INTERIM REPORT OF COMPTEL CORPORATION 1 JAN - 30 JUN 2011

Stock exchange release, 20 July 2011 at 8.00 am
 

INTERIM REPORT OF COMPTEL CORPORATION
1 JANUARY - 30 JUNE 2011

In April - June, net sales and operating profit declined from the previous year partly due to the restructuring of operations executed during the review period.

Key figures for the second quarter:

• Net sales EUR 20.0 million (Q2 2010: 21.0)
• Operating profit EUR 1.2 million (3.8), 6.0% of net sales
• Earnings per share EUR 0.00 (0.03)
• Order backlog EUR 37.7 million (38.8)

Key figures for the first half:

• Net sales EUR 36.8 million (H1 2010: 39.0)
• Operating profit EUR 1.0 million (4.0), 2.8% of net sales
• Earnings per share EUR -0,01 (0,02)

As earlier stated, Comptel net sales are estimated to grow moderately in 2011. During this year, the company is investing in the development of its sales and service channels, and as a result the operating profit is estimated to remain at the previous year’s level.

Juhani Hintikka, President and CEO

”Comptel’s order intake improved compared to the previous year. During the second quarter, our business developed favourably in the Middle East and Africa where the measures initiated late last year, such as investments in customer service and consulting resources, have yielded results. In our largest market, Europe, the net sales remained low, which was the main reason for decreased Group net sales.

The implementation of our new organisational structure has proceeded as planned. As of July, we have divided our European business into two regions, Europe East and Europe West, in order to increase our presence in the emerging markets of Russia and Eurasia, while allowing us to focus on our large customer accounts in Western Europe. In addition, Global Services has started its operations as a new unit. During the spring and early summer, we have strengthened the composition of our Executive Board with some key appointments.

During the first half of this year, we have invested in sales and service resources close to customers, as well as in the growth markets. These initiatives, in line with our stated strategy, impaired the profitability compared to last year.

Comptel’s financial position remained strong in the period under review.”

Business Review for the Second Quarter and the First Half of 2011

In the second quarter, Comptel’s net sales decreased by 4.5 per cent from the previous year and were EUR 20.0 million (21.0). Low revenue in Europe impaired the Group’s net sales. In the first half, net sales decreased 5.6 per cent compared to the previous year and were EUR 36.8 million (39.0).

In the second quarter, operating profit was EUR 1.2 million (3.8) and the operating profit margin was 6.0 (18.1). The profitability was decreased partly by the investments in sales and service organisation. In the first half of the year, operating profit was EUR 1.0 million (4.0) and the operating profit margin 2.8 (10.2). Due to restructuring of the European and MEA business units, Comptel was engaged in statutory cooperation negotiations in Finland during January - February. As a result of these negotiations, the company made 22 persons redundant. Due to the parallel investments in sales and service resources close to customers, the total Group headcount is not expected to decrease. The execution of this process to change the resources involved subcontracting, which increased the costs during the review period.

Profit before taxes was EUR 0.8 million (3.6). Net loss was EUR 1.5 million (+2.5). Earnings per share for the period under review were EUR -0.01 negative (+0.02).

Tax expense for the review period was EUR 2.3 million (1.1), of which EUR 1.0 million were withholding taxes. The cumulative amount of outstanding double withholding taxes payment is EUR 7.5 million since 2004.

The Group’s order backlog was EUR 37.7 million (38.8) at the end of the period. Maintenance agreements represent EUR 20.4 million (19.8) and other order backlog EUR 17.3 million (19.0) of the total. Order flow for the new deliveries increased from the first quarter of the year.

Business Areas

Net sales in Europe decreased partly as a result of the removal from Comptel of the maintenance of Telenor Norway’s old IT systems last year. Low net sales impaired the profitability of the region. Net sales grew significantly in the Middle East and Africa, which also improved the profitability of the region. In Asia-Pacific the profitability strengthened during the first half of the year.

As of 1 July 2011, Comptel is dividing its European operations into two business areas, Europe East and Europe West. The net sales and operating profit figures of the new reporting segments for the period 1 January 2010 - 30 June 2011 are presented on a quarterly basis in this quarterly report’s table part note 2. Segment information.

In January - July, Comptel received 10 significant orders (H1 2010: 8): 2 fulfillment, 6 control & charge and 2 covering both of these main solution areas. As of this year, Comptel is reporting sold projects and licenses with a value of EUR 500,000 at the minimum, instead of new core licenses which value exceed EUR 100,000. This reporting of significant orders reflects better the nature of Comptel’s business.

License sales decreased in the second quarter, but remained at the previous year’s level during the review period. The share of the larger system deliveries and services increased during the second quarter. Maintenance revenue consists of the maintenance and support of the systems delivered. The Telenor arrangement mentioned previously mainly explains the lower maintenance revenue compared to the year 2010.

