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 new EU General Data Protection Regulation will take effect in May 2018. The new GDPR-based requirements may result in an incremental increase in offering development costs for Tieto’s software-based solutions, while based on several customer agreements Tieto is entitled to invoice its customers for additional development work. Additionally, the new regulation is opening up new opportunities, such as for Tieto’s security and application services.
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, with Product Development Services having the highest customer concentration in the company. However, the share has decreased by several percentage points during the past years.
Typical risks faced by the IT service industry relate to the development and implementation of new technologies and software. In Tieto’s case these relate to both own software development and implementation of third-party software for service delivery. Furthermore, additional technology licence fees, the quality of deliveries and related project overruns and penalties pose potential risks.
Companies around the world are facing new risks arising from tax audits and some countries may introduce new regulation. Additionally, changes in the tax authorities’ interpretations could have unfavourable impacts on taxpayers.