Near-term risks and uncertainties
Consolidated net sales and profitability are sensitive to volatility in exchange rates, especially that of the Swedish Krona and Norwegian Krona. Sales to Sweden and Norway represent close to half of the Group’s sales. Further details on management of currency risks are provided in the Financial Statements and on currency impacts at www.tieto.com/currency-impact.
Tieto's ambition to drive customer transformation also poses a risk of lower prices in existing services while it is also anticipated to expand the company's sales opportunities. At the same time, new disruptive technologies, such as cloud computing, drive customer demand towards standardized and less labour-intensive solutions. These changes might result in the need for continuous restructuring and the need to recruit new competences. That may lead to temporarily overlapping personnel costs and uncertainty among personnel.
The company’s development is relatively sensitive to changes in the demand from large customers as Tieto’s top 10 customers currently account for 31% of its net sales. However, the share has decreased by several percentage points during the past years.
As is typical of Product Development Services, visibility is limited due to the short order backlog. PDS booked goodwill impairment in 2014 due to the reduction in business volumes and has efficiently adjusted its cost base. Overall, volatility in the operating environment might lead to potential goodwill impairments also going forward.
Typical risks faced by the IT service industry involve additional technology licence fees, the quality of deliveries and related project overruns. The transition related to the automation programme, increasing use of global delivery centres as well as the ongoing organizational change pose risks of project losses and penalties.
Economic growth might be affected by recent uncertainty, for example, related to Brexit and the election in the USA. The direct impact on Tieto is anticipated to be marginal, but slower growth in Europe might indirectly lead to weakness in the IT services market as well. The share of sales in the USA and Russia is less than 1%.
Companies around the world are facing new risks arising from tax audits. Should the macroeconomic environment remain weak, some countries may introduce new regulation. Additionally, changes in the tax authorities’ interpretations could have unfavourable impacts on taxpayers.