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Risks and short-term uncertainty factors

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.

 Risks and uncertainty factors relating to business operations
As part of its strategic change and the streamlining of its business, Tecnotree is in the process of shifting the focus of its operations from services to product-based solutions. This change may involve risks, such as the time to develop new products, the timely market introduction of products, the competitive situation as well as the company’s ability to respond to customer and market demand.

Dependence on key customers
Tecnotree’s largest customers are much bigger businesses than the company itself and the two largest customers accounted for 88% of net sales in 2017 (77%). The relationship between the company and its major customers is one of interdependence, which offers business opportunities but also poses risks.

Critical financial situation causes uncertainty in acquiring new customers and receiving new orders coming from the existing customers.

Carrying out customer projects, profitability, forecasting
Certain commitments are associated with the project and maintenance agreements made by the company, and unforeseen costs may arise in the future from these agreements. The company aims to limit these commitments with limitation of liability clauses in customer contracts. In addition, the company has a current global liability insurance to cover any liabilities that may materialise in connection with customer projects in accordance with the insurance agreement.

Carrying out projects involves risks. They are contained for example in projects that require new product development, where creating new product features may prove more difficult than anticipated. Another problem with project sales arises from variations in net sales and profit during the different quarters of the year. Forecasting these variations is often difficult.

Risks relating to international operations, receivables and developing markets
Project deliveries result in large accounts receivable. Most of Tecnotree’s net sales come from developing countries and some of these contain political and economic challenges. There is the risk of a considerable delay in the payment of invoices in these countries and that Tecnotree will have to record credit losses. Regulation by the authorities of foreign payment transactions and international sanctions hamper operations in certain countries. Various regulations can change frequently and may be ambiguous. In many countries it is common practice to delay payment of invoices. For these reasons forecasting customer payments is often unreliable and delays occur. Tecnotree has a credit insurance in place from a well-known global credit insurance company.

Exchange rate risks
Changes in exchange rates create risks especially in sales activities, but also in other income statement and balance sheet items and in cash flow. A significant part of the company’s net sales is in US dollars. The exchange rate fluctuations of Indian Rupies also have a significant impact on the Group's net result because of the costs for the large number of employees in India and other costs denominated in rupees. Intra-group receivables and liabilities result exchange rate differences in the consolidated income statement, since the Group companies usually have different functional currencies.

Financing and liquidity risks
The cash position of the company remains critical. However, the company managed to reduce its debt under debt restructuring payment programme by EUR 6.3 million during the period. In the end of 2017, the company’s had interest payments due under restructuring proceedings amounted to a total of EUR 1.1 million, which it the company paid in January 2018. 

2017 Balance sheet value Cash flow Due Less than
3 months
3-12
months
1-3 years Over 3 years








Guaranteed restructuring debts from financial institutions, interest-bearing 17.9 17.9
0.5 0.5 6.7 10.3
Interest payments on the loans 1.2 0.0
1.2


Trade payables 5.5 5.5 2.9 0.6 0.3 1.6 0.0
Non-interest bearing liabilities 4.4 4.4

0.4 1.2 2.8
Derivative liabilities 0.1 0.1
0.0 0.1

Total 29.1 27.9 2.9 2.3 1.3 9.4 13.1








Of the overdue account payables, EUR 1.5 million was more than 90 days due.

Grounds for observing the going concern principle
The consolidated financial statements of Tecnotree Corporation for 2017 have been prepared in accordance with the going concern principle. The liquidity of the company has been tight for a long period and finding an additional financing is required to meet with the going concern principle. 

Viking Acquisitions Corp committed on 8 March 2018 to make a voluntary public cash tender offer to purchase all of the issued and outstanding shares in Tecnotree. The tender offer is realized only if 90% of shareholders approve the offer. The offeror is the biggest debtor of the company having receivables of approximately EUR 21.6 million from the company. The receivables consist of both secured and unsecured loans under the restructuring payment programme. During the preparation of the financial statements, according to the preliminary results of the tender offer on 13 April 2018, the shares tendered in the tender offer represent approximately 59.9% of all the shares and votes in Tecnotree on a fully diluted basis as defined in the terms and conditions of the tender offer. The offeror has acquired 23,393,197 shares of Tecnotree outside the tender offer, representing approximately 19.1% of all the shares and votes in Tecnotree. These shares together with the shares tendered in the tender offer amount to a total of approximately 79.0% of all the shares and votes in Tecnotree. The acceptance period of the tender offer has been extended and will expire on 30 April 2018. According to the company’s estimate, the compliance with the going concern principle is based on the assumption that the tender offer is approved or the company finds some other short-term solution to its difficult cash situation.

The Board of Directors of Tecnotree published on 13 March 2018 its statement on the tender offer of Viking Acquisitions Corp and recommended unanimously that the shareholders of Tecnotree accept the tender offer.

The going concern assumption contains significant uncertainty.

Taxation
Operating in developing markets often involves problems relating to taxation. Local tax legislation can change rapidly and may be subject to conflicting interpretations. It is possible for the tax authorities in different countries to demand taxation of the same revenue. Withholding taxes are often imposed on sales of systems and services, and obtaining credit for this in the country receiving the revenue is not a clear case. In Finland Tecnotree has a large amount of tax-deductible costs from previous fiscal periods, which can be capitalized in taxation.

As a rule, Tecnotree applies the cost-plus method in its transfer pricing. This clarifies the taxable result recorded in different countries. When the Group makes a loss, however, the consequence is that it has to pay tax in countries where it has subsidiaries. In many cases, withholding taxes have to be paid for dividends, too.