QPR SOFTWARE STOCK EXCHANGE RELEASE, OCTOBER 25, 2018 AT 9.15 AM

Net sales and operating profit increased from previous year

July – September 2018

  • Net sales increased by 13% to EUR 2,222 thousand (2017: 1,966).
  • Recurring revenue 58% of net sales (60).
  • Operating result EUR 109 thousand (-34).
  • Operating margin 4.9% (-1.7).
  • Result before taxes EUR 113 thousand (-41).
  • Result for the quarter EUR 91 thousand (-32).
  • Earnings per share EUR 0.008 (-0.003).

January – September 2018

  • Net sales increased by 6% to EUR 7,376 thousand (2017: 6,977). 
  • Recurring revenue 56% of net sales (55).
  • Operating result EUR 391 thousand (354).
  • Operating margin 5.3% (5.1).
  • Result before tax EUR 207 thousand (323).
  • Result for the period EUR 131 thousand (246).
  • Earnings per share EUR 0.011 (0.021).
  • Outlook for 2018 remains unchanged.

Business operations

QPR Software's mission is to make customers agile and efficient in their operations. We innovate, develop, and sell software aimed at analyzing, monitoring, and modeling operations in organizations. Furthermore, we offer customers a variety of consulting services.


OUTLOOK

Operating environment and market outlook

In recent years, QPR Software has invested heavily in developing the company's new process mining software, as well as renewing all user interfaces of its software products. The company estimates that the demand for process mining software and related services will continue to grow in 2018. Due to the current early market stage, country specific differences in demand will continue to be significant.

In developed markets, competition in software business for process and enterprise architecture modeling and performance management is expected to remain tight. The company still sees growth potential for these products in emerging markets.

Outlook for 2018

Outlook for 2018 remains unchanged. QPR estimates that its net sales will grow in 2018 (2017: EUR 9,084 million). In the second half of the year net sales growth accelerates from growth level achieved in January – June.

The growth in net sales will be driven by software business, and especially by the process mining software QPR ProcessAnalyzer. Consulting net sales are also expected to grow from previous year. 

In 2018, QPR increases investments in its growing business segments and is planning to increase resources, especially in international sales and marketing. Despite the increase in costs, the company estimates that its operating result will improve from previous year and will exceed 5% of net sales (2017: 0.4% of net sales).


KEY FIGURES

        
EUR in thousands,
unless otherwise indicated
Jul-Sep,
2018
Jul-Sep,
2017
Change,
%
Jan-Sep,
2018
Jan-Sep,
2017
Change,
%
Jan-Dec,
2017
        
Net sales2,2221,966137,3766,97769,084
EBITDA348201741,1091,0189946
 % of net sales15.710.2 15.014.6 10.4
Operating result109-344183913541132
 % of net sales4.9-1.7 5.35.1 0.4
Result before tax113-41374207323-36-6
Result for the period91-32381131246-47-152
 % of net sales4.1-1.6 1.83.5 -1.7
        
Earnings per share, EUR0.008-0.0033810.0110.021-47-0.013
Equity per share, EUR0.2270.263-140.2270.263-140.231
        
Cash flow from operating
activities
-563-426-321,1761,223-4984
Cash and cash equivalents534719-26534719-26318
Net borrowings-534-719-26-534-719-26-318
Gearing, %-18.9-22.0-14-18.9-22.0-14-11.0
Equity ratio, %59.369.8-1559.369.8-1549.5
Return on equity, %12.1-3.94086.19.9-38-4.8
Return on investment, %14.2-4.144518.714.7271.4

                                                                                                                                                         

REPORTING

The figures in this interim report are reported according to IFRS 15 accounting principles, effective from 1 January 2018. The IFRS 15 restated comparable Group key figures have been published as a stock exchange release on 25 April 2018.

QPR Software innovates, develops, sells and delivers software and services in international markets aimed at operational development in organizations. QPR Software reports one operating segment: Operational development of organizations. In addition to this, the Company reports revenue from products and services as follows: Software licenses, Software maintenance services, Cloud services and Consulting. New accounting principles do not have an impact on Consulting sales revenue recognition, but there are changes in software sales revenue recognition. QPR has not earlier reported the share of Cloud services in its software sales.

