Basware stock exchange release, October 14, 2010 at 09:10 BASWARE INTERIM REPORT JANUARY 1 - SEPTEMBER 30, 2010 (IFRS) SUMMARY January-September - Net sales EUR 72 946 thousand (EUR 66 054 thousand) - growth10.4 percent - Operating profit EUR 8 550 thousand (EUR 7 767 thousand) - growth 10.1 percent - Operating profit 11.7 percent of net sales (11.8%) - International operations accounted for 54.0 percent of net sales (54.3%) - growth 9.9 percent - Automation Services grew by 52.8 percent - Cash flows from operating activities were EUR 11 368 thousand (EUR 8 540 thousand). - Earnings per share EUR 0.56 (EUR 0.45) July-September Q3 - Net sales EUR 23 202 thousand (EUR 21 609 thousand) - growth 7.4 percent - Operating profit EUR 3 408 thousand (EUR 4 028 thousand) - decrease 15.4 percent - Operating profit 14.7 percent of net sales (18.6%) - International operations accounted for 55.1 percent of net sales (58.0%) - growth 2.0 percent - Automation Services grew by 56.7 percent - Earnings per share EUR 0.23 (EUR 0.27) Basware expects its net sales for 2010 to develop positively on the level of 2009. Operating profit (EBIT) for 2010 is expected to be from 10 to 15 percent of net sales. The figures are unaudited. GROUP KEY FIGURES 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/ EUR thousand 2010 2009 % 2010 2009 % 2009 -------------------------------------------------------------------------- Net sales 23 202 21 609 7.4% 72 946 66 054 10.4% 92 654 EBITDA 4 702 5 134 -8.4% 12 389 10 943 13.2% 16 280 Operating profit before IFRS-3 amortization 3 956 4 596 -13.9% 10 214 9 188 11.2% 13 788 Operating profit 3 408 4 028 -15.4% 8 550 7 767 10.1% 11 824 % of net sales 14.7% 18.6% 11.7 % 11.8% 12.8% Profit before tax 3 391 3 946 -14.1% 8 486 7 553 12.4% 11 590 Profit for the period 2 694 3 005 -10.3% 6 418 5 066 26.7% 9 074 Return on equity. % 17.6% 23.7% 14.4% 13.3% 17.2% Return on investment. % 20.4% 24.5% 17,4% 16.4% 18.8% Liquid assets* 13 719 7 567 81.3% 13 719 7 567 81.3% 12 210 Gearing. % -16.2% 3.2% -16.2% 3.2% -5.3% Equity ratio. % 71.6% 61.9% 71.6% 61.9% 64.8% Earnings per share. EUR 0.23 0.27 -12.5% 0.56 0.45 26.2% 0.80 Earnings per share (diluted). EUR 0.23 0.27 -13.2% 0.56 0.45 25.2% 0.80 Equity per share. EUR 5.34 4.58 16.5% 5.34 4.58 16.5% 4.93 *) Includes cash. cash equivalents and financial assets at fair value through profit or loss Basware's business operations consist of License Sales. Maintenance. Professional Services and Automation Services. The core of Basware's license sales consists of the Basware Enterprise Purchase to Pay product suite and local, only in Finland marketed financial management products. The Group's reported market areas are Finland, Scandinavia, Europe and Other areas. Basware's CEO Ilkka Sihvo comments in conjunction with the Interim Report: "Basware's most significant growth area, Automation Services, grew by as much as 56.7% in the third quarter. During Q3, we succeeded in closing several significant deals in the Automation Services business, which proves our global competitiveness in the e-invoice business. Automation Services agreements typically span several years, and they provide a good foundation for growth in 2011. Geographically, the best growth was seen in North America and Europe. Our operating profit for the third quarter was excellent, representing 14.7% of net sales. Our net sales increased by 7.4% to EUR 23 202 thousand. At this stage, our situation seems favorable with regard to reaching the full- year target. We believe that the solid growth of our business will also continue during the last quarter," says Ilkka Sihvo, Basware's CEO. REPORTING Basware's reporting segment is based upon geography as follows: Finland, Scandinavia, Europe and Other. Following the acquisition of former reseller TAG Services on July 1, 2009. Basware has assets in Australia. Taking into account the nature and extent of the business operations in North America and Australia, these areas were merged into the Other segment as of Q3/2009. The Finland segment includes the Finnish, Russian, and Asia-Pacific (excluding Australia) business operations and corporate services. In addition, the company reports revenue from products and services as follows: License Sales, Professional Services, Maintenance and Automation Services. Automation Services include Software as a Service (SaaS), e-invoicing and Scan and Capture services. The company also reports an estimate of revenue to be recognized for current Automation Services agreements in production in the next twelve months. Automation Services agreements are typically in force for a fixed period of several years or until further notice. NET SALES The geographical division of net sales by the location of assets: +-------------------------------------------------------------------------+ |Net sales 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +-------------------------------------------------------------------------+ |Finland 11 641 11 478 1.4 37 595 35 215 6.8 50 486| | | |Scandinavia 4 994 4 505 10.9 16 480 16 100 2.4 22 236| | | |Europe 4 782 4 104 16.5 15 388 13 087 17.6 18 717| | | |Other 3 111 3 980 -21.9 8 203 6 303 30.1 9 201| | | |Sales between segments -1 326 -2 459 46.1 -4 720 -4 652 -1.5 -7 985| +-------------------------------------------------------------------------+ |Group total 23 202 21 609 7.4 72 946 66 054 10.4 92 654| +-------------------------------------------------------------------------+ The geographical division of net sales by the location of customers: +-----------------------------------------------------------------+ |Net sales 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +-----------------------------------------------------------------+ |Finland 10 420 9 084 14.7 33 535 30 181 11.1 42 449| | | |Scandinavia 4 857 4 893 -0.7 15 859 15 716 0.9 21 719| | | |Europe 4 629 3 921 18.1 14 864 12 994 14.4 18 065| | | |Other 3 295 3 711 -11.2 8 688 7 163 21.3 10 421| +-----------------------------------------------------------------+ |Group total 23 202 21 609 7.4 72 946 66 054 10.4 92 654| +-----------------------------------------------------------------+ Basware Group's net sales grew by 10.4 percent in July-September and were EUR 72 946 thousand (EUR 66 054 thousand). The company's license sales increased by 3.8 percent during the reporting period to 22.7 percent (24.2%) of net sales. License sales of Basware's own products increased by 10.6 percent, and sales of third-party scanning software decreased considerably while sales of outsourced scan and capture services grew. Maintenance revenue increased by 12.3 percent in the reporting period and accounted for 33.6 percent (33.1%) of net sales. Professional Services revenue increased by 3.2 percent and accounted for percent (34.5%) of net sales. During the period. Automation Services (SaaS, e-invoicing, Scan and Capture) grew 52.8 percent and accounted for 11.5 percent (8.3%) of net sales. The estimated revenue to be recognized for current Automation Services agreements in production in the next twelve months is EUR 12.1 million (growth of 7.1 percent compared to the estimate made at the end of the previous quarter). The transaction volume processed by the Automation Services business was 9.3 million during the reporting period. In July-September, 21.2 percent (26.9%) of net sales consisted of own product sales with license sales decreasing by 15.3 percent. License sales in Q3 decreased because the Q3 comparison figure included revenue of EUR 1.9 million, which is a part of one of Basware's largest license deals closed in Q3/2009. License sales of Basware's own products decreased by 5.9%, and sales of third- party scanning software decreased considerably while sales of outsourced scan and capture services grew. Automation Services sales accounted for 12.7 percent (8.7%) of net sales in the third quarter, up 56.7 percent. Maintenance revenue accounted for 35.7 percent (34.3%) of net sales during the third quarter and grew by 11.8 percent. Consulting revenue represented 30.4 percent (30.2%) of net sales and grew by 8.3 percent. The international share of Basware's net sales was 54.0 percent (54.3%) in the period. International operations grew by 9.9 percent. The international share of Basware's net sales in third quarter was 55.1 percent (58.0%), up 2.0 percent. FINANCIAL PERFORMANCE Basware's operating profit increased by 10.1 percent in the period and totaled EUR 8 550 thousand (EUR 7 767 thousand). Operating profit represented 11.7 percent (11.8%) of net sales. Operating profit decreased by 15.4% in the third quarter and totaled EUR 3 408 thousand (EUR 4 028 thousand). Operating profit in Q3 decreased because the Q3 comparison figure included revenue of EUR 1.9 million, which is a part of one of Basware's largest license deals closed in Q3/2009. In the third quarter, operating profit represented 14.7 percent of net sales. The division of operating profit geographically by the location of assets: +------------------------------------------------------------------------------+ |Operating profit 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +------------------------------------------------------------------------------+ |Finland 2 238 2 546 -12.1 4 946 4 690 5.5 7 714| | | |Scandinavia 890 212 319.3 2 578 2 128 21.2 3 169| | | |Europe 419 465 -9.9 1 611 664 142.5 1 566| | | |Other 269 1 223 -78.0 640 1 258 -49.1 741| | | |Operating profit between | |segments -408 -417 2.2 -1 224 -972 -26.0 -1 365| +------------------------------------------------------------------------------+ |Group total 3 408 4 028 -15.4 8 550 7 767 10.1 11 824| +------------------------------------------------------------------------------+ The Company's fixed costs were EUR 56 068 thousand (EUR 50 683 thousand) in the period and have grown by 10.6 percent compared with the same period last year. Personnel costs made up 72.9 percent (73.9%) or EUR 40 846 thousand (EUR 37 453 thousand) of the fixed costs. Research and development costs totaled EUR 10 797 thousand (EUR 10 934 thousand), of which EUR 1 038 thousand (EUR 1 094 thousand) or 9.6 percent (10.0%) were capitalized during the period. Amortization of capitalized research and development costs totaled EUR 1 399 thousand (EUR 1 195 thousand). The Company's finance income and finance expenses were EUR -65 thousand (EUR -214 thousand). The Company's profit before tax was EUR 8 486 thousand (EUR 7 553 thousand) and profit for the period was EUR 6 418 thousand (EUR 5 066 thousand). Undiluted earnings per share were EUR 0.56 (EUR 0.45). FINANCE AND INVESTMENTS Basware Group's total assets on the balance sheet at the end of the financial period were EUR 87 132 thousand (EUR 84 942 thousand). The Company's cash and liquid assets were EUR 13 719 thousand (EUR 7 567 thousand), of which cash and cash equivalents were EUR 13 685 thousand (EUR 7 535 thousand) and financial assets at fair value through profit or loss were EUR 34 thousand (EUR 32 thousand). Equity ratio was 71.6 percent (61.9%) and gearing was -16.2 percent (3.2%). The Company had a total of EUR 3 584 thousand (EUR 9 235 thousand) interest-bearing liabilities. of which current liabilities accounted for EUR 3 551 thousand (EUR 5 563 thousand). Return on investment was 17.4 percent (16.4%) and return on equity 14.4 percent (13.3%). Cash flows from operating activities were EUR 11 368 thousand (EUR 8 540 thousand). Cash flows from investments were EUR -3 098 thousand (EUR -3 550 thousand). The company's gross capital expenditure. comprising of ordinary additional and replacement investments required by growh, totaled EUR 686 thousand (EUR 334 thousand) during the period. Gross investments. including capitalized R&D expenses and business acquisitions in addition to the above, totaled EUR 3 426 thousand (EUR 7 084 thousand). Basware Corporation acquired the entire share capital of TAG Services Pty Ltd in Australia on July 1, 2009. The acquisition price was 2.1 million Australian dollars (approximately EUR 1.2 million) and was paid in cash in two parts in July and August 2009. In addition the deal includes an additional acquisition price element that is based on the company's net sales of the period from July 1, 2009 to June 30, 2010. The additional