Interim report for the period 1 January - 31 March 2011

Helsinki, Finland, 2011-04-28 08:30 CEST (GLOBE NEWSWIRE) -- Ixonos Plc                   Interim report               28 April 2011 at 9.30


Interim report for the period 1 January – 31 March 2011

IXONOS’ FIRST QUARTER WAS ON PAR WITH THE PREVIOUS YEAR

The review period in brief

• Turnover for the review period was EUR 21.1 million (2010: EUR 20.5 million), a change of +3.0 per cent.
• Operating profit was EUR 0.4 million (2010: EUR 0.6 million), 1.7 per cent of turnover.
• Net profit was EUR 0.2 million (2010: EUR 0.3 million), 1.0 per cent of turnover.
• Earnings per share were EUR 0.01 (2010: EUR 0.02).
• Net cash flow from operating activities was EUR 0.4 million (2010: EUR -2.0 million).

Future prospects in brief

•  The company’s turnover and operating profit for the first half-year are expected to be at the same level as in 2010.
•  The company’s turnover and operating profit for the entire year 2011 are predicted to be lower than in the previous year, but operating profit is forecast to be positive.

Kari Happonen, President and CEO:

Ixonos’ operating environment has become more volatile during the beginning of the year. The uncertainty is due to open questions surrounding the schedule and practical implementation of the new smartphone strategy Nokia, Ixonos’ largest customer, announced in February 2011. So far, the change in Nokia’s strategy has not significantly affected demand for the R&D services Ixonos provides to Nokia. Nevertheless, Nokia’s new technology choices do destabilise our business, and we must increase our efforts to seek growth in new customer relationships on the international market.

Our strategy has focused on providing R&D services to globally operating companies that lead the way in the utilization of wireless communication by launching new wireless technologies, devices and services on high-growth markets. Such present and potential customers include technology and chipset suppliers, mobile device manufacturers, telecommunications companies and other service providers as well as consumer electronics manufacturers.

In accordance with our strategy, we have strongly focused our sales activities on the acquisition of new customers. We are confident that we will expand our clientele substantially during this year and that turnover from new customers will compensate for the reduction in Nokia revenue. At the same time, we have continued to grow the added value of our solution offering by investing in the productisation of our services. Examples of our achievements in this field include the success of our Device Creation Centre, which focuses on turnkey development of wireless devices, and the increasing interest in the solutions our User Experience Design Centre provides for mobile devices and services. These productised solutions are important spearheads as we pursue new customers, an effort that focuses particularly on the R&D market for MeeGo- and Android-based mobile devices and services.

On 19 April 2011, we commenced co-operation negotiations with our personnel in Finland. The purpose of the negotiations is to maintain the best possible profitability, keep up our ability to invest in the development of our business and reorganise our operations to match the current business needs and volume. Similar measures will also be taken in our foreign subsidiaries as our clientele grows and its needs evolve.

OPERATIONS

Ixonos develops wireless technologies, software, devices and services. Together with our corporate customers, we create products and services that allow consumers to enjoy inspiring digital experiences regardless of time and place.

We improve the competitiveness of our client organisations by enabling superior user experiences for their devices and services and by shortening the time to market. We aim to position ourselves as a strategic partner to the industry’s leading innovators and pioneers. We provide solutions and services for R&D of mobile software, for R&D of complete wireless devices, for the design, development and maintenance of mobile applications and mobile web services and for user experience design that encompasses devices as well as services.

Our Finnish subsidiary Ixonos Business Solutions Ltd. provides development solutions and services for e-business and e-government.

Ixonos has offices in Finland, China, Denmark, Estonia, Germany, Great Britain, Slovakia and the U.S.

SEGMENTS

From the beginning of 2011, Ixonos reports its consolidated business operations in two segments: Mobile Solutions and Business Solutions.

Mobile Solutions

The Mobile Solutions business area comprises solutions and services for developing wireless technologies, devices and services. The area’s clientele includes wireless technology suppliers, mobile device manufacturers, telecommunications companies and consumer electronics manufacturers operating on the international market as well as other companies taking advantage of the new business opportunities that wireless communication enables.

