TRAINERS' HOUSE PLC INTERIM REPORT 22 OCTOBER 2009 AT 8:30 Cost control kept Trainers' House's operations profitable in the third quarter. The number people using SaaS services (Software as a Service) more than doubled. Uncertainty in the business environment will continue until the end of 2009. January-September Net sales amounted to EUR 20.7 million (EUR 32.5 million). Operating profit from operations before non-recurring items and depreciation resulting from the allocation of acquisition cost was EUR 0.4 million (EUR 4.9 million). Operating result after these items was EUR -3.1 million (EUR 2.5 million), or -15.0% of net sales (7.8%). Cash flow from operating activities amounted to EUR 1.8 million (EUR 2.7 million). Earnings per share were EUR -0.05 (EUR 0.01). July-September Net sales amounted to EUR 5.2 million (EUR 8.2 million). Operating profit from operations before non-recurring items and depreciation resulting from the allocation of acquisition cost was EUR 0.2 million (EUR 0.5 million). Operating result after these items was EUR -0.2 million (EUR -0.3 million), or -3.7% of net sales (-3.7%). Cash flow from operating activities amounted to EUR -1.2 million (EUR 0.1 million). Earnings per share were EUR -0.00 (EUR -0.01). Key figures at the end of the period under review: Liquid assets totalled EUR 2.6 million (EUR 8.3 million). Interest-bearing liabilities amounted to EUR 19.2 million (25.1 million) and interest-bearing net debts totalled EUR 16.6 million (16.7 million). Net gearing was 30.4% (27.3%). The equity ratio was 65.9% (62.7%). OUTLOOK FOR THE FUTURE Trainers' House expects the general economic situation to have a negative impact on the company's financial performance during the financial year. Trainers' House maintains its estimate that the company's net sales and operating result will weaken significantly during the current financial year. CEO JARI SARASVUO Carp strategy helps even though it hurts. Our customer structure has become healthier. The change has been painful and educational, but necessary and in the end, lucrative. Our strategy is progressing, even if the figures give doubters ammunition for firing arguments to the opposite. Our idea of combining training and management systems into a business-critical solution is receiving praise from our customers. Agreements signed during the third quarter bring the number of people using our growth management systems (SaaS) across the milestone of 5,000 users. Results achieved by our customer organizations using the combination of training/SaaS management system are accelerating growth in the number of users. This fact will inevitably translate into increasing cash flows at Trainers' House. Our latest reason for joy at the SaaS front is the management system Sydän. It helps in managing the organizational competence and winning culture, without which no strategy will come true. Sydän has already gained thousands of users. Although our training business has turned out to be even more post-cyclical than we expected (they aren't exactly lining up for training services during a recession), it still managed to create a profit of EUR 0.6 million during a quarter, which includes holiday month. Despite hard work and some gratifying results, this year will not be near as victorious as the previous one. So, our challenges are far from being over, but should we fail in our efforts to combine growth management technologies with work management, our work could soon be over for good. We have identified the decisive battles and have a bunch of tough fighters in command at the front. The booty determined by the Board of Directors will be divided fairly between our distinguished warriors of faith. The way our corporate structure, strategy, product and service offering, culture and way of doing things support one another has seen tremendous progress since the beginning of the year. Our results in Euros, well, they are determined by a force beyond our control - our customers' customers. Our turn to enjoy the feast will come, once justified by the value created to our customers. For more information, please contact: Mirkka Vikström, CFO, tel. +358 (0)50 376 1115 Press conference: Trainers' House will hold a press and analyst conference regarding the financial statements bulletin on 22 October, at noon-1 pm, at the company's office located at Porkkalankatu 11, Helsinki. Those wishing to participate should contact Vladimira Belik, tel. +358 (0)50 376 1431 or e-mail vladimira.belik@trainershouse.fi. REVIEW OF OPERATIONS Strategy Trainers' House is a technology-assisted training company that offers business-critical services