QPR Software
Financial Statement Release

QPR SOFTWARE´S NET SALES AND PROFIT IMPROVED FROM PREVIOUS YEAR

Helsinki, 2011-02-18 11:00 CET -- QPR SOFTWARE PLC       STOCK EXCHANGE RELEASE, 18 FEBRUARY, 2011 12.00 AM
 

FINANCIAL RESULTS 2010

QPR SOFTWARE´S NET SALES AND PROFIT IMPROVED FROM PREVIOUS YEAR

Summary

Year 2010:

- Net sales EUR 6,937 thousand (2009: 6,618), growth 5%
- Net sales in Finland grew 3%.
- Estimated revenue to be recognized for current software subscription agreements in the next twelve months is slightly over EUR 400 thousand
- International net sales grew 6%.
- Operating profit EUR 752 thousand (705), growth 7%
- Operating margin 10.8% of net sales (10.6)
- Cash flow from operations was EUR 860 thousand (953)
- Earnings per share EUR 0.04 (0.04).
- The Board of Directors proposes to the Shareholders' Meeting that the company would pay dividend for the financial year 2010, EUR 0.03 per share (0.02).

October - December 2010: 

- Net sales EUR 1,920 thousand (10-12/2009: 1,801), growth 7%
- Operating profit EUR 273 thousand (218), growth 25%
- Operating margin 14.2% of net sales (12.2)
- Earnings per share were EUR 0.02 (0.01)

Net sales and operating profit showed a positive development towards the end of the year. Quarterly net sales were highest in the fourth quarter which led operating margin to reach 14.2%.

In Finland net sales grew 3%. Sales grew faster than recognized revenue as  the company sold software in its home market mainly through subscription sales. This year, revenue recognition from subscription agreements sold last year is significant, which forms a solid foundation for software net sales growth in Finland.

International net sales in 2010 grew 6%, which was due to positive development within QPR´s Russian business operations. QPR´s Russian subsidiary started its operations in early 2010, following acquisition of QPR´s resellers in Russia and CIS countries in November 2009. Business in Russia and CIS countries in 2010 was profitable and showed a favorable development especially in the latter half of the year.

The Board of Directors proposes to the Shareholders' Meeting that the company would pay dividend for the financial year 2010, EUR 0.03 per share. The dividend shall be paid to a shareholder that has been entered into the company's shareholders' register on the record date of the dividend payment on 23 March, 2011. The Board of Directors proposes that the dividend shall be paid on 1 April, 2011.

Outlook 2011:

QPR Software estimates the Group´s net sales in 2011 to grow faster than in the previous year and operating profit to remain approximately 10% of net sales. In Finland, growth is expected especially in software subscription net sales and enterprise architecture services sales. In international markets, growth is expected especially from Russia and CIS countries.

KEY FIGURES

REPORTING 

This report complies with accounting and valuation principles of IFRS, but in preparations not all the requirements of IAS 34-standard have been considered. The accounting and valuation principles are the same as they were in 2009 financial statements. This report is not audited.

NET SALES

QPR Software Group´s net sales in 2010 were EUR 6,937 thousand (6,618), representing a growth of 4.8% compared to the previous year.

In October-December, net sales rose 6.6% to EUR 1,920 thousand (1,801), representing a growth of 6.6%.

 Group net sales by geography, (EUR 1,000):

Net sales in 2010 from international operations grew 6.3% to EUR 4,077 thousand (3,835), thanks to net sales growth in Russian business.

In October – December, international net sales declined 0.7% to EUR 1,113 thousand (1,121). Net sales in Russia increased markedly, but international channel net sales were lower in October-December than in the previous year. There are still large variances in demand after the recession in various markets.

2010 net sales in Finland grew 2.8% to EUR 2,860 thousand (2,783), thanks to better professional services sales than in the previous year.

In October – December, net sales in Finland rose to EUR 807 thousand (680), and grew 18.7%. Growth was due to improved software and professional service sales.

