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TietoEnator Q3 2006 20 October 2006

TietoEnator Q3 2006 20 October 2006. CFO Timo Salmela SVP Päivi Lindqvist IR Manager Paula Liimatta. Q3 progress and strategy ›› Performance and outlook ››. Market situation. Overall demand and market activity is high

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TietoEnator Q3 2006 20 October 2006

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  1. TietoEnator Q3 200620 October 2006 CFO Timo Salmela SVP Päivi Lindqvist IR Manager Paula Liimatta

  2. Q3 progress and strategy ››Performance and outlook ››

  3. Market situation • Overall demand and market activity is high • Pricing trends are positive outside the telecom sector and ICT operations services • Consolidation in the Nordic market has taken a new speed • For TietoEnator the biggest competition comes from the global and Indian players • Global sourcing is getting traction in more and more customer industries • Labour market activity is intensifying

  4. TietoEnator status at the end of Q3 • Progress in profitability and organic growth in a seasonally weak quarter • Telecom & Media: return to growth and margin in-line with Q3 2005 • prices were lower than a year ago, but did not decline from the first half • utilization at a good level • Banking & Insurance: strong underlying organic growth continued and margin recovering in the international business • UK improving with good prospects • plans for Germany are being finalized • Processing & Network performs very strongly boosted by strong Q3 seasonality in the infrastructure business • Postponed or underperforming projects still burden a few business areas

  5. TietoEnator’s high-cost/low-cost transition • Transition toward long-term vision of 60/40 (high-cost/low cost) will continue • expansion of existing sites: Ostrava, Pune, Russia • acquisitions, subcontracting and partnering

  6. Net recruitment (excluding terminations) 200 High Cost Low Cost 150 100 50 0 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2'06 Q3'06 -50 Managing the low-cost transition in home markets • Headcount growth addressed to low cost countries; net recruitment is limited in high-cost countries • Recruitment to cover leaves continues at high levels (980 employees recruited in high-cost Jan-Sep) • Employees in high-cost countries will move to roles with higher customer intimacy (consulting, sales, customer specific development and implementation)

  7. Recent newsflow New contracts • Outsourcing contract with Siemens Com in telecom R&D • Outsourcing of mobile content services from DNA Finland • ICT infrastructure hosting services for Stora Enso globally • Life insurance system for Finnish OP Life Assurance and Pohjola Life Insurance • Complete systems replacement for Nottingham Building Society in the UK • Production and development of Automatia’s centralized IT services, Finland • IP Contact Center for O2 in Germany Acquisitions • RTS Networks in Poland, a provider of telecom R&D services • Topas Consulting in Germany, SAP consultancy for the utilities industry • Laps Care in Sweden, IT support for resource optimization in elderly care, home care and home nursing • Cymed in Germany, hospital information solutions and hygiene software • Quickclic in Finland, wireless communication in welfare and healthcare

  8. Divestment of non-core assets • Government businesses in Sweden, Denmark and Norway are sold to Sirius IT owned by Icelandic Siminn and the Danish management of the business • TietoEnator will release resources and capital to further develop its international business in its selected customer industries • The businesses are small and only in the starting phase of the partnership business unlike the Government business in Finland • The transaction will improve Government, Manufacturing & Retail business area’s operating margin • Does not include healthcare and welfare or processing and network services Key facts • Net sales of the business EUR 45 million in the first nine months of 2006 • Operating profit EUR 1.7 million • Around 420 employees currently • Closing expected at the beginning of November • Enterprise value EUR 26.4 million, expected capital gain around EUR 9 million

  9. Going forward • Focus on organic growth, profitability and cost control continues • Sales, marketing and acquisitive efforts will be intensified in international focus areas: banking, telecom, healthcare and forest • Home market businesses drive strong profitability and cash flow

  10. Q3 progress and strategy ››Performance and outlook ››

  11. Financial highlights Q3 2006 • Net sales growth 5% to EUR 397.0 million • Organic growth 2% • Operating profit (EBIT) before capital gains EUR 31.2 (34.6) million • Operating margin before capital gains 7.9% (9.1) • EPS EUR 0.26 (0.24) • Comparable EPS 0.31 (0.26) Comparable EPS before intangibles, capital gains and stock options

