Earnings Call: Q2 2021

Jul 20, 2021

Dear ladies and gentlemen, we are happy to introduce our 2nd quarter results. You will first hear a presentation by Kimo Allkeo, our President and CEO and Tomi Hurlainen, our CFO. As usual, a Q and A session will follow the presentation. To ask questions, please dial in to our conference call. My name is Tanja Lowne Vilta. I'm Head of Financial Communications. On my behalf, I welcome you all. Kim, please go ahead. Thank you very much, Tanja, and a very warm welcome to all of you to our Q2 results announcements. Our second quarter is characterized as overall A good quarter and actually favorable development across all the businesses. The main message is regarding the performance itself. We have been we have turned to growth fully according to our year 2021 game plan and continuing to achieve solid profitability. Q2 organic growth of 2% with the adjusted operating margin of 12.2%. The overall group level performance supported by strong performance in the software businesses, 13% growth in Industry Software and 9% growth in Financial Services Solutions. Overall, we have seen favorable development in the contracting contracts and win rates in the marketplace. We have been demonstrating good competitiveness. As an example, the top five contracts making up approximately €300,000,000 for future revenues and also worth highlighting a strong book to bill within our cloud and infrastructure business. Furthermore, given the overall developments, we have actually moved forward favorably also in terms Of the leverage of the company net debt to EBITDA now being below the factor of 2. Given the overall dynamics in the marketplace and the kind of evolving pandemic, we believe it's again just Good to take a short moment to reflect in the overall market development, very much according to our own predictions. We have seen in the Q2 healthy activity level in the marketplace, healthy activity level from a standpoint of Tietoevri During the 2nd year of integration, naturally, the type of internal work that which dominate the company's agenda year 2020, That tends to be also behind us. And overall, we are seeing the business impact of the pandemic, I'd call it, normalizing, very clearly reducing and declining any type of a potential negative impact. Overall, the market is very dynamic. On one end, the new digital type of services around cloud, data, analytics and the B2B industry specific software moving forward rapidly. On the other hand, anything to do with traditional outsourcing businesses, Price competitiveness continues to be high on the agenda, but very much in accordance with our own expectations How the market would be developing. Furthermore, we'd like to also highlight the increasingly dynamic talent market. And we have, as Teo Evri, also during the Q2, increased our recruitment capacity to support our growth ambitions. And overall visible the talent dynamism in certain talent pools that Naturally have to do a lot with the type of cloud native data analytics and actually advanced software engineering. So we are also addressing this part to The growth potential that we clearly do have. Furthermore, important to keep high on the agenda In serving our employees worldwide of being a fantastic place to be and refining our own Working practices engagement models, we have a very interesting and, I believe, successful crowdsourcing exercise taking place internally With actually 48,000 inputs from employees on exactly the preferences for future work, and we'll be sharing more of that information during the second half of of the year. But overall, as a summary, the pandemic impact reducing market becoming healthy, Talent market quite active and high degree of attention on the future work, and I believe we'll be in a good shape in these regards. Furthermore, moving on to the actual developments of the 2nd quarter with the overall Wins in the marketplace, looking into the competitiveness of the company. As reflected earlier, good order intake, Good wins totaling about €300,000,000 for the top five contracts, overall backlog growth of 3%. And I referred earlier briefly to Cloud and Infra book to bill was actually 1.4 being a combination of large renewals and a number of new multi cloud contracts that have Clearly accelerated during the Q2. Some of the samples we have announced during Q2, DNB extension of a partnership comprising both of infrastructure and financial services specific software services Second one, Regioskone in Sweden, modern end user and workplace services. And finally, Within our Product Development Services signed a contract with a significant industry leader, TCV over €30,000,000 approximately over a 2 year time frame. The customer name shall be disclosed during the second half of the year. So overall, positive momentum and really important to continue to actually elevate our growth potential in terms of the one deals overall in the Q2. Looking into very practically then into the group level performance financially for the second Quarter revenues of €722,000,000 adjusted EBITA, the aforementioned 12.2 percent, €88,000,000 and actually the growth profile in all businesses moving in the favorable direction from the Q1. We would like to confirm throughout this year that the impact of the pre merger loss customers still impacts the group numbers by about 3.5% and naturally impacting during 2021 the top line development of cloud and infra. Overall profitability improvement continues to be achieved by consistent improvement in efficiency of the company, Continued drive for synergy realization and naturally the positive development in our software business. So overall, Q2 performance at the group level, very consistent with our own expectations. Furthermore, moving into the highlights per business. Digital Consulting organic growth 1% adjusted EBITDA 13.4%, Clearly, seeing growth in the new digital domains within digital consulting, specifically in the areas of cloud and technology consulting, Data and Analytics. So overall, looking at the Service Practice performance within the DC arena, good development In