Group net sales divided into software licenses, maintenance services and professional services as follows, (EUR 1,000):

License net sales in 2010 decreased 12.2% and were EUR 2,101 thousand (2,394). The decrease is due to QPR´s transition in Finland from license sales mainly to software subscription sales. This had a negative impact on revenue recognition from the new contracts, but on the other hand will provide a steady increase in net sales in the future. License net sales in October - December decreased 10.8% and were EUR 662 thousand (742).

The largest markets for license sales were Finland, Russia, South Africa, United Arab Emirates and Belgium.

Maintenance services net sales (including software subscription sales) grew 8.5% and were EUR 3,622 thousand (3,338). In October-December, maintenance services net sales growth accelerated to 13.8% and was EUR 929 thousand (816). The increase is attributable to growth in subscription net sales. The estimated revenue to be recognized for current subscription agreements in the next twelve months is slightly over EUR 400 thousand, assuming similar churn rate as in maintenance service contracts.  

Professional services net sales in 2010 increased 37.0% and were EUR 1,214 thousand (886). Professional services net sales in October – December grew 35.4% and were EUR 329 thousand (243). Net sales were positively impacted by the initiation of direct sales in Russia and strong demand for service products in Finland.

 Group net sales by business segments, (EUR 1,000):

Software Sales Finland business segment´s net sales in 2010 decreased by 9.6% and were EUR 1,845 thousand (2,042). The decrease was due to the transition to software subscription sales, which had a negative impact on license net sales. However, subscription agreements made during the financial year started to increase recognized revenue towards the end of the year, which reversed net sales trend in the latter half of the year. In October - December, Software Sales Finland´s net sales rose to EUR 538 thousand (495) and grew 8.7%. QPR delivered software, among others, to Barona Oy, Cargotec Corporation, Etelä-Savo healthcare district, Kesko Corporation, Mediq Suomi Oy, Outotec Oyj, Päijät-Häme social and healthcare district, Teollisuuden Voima Oyj, Vacon Plc, National Audit Office of Finland and to the Council-IT unit of Ministry of Finance.

Software Sales International business segment´s net sales in 2010 were EUR 4,039 thousand (3,728) and grew 8.3%. The growth is due to net sales increase in Russia and CIS countries. In the review period, QPR signed a corporate 3-year contract with Vattenfall AB. Vattenfall chose QPR ProcessGuide for their Group Business Process Modeling tool. The contract is estimated to have a positive impact on QPR´s license and maintenance service sales for the next three years. Software Sales International´s net sales in October - December grew 4.4% to EUR 1,111 thousand (1,064). Net sales in Russia showed strong growth but channel net sales decreased compared to the same period in the previous year. In 2010, QPR and its resellers sold software to 60 countries.

Service and Solutions business segment´s net sales in 2010 were EUR 1,053 (848) and increased 24.2%. The growth was mainly due to good demand for QPR´s service products. Service products were sold mainly to new software customers, and the company was clearly more successful in acquiring new customers than in the previous years. Demand especially for process management framework was strong during the year. In October - December, the segment´s net sales rose to EUR 271 thousand (242).        

PROFIT DEVELOPMENT

Group operating profit in 2010 rose 6.7% and was EUR 752 thousand (705). Operating profit includes a contribution of EUR 45 thousand from Finnish Funding Agency for Technology and Innovation for the development of the new QPR ProcessAnalyzer software. Depreciation grew EUR 66 thousand higher from the previous year, which was mainly attributable to the acquisition of Russian and CIS countries´ business operations in the end of 2009.

October - December operating profit rose 25.2% and was EUR 273 thousand (218) due to increased revenue. Costs were higher than in the previous year, which was attributable to outlays made in commencing direct sales in the Russian market and to development of professional service business in Finland.

Group operating profit by business segments, (EUR 1,000):

Software Sales Finland´s operating profit in 2010 decreased to EUR 369 thousand (668). October – December operating profit, in turn, rose to EUR 154 thousand (143). The decline in full year operating profit was due to transition to software subscription sales, which had a negative impact on license net sales. However, subscription agreements made during the year started to increase markedly net sales towards the end of the year. This reversed the trend in operating profit.