to its customers. In addition to training, the company utilizes marketing, management systems and the financing of customer risks. Our mission, helping our customers grow, is relevant in the current period of slow economic growth. The company's areas of expertise, the gathering and processing of market information, marketing, and training and systems know-how together form an integrated Growth System. The idea of the Growth System is to improve the overall productivity of customers by influencing their chances of success in marketing, sales and the management of customer-oriented work. Changes in business operations and corporate structure In order to adjust its resources to correspond to the present market situation, Trainers' House carried out codetermination negotiations in March 2009. The negotiations were concluded on 24 March and resulted in the dismissal of 57 employees. After negotiations, another 54 people left the company through other arrangements. At the end of the period under review, the Group employed 240 people. Personnel reductions affected in particular the area of high price pressure, subcontracting work, which did not create quantifiable, business-critical value for customers. After the merger of Trainers' House and Satama, subcontracting services have been cut systematically, while additional resources have been allocated in services that create more value for customers and in SaaS product development. The company's offices are located in Ruoholahti and Hernesaari, Helsinki, and in Tampere. At the beginning of 2010, the company's three Helsinki offices will move to shared premises in Niittykumpu, Espoo. Combining operations will create clear strategic advantages as well as costs savings. There will not be any overlapping rent expenses, as the leases of all three Helsinki offices expire at the end of 2009. In the third quarter, Trainers' House continued restructuring its organization. The company is shifting its resources to the customer interface, and the sales organization supports more effectively the company's entire product offering. SaaS services Trainers' House provides business-critical growth management services. These services are based on SaaS services, which deliver quantifiable results on productivity growth in marketing, sales and strategic management. SaaS services enable our customers to reduce the cost of additional sales and to improve their chances of success. The number SaaS users has recently increased considerably. Agreements concluded by the time of publication bring the total number of users to more than 5,000 people. Especially the knowledge work management system Sydän has attracted a number of new users to the company's SaaS services. Sydän is an electronic working environment, which is sold as a service. It is significantly faster to deploy and less expensive to operate than a traditional electronic working environment tailored to the customer's specifications. FINANCIAL PERFORMANCE Because of summer holidays, the third quarter has traditionally been the slowest quarter for expert organizations like Trainers' House. The weak market situation clearly reduced the sales compared to last year. The decrease in personnel related expenses caused by personnel reductions combined with tight cost control made it possible to reach a positive operational result. After an extremely slow beginning of the year, we started to see positive signs in sales towards the end of the second quarter. The third quarter shows that the turn for the better has not yet become a trend. Sales processes continue to be prolonged, and fewer bids turn into sales than before. The training business continued to be profitable. Its operating profit totalled EUR 0.6 million. The operating profit of the training business for January-September was EUR 2.7 million. Excluding investments in SaaS products, the company's other business operations broke about even in the third quarter. In the first quarter, a restructuring provision of EUR 1.4 million was made to cover costs resulting from personnel reductions and the divestment of international operations. This provision is expected to cover all costs resulting from the restructuring measures. The Group's goodwill was written down in the amount of EUR 0.8 million, which corresponds to the value of the Group's divested German operations. The write-down has no effect on cash flow. EUR 0.8 million of the restructuring provision has been used to cover actual expenses, while EUR 0.2 million has been dissolved and recognized as income. On 30 September 2009, EUR 0.4 million of the provision remained unused. The comparative figures