all new digital services, legacy application services naturally continues to be rather on the lower end as one would have expected. Margin improvement has been driven by the merger related synergies and continuous attention on productivity and efficiency. Here, it is worthwhile highlighting that additional recruitment activities have been initiated to address the active talent market, specifically in certain domains and to support our growth opportunities, specifically in cloud data and the business applications domain. As an example, in the ERP domain, we are seeing higher activity level in the marketplace. And these continue to be areas that, from a talent and resourcing standpoint, we Continue to work on actively. Regarding the anticipation for the Q3, we'd like to provide, as usual, a bit of a softer soft Super business for digital consulting adjusted operating margin anticipated to be below Q3 2020 level. Next, moving on to the very interesting and important cloud and infra side organic growth, minus 10% adjusted EBITDA, Improving to 6% level from the Q1, which was actually 4%. The pre merger loss customer impact Continues to be about 10% on revenues, very important that our turnaround program is on schedule. We have seen continued uplift in quality through very specific customer feedback included also within the domains of the ex IBM environments, which were the challenge for the past 1.5 year time frame. During the second half of the year, we expect profit contribution to come directly from capacity reduction in legacy services and increased levels of automation. And importantly, as mentioned some minutes ago, healthy book to bill Or actually strong book to bill of 1.4, adding to the comfort of sustainable turnaround that we believe we'll be achieving. Anticipation for the Q3 of this year, revenue decline expected to be less than in the Q2 of this year. Adjusted operating margin expected to be above the level of Q2 this year and below the level of Q3 2020. Moving forward to Industry Software, very healthy growth of 13%. Fair to mention that we did have license revenues worth about 5 percentage points within this business in the 2nd quarter Outside also the additional license revenues, very healthy pace. And this is at the levels overall that we have been anticipating. And healthy profitability level of 23%. The business continues to be driven forward well through performance in the Healthcare and Welfare business. And we had the same message from a profitability and scale standpoint, Combination of revenue growth and continuous attention on efficiency improvement, including standard R and B R and D and software release practices. And to confirm, the Oil and Gas divestment closed during the Q2 on 7th June. Regarding the Q3, we anticipate the adjusted operating margin to be at the level of Q3 last year. Furthermore, on the Software Solutions side in Financial Services, Organic growth healthy at 9%. Profitability also healthy at 13.7%. The Strength of this business in the Q2, we have more of the software solutions growing, covering core banking payments and the cards businesses. And overall profit development naturally driven by the top line development and attention on efficiency improvement, including standardized R and And we'd like to remind everybody that the investment level has been maintained to support the delivery of 1 new business, Specifically, actually in both cards and the core banking. And we believe these are very relevant investments to support the growth ambition and growth outlook for the quarters to follow as well. For the Q3, we anticipate the adjusted operating margin to be at or above Q3 2020 level. Then into Product Development Services, organic growth of 2%. Profitability, healthy at 10.4% level. During the Q2, we have seen clear activation improvement in the market activity and actually demand Increase in pipelines getting clearly stronger in all key industries within Product Development Services. Within PDS, we have also initiated additional recruitment activities to offset active talent market visible in certain Higher end software engineering skill domains to further support our H2 growth opportunities and growth ambition and to confirm the significant over €30,000,000 contract over 2 years, as mentioned, within the customer Reference is opening page. Very important development to support the growth ambition and opportunity to cross utilize Certain software engineering skills across a number of customer industries. Regarding expectations for the Q3, we anticipate the adjusted operating margin for PDS to be at the level of Q3 2020. Furthermore and similarly, as we opened up in the Q1 a view into our international operations, This is a business where we continue to capture demand for transformation and future digital services, highly advanced, Cloud native data analytics, data platforms type of businesses as well as digitalizing business processes and driving application transformations, very specifically in Western Europe and the U. S. Based on the very strong delivery center capabilities we have from couple of our global operations centers. And healthy growth nearly 20% actually at 19%, but The 20% level bar, we are maintaining in that range. So overall, favorable development continues to support our growth ambition and view on expansion possibilities. Furthermore, I would like to provide couple of highlights regarding our sustainability agenda and activities and achievements during the Q2. Our sustainability agenda has 2 core categories. The upper side, as visible on the left side, The activities we conduct to impact our customers' agenda and common objectives to actually support environmental objectives in the societies we live within. Within the domain of impact through customers, we have couple of core areas that we'll be talking more about in the quarters to come as well. We talk a lot about the solutions to reduce carbon footprint. We talk a lot about sustainability impact analysis. And we talk about services for data driven sustainability. That is on the upper side of impact with and through