind of critical review as well. During these months, I have seen that there is a lot of strengths in InTech.
We have a lot of expertise. We have been there for many years, decades. We have really good customers and clients and pretty large logos as well. We do have a really good portfolio of product or software solutions. We see that there are some improvements that need to be identified, and we have identified some of them as well. We are taking the action. Going now into the next phase of In Tech, we will build on our strengths. We also see that we have some improvements that we could do. We will also take up a clear growth path on how and where we should go forward. As I said, In Tech is maybe not only one company, but it's a portfolio of software businesses.
Maybe during the time now, the past months, looking into how we have been treating In Tech also, it's maybe so that we try to get every one of these eight product businesses fit into one size. They are totally different. They have different markets. They also have different kinds of customers. They are also regionally in different markets when it comes to countries and so on as well. They also approach those customers and the market in different ways. In all this portfolio, as I see it, it's quite strong. It's also a strength that we have this diverse foundation in the total of the portfolio. Two things, as I see it, we have a strong position, especially in the Nordics, but with opportunities and some of the business also having clients internationally.
At the same time, we have software and the technology that we're able to scale. This brings us the opportunity also to go abroad to Nordic countries. We are then looking into how we could now utilize some of those product businesses. I will come back to this later on, that will give us also the growth of more than 6% with also a profitability above 17% in 2028. If you look on the left side, you see those charts and the bars there. As you see from those spans, there is a huge span of the total of the portfolio. As I said, we do have eight product businesses, and they span really wide when it comes to the geographic concentration, but also the customer retention, and also when it comes to the high retention we have with all of our customers.
Nordics is our home market. If you look at the market there, we are still very much to the Nordic side. At the same time, we also see that we have opportunities with growing internationally. We have some of the product businesses that already have customers internationally, and also some of them expanding into new markets globally. There are different go-to-market models. If I move to the right side, you see those eight different product businesses. Five of them have 87% of the total of the revenue in In Tech. If you're looking into Multi-Channel and BICS, the first one, we have really had a strong position there for many years, both in Norway and Sweden. We see some growth opportunities there as well into other Nordic countries.
At the same time, we see also the opportunities that the digitalization going on now in Europe with also more focus on tax and tariffs coming. This is both a B2C and a B2B software business. Public 360, that's case management, and it's really strong in the public sector in the Nordics. We are also exploring new opportunities there in Europe. We see that they have a good market share now in the Nordics. With this new technology and this strong regulations that is taken care of by Public 360, we see that there's a lot of opportunities outside of the Nordic as well. TIPS, or Paper and Fiber, that was mentioned by Endre, is a place where we see that we have some headwind. This is a global, more or less, business for paper industry.
That's where we also see that we will gain some new opportunities now by renewing some of the software that we have had there for the last years. Still, this is a good opportunity with more than 300 mills globally going forward also with TIPS. Edlevo is a stronger one in, especially in Sweden, having growth in Finland. If you look to iShare, that's one of also our growth bets, especially because they are strong in Norway, but they have also been really strong when it comes to the maritime sector. That's where we see that we should have the opportunity also to grow more with iShare. To summarize this, we do have eight products. Five of those are 87% of it.
At the same time, we do have three really good product businesses that we see could give us an opportunity going more abroad of the Nordic countries. I will come back to this later on as well. Just to give you some examples, we are maybe not the portfolios, maybe not typically wholesale names. As I see it, we are really critical for many parts of the society. We are what's this doing with the software and the platforms behind everything. Just to give you some examples, if you register a car in Norway, for example, or you do some interactions with the local administration, probably all of this data is going through some of our platforms.
If you are a Nordic citizen and you should pay some of your invoices, I'm pretty sure that some of this is also taken care of by our software in those Nordic countries. Just as one example, we do have 2 billion transactions in that software business in Italy. I think also if you take another example, when you go every week as a Nordic citizen and do your weekly grocery shopping, all the infrastructure when it comes to those retailers, that's also handled by our software. There we have those large Norgesgruppen, Kesko, and so on in the Nordics. That's why I say that more or less there is a lot of critical services in daily life that runs through our systems.
I think that this is also one of the great things with In Tech is that we have everyday moments that is more or less powered by our technology and our software. If you look at the growth, this performance is quite significant spread in the portfolio, going from a lower number up to a higher number as well. You see where we are on the average, the mark there for the portfolio. We also have a target there. I think that if you look on the total contract value we have had the last year now and the book to bill, we have seen a huge increase in the opportunities we have there. If you look on the TIPS, as I mentioned, that have had some headwind as well, this is recovery ahead as we see it.