acquisition price 2.0 million Australian dollars (approximately EUR 1.4 million) was paid in August 2010. Amortizations of intangible assets were EUR 3 413 thousand (EUR 2 772 thousand). There are no indications of impairments of assets. RESEARCH, DEVELOPMENT AND NEW PRODUCTS Basware's research and development costs were 10 797 thousand (EUR 10 934 thousand) in the period and made up 14.8 percent (16.6%) of net sales. Research and development costs decreased by 1.3 percent (1.8%) compared with the same period last year. Of the research and development costs, EUR 1 038 thousand (EUR 1 094 thousand) or 9.6 percent (10.0%) has been capitalized. Amortization of capitalized research and development costs totaled EUR 1 399 thousand (EUR 1 195 thousand). Altogether 213 (184) people worked in Products at the end of September 2010. The Products unit employes 72 persons in India at the moment. PERSONNEL Basware employed 826 (743) people on average in the third quarter and 866 (755) people at the end of the period. The number of personnel grew by 111 persons and by 14.7 percent compared with the same period last year. The share of personnel working in foreign units has increased compared with the same period last year. At the end of the period, 52.9 percent (47.0%) of Basware personnel worked outside of Finland and 47.1 percent (53.0%) in Finland. 14.8 percent of the personnel work in sales and marketing, 52.4 in consulting and services, 24.6 percent in Products, and 8.2 percent in administration. The average age of the employees is 36.0 (36.5) years. Of the employees, 32.8 percent have a Master's degree and 35.1 percent have a Bachelor's degree. Women account for 28.2 percent of employees, men for 71.8 percent. Geographical distribution of personnel: +-----------------------------------------------------+ | | |Personnel | |(employed. | |on 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |average) 2010 2009 % 2010 2009 % 2009| +-----------------------------------------------------+ |Finland 547 458 19.3 525 452 16.1 454| | | |Scandinavia 124 135 -8.4 124 137 -8.9 135| | | |Europe 126 116 8.6 124 119 4.2 119| | | |Other 57 46 25.5 53 36 48.3 39| +-----------------------------------------------------+ |Group total 854 755 13.1 826 743 11.1 747| +-----------------------------------------------------+ BUSINESS OPERATIONS Finland The Finland segment includes the business operations in Finland, Russia, Asia- Pacific (excluding Australia) and the head office functions. Net sales for the third quarter increased by 1.4 percent to EUR 11 641 thousand (EUR 11 478 thousand). Net sales of the Finnish and Russian business operations increased by 14.7 percent during the third quarter to EUR 10 493 thousand (EUR 9 146 thousand). There are currently 8 resellers in all in the area and the number of personnel averaged 547 (458) during the third quarter. Scandinavia Basware's Nordic organization consists of a centrally directed Scandinavian (Sweden, Denmark and Norway) unit. Net sales of the Scandinavian business operations increased by 10.9 percent to EUR 4 994 thousand (EUR 4 505 thousand). The profitability of the operations increased by 319.3 percent and operating profit was EUR 890 thousand (EUR 212 thousand). Business operations are mainly handled by the own organization and there were 124 (135) employees on average in the area. Europe Basware's European business operations consist of the units in Germany, France, the Netherlands and the United Kingdom. Additionally, the reseller network covers the eastern part of Central Europe. Net sales in the Europe segment increased by 16.5 percent in the third quarter and totaled EUR 4 782 thousand (EUR 4 101 thousand). The profitability of the operations improved by 9.9 percent and operating profit was EUR 419 thousand (EUR 465 thousand). There are 35 resellers in Europe, and Basware personnel averaged 126 (116) during the third quarter. Other Business operations in North America and Australia are reported in this segment. Net sales of the area decreased by -21.9 percent in the third quarter to EUR 3 111 thousand (EUR 3 980 thousand). The profitability of the operations grew by 78.0 percent and operating profit was EUR 269 thousand (EUR 1 223 thousand). Net sales and operating profit in Q3 decreased because the Q3 comparison figure included revenue of EUR 1.9 million, which is a part of one of Basware's largest license deals closed in Q3/2009. At the end of the period, there were 9 resellers in the segment. On average, there were 57 (46) employees in the area. OTHER EVENTS OF THE FINANCIAL PERIOD Basware Board of Directors approved in its meeting on July 8, 2010 the subscription of total of 79 200 shares subscribed for with Basware Warrant Programs. The share subscriptions were based on the Warrant Program 2006 series C warrants (39 000 shares) and Warrant Program 2007 series E warrants (40 200 shares). Basware announced two notices of changes in ownership when the total number of shares held by Nordea Rahastoyhtiö Suomi was below 5% of Basware Corporation's share capital on July 26, 2010 and above 5% on July 30, 2010. Strategy Basware continued to develop its strategy within the Basware Responsive Strategy framework. The company's Board of Directors reviewed the current strategic guidelines during the third quarter. The company's long-term targets remained unchanged. The target is to grow annually more than 10% in License Sales, Maintenance, and Professional Services, and more than 50% in Automation Services. The company's long-term target for operating profit margin is 10%-20%. Basware has successfully implemented its strategy in all areas despite the challenging market conditions. The strategic changes made in 2009 to develop Automation Services have turned out to be the right ones, and we have achieved global delivery capability in Automation Services. The company will continue and increase its investments in Automation Services, particularly with regard to sales and marketing, targeting the European and North American markets. In addition, new service packages will be developed in Automation Services, and particular