customers. In the Q2, we had a couple of really nice examples on the transparent CO2 reporting through a sustainability dash very specifically with couple of very significant customers in Sweden, Sustenbuhlak and Swedbank. And this type of sustainability dashboard We'll be sharing more information on equally in the quarters to come. Regarding our internal operations, the other half of the very important sustainability agenda regarding the exciting place to work. We have a couple of very specific measures, 1 around diversity and inclusion and second one being the continuous attention on employee experience. Within the diversity agenda of the company during the We have already seen a significant shift as we are paying more attention into attracting female talent. We have seen an increase to about 32% level in the overall applicant pool, very significantly from the more traditional level of about 14 And this pilot has been so far really successful, and we continue to work very actively regarding the total sustainability priorities of the company. With this in mind, we've now gone through the highlights of the overarching view of the company, views per business and brief highlights on sustainability. Now glad to hand it over to Tommy for the CFO view. Thank you, Kimo, and good morning, everyone. I'm pleased with our Q2 performance overall. We turned into organic growth and delivered 12.2 percent adjusted operating profit. Our reported profit Was strong as well at €139,700,000 or 90.4 percent, supported by continued profit improvement, Reduction in one time item levels and capital gain from the sale of oil and gas business. We delivered €11,000,000 of operative cash flow and were able to reach our levered target of net debt EBITDA of below 2, 18 months ahead of schedule. Synergy contribution to profit was €21,000,000 in Q2. However, Synergies are not visible fully in the P and L due to temporary profit decline in cloud and infra similar to Q1. One time items were in line with our estimate and include a positive impact from the oil and gas divestment. We continue to experience FX tailwind, primarily from the Swedish and Norwegian currencies. Impact to Q2 revenues was approximately €30,000,000 Oil and Gas divestment, as mentioned, was completed during Q2. So we delivered SEK 11,000,000 of operative cash flow. Our operative cash We have from time to time had last large changes in our net working capital when many working capital elements move into the same direction simultaneously. That was the case in this quarter as well. There's nothing structural in the change and the cash generation foundation of The company remains healthy. The working capital change came from increase in receivables of SEK 30,000,000 and a decrease in liabilities of NOK 53,000,000. Half of the increase in receivables was due to reduced levels of sale of receivables as we're in the process of renewing some of our facilities. In liability side, there were changes in seasonal elements like personal related accruals and advanced payments contributing to €25,000,000 of the change and periodic Fluctuations mainly in VAT liabilities and change in restructuring provisions as expected contributing to some SEK 23,000,000 of the change. Free cash flow was at SEK 116,000,000, very strong. That was impacted by the oil and gas sales proceeds. We achieved our leverage target of below 2 net debt EBITDA 18 months ahead of schedule, as mentioned, With reported net debt EBITDA of 1.6. When fully adjusting for oil and gas divestment, So taking out the capital gain and the profit contribution for the past 12 months, the net debt EBITDA Would be at 1.9. So even as fully adjusted, we reach our target level. Our synergy takeout continues as planned, and we confirm that we are on track To reach our synergy target of €100,000,000 we will be reaching a run rate of €90,000,000 to €95,000,000 at the end of this year. We keep the integration cost estimate of €110,000,000 to €120,000,000 unchanged with accumulated integration cost at the end of Q2 of €94,000,000 The remaining synergy takeout relates mainly to procurement and facilities related efficiencies with some further process and IT optimization activities. Our Q2 one time items were EUR 63,000,000 positive, fully as expected, with €9,000,000 of cost and €73,000,000 positive impact from oil and gas divestment. €73,000,000 Differs from the capital gain of SEK 71,000,000 which includes SEK 2,000,000 of M and A costs from Q1. One time costs from the IBM transition of services are now completed. Cash flow impact from the full year forecasted one time items of 47,000,000 to 56,000,000 It's some €70,000,000 to €80,000,000 due to back end loaded cash flow impact, particularly in restructuring, as we have discussed before. And this is also visible in our Q2 working capital change. So oil and gas divestment, it was closed in Q2. However, a minor part The asset transfers will be finalized in the autumn. When these asset transfers are completed, we will receive an additional SEK 2,000,000 of cash. Capital gain from the divestment amounted to SEK 71,000,000 and free cash flow was impacted positively by SEK 140 2,500,000. As the transaction is non taxable, it will drive a reduction in our effective tax rate for the group by approximately 4%. CapEx for the quarter amounted to SEK 18,000,000 And we estimate the full year CapEx to be at or slightly above 2020 level with some quarterly fluctuations. Next, I'll summarize the Q3 performance drivers. The impact from the pre merger lost customers in cloud and infra will be lower than in Q2 at approximately 2%. Synergy contribution will continue at similar levels with a Slightly increase compared to Q2. Cloud and Infra Profit Improvement Program is expected to contribute to further profit improvement during H2 2021. And FX tailwind is expected to continue and working day impact will be neutral. Now back to you, Kim. Thank you, Tommy. So moving forward and recapping the growth agenda of the company and then towards the conclusions of the Q2 report. So we confirm our growth dynamics and growth agenda for the year. We have