We mean that this will give us other opportunities as well. Those are going to bring us the opportunity to grow outside of the Nordics. That's iShare, it's Public 360, and it's Multi-Channel and the BICS. We have done a lot of things now when it comes to profitability. We are aiming for an SGA cost lower than 10%. We have done something already now, as mentioned also by Endre. We have done a lot of turnaround also with two-thirds of the software we have in the total of the portfolio. I think also it's going to be a clearer split because some of the software units, they are really strong in the Nordics, and they have the opportunities also to grow in the Nordics.
Why we really need to bet on some of our software units as well on how we could be able to grow outside of the Nordics. We are well positioned in many of the markets. We do have a proven playbook on some of our software. I bring up iShare again. It's a number one industry solution, at least in Norway. With that focus they have had, and we have been following our customers, especially in the maritime sector for many years, we selected now to be the number one when it comes to the maritime sector globally with iShare. Public 360, as I mentioned, that's the only pan-Nordic solution. The strength there is that we have a really good position going into Europe with high security. I think we have the highest security you could get from different military organizations and so on.
I think that that's a big value of going into more regulated case management systems in Europe. From everything we see in the daily now with the challenges in Europe, I think that this is going to be more and more important also. Multi-Channel and BICS, as I said, that's billions of transactions. I think we have been pretty far when it comes to digitalization in the Nordics compared to the rest of Europe. This is something we have been now delivering our software solutions for large banks, credit card companies, municipalities, large retailers, and so on. We have the total business to consumer and the business to business communication there. This is also something we see that we could utilize going into new markets, and we have been starting exploring new markets.
I see that the digitalization rate in Europe will be much faster than we have seen in the Nordics. It took maybe 20 years to become in more or less 95% digitalized when it comes to e-invoices or invoices in the Nordics. While I think it's going to take five to six years to reach the same thing in the rest of Europe. We see the technology, we see AI, and it's also by regulations coming from authorities that's going to accelerate this digitalization. I think we will be spot on when it comes to our heritage coming from the Nordic, being a part of this digitalization and grasp that opportunity going forward. We have modernized, and this is the same also where you see the bars on the left side. It's also a span here, but with the marker is more to the right.
We have renewed some of the portfolio already. We are continuing doing this. AI will support us on this as well. We do have a few legacy left as well. We do have strong market positions. When it comes to AI, I would like to focus on Public 360 as well. We are today covering 90% of the citizens in Norway with a totally AI solution in Public 360. We have come pretty far. The other thing is that, also mentioned by Endre, is that we now give the customers or clients opportunities to use AI portal as a framework where they could use the AI technology to make their own apps. This is quite revolutionary also when it comes to using those opportunities for a case management system that is really important when it comes to security.
This is something we have implemented as well. With iShare, we have been working with AI for two to three years, maybe more as well. Today we see that invoice approval has increased to above 80% by using this AI technology. This is also coming back to what I said when it comes to digitalization. This is also a part of the digitalization. One thing is the automation of it, but it is also to be able to bring this AI and the technology and the software and the understanding we have in those niches that these eight product or software businesses have their focus. At the same time, we also see that the R&D productivity, secure AI, I think that is one of the most important things, accelerating a lot.
I think that AI also will help us boost the R&D and the productivity that we do. Maybe we're going to have the same number of people in 2028, but those people will produce much more high-quality software compared to what we do today because of the use of AI. This is one of the things that we have been working on for the last two years. This is a rapid change in that technology happening every day. I think that we do have strong products. We do have a strong customer base. We are still very strong in the Nordics because that's our whole market. We also co-develop together with our customers coming from the Nordic heritage, going into new opportunities also in new markets.
We have these three growth tracks and three products, Public 360, iShare, and Multi-Channel and BICS that we'd like to go out with in new markets. We are shifting our portfolio to higher recurring revenue. We are on a quite decent level today, but to see that we even now need to also change some of the professional services. We have done a lot of this in Public 360 and iShare, where we change from professional services more into SaaS revenue. This also gives us an opportunity with shifting the portfolio also more into the SaaS revenue, but also a bigger and addressable market. If you look on the bottom side there, there is a strong demand, as I said, for automation. There is an increase also from regulatory needs. It's coming more and more regulations from Europe.