The offering of the Mobile Solutions area consists of customised expert services as well as productised solutions for Device Creation, for User Experience Design and for Managed Services.

Ixonos’ Device Creation Centre provides solutions and services for the design and development of mobile devices. In addition to software development, these services also cover mechanical engineering and electronics design. The centre provides international device-manufacturer and operator customers with comprehensive R&D services for next-generation wireless devices. The unit develops smartphones and other wireless devices based on new, powerful chipsets from the world’s leading technology suppliers and on several different operating systems.

The User Experience Design Centre is Ixonos’ unit for globally provided user experience design and consulting services. The unit concentrates on the creation of enticing user experiences and helps Ixonos provide productised services and customised solutions to its international clientele. The centre offers services ranging from user experience design strategy and concept development to concrete design work and solution creation.

Ixonos’ Managed Services Centre provides solutions and services that span the entire life cycle of business-critical web services, from requirements analysis to design, development, maintenance and further development. The unit develops and maintains e.g. solutions for media and content services, for information management and for mobile advertising and e-commerce, as well as social network services. In addition to flexible development and deployment of web and mobile services, the unit offers a maintenance package that includes application support, maintenance and data centre services.

During the review period, the turnover of the Mobile Solutions business area increased by 6.7 per cent to EUR 17.6 million (2010: EUR 16.5 million). Operating profit decreased by 19.3 per cent to EUR 1.3 million (2010: EUR 1.6 million), 7.3 per cent of turnover.

The operating environment of the Mobile Solutions business area became more volatile in the beginning of the year, after Nokia Corporation, our key customer, announced its new smartphone strategy. Nokia’s new strategy has only had a minor influence on Ixonos’ turnover and operating profit for the first quarter of the year. However, the Mobile Solutions segment’s projects based on Nokia’s MeeGo and Symbian platforms are estimated to decrease in the second half of this year. Due to this, the business volume and profitability of the segment are expected to decline at least temporarily.

In accordance with strategy, Ixonos continues to expand the clientele of its Mobile Solutions business area by boosting sales of services and solutions related to mobile Linux platforms such as Android and MeeGo. The target groups consist of mobile technology suppliers, mobile device manufacturers, consumer electronics manufacturers and other global and Finnish and customers. At the same time the segment strives to maintain the best possible profitability.

Business Solutions

The Business Solutions area provides development solutions and services for e-business and e-government. The area’s clientele consists of Finnish companies in telecommunication and finance as well as in public administration organizations.

Ixonos’ Business Solutions area provides innovative e-business solutions to meet the challenges of tomorrow’s service operations.

The business area offers e-business and e-government services that focus on business process development, architecture services, portal solutions, content and document management solutions and business intelligence solutions. The unit also provides R&D services that help client organisations use agile development methods to create innovative new web services. With these services, Business Solutions aims to improve the internal and external customer service of its clients.

The solutions developed by the unit utilise product platforms of technology partners as well as open source solutions. By collaborating with Ixonos’ other units, Business Solutions offers comprehensive solutions to meet the e-business and e-government needs of its customers.

The turnover of the Business Solutions segment decreased by 19.8 per cent to EUR 3.7 million (2010: EUR 4.6 million) during the review period. Operating profit was negative after Group allocations, EUR −0.2 million, although the losses were somewhat lower than in the previous year (2010: EUR −0.3 million). The decline ended in late 2010 and the segment’s business volume has increased since early 2011, which will change the business area’s operating profit to positive.

TURNOVER

Consolidated turnover in the first quarter was EUR 21.1 million (2010: EUR 20.5 million), which is 3.0 per cent more than in the previous year. Of the total turnover of all segments, before elimination of inter-segment revenue, the Mobile Solutions segment accrued 82.7 per cent (2010: 78.7 per cent) and the Business Solutions segment accrued 17.3 per cent (2010: 21.3 per cent).

