Risks at Tieto are categorized as strategic, operational and financial.

Strategic risks are related to Tieto’s desired position and strategic targets and the threats resulting from the company’s operating environment or management of its intangible assets, e.g. strategic capabilities and brand.

Operational risks are related to core business activities, such as the development of offerings, sales and deliveries as well as the management of human resources, intellectual property rights, information security, uninterrupted operation of ICT infrastructure and the terms and conditions of the agreements made with the customers or suppliers or addressed by various regulators.

Tieto’s financial risks consist mainly of credit risks, currency risks, interest rate risks, and liquidity risks.

The company’s main strategic, operational and financial risks as well as the measures for their mitigation are described below.

Impacts of changes in the global economy

The general market environment in customer industries and the development of the world economy influence demand for IT services and solutions. A downturn often leads to smaller business volumes and at the same time creates higher price pressure. These impacts are partly mitigated through multi-year contracts for continuous infrastructure services. Tieto also aims to foster long-term business relations and to be a preferred supplier to its key customers.

Dependence on few markets or industries

Close to 50% of Tieto’s sales and the majority of profits are generated in Finland. Telecom & Media and Financial Services account for more than half of the company’s sales. Sudden changes in the market environment, customer demand and customer strategies, or competitive landscape in these areas might harm the Group’s operations and profitability.

Expanding business outside Finland is one of the company’s key targets for the future. Special growth plans have been made for Sweden and Russia but Tieto also aims to achieve growth in its other main markets in Northern Europe. Today, Tieto already provides services for a number of different industries. Strengthening the company’s position in these segments and focusing the offerings reduce the risk of being dependent on one or few specific industries or customers.

Cost competition and implementation of the global delivery model

Global service capabilities are a must in the IT industry. Global competition in the IT sector and tough price competition are the other drivers for the global delivery model. A right balance between resources in the home markets and in emerging markets is essential. Inability to respond to this need fast enough might lead to a decline in Tieto’s growth and customer demand.

Tieto’s aim is that 40% of its employees will work in the global delivery centres in 2011. Resources will be increased, especially in China and India. Competence development has also been given a high priority to ensure that customers get high-quality services globally. The new service line driven global delivery model will ensure faster and more efficient ramp-up of needed resources.

Delivery risks

Inability to meet the specifications of customer agreements in delivering projects or services can lead to project overruns, operating losses or termination of customer contracts. These can have a negative impact on the company’s growth and profitability, and in some cases, the company’s brand might be tarnished.

Improving delivery quality has been one of the main targets set for the Service Excellence Programme launched in October 2009. The programme, like the Performance Improvement Programme that ended earlier, features systematic improvement phases covering the most critical processes to ensure successful deliveries, including enhanced risk management procedures and delivery portfolio management.

Retention of employees

Tieto’s success builds on the competence, experience and performance of its employees and key managers. Inability to retain key employees and to recruit new talent with the necessary competence might have a significant negative impact on the company’s strategy implementation. High employee turnover might cause delays in customer projects, leading to penalties or loss of customer accounts.

To reduce these risks, Tieto offers its employees challenging jobs, diverse development and training opportunities as well as interesting career paths through job rotation. The company has competitive compensation packages, including corporate-wide bonus and incentive systems. Talent management and competence development have a high priority in Tieto’s new strategy. The company also has an Employer Branding programme to motivate employees and to build and strengthen Tieto’s image as an attractive employer.

Credit risks

Changes in the general market environment and world economy can usher in additional financial risks. Credit risks might arise if customers or financial counterparties are not able to fulfil their commitments towards Tieto.

Under Tieto’s Credit Policy, the finance department and the business functions are jointly responsible for assessing customers’ creditworthiness, taking into account past experience, their financial position and other relevant factors. The credit risk of financial counterparties is managed by using counterparty limits, as set out in Tieto’s Treasury Policy.

A special focus has been put on raising awareness of credit risks with additional reporting and training. The collection process has also been changed in order to better correspond to higher credit risks.

Currency risks

The Group’s transaction exposure arises from foreign trade, cash management and internal funding. Translating the balance sheets and income statements of Group companies into euros causes a translation exposure. Treasury policy defines the principles and risk limits under which Group Treasury manages Tieto’s currency risks.

As a substantial proportion of the Group’s consolidated revenues are generated in Sweden, fluctuations of the Swedish krona against the euro may have an impact on the consolidated financial statements. For example, a 10% fluctuation in the krona-euro exchange rate would trigger a change of around 2.5% in revenues and operating profit.

Liquidity risks

Exceptional market conditions in the financial market may temporarily hinder raising new funding and/or increase funding costs. Group Treasury monitors and manages Tieto’s liquidity position by maintaining an appropriate loan portfolio. Analyses of alternative financing sources for the company and their pricing are continuously updated.

Tieto’s financial risks are described in more detail on Financial risk management.