That's really good for us because we are already ready to meet those regulations. That's especially when it comes to tax and also the tariffs. I think that when you have these really significant niche product businesses, it's also a barrier for others to entry into this one. Growth from our core geographics and our customers. I think that we see that maybe 20%-25% of our expansion is going to be our growth is coming from new markets. We see that we should have a CAGR, as I mentioned, above 6%, and also then profitability on 17%. There are a lot of cost reductions already done. I think we need to keep on with this as well.
It means that we need to utilize everything we could when it comes to be crisp and clear on the strategy also going forward for each of these eight product businesses. In 2025, we sharpen the profile. If we look into now, what's the most important things now going forward? Simplify in 2025. Reduce day-to-day, that's what we have done. 2026 is about taking those growth products, expand outside of the Nordics. I think that Denmark, U.K., and Netherlands is really good opportunities for those three. At the same time, take the opportunities when it comes to regulations also into 2027, 2028. To wrap it up, we are in a really strong Nordic position with eight distinct proven products. We have the opportunity to grow from those three winners. They are already in a scalable and also global potential.
We have modernized parts of the portfolio already. AI is important where it adds value. And AI capabilities also where they truly, so to say, bring value for our customers. So we know the markets, we know our customers, and I think we are ready now to grow. Thank you.
Thank you very much, Johan. Once again, we are ready for your questions. And there Matti was the first one with the hand up.
Hi, Matti Riikonen. When you say that you have eight products bringing 87% of revenue and only three products with growth opportunity, it means that your entity is actually very complicated and very diversified. And if it was listed separately, many would consider that it's too wide, too complex. It would need to be restructured to have some kind of focus. And now it's part of Tieto, which makes it an even bigger question.
What is stopping you from making some structural changes to the company so that you would basically skip focus and maybe divest the ones that are not core for you, then focus everything on the ones that bring you the growth and then see what happens? Is it kind of lack of growth opportunity in those three or maybe too low valuation to sell the others which are not performing? Is it just that you do not have the resources to develop those remaining ones that would be interested? I mean, there is a reason why you have had these businesses, I think, for the past 10 years or maybe more, and nothing has happened. I would like to hear your view that why are they still there and why have you not done anything?
I think we have, first of all, we have addressed that this is a portfolio. It's not one unit. And those eight product businesses, they are totally different, as I said, with different markets. We had to take the strategy from each of those also going forward. There are things that give, as I said, for example, Public 360, iShare, and also Multi-Channel and BICS. Those we see that are opportunity to grow abroad, the Nordics. We still see that some of those product businesses also, we still have an opportunity in the Nordic market. We see that we, for example, with Edlevo, we're really strong in Sweden. We have started now with growth and opportunities in Finland. We still see that's a growth, but we don't go abroad, the Nordics, with Edlevo. We said that those three are the most important things.
We also see from the technology and also kind of how major are those different eight units. Have they any experience on customers abroad of the Nordics as well? Yes, I fully agree that we are still in the process now looking into it, but we mean that we have a pretty now clear strategy on where to go with these eight. We have to see also what is, and that is the beauty with the portfolio as well, that you should treat it as a portfolio. Now we have a clear strategy for the total of it, as I see it. There will be opportunities also for those that do not go outside of the Nordics. Hope it was an answer on your question there.
Any more questions?
Sami here. Sami Sarkamies, Danske Bank Markets. I have two questions.
You have quite a high share of recurring revenues, but margins do not necessarily reflect for that. What explains this? Do you need to, for example, sell low-margin services to complement your solutions? Secondly, which products are best suited for international growth and what kind of investment you need to make to reach that growth?
When it comes to low margin, we have some of those, as you saw in the span there. We have some of the product units that have a really low margin. That is one of the things when it comes to the strategy whole to accelerate those now with new opportunities and how to do the cost reduction as well. Yes, you are correct with your question there that there are some more things, as I say, that we need to do with the portfolio to bring it up.
That's why I'm really confident also that we should be able to be above profitability of 17% in 2028.
I think that that's also a question then on how we could utilize the technology more also because the technology changed it as well. The second question was the European growth. Yeah, you talked about 87% or 87. I see that the growth now will come from those three when it comes to new markets. The five, there will be two to three of those that will grow in the Nordics. We have a challenge with a couple of those also. How should we renew the software or how should we go strategically forward when it comes to potential new markets?
Thanks, Johan. All right, time to move on.
Next, we will hear from our last software business also with a strong ambition to grow in the European markets. Welcome, Mario Blazevic.