The share of direct sales increased. There were only a few partner projects during the period. However, the role of partners was significant in several deals booked in as direct sales.

Financial Position

The statement of financial position total on 30 June 2011 was 71.0 million, of which liquid assets amounted to EUR 7.4 million. The dividends of EUR 4.3 million (3.2) were paid this year.

The operating cash flow was EUR 3.5 million (5.3) in the second quarter and EUR 6.6 million (10.6) during the first half.

The trade receivables were EUR 20.2 million (25.7) at the end of the period. The accrued income was EUR 7.9 million (11.0). The deferred income related to partial debiting was EUR 2.0 million (1.8).

Comptel Corporation has available in full a revolving credit facility of EUR 15.0 million maturing in the year 2013. The equity ratio was 72.3 per cent (65.4) and the gearing ratio was 16.6 per cent negative (-5.7).

Research and Development (R&D)

The R&D expenditure remained at the level of the previous quarter and is expected to remain at the current level during this year. The R&D expenditure represented 21.0 per cent of net sales (16.2).

Comptel’s R&D expenditure was mainly targeted at the service fulfillment automation of telecom operators and to the management in real-time of rapidly increasing data traffic. In addition, the company is developing an integrated software platform, which will enable a cost-efficient and solution-based R&D.

Investments

Gross investments in the financial year comprised of investments in devices, software and furnishings. The investments were funded through cash flow from operations.

Personnel

The number of employees increased as Comptel placed more resources close to key customers and in the growth markets in line with its strategy. The numbers of the review period include persons made redundant in Finland.

In April - June, the personnel expenses were 45.3 per cent of net sales (43.9). In the first half, the personnel expenses were 48.6 per cent of net sales (46.8).

At the end of the period, 34.8 per cent (38.5) of the personnel were located in Finland, 24.8 per cent (20.4) in Malaysia, 9.4 per cent (8.9) in the United Kingdom, 7.0 per cent (4.4) in Bulgaria, 6.2 per cent (10.9) in Norway, and 17.8 per cent (16.9) in other countries where Comptel operates.

Comptel Share

The closing share price of the period was EUR 0.61 (0.74). Comptel’s market value at the end of the period was EUR 65.2 million (78.8).

Of Comptel’s outstanding shares, 7.3 per cent (6.4) were nominee registered or held by foreign shareholders at the end of the period.

OP-Pohjola Group Central Cooperative notified on 2 February 2011 that the total holdings in Comptel Corporation shares of its interest communities and the mutual funds managed by the subsidiary of OP-Pohjola have decreased to below the threshold of 5 per cent.

During the period, Comptel Corporation allotted 312,920 shares as part of share-based incentives to persons involved in the program and 110,148 shares to the members of the Board of Directors as part of their annual compensation.

The company held 183,900 of its own shares at the end of the period, which is 0.17 per cent of the total number of its shares. The total counter-book value of the shares held by the company was EUR 3,678.

During the review period, a total of 1,310,000 share options 2009C have been distributed to the key personnel of Comptel Group. The current share subscription price for option 2009C is EUR 0.67, which corresponds to the trade volume weighted average quotation of the Comptel share on the NASDAQ OMX Helsinki during 1 April - 30 April 2011.

Corporate Governance

The Annual General Meeting (AGM), held on 23 March 2011, re-elected the following members for the Board of Directors: Mr Olli Riikkala, Mr Hannu Vaajoensuu, Mr Timo Kotilainen, Mr Juhani Lassila, Mr Petteri Walldén and Mr Henri Österlund. In its meeting held after the AGM, the Board of Directors re-elected Mr Olli Riikkala as chairman and Mr Hannu Vaajoensuu as vice chairman. Mr Juhani Lassila continues as chairman of the audit committee in which the other members are Mr Petteri Walldén and Mr Henri Österlund. Mr Olli Riikkala continues as chairman of the compensation committee in which the other members are Mr Timo Kotilainen and Mr Hannu Vaajoensuu.

The AGM approved the proposal of Board of Directors that a dividend of EUR 0.04 per share be paid for 2010. The dividend was paid on 8 April 2011.

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 of the company's own shares up to a maximum number of 10,700,000 shares. The authorisations are valid until 30 June 2012.

A separate stock exchange release about the authorisations given and other decisions made by the Annual General Meeting was published on 23 March 2011.

Mr Juhani Hintikka has acted as the President and CEO of Comptel as of 3 January 2011.

In March, Comptel announced its intention to adjust its operating structure in order to accelerate the execution of its growth strategy.

As of 1 April, a new unit of Corporate Development became operative. It combines Strategic Planning, Legal, Investor Relations and Communications, Marketing, and IT. Mr Simo Sääskilahti, SVP of Products and Solutions, was appointed as Senior Vice President of Corporate Development.