Turnover by segment:

FINANCIAL RESULT

Consolidated operating profit was EUR 0.4 million (2010: EUR 0.6 million). Consolidated profit before taxes was EUR 0.3 million (2010: EUR 0.3 million). Profit for the review period was EUR 0.2 million (2010: EUR 0.3 million). Earnings per share were EUR 0.01 (2010: EUR 0.02). Cash flow from operating activities was EUR 0.02 per share (2010: EUR -0.17).

Operating profit by segment:

RETURN ON CAPITAL

Group’s return on equity (ROE) was 3.0 per cent (2010: 5.5 per cent). Return on investment (ROI) was 4.4 per cent (2010: 6.4 per cent).

BALANCE SHEET AND FINANCING

The balance sheet total was EUR 56.5 million (2010: EUR 55.4 million). Shareholders’ equity was at EUR 28.6 million (2010: EUR 19.5 million). The equity ratio was 50.6 per cent (2010: 35.2 per cent). The Group’s liquid funds at the end of the review period amounted to EUR 1.0 million (2010: EUR 1.3 million).

At the end of the review period, the company’s balance sheet consist of bank loans EUR 8.4 million (2010: EUR 17.2 million). This amount includes overdraft in use. The bank loans have covenants attached to them. The covenants are based on the company’s equity ratio and on the proportion of interest-bearing bank loans (partly interest-bearing net liabilities) to the twelve-month rolling operating profit.

GOODWILL

On 31 March 2011, the consolidated balance sheet included EUR 23.6 million in goodwill. At the end of 2010, the company performed impairment testing of goodwill in all cash generating units and concluded that no goodwill impairment is required in connection with the units. The company sees that the risk of volatility in the estimated future cash flows has grown, but holds no information on such future cash flows that would have an effect on the need for goodwill impairment.

CASH FLOW

During the review period, consolidated cash flow from operating activities was EUR 0.4 million (2010: EUR -2.0 million). The turnaround time of accounts receivable became longer in 2010, and this change had a particular influence on cash flow from operating activities. At 31 March 2011, the company had sold a total of EUR 3.2 million in accounts receivable to reduce the turnaround time. The company does not have any significant amount of high-risk trade receivables.

PERSONNEL

The number of personnel averaged 1,154 (2010: 1,092) during the review period and was 1,149 (2010: 1,105) at the end of the period. The staff increase occurred mainly in companies outside Finland. At the end of the review period, the Group had 719 employees (2010: 757) in Finnish companies, while Group companies in other countries employed 430 (2010: 348).

SHARES AND SHARE CAPITAL

Share turnover and price

During the review period, the highest price of the company’s share was EUR 2.79 (2010: EUR 3.10) and the lowest price was EUR 1.50 (2010: EUR 2.71). The closing price on 31 March 2011 was EUR 1.58 (2010: EUR 3.03). The average price over the review period was EUR 1.95 (2010: EUR 2.89). The number of shares traded during the review period was 2,497,799 (2010: 414,481), which corresponds to 16.5 per cent (2010: 4.5 per cent) of the shares at the end of the review period. According to the closing price on 31 March 2011, the market value of the company’s shares was EUR 23,861,295 (2010: EUR 28,218,660).

Share capital

In the beginning of the review period, the company’s registered share capital was EUR 585,394.16 and the number of shares 15,102,484. After a directed share issue during the review period the total number of shares is 15,122,974.

Option plan 2006

Under the 2006 stock option plan, 140,000 series AI options, 140,000 series AII options, 60,000 series BI options and 60,000 series BII options have been granted. Of the series A options, 15,000 AI options and 25,000 AII options have been returned to the company pursuant to the terms of the option plan. A total of 30,000 returned series A options have been converted to series B options, in accordance with the terms of the option plan, and redistributed. Of the series B options, 5,000 BI options and 10,000 BII options have been returned to the company pursuant to the terms of the option plan. The maximum number of shares that can be subscribed for with outstanding options under the option plan of 2006 is 366,500, which is equivalent to 3.9 per cent of all the company’s shares. The subscription period for series 2006 AI options began on 1 October 2007, for series AII and BI options on 1 October 2008 and for series BII options on 1 October 2009. At 30 June 2010, the exercise price is EUR 4.13 with series AI and AII options and EUR 4.92 with series BI and BII options. The subscription period for the options that were granted in 2006 will end on 31 December 2011.

