COMPTEL CORPORATION FINANCIAL STATEMENTS RELEASE F

 Stock exchange release 17 February 2017 at 8:00 am

• Net sales and profit grew, earnings per share grew 154.4 %

Key figures for the Fourth Quarter of 2016: 

• Net sales EUR 29.9 million (Q4 2015: 32.6), change -8.2%
• Operating profit EUR 5.0 million (5.6), change -10.2%
• Operating profit 16.8% of net sales (17.2)
• Profit EUR 8.0 million (4.0), growth 100.9%
• Earnings per share EUR 0.07 (0.04), growth 96.3%
• Order backlog EUR 65.7 million (66.3), change -0.9%

Key figures for Full Year of 2016:

• Net sales EUR 100.0 million (2015: 97.7), growth 2.3%
• Operating profit EUR 11.0 million (8.5), growth 29.8%
• Operating profit 11.0% of net sales (8.7)
• Comparable profit, excluding the India tax accounting, was EUR 7.1 million (4.5), growth 57.3%
• The reported profit EUR 11.7 million (4.5), growth 157.5%
• Earnings per share EUR 0.11 (0.04), growth 154.4%

Dividend Proposal 

The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial period ended on December 31st, 2016. 

The Board of Directors proposes to the Annual General Meeting that the Annual General Meeting authorizes the Board of Directors to decide on a dividend payment of up to a maximum of EUR 0.04 per share in one tranche for the financial period ended on December 31st, 2016 conditional upon the Transaction Agreement entered into on 8 February 2017 by and between Nokia Corporation and Comptel having been terminated for any reason other than consummation of said tender offer, meaning that the authorization can be used only provided that tender offer announced by Nokia Corporation on 9 February 2017 for all of the issued and outstanding shares and option rights in Comptel Corporation is not completed. 

The authorization to decide on payment of dividend shall be valid until 31st, December 2017. Based on this authorization, the Board of Directors is entitled to decide on the dividend record date, dividend payment date and other matters required by the matter. When deciding on the possible payment of dividend, the Board of Directors shall assess the company's liquidity and financial position as required by the Companies Act.

Outlook

We expect 2017 revenue to grow with double digit percentage and we expect comparable EBIT to be between 10-15% of net sales. 

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

These statements for 2016 are based on the company's audited financial statements. The Auditor's Report was issued 16 February, 2017.

Juhani Hintikka, President and CEO: 

Both Business Units’ net sales grew slightly in the year 2016. Also, both Business Unit’s profitability improved clearly in 2016. 

We continued, as planned, to bring new solutions to the market and this can be seen in the distribution of the net sales. The important FulFillment solution net sales grew over 20 per cent compared to previous year. In Intelligent Data business unit both our Fastermind solution as well as the Monetizer solution grew significantly during 2016. Fastermind solution grew 50 per cent and Monetizer 70 per cent compared to previous year. The net sales of traditional products declined and therefore overall growth of the company was modest. We expect in the future our new products growth to continue and impact more significantly the overall company growth. 

The FWD cloud solution got traction in 2016 and at the end of the year we had 4 signed contracts with customers. In addition, we have several ongoing negotiations with new customers and expect the net sales to start showing in 2017 numbers. 

Regionally, EMEA continued to grow with strong performance in 2016. In Europe we received a significant reference, when one of the biggest operator chose Comptel as a partner for developing jointly their future virtual solutions.  In APAC, we experienced some continued delays with our customers’ decision making as well as increasing competition among vendors. 

In Latin America, the year 2016 was challenging and we implemented changes in the operational structure to better match the market conditions. Especially the traditional solutions net sales declined in Latin America. We expect this situation to improve during 2017. During 2016 we increased our investment in the North American market and built a good foundation for future growth. 

The company profitability developed positively and our EBIT for the year improved from 8.7 per cent to 11.0, despite significant investments into R&D and sales coverage. I’m especially pleased with the company’s profitability development. 

The full year profit increased significantly, being EUR 11.7 million and earnings per share 0.11. We managed to complete the process concerning a large part of our outstanding withholding taxes in India. This had a significant impact on our net profit for the year. 

