INTERIM REPORT OF COMPTEL CORPORATION Positive p

Positive profit performance continued. Strong growth in Fulfillment business.

Key figures for the third quarter:

• Net sales EUR 18.7 million (Q3 2012: 20.4), change -8.2%
• Operating result EUR 1.3 million (0.4, 1.6 excluding one-off items), 6.8% of net sales
• Earnings per share EUR 0.01 (-0.00)
• Order backlog EUR 35.5 million (44.5), change -20.2%    

Key figures for January - September:

• Net sales EUR 60.5 million (Q1 - Q3 2012: 60.5), change -0.1%
• Operating result EUR 3.6 million (-15.3, -2.6 excluding one-off items), 6.0% of net sales
• Earnings per share EUR 0.00 (-0.14)

As stated earlier, Comptel’s net sales are estimated to grow from the previous year in 2013. Operating profit is estimated to increase to 5 - 10 per cent of net sales. Characteristically a significant part of Comptel’s operating profit and net sales is generated in the second half of the year.

Juhani Hintikka, President and CEO:

”We continued the successful execution of our main target for the year - the improvement of profitability. Our cost base is now notably below last year´s level which has significantly improved our ability to generate profit. We have also maintained significant investment level in our two main areas for the future which are the Fulfillment and Advanced Analytics.  

We have received significant new orders from the Fulfillment area during this year and the first next generation Fulfillment solutions have been taken into production use by our customers. Overall our Fulfillment business has grown much faster than the market during this year. In terms of the Analytics solutions we continued the development activities as per our plans. The first Analytics solutions delivered have generated significant enhancements to the operator´s performance. We expect to secure new customers during the remaining months of the year and we anticipate business to grow next year.

We secured two significant orders from our Fulfillment product area during the third quarter of the year. We closed a deal valued at EUR 2.8 million in South America in July and received an expansion order from a significant operator in the Middle East during September. Our sales investments have been successful both in South America and in the Middle East whereas the market situation in Europe remains challenging.

During the third quarter of the year we received three significant orders valued over EUR 0.5 million. We are negotiating several significant deals of which the first ones are expected to close during the fourth quarter”

Business Review for the Third Quarter and January - September 2013 In the third quarter, Comptel’s net sales decreased by -8.2 per cent from the previous year and were EUR 18.7 million (20.4). Decrease in net sales was mainly attributable to lower license sales compared to the previous year. In January - September, net sales decreased by -0.1 per cent from the previous year and were EUR 60.5 million (60.5).   

In the third quarter, the operating result was EUR 1.3 million (0.4), which corresponds to 6.8 per cent of net sales (2.0). The operating result for the previous year was affected by one-off items amounting to EUR 1.2 million. The comparable operating result decreased from the previous year as a result of lower net sales. Simultaneously, the costs savings program carried out in 2012 lowered the operating expenses for the third quarter. The lower cost level was also a result of decrease in the bad debt provision which had an impact of EUR 0.4 million in July – September.

The operating result for January - September was EUR 3.6 million (-15.3), which corresponds to 6.0 per cent of net sales (-25.3). The operating result for the previous year includes a goodwill impairment loss of EUR 10.2 million and one-off items relating to the efficiency improvement measures amounting to EUR 2.5 million. Operating expenses excluding the one-off items decreased by EUR 6.2 million in January – September compared to the corresponding period in the previous year as a result of the costs savings program materialising as planned. 

In January-September, profit before taxes was EUR 2.5 million (-15.9) and net income was EUR 0.3 million (-15.0). Earnings per share for the period under review were EUR 0.00 (-0.14). Tax expense for the review period was EUR 2.2 million (-0.9), including EUR 1.3 million of withholding taxes. The cumulative amount of outstanding, non-credited withholding taxes payment since 2004 is EUR 10.2 million.

The Group’s order backlog decreased from the previous year and was EUR 35.5 million (44.5) at the end of the period. Maintenance agreements represent EUR 16.8 million (22.4) and other order backlog EUR 18.7 million (22.0) of the total. Amount of new orders received during the review period was low.    

Business areas

In the third quarter, net sales grew in the Americas and decreased in Europe West and Asia Pacific. The proportional profitability improved in all business areas in January – September. In January - September, Comptel received 15 significant orders (Q1 - Q3 2012: 13), seven Policy Control & Charging, four Fulfillment and four Managed Services orders. As significant orders, Comptel reports sold projects and licenses with a value of EUR 0.5 million at the minimum.  

License sales were low during the third quarter of the year. Services sales grew from the previous year. Maintenance revenue consists of maintenance and support of the delivered systems.

There were no significant changes in the sales distribution between channels. Financial Position  

The statement of financial position total was EUR 63.4 million. Operating cash flow was EUR 2.4 million (2.0) in the third quarter and EUR 3.7 million (1.7) during January - September.

