Tecnotree Oyj — Audit Report / Information 2017

Apr 27, 2018

Tecnotree Corporation’s  Auditor’s Report

Tecnotree Corporation’s  Auditor’s Report

Tecnotree Corporation
Stock Exchange Release
27 April, 2018 at 15:30
Auditor’s Report

To the Annual General Meeting of Tecnotree Corporation

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Tecnotree Corporation (business
identity code 1651577-0) for the year ended 31 December, 2017. The financial
statements comprise the consolidated balance sheet, income statement, statement
of comprehensive income, statement of changes in equity, statement of cash flows
and notes, including a summary of significant accounting policies, as well as
the parent company’s balance sheet, income statement, statement of cash flows
and notes.

In our opinion

—   the consolidated financial statements give a true and fair view of the
group’s financial position, financial performance and cash flows in accordance
with International Financial Reporting Standards (IFRS) as adopted by the EU,

—   the financial statements give a true and fair view of the parent company’s
financial performance and financial position in accordance with the laws and
regulations governing the preparation of financial statements in Finland and
comply with statutory requirements.

Our opinion is consistent with the additional report submitted to the Board of
Directors.

Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland. Our
responsibilities under good auditing practice are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of
our report.

We are independent of the parent company and of the group companies in
accordance with the ethical requirements that are applicable in Finland and are
relevant to our audit, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.

In our best knowledge and understanding, the non-audit services that we have
provided to the parent company and group companies are in compliance with laws
and regulations applicable in Finland regarding these services, and we have not
provided any prohibited non-audit services referred to in Article 5(1) of
regulation (EU) 537/2014. The non-audit services that we have provided have been
disclosed in note 7 to the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

Material uncertainty related to going concern basis

We would like to draw attention to the accounting principles for the
consolidated financial statements and for the parent company’s financial
statements that state that Tecnotree has significant uncertainty factors
relating to the continuity of its operations. The company’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. Tecnotree’s liquidity has remained critical and
having sufficient cash funds is the biggest single risk. The company has sales
to 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. In addition, Tecnotree has the risk caused by
negative equity in the parent company.

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 realized only if 90 per cent 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 program. 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.

In our opinion, the abovementioned circumstances involve material uncertainty
that may cast significant doubt upon Tecnotree Corporation and its subsidiaries
to continue as a going concern.

Our opinion has not been qualified by this matter.

Materiality

The scope of our audit was influenced by our application of materiality. The
materiality is determined based on our professional judgement and is used to
determine the nature, timing and extent of our audit procedures and to evaluate
the effect of identified misstatements on the financial statements as a whole.
The level of materiality we set is based on our assessment of the magnitude of
misstatements that, individually or in aggregate, could reasonably be expected
to have influence on the economic decisions of the users of the financial
statements. We have also taken into account misstatements and/or possible
misstatements that in our opinion are material for qualitative reasons for the
users of the financial statements.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. The significant risks of
material misstatement referred to in the EU Regulation No 537/2014 point (c) of
Article 10(2) are included in the description of key audit matters below.

We have also addressed the risk of management override of internal controls.
This includes consideration of whether there was evidence of management bias
that represented a risk of material misstatement due to fraud.

+--------------------+-----------------------------------------+
|THE KEY AUDIT MATTER|HOW THE MATTER WAS ADDRESSED IN THE AUDIT|
+--------------------+-----------------------------------------+

Impairment of
goodwill
(Accounting
principles
and   notes
12 and 13 for
the
consolidated
financial
statements)
—    The —    We   considered the company's estimation process and
amount   of analyzed the assumptions used   in the impairment tests for
goodwill 2016 by comparing to performance in 2017,   especially in
included in respect of net sales and profitability. ln addition, we
the assessed the reasonableness of and   grounds for the
consolidated assumptions underlying the goodwill impairment tests, and the
balance sheet technical accuracy of the impairment model.—    We   involved
before our own valuation specialists when assessing the technical
impairment   accuracy of the calculations and comparing   the assumptions
testing for used to market and industry information.—    Furthermore,   we
financial assessed the appropriateness of the Group's disclosures in
year 2017 was respect of goodwill and impairment testing.
material
(€16.7
million).—
Based on
impairment
testing
results
Tecnotree
recorded in
its
consolidated
financial
statements
for 2017
impairment on
entire
goodwill
totalling
€16.7 million
relating to
cash
generating
units Middle
East and
Africa as
well as
Americas.—
The
recoverable
amounts of
goodwill are
determined
based on
value in use
calculations.
The value in
use   is
determined
based on
discounted
future cash
flow
forecasts in
which
management
makes
judgements
over certain
key
assumptions,
for example
net   sales
growth rate,
discount
rate, long
-term growth
rate and
inflation
rates.—
Due to the
high level of
judgement
related to
the forecasts
used,
estimation
uncertainty
and the
significant
carrying
amount
involved,
valuation of
goodwill is
considered a
key audit
matter.

