Near-term risks and uncertainties
Slow growth in Europe might lead to weakness in the IT services market as well. As Tieto's top 10 customers account for 34% of its net sales, the company's development is relatively sensitive to changes in the demand from large customers.
The risks related to Russia are limited as the share of sales in Russia is less than 1%. However, if the crisis were to affect the Finnish economy, it would have an indirect impact on the IT services market in Finland.
As is typical of Product Development Services, visibility is weak due to the short order backlog. The insourcing decision made by one large customer is anticipated to have a negative impact on the company in 2015. However, it is expected that planned cost adjustments will to a large extent compensate for this impact. Overall, the growth in insourcing in the telecom sector and the challenging business environment might affect the company also going forward.
The major transformation of the IT industry may result in continuous actions to renew competences. This change coupled with the offshoring trend may drive continued restructuring within companies. This might create uncertainty among personnel and pose risks related to the company's performance.
As is typical of the industry, the large size of individual deals may have a strong effect on growth, and price pressure might lead to weak profitability. Additionally, new technologies, such as cloud computing, drive customer demand towards standardized and less labour-intensive solutions. All these changes might result in the need for continuous restructuring.
Typical risks faced by the IT service industry involve additional technology licence fees, the quality of deliveries and related project overruns. Transitions to offshore delivery centres as well as the ongoing organizational change pose risks of project losses and penalties.
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 tax payers.
Consolidated net sales and profitability are sensitive to volatility in exchange rates, especially that of the Swedish Krona. Further details on management of currency risks will be provided in the Financial Statements.