Good afternoon, everyone. It's great to be here with you today. I will start with some recent examples. Just three weeks ago, I had a conversation with the CEO of a Nordic bank. She told me there are so many things happening in our bank at the same time. First, our customers are highly digital, and they require even more or better user experience in our digital channels. She said, at the same time, there is so much compliance coming our way, and we use a lot of energy and investments to just stay compliant. There are increasingly rapid changes in fraud trends and security trends. She asked, how can Tieto Bank Tech help us?
Two weeks ago, I had a similar conversation with the CEO in a European bank, and he told me a bit of the same story. He said on his side, we have stopped growing, our customers are not digital, and the cost for our customer center is increasing. At the same time, we need to invest in new anti-money laundering technology. How can Tieto Bank Tech help us? This is what I'm going to talk about today. What is going in the market, what we are providing to our customers, and how we are going to create shareholder value in the future. If we start with Nordics, we have been transforming banks and financial institutions in the region for decades. Now recently, we have become a very digital society where more than 95% of payments are fully digital and where we utilize very advanced digital identity solutions.
Now we are expanding internationally. With the basis of our Nordic growth, we are looking into selected parts of international growth in Europe. And we have actually carefully selected software suites that we are taking to this market. How do we create shareholder value from this? We are doing simplification and margin expansion. Today, we announced our target of growth more than 6% CAGR and profitability more than 18%. Banking technology is really a fantastic place to be. There are so many powerful trends that are transforming the industry. I see fantastic opportunities for Tietoevry Bank Tech to grow in this market. Let's start looking into the market. What is happening? First, we see that market dynamics is changing dramatically. Banks are facing at the same time two different elements.
On one side, banks need to grow, and at the same time, banks need to be more efficient. This leads us to a position where banks actually are increasingly looking into scalable software solutions that they can buy in the market and not build themselves. At the same time, we see that current geopolitical situation is also complicated. That means that banks are looking into regional and reliable software providers that have proven track record of transformation in large projects. This is a complex environment for banks. I see a clear path for Tieto Bank Tech to contribute, to create value, and to create growth for the company. We see the same patterns in the Nordic market as we see in the European markets. Let's now open up a bit more. What do we have in Tieto Bank Tech?
24% of our revenue comes from our Norwegian banking platform that we have delivered for many years. Here we have 60% of market share. This is backbone for many banks in the region. At the same time, we have flexible modular software suites that are covering all of the key parts of banking processes. These software suites are tightly integrated into our Norwegian core banking platform, but at the same time, they are integrated into leading core banking platforms in other parts of the Nordic and Europe. If we think about our key capabilities, I would like to outline our people and our competencies. Today, we are over 3,000 people in 10 countries, and we have unique knowledge of banking value chains and banking technology. We have proven track record of transforming large, complex projects and portfolios within large banks.
As an example, just a few weeks ago, we transformed one of the leading Nordic banks to one of our scalable software portfolios. What is interesting here is that the bank executive told me that they have tried to do this two times before in the last 11 years. Now they finally made it with us. This makes me really proud, but at the same time, it is proven track record that we are able to transform complex banking projects with our people, proven technology, and methodology. We have a broad customer base and a high level of recurring revenue, and we are ready for growth and scale-up. Let's now look into two areas where we are going to grow in the future: Nordic and Europe.
Starting with the Nordic, we have renewed the contracts and confidence in the last year with key banks in the region, giving us a record high order backlog of more than EUR 1 billion in this market. This is important because it gives us predictability for the future. For example, we have renewed our contracts with DNB and SpareBank Norge, and we have had recent wins with Fana Sparbank and Lokalbank Corporations. If we look into the Nordic region, it is a EUR 2 billion market. Here, we see that forecasted growth is 5% annual, and currently, we have 22% market share. This gives us excellent opportunities for further growth. We are ready to take that growth. What we are going to do? Firstly, we are going to deepen our relationship with tier-one banks and expand share of wallet with them.
Secondly, we are going to continue to develop our relationship and deliver to regional saving banks and niche banks that we have in the region. We are going to penetrate the market with cross-selling and upselling, and also introduce new products into the market. An example for this is our next-generation mobile bank, where we are adding AI capabilities and advisory services. Our real-time loan processes, where we are fully automating loan processes, make sure that banks gain efficiencies in their processing of loans. This is how we are going to grow in the Nordic region. We have a clear ambition and a clear plan. Now, if we look into the second part of our growth, which is international growth in Europe. The other pillar that we have for growth is our European expansion.