Because of the rights issue, the company’s Board of Directors decided on 1 June 2010 to modify the subscription ratio and exercise price associated with the option rights. The change is intended to ensure equal treatment of option holders and shareholders. Under the new subscription ratio, each series 2006A and 2006B option right entitles its holder to subscribe for 1.57 shares. The exercise price is based on the market price of the company’s share at NASDAQ OMX Helsinki Ltd from January to March 2006 and 2007. However, the exercise price per share is at least EUR 3.0464 with series 2006A options and at least EUR 3.5491 with series 2006B options. On exercise, the total number of shares for which the option holder subscribes is rounded down to the nearest integer. The total exercise price is calculated using the rounded number of shares and is rounded to the nearest cent. After the change, a maximum of 575,405 shares can be subscribed for with option rights. This equals 3.8 per cent of the shares at the end of the review period.

Ixonos Plc’s Annual General Meeting, 29 March 2011

Ixonos Plc held its Annual General Meeting on 29 March 2011. The meeting adopted the company’s financial statements, including the consolidated financial statements, for the financial period 1 January – 31 December 2010 and granted discharge from liability to the members of the Board of Directors as well as to the President and CEO.

The Annual General Meeting decided that no dividend would be paid for the financial period. The meeting also decided that six ordinary members, rather than eight as previously, would be elected to the Board of Directors. Paul Ehrnrooth, Pertti Ervi, Matti Järvinen and Kirsi-Marja Kuivalainen were re-elected as Board members, and Matti Heikkonen and Samu Konttinen were elected as new Board members.

At its own meeting following the Annual General Meeting, the Board of Directors elected Pertti Ervi as Chairman of the Board and Paul Ehrnrooth as Vice Chairman of the Board. The meeting also appointed the members of the Board’s committees: Pertti Ervi was elected as Chairman of the Audit Committee; Paul Ehrnrooth and Matti Järvinen were elected as Audit Committee members; Pertti Ervi was elected as Chairman of the Compensation Committee; Paul Ehrnrooth and Kirsi-Marja Kuivalainen were elected as Compensation Committee members; and Paul Ehrnrooth and Pertti Ervi were elected as Nomination Committee members.

The Annual General Meeting decided to keep unchanged the fees to be paid to the members of the Board of Directors: the Chairman of the Board will be paid EUR 40,000 per year and EUR 500 per meeting, the Vice Chairman of the Board EUR 30,000 per year and EUR 250 per meeting and other Board members EUR 20,000 per year and EUR 250 per meeting. The meeting also decided to pay a fee of EUR 500 per meeting to the chairpersons of the Board’s committees and EUR 250 per meeting to committee members.

Authorized Public Accountant firm PricewaterhouseCoopers Oy continues as auditor. The new principal auditor is Authorized Public Accountant Markku Katajisto. The Annual General Meeting decided to pay a reasonable auditor’s fee according to the auditor’s invoice.

The Annual General Meeting also approved the Board’s proposal to repeal section 9 (on the obligation to redeem shares) of the company’s Articles of Association.

Shareholders

The company had 3,077 shareholders on 31 March 2011 (2010: 2,979). Private persons owned 51.6 per cent (2010: 56.5 per cent) and institutions 48.4 per cent (2010: 43.5 per cent) of the shares. Foreign ownership was 9.1 per cent (2010: 7.4 per cent) of all shares.

Board of directors’ authorisations

Ixonos Plc’s Annual General Meeting of 29 March 2011 authorised the Board of Directors to decide on a rights issue, as well as on issuing stock options and other special rights entitling to shares pursuant to chapter 10, section 1 of the Limited Liability Companies Act (624/2006), under the following terms:

The number of shares to be issued under the authorisation may not exceed 1,500,000, which equals approximately 10 per cent of all company shares at the time of convening the Annual General Meeting.

