TECNOTREE CORPORATION FINANCIAL REPORT 1 JAN – 31 DEC 2016 (UNAUDITED)
Tecnotree Corporation
Financial report
March 31, 2017 at 8.30am
TECNOTREE CORPORATION FINANCIAL REPORT
1 JAN – 31 DEC 2016 (UNAUDITED)
ADJUSTED OPERATING RESULT POSITIVE – RESULT IMPACTED BY ONE-TIME ITEMS
TECNOTREE ANNOUNCED AN ADDITIONAL SAVINGS TARGET OF 5 MILLION EUROS FOR 2017
Fourth quarter 2016
- Fourth quarter net sales were EUR 14.7 (24.6) million.
- The adjusted operating result for the quarter was EUR 0.8 (6.4) million and the operating result -9.6 (6.4) million.
- The adjusted result for the quarter was EUR 3.0 (3.9) million and result EUR 2.0 (3.3) million.
- The order book at the end of the period stood at EUR 24.9 (31 December 2015: 26.8 million).
- Fourth quarter cash flow after investments was EUR 3.8 (4.4) million.
- Earnings per share were EUR 0.02 (0.03).
Jan-Dec 2016
- Net sales for the financial period were EUR 60.1 (76.5) million.
- The adjusted operating result was EUR 1.2 (12.0) and the operating result -10.1 (11.7) million.
- The adjusted result for the period was EUR -4.2 (0.6) million and the result EUR ‑6.3 (0.2) million.
- Cash flow after investments for the financial period was EUR -0.9 million (6.3) and the company’s cash and cash equivalents were EUR 3.5 (31 December 2015: 6.4) million.
- Earnings per share were EUR -0.05 (0.00).
- Financial situation remains tight as explained in the sections “Risks and uncertainties”.
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 restructuring gains in financial items and other one-time costs.
Unless otherwise stated, all figures presented below are for the financial period 1-12/2016 and the figures for comparison are for the corresponding period 1-12/2015.
CEO PADMA RAVICHANDER:
Overview:
For Tecnotree, the year 2016 was one of change and new beginnings.
We significantly progressed in our transformation journey into a full-fledged product company under a new leadership team, and aggressively consolidated our operations across the globe to reduce overall cost of operations. While endeavoring to do this, we actively won new customers throughout the year and also renewed the relationships with our leading customers in LATAM and Middle-East & Africa. In addition, we successfully received the approval for our debt restructuring programme, reached a settlement on a long-accrued receivable with our LATAM customer, completed several long-standing customer projects, and won a number of important new deals with our new open source based BSS offering that further confirmed our product strategy and roadmap are on the right track. We also further consolidated and harmonized our BSS product offerings in order to align our products to our vision of enabling a digital market-place for our customers and our eco-system of partners.
However, the company continued to experience an extremely tight cash position and liquidity. The company took several measures throughout 2016 to improve this situation including one- time cost savings programme, aggressive collection of receivables from its customers and seeking external funding and investments. The financial situation continues still to be critical.
CEO’s adjusted consolidated key figures:
In order to review the performance of 2016 without the impact of prior year issues and one-time costs related to the 5 million EUR cost saving programme, I would like the share the table below that can help truly assess our performance of 2016:
1 Write offs of previous years LATAM settlement (9.2), prior year receivable write offs (1.7) and one-time cost related cost savings programme (2.3).
2 Positive impact of debt restructuring gains (6.6) and interest accruals (2.7), taxes (-3.8).
With reference to the new guidelines on alternative performance measures issued by the European Securities and Markets Authority (ESMA), Tecnotree uses the alternative performance measures “adjusted operating result” and “adjusted result for the period”. These measures are defined in the footnote to the above table, and in the table “Income statement, Key figures” under the section “Result analysis”.
During the year, the revenues from the LATAM region were lower and some revenues in MEA were deferred to 2017, due to delayed customer deliveries and acceptance. Hence, our revenues for the year were lower than target at 60.1 million euros (76.4).