used for reporting operating profit include the reported operating profit as well as operating profit before depreciation of allocated acquisition cost related to the acquisition of Trainers' House Oy (=operating profit from operations). According to the company's management, these figures provide a more accurate view of the company's productivity. EUR 10.2 million of the acquisition cost has been allocated in intangible assets with a limited useful life. This item is depreciated over a period of five years. At the end of the period under review, these intangible assets totalled EUR 5.5 million. The following table itemizes the Group's key figures (in thousands of euros): 1-9/2009 1-9/2008 Net sales 20,715 32,543 Expenses Personnel-related expenses -12,139 -16,725 Other expenses -7,543 -10,075 EBITDA 1,033 5,744 Depreciation of non-current assets -636 -798 Operating profit/loss before depreciation of allocation of acquisition cost 396 4,945 % of net sales 1.9 15.2 Depreciation of allocation of acquisition cost -1,525 -2,404 Operating profit/loss before non-recurring items -1,129 2,541 % of net sales -5.4 7.8 Non-recurring items **) -1,979 EBIT -3,108 2,541 % of net sales -15.0 7.8 Financial income and expenses -773 -1,359 Profit/loss before tax -3,881 1,182 Tax *) 399 -598 Profit/loss for the period -3,482 584 % of net sales -16.8 1.8 *) The tax included in the income statement is deferred. Taxes recognized in the income statement have no effect on cash flow, because the company's balance sheet contains deferred tax assets from losses carried forward. No deferred tax assets have been recognized from losses made during the period under review. **) Non-recurring items include a restructuring provision in the amount of EUR 1.2 million, and a write-down in the Group's goodwill in the amount of EUR 0.8 million. The following table itemizes the distribution of net sales and shows the quarterly profit/loss from the beginning of 2008 (in thousands of euros): Q108 Q208 Q308 Q408 2008 Q109 Q209 Q309 Net sales 12009 12318 8216 11694 44237 8619 6916 5180 Operating profit before depreciation of acquisition cost *) 2259 2192 495 2363 7308 -46 253 190 Operating profit 1458 1390 -307 1757 4298 -2759 -156 -193 *) excluding non-recurring items LONG-TERM OBJECTIVES The long-term objectives of Trainers' House remain unchanged: The company will target 15% annual organic growth and 15% operating profit, and will aim to pay a steady dividend. Taking the recent restructuring into consideration, we expect to achieve these goals using our Growth System concept and along with the internationalization of Trainers' House. FINANCING, INVESTMENTS AND SOLVENCY In the period under review, cash flow from operating activities amounted to EUR 1.8 million (EUR 2.7 million). Cash flow from investments totalled EUR -0.2 million (EUR 0.0 million). Cash flow from financing was EUR -6.7 million (EUR -11.5 million). Total cash flow amounted to EUR -5.1 million (EUR -8.8 million). Cash flow from financing was affected by the repayment of a loan related to the acquisition of Trainers' House Oy totalling EUR 2.5 million and a dividend paid out in the amount of EUR 3.4 million. On 30 September 2009, the Group's liquid assets totalled EUR 2.6 million (8.3 million). The equity ratio was 65.9% (62.7%). Net gearing was 30.4% (27.3%). At the end of the period under review, the company had EUR 19.2 million of interest-bearing debt (EUR 25.1 million). Financial risks Currency risks are insignificant, because Trainers' House operates principally in the euro zone. Interest rate risk is managed by covering part of the risk with hedging agreements. A bad debt provision, which is booked on the basis of ageing and case-specific risk analyses, covers risks to accounts receivable. SHORT-TERM BUSINESS RISKS AND FACTORS OF UNCERTAINTY The financial crisis and the resulting stagnation in economic activity will influence the decisions made by the company's customers and thereby affect the financial position of Trainers' House Plc. In the current market situation, the length of sales projects is expected to increase, and more projects are expected to be cancelled than before. Price competition has also intensified. Customers are having more and more difficulty in keeping faith in the future. Risks in the company's operating environment have increased, business operations have become more challenging, and it has become more difficult to estimate future developments. The operations of Trainers' House are hindered by the unequivocal cost cuts made by some customers. Short term risks Due to the major restructuring, the Group's goodwill and