Here, we are starting when we look into the U.K. and Ireland, we start strongly because here we already have 30 customers, 30 banks that are using our card and payment value chain. Here, we are investing in expanding our sales. We are going to grow with more customers and also introduce new products to this market. If we look into other parts of Europe, we have already proven with our ATM software how we can transform a country like the Netherlands. Now we are taking that same software and we are entering the German market. We have already been certified with our software and approved by the local FSA authorities. We have been certified by the local payment scheme, Girocard, and we have got our first customer, IC Cash. That means that we are really ready to take our modular software into the new markets, and we have clear proof points.
Remember, in Germany, 40% of people are using cash in their daily life, compared to only 5% in the Nordics. This usage of cash is driving costs for the banks. We see huge potential for simplification and modernization of this infrastructure in this market. Regarding Spain, we have done careful analysis of the market and mapping of our software portfolio. We see in Spain that 60% of the people are using cash in their daily lives. In Spain, they have the highest concentration of ATM per capita in Europe. This gives us a lot of opportunities with our selected software as a service offerings within ATM, payment, card, value chain, and also financial crime prevention.
As we are approaching the Spanish market with the local sales, for example, last week, we are gaining traction because we have gathered 20 banks and gave them the introduction for our payment value chain. As we are building momentum and pipeline in the European market, I'm certain that this will translate into new contracts over time. With that, I see a clear path for our growth, both in the Nordics and in the selected European market. We see that trends are the same. We have selected carefully our products, and we have a clear plan for growth. Now let's look a bit more into our products and how we are developing new technology. We are experts in creating new technology, and we are very good at embracing the new technology and using it in our daily work.
We understand AI, and we can embed it in a responsible way in line with requirements from banks. Banks are heavily regulated. We are doing three things at the same time. First, we are embedding AI capabilities to our core products. For example, when I talk to banks' executives, they are saying that their employees are using general AI copilots. They are asking, really, when are you going to add AI capabilities to your products? This is exactly what is happening now. We are rapidly embedding AI capabilities to all of our products, and we have several of them in our roadmap ready for rollout. As mentioned before, we have been working with AI technology for many years. Within, for example, financial crime prevention, fraud monitoring, we have been using machine learning and deep learning for many, many years.
Now we are adding also GenAI capabilities in areas to, for example, reduce the number of false positives significantly. The other example that we have is new products and services that we are introducing to the market. An example here is our next-generation mobile bank, where we are adding advisory solutions embedded, both to create a better user experience, but also to enable cross-selling. As we are using this new technology in our development projects that we do together with our customers, we see good examples of efficiencies when we use state-of-the-art AI tools in our development. Now I will go through our investment profile. We are dramatically changing our investment profile. Here, in the last few years, we have been investing heavily in banking core banking modernization in Norway.
Now that we have successfully completed that assignment, we are actually moving a lot of investments into new products and new services. This is important because our growth muscle will be strengthened as a result of this shift. Our development projects are always done in close collaboration with our customers. In the future, we are not going to develop new products only for one customer. When we develop, we look at scalability and standardization. At the same time, the investment levels remain the same. Now let's have a look at our technology modernization ongoing. We are rapidly reducing our low-margin portfolio, and we are moving customers to new modernized platforms. We know how to do this. We do this with our people, with proven methodology and modern technology. We do this safely, step by step. Why is this important?
From a profitability point of view, this is a clear point that we are simplifying our technology. Our development and maintenance become simpler, and we are reducing the cost of technology, such as mainframe. At the same time, we are able to fully automate our operations. This gives us a strengthening opportunity for long-term competitiveness. Now let's look into our financials and our business plan. 2026 is a year of execution and transition. We have already mentioned that we have two distinct happenings that we have communicated in our Q3 report this year. We have a EUR 22 million one-time effect of court ruling in Norway. We also have an effect of exit of our low-margin mainframe contract that has a negative revenue impact of minus 2 percentage points. Having said that, we have a clear plan. It is a job to be done.
We know where to expand, and we know how to do that. Moving ahead, I see good opportunities for growth both in the Nordic and internationally. We are aiming for growth of 6% CAGR and profitability of more than 18%. Leaving our strategy and financials, we have very clear KPIs. We are slightly going to increase our recurring revenues to 80%, and we are going to increase our SaaS revenues to 65%. This at the same time as we are providing a flexible delivery model in line with our customer expectations. Our OPEX and CAPEX remain stable at 8%. Looking into the timeline, we have done significant simplification and harmonization in 2025. We have strong Nordic roots, and we are ready to expand in Europe. In 2026, we focus on transition and execution, while in 2027 and onwards, we will see market expansion and profitable growth across Europe.