Revenue recognition
principles, project
accounting   and
valuation of
receivables(Accounting
principles and note 18
for the consolidated
financial statements)
—    The   company's —    Our audit   procedures focused on substantive
order book includes testing in order to assure completeness and   accuracy
projects with of revenue.—    ln respect   of most significant long
deliveries of over a -term projects accounted for   using the percentage-of
year, some deliveries -completion method, we analysed the revenue
even several years.   recognition principles applied by comparing to IFRS
Revenue recognition standards, the company's   accounting practices and
for fixed-price terms of sale in the contracts. We assessed the
projects requires Group's   monitoring procedures in place for provision
management to use   of client work and projects   accounted using the
judgement and make percentage-of-completion method. Furthermore, we
assumptions, analyzed   current projects and work load
especially in respect estimates.—    As part of   our year-end audit
of future costs and   procedures we assessed the recognition of revenues on
work load estimates to   accrual basis by testing entries, project
complete a calculations and accruals affecting   revenues.—    We
project.—    The     evaluated monitoring routines for trade receivables
majority of the and analyzed open trade receivables and assessed the
Group's net sales are payments   received after the financial year-end to
generated from identify any receivables potentially   impaired.
developing countries
and many of these have
political and
economic
challenges.—    The
two   largest
customers accounted
for 86 per cent of net
sales   in 2017.—
The   Group's trade
receivables and
receivables from
construction contracts
comprise 63 per cent
of the consolidated
assets and
receivables involve a
valuation risk.

Responsibilities of the Board of Directors and the Managing Director for the
Financial Statements

The Board of Directors and the Managing Director are responsible for the
preparation of consolidated financial statements that give a true and fair view
in accordance with International Financial Reporting Standards (IFRS) as adopted
by the EU, and of financial statements that give a true and fair view in
accordance with the laws and regulations governing the preparation of financial
statements in Finland and comply with statutory requirements. The Board of
Directors and the Managing Director are also responsible for such internal
control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.

In preparing the financial statements, the Board of Directors and the Managing
Director are responsible for assessing the parent company’s and the group’s
ability to continue as going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis of accounting. The
financial statements are prepared using the going concern basis of accounting
unless there is an intention to liquidate the parent company or the group or
cease operations, or there is no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of Financial Statements

Our objectives are to obtain reasonable assurance on whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with good auditing practice will always detect a
material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the
basis of the financial statements.

As part of an audit in accordance with good auditing practice, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:

—    Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

—    Obtain an understanding of internal control relevant to the audit in order
to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the parent
company’s or the group’s internal control.

—    Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.

—    Conclude on the appropriateness of the Board of Directors’ and the Managing
Director’s use of the going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the parent company’s or the
group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events
or conditions may cause the parent company or the group to cease to continue as
a going concern.

—    Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events so that the financial
statements give a true and fair view.

—    Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group to express
an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.

We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.

We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.

Other Reporting Requirements

Information on our audit engagement

We were first appointed as auditors by the Annual General Meeting from the
financial period ended in 31.12.2001 and our appointment represents a total
period of uninterrupted engagement of 17 years.

Other Information

The Board of Directors and the Managing Director are responsible for the other
information. The other information comprises the report of the Board of
Directors and the information included in the Annual Report, but does not
include the financial statements and our auditor’s report thereon. We have
obtained the report of the Board of Directors and the Annual Report prior to the
date of this auditor’s report.

In connection with our audit of the financial statements, our responsibility is
to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. With respect to the report of the Board of Directors, our
responsibility also includes considering whether the report of the Board of
Directors has been prepared in accordance with the applicable laws and
regulations.

In our opinion, the information in the report of the Board of Directors is
consistent with the information in the financial statements and the report of
the Board of Directors has been prepared in accordance with the applicable laws
and regulations.

If, based on the work we have performed on the other information that we
obtained prior to the date of this auditor’s report, we conclude that there is a
material misstatement of this other information, we are required to report that
fact. We have nothing to report in this regard.

Helsinki, 27. April 2018

KPMG OY AB

Leenakaisa Winberg
Authorised Public Accountant, KHT

FURTHER INFORMATION:

Kirsti Parvi, CFO, tel +358 50 5174569
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.