deferred tax assets recognized in the balance sheet were retested for impairment at the end of the third quarter. In the first quarter, the Group's goodwill was written down in the amount of EUR 0.8 million, which corresponds to the value of the Group's divested German operations. The goodwill impairment testing indicated no other need for write-downs. On 30 September 09, the company's balance sheet contained deferred tax assets from losses carried forward in the amount of EUR 7.1 million. Tax loss carry-forwards must be utilized within 10 years from their recognition. About one third of the company's tax loss carry-forwards will expire in 2011, and the rest in 2012. Utilizing the tax loss carry-forwards in full will require a significant improvement in net sales and financial performance during the next three years. The merger of Trainers' House and Satama Interactive included a financial arrangement in the amount of EUR 40 million, with standard covenants. At the balance sheet date, the Group's balance sheet contained loans related to this package in the amount of EUR 19.0 million. If the ratio of net debt to EBITDA significantly weakens from the current level, there is a risk that the company may breach financial covenants, which consequently leads to higher financial costs. About risks Trainers' House is an expert organization. Market and business risks are part of regular business operations, and their extent is difficult to define. Typical risks in this field are associated with, for example, general economic development, distribution of the clientele, technology choices and development of the competitive situation and personnel expenses. Risks are managed through the efficient planning and regular monitoring of sales, human resources and business costs, enabling a quick response to changes in the operating environment. Furthermore, Trainers' House aims to improve its risk tolerance by designing services that are not easily affected by economic fluctuations. The success of Trainers' House as an expert organization also depends on its ability to attract and retain skilled employees. Personnel risks are managed with competitive salaries and incentive schemes as well as investments in employee training, career opportunities and general job satisfaction. Risks are discussed in more detail in the annual report and on the company's website at: www.trainershouse.fi > Investors. AUTHORIZATIONS BY THE BOARD OF DIRECTORS The Annual General Meeting authorized the Board of Directors to decide on the repurchase of the company's own shares. Under the authorization, whether on one or on several occasions, a maximum of 6,500,000 shares, which corresponds to approximately 9.56% of the company's shares, may be acquired. The authorization shall remain in force until 30 June 2010. At the same time the AGM countermanded the earlier comparable authorization. The authorization had not been exercised on 30 September 2009. The Board of Directors is otherwise authorized to decide on all conditions related to the acquisition of own shares, including the manner of acquisition of shares. The authorization does not exclude the right of the Board of Directors to decide on a directed acquisition of own shares as well, if there is significant financial reason for the company to do so. The AGM authorized the Board to decide on a share issue including the conveyance of own shares, and the issue of special rights. With these authorizations related to share issue and/or issue of special rights, whether on one or on several occasions, a maximum of 13,000,000 new shares may be issued and/or treasury shares may be transferred, which corresponds to approximately 19.11% of the company's shares. The authorization shall remain in force until 30 June 2010. At the same time the AGM countermanded the earlier comparable authorization. The authorization had not been exercised on 30 September 2009. The Board of Directors is otherwise authorized to decide on all terms regarding the share issue and issue of special rights, including the right to also decide on a directed share issue and a directed issue of special rights. Shareholders' pre-emptive subscription rights can be deviated from, provided that there is significant financial reason for the company to do so. PERSONNEL At the end of the period under review, the Group employed 240 (366) people, of whom 240 (357) were located in Finland. At the end of 2008, before the codetermination negotiations, the Group had 340 employees. SHARES AND SHARE CAPITAL The shares of Trainers' House Plc are listed on NASDAQ OMX Helsinki Ltd under the symbol TRH1V. At the end of the