To sum up Tieto Bank Tech ambition, the addressable market is EUR 18 billion. We have a strong customer base. We have a modern solution portfolio, and we are adding GenAI capabilities to our products rapidly. We are driving digital transformation in the Nordics, and this proven success is the foundation for our growth in Europe. We are dedicated to driving growth of more than 6% CAGR and profitability of more than 18%. We have teams and competencies in place. We have a highly motivated management team, and we are ready for a strong focus on execution. Thank you for your attention.
Thank you, Mario. Once again, we are opening the floor for questions.
Matti was fast again, so the first question goes there. Matti Riikonen, DNB Carnegie.
Since much of your growth is depending on your success in the new European business tenders, what is your current hit rate in the new tenders, and how do you choose which projects you decide to bid for, and how do you manage the cost of that bidding activity so that it doesn't hamper your total cost and profitability?
Okay. Thank you. First, looking into the tenders, there are really a lot of tenders ongoing in Europe, and we are carefully selecting the ones that are within our targets. As I explained earlier today, we have selected which of the scalable software products we are aiming for which markets. We are going very focused, and then once identified, we have separate teams that we have allocated that are working on Hunter sales. They are highly trained to handle these complex RFPs and processes.
Given the track record that we have, I cannot disclose the exact numbers, but then many of the cases we have actually been winning and materializing, as also recently announced the case that we have won in Germany. We all know that these processes take time, so there is really a lot of time that banks and financial institutions in Europe use to analyze the providers. We have also good proof points of winning and delivering these projects. Let's take one question from the online audience. What is the timeframe for realizing EUR 1 billion order backlog to revenues? Yeah. As shown before, many of the contracts that we have in banking, they are long-term contracts. Typically, the contracts within the banking sector are five to more than seven years.
Now renewing the confidence that we've had in the market in the last year, these will materialize in the next few years. Any more questions there in the back?
Hi, I'm Dan McLemore from East Prospect. I wanted to understand a little bit better how you guys think about churn as you're talking about replatforming and moving from older platforms to new. Is there any way for you to disaggregate for us how to think about the walk from today to 2028 where, say, half the growth is coming in the Nordic core, but there's also a substantial amount of migration from legacy platforms to modern ones?
Thinking about modernization and churn, as we are having a deep relationship with our customers, in most of the cases, we are actually the safest path for customers to migrate and modernize from the old legacy solutions to the new scalable ones. Having said that, of course, as we are modernizing our platforms, customers are looking into open processes in some cases. Even there, we see that we are competitive and are winning in regards to the processes that are open in the market.
One more question from Jaakko. Jaakko Tyrväinen from SEB. Looking at your margin ambition of more than 18%, you were just last year, you were at around 12%. Could you walk us a bit through on the drivers there? Where are you expecting to get such a big of a step?
Is it just coming from growth, as you point out in the slide deck?
As I mentioned, part of our margin expansions come from the growth as we are expanding both in the Nordic and European market. You can say when we are growing now, we are growing on our scalable software portfolios where we can add more customers and gain an economy of scale. The other part of our margin expansion comes from simplification that we have done, as mentioned earlier, reducing our GNA cost. The third lever is, as we are modernizing and sunsetting the old technology, we also see a good opportunity for margin improvements when we are migrating customers from old legacy solutions to the new scalable solutions.
Thank you, Mario, and thank you for the questions. Now we will move on.
Now next, we will hear how everything you have seen and heard today will translate into numbers. Please welcome CFO Tomi Hyryläinen.
Good afternoon. As you have heard, we are changing gear to deliver improved financial performance. Our businesses have clear strategic priorities on growth and building a more competitive core structure. We have renewed our financial targets, and in my opinion, those are both realistic and achievable, but more importantly, they are not dependent on any specific market condition. I have my three main points for today on this slide. Firstly, we have a strong foundation. All of our four businesses are either leaders or among the leading companies in the Nordics. We have clear strategic priorities on growth. We aim to strengthen our position in the Nordics with selective international expansion.
Our businesses are building a lean core structure to improve competitiveness, and our cost optimization program is well on track to deliver on that. Naturally, our aim is to improve shareholder returns where our capital allocation principles are supporting that with focus on organic growth and returning excess capital to shareholders via share buybacks or extraordinary dividends. When we look at our businesses, the business mix is twofold. Our tech consulting has relatively short contract periods, and it's a highly cyclical business. Whereas our software businesses have quite long contract periods from five to seven plus years and total contract lengths often extending to 10 years and above. In addition, our software businesses have a high share of recurring revenues anywhere from 74% up to 80% in InTech.