attention will be paid to securing and managing global customer accounts. Basware aims to become the world's leading company in e-invoicing. The geographical strategy remained unchanged. North America is the company's most significant growth market. Basware has succeeded in increasing its net sales in the North American market, and additional investments will be made to continue rapid growth. The most significant strategic European target countries are the United Kingdom, France, and Germany. The development of the office in India has been one of the most significant internal strategic investments in expanding the operations of the R&D unit and in the e-invoicing validation service. The Indian office will be expanded further by moving also new functions there, which will enable cost-efficient expansion of operations. The company will continue the regular review and development of its strategy, based on which the company's strategy will be adapted to changing market conditions as required. SHARE AND SHAREHOLDERS Basware Corporation's share capital totaled EUR 3 506 677.20 at the end of the period and the number of shares was 11 688 924. Share price and trade In the third quarter, the highest price of the share was EUR 20.10 (EUR 11.49), lowest price was EUR 15.00 (EUR 6.60) and closing price was EUR 19.40 (EUR 10.72). The average price of the share was EUR 17.81 (EUR 9.29). A total of 1 565 754 (1 297 031) shares were traded during the financial period which is the equivalent of 13.7 percent (11.4%) of the average number of shares. Market capitalization with the period's closing price on September 30, 2010 was EUR 225 013 306 (EUR 121 970 273). Shareholders Basware had 16 041 (16 668) shareholders on September 30, 2010 including nominee-registered holdings (8). Nominee-registered holdings accounted for 10.4 percent of the total number of shares. The company holds 90 300 Basware Corporation shares, corresponding to approximately 0.78% of all shares in the company. Basware Board of Directors approved in its meeting on July 8, 2010 the subscription of total of 79 200 shares subscribed for with Basware Warrant Programs. The share subscriptions were based on the Warrant Program 2006 series C warrants (39 000 shares) and Warrant Program 2007 series E warrants (40 200 shares). GOVERNANCE The Annual General Meeting of Shareholders on February 18, 2010, confirmed the number of Board members as six. The Annual General Meeting resolved to agree on the proposal and elected Matti Copeland, Sakari Perttunen, Pentti Heikkinen, Eeva Sipilä, Ilkka Toivola and Hannu Vaajoensuu members of the Board of Directors. In its first meeting held after the Annual General Meeting. the Board of Directors elected Hannu Vaajoensuu as chairman and Sakari Perttunen as vice chairman of the Board. The Annual General Meeting further resolved to elect Ernst & Young Oy, Authorized Public Accountants as the auditor, with APA Heikki Ilkka in charge and APA Terhi Mäkinen as the deputy auditor. The Board was authorized to resolve on share issue and share repurchase. A separate stock exchange release has been issued on the Board authorizations and other resolutions of the Annual General Meeting of Shareholders on February 18, 2010. THE COMPANY'S NEAR FUTURE RISKS AND BUSINESS UNCERTAINTIES In accordance with Basware's risk management policy, risks are divided into six categories: risks related to business operations, products, personnel as well as legal, financial and data security risks. Basware takes risks that are a natural part of its strategy and objectives. These risks are managed and decreased in various ways. Short-term risks are considered to be risks in the current reporting year. Market forecasts released in March-September 2010 expect the software purchases to increase by 7.5 percent globally and 8.3 percent in the US in 2010. The IT services market growth is expected to be slightly lower than Q2 estimate, approximately 5 percent globally and 3.5 percent in the US in 2010, turning to 7 percent growth in 2011. However, services market growth in Purchase to Pay business is estimated to grow substantially, 7 percent in 2010 and over 10 percent in 2011. The global economic uncertainty continues, which might decrease companies' willingness to invest also in the future. This might have an unfavorable impact on the development of the company's net sales and profitability. Previously in times of economic uncertainty, the demand for the company's products and services has remained more positive than the general market, as the company's software solutions generate cost savings. Typically, in uncertain economic times companies may also prolong the times of payments in order to free up working capital. Basware has intensified its management of sales receivables, and business management regularly monitors the payment of sales receivables as part of the management of customer accounts. The Group's main currency is the euro, accounting for approximately 61 percent of net sales in 2009 (approximately 67% in 2008). The significance of exchange rate fluctuations between the euro and other currencies will increase hand in hand with the share of international operations. The company did not realize hedging for exchange rate fluctuations during the financial period as the foreign-currency-denominated cash flow in the subsidiaries did not exceed the set annual foreign-currency-specific limit for hedging measures. Basware's objective is to become the world's leading company in e-invoicing. E- invoicing and the supporting Scan and Capture services, included in Automation Services, also target suppliers and buyers outside Basware's existing customer base, which increases the customer potential. The company's long-term objective is an annual growth of more than 50 percent in Automation Services. SaaS and e- invoicing are scalable business models with a high business potential. The realization of this growth potential requires a new operating model as well as active and continuous development of competencies because of the strong growth of the number of customers and transaction volumes. These