Recurring revenue reported by the Company consists of Software maintenance services and Cloud services. In addition, recurring revenue includes that part of software license sales, where user rights have been sold to customers with a long-term contract, continuing for the time being, and invoiced in the beginning of the invoicing period. The license part of revenue is recognized at one point in time, in the beginning of the invoicing period. These contracts continuing for the time being are automatically renewed after the end of the agreed period (usually 1 year), unless the agreement is terminated within notice period.

Geographical areas reported are Finland, the rest of Europe (including Russia and Turkey), and the rest of the world. Net sales are reported according to the customer's location.


REVIEW BY THE CEO

QPR's business is developing favorably, and net sales growth accelerated to 13% in the previous quarter. Our investments in product development have significantly increased competitiveness of our software products, and the new software versions have had an excellent reception in the markets.

International net sales increased 15% in January – September due to increased software sales. Especially grew process mining and analytics software QPR ProcessAnalyzer sales to European customers and performance management software sales to Middle East.

In the reporting period we delivered process mining and analytics software, among others, to Fennovoima (a company constructing and operating a new nuclear power plant in Finland), Piraeus Bank in Greece, a global high technology company with over 100,000 employees, a government owned European forestry and property management company, a major financial services company operating in over 30 countries and to a global medical device company's European Business unit. New performance management software customers were, among others, many large organizations in the Middle East.

Our target is to grow international software sales, as well as our consulting business in Finland. Sales in operational development consulting and digital business optimization consulting developed positively in July – September, and outlook for this business is good.

Jari Jaakkola
CEO


NET SALES DEVELOPMENT

July – September 2018

Third quarter net sales were EUR 2,222 thousand (1,966) and increased by 13% compared to the corresponding period last year. Share of recurring revenue was 58% of net sales (60).

Software license net sales increased by 20%. The increase was due to the favorable net sales development of QPR ProcessAnalyzer.

Software maintenance net sales decreased by 4% from the previous year. Cloud service net sales grew by 63% from the previous year. In line with general industry development, customers are increasingly electing to use software through cloud service. Especially our process mining and analytics customers using QPR ProcessAnalyzer, opt for this choice. 

Consulting net sales increased by 12%, which was mainly due to increase in operational development consulting as well as digitalization and change management consulting sales to Finnish customers. In addition, new deliveries of performance management software QPR Metrics to customers in Middle East had a positive impact on consulting net sales.

Net sales in international markets increased by 9% and in Finland by 16%. Of the Group net sales, 59% (58) derived from Finland, 18% (26) from the rest of Europe (including Russia and Turkey) and 23% (16) from the rest of the world.

January – September 2018

Net sales in the January – September reporting period were EUR 7,376 thousand (6,977) and grew by 6%. Share of recurring revenue was 56% (55) of net sales. International software sales and operational development consulting in Finland developed favorably.

International net sales grew 15%, driven by increased software sales. QPR ProcessAnalyzer deliveries to European customers and QPR Metrics deliveries to Middle Eastern customers increased. Net sales in Finland was on the same level as in the previous year.

Of the Group net sales, 57% (60) derived from Finland, 24% (25) from the rest of Europe (including Russia and Turkey) and 19% (14) from the rest of the world.


NET SALES BY PRODUCT GROUP

        
EUR in thousandsJul-Sep,
2018
Jul-Sep,
2017
Change,
%
Jan-Sep,
2018
Jan-Sep,
2017
Change,
%
Jan-Dec,
2017
        
Software licenses533443202,0591,93762,326
Software maintenance services768798-42,2502,488-103,260
Cloud services3382076396860859819
Consulting583519122,0981,94382,680
Total2,2221,966137,3766,97769,084

                                                                                                                                                           

NET SALES BY GEOGRAPHIC AREA

        
EUR in thousandsJul-Sep,
2018
Jul-Sep,
2017
Change,
%
Jan-Sep,
2018
Jan-Sep,
2017
Change,
%
Jan-Dec,
2017
        
Finland1,3141,135164,2114,21405,459
Europe incl. Russia and Turkey389512-241,7731,75312,288
Rest of the world519319631,3921,009381,337
Total2,2221,966137,3766,97769,084

                                                                                                                                                           

FINANCIAL PERFORMANCE

July – September 2018

The July – September Group net sales growth outpaced cost growth and operating result rose to EUR 109 thousand (-34). Costs grew mainly in marketing, sales and delivery.