gone through the favorable development and the direction for all the businesses. Currently, we have seen in the first half of the year and especially towards the summertime period, the growth agenda Has been materializing according to our plans and turning the corner to growth of 2% during Q2. And we do anticipate for the second half, according to the color coding here, That all service lines, except cloud and infra, to be positively contributing to our growth ambition. So overall, quite a good starting continuation into the second half. As a summary, Entering the second half, market sentiment is fine. We anticipate the pandemic impact to continue to diminish and market Being active and normalizing, we have high degree of attention have had since the beginning of the year on the growth agenda for the company, Very important from a total performance and profitability standpoint to ensure the cloud and infra turnaround will continue. And overall, the efficiency, productivity and financial foundation for the company Continues to be at a healthy level. So overall, as we close the first half, We have good momentum in the company and a clear agenda moving forward. With this in mind, This would be a good time for the Q and A. Yes. Thank you, Kimo and Tommi. So we are ready to proceed to the Q and A and take questions from the conference call. Moderator, please go ahead. Thank you. I have a question from the line of George Webb from Morgan Stanley. Please go ahead. Good morning, Kimo and Tony. Thanks for taking my questions. A couple around the cloud and infrastructure business, please. Firstly, you mentioned the good order intake in the quarter on a book to bill of 1.4. Can you talk through how your expectations for that business line are moving as you go into the end of this year and 2022 and as those Previous lost contract headwinds fall out. I guess we have the CMD expectations that you think that business can grow naught to 2% into 2023. As you look out today, is that what you see as you look into next year? Or are the current dynamics implying anything differently? And then secondly, Just thinking about the profitability of Cloundham from the second half, can you give us a sense of the scale of the cost benefit you're expecting to come directly from the headcount restructuring measures you previously announced once it reaches a full run rate basis. Thank you. Sure. So thank you very much. And so a couple of reflections. So as you noticed, I'm I'm going to try to stay away from giving quarterly forecast on the business, but I will, of course, comment your question. So this year, we are trying to be super open consistently on what type of improvement levels the Consistent improvement both on top line and profitability, but this is a turnaround year. So we do expect to fully maintain the view what we shared after Capital Markets Day. And with this turnaround behind us at the end of 2021, We expect to be getting towards much more normalized figures in 2022. Maybe that's where I probably need to leave that without giving quarterly guidance forward. And regarding the profit improvement overall, So the contributing factors are clear on the cost base reduction for the second half of the year, both in terms of personnel and capacity reductions. So we are relatively comfortable with the direction that is being undertaken. Okay. And maybe one follow-up, if I can, on salary inflation. Can you maybe just give a bit of color around How you're seeing that market dynamic change? Perhaps how it feels to you versus previous cycles of cost inflation and labor market timings? So clearly, in the last couple of quarters, and I believe this is very much and I would anticipate you all have heard the same thing, Very much a global phenomenon on the active talent market. So yes, we are seeing that. It relates Very specific type of skill domains, where it is more visible, as I reflected in my summary as well. We are identifying certain locations in the world where the talent market is a bit hotter. We have Actually acted upon this, but already some months ago, adding to our HR teams and recruitment capacity. So I want to be very frank. Yes, we are seeing it. We have already addressed it. And yes, we are commenting openly the salary inflation will rather be in the 2% to 3% range 2% level and relates very much to certain hotter pockets. And all these are actually accounted for in our plans moving forward. Perfect. Thank you. Our next Question comes from the line of Christophe Bjornsson from DNB. Please go ahead. Good morning and thanks for taking my question. So I guess, the first one again on cloud and infra. You're saying that the growth or the decline in revenues in the 3rd quarter will be Laurel, in the Q2, maybe you could give some more granularity on that, just to kind of help us understand the headwinds in Q3. And then Furthermore, on the cloud and infra, talking about the strong book to bill, maybe you could talk a bit about what's going on there in terms of what Is there any changes in the business mix or service mix in terms of what is what you're winning on now compared to what you were winning on A year ago. And then my third question is on international business and the significant growth there. So maybe talk a bit more about the dynamics there. What is driving that Growth and kind of how sustainable is it for maybe the medium term? That would be very helpful. Thank you. Sure. Okay. So Indeed, Cloud and Infra and then the International. So when we look at the overall logic and Expectation on the top line development for the year. And I hope everybody has been able to follow our commentary that the impact of the pre Merger loss customers will diminish quarter after quarter during this year. That's a very important factor. So we Expect that to be an element. We are more and more active, as we have seen, in winning contracts, winning new foot Print winning public cloud services or multi cloud services. So I want to be very frank. Of course, that also from a top line standpoint, it is also a turnaround year. So That's what we have tried to guide everybody