Tecnotree Corporation Short Report 1 January – 30 September 2016 (unaudited)
28 October, 2016 at 08.30 a.m. EEST
According to the Finnish Securities Market Act, chapter 7, sections 10 and 11, listed companies are obliged to publish a half-year report of the first six months of the fiscal year. However, as from 2016 it is no longer obligatory to publish interim reports after three months and nine months. Tecnotree announced on 26 November 2015 that it would publish summary versions of the 1-3/2016 and 1-9/2016 reports, which would contain the figures for the period with a short commentary on them and a summary of the events in the period. This is therefore not an interim report as defined in IAS 34.
Tecnotree is a global supplier of telecom IT solutions, providing products and services for charging, billing, customer care, and messaging and content services. The company’s product portfolio comprises virtually the full range of business management systems for telecom operators, with standard solutions for fixed networks, mobile services and broad band and for managing subscriptions, services and cash flows for prepaid and post-paid customers. Tecnotree has a strong footing especially in developing markets.
Challenging quarter and cost savings continue
|KEY FIGURES|| 7-9/ |
| 7-9/ |
| 1-9/ |
| 1-9/ |
| 1-12/ |
|Net sales, MEUR||16.2||17.7||45.4||51.9||76.5|
|Adjusted operating result, MEUR 1||1.8||2.7||0.5||5.6||12.0|
|Operating result, MEUR||0.8||2.7||-0.5||5.3||11.7|
|Result before taxes, MEUR||-0.3||3.8||-5.4||2.4||7.8|
|Adjusted result for the period, MEUR 2||-0.8||-0.0||-7.0||-3.4||0.6|
|Result for the period||-1.1||1.9||-8.2||-3.1||0.2|
|Earnings per share, basic, EUR||-0.01||0.02||-0.07||-0.03||0.00|
|Order book, MEUR||23.9||33.7||26.8|
|Cash flow after investments, MEUR||-2.4||-1.7||-4.7||1.9||6.3|
|Change in cash and cash equivalents, MEUR||-2.1||-2.3||-5.3||0.7||4.2|
|Cash and cash equivalents, MEUR||1.0||3.2||6.4|
|Equity ratio %||11.4||18.8||23.9|
|Net gearing %||399.8||204.7||145.2|
|Personnel at end of period||892||932||934|
1 Adjusted operating result = operating result before one-time costs. Details of these are given in the Short Report section “Result analysis”.
2 Adjusted result for the period = result for the period without exchange rate gains and losses that are included in financial items and mainly arise on receivables due to subsidiaries from the parent company.
Unless otherwise stated, all figures presented below are for the review period 1-9/2016 and the figures for comparison are for the corresponding period 1-9/2015.
CEO Padma Ravichander
The company’s focus during this review period were – holding on to revenue levels and cost optimization. The company was able to achieve both these objectives. The revenue for Q3 2016 was almost identical to that of Q2 2016.
One of the highlights of the quarter was winning a new customer, a South East African operator to deliver a full BSS transformation project. The order is worth USD 8 million and deliveries are expected to be completed in 2017.
The multi-year strategic project will see Tecnotree deploying a complete BSS platform transformation based on Tecnotree AgilityTM Enterprise Suite of products, comprising of Unified Product Catalog, Customer Lifecycle Management, Convergent Billing System, Loyalty & Campaign Management System and Tecnotree Application Platforms. The operator has initiated this project to offer unmatched omni-channel customer experience to drive customer value across their quad play offerings on GSM, FXL, ISP and IPTV.
The total net sales of the third quarter was down by EUR 1.5 million compared to previous year and for the January–September review period EUR 6.5 million, mainly due to weak South America market. Last year at this time, currency exchange gains totalling EUR 1.8 million were recorded in net sales and in the result, mainly due to strengthening of USD. This year the corresponding figure was a currency exchange loss of EUR 0.7 million, so these figures had a negative impact EUR 2.5 million when comparing the results.
The other objective of the quarter was cost optimization including reduction of personnel by 100 man years, yielding a savings of EUR 5 million per year. The company has begun the implementation of the cost saving measures and the full impact of all these actions will be visible in the coming year 2017.
The most important single event in the third quarter for Tecnotree was the revised restructuring programme filed by the Administrator with the court on 30 September 2016. This reduces the uncertainty surrounding the issue and clarifies the company’s situation. If the program is approved, the Group’s debt will be cut by EUR 6.7 million, and EUR 2.4 million of recognized interest costs will be cancelled.
On 5 March 2015 Tecnotree Corporation filed an application with the district court of Espoo for debt restructuring proceedings. The court decided on 9 March 2015 to commence the corporate restructuring proceedings. The district court appointed Mr. Jari Salminen, Attorney-at-Law, from Eversheds Attorneys Ltd as the administrator in respect of the restructuring process. The administrator delivered his proposed restructuring programme to the district court of Espoo on 30 March 2016, and an amended proposed restructuring programme on 30 September 2016.