The Board of Directors was granted authority to decide, within the limits of the authorisation, on all terms of the share issue as well as on those of the issue of special rights entitling to shares.

The Board of Directors was also granted authority to decide on crediting the subscription price to the share capital or, in whole or in part, to the invested non-restricted equity fund.

Shares as well as special rights entitling to shares may also be issued in a way that deviates from the pre-emptive rights of shareholders, if a weighty financial reason for this exists as laid out in the Limited Liability Companies Act. In such a case, the authorisation may be used to finance corporate acquisitions or other investments related to the company’s operations, to maintain and improve the Group’s solvency or as part of the company’s incentive plan.

The authorisation is effective until the Annual General Meeting in 2012.

EVENTS AFTER THE REVIEW PERIOD

Ixonos commenced co-operation negotiations

On 19 April 2011, the company commenced co-operation negotiations for reasons relating to finances, production and reorganisation. The goal of the negotiations is to adjust the company’s cost structure to the decelerated growth as well as to improve the company’s ability to maintain the best possible profitability.

The co-operation negotiations apply to all Ixonos Group employees in Finland except for those employed by Ixonos Business Solutions Ltd. The changes are estimated to affect no more than 100 employees in the Group’s administration, support functions, sales and service production. As part of the reorganisation, the company plans to close down its mobile device R&D services in Salo and Turku.

Similar reorganisations and rationalisation measures are also planned for the Group’s foreign subsidiaries.

New reporting segments

From the beginning of 2011, Ixonos reports its consolidated business operations in two segments: Mobile Solutions and Business Solutions. The new reporting segments were announced on 21 April 2011. The new segments represent more accurately the nature of the company's business operations and match the company's operational organization.

RISK MANAGEMENT AND NEAR-FUTURE UNCERTAINTY FACTORS

Ixonos Plc’s risk management aims to ensure undisturbed continuity and development of the company’s operations, to support attainment of the commercial targets set by the company and to promote increasing company value. Details on the risk management organisation and process as well as on recognised risks are presented on the company’s website, at www.ixonos.com.

Changes in key customer relationships may have an adverse effect on Ixonos’ operations, earning power and financial status. Should a major customer switch its purchases from Ixonos to its competitors or make forceful changes to its own operating model, Ixonos would have limited ability to acquire, in the short term, new customer volume to compensate for such a change.

Ixonos’ corporate acquisitions in 2006–2008, its rapid growth in 2010 and the prolonged turnaround time of accounts receivable have increased the company’s need for working capital. The company manages this need by creating, together with financiers, adequate buffers to ensure sufficient funds as well as by facilitating the circulation of working capital. The company’s balance sheet also includes a significant amount of goodwill, which may be impaired should either internal or external factors reduce the profit expectations of the company or any of its cash generating units. Goodwill is tested during the last quarter of each year and, if necessary, at other time of the year.

The company’s financial agreements have covenants attached to them. A covenant violation may cause an increase in the company’s financial expenses or a call for swift partial or full repayment of non-equity loans. The main risks related to covenant violations are associated with operating profit fluctuation due to the market situation and with a potential need to increase the company’s working capital through non-equity funding. The company manages these risks by negotiating with financiers and by maintaining readiness for various financing methods. Ixonos has in use the cash funds its normal operations require.

FUTURE PROSPECTS

According to Gartner research, the global market for smartphones and for services used in smartphones is expected to continue its intense growth in 2011. Wireless data transfer is also anticipated to continue its expansion into new areas of consumer electronics. Market-Visio indicates that the Finnish ICT market will grow some 4 per cent in 2011. This growth rate is near the long-term average.