and hopefully very, very consistently. Profitability improvement, we expect That to be also consistent given the fact that, as we have commented, we have ended the era of duplicate investments Due to IBM related challenges, these have ended fully on schedule at the end of second quarter and related activities on cost optimization and actually driving the transformation from legacy environments To shared environments, we are able to activate these even further. So with this industrial logic in mind, I think we have a healthy opportunity and probability of continuing the turnaround favorably. And it will take this year. Regarding the consideration on international, our reflection here would be exactly the same as in the Q1. We are driving the reason we brought it to the table into the quarterly reports as well as of Q1. We've seen several quarters of successful Business penetration in the new digital domains, cloud native development, cloud and analytics, cloud platforms as well as driving Application Modernizations from legacy to cloud environments. And reflected upon earlier, This relates to our international operations and global operations centers from places such as India and Ukraine towards Western Europe And the U. S. Markets. The reason we very much like and see the further potential because this is all in the new digital domains where the market growth potential is clearly attractive. So there nothing really else All Right. Thank you a lot. And then just one final quick one. I've seen a couple of examples where, especially in the public sector, some tenders are I put out where there is increasing focus on environmental factors where even in some cases, The weight is more on those kind of KPIs than on pricing and quality. So I'm just trying to And Sal, you've seen that as well. Is that a way that you can compete in terms of being more environmental friendly basically than And some of your competitors, and is that the way you can win? And how do you do that? Yes. Thank you for that. So I would have To comment on that important point. So we are very comfortable with the multiyear development in our sustainability agenda. And our sustainability team has, for several years, played a very active role In the bid propositions, given that we've seen this becoming more and more critical now for Several years already. So I wanted to mention at the very practical level, at the bid level, we have a very good ESG agenda. And I never want to be overly optimistic until we deliver better performance. This is potentially a factor That gives us a kind of a form a kind of competitiveness, the more ESG becomes important because we have a very granular agenda And these examples that we have this time shared on the services for data driven sustainability of co measuring the impact with our customers. So I think we have a very interesting and great opportunity to be Rather as a thought leader and prove the point on how the tech sector can actually impact the environment and very specifically with our customers. So we'll continue to be big on our agenda. Thank you, Lotte. I'll open it back to the queue. Our next question comes from the line of Gautam Dhillay from Goldman Sachs. Please go ahead. Great. Thanks so much for taking my questions and congratulations on a good set of results. Firstly, can you provide Some color on the pipeline for the Industry Software and Financial Software segment. Very impressive growth in the quarter, But can you provide some soft indication on how that will progress into the second half of twenty twenty one and beyond? Is this level of high single digit to double digit growth Sustainable or were there any kind of unusually large contracts in the software segments this quarter? Sure. So let me indeed address those separately, although the message will be quite consistent. So first of all, within The Industry Software, our view on the market, our competitiveness and the pipeline Has remained consistent, meaning consistently quite good. And just want to confirm, as we were very open about that In Q2, we had some contribution from Q2 specific license revenues. Nevertheless, the growth rate's healthy. On IES, we are fully within the trajectory we have been expecting and planning. So that's all consistent in terms of pipeline, in terms of revenue development, in terms of quality of operations and profitability. Regarding FS, our message would be Quite the same. Mark, our attractiveness and competitiveness in the market is good. The overall Pipeline development consistent consistently fine. And in terms of the relevance of the investments we Have in place is naturally all there to support our ambition to deliver even better performance, fully as reflected and shared at the CMD. So in that sense, nothing dramatically new exactly in the right direction regarding IES and FS. Got it. And secondly, on the Cloud and Infra segment. In early May, one of your competitors announced a large contract win with the Finnish Public Sector 8 year agreement worth €384,000,000 Is this a contract that will ramp down in your entire business? If yes, what impact will this have? And when should we start modeling this? That's a specific issue creating as to your cloud and infra targets for 2023. Yes. Thank you. So maybe three considerations regarding that as it was touched upon also in the Q1 report. So indeed, that frame agreement was won by a competitor. We believe we had very solid grounds for make taking it for court appeal, which is the type of work the public procurement processes work in certain ways. Some of you may have seen that one of the larger constituents and parts of the Frame Agreement, an entity called Valtori, Actually, last week did announce that they are prolonging their contract with Teatro Evri over multitude of years At the value of €98,000,000 this was announced by Valtore. They also said that it is expected to be signed here in the early part of the third Quarter, we have not brought it into our report until the contract is formally that continuation of that agreement is actually formally signed. So these would be the three