The Administrator considers that the draft restructuring programme filed on 30 September 2016 will result in a more favourable outcome for the creditors compared to bankruptcy. The Administrator's view is that if implemented, the draft restructuring programme would lead to the Company's operations being rehabilitated.
Compared to the restructuring programme proposal filed to the District Court of Espoo on 30 March 2016, the programme is no longer based so strongly on the realization of the Company’s assets but rather on the operative cash-flow of the Company.
The essential content of the drat restructuring programme ia as follows:
- At the moment, the total amount of the restructuring debts to be taken into account in the restructuring proceedings is approximately EUR 73.9 million. The Company has intragroup restructuring debts approximately EUR 36.7 million. According to the Administrator’s draft programme the intragroup restructuring debts will be fully cut. In addition, the Company has EUR 13.2 million unsecured debt. The total amount of the restructuring debts includes also approximately EUR 23.8 million secured debts out of which approximately EUR 7.9 million is secured by business mortgage. The Administrator is proposing that the unsecured restructuring debts be cut by 50% which would leave 50% of the amount of such debt to be repaid.
- The draft restructuring programme does include a provision on a duty to make supplementary payments on restructuring debts with no priority if the Company's actual cash flow exceeds the projected cash flow during the payment programme.
- Payments under the restructuring programme will end on 30 June 2025. The payments are broken down in appendix 15 of the draft restructuring programme. The company pays EUR 0.1 million in 2016, correspondingly EUR 1.5 million in 2017 and EUR 2.0 million in 2018.
If the draft restructuring programme is approved, the group will record a one-off positive income effect of approximately EUR 6.7 million as a result of debt rearrangement. In addition, the company will cancel provisions for interest expenses. A total of EUR 2.4 million of these had been accrued by 30 September 2016.
The approval and entry into force of the draft programme are conditional upon Tecnotree Corporation's General Meeting approving the draft programme.
RISK AND UNCERTAINTY FACTORS
The risks and uncertainty factors for Tecnotree are explained in the 2015 Board of Directors’ Report and in the notes to the Financial Statements.
Tecnotree’s risks and uncertainties in the near future relate to financing, projects, to their timing, to trade receivables and receivables from construction contracts and to changes in foreign exchange rates. Having sufficient cash funds is the biggest single risk and during the third quarter, the financial situation was very tight.
The company has sales in several countries where the country’s central bank has a shortage of foreign currency. This causes additional delays in payments, costs and even the risk of not receiving payment at all.
Tecnotree Corporation’s restructuring proceedings are still in progress. The administrator delivered his revised restructuring program to the district court of Espoo on 30 September 2016. The proposed restructuring programme contains obligations concerning the sale of the Company’s property. The court will take the decision on this matter later. In case an acceptable restructuring plan does not come into force, the company will have to pay its creditors in full for its debts in the restructuring process. The Company is also obliged to fulfil the terms of the restructuring programme, which includes risk.
At the end of September 2016, the Group’s shareholders’ equity of stood at EUR 8.1 million. However, the shareholders’ equity of the parent company remains negative.
PROSPECTS IN 2016
The company estimates that its net sales and operating result will be clearly lower than in the previous year. The weak state of the market in Latin America is a particular factor in this decline. The company continues to be financially very constrained and the liquidity will remain very tight.
Tecnotree started a cost savings plan with the target to reduce personnel costs by EUR 5.0 million, representing 100 man years. A part of the savings will happen in 2016 when one-time costs for these action will also happen. The savings will have a full impact in 2017.
As in previous years, variations in the quarterly figures are estimated to be considerable.
Tecnotree is holding a conference for analysts, investors and the media to present its short financial report on 28 October 2016 at 10.00 am in the Tapiola conference room at the Scandic Hotel Simonkenttä, Simonkatu 9, Helsinki. The result will be presented by CEO Padma Ravichander and the conference will be held in English. The material to be presented at the press conference will be available at www.tecnotree.com
Board of Directors
Mrs. Padma Ravichander, Interim CEO, tel. +97 156 414 1420
Ms Kirsti Parvi, CFO, tel. +358 (0)50 517 4569
Tecnotree is a global provider of telecom IT solutions for the management of products, customers and revenue. Tecnotree helps communications service providers to transform their business towards a marketplace of digital services. Tecnotree empowers service providers to monetise on service bundles, provide personalised user experiences and augment value throughout the customer lifecycle. With around 1000 telecom experts, Tecnotree serves around 90 service providers in around 70 countries. Tecnotree is listed on the main list of NASDAQ Helsinki with the trading code TEM1V. For more information on Tecnotree, please visit www.tecnotree.com