As a part of driving towards profitable growth and further optimization of costs, we announced in August 2016 a company-wide cost saving programme with the target to reduce personnel costs by EUR 5.0 million on an annual level, representing 100 man years. In conjunction with the cost saving programme we announced the plans to reduce our personnel globally, including Finland, India, Brazil, APAC and other locations. As the result of the consultation process, Tecnotree’s personnel was decreased by 116 globally. By the end of 2016 the gains from the cost saving programme were EUR 2.3 million.
After elimination of the exceptional one time issue of the LATAM settlement costs and prior year write-offs, our earnings before interest and tax (EBIT) for 2016 is EUR 3.1 million (12.0). With the debt restructuring plan approved by the Espoo District court in 2016, our actual net income is a positive 1.4 million euros (0.6).
Along with the confirmation of the payment programme, the group recorded a one-off positive income effect of approximately 6.6 million euros as result of debt rearrangement. In addition, the company cancelled provisions for interest expenses to the total of 2.7 million euros.
2016 Overall Performance:
Tecnotree had a record year in 2016 in terms of the acquisition of new clients for our new BSS suite of products based on open source technologies:
* Ukkoverkot in Finland chose Tecnotree’s BSS Express solution for its cloud based on BSS platform delivered in a SaaS mode, and we also signed a deal to supply a Convergent Billing Platform to a West African operator with 60 million customers
* Nepal Telecom – a South Asian operator – chose Tecnotree’s AgilityTM Mediation and Interconnect system to replace their existing systems for USD 3 million, and EMTEL Mauritius – part of the Airtel Group – chose Tecnotree solutions for expanding its reachability and content management platforms
* We won a USD 8 million contract for a full BSS transformation project with a South East African operator for its omni-channel, quad play offerings on GSM, FXL, ISP and IPTV. The deliveries are expected to be completed in 2017.
During Q4, Tecnotree reached a settlement of 6.0 million euros with a Latin American customer on a long-accrued receivable. Following the outcome of these negotiations, Tecnotree took an impairment charge of approximately 9 million euros, booked in Q4 2016.
Tecnotree reduced its overall operating expenses to 50.9 million euros (53.2) (difference 2.3) working across the geographical centers and looking to optimize and consolidate its operations in LATAM, Europe, MEA and APAC. In 2016, we also significantly rationalized our portfolio of products to ensure that we maintain a relevant set of products that will complete our BSS offering and significantly reduce time-to-market.
Our risk of working in countries where there are severe foreign exchange constraints that affect our cash in-flow, and also countries where withholding taxes are varied and high, continued in 2016.
2017 Outlook
In 2017 we are committed to continuing our internal transformation journey to simplify our portfolio of products, and go-to-market with improved execution, quality and agility and innovative business models.
Given the current critical financial situation of the company, Tecnotree will plan further to reduce operating expenses in 2017 to the tune of an additional 5 million EUR. We will plan to achieve this goal through further reductions in real estate rentals, travel and accommodation cost, consolidation of branch operations, reduction of outsourced services and additional savings in personnel costs.
We will continue to minimize currency exchange risks and withholding taxes by initiating actions to further improve our current structures and processes.
We will continue increased focus on ensuring timely collections of receivables by further improving the quality and timeliness of our deliveries.
Going forward, in 2017 and beyond we continue with our vision as a product company. We will compound our deep telecom experience with creating a delightful customer experience on our BSS platform engaged with signature Finnish design and quality excellence. Our cloud enabled micro-services based interoperable products help us create a ‘digital marketplace’ with our own products and an ecosystem of partner products and services that fosters true business value for our customers.
RESTRUCTURING PROCEEDINGS
The District Court of Espoo confirmed by a decision on 15 November 2016 the amended restructuring programme drafted by the supervisor Jari Salminen as the payment programme of the company. Along with the decision, the restructuring proceedings of Tecnotree Oyj came to an end. The proposal for Tecnotree’s restructuring programme was approved before the resolution of the District Court in the extraordinary general meeting on November 9, 2016.
In the voting procedure preceding the confirmation, all the creditors who participated in it voted in favor of confirming the payment programme.
The total amount of the restructuring debts taken into account in the payment programme was approximately 73.9 million euros. The amount of intragroup restructuring debts that were fully cut was approximately 36.7 million euros. The amount of normal unsecured restructuring debts was approximately 13.2 million euros. The amount of the secured restructuring debts was approximately 23.8 million euros out of which approximately 7.9 million euros was secured by business mortgage. The capital of the unsecured restructuring debts was cut by 50 percent. Payments under the payment programme will end on 30 June 2025.