factors. And the overarching loop that we commented in Q1, the frame agreements at the end are subject to how many Entities within the public sector actually wish to apply that frame agreement. Got it. And finally, can I please check on the recent Kaseya ransomware tank? In the press release, You highlight that the impact affected customers' business could be serious. Can you provide an update here, is the attack contained? And also, is there any liability directly to Theodor? Sure. So this any so naturally, I would like to maybe reflect a bit even one level higher. And of I will comment your very fair point. So the world of cybersecurity, it continues to evolve And being very important also in terms of our value to society, our value to customers in helping when extraordinary things Happen in cybersecurity. I believe we have highly advanced capabilities within the total cybersecurity domain. It has been proven with a couple of cyber attacks in the first half of the year, one in Norway and one this Katja Impacting specifically Sweden, where we have served our customers and I believe increasing the trust level, how quickly we have deployed In the range of 100 people to work 20 fourseven, supporting getting all systems back online ASAP. That's a background. Regarding Kataya, we had very we had quite minor impacts regarding our customers. First of all, in Sweden, These related to few customers in the rather small and medium business segment. So from a societal standpoint, Not severe, some of the other ones outside of theater average domain were quite disruptive to the society. We believe the implications to us are minor. And we do not see, based on these couple of so far, Any significant exposure. Precautionary measures, including insurance arrangements, we naturally do have in place. Of course. Thank you so much. And all the best for the second half. Our next question comes from the line of Pammi Leidymaki from Danske Bank. Please go ahead. Thank you. I have two questions left. Firstly, on the margin outlook in the consulting business, You are now expecting the Q3 margin to be lower than a year ago. The question is that where is this coming from? Is this Reflecting the higher salary inflation, more new recruits or just abnormally low costs a year ago? And then the second question is on the guidance actually. So the organic growth improved in Q2 and now you have only 5 months left in the year. So why didn't you Specify the organic growth guidance for the full year. I mean, it's still quite wide for the group. Thanks. Okay. Thank you, Panu. So a couple of considerations, a good point also on the digital consulting side. So yes, we have activated Our recruitment additional recruitments and because we do see the growth potential. And naturally, when you'd recruit people, you we do not Into immediate billability. So that element in your list of items indeed are a contributor. And also the activity level with customers is increasing. Thus, yes, we believe the cost base in Q3 last year due to the pandemic was also Somewhat lower than usual. So nothing structurally that I see currently concerning it is more the optimization of the growth agenda regarding digital consulting. And regarding guidance, we believe that it is appropriate to just maintain the total guidance level we have And no reason currently to start to change it. Thank you. Can I just Ask a follow-up on the consulting? So how should we kind of think about this? Is it so that when you have the new recruits in and you have the revenue growth Continuing, you should expect further increase in the margins? Or is it so that the margins have actually peaked because they were A bit exceptionally good during the pandemic. I think in terms of the digital consulting, naturally, I made 2 comments. So Right or wrong, there are normal quarterly fluctuations. What we see very Both for DC and other businesses that we have the margin trajectory heading sustainably in the right direction. And I believe that is The case also for digital consulting. The factor of the growth agenda, attention on efficiency, productivity, billability And continue to head in the right direction, as mentioned, in profit as well. So I think that's the important overarching financial view also for DC. All right. Thank you. Our next question comes from the line of Michael Briest from UBS. Please go ahead. Yes, good morning. A couple from me as well. Just digging in a little bit more onto the attrition and salary trends that have come up. Attrition went from 9.9 to 11.7 percent and that's a rolling 12 month figure. So in the June quarter, it's gone up quite a lot. Can you maybe talk about where you would expect it to end the year? I think historically, at least in the last couple of years, the high point has been just under 13%. Do you think that's where we might get to? And for an aggregate headcount level, I know there's restructuring going on, do you think that headcount will grow this year? Is that the plan In order to, obviously, sustain growth into next year. And then, Kimo, just on COVID, I think the guidance sort of made some comments about assuming that Pandemic restrictions have gone by Q3. Well, we're in Q3 now and there are still some in many countries. Can you just talk about what your underlying assumptions are for the drag effects of COVID through the balance of the year? And then just finally, On the international business, you've called that out now a couple of times on the most recent quarterly calls. Can you just talk about your ambitions for exogenous or acquired growth? Is it more On the services side that you might make acquisitions or historically, I think software has been seen as the way to lead into new countries. Can you just give us a little information on that? It sounds as though you're actively looking at things. Thanks. Okay. Thank you. Very good point. So first on the attrition. So It is a bit dynamic market. Our current perspective and view would be as follows. Towards the end of Q2 so first of all, this relates to which I was trying to be relatively open, certain locations in the world where it is