  12. 8% 21% 11% Banking and insurance Telecom and media 5% Government 5% Healthcare and Welfare Forest 8% Energy 29% Nordic regional verticals*) 13% Non-allocated Net sales by industry segment 9M 2006 • Banking is growing the strongest and increasing its share of TietoEnator’s net sales • Healthcare and government are also growing strongly • Telecom sector is still the be biggest industry segment even though its share has declined due to price pressure +10% +25% Share of net salesChange +2% +3% -1% +10% -6% +10% *Incl Retail, Logistics, Manufacturing

  13. Net sales by country 9M 2006 • Areas outside Finland and Sweden are growing the strongest at 19% and are now representing more than one quarter • Growth in Finland stronger than in 2005 • Growth in Sweden is recovering +21% +4% +21% +12% -1% Share of net salesChange, local currency

  14. Top 10 customers 9M 2006 • Top 10 customers account for around 35% of net sales • Ericsson telecom • Kesko retail • The National Board of Taxes (FI) government • Nokia telecom • Nordea banking and insurance • Ruukki manufacturing • Sampo (+ If) banking and insurance • Siemens telecom • Stora Enso forest • TeliaSonera telecom

  15. Q3 2006 Q3 2005 8.7% 7.4% 6.9% 6.2% Net sales, MEUR 63 64 Growth, % -1% 51% EBIT, MEUR 4.7 8.0 67 72 71 63 EBIT, % 7.4% 12.6% Q4 2005 Q1 2006 Q2 2006 Q3 2006 Employees 2 204 2 063 Net sales EBIT % Banking & Insurance • Organic growth -1% based on tough comparison • Margin improving mainly due to the recovery of UK operations • Good demand in banking solutions • Joint venture TietoEnator Esy started January 2006 • Insurance sector performing very well in Finland • Profitability challenges in Germany EBIT excluding capital gains

  16. 16.5% Q3 2006 Q3 2005 Net sales, MEUR 119 114 7.1% 6.8% 5.7% Growth, % 5% 30% EBIT, MEUR 8.5 8.2 150 135 134 119 EBIT, % 7.1% 7.2% Q4 2005 Q1 2006 Q2 2006 Q3 2006 Employees 5 006 4 295 Net sales EBIT % Telecom & Media • Back to growth in a seasonally weak Q3 • Organic growth -2%, improvement mainly due to the new outsourcing contract with Siemens • Profitability and utilization are improving and margin now in-line with Q3 2005 • Price pressure continues, but not getting worse EBIT excluding capital gains

  17. Q3 2006 Q3 2005 8.5% 7.5% Net sales, MEUR 51 52 8.1% Growth, % -2% 7% 4.5% EBIT, MEUR 2.3 4.1 65 66 61 51 EBIT, % 4.5% 7.8% Employees 1 954 1 983 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Net sales EBIT % Government, Manufacturing & Retail • Q3 seasonally weak • Organic Growth -1% • Project overrun EUR 2.1 million reduced growth and margin • Good demand in all Nordic countries • Government businesses in Sweden, Norway and Denmark divested • improves margin of the business area EBIT excluding capital gains

  18. 22.9% Q3 2006 Q3 2005 5.3% Net sales, MEUR 30 27 4.6% 4.4% Growth, % 8% 25% EBIT, MEUR 1.4 2.2 42 34 36 30 EBIT, % 4.6% 8.1% Q4 2005 Q1 2006 Q2 2006 Q3 2006 Employees 1 232 1 094 Net sales EBIT % Healthcare & Welfare • Organic growth 6% • Customers’ demands for functionality postponed projects and licence revenue recognition • Investment in building up business in Continental Europe • Several small acquisitions finalized • Fourth-quarter seasonally strong EBIT excluding capital gains

  19. 9.2% Q3 2006 Q3 2005 6.7% Net sales, MEUR 36 38 Growth, % -5% 21% 4.3% 3.6% EBIT, MEUR 1.6 4.1 42 39 41 EBIT, % 4.3% 10.9% Q4 2005 Q1 2006 Q2 2006 Q3 2006 Employees 1 236 1 301 Net sales EBIT % Forest & Energy • Organic growth -3% • Project overrun EUR 1.1 million reduced growth and margin • Big customer projects ending in the utility sector • Oil and gas business performing well • Acquisition of German TOPAS Consulting EBIT excluding capital gains