The Group's July – September fixed costs were EUR 1,895 thousand (1,765) and increased by 7% compared to the prior year's corresponding period. Personnel expenses represented 69.7% (73.9) of the fixed costs and amounted to EUR 1,321 thousand (1,304).

The Group's July - September result before tax was EUR 113 thousand (-41) and result for the period was EUR 91 thousand (-32). Earnings per share were EUR 0.008 (-0.003).

January – September 2018

In the January – September reporting period, the Group operating result was EUR 391 thousand (354), or 5.3% (5.1) of net sales. Strategic investments in growth businesses continued, which increased personnel, sales and marketing costs.

The Group's January – September fixed costs were EUR 6,114 (5,728) and increased by 7% compared to prior year. Personnel costs represented 73.2% (72.9) of fixed costs and were EUR 4,475 thousand (4,176).

Result before tax was EUR 207 thousand (323) and result for the period was EUR 131 thousand (246). Earnings per share were EUR 0.011 (0.021).


FINANCE AND INVESTMENTS

January – September cash flow from operating activities was EUR 1,176 thousand (1,223). Cash and cash equivalents at the end of the reporting period were EUR 534 thousand (719). International software business grew its share of our total business, and this  influenced cash flow from operating activities. Payment terms in the international business are typically longer than payment terms in the Finnish business.

Net financial items in the reporting period January - September were EUR 184 thousand (31). Net financial expenses included net foreign exchange losses of EUR 190 thousand (36). Exceptionally large currency exchange losses are due to liquidation of the Group's subsidiary in Russia. The currency exchange losses arise from the subsidiary's working capital and were initiated when Russian ruble weakened significantly in years 2009 – 2018. Currency differences related to this have been reported in previous years in other comprehensive income, and after liquidation of the subsidiary as financial expenses in the Group's profit and loss statement. Thus, these currency losses do not have any impact on retained earnings or cash flow from operating activities.

January – September investments totaled EUR 601 thousand (713) and were mainly product development expenditure.

The Group's financial position is strong, and it had no interest-bearing liabilities at the end of the reporting period. The gearing ratio was -19% (-22). Equity ratio at the end of the reporting period was 59% (70).


PRODUCT DEVELOPMENT

QPR innovates and develops software products that analyze, measure and model operations in organizations. The Company develops the following software products: QPR EnterpriseArchitect, QPR Metrics, QPR ProcessDesigner, and QPR ProcessAnalyzer

In the January – September reporting period, product development expenses were EUR 1,438 thousand (1,729), equal to 20% of net sales (25). In January - September product development expenses were capitalized for EUR 565 thousand (639). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses in January - September was EUR 571 thousand (498).


PERSONNEL

At the end of the reporting period, the Group employed a total of 82 persons (78). The average number of personnel during the January – September reporting period was 80 (76).

At the end of the reporting period the average age of employees was 40.1 (39.4) years. Women accounted for 21 % (24) of the employees, and men for 79% (76). Sales and marketing employed 18% (15) of the personnel, consulting and customer service 43% (42), product development 30% (31) and administration 8% (9).

For incentive purposes, the Company has a bonus program that covers all employees. Remuneration of the top management consists of salary, fringe benefits, and a possible annual bonus based mainly on Group and business unit net sales performance.

Strategy

Our target is to reach in average 15 – 20% annual growth in the next three years. The target is mainly based on growth in international software sales and growth in consulting services in our home market Finland. We see significant growth potential especially in process mining business, where we aim at over 50% annual growth.

We innovate, develop and sell software and related services aimed at analyzing, measuring and modeling operations in organizations. Furthermore, we offer customers consulting services in operational development and digital business optimization.

We accelerate product development by increasing our resources in a controlled manner. In software development, we place special focus on excellent user experience.

We focus our product development to meet the challenges organizations face, especially in leading and developing their operations in a digitalizing world. A special focus area for development is process mining, and our target is to gain a significant share in the rapidly growing process mining and analytics market.