include sales and commissioning as well as customer support and product development. No significant changes have taken place in Basware's short-term risks and uncertainties during the financial period. EVENTS AFTER THE FINANCIAL PERIOD Basware acquired TNT Post's Connectivity operations, which is a part of TNT Post's electronic invoicing operations in the Netherlands. TNT Post's Connectivity operations has over 100 e-invoice customers and the estimated amount of annual transactions is close to 1 million. The Connectivity e-invoice services of TNT Post's customers will be gradually transferred to Basware's e-invoice service. The transfer is estimated to be completed by the end of 2010. Additionally 2 employees will join Basware in connection with the acquisition. FUTURE OUTLOOK Market forecasts released in March-September 2010 expect the software purchases to increase by 7.5 percent globally and 8.3 percent in the US in 2010. The IT services market growth is expected to be slightly lower than Q2 estimate, approximately 5 percent globally and 3.5 percent in the US in 2010, turning to 7 percent growth in 2011. However, services market growth in Purchase to Pay business is estimated to grow substantially, 7 percent in 2010 and over 10 percent in 2011. Basware's direct competitors are primarily locally operating and often smaller companies. In North America in particular, the company also has larger competitors. especially in the field of procurement management. Developers of document management, scanning and workflow systems compete with Basware, particularly with regard to purchase invoice management solutions. Competing solutions also include customized solutions integrated into ERP (Enterprise Resource Planning) systems. The software still offers a competitive edge, thanks to the integrated offering consisting of new added value products and the products. Automation Services will have a positive impact on the competitiveness. Automation Services increase the long-term predictability and transparency of a company's net sales and profitability. In 2009, revenue from continuous services (including maintenance) accounted for more than 40 percent of the company's total revenue. In order to support the sales of invoice automation solutions, Basware launched a mid-market SaaS (Software as a Service) solution. The solution was launched during the second quarter in North America and will be launched in the Central European market during the last two quarters. Basware aims to become a leading company in e-invoicing worldwide. E-invoicing and supporting Connectivity Services are targeted to connect suppliers and buyers also outside of Basware's existing software customer base, leading into a higher potential. The company's long-term target is to grow annually more than 50% in Automation Services. SaaS and e-invoicing are scalable models with a high business potential. A growth investment program of Basware Automation Services (SaaS. Scan and Capture and e-invoicing) has been launched at the beginning of 2010, and it is expected to promote the positive development of operations and order backlog. The Company's international growth is based on efforts of its own sales and marketing activity as well as the reseller channel. Development of the indirect distribution channel continues in Europe, Russia and Asia. In North America, the focus will be on developing the Company's own sales channel. In Scandinavia, the focus is on profitability, and moderate growth is supported by the Company's expanded product portfolio and the development of the service business. In Finland, the focus is on profitability, and moderate growth will primarily be achieved from the fields of procurement management and services. Basware has complemented its organic growth with acquisitions. The Company will continue to review possible acquisition targets during 2010. In particular, possible acquisitions will aim at supporting Automation Services. The Group's number of personnel will increase the most in Automation Services and product development during the year. The number of personnel will increase the most in India, which facilitates growth with a more moderate increase in costs. Due to the strong first half of the year, additional growth-related investments will be made during the latter half of 2010. The growth investments will particularly focus on the Automation Services business and research and development activities. Basware expects its net sales for 2010 to develop positively on the level of 2009. Operating profit (EBIT) for 2010 is expected to be from 10 to 15 percent of net sales. In Espoo, Finland, October 14, 2010 BASWARE CORPORATION Board of Directors For more information, please contact CEO Ilkka Sihvo. Basware Corporation Tel. +358 40 501 8251 Analyst and Press Briefing Basware arranges today, October 14, 2010 a briefing on the Interim Report for the press and analysts at 11:00 a.m. in Hotel Kämp, Pohjoisesplanadi 29, Helsinki, Finland. During this briefing CEO Ilkka Sihvo and CFO Mika Harjuaho will comment the events and financial performance of the quarter. Welcome. A conference call for analysts who are not able to attend the briefing will take place on October 14 at 15:00 EET. Please register throughIR@basware.com for appropriate information. Distribution Helsinki Stock Exchange,Key media www.basware.com The Interim Report has been prepared in accordance with the International Financial Reporting Standards (IFRS). As from the beginning of the financial period, the company has adopted certain new or amended IFRS standards and IFRIC interpretations as described in the Financial Statements for 2009. However, the adoption of these new and amended norms have not yet had an effect on the reported figures in practice. In other respects, the same accounting policies have been followed as in the Financial Statements for 2009. GROUP INCOME STATEMENT 1.7.- 1.7.- 1.1.- 1.1.- 1.1.- 30.9. 30.9. Change, 30.9. 