period under review, Trainers' House Plc had issued 68,016,704 shares and the company's registered share capital amounted to EUR 880,743.59. No changes took place in the number of shares or share capital during the period under review. In accordance with the decision of the Annual General Meeting, Trainers' House paid a dividend of EUR 0.05 per share on 3 April 2009. The dividend paid totalled EUR 3.4 million, or 251.0% of the profit for 2008. SHARE PERFORMANCE AND TRADING During the period under review, a total of 13.5 million shares, or 19.9% of the average number of all company shares (20.2 million shares or 29.3%), were traded on the Helsinki Exchanges for a value of EUR 8.1 million (EUR 24.3 million). The period's highest share quotation was EUR 0.71 (EUR 1.44), the lowest EUR 0.50 (EUR 0.73) and the closing price EUR 0.55 (EUR 0.78). The weighted average price was EUR 0.60 (EUR 1.19). At the closing price on 30 September 2009, the company's market capitalization was EUR 37.4 million (EUR 53.1 million). INCENTIVE PLANS Trainers' House Plc has one option programme for its personnel, included in the personnel's commitment and incentive scheme. The Annual General Meeting held on 29 March 2006 decided to commence an employee option programme involving 2,000,000 warrants. Due to the resulting subscriptions, the share capital of Trainers' House Plc may increase by a maximum of EUR 42,046.98 and the number of shares by a maximum of 2,000,000. Half of the warrants are titled 2006A and the other half 2006B. The subscription period for shares converted under the 2006A warrants ran from 1 September 2008 to 28 February 2009. No shares were subscribed under the 2006A warrants. The subscription period for shares converted under the 2006B warrant began on 1 September 2009 and will end on 28 February 2010. The dividend-adjusted subscription price after dividend payment is EUR 1.08 for shares converted under the 2006B warrant. The Board of Directors has also decided to launch a long term incentive plan for key personnel. CHANGES IN OWNERSHIP During the period under review, the company became aware of two notices of change in ownership exceeding the disclosure threshold. Information on notices of change in ownership is available on the company's website at www.trainershouse.fi > Investors. Exemption As required by the terms and conditions of the exemption granted by the Finnish Financial Supervision Authority, the combined shareholding of Mr. Sarasvuo and Isildur Oy in Trainers' House has declined to 30% or under by 30 June 2009. Information on the exemption, the company's ownership structure and major shareholders is available on the company's website at www.trainershouse.fi > Investors. CONDENSED FINANCIAL STATEMENTS AND NOTES The interim report was compiled in accordance with the IAS 34 standard. Amendments to and interpretations of published standards, as well as the new standards effective as of 1 January 2008 are presented in detail in the Financial Statements for 2008. Adoption of the standards did not cause any such impact on the accounting principles applied to the financial statements that would have called for retroactive changes to previous years' figures. As of 1 January 2009, the Group has adopted the following new and revised standards: IFRS 8 Operating Segments, and IAS 1 Presentation of Financial Statements. In producing this interim report, Trainers' House has applied the same accounting principles for key figures as in its Financial Statements for 2008. The calculation of key figures is described on page 45 of the Financial Statements included in the Annual Report 2008. The figures given in the interim report are unaudited. INCOME STATEMENT, IFRS (kEUR) Group Group Group Group Group 01/07- 01/07- 01/01- 01/01- 01/01- 30/09/09 30/09/08 30/09/09 30/09/08 31/12/08 NET SALES 5,180 8,216 20,715 32,543 44,237 Other income from operations -7 41 77 211 214 Costs: Materials and services 783 1,157 2,857 3,999 5,434 Personnel-related expenses 2,428 4,424 12,587 16,725 22,042 Depreciation 697 1,058 2,162 3,203 4,061 Impairment 804 Other operating expenses 1,459 1,924 5,490 6,286 8,617 Operating profit/loss -193 -307 -3,108 2,541 4,298 Financial income and expenses -207 -417 -773 -1,359 -1,690 Profit/loss before tax -401 -724 -3,881 1,182 2,607 Tax 146*) 79*) 399*) -598*) -1,252*) PROFIT/LOSS FOR THE PERIOD -255 -645 -3,482 584 1,355 Other comprehensive income: Exchange differences on translating foreign operations 3 -2 4 -2 -8 Cash flow hedges 1 -84 -188 10 -231 Income tax relating to components of other comprehensive income -0 22 49 -3 60 Other comprehensive income for the