In the next few years, we seek growth especially in our international software sales. To reach this target, we will continue increasing our resources and investments in international marketing and sales.


SHARES AND SHAREHOLDERS

     
Trading of sharesJan-Sep,
2018
Jan-Sep,
2017
Change,
%
Jan-Dec,
2017
     
Shares traded, pcs841,7561,272,665-341,552,104
Volume, EUR1,391,4701,981,481-302,463,215
% of shares7.010.6 12.9
Average trading price, EUR1.651.5661.59
     
Shares and market capitalizationSep 30,
2018
Sep 30,
2017
Change,
%
Dec 31,
2017
     
Total number of shares, pcs12,444,86312,444,863-12,444,863
Treasury shares, pcs457,009457,009-457,009
Book counter value, EUR0.110.11-0.11
Outstanding shares, pcs11,987,85411,987,854-11,987,854
Number of shareholders1,1691,249-61,246
Closing price, EUR1.751.88-71.71
Market capitalization, EUR20,978,74522,537,166-720,499,230
Book counter value of all treasury
shares, EUR
50,27150,271-50,271
Total purchase value of all treasury
shares, EUR
439,307439,307-439,307
Treasury shares, % of all shares3.73.7-3.7

                                                                                         

GOVERNANCE

The Annual General Meeting held on April 12, 2018 approved the Board's proposal to pay a per-share dividend of EUR 0.03 (0.03), a total of EUR 360 thousand (360) for the financial year 2017. Dividends were paid to all shareholders registered in the Company's shareholder register, maintained by Euroclear Finland Oy, on the record date of April 16, 2017. Dividends were paid on April 23, 2018. 

The Annual General Meeting resolved that the number of Board Members is four (4) and re-elected Juha Häkämies, Vesa-Pekka Leskinen, Topi Piela and Taina Sipilä as members of the Company's Board of Directors. The term of office of the members of the Board of Directors expires at the end of the next Annual General Meeting. At its organizing meeting, the Board of Directors elected Vesa-Pekka Leskinen as its Chairman. 

The Annual General Meeting re-elected Authorized Public Accountants KPMG Oy Ab as QPR Software's auditor with Kirsi Jantunen, Authorized Public Accountant, acting as principal auditor. The term of office of the auditor expires at the end of the next Annual General Meeting. 

The Annual General Meeting decided to authorize the Board of Directors to decide on an issue of new shares and conveyance of the own shares held by the Company (share issue) either in one or in several occasions. The share issue can be carried out as a share issue against payment or without consideration on terms to be determined by the Board of Directors.

All authorizations of the Board and other decisions made by the Annual General Meeting are available in their entirety on the stock exchange release published by the Company on April 12, 2018 and available on the investors section of the Company's web site, http://www.qpr.com/investors/stock-exchange-releases.htm.


EVENTS AFTER THE REPORTING PERIOD

There were no significant events after the reporting period.


SHORT-TERM RISKS AND UNCERTAINTIES

Internal control and risk management at QPR Software aims to ensure that the Company operates efficiently and effectively, distributes reliable information, complies with regulations and operational principles, reaches its strategic goals, reacts to changes in the market and operational environment, and ensures the continuity of its business.

QPR has identified the following three groups of risks related to its operations: risks related to business operations (country, customer, personnel, legal), risks related to information and products (QPR products, IPR, data security) and risks related to financing (foreign currency, short-term cash flow). The Company has an insurance policy for property, operational and liability risks.

Financial risks include reasonable credit risk concerning individual business partners, which is characteristic to any international business. QPR seeks to limit this credit risk by continuous monitoring of standard payment terms, receivables and credit limits. The amount of trade receivables over 60 days past due was 16% (10) of total trade receivables at the end of the quarter.

Approximately 54% of Group’s trade receivables were in euro at the end of the quarter (63). At the end of the quarter, the Company had not hedged its non-euro trade receivables.