Our software businesses also have an increased share of SaaS revenues, well above 50%, except in care tech, which Ari referred to earlier, which is market-driven, where often our customers want to own or control their own infrastructure. To conclude, our software businesses are very sticky. Our products are often in the core of our customers' critical business processes. Here are the financial targets per business. As you have heard today, all of our businesses have clear plans on how to improve their financial performance. Tech consulting over 3% CAGR growth 2027 to 2028. Per explained it is slightly muted due to the change period that the business is undergoing. Our software businesses, Bank Tech, C are Tech, and InTech, we are targeting to grow over 6-7% CAGR over 2027 to 2028.
On margin, we are already making tangible improvements with our cost optimization program, and these target levels are well achievable, in my opinion, and good to note, as referred here today as well, care tech is already performing at these levels. This is the summary of all of our financial targets, and I'll go through these one by one. Starting on growth, as mentioned, year 2026 is a year of transition. This is due to the known headwinds in bank tech and care tech having approximately 3% headwind for 2026. This is why we expect the 2026 growth to be flat or slightly negative. For 2027 to 2028, we expect our target is to grow over 5%, with growth drivers being InTech consulting, the focus areas of AI, cloud, data, and enterprise applications.
Bank tech and care tech, we expect the growth to roughly come 50% already from the international expansion, as discussed today. in InTech, we expect primarily the growth still to come from the Nordics. On profitability, we expect significant profit expansion into 2026. This is driven both from the cost optimization program, as discussed today, but also the technical IFRS 5 cost burden ending. From 2027 to 2028, growth will be the primary growth, sorry, profit improvement driver. To our investments. As mentioned already, one of our key principles in capital allocation policy is to focus on organic growth and organic growth investments. We expect a relatively stable investment level of approximately 6% to revenues, where 50% is CapEx. What will change is our focus on investments. We will have much sharper focus investing into growth and delivering on the new technologies such as AI.
We're also enhancing our investment follow-up process and aim for shorter investment payback periods in general, less than five years. With this increased controls over our investments overall, we aim to deliver higher returns from our investments. More concretely on our capital allocation principles. We invest first and foremost to our organic growth. Secondly, we pay dividends 60-80% from our net profits, which we adjust for non-cash one-time items. Thirdly, our leverage metric, which we continue to measure as net debt EBITDA, we aim to be below 2x. More importantly, we aim to stay close to 2x with excess capital to be distributed back to shareholders through share buybacks or extraordinary dividends. We are not intending to make any large M&A during this strategy period, but only smaller bolt-on to fuel our growth.
We're also today outlining our considerations for 2025 dividend, where we expect to pay out 80% of net profit, which we will adjust for the non-cash impairments and the IFRS 5 cost burden, which has been approximately negative 1 percentage point of profit. We understand that with these announcements, we are resetting the euro-based dividend level. However, we have clear plans on how to improve our net profit level for the coming years, and that creates a good foundation for increased dividend profile going forward. For 2026, we expect already a significant net profit increase driven by the already mentioned profitability improvement, but also a decrease in PPA amortizations of EUR 29 million, which is a result of our every merger in tangible assets reaching the maximum five-year depreciation period.
For 2027 and 2028, the profit improvement will primarily be driven by growth, but also supported by lower OTIs as we're sufficiently done with our cost activities or cost programs. I've also included a cash conversion metric in this picture to illustrate the dividend payout ratio to free cash flow. We expect our 2026 to 2028 cash conversion to be below one, which is driven by higher CapEx to depreciations and the restructuring provision decline towards 2028. This, in practice, means that our dividend ratio of 60-80% of net profit represents closer to 80-100% of free cash flows being paid out as dividends. Here I want to further confirm the leverage logic. We will most likely meet our leverage target by the end of 2026. This is driven by mostly the profit improvement here, the reported EBITDA.
More importantly, you can see in this picture, we aim to be close to 2x with excess capital distributed back to shareholders, as mentioned. I'll conclude my presentation with my three main points. We have a solid foundation. We have a good market position in the Nordics. Our businesses have clear strategic priorities on growth and building a competitive core structure. Of course, our ultimate aim is to improve shareholder returns and our capital allocation policy, which is focused on organic growth and returning excess capital to shareholders through share buybacks or extraordinary dividends. We are in a very good position to deliver improved shareholder returns. Thank you. Ready for Q&A.
Thank you, Tomi. We are now ready for the final Q&A, and I would like to invite our CEO, Endre, also back to the stage. We are all ready. Questions. And Matti, what's the number one again?