year, net of tax 4 -64 -136 6 -179 TOTAL COMPREHENSIVE INCOME FOR THE YEAR -251 -709 -3,617 590 1,176 Profit attributable to: Owners of the parent company -255 -645 -3,482 584 1,355 Total comprehensive income attributable to: Owners of the parent company -251 -709 -3,617 590 1,176 Earnings per share: Undiluted earnings/share (EUR) -0.00 -0.01 -0.05 0.01 0.02 Diluted earnings/share (EUR) -0.00 -0.01 -0.05 0.01 0.02 *) The tax included in the income statement is deferred. BALANCE SHEET, IFRS (kEUR) Group Group Group 30/09/09 30/09/08 31/12/08 ASSETS Non-current assets Property, plant and equipment 446 974 781 Goodwill 50,968 51,772 51,772 Other intangible assets 15,607 17,756 17,246 Other financial assets 3 4 3 Other receivables 560 26 26 Deferred tax receivables 7,197 7,871 7,120 Total non-current assets 74,781 78,404 76,947 Current assets Inventories 14 15 14 Accounts receivable and other receivables 5,881 11,291 10,708 Cash and cash equivalents 2,586 8,339 7,664 Total current assets 8,481 19,644 18,386 TOTAL ASSETS 83,262 98,047 95,333 SHAREHOLDERS' EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 881 881 881 Premium fund 13,943 13,943 13,943 Hedging reserve -310 8 -171 Distributable non-restricted equity fund 31,872 31,872 31,872 Translation differences -7 -4 -11 Retained earnings 8,456 14,567 15,339 Total shareholders' equity 54,834 61,267 61,853 Long-term liabilities Deferred tax liabilities 3,932 4,483 4,328 Other long-term liabilities 14,091 24,845 16,639 Accounts payable and other liabilities 10,405 7,453 12,514 Total liabilities 28,428 36,781 33,481 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 83,262 98,047 95,333 CASH FLOW STATEMENT, IFRS (kEUR) Group Group Group 01/01- 01/01- 01/01- 30/09/09 30/09/08 31/12/08 Profit/loss for the period -3,482 584 1,355 Adjustments to profit for the period 3,419 5,971 6,616 Change in working capital 2,492 -2,624 -2,366 Financial items -633 -1,232 -1,457 Cash flow from operations 1,796 2,699 4,147 Investments in tangible and intangible assets -197 -190 -352 Capital gains on tangible and intangible assets 327 134 Capital gains on other investments 1,199 Change in the additional trade price -99 -99 Cash flow from investments -197 39 882 Share issue subject to charges 491 491 Dividend distribution -3,401 -2,721 -2,721 Increase/decrease in long-term loans -2,599 -9,218 -12,254 Increase/decrease in short-term loans -143 -69 Increase/decrease in long-term receivables -534 -2 -2 Cash flow from financing -6,677 -11,519 -14,485 Change in cash and cash equivalents -5,078 -8,781 -9,456 Opening balance of cash and cash equivalents 7,664 17,120 17,120 Closing balance of cash and cash equivalents 2,586 8,339 7,664 CHANGE IN SHAREHOLDERS' EQUITY (kEUR) Equity attributable to equity holders of the parent company Dis- tribu- table Trans- Hed- non-re lation ging stric- dif- Share Share Premium re- ted fe- Retained capital issue fund serve equity rence earning Total Equity 01/01/2008 867 256 13,228 31,348 -2 16,551 62,247 Other comprehensive income 8 -2 584 590 Stock options used 14 -256 715 473 Share-based payments 153 153 Taxes related to bookings to shareholders' equity 524 524 Dividends paid -2,721 -2,721 Equity 30/09/2008 881 13,943 8 31,872 -4 14,567 61,267 Equity 01/01/2009 881 13,943 -171 31,872 -11 15,339 61,853 Other comprehensive income -139 4 -3,482 -3,617 Dividends paid -3,401 -3,401 Equity 30/09/2009 881 13,943 -310 31,872 -7 8,456 54,834 RESTRUCTURING PROVISION (kEUR) Group Group Group 01/01- 01/01- 01/01- 30/09/09 30/09/08 31/12/08 Provisions 1 January 64 64 Provisions increase 1,400 Provisions used -1,020 -64 -64 Provisions 30 September/31 December 380 0 0 PERSONNEL Group Group Group 01/01- 01/01- 01/01- 30/09/09 30/09/08 31/12/08 Average number of personnel 298 384 375 Personnel at the end of the period 240 366 340 COMMITMENTS AND CONTINGENT LIABILITIES (kEUR) Group Group Group 30/09/09 30/09/08 31/12/08 Collaterals and contingent liabilities given for own commitments 1,553 3,413 3,187 Interest rate swaps Fair value -420 16 -255 Nominal value 18,247 14,000 17,393 OTHER KEY FIGURES Group Group Group 30/09/09 30/09/08 31/12/08 Equity-to-assets ratio (%) 65.9 62.7 65.1 Net gearing (%) 30.4 27.3 22.9 Shareholders' equity/share (EUR) 0.81 0.90 0.91 Return on equity (%) -4.7 10.7 2.2 Return on investment (%) -1.3 6.1 5.2 Return on equity and return on investment are based on the previous 12 months. Helsinki, 22 October 2009 TRAINERS' HOUSE PLC BOARD OF DIRECTORS Further information: Mirkka Vikström, CFO, tel. +358 (0)50 376 1115 DISTRIBUTION OMX Nordic Exchange, Helsinki Prominent media sources www.trainershouse.fi - Investors