30.9. Change, 31.12. EUR thousand 2010 2009 % 2010 2009 % 2009 -------------------------------------------------------------------------------- NET SALES 23 202 21 609 7.4 72 946 66 054 10.4 92 654 Other operating income 43 47 -9.9 147 129 14.2 162 Materials and services -1 593 -1 395 14.2 -4 635 -4 557 1.7 -6 193 Employee benefit expenses -11 959 -11 113 7.6 -40 846 -37 453 9.1 -52 294 Depreciation and amortization -1 294 -1 106 17.0 -3 839 -3 176 20.9 -4 456 Other operating expenses -4991 -4 014 24.3 -15 222 -13 230 15.1 -18 048 -------------------------------------------------------------------------------- Operating profit 3 408 4 028 -15.4 8 550 7 767 10.1 11 824 Finance income -59 32 -282.2 61 187 -67.2 172 Finance expenses 42 -115 -136.9 -126 -401 -68.6 -406 -------------------------------------------------------------------------------- Profit before tax 3 391 3 946 -14.1 8 486 7 553 12.4 11 590 Income tax expense -697 -941 -25.9 -2 068 -2 486 -16.8 -2 517 -------------------------------------------------------------------------------- PROFIT FOR THE PERIOD 2 694 3 005 -10.3 6 418 5 066 26.7 9 074 Other comprehensive income Exchange differences on translating foreign operations -43 620 -106.9 651 2 017 -67.7 1 326 Income tax relating to components of other comprehensive income -143 89 -259.4 324 45 620.9 -549 -------------------------------------------------------------------------------- Other comprehensive income. net of tax -185 709 -126.2 976 2 062 -52.7 777 -------------------------------------------------------------------------------- TOTAL COMPREHENSIVE INCOME 2 509 3 714 -32.4 7 394 7 128 3.7 9 850 Profit attributable to: Owners of the parent 2 694 3 055 -11.8 6 418 5 066 26.7 9 074 Minority interest 0 -50 -100.0 0 0 0 0 -------------------------------------------------------------------------------- 2 694 3 005 -10.3 6 418 5 066 26.7 9 074 Total comprehensive income attributable to: Owners of the parent 2 509 3 763 -33.3 7 394 7 128 3.7 9 850 Minority interest 0 -50 -100.0 0 0 0 0 -------------------------------------------------------------------------------- 2 509 3 714 -32.4 7 394 7 128 3.7 9 850 Earnings per share (undiluted). EUR 0.23 0.27 -12.5 0.56 0.45 26.2 0.80 Earnings per share (diluted). EUR 0.23 0.27 -13.2 0.56 0.45 25.2 0.80 GROUP BALANCE SHEET EUR thousand 30.9.2010 30.9.2009 Change, % 31.12.2009 -------------------------------------------------------------------------------- ASSETS NON-CURRENT ASSETS Intangible assets 18 180 19 636 -7.4 20 291 Goodwill 31 977 31 283 2.2 31 119 Tangible assets 1 048 879 19.3 823 Available-for-sale investments 38 38 38 Long-term trade and other receivables 23 132 -82.4 124 Deferred tax assets 1 819 1 962 -7.2 2 199 -------------------------------------------------------------------------------- Non-current assets 53 085 53 928 -1.6 54 593 CURRENT ASSETS Inventories 15 40 -62.1 33 Trade and other receivables 19 679 20 275 -2.9 19 684 Income tax receivables 634 3 132 -79.8 767 Financial assets at fair value through profit or loss 34 32 4.4 34 Cash and cash equivalents 13 685 7 535 81.6 12 176 -------------------------------------------------------------------------------- Current assets 34 047 31 014 9.8 32 694 -------------------------------------------------------------------------------- TOTAL ASSETS 87 132 84 942 2.6 87 287 -------------------------------------------------------------------------------- EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY Share capital 3 507 3 440 1.9 3 440 Issue of shares 9 100.0 140 Share premium account 1 187 69 1 623.1 69 Own shares -629 -629 -629 Fair value reserve and other reserves 34 795 33 598 3.6 33 598 Translation differences -2 239 -3 542 36.8 -3 214 Retained earnings 25 760 19 622 31.3 23 176 Minority interest 0 -------------------------------------------------------------------------------- Shareholders' equity 62 390 52 559 18.7 56 580 NON-CURRENT LIABILITIES Deferred tax liability 3 806 3 852 -1.2 3 997 Interest-bearing liabilities 33 3 672 -99.1 3 674 Non-interest-bearing liabilities 457 242 89.0 110 -------------------------------------------------------------------------------- Non-current liabilities 4 296 7 766 -44.7 7 782 CURRENT LIABILITIES Interest-bearing liabilities 3 551 5 563 -36.2 5 555 Trade payables and other liabilities 16 736 18 384 -9.0 17 039 Tax liability from income tax 160 670 -76.1 331 -------------------------------------------------------------------------------- Current liabilities 20 447 24 617 -16.9 22 926 -------------------------------------------------------------------------------- TOTAL EQUITY AND LIABILITIES 87 132 84 942 2.6 87 287 -------------------------------------------------------------------------------- GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Inv. non- Retai- Mino- Share- Share restr. ned rity EUR holders Share premium Own equity Other Transl Earn- Inter- thousand capital issue account shares res. res. diff. ings est Total SHARE- HOLDERS' EQUITY 1.1.09 3 440 0 69 -271 33 058 540 -3 991 15 648 224 48 717 Compre- hensive income 450 6 678 7 128 Dividend distri- bution -2 623 -2 623 Granted warrants 447 447 Repur- chase of own shares -358 -358 Changes in reporting period -528 -224 -752 SHARE- HOLDERS' EQUITY 30.9.09 3 440 0 69 -629 33 058 540 -3 542 19 622 0 52 559 -------------------------------------------------------------------------------- EUR thousand -------------------------------------------------------------------------------- SHARE- HOLDERS' EQUITY 1.1.10 3 440 140 69 -629 33 058 540 -3 214 23 176 0 56 580 Compre- hensive income 976 6 418 7 394 Dividend distri- bution -4 100 -4 100 Granted warrants 159 159 Changes in reporting period 66 -131 1 118 1 197 -107 2 357 -------------------------------------------------------------------------------- SHARE- HOLDERS' EQUITY 30.9.10 3 507 9 1 187 -629 34 254 540 -2 239 25 760 0 62 390 -------------------------------------------------------------------------------- GROUP CASH FLOW STATEMENT 1.1.- 1.1.- 1.1.- EUR thousand 30.9. 