Based on the development during the first quarter, Tieto now expects its full-year net sales to be lower than in 2008.
In January - February, Tieto's net sales amounted to EUR 275 million representing a 12% decline from the corresponding period in 2008. Approximately half of this decline is due to the weakened currencies. The decline in net sales will have a negative impact on Tieto's profitability. To address the situation, Tieto has started new streamlining actions to reach additional annualized cost-savings in the amount of EUR 100 million.
Decline in demand, especially in the telecom and banking sectors, has continued during the first months of 2009. Additionally, the weakened currencies, especially the Swedish krona, have continued to have a negative impact on Tieto's net sales in euros.
The impacts of the economic downturn have hit the IT sector harder and faster than earlier expected, and uncertainty prevails over the future development of the IT market. In the full year, Tieto expects the IT services market to decline and tough market conditions to continue. On the other hand, more than half of Tieto's business is related to application and ICT infrastructure management as well as maintenance, which are more resilient to the impacts of an economic downturn.
In connection with the 2008 annual results announcement, Tieto anticipated the overall growth of the IT services market to remain flat in 2009 due to the economic slowdown. The company also expected its service volumes to grow, but the lower price level and weak Swedish krona to have a negative impact on the company's net sales. Price pressure was expected to affect most in sectors where overall demand is declining.
Actions to streamline operations
In addition to the ongoing Performance Improvement Programme, Tieto has started new Group-wide actions to adjust its operations to the current market situation. These measures include decreased use of subcontractors, consolidation of offices and cutting business expenses in the whole Group. Personnel adjustments in addition to the ongoing ones are also needed to address the situation, and they will be initiated in different countries following the local legislation and labour practises.
Tieto continues to invest in the development of the global delivery model with the aim of having an offshore ratio of approximately 30% by the end of 2009. Resources will be increased especially in Tieto's global delivery centres in China, India and Czech.
"Tieto's transformation is proceeding well, but the impacts of the economic slowdown have been much stronger and faster than we anticipated earlier. Due to this change in the market environment, we are now taking additional measures to adjust our cost-base and operations to the current demand," says Tieto's President and CEO Hannu Syrjälä. "Despite the tough market conditions, we see growth in outsourcing opportunities and good demand for Tieto's services that support our customers to increase their productivity and efficiency," he continues.
Tieto's first quarter interim report will be published on 24 April at 8.00 am EET. The company will provide more information on the planned streamlining actions and their expected costs in connection with the first-quarter results announcement.