UPDATE 2-Tieto raises profit outlook as overhaul bears fruit

Tue Oct 23, 2012 7:39am EDT

* Q3 op. profit 37.1 mln euros vs 31.1 mln in poll

* Q3 sales up 2 pct to 423.5 mln euros

* Says cost cuts bearing fruit

* Shares rise 10.5 pct (Adds analyst comments, shares)

By Tarmo Virki and Jussi Rosendahl

HELSINKI, Oct 23 (Reuters) - Nordic IT services provider Tieto raised its profit outlook for the full year, boosted by a rise in sales and cost cutting as an overhaul of the company bears fruit.

Tieto, which competes with bigger technology services companies such as Accenture and IBM, is aiming to boost its operating profit margin as part of a revamp under new Chief Executive Kimmo Alkio as the euro zone debt crisis clouds the outlook for its customers.

Shares jumped on the report and were 10.5 percent higher at 14.90 euros by midday. Shares in the company have risen around 35 percent so far this year, valuing the firm at 1.06 billion euros ($1.39 billion).

Tieto reported quarterly operating profit excluding one-offs rose 8 percent to 37.1 million euros, beating all analysts' forecasts in a Reuters poll.

Tieto said profit was boosted by a 7 million euro drop in subcontracting costs.

"The result is very good, and it shows that the company has been able to adjust its cost base despite client behaviour and changes in demand," said Evli analyst Mikko Ervasti.

Sales grew 2 percent to 423.5 million euros, also beating all forecasts, which ranged from 393 million euros to 420 million euros.

Full-year operating profit, excluding special items, was expected to rise more than 10 percent, Tieto said, having previously not specified growth.

Tieto aims to reach a 10 percent operating profit margin by 2016. So far this year its underlying operating profit margin stands at 6.9 percent.

Rival Atos, which will report this Thursday, is targeting 2012 operating margin rising to 6.5 percent of revenue from 4.8 percent in 2011 on a proforma basis. Capgemini has forecast its margin to improve from 7.4 percent last year.

Tieto said it does not expect its sales to grow this year and warned "the overall IT services market may reflect cautiousness at the beginning of 2013" due to weak economies. ($1 = 0.7651 euros) (Reporting By Tarmo Virki; Editing by David Cowell and Louise Heavens)

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