  20. 13.8% 9.8% Q3 2006 Q3 2005 9.6% Net sales, MEUR 89 82 6.9% Growth, % 8% -12% EBIT, MEUR 12.3 9.0 90 91 94 89 EBIT, % 13.8% 10.9% Employees 1 965 1 982 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Net sales EBIT % Processing & Network • Organic growth good level at 8% • Profitability improvement continues based on the consolidation process in 2005 • Q3 seasonally strong for margin • Good demand in the Nordic countries • Restructuring EUR 0.6 million EBIT excluding capital gains

  21. 13.7% 11.7% 11.2% Q3 2006 Q3 2005 Net sales, MEUR 33 29 5.5% Growth, % 16% -1% EBIT, MEUR 3.7 3.7 37 37 38 33 EBIT, % 11.2% 13.0% Employees 1 189 1 025 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Net sales EBIT % Personec Group • Organic growth 4% • Manpower acquisition boosted growth • Strong growth in consulting, outsourcing and ASP services continues • Licence sales behind last year’s levels but compensated by growth in consulting services • Restructuring EUR 0.6 million EBIT excluding capital gains

  22. Q3 2006 Q2 2006 Employees at the end of period 15 899 15 387 Gross recruitment 639 483 Leaves 393 385 Layoffs 39 68 Acquisitions and outsourcing 398 114 Divestment 62 76 Employee turnover (12-month rolling) 8.5% 8.1% Employees • Gross recruitment at high level • Most of net recruitment takes place in low-cost countries • Employee turnover continues to increase

  23. Balance sheet

  24. Q3 2006 Q3 2005 FY 2005 MEUR Cash generated from operations incl. financial net -18 59 223 Income tax paid -5 -5 -18 Net cash used in inv. activities -8 -11 -213 Paid dividend 0 0 -80 Repurchase of own shares -40 -38 -80 Net cash used in other financing activities 47 -17 176 Change in cash -23 -11 8 Liquid assets at end of period 85 79 100 Cash flow • Increase in working capital resulting in negative cash flow from operations • Low investment activity • Repurchase of own shares EUR 40 million in September

  25. Working capital development in Q3 2006 Related to the Siemens outsourcing EUR 20m pension receivable - to be paid in Q4 EUR 10m working capital requirement - permanent EUR 25m reduction in vacation pay - will increase back gradually High payments of payables, VAT, employee taxes - will increase back at least partly EUR 20m increase due to Siemens - permanent

  26. Impacting on 2006 financials • The net of acquisitions and divestments is expected to contribute around 3% in the full year, which is less than in the 4% in the nine months • Divestment of government businesses in Sweden, Norway and Denmark expected to reduce net sales, impact on operating profit and margin is marginal • 9M 2006 net sales EUR 45 million and operating profit EUR 1.7 million • expected capital gain around EUR 9 million • No material restructuring expected for Q4 • EUR 12.9 million in 9M, around EUR 13 million for the full year • Partnership rewards in Telecom & Media EUR 4 million in Q4 2005, no material rewards expected for 2006

  27. Outlook for 2006 • Organic growth is expected to increase from 2005, but will be affected by the low growth prospects of the Telecom & Media business area and the increase in global sourcing • Financial performance is expected to be clearly better in Q4 than in the first nine months • Uncertainties in Q4 relate to the level of licence sales and to success in project control • Full year net sales growth is expected to be around 5% excluding potential new acquisitions • Full year EBIT margin excluding capital gains but including restructuring for around EUR 13 million expected to be around 8%

  28. TietoEnator Q3 2006 Questions and answers»

  29. Appendixes

  30. Q3 2006 income statement excluding Personec • TietoEnator will de-consolidate Personec Group at the beginning of 2007 • Indicative income statement, not based on official Personec Group accounts

  31. September 2006 balance sheet excluding Personec • Indicative balance sheet, not based on official Personec Group accounts

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