The trade receivables were EUR 21.6 million (19.3) at the end of the period. The accrued income was EUR 10.0 million (12.9). The deferred income related to partial debiting was EUR 1.9 million (3.1). Comptel Corporation withdrew a loan of EUR 1.0 million during the third quarter and EUR 3.0 million during January - September. Comptel has a loan facility arrangement amounting to EUR 19 million. It includes a term-loan of EUR 6.0 million and a revolving credit facility of EUR 13.0 million. The term-loan of EUR 6.0 million was withdrawn in full and EUR 5.0 million had been utilised from the revolving credit facility. The loan facilities are valid until January 2016. The equity ratio was 49.3 per cent (50.2) and the gearing ratio was 20.1 per cent (3.8). Research and Development (R&D)  

Direct R&D expenditure represented 21.4 per cent (23.3) of net sales in the period under review. Comptel’s R&D expenditure was mainly targeted at the service fulfillment automation of telecom operators and to the management and real-time analysis of rapidly increasing data traffic. Comptel seeks global market leadership in these areas where key business challenges of operators and service providers will be solved. In addition, the company is developing an integrated software platform which will enable a cost-efficient and solution-based R&D. In 2013, the company focuses on developing its offering within the Fulfillment and advanced analytics product areas. In terms of advanced analytics, integrating the acquired Xtract advanced analytics into the Comptel software platform is a priority. With a combined offering including real-time analytics, Comptel can help operators to improve customer loyalty as well as enable individually targeted marketing. Five major software releases were launched in these respective product areas during the review period.

Investments  

The investments comprised of devices, software and furnishings. The investments were funded through liquid assets and cash flow from operations. The acquisition of Xtract Oy is reflected in the 2012 figures. 

Personnel  

The number of employees decreased following the cost savings program. In July - September, personnel expenses were 49.2 per cent of net sales (55.3). In January - September, the personnel expenses were 50.6 per cent of net sales (55.9).

At the end of the period, 30.2 per cent (32.0) of the personnel were located in Finland, 27.4 per cent (24.3) in Malaysia, 11.0 per cent (9.3) in Bulgaria, 8.1 per cent (7.4) in the United Arab Emirates, 6.3 per cent (7.8) in the United Kingdom, 4.8 per cent (3.1) in India, 2.8 per cent (4.9) in Norway, and 9.4 per cent (11.2) in other countries where Comptel operates.  

Comptel share Closing share price of the period was EUR 0.53 (0.40). Comptel’s market value at the end of the period was EUR 56.7 million (42.8).

Of Comptel’s outstanding shares, 7.1 per cent (5.1) were nominee registered or held by foreign shareholders at the end of the period.

During the period, Comptel Corporation allotted gratuitously 164,203 shares to the members of the Board of Directors as part of their annual compensation and 50,000 shares to the President and CEO of the company according to the terms and conditions of the 2011 share-based incentive plan. 

The company held 161,219 of its own shares at the end of the period, which is 0.15 per cent of the total number of its shares. The total counter-book value of the shares held by the company was EUR 3,224. No share options were distributed during the review period.

Corporate Governance The Annual General Meeting (AGM), held on 20 March 2013, re-elected Mr Pertti Ervi, Mr Hannu Vaajoensuu, Mr Petteri Walldén, Ms Eriikka Söderström and Mr Antti Vasara as members of the Board of Directors. In its meeting held after the AGM, the Board of Directors elected Mr Pertti Ervi as chairman and Mr Hannu Vaajoensuu as vice chairman. The Board decided not to set up committees. The AGM appointed Ernst & Young Oy as the company’s auditor. Mr Heikki Ilkka is acting as the principal auditor. The AGM resolved that no dividend payment will be made for 2012.

The AGM authorised the Board of Directors to decide on share issues amounting to a maximum of 21,400,000 new shares and on repurchase or conveying of the company's own shares up to a maximum number of 10,700,000 shares. The authorisations are valid until 30 June 2014. However, the authorisation to implement the company's share-based incentive programs is valid until five years from the AGM resolution. A separate stock exchange release about the authorisations given and other decisions made by the Annual General Meeting was published on 20 March 2013.  

Events after the Reporting Period

There were no significant events after the reporting period.

Near-term Risks and Uncertainties Comptel develops dynamic end-to-end solutions for leading operators globally in the telecom field. This requires Comptel to understand correctly the trends taking place in its business environment and the needs of its customers and resellers by each region. Failure to identify market conditions, address customers’ needs and develop its products in a timely way may significantly undermine the growth of Comptel’s business and its profitability. 

Characteristics to Comptel’s field of industry are significant quarterly variations of net sales and profit, which are related to customers’ purchasing behaviour and the timing of major single deals. 