where attrition is higher. I don't want to go into sites or detail due to competitive reasons on that one. But we have a good feel for which locations in the world. Towards the end of Q2, we did see Certain stabilization initial signs of stabilization on attrition. I don't want to be overly optimistic that it's going to get easier very fast because we need to put the main attention on Having the resources fast enough for the healthy growth opportunities in many solution areas that we do see. And I currently do I don't have to be fair, I don't have an attrition forecast sort of, say, systematically. But I think we are need to assume that the attrition level continues to be at this a bit higher level Until it is resolved, we have been able to increase net recruitment in certain hot Service practices in the critical locations during the Q2. So but we need to keep working hard, smart And assuming attrition levels can be and likely shall be at this slightly higher level. If I talk about the headcount, so if I reflect the dynamics of the different businesses for the year. That likely gives the best answer. So in the light of cloud and infra capacity reduction, that will drive the headcount decrease for the remaining of the year. There are growth areas such as in the cloud area, but overall, The capacity reduction will impact negatively the FTEs in cloud and infra. Then with the consulting And software businesses that will likely mirror more or less the growth ambition of the company, I. E. FTEs being increased While we grow the businesses. Those would be the dynamics for the remaining of the year that you should be expecting. And then on the pandemic. So our assumption currently indeed that it is becoming Normal, but I start to call it nowadays the new normal. It ain't the same as 1.5 years ago. So the what we are seeing the activity level in the kind of new digital domains, the B2B software activity level It's high. It might be even higher than 1.5 years ago, given that our customers want to digitalize There channels to their customers even more actively. And this is driving our industry growth. The other side of the kind of polarization is that the price competitiveness drive for efficiency in outsourcing services It becomes higher and higher, which we are used to. So overall, we feel that it's quite it's really tangible, the market activity level. So the pandemic impact, we do not feel the need to highlight that it e. G, that would it be a hindrance for executing our growth strategy. So that's why we are being very open that we do not expect pandemic to be a negative factor. Naturally, the considerations on the ways of working, we need to be very mindful that the 3rd wave might come Exactly how to support our operations in the core Nordic countries. We have nearshore operations. We have offshore operations. And depending on the evolution of the pandemic that we can continue to maintain high service levels to our customers, Which so far throughout the pandemic, we have done really well on in terms of adjusting to the remote ways of working. Maybe finally on the international. So overall, the it is we like the whole notion of organic growth. That's very important to prove that we are tangibly penetrating the market and winning business and scaling the businesses. I don't have any new type of an update I would like to share currently on the M and A strategy. I think the only point to mention that it is naturally fully, as we shared in the CMD, One component in our toolbox and within the next couple of year time frame, Naturally, an essential part of our future, but nothing to really speculate on. Okay. Thanks, We have a question from the line of Matti Rykonen from Carnegie. Please go ahead. Good morning. It's Matti Rykonen, Carnegie. Two questions related to the EUR 300,000,000 new contracts that you mentioned in the report and in the presentation. So I was wondering how much net new business does this mean. So Are these contracts that are totally to new customers with net new business? Or is there some existing customers that you are already charging? And then what is the kind of net new element there? And secondly, what is the average duration of the contract? Is 3 years, for instance, a good proxy for that? Thank you. Yes. Thank you, Matti. So overall, a couple of factors behind why we brought forward very specifically behind why we brought forward very specifically this €300,000,000 So important business It's being won. And to answer your question, so majority of this sample set of the 300, Vast majority is actually renewals. And also in the earlier commentary, I did want to highlight Significant number of multi cloud new contracts. So we are also winning footprint, which are Which do not have similar pre commitments in the new world of multi cloud, but opening up really interesting growth avenues whereby the kind of order intake of that shall follow as the volumes materialize. So hopefully, I wanted to be clear of the 300,000,000 significant part is actually renewals. But And also there is also new footprint within the EUR 300,000,000 and outside the EUR 300,000,000. Okay. And the average duration roughly 3 years. Yes. Of the larger renewal contracts, it tends to be in the 3 year can be 3 plus 2. So 3 to 5 year window typically. Right. Okay. So if I Simplified to a great extent, if I assume that there would be, let's say, EUR 100,000,000 net new business divided to 3 years, that would Roughly right. Yes. I don't want to give a mathematical formula because our bookings are much more than EUR 300,000,000. Okay. That's fair enough. Thank you. Our next question comes from the line of Gautirbjornan from SEB. Please go ahead. Yes. Thank you for taking up my questions and good morning. Most of the questions have already been asked, but a bit more general one on the international operations. I understand that you're mainly growing within the digital consulting domain there. But Could you remind us your plans in terms of Financial Services Solutions internationally? And What is the current situation with that segment's international initiatives? Sure. Thank