The restructuring programme includes a provision regarding a duty to make supplementary payments on the unsecured restructuring debts if the actual cash flow of Tecnotree Oyj exceeds the projected cash flow during the payment programme.
Along with the confirmation of the payment programme, the group recorded a one-off positive income effect of approximately 6.6 million euros as a result of debt rearrangement. In addition, the company cancelled provisions for interest expenses in total of 2.7 million euros.
As stated in the restructuring programme, Tecnotree Oyj has committed itself to sell its real estate used as its office premises by 31.12.2019. The sales price shall be paid to the collateral holder Nordea Pankki Suomi Oyj. The company has a right not to sell the real estate in the given time only if approved by the supervisor and Nordea Pankki Suomi Oyj.
The District Court has appointed Attorney-at-Law Jari Salminen to supervise the implementation of the restructuring programme. The supervisor monitors the progress of the payment programme and gives reports to the committee of creditors and to the creditors.
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 and the development of net sales are the most significant single risks.
The liquidity of the company continues to remain tight and hence the financial situation of the company remains critical. The amount of overdue trade payables have continued to increase. The company is engaged aggressively to collect its receivables from the key customers and is also negotiating with financiers to secure some short financing for additional liquidity. In addition, the company has been seeking long-term external funding through investors. The company’s ability as going concern is dependent on the successful completion of the financing transactions that are currently under negotiations and its ability to continue to execute the payment programs
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.
At the end of the year the Group’s shareholders’ equity of stood at EUR 10.7 million. However, the shareholders’ equity of the parent company was EUR 1.2 million negative.
EVENTS AFTER THE END OF THE PERIOD
In the first quarter 2017, Tecnotree repatriated EUR 3.0 million receivables from its customer in Latin America.
OUTLOOK FOR 2017
The company continues to be financially constrained and the liquidity will remain tight in 2017.
Tecnotree cost savings plan is to reduce personnel costs by 5.0 million euros, representing 100 man years was commenced in 2016 and the full impact will be realized in 2017.
Given the current critical financial situation of the company, Tecnotree will plan to further reduce operating expenses in 2017 to the tune of an additional 5 million EUR. We will plan to achieve this goal through further reductions in real estate rentals, travel and accommodation cost, consolidation of branch operations, reduction of outsourced services and additional savings in personnel costs.
We will continue to minimize currency exchange risks and withholding taxes by initiating actions to further improve our current structures and processes.
We will continue increased focus on ensuring timely collections of receivables by further improving the quality and timeliness of our deliveries.
Results are subject to quarterly variations and seasonality.
Tecnotree will continue its debt payment program according to the debt restructuring plan.
PROPOSAL CONCERNING THE RESULT
The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial period ended 31 December 2016, and that the parent company’s profit for the financial period, EUR 1 816 403.05, be in retained earnings.
FINANCIAL INFORMATION
Tecnotree is holding a conference for analysts, investors and the media to present its financial report on 31 March 2017 at 10.00 am in the Tapiola conference room at the Scandic Hotel Simonkenttä, Simonkatu 9, Helsinki. The financial report will be presented by CEO Padma Ravichander. The event is held partly in English and will be interpreted into Finnish if needed. The material to be presented at the press conference will be available at www.tecnotree.com
.
TECNOTREE CORPORATION
INVESTOR RELATIONS
FURTHER INFORMATION
Padma Ravichander, CEO, tel. +358400156371
Kirsti Parvi, CFO, tel. +358505174569
Tecnotree plans to publish its audited annual report ”Tecnotree in 2016” on the week 17 in 2017. The annual report will be available at www.tecnotree.com
About Tecnotree
Tecnotree is a global provider of IT solutions for the management of services, products, customers and revenue for Communications Service Providers. Tecnotree helps customers to monetise and transform their business towards a marketplace of digital services. Together with its customers, Tecnotree empowers people to self-serve, engage and take control of their own digital life.
Tecnotree is listed on Nasdaq Helsinki (TEM1V). For more information, please visit www.tecnotree.com.