During 2016, we secured 21 orders valued over EUR 1.0 million. In 2015, the comparable number was 25. We also won 9 new customers during 2016. 

In the beginning of 2017 our sales pipeline is significantly higher than a year ago and we are confident that we will achieve double digit growth in 2017.”

Business review of 2016

In the fourth quarter, Comptel’s net sales declined by 8.2 percent compared to previous year and were EUR 29.9 million (32.6). Both business unit net sales declined in the fourth quarter, compared to previous year. In the fourth quarter net sales continued to grow in the EMEA region while all other regions net sales declined.  

Full year net sales grew by 2.3 per cent compared to previous year and were EUR 100.0 million (97.7). The new solutions sales continued to grow significantly while some of the traditional solutions sales declined compared to previous year. 

Operating profit for the year improved by 29.8 per cent and was EUR 11.0 million (8.5). Significant investments into R&D and the product portfolio continued during the year 2016. 

For the full year 2016 financial income/expenses were EUR 0.9 million (-1.1). This includes EUR 1.1 million interest income that relates to withholding tax refund from India. The other financial income/expenses were mainly due to fluctuation in exchange rates between EUR and other currencies. Shares in associated minority companies impacted results before taxes by EUR -0.2 million (0.3). 

Profit before taxes, for the full year, was EUR 11.7 million (7.6) and profit for the reporting period was EUR 11.7 million (4.5). Earnings per share for the year was EUR 0.11 (0.04). 

The tax expenses for 2016 were EUR 0.1 million (3.1), including EUR -2.7 million of withholding taxes (1.2). The 2016 tax expenses include the India tax refund that was received during the year. The EUR 4.5 million withholding tax refund included EUR 3.4 million tax and EUR 1.1 million interest. At the end of the year EUR 3.6 million has been paid in cash to the company. 

In 2016, Comptel received 21 orders of which the value exceeded EUR one million (25), of which Intelligent Data unit received five (four Data Refinary solutions and one Monetizer) and Service Orchestration received 11 (11 FlowOne solutions). Five orders were multi-solution orders across the business units. Comptel reports orders for sold projects and licenses with a minimum value of EUR 1,000,000. 

The Company’s 12-month order backlog was EUR 65.7 million (66.3). This was due to several significant orders were delayed to 2017. The total order backlog was around EUR 90 million at the end of the year.

Business areas  

In the fourth quarter both business unit net sales declined compared to previous year. The relative profitability of Intelligent Data unit decreased. For Service Orchestration, in the fourth quarter, the relative profitability improved compared to previous year. 

For the full year 2016 both business unit’s net sales slightly grew. The operating result for Intelligent Data unit grew by 16.6 per cent and for Service Orchestration 46.1 per cent compared to the previous year. This growth in operating result was also reflected in the relative profitability in both business unit’s.

In the fourth quarter the net sales of project and license business declined by 12.8 per cent compared to previous year. The support and maintenance business grew by 5.7 per cent. 

For the full year 2016 the net sales of project and license business grew 2.9 per cent and support and maintenance business grew 1.4 per cent compared to previous year. 

In the fourth quarter, the EMEA region net sales continued to grow by 5.2 per cent compared to previous year and this was the 6^th consecutive quarter that the region grew. Both the APAC and Americas regions net sales declined in the fourth quarter. 

For the full year 2016 net sales grew in EMEA by 8.3 per cent compared to previous year. In APAC the net sales grew 1.6 per cent compared to the previous year. APAC net sales slowed down in the 2H of the year due to customer delays. For the full year 2016 Americas net sales declined by 26 per cent compared to the previous year. 

Financial Position  

The statement of the financial position on 31 Dec 2016 was EUR 94.9 million (86.4), of which liquid assets amounted to EUR 9.2 million (3.0). The operating cash flow was EUR 15.6 million (0.6) in 2016.

Trade receivables were EUR 38.5 million (40.5) at the end of the period. The accrued income was EUR 15.9 million (10.0). The deferred income related to partial debiting was EUR 5.0 million (3.3).

