TietoEnator Restructures to Boost Profit

Computergram International, Oct 29, 1999 by Antony Akilade

TietoEnator Oyj President and CEO Matti Lehti yesterday announced wide ranging plans to restructure the Finnish-Swedish IT services group, in a bid to improve group profitability. TietoEnator's slow growing and unprofitable Defense Sweden and Network Infrastructure divisions will be sold-off.

The company's defense interests will be merged with Celsius Aerotech, part of Swedish defense and aviation technology company, Celsius AB, with the Celsius holding 57% of the new company, while Network Infrastructure will be spun-off, either partly or in whole, and TietoEnator said it will certainly not seek to retain a majority interest.

In the first nine months ended September 30th, TietoEnator reported net profit up 0.39% at 75.3m euros ($79m) on revenue up 12.8% at 885m euros ($929.25m). Operating profit was 74.1m euros ($77.8m) up from 73.4m euros ($77.07m) for the same period of the previous year. Profit margin was down for the period at 8.9% from 9.4% for the same period in the previous year. Costs related to the merging of the Tieto and Enator businesses have so far amounted to 9.9m euros ($10.4m) and Lehti stated that full year merger costs would amount to 20m euros ($21m).

Network Infrastructure returned revenue up 21% at 97.8m euros ($102.7m), but margins declined to a negative -0.7% condition. Defence Sweden meanwhile reported a 1% fall in revenue at 77.2m ($81.06m). The weak performance of these groups more than explains TietoEnator's desire to dispose of them. However, overall, the company's sluggish performance was also due to poorly performing Swedish IT service operations, which Lehti said would also either be restructured or sold off. Lehti also cited a Y2K-related decline in demand for body shopping operations as a negative factor.

During the quarter Tieto expanded upon its Danish operations through the acquisition of DanskInformations Teknologi A/S (DIT). DIT has 75 employees focusing mainly on the Danish labor unions and a client base that includes Lego, Falck and Danfoss. The buy brings the number of employees in Denmark to 330.