Tecnotree Corporation Financial Report 1 January – 31 December 2015 (unaudited)

Tecnotree Corporation
Financial Report
31 March, 2016 at 08.30 am EEST

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.

SIGNIFICANT IMPROVEMENT IN RESULT

Fourth quarter

• Fourth quarter net sales were EUR 24.6 (24.2) million.
• The operating result for the quarter was EUR 6.4 (4.7) million.
• The adjusted result for the quarter was EUR 3.9 (0.5) million and result EUR 3.3 (0.5) million.
• The order book at the end of the period stood at EUR 26.8 (31 December 2014: 38.9) million.
• Fourth quarter cash flow after investments was EUR 4.4 (2.7) million.
• Earnings per share were EUR 0.03 (0.00).
   

Jan-Dec  2015

• Net sales for the review period were EUR 76.5 (74.0) million.
• The operating result was EUR 11.7 (3.3) million.
• The adjusted result for the period was EUR 0.6 (-6.4) million and the result EUR 0.2 (‑9.3) million.
• Cash flow after investments for the review period was EUR 6.3 (-1.8) million and the company’s cash and cash equivalents were EUR 6.4 (31 December 2014: 2.5) million.
• Earnings per share were EUR 0.00 (-0.08).

¹ Adjusted operating result = operating result before one-time costs. Details of these are given in the 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 1-12/2015 and the figures for comparison are for the corresponding period 1-12/2014.

CEO Ilkka Raiskinen

For Tecnotree, 2015 was a year of major events. In March 2015 the company filed an application for debt restructuring proceedings. Particular factors leading to this situation were the capital tied up in two major projects that originally had a combined value of USD 54.6 million and the large trade payables incurred at the end of 2014 for hardware for the projects. In addition, a lack of foreign currency at the central banks in certain countries in the developing markets where clients are located significantly delayed customer payments at the start of the year. In January 2015 one of the two major projects was terminated under an agreement made with the client and payment was received for the outstanding receivables for the project during the second quarter. The debt restructuring proceedings stabilized the company’s situation and the 2015 cash flow after investments was EUR 6.3 million positive.

Net sales in 2015 were EUR 2.5 million higher than in the previous year, even though no income was recognized during the year for the two major projects mentioned above. In the previous year the combined net sales for the projects had been EUR 6.3 million. Net sales in the MEA and APAC area increased EUR 9.4 million. In this area Tecnotree has expanded sales of its products in several countries thanks to its well established customer relationships and has succeeded in selling new products. Average annual growth in net sales in the MEA area has been more than 20% in the period 2012 – 2015. New products that deserve a mention are the Unified Product Catalogue and Customer Lifecycle Management products. Net sales in the Europe & Americas area declined EUR 6.9 million due to the weak state of the markets.

The operating result increased EUR 8.4 million from the previous year. One factor contributing to this, in addition to the growth in net sales, was that the volume of hardware purchased for projects declined considerably. The company spent EUR 4.0 million less on services and materials than in 2014.

Net sales and the operating result in the final quarter of 2015 were at record levels. Projects were completed on schedule, which also contributed to the strong cash flow in the quarter.”

RESTRUCTURING PROCEEDINGS

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 extraordinary meeting of shareholders of Tecnotree Corporation held on 27 March 2015 decided to approve the application made by the Board of Directors and to continue with the restructuring proceedings.

Tecnotree Corporation’s business operations have been loss-making for several years, the cash situation remained tight during 2014, and on 31 December 2014 the shareholders’ equity of the parent company fell below half of the share capital. The Company actively searched for a solution to improve its financial standing and carefully studied different options for solving the situation. As the result, the Company came to the conclusion that it was in the best interest of the Company and its shareholders for the Company to apply for restructuring proceedings in accordance with the Act on Restructuring of Enterprises. The Company considered that its difficulties were temporary in nature, and that the restructuring proceedings would in the Company’s assessment make it possible to remedy the Company’s financing and equity structure and thus secure the long-term continuation of the Company’s business operations. As it is implemented, the restructuring eases the debt liability of the Company and consequently also improves the shareholders’ equity.

On 9 March 2015 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. Tecnotree Corporation has to comply with the restructuring programme to be confirmed through court proceedings. This requires a sufficient cash inflow, in other words payments by customers.

Filing the application for restructuring has had no direct impact on Tecnotree’s business operations, and the Company has continued to carry out agreed customer projects and to serve its customers as usual.

Content of the draft restructuring programme of Tecnotree Corporation

The Administrator of the corporate restructuring of Tecnotree Corporation filed the draft restructuring programme to the District Court of Espoo on 30 March 2016. The Administrator considers that the draft restructuring programme will result in a more favorable 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.

The essential content of the draft restructuring programme is as follows:
 

• At the moment, the total amount of the restructuring debts to be taken into ac-count in the restructuring proceedings is approximately 73.9 million euros. The Company has intragroup restructuring debts approximately 36.7 million euros. According to the Administrator’s draft programme the intragroup restructuring debts will be fully cut. In addition, the Company has 11.1 million euros unsecured debt. The total amount of the restructuring debts includes also approximately 26.1 million euros secured debts out of which approximately 8.9 million euros 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 31 December 2020.

• The draft restructuring programme contains obligations concerning the sale of the Company’s property. The sales proceeds will be used to fund some of the payments to secured creditors and to creditors holding a business mortgage as security for their claims.

If the draft restructuring programme is approved, the group will record a one-off positive income effect of approximately 5.6 million euros as a result of debt rearrangement.

The approval and entry into force of the draft programme are conditional upon Tecnotree Corporation's General Meeting approving the draft programme.

Risks and uncertainties in the near future

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. The financing agreement contains covenants that create risk.

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 proposed restructuring program to the district court of Espoo on 30 March 2016. The draft 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 the year the Group’s shareholders’ equity of stood at EUR 17.8 million. However, the shareholders’ equity of the parent company was EUR 3.0 million negative.

EVENTS AFTER THE END OF THE PERIOD

The administrator of Tecnotree’s restructuring proceedings delivered his proposed restructuring program to the district court of Espoo on 30 March 2016. The content of this proposal is disclosed above under “Restructuring proceedings”.

PROSPECTS IN 2015

The operative performance of the company has improved. Tecnotree believes that the filing of its draft debt restructuring plan in early 2016, along with its continued focus on cost, product renewal and better serving its customers will give the company a solid base to continue to improve both its operating efficiency and addressable revenue opportunities. However, Tecnotree does not provide an annual outlook for 2016 due to several uncertainty factors having impact on customer investments. These uncertainty factors relate to a strengthening dollar as well as the softening macroeconomic environment and political instability in some of its key markets in Latin America, the Middle East and Africa.

Variations in the quarterly figures will be considerable.

FINANCIAL INFORMATION

Tecnotree is holding a conference for analysts, investors and the media to present its financial report on Thursday, 31 March 2016 at 10.00 am in the Tapiola conference room at the Scandic Simonkenttä Hotel , Simonkatu 9, Helsinki. The interim report will be presented by CEO Ilkka Raiskinen and the conference will be held in Finnish. The material to be presented at the press conference will be available at www.tecnotree.com.

TECNOTREE CORPORATION

Board of Directors

FURTHER INFORMATION
Ilkka Raiskinen, CEO, tel. +358 (0)45 311 3113
Tuomas Wegelius, CFO, tel. +358 400 433 228

DISTRIBUTION
Nasdaq Helsinki
Main media
www.tecnotree.com

About Tecnotree
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