Comptel has a EUR 25 million credit facility arrangement consisting of a EUR 20 million revolving credit facility and a EUR 5 million overdraft capacity on current bank account. Out of this arrangement Comptel had EUR 8 million of the revolving credit facility outstanding at the end of the period and EUR 0.8 million of the overdraft facility. The credit facility is valid until July 2018.

The equity ratio was 58.7 per cent (52.4) and the gearing 0.5 per cent (11.1). 

Research and Development (R&D)  

Direct R&D expenditure represented 21.8 per cent (20.8) of net sales. 

The key focus of Comptel’s R&D expenditure was in the further development of our existing solutions (Service Orchestration and Intelligent Data) and FWD time-based mobile data marketing solution. 

Development work was focused on securing recurring revenue with competitive products, winning new markets by giving customers unique value, and by improving margins with better deployment and scalability of our products. 

The FlowOne Fulfillment solution ensures unified order and service delivery flows for orchestrating services. FlowOne V is a design-led service orchestration for virtual networks. Data Refinery captures data-in-motion, turns raw data into immediate value and integrates into any data source. Monetizer is the business policy and charging solution that sets the speed to money and allows the innovation and designing of rich communication and data. Fastermind offers artificial intelligence apps, predictive analytics and machine learning capabilities for digital telcoes. In all of these areas, Comptel seeks global thought leadership in solving the business challenges of operators and digital communications service providers. 

During 2016, the company continued to develop its current offering. In 2016 ten major software releases were launched in the product areas mentioned above.

Investments  

The investments comprised of devices, software and furnishings. The investments were funded through cash flow from operations.    

Personnel  

The number of employees increased in 2016, compared to the previous year, due to the increase in product investments and delivery capacity. In the fourth quarter, the personnel expenses were 43.3 per cent of net sales (47.2). For the full year, personnel expenses were 46.8 per cent of net sales (47.9). At the end of the period, 28.1 per cent (29.5) of the personnel were located in Finland, 22.7 per cent (25.5) in Malaysia, 15.5 per cent (11.3) in India, 12.2 per cent (10.2) in Bulgaria, and 21.5 per cent (23.5) in other countries where Comptel operates.

Comptel share The closing share price of the period was EUR 2.37 (1.83). Comptel’s market value at the end of the period was EUR 258.7 million (198.1).  

Of Comptel’s outstanding shares, 5.1 per cent (6.0) were nominee registered or held by foreign shareholders at the end of the period. At the end of the period, the company held 117,129 of its own shares, which represents 0.11 per cent of the total number of shares. The total counter-book value of the shares held by the company was EUR 2,295. 

Corporate Governance 

Comptel Corporation’s Annual General Meeting (AGM) was held on 6 April 2016. The AGM resolved the number of Board members to be five. Mr. Pertti Ervi, Mr. Hannu Vaajoensuu, Ms. Eriikka Söderström, and Mr. Antti Vasara were re-elected as members of the Board of Directors. Mr. Thomas Berlemann was elected as a new member of the Board of Directors. 

The AGM appointed Ernst & Young Oy as the company’s auditor. Mr. Mikko Järventausta is acting as the principal auditor. 

The AGM resolved that a dividend of EUR 0.03 per share was paid for the year 2015. 

In its meeting held after the Annual General Meeting, the Board of Directors elected Mr. Pertti Ervi as chairman and Mr. Hannu Vaajoensuu as vice chairman. 

The Board of Directors decided to establish an audit committee to deal with the preparation of matters relating to the company’s financial reporting and control. The Board of Directors elected Ms. Eriikka Söderström as the chairperson of the audit committee, and Mr. Pertti Ervi and Mr. Antti Vasara as the members of the audit committee. All the members of the audit committee are independent from the company and its significant shareholders. 

The AGM authorised the Board of Directors to decide on share issues amounting to a maximum of 21,400,000 new shares and on the 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 2017. However, the authorisation to implement the company’s share-based incentive programs is valid 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 6 April 2016.   

Events after the Reporting Period 

On the 9^th of February Nokia announced its intention to acquire Comptel to advance its software strategy. Nokia made, recommended by the Comptel board, a cash tender offer for all the shares and option rights in Comptel. The offer price is EUR 3.04 in cash for each share in Comptel. A separate stock exchange release on this has been published on 9 February 2016.