Comptel's business consists of deliveries of large productised IT system and the value of a single project may be several million euros. Therefore, the risk or credit risk associated with a single project or an individual customer may be significant. Furthermore, some of Comptel's customers operate in countries which are going through political or economic instability which in part may increase credit risk. 

Comptel operates globally so it is exposed to risks arising from different currency positions. Exchange rate changes between the Euro, which is the company’s reporting currency, and the US Dollar, UK Pound Sterling and Malaysian Ringgit affect the company’s net sales, expenses and net profit. 

The application process to prevent Comptel’s double taxation is still pending with the Ministry of Finance in Finland. However, the process between the states is very slow and the timing of a change is hard to forecast. The interpretation of tax treaties may result in different views between the countries in question. This could mean that the double taxation will prevail. 

The risks and uncertainties of Comptel are described more in detail in the company’s financial statements and the Board of Directors’ report for 2012.

Outlook  

As stated earlier, Comptel’s net sales are estimated to grow from the previous year in 2013. Operating profit is estimated to increase to 5 - 10 per cent of net sales.  

Characteristically a significant part of Comptel’s operating profit and net sales is generated in the second half of the year.

TABLE PART

The interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU. The accounting policies and methods of computation adopted in the financial statements are consistent with those of the annual financial statements for the year ended 2012 except for the application of new or amended standards and interpretations as set forth in note 1. All figures in the financial report have been rounded and consequently the sum of the individual figures can deviate from the sum figure. The interim report is unaudited.  

  Notes   

1. Application of new or amended standards and interpretations On 1 January 2013 the Group adopted the following new and amended standards and interpretations endorsed by the EU and that are applicable to Comptel: Amendments to IAS 1 Presentation of Financial Statements. The major change is the requirement to group items of other comprehensive income as to whether or not they will be reclassified subsequently to profit or loss when specific conditions are met. The other new or amended standards in force as of 1 January 2013 did not have an impact on the accounting policies and methods of computation.

2. Segment information Net sales by segment  

Operating profit/loss by segment  

3. Business combinations On 9 February 2012, Comptel Corporation acquired all shares of Xtract Oy, a Finnish software company specialising in analytics. The total consideration (enterprise value) was EUR 3,100 thousand. The actual purchase price was EUR 2,075 thousand.   

4. Impairment loss on goodwill Comptel changed the allocation method of goodwill during the first quarter of the year 2012. Due to the change, an impairment testing was performed at the new cash generating unit level which was lower level compared to the one used during financial year 2011. As a result of impairment testing Comptel recorded an impairment loss of EUR 10,179 thousand in the first quarter result in 2012. 5. Income tax Income tax expense according to the statement of comprehensive income for the period was EUR 2,179 thousand (EUR 923 thousand positive in 2012). A change of EUR 2,494 thousand in deferred tax liabilities was booked in connection with the impairment of goodwill in the first quarter of 2012. In 2006, the Board of Adjustment of the Tax Office for Major Corporations refused to accept the crediting of taxes withheld at source in taxation of 2004 and 2005. The application process to prevent Comptel’s double taxation is still pending with the Ministry of Finance in Finland. However, the process between the states is very slow and the timing of a change is hard to forecast. The interpretation of tax treaties may result in different views between the countries in question. This could mean that the double taxation will prevail.

According to the Board of Adjustment’s decision currently in force, Comptel Corporation has expensed taxes withheld at source amounting to EUR 915 thousand in January - June (EUR 1,422 thousand). 6. Tangible assets  

7. Related party transactions The Comptel Group have a related party relationship with its associate, the Board of Directors, the Executive Board and also with people and companies under Comptel management’s influence. Transactions which have been entered into with related parties are as follows:  

Remuneration to key management Key management personnel compensation includes the employee benefits of the members of the Board of Directors and the Executive Board.   

Guarantees and other commitments

8. Commitments Minimum lease payments on non-cancellable office facilities and other operating leases are payable as follows:  

The group had no material capital commitments for the purchase of tangible assets at 30 September 2013 and 30 September 2012. 9. Contingent liabilities  

10. Key figures  

¹⁾ Includes the acquisition of Xtract in 2012. The gross capital investments excluding the acquisition amounted to EUR 1,577 thousand, which is 1.9 per cent of net sales. In January – June gross investments excluding the acquisition were EUR 630 thousand, which amount to 1.6 per cent of net sales. The figure does not include investments in development projects.

11. Definition of key figures  

Comptel Corporation will announce its financial statements bulletin for 2013 on 13 February 2014.  

COMPTEL CORPORATION

Board of Directors Additional information: Mr Juhani Hintikka, President and CEO, tel. +358 9 700 1131 Mr Petri Kärkkäinen, Interim CFO, tel. +358 9 700 1131 Distribution: NASDAQ OMX Helsinki Major media www.comptel.com