you for the question. And Just to confirm, so the international business of Financial Services is reported within Financial Services. And that Opportunity continues to be there. We have certain footprint on the payment side over the last 5 to 8 year time frame Certain international markets, we have been in the past year announcing significant wins In the Nordic countries, we think we have market share gains. In the Nordics markets, we know well. And yes, we will be considering the further international expansion In due time, when the Technology Solution Portfolio Readiness is at the right level. So nothing new, if I may, nothing new to report in that side at this point. Okay. Thank you. Then I meet up a bit Tommy's discussion around working capital. Tommy, could you repeat the statement In terms of highly negative working capital, was it basically still within the normal fluctuation and all the items were going into From direction this quarter. And is there anything new that we should think going forward in terms of VC items? Yes. No, exactly. I would rather sort of put this in the context of potential upside in the future. Yes. So all components basically moved into the same direction, which this quarter was negative, NOK 30,000,000 as I reflected in the receivables, half of that through the sale of receivable facilities, which we're renewing. That will bounce back in Q3. In the liabilities side, half of the €50,000,000 seasonal elements like salary related accruals and then have fluctuations in VAT and provisions. So very much sort of normal fluctuation elements. Okay. Thank you very much. That's all for my side. Our next question comes from the line of Felix Helmut Schon from MediaMarkets. Please go ahead. Hi, Timo. It's Felix from Nordea Markets. A couple of questions still left for me. First on the Salary inflation, could you please provide a bit more regional color on this? Where do you see it being more severe than In others and secondly, sort of on the M and A, you touched on it a little bit. But how should we think about your readiness For acquisitions, given that you're already below your leverage target. So how should we interpret this? And how does your pipeline look like currently? Okay. Thank you for the great consideration. So I'll try to pick the right level on the inflation. So please imagine a matrix. We have couple of locations in the world where it's more and less active. More active, I call it now nearshore. I don't wish Call out the countries or the locations and then regarding India and to lesser extent in the Nordic countries. In the matrix, one could consider certain professional capabilities such as cloud native development, Data and analytics, software engineering. So certain pockets are warmer in more locations. But I think the overall clarity on where talent market is hotter, locations for us very clear And even few levels down in detail exactly which type of professional domains we have good control of, whereby we are targeting our additional recruitment capacity. Then the point on M and A, to be fair, as always, there's nothing else to say on M and A. We have demonstrated over the last 5 to 6 year time frame of considering ways to speed up growth, Speed up execution capability and the like. So I wouldn't make any Linked with the deleverage and sudden urgency rather the systematic nature of how we develop the company. So maybe nothing else on the M and A. Okay. Thanks a lot. That's all for me. We have a question from the line of Daniel Juerbe from Handelsbanken. Please go ahead. Thank you, operator, and Congratulations on a stellar report, I think. My question has really been answered, but I could ask you a little bit about The cybersecurity, you have your own offering there. And I was thinking if you could comment on the Both potential and recruitment possibilities and so on, but also on the threats that you see towards your operations and Application services and so on. So that would be great if you could give some color on that. Yes. Thank you. So overall, the cybersecurity landscape is very broad in the industry at large, And it's very important all technology companies are selective on the domains of cybersecurity where you target to specialize. In our case, we have 2 very important actually, 3 very important factors in our cybersecurity strategy as a company. One is that we secure all deliveries to our customers, whether it's the software assets we deliver, Whether we deliver cloud native development, whether we deliver private cloud services, it's very important to verify The soft the security maturity of everything that is delivered to our customers. 2nd very important domain It's everything about our infrastructure, data centers, all operating environments that they Our operating analytics on security. And then there's a third factor, which naturally has to do with our internal system. So we have a Full security strategy, 3 important domains. And we have we do believe we have quite a never perfect It's so fast moving cybersecurity. I think we have an opportunity to create further trust to our customers by being in the forefront of supporting how to develop our customer security operations and every day being on top of the cybersecurity world in this sense. But I don't I do not wish to give a simple answer because it is a highly multifactor domain, very important we have a clear focus, clear agenda. Thank you very much. And I agree, and thanks for the color. And good luck in Q3, and have a great summer. There are no further questions at this time. So I hand back to the speakers for any closing remarks. Thank you. So before Kimo's closing words, I would like to thank you for active dialogue and wish you a great day. Yes. Thank you very much for joining and for the fantastic questions and commentary. We have today announced a good quarter And favorable development across all the businesses. And midyear midpoint of 2021, We are in a quite a fine shape and actually the ambition goes up every quarter. Thank you very much for joining And looking forward to connecting then after Q3. Thank you.