February 14, 2020 / 12:10 PM / 4 days ago

UPDATE 2-Nordic IT services firm TietoEVRY's 2020 outlook disappoints

(Adds details, analyst comment)

HELSINKI, Feb 14 (Reuters) - Nordic IT services provider TietoEVRY reported a rise in fourth-quarter sales and underlying profits on Friday, helped by the $1.5 billion takeover of EVRY businesses, but disappointed investors with elements of its 2020 outlook.

The company warned 2020 growth would be dented by a focus on integration, a unit divestment related to the EVRY acquisition which was finalised in early December and the expiry of one major contract at the Hybrid Infra business.

The company's shares were down 2.4% by 1130 GMT, having gained 20% in the last three months.

Handelsbanken analyst Daniel Djurberg called the report "solid" but highlighted the cost of prolonged arbitration with IBM, a hike in research and development costs and a delay to the launch of Industry Software's SmartUtilities solutions among factors that were weighing on the share price.

TietoEVRY has outsourced some infrastructure operations to IBM which took the agreement to arbitration in June, prompting a claim for reimbursement of disputed payments from TietoEVRY's side in October.

The company said costs related to the infrastructure partnership, including legal ones, would amount to 15-20 million euros in 2020.

TietoEVRY's October-December adjusted operating profit rose to 71.4 million euros ($77.4 million) from 51 million a year earlier, with the company adding that it also expects the measure to increase in 2020 from 2019's 343.1 million euros.

The Finland-based company said it expects new services built around design, data and cloud-native applications to continue to drive growth in the Nordic IT services market, while spending on traditional infrastructure services continues to decline. It aims to outgrow the market in the longer term, but said its own growth would be moderate in 2020, in part due to integration of the two businesses.

"We expect that we will complete the majority of the structural integrations during the first half of the new year," Chief Executive Officer Kimmo Alkio said in a statement.

"We continue to be committed to delivering the anticipated (cost saving) benefits of 75 million euros and expect the synergy run-rate to be 35-40 million euros at the year end," Alkio added.

Following the EVRY takeover, the group has a combined annual revenue of close to 3 billion euros and staff of about 24,000.

$1 = 0.9229 euros Reporting by Tarmo Virki and Anne Kauranen; Additional reporting by Jakub Lubinski in Gdansk; Editing by Tom Hogue and Shounak Dasgupta and Kirsten Donovan

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