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 of 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 systems, and the value of a single project may be several million euros. Therefore, the credit risk associated with a single project or an individual customer may be significant. Furthermore, some of Comptel’s customers operate in countries where the political or financial climate can be unstable 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 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. Comptel has also applications for return of withholding taxes in other countries but they are subject to local legal processes, which take time to get completed. 

The risks and uncertainties of Comptel are described in more detail in the company’s financial statements and the Board of Directors’ report for 2016.

Business outlook and markets

Gartner forecasts operator investments will grow about 4 per cent during next few years. For Comptel the most important trend is that new investments go more to Cloud technology and software-based network solutions. This has been evidenced during the last year when we have seen that all leading operators have started building their next generation systems on software and cloud. First of these implementations have been commissioned into trial use beside traditional systems and proved that they yield considerable savings and ease the promotion of new services for the digital society. However, the most important impact is that software networks are essential for launching new concepts like Internet of Things (IoT) and 5G. 

We assume that this development is getting traction during the next years and will improve Comptel’s position when the number of managed services and volume of accumulated data will increase. We believe Comptel’s ability to successfully manage hybrid networks where old and new systems are used in parallel is a strong differentiator. 

Another important trend is the huge growth in number of services and the aim to make them more personal. Operators will face a problem when they are combining the wide scope of services from large multinational giants (like Facebook, Google and Apple) and new innovate service developers. This will require improvements in network capacity, service management, scalability and management of the huge amount of data to meet the expected level of customer experience. 

We see that Comptel’s role within the new network concept is to build user services from available resources and create balance between user experience and resource costs. This function is now strongly integrating with the cloud-based business systems (like sales, customer relationships, charging) and result is that we need to take a role as provider of real-time end-to-end data and control function. 

Outlook: 

We expect 2017 revenue to grow with double digit percentage and we expect EBIT to be between 10-15%. 

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

Board of Directors proposal for the Disposal of Profits

The Group parent company’s distributable equity on 31 December 2016 was EUR 13,002,143 (7,692,598)

The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial period ended on December 31st, 2016.

The Board of Directors proposes to the Annual General Meeting that the Annual General Meeting authorizes the Board of Directors to decide on a dividend payment of up to a maximum of EUR 0.04 per share in one tranche for the financial period ended on December 31st, 2016. The Board of Directors proposes that the authorization to decide on such dividend is conditional upon the Transaction Agreement entered into on 8 February 2017 by and between Nokia Corporation and Comptel Corporation (the “Transaction Agreement”) having been terminated for any reason other than consummation of said tender offer pursuant to the Transaction Agreement, meaning that the tender offer announced by Nokia Corporation on 9 February 2017 for all of the issued and outstanding shares and option rights in Comptel Corporation is unsuccessful. 

The authorization to decide on payment of dividend shall be valid until the end of December 31st, 2017. Based on this authorization, the Board of Directors is entitled to decide on the dividend record date, dividend payment date and other matters required by the matter. When deciding on the possible payment of dividend, the Board of Directors shall assess the company's liquidity and financial position as required by the Companies Act.  

COMPTEL CORPORATION

Board of Directors Additional information: Mr Juhani Hintikka, President and CEO, tel. +358 9 700 1131 Mr Tom Jansson, CFO, tel. +358 40 700 1849

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 2015. 

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.  

*Prior year expenses were corrected directly to Retained Earnings during the reporting periods.

Notes

1. Application of new or amended standards and interpretations 

Comptel has adopted the new or amended standards and interpretations, effective for the financial years beginning on or after 1 January 2016. However, those have not had an impact on the consolidated financial statements. 2. Segment information Net sales by segment  

Operating profit/loss by segment  

3. Income tax Income tax expense according to the statement of comprehensive income for the period was EUR 77 thousand (EUR 3,085 thousand). 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 -2,714 thousand in January – December (EUR 1,167 thousand).

4. Tangible assets  

5. 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

6. 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 31 December 2016 and 31 December 2015.

7. Contingent liabilities  

8. Fair values of financial assets and liabilities

9. Key figures  

¹⁾ The figure does not include investments in development projects.

10. Definition of key figures