Risks and risk management related to the Company’s business are further described in the Annual Report 2017, pages 21-23 (https://www.qpr.com/investors/financial-information/annual-reports)


QPR SOFTWARE PLC
BOARD OF DIRECTORS

Further information:

Jari Jaakkola, CEO
Tel. +358 (0) 40 5026 397

DISTRIBUTION:
NASDAQ OMX Helsinki Ltd
Main Media

Neither this press release nor any copy of it may be taken, transmitted or distributed, directly or indirectly, in or into the United States of America or its territories or possessions.


CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

        
EUR in thousands, unless
otherwise indicated
Jul-Sep,
2018
Jul-Sep,
2017
Change,
%
Jan-Sep,
2018
Jan-Sep,
2017
Change,
%
Jan-Dec,
2017
        
Net sales2,2221,966137,3766,97769,084
Other operating income-6-100-1013-17418
        
Materials and services218241-10861908-51,154
Employee benefit expenses1,3211,30414,4754,17675,682
Other operating expenses3362264892188841,320
EBITDA348201741,1091,0189946
        
Depreciation and amortization23923527176648913
Operating result109-344183913541132
        
Financial income and expenses4-7157-184-31-487-38
Result before tax113-41374207323-36-6
        
Income taxes-229-347-76-760-146
Result for the period91-32381131246-47-152
        
        
Earnings per share, EUR
(basic and diluted)
0.008-0.0033810.0110.021-47-0.013
        
Consolidated statement of
comprehensive income:
       
 Result for the period91-32381131246-47-152
Other items in comprehensive
income that may be reclassified
subsequently to profit or loss:
       
 Exchange differences on
 translating foreign operations
0-289179-101,933-7
Total comprehensive income91-3436331023731-159

 

CONSOLIDATED BALANCE SHEET

     
EUR in thousandsSep 30,
2018
Sep 30,
2017
Change,
%
Dec 31,
2017
     
Assets    
     
Non-current assets:    
 Intangible assets1,8702,020-71,952
 Goodwill5135130513
 Tangible assets120177-32153
 Other non-current assets62156-60127
Total non-current assets2,5642,866-112,745
     
Current assets:    
 Trade and other receivables2,3522,35603,744
 Cash and cash equivalents534719-26318
Total current assets2,8863,075-64,061
     
Total assets5,4505,941-86,807
     
Equity and liabilities    
     
Equity:    
 Share capital1,3591,35901,359
 Other funds2121021
 Treasury shares-439-4390-439
 Translation differences-61-243-75-240
 Invested non-restricted equity fund5505
 Retained earnings1,9402,567-242,169
Equity attributable to shareholders of
the parent company
2,8263,271-142,875
     
Current liabilities:    
 Advances received6811,253-46997
 Accrued expenses and prepaid income1,6121,160392,314
 Trade and other payables33125629620
Total current liabilities2,6242,670-23,932
     
Total liabilities2,6242,670-23,932
     
Total equity and liabilities5,4505,941-86,807

                                                                                         

CONSOLIDATED CASH FLOW STATEMENT

        
EUR in thousandsJul-Sep,
2018
Jul-Sep,
2017
Change,
%
Jan-Sep,
2018
Jan-Sep,
2017
Change,
%
Jan-Dec,
2017
        
Cash flow from operating activities:       
 Result for the period91-32381131246-47-152
 Adjustments to the result251228101,156761521,091
 Working capital changes-889-602-48-76374-120200
 Interest and other financial
 expenses paid
-8-74-22-33-35-37
 Interest and other financial
 income received
-11-172713-4210
 Income taxes paid-7-13-43-21-138-85-128
Net cash from operating activities-563-426-321,1761,223-4984
        
Cash flow from investing activities:       
 Purchases of tangible and
 intangible assets
-148-194-24-601-710-15-872
Net cash used in investing activities-148-194-24-601-710-15-872
        
Cash flow from financing activities:       
 Dividends paid0- -360-3600-360
Net cash used in financing activities0- -360-3600-360
        
Net change in cash and cash
equivalents
-710-619-1521515440-247
Cash and cash equivalents
at the beginning of the period
1,2381,336-7318565-44565
Effects of exchange rate changes
on cash and cash equivalents
63103102490
Cash and cash equivalents
at the end of the period
534719-26534719-26318