Nokia’s new strategy will only have a minor influence on Ixonos’ turnover and operating profit for the first half of this year. However, Ixonos’ sales of software development services to R&D projects based on Nokia’s MeeGo and Symbian platforms are estimated to decrease in the second half of this year. Because of this, the business volume of Ixonos’ Mobile Solutions area is expected to decline, at least temporarily.

In accordance with strategy, Ixonos continues its activities to expand its clientele by boosting sales of services and solutions to mobile technology suppliers, mobile device manufacturers, consumer electronics manufacturers and other customers in Finland as well as internationally while striving to maintain the best possible profitability.

The company’s turnover and operating profit for the first half-year are expected to be at the same level as in 2010. The company’s turnover and operating profit for the entire year 2011 are predicted to be lower than in the previous year, but operating profit is forecast to be positive.

The company aims to continue rationalising its operations, developing its services, expanding its service operations in lower-cost countries and maintaining its cash flow and profitability.

NEXT REPORTS

The interim report for the period 1 January – 30 June 2011 will be published on Thursday, 4 August 2011. The interim report for the period 1 January – 30 September 2011 will be published on Tuesday, 25 October 2011.

IXONOS PLC
Board of Directors

For more information, please contact:
Ixonos Plc
Kari Happonen, President and CEO, tel. +358 400 700 761, kari.happonen@ixonos.com
Timo Leinonen, CFO, tel. +358 400 793 073, timo.leinonen@ixonos.com


Distribution
NASDAQ OMX Helsinki
Main media


THE IXONOS GROUP

ABBREVIATED FINANCIAL STATEMENTS 1 January – 31 March 2011

Accounting policies

This interim report has been prepared in accordance with IAS 34 (Interim Financial Reporting), the accounting policies for the financial statements of 31 December 2010 and the new and revised standards that came into effect on 1 January 2011, as described in the financial statements 2010.

Preparing the interim report in accordance with IFRS requires Ixonos’ management to make estimates and assumptions that affect the amounts of assets and liabilities on the balance sheet date as well as the amounts of income and expenses for the financial period. In addition, judgment must be used in applying the accounting policies. As the estimates and assumptions are based on views prevailing at the time of releasing the interim report, they involve risks and uncertainty factors. Actual results may differ from estimates and assumptions.

The figures in the income statement and balance sheet are consolidated. The consolidated balance sheet includes all Group companies as well as Ixonos Management Invest Oy, a company owned by members of Ixonos’ management. The original interim report is in Finnish. The interim report in English is a translation of the original report.

As the figures in the report have been rounded, sums of individual figures may differ from the sums presented. The interim report is unaudited.

CONSOLIDATED INCOME STATEMENT, EUR 1,000

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, EUR 1,000

CONSOLIDATED STATEMENT OF FINANCIAL POSITION, EUR 1,000

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY, EUR 1,000

A: Share capital

B: Share premium reserve

C: Share issue

D: Invested non-restricted equity fund

E: Treasury shares

F: Translation difference

G: Retained earnings

H: Equity attributable to shareholders of the parent company, total

J: Non-controlling interests

I: Total equity

CONSOLIDATED CASH FLOW STATEMENT, EUR 1,000

CONSOLIDATED INCOME STATEMENT, QUARTERLY, EUR 1,000

SEGMENT REPORTING

CHANGES IN FIXED ASSETS, EUR 1,000

FINANCIAL RATIOS

OTHER INFORMATION

CALCULATION OF KEY FIGURES

Diluted earnings per share = profit for the period / number of shares, adjusted for issues and dilution, average

Earnings per share = profit for the period / number of shares, adjusted for issues, average

Shareholders’ equity per share = shareholders’ equity / number of shares, undiluted, on the closing date

Cash flow from operating activities, per share, diluted = net cash flow from operating activities / number of shares, adjusted for issues and dilution, average

Return on investment (ROI) = 
(profit before tax + interest expenses + other financial expenses) /
balance sheet total − non-interest-bearing liabilities, average x 100

Return on equity (ROE) = net profit / shareholders’ equity, average x 100

Gearing = interest-bearing liabilities – liquid assets / shareholders’ equity x 100