2010 30.9.2009 31.12.2009 ------------------------------------------------------------------------------- Net cash from operating activities Profit for the period 6 418 5 066 9 074 Adjustments for profit 5 971 5 877 7 832 Working capital changes 1 150 859 -136 Interest paid -47 -183 -192 Interest received 40 57 104 Other financial items in operating activities -50 -58 -30 Income taxes paid -2 115 -3 079 -1 920 ------------------------------------------------------------------------------- Net cash from operating activities 11 368 8 540 14 732 ------------------------------------------------------------------------------- Cash flows from investing activities Purchase of tangible and intangible assets -1 668 -1 447 -3 135 Proceeds from sale of tangible and intangible assets 0 1 Acquired subsidiaries -1 430 -2 104 -1 875 ------------------------------------------------------------------------------- Net cash used in investing activities -3 098 -3 550 -5 009 ------------------------------------------------------------------------------- Cash flows from financing activities Minority's capital investment 2 381 140 Repayments of short-term loans -2 000 -3 558 Repayments of long-term borrowings -3 550 -3 558 Share repurchase -358 -358 Repayments of financial lease liabilities 0 Dividends paid -4 100 -2 623 -2 623 ------------------------------------------------------------------------------- Net cash used in financing activities -7 269 -6 539 -6 358 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Net change in cash and cash equivalents according to cash flow statement 1 000 -1 549 3 324 ------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 12 210 8 777 8 777 Effects of exchange rate changes on cash and cash equivalents 508 339 109 Cash and cash equivalents at end of period 13 719 7 567 12 210 GROUP QUARTERLY INCOME STATEMENT 1-3/ 1-3/ 4-6/ 4-6/ 7-9/ 7-9/ 10-12/ EUR thousand 2010 2009 2010 2009 2010 2009 2009 -------------------------------------------------------------------------------- NET SALES 23 132 21 717 26 612 22 729 23 202 21 609 26 600 Other operating income 50 30 55 52 43 47 34 Materials and services -1 288 -1 552 -1 754 -1 611 -1 593 -1 395 -1 636 Employee benefit expenses -13 703 -12 896 -15 184 -13 444 -11 959 -11 113 -14 841 Depreciation and amortization -1 236 -1 004 -1 309 -1 067 -1 294 -1 106 -1 280 Other operating expenses -4 818 -4 703 -5 414 -4 513 -4 991 -4 014 -4 819 -------------------------------------------------------------------------------- Operating profit 2 136 1 592 3 006 2 146 3 408 4 028 4 058 % 9.2% 7.3% 11.3% 9.4% 14.7 % 18.6% 15,3 % Finance income 116 124 4 30 -59 32 -15 Finance expenses -111 232 -58 -54 42 -115 -5 -------------------------------------------------------------------------------- Profit before tax 2 142 1 484 2 953 2 122 3 391 3 946 4 038 % 9.3% 6.8% 11.1% 9.3% 14.6 % 18.3% 15,2 % Income tax expense -560 -818 -811 -727 -697 -941 -30 -------------------------------------------------------------------------------- PROFIT FOR THE PERIOD 1 582 666 2 142 1 396 2 694 3 005 4 007 % 6.8% 3.1% 8.0% 6.1% 11.6 % 13.9% 15,1% Changes of ownership Basware increased its shareholding in Basware Einvoices Oy to 100 percent on January 30, 2009, by acquiring 12.55 percent of the company's shares and control from the company's management. The purchase price paid on the date of the transaction was approximately EUR 720 thousand, and EUR 293 was paid in February 2010 as an additional purchase price based on the business volume for 2009. Basware AS purchased the Norwegian invoice automation solution business of Itella Information AS. The purchase price was NOK 6.38 million (approximately EUR 0.72 million) and it was paid in cash on the day the acquisition was completed, April 1, 2009. In addition, in February 2010 Basware paid an additional purchase price of NOK 4 434 thousand (approximately EUR 559 thousand) determined on the basis of the volume of the purchased operations' service sales in 2009. Basware FIMA Oy was merged to the parent company during the second quarter of 2010. Basware Corporation acquired the entire share capital of TAG Services Pty Ltd in Australia on July 1, 2009. The acquisition price was 2.1 million Australian dollars (approximately EUR 1.2 million) and was paid in cash in two parts in July and August 2009. In addition the deal includes an additional acquisition price element that is based on the company's net sales of the period from July 1, 2009 to June 30, 2010. The additional acquisition price 2.0 million Australian dollars (approximately EUR 1.4 million) was paid in August 2010. COMMITMENTS AND CONTINGENT LIABILITIES EUR thousand 30.9.2010 30.9.2009 31.12.2009 --------------------------------------------------------------------- Own guarantees Business mortgages of own debts 1 200 1 200 1 200 Commitments on behalf of subsidiaries and group companies Guarantees 1 123 1 122 1 075 Other own guarantees Lease liabilities Current lease liabilities 859 880 970 Lease liabilities maturing in 1-5 years 823 800 895 --------------------------------------------------------------------- Total 1 682 1 680 1 865 Other rental liabilities Current rental liabilities 2 415 2 419 2 333 Rental liabilities maturing in 1-5 years 7 862 3 309 2 924 Rental liabilities maturing later 0 1 140 1 071 --------------------------------------------------------------------- Total 10 277 6 869 6 328 --------------------------------------------------------------------- Other own contingent liabilities. total 11 959 8 549 8 193 --------------------------------------------------------------------- SEGMENT REPORTING Net sales by market area +-----------------------------------------------------------------+ |Net sales 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +-----------------------------------------------------------------+ |Finland 11 641 11 478 1.4 37 595 35 215 6.8 50 486| | | |Scandinavia 4 994 4 505 10.9 16 480 16 100 2.4 22 236| | | |Europe 4 782 4 104 16.5 15 388 13 087 17.6 18 717| | | |Other 3 111 3 980 -21.9 8 203 6 303 30.1 9 201| | | |Sales between | |segments -1 326 -2 459 46.1 -4 720 -4 652 -1.5 -7 985| +-----------------------------------------------------------------+ |Group total 23 202 21 609 7.4 72 946 66 054 10.4 92 654| +-----------------------------------------------------------------+ +------------------------------------------------------------------------------+ |Operating profit 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +------------------------------------------------------------------------------+ |Finland 2 238 2 546 -12.1 4 946 4 690 5.5 7 714| | | |Scandinavia 890 212 319.3 2 578 2 128 21.2 3 169| | | |Europe 419 465 -9.9 1 611 664 142.5 1 566| | | |Other 269 1 223 -78.0 640 1 258 -49.1 741| | | |Operating profit between | |segments -408 -417 2.2 -1 224 -972 -26.0 -1 365| +------------------------------------------------------------------------------+ |Group total 3 408 4 028 -15.4 8 550 7 767 10.1 11 824| +------------------------------------------------------------------------------+ +-------------------------------------------------------+ |Personnel | |(employed. On 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |average) 2010 2009 % 2010 2009 % 2009| +-------------------------------------------------------+ |Finland 547 458 19.3 525 452 16.1 454| | | |Scandinavia 124 135 -8.4 124 137 -8.9 135| | | |Europe 126 116 8.6 124 119 4.2 119| | | |Other 57 46 25.5 53 36 48.3 39| +-------------------------------------------------------+ |Group total 854 755 13.1 826 743 11.1 747| +-------------------------------------------------------+ Net sales by business +------------------------------------------------------------------------+ |Net sales 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +------------------------------------------------------------------------+ |License Sales 4 915 5 803 -15.3 16 558 15 955 3.8 23 755| | | |Maintenance 8 277 7 405 11.8 24 522 21 843 12.3 29 757| | | |Professional Services 7 059 6 517 8.3 23 511 22 786 3.2 31 174| | | |Automation Services 2 952 1 884 56.7 8 355 5 469 52.8 7 967| +------------------------------------------------------------------------+ |Group total 23 202 21 609 7.4 72 946 66 054 10.4 92 654| +------------------------------------------------------------------------+ Net sales by the location of customer: +-----------------------------------------------------------------+ |Net sales 7-9/ 7-9/ Change, 1-9/ 1-9/ Change, 1-12/| |(EUR thousand) 2010 2009 % 2010 2009 % 2009| +-----------------------------------------------------------------+ |Finland 10 420 9 084 14.7 33 535 30 181 11.1 42 449| | | |Scandinavia 4 857 4 893 -0.7 15 859 15 716 0.9 21 719| | | |Europe 4 629 3 921 18.1 14 864 12 994 14.4 18 065| | | |Other 3 295 3 711 -11.2 8 688 7 163 21.3 10 421| +-----------------------------------------------------------------+ |Group total 23 202 21 609 7.4 72 946 66 054 10.4 92 654| +-----------------------------------------------------------------+ GROUP KEY INDICATORS 1-9/ 1-9/ 1-9/ 1-12/ EUR thousand 2010 2009 2008 2009 -------------------------------------------------------------------------------- Net sales 72 946 66 054 59 804 92 654 Growth of net sales,% 10.4 % 10.5% 19.4% 7.6% EBITDA 12 389 10 943 6 611 16 280 % of net sales 17.0 % 16.6% 11.1% 17.6% Operating profit before IFRS3 amortization 10 214 9 188 5 146 13 788 % of net sales 14.0 % 13.9% 8.6% 14.9% Operating profit 8 550 7 767 4 557 11 824 Growth of operating profit,% 10.1 % 70.4% -18.4% 36.2% % of net sales 11.7 % 11.8% 7.6% 12.8% Profit before tax 8 486 7 553 4 548 11 590 % of net sales 11.6% 11.4% 7.6% 12.5% Profit for the period 6 418 5 066 3 290 9 074 % of net sales 8.8 % 7.7% 5.5% 9.8% Return on equity, % 14.4 % 13.3% 9.2% 17.2% Return on investment, % 17.4 % 17.1% 11.0% 18.8% Interest-bearing liabilities 3 584 9 235 12 679 9 230 Cash and liquid assets *) 13 719 7 567 8 680 12 210 Gearing, % -16.2 % 3.2% 8.3% -5.3% Equity ratio, % 71.6 % 61.9% 60.0% 64.8% Total assets 87 132 84 942 80 537 87 287 Gross investments **) 3 426 7 084 11 262 7 448 % of net sales 4,7 % 10.7% 18.8% 8.0% Capital expenditure 686 334 684 2 047 % of net sales 0.9 % 0.5% 1.1% 2.2% Research and development costs 10 797 10 934 11 134 14 781 % of net sales 14.8 % 16.6% 18.6% 16.0% R&D personnel at end of period 213 184 162 195 Personnel on average during the period 826 743 675 747 Personnel at end of period 866 755 686 761 Increase in personnel, % 14.7 % 10.1% 8.9% 4.1% Earnings per share, EUR 0,56 0.45 0.28 0.80 Earnings per share (diluted), EUR 0.56 0.45 0.28 0.80 Equity per share. EUR 5.34 4.58 4.19 4.93 P/E ratio 34.53 24.09 24.97 18.21 Share price performance lowest share price 15.00 6.60 6.14 6.60 highest share price 20.10 11.49 10.45 14.66 average share price 17.81 9.29 7.70 10.79 closing share price 19.40 10.72 7.00 14.52 Market capitalization at end of period 225 013 306 121 970 273 80 276 868 165 206 004 Number of traded shares 1 565 754 1 297 031 1 808 869 2 038 565 % of average number of shares 13.7% 11.4% 15.8% 17.9% Average number of shares - undiluted 11 422 987 11 383 265 11 468 124 11 381 905 - diluted 11 517 522 11 383 265 11 468 124 11 381 905 *) Includes cash. cash equivalents and financial assets at fair value through profit or loss **) Includes capitalized R&D costs and acquisitions Major shareholders, September 30, 2010 Shares. pcs % 1. Sihvo, Ilkka 1 081 800 9.3 2. Eräkangas, Kirsi 1 001 800 8.6 Eräkangas, Kirsi 691 400 5.9 Eräkangas, Lotta 310 400 2.7 3. Ilmarinen Mutual Pension Insurance Company 994 298 8.5 4. Vaajoensuu, Hannu 962 100 8.2 Havacment Oy 266 500 2.3 Vaajoensuu, Hannu 528 000 4.5 Vaajoensuu, Matias 83 800 0.7 Vaajoensuu, Petra 83 800 0.7 5. Perttunen, Sakari 830 400 7.1 6 Pöllänen, Antti 586 823 5.0 Launimo, Essi 100 208 0.9 Pöllänen, Antti 486 615 4.2 7. Nordea Nordic Small Cap 576 033 4.9 8. Mandatum Life Insurance Company Ltd, 550 000 4.7 9. Fondita Nordic Micro Cap Sijoitusrahasto 300 000 2.6 10. Kaleva Mutual Insurance Company 242 690 2.1 11. Veritas Pension Insurance Company 226 000 1.9 12. Perttunen, Meimi 215 400 1.8 13. Investment Fund Aktia Capital 210 863 1.8 14. Ahonen, Asko 188 736 1.6 15. Basware Oyj 90 300 0.8 16. Vaajoensuu, Sara 83 700 0.7 17. Pavor Oy 75 052 0.6 18. Tietoklusteri Oy 74 600 0.6 19. Placeringsfonden Gyllenberg Small Firm 71 968 0.6 20. Sinkonen, Raija 70 000 0.6 20 largest shareholders total 8 432 563 72.1 Nominee registered shares 1 216 000 10.4 Others 2 040 361 17.5 Total 11 688 924 100.0 [HUG#1451832]