The European business area is divided as of 1 July 2011 into two regions: Europe East and Europe West. This move allows Comptel to focus its efforts on the growth areas especially in Russia and Eurasia, while remaining actively involved in its large customer accounts in Western Europe. Mr Timo Koistinen, SVP for region Europe, was appointed as Senior Vice President for the region Europe East. Mr Mauro Carobene was appointed as Senior Vice President for the region Europe West and he joined Comptel as of 28 April 2011. Mr Carobene joined Comptel from Nokia Siemens Networks where he most recently was responsible for the OSS Consulting and Systems Integration business globally.

Comptel has established a new unit called Global Services to develop services business and manage service products. Mr Kari Onniselkä was appointed as Senior Vice President for Global Services as of 1 July 2011. He joined Comptel from Talent Partners, a leader in Finnish consulting and training market, where he was Managing Director.

Mr Antti Koskela was appointed as Senior Vice President for Products and Solutions as of 1 July 2011. He joined Comptel from Nokia Siemens Networks where, most recently he held the position of Head of the Communication & Entertainment Solutions Business Line.

Mr Veqar Islam was appointed as Senior Vice President for the business area Middle East and Africa as of 1 August 2011. He will join Comptel from Nokia Siemens Networks where he most recently has been heading the Sub Region Middle East - East.

As of 1 July 2011, Comptel Group has the following five reportable business segments: Europe East, Europe West, Asia-Pacific, Middle East and Africa, Americas.

Following the changes in the operating structure and the key appointments, the members of Comptel Executive Board are CEO Juhani Hintikka, the business area leaders Mr Timo Koistinen (Europe East), Mr Mauro Carobene (Europe West), Mr Mika Korpinen (Asia-Pacific), Mr Veqar Islam (Middle East and Africa) and Mr Diego Becker (Americas), Mr Antti Koskela responsible for Products and Solutions, Mr Kari Onniselkä responsible for Global Services, Mr Gareth Senior (CTO), Mr Mikko Hytönen (CFO), Ms Niina Pesonen (HR), and Mr Simo Sääskilahti (Corporate Development and Deputy CEO).

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 for 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 is implementing a customer and partner intimate business model which requires getting competent resources closer to key customers and partners in certain growth markets.

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 Norwegian Krone 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. Comptel is striving to change the treatment of its withholding taxation for those countries where the issue is still pending. Resolving the matter between states, however, includes factors beyond the Company's control.

The risks and uncertainties of Comptel are described more in detail in Comptel’s annual report 2010.

Outlook

Comptel net sales are estimated to grow moderately in 2011. During this year, the company is investing in the development of its sales and service channels, and as a result the operating profit is estimated to remain at the previous year’s level.


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 2010 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 2011 the Group adopted the following new and amended standards and interpretations endorsed by the EU and that are applicable to Comptel:

Revised IAS 24 Related Party Disclosures. The amendment simplifies and clarifies the definition of a related party and relaxes the disclosure requirements of business operations between public enterprises.

Improvements to IFRSs (May 2010) (mainly effective for financial periods beginning on or after 1 July 2010). Under this procedure minor and non-urgent amendments are grouped together and carried out through a single document annually.

2. Segment information

Net sales by segment

Operating profit/loss by segment

As of 1 July 2011 Europe is divided into two segments: Europe East and Europe West. The figures for the new segments are as follows:

Net sales

Operating profit/loss

Quarterly figures:

Net sales

Operating profit/loss

3. Income tax expense

Tax expense according to the statement of comprehensive income for the period was EUR 2,275 thousand (EUR 1,096 thousand 2010).

In 2006, 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 Ministry of Finance has come to an agreement with Greece and Romania. Relating to these countries, Comptel has booked EUR 595 thousand tax receivables for taxes withheld in 2004 -2008. The refund process pertaining to these countries is still pending with the relevant tax authorities. Comptel is pursuing the negotiations with the Ministry of Finance and other countries that have withheld tax at source to avoid double taxation.

According to the Board of Adjustment’s decision currently in force, Comptel Corporation has expensed taxes withheld at source amounting to EUR 921 thousand in January – June (EUR 844 thousand).

4. Tangible assets

5. Related party transactions

The Comptel Group has 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

The key management personnel compensation includes the employee benefits of the members of the Board of Directors and the Executive Board.

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 30 June 2011 and 30 June 2010.

7. Contingent liabilities

8. Key figures

9. Definition of key figures

Schedule for Comptel’s next interim report:

January - September: 21 October 2011

COMPTEL CORPORATION
Board of Directors

Additional information:
Mr Juhani Hintikka, President and CEO, tel. +358 9 700 1131
Mr Mikko Hytönen, CFO, tel. +358 40 758 5801
Mr Samppa Seppälä, Director, IR and Corporate Communications, tel. +358 50 568 0533

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