Hi, Matti Riikonen, DNB Carnegie. A couple of very technical questions, mainly to Tommy. First of all, the level of depreciation going forward. Could you shed some light on how quickly your normal depreciation would decline, let's say, in how many years it would decline by 50% now that you have basically less CapEx going into tech services, so the number is coming down. What we don't know from the outside is what is the average depreciation period. Could you help us kind of setting the depreciation levels in the coming years to the right ballpark?
Thank you, Matti. Extremely difficult to do an average over all our products and businesses. They tend to be from three to five years, and then some of our products, of course, like the banking platform in Norway, going to 10 to almost 15 years.
There is a huge variety of different depreciation periods. If you would use a rule of thumb, you should stay closer to five years.
All right, thank you. Regarding the one-offs, you have quite a long history with quite large one-offs in the company, and now you say that you expect that they would be declining to below 1% of net sales. For which timeframe is this valid, for the 2026 to 2028 period, or which timeframe, and how do you really think that you can do that, given the history that it has not been possible in a long period of time?
I can appreciate the comment and recognize the frustration, if I may call it that way. We think that towards 2027, we will be ready for this roughly 1% level and below 1% definitely running towards the end of 2027.
We are doing some restructurings likely into 2026, which is a result partly due to the TSA's ending with tech services. You should be looking for those to come towards the end of 2026, but towards 2027, the below one would be realistic.
Right. Thirdly, about the TSA agreement that you still have, how long will that continue? Is it for a certain period of time?
Maximum 18 months. Maximum 18 months from closing. We are kind of on a good track to kind of deliver ahead of that plan. Let's see.
Right. How will you scale those costs down when the 18-month period is coming to an end?
Are you able to basically reduce your costs so that when the TSA agreement ends, you would have kind of smooth sailing from the cost point of view that you do not bear the burden anymore?
Absolutely. Everything is relative, so smooth sailing is a relative term. I think you got the point that, of course, we will position the cost base accordingly when the TSA is coming to a termination. I would say that is part of what Tomi also said related to the OTI. Historically, when you look at the majority of the OTI, it has actually been coming from tech services. Yes, we have an extraordinary year in 2025 in terms of taking OTIs related to the restructuring that we are going through. We will have some OTI reflecting also the TSA termination, as you have indicated.
All right, thank you. That is all.
Next question, Sami. Sami, Danske Bank Markets.
Starting with a clarification on the previous question. Is it so that you're not planning any restructurings next year related to business segments? We only talk about kind of group costs. My second question would be on divestments. You've said today that you're not planning any material acquisitions, but do you see a need to do divestments, I guess, in bank tech and InTech? You might have some low margin areas.
Let's answer this at a more kind of in a general perspective. First of all, I would say that the sales of tech services was a strategic decision. It was the correct decision. We have also said that we need to optimize the portfolio going forward. It will be based on what is creating shareholder value.
We have also said that we will simplify the structure going forward. We need to keep in mind that what we have in front of us currently is a portfolio which is a result of many mergers, many M&A happening during the years. There is probably a potential to simplify the structure going forward to create a more agile organization. I think that you will see simplification happening both near-term, but also long-term with this company. We have a lot of operational tasks ahead. We have initiated a lot of, I would say, practical operational initiatives internally, in addition to what we have said underlying under those four strategic initiatives that we presented today. You will see kind of these operational tasks coming through the next couple of quarters for sure.
This is really not, like I said initially, this is really not about a new strategy. This is about really walking the talk and ensuring that we are now executing on what we have presented today. What was the second question that was related to?
Yeah, that was the restructuring. Do not rule out any, we will continue the simplification. We do not rule out any further that we would not do any further restructurings in 2026.
Any more questions? All right, seems it is all clear. Thank you for the active dialogue. I will now hand over back to Endre for the final remarks.
Yeah, I would say that first of all, thank you for joining us.
Secondly, my personal ambition for this capital markets day was actually to take one step in the right direction to build investor and also client credibility and trust going forward. As I also said, like the business units have been covering, we have a solid foundation to capture the growth going forward. I believe also that the business units now have clearly documented that we have a viable plan going forward. It's all about execution. It's all about operational follow-up going forward. It's also more than the perspective of 2026 to 2028, because I believe that we have a strong position also to accelerate the growth after 2028, when we have refocused the company, we have a clear vision of what we should do going forward.
I really look forward to presenting the achievement and the results when we come to the capital markets day in 2028. Thank you for joining us and looking forward to the dinner later tonight. Thank you very much.