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

        
EUR in thousandsShare
capital
Other
funds
Translation
differences
Treasury
shares
Invested non-
restricted
equity fund
Retained
earnings
Total
Equity Dec 31, 20161,35921-233-43952,5383,252
Equity IFRS changes     142142
Equity Jan 1, 20171,35921-233-43952,6813,394
Dividends paid     -360-360
Comprehensive income  -10  246237
Equity Sep 30, 20171,35921-243-43952,5673,271
Comprehensive income  2  -398-396
Equity Dec 31, 20171,35921-240-43952,1692,875
Dividends paid     -360-360
Comprehensive income  179  131310
Equity Sep 30, 20181,35921-61-43951,9402,826

 

NOTES TO INTERIM FINANCIAL STATEMENTS

ACCOUNTING PRINCIPLES 

This report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2018, the Group has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2017.
Implementation of IFRS 15 Revenue from Contracts with Customers –standard has changed revenue recognition, generation of operating profit and key figures as described in the Reporting section of this report. The implementation of other new and revised requirements has not impacted the reported figures. For all other parts, the accounting principles and methods are the same as they were in the 2017 financial statements.

When preparing the consolidated financial statements, management is required to make estimates and assumptions regarding the future and to consider the appropriate application of accounting principles, which means that actual results may differ from those estimated.

All amounts presented in this report are consolidated figures, unless otherwise noted. The amounts presented in the report are rounded, so the sum of individual figures may differ from the sum reported. This report is unaudited.

During the reporting period, the Group did not have any financial instruments measured at fair value. 


INTANGIBLE AND TANGIBLE ASSETS

    
EUR in thousandsJan-Sep,
2018
Jan-Sep,
2017
Jan-Dec,
2017
    
Increase in intangible assets:   
 Acquisition cost Jan 19,3188,5218,521
 Increase566643797
    
Increase in tangible assets:   
 Acquisition cost Jan 11,8211,7461,746
 Increase357075



PLEDGES AND COMMITMENTS

     
EUR in thousandsSep 30,
2018
Sep 30,
2017
Dec 31,
2017
Change,
%
     
Business mortgages (held by the Company)1,3861,3891,3880
     
Minimum lease payments based on lease agreements:    
 Maturing in less than one year166280278-40
 Maturing in 1-5 years016188-100
Total166441365-55
     
Total pledges and commitments1,5521,8301,754-11

                                                                                         

CONSOLIDATED INCOME STATEMENT BY QUARTER

        
EUR in thousandsQ3
2018
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
        
Net sales2,2222,2722,8822,1071,9662,1982,813
Other operating income0-5-55670
        
Materials and services218255388246241297370
Employee benefit expenses1,3211,6031,5511,5061,3041,4731,399
Other operating expenses336288297432226311351
EBITDA348120640-72201123694
        
Depreciation and amortization239238240250235223206
Operating result109-118400-322-34-99488
        
Financial income and expenses41-189-7-7-14-11
Result before tax113-117211-329-41-113477
        
Income taxes-2232-86-70927-112
Result for the period91-85124-398-32-86365

                                                                                                                                     

GROUP KEY FIGURES

EUR in thousands, unless
otherwise indicated
Jan-Sep or
Sep 30, 2018
Jan-Sep or
Sep 30, 2017
Jan-Dec or
Dec 31, 2017
    
Net sales7,3766,9779,084
Net sales growth, %5.7  
EBITDA1,1091,018946
 % of net sales15.014.610.4
Operating result39135432
 % of net sales5.35.10.4
Result before tax207323-6
 % of net sales2.84.6-0.1
Result for the period131246-152
 % of net sales1.83.5-1.7
    
Return on equity (per annum), %6.19.9-4.8
Return on investment (per annum), %18.714.71.4
Cash and cash equivalents534719318
Net borrowings-534-719-318
Equity2,8263,2712,875
Gearing, %-18.9-22.0-11.0
Equity ratio, %59.369.849.5
Total balance sheet5,4505,9416,807
    
Investments in non-current assets601713872
 % of net sales8.210.29.6
Product development expenses1,4381,7292,274
 % of net sales19.524.825.0
    
Average number of personnel807676
Personnel at the beginning of period766363
Personnel at the end of period827876
    
Earnings per share, EUR0.0110.021-0.013
Equity per share, EUR0.2270.2630.231