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Tieto's profitability improves, sales slightly down
Thanks to improved efficiency and the positive impacts of the streamlining actions that were implemented during 2009, Tieto's profitability improved from the first quarter of 2009. In the first quarter, the company achieved EUR 28 million in cost savings, exclusive of currency effects. Firstquarter operating profit amounted to EUR 18.8 (4.9) million. Operating profit excluding oneoff items amounted to EUR 26.6 (14.8) million, or 6.3% (3.4) of net sales. Profit before taxes totalled EUR 17.7 (2.1) million and earnings per share amounted to EUR 0.17 (0.01) in the first quarter.
Business transfers to offshore countries are straining net sales, but at the same time they contribute to improved profitability. On one hand, the changing delivery mix - which makes greater use of offshore resources - is leading to lower average unit prices. On the other, average unit costs are declining as well. At Tieto, the share of employees in the global delivery centres stood at 32% at the end of March.
The Nordic IT services market is expected to start growing in the second half of 2010. Growth estimates for the full year provided by market analysts vary from 0% to 2%. The market for the telecom sector is expected to remain challenging during 2010. The market development is twofold; volumes are going up but at the same time, offshoring will continue to lower market prices.
President and CEO Hannu Syrjälä:
"Our business environment has continued to improve and our execution was solid in the first quarter of 2010. Sales were slightly down, and profitability improved as a result of successful cost savings actions implemented in 2009. Operating margin excluding oneoff items almost doubled to 6.3% from last year.
The turnaround in Tieto Sweden is well on its way. The good profitability development that started in the latter part of 2009 has continued. In Finland, sales were down a bit but profitability remained at the 10% level. Tieto International's profitability was strained by few divestments, but excluding these, profitability was up substantially.
The first half of 2010 is still characterized by sluggish market, and modest growth is expected in the latter half of the year. Our volumes have developed favourably, but our sales are affected by lower price levels due to increased use of offshore resources. Tieto is investing in growth initiatives, but at the same time, we continue to manage our cost base tightly. We have achieved excellent results from our increased offshore capabilities and this will have a positive impact on our performance."
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