Software Sales International business segment´s operating profit in 2010 increased to EUR 740 thousand (503). Operating profit growth was due to higher net sales and modest cost increases, despite the outlays in the new subsidiary in Russia. In October – December, operating profit maintained on a good level and was EUR 252 thousand (249).  

Service and Solutions business segment´s operating profit in 2010 improved year-on-year and was EUR -12 thousand (-67). Operating profit remained negative despite strong growth in net sales (+24.2), mainly because personnel recruitments were increased. Recruitments are increased, because service sales growth plays an important part in the Company´s strategy. Operating profit in October – December improved slightly year-on-year, but remained negative and was EUR -39 thousand (-46).

Profit before taxes for the year was EUR 707 thousand (668). Net financial costs were EUR 45 thousand (37). Profit after taxes was EUR 527 thousand (517) and earnings per share were EUR 0.04 (0.04).

Profit before taxes in October - December was EUR 307 thousand (191). Net financial items were EUR 41 thousand positive (-20) due to currency gains. Net interest costs in October – December were EUR 7 thousand (8). Profit after taxes was EUR 241 thousand (134) and earnings per share were EUR 0.02 (0.01).

FINANCE AND INVESTMENTS                                                        

The value of total assets at the end of December 2010 was EUR 7,250 thousand  (6,874). Increase is mostly attributable to the increase in trade receivables which was due to changes implemented in the reseller billing practices and payment terms during 2010.

Cash flow from operations in 2010 was EUR 860 thousand (953). Cash flow from operations was negatively impacted by increase in operative working capital in the financial period.

Cash and cash equivalents at the end of the review period were EUR 1,703 thousand (1,929). A dividend of EUR 244 thousand (368) and a distribution of EUR 122 thousand (244) from the invested non-restricted equity fund were paid during the reporting period.

The Group´s investments in the review period totaled to EUR 350 thousand (1,026). Majority of investments are R&D investments. In the previous year, the higher investments were attributable to the acquisitions of healthcare business from Mawell Ltd and Russian QPR business from the Company’s resellers in 2009.

The Group´s interest-bearing liabilities decreased and were EUR 793 thousand  (1,098) at the end of the reporting period. The gearing ratio was -33.8% (-32.3). Return on capital employed was 21.0% (21.4).                          

Short-term liabilities include deferred revenue in total of EUR 918 thousand (811). At the end of reporting period, quick ratio was 1.87 (2.05).

At the end of the reporting period, the Group equity stood at EUR 2,694 thousand (2,575), and equity to assets ratio was 42.6% (42.5). Return on equity was 20.0% (19.5).         

In the Group´s balance sheet as of 31 December, 2010, the remaining amount of deferred tax is EUR 233 thousand (413).                                                                

PERSONNEL                                                                      

At the end of the December 2010, the Group employed a total of 65 persons (57). Out of them 11 were employed by QPR's Russian subsidiary, OOO QPR Software, in Moscow (0), corresponding to 17% of the total personnel. Average number of personnel in the review period was 63 (57).          

PRODUCT AND SERVICES DEVELOPMENT                                               

The amount of product development expenses in the review period were EUR 1,278 thousand (1,325), representing 18.4% of net sales (20.0%).                      

During the review period, product development expenses have been activated as assets for a total amount of EUR 278 thousand (174). The depreciation period of capitalized product development expenses is 4 years. The depreciation of  activated product development expense was EUR 190 thousand (165).              

Product development employed 15 people at the end of the review period, corresponding to 23 % of the total personnel.                          

During the review period, product development activities focused on the development of a new version of the QPR product family planned to be released in 2011.

Development of QPR ProcessAnalyzer, a software tool for Automated Business Process Discovery, continued. The software executes automatically visual process analysis from depository data. During the review period QPR agreed on delivering process analysis service, based on the software to four Finnish customers. First international re-selling agreement was signed to Germany in January 2011. QPR ProcessAnalyzer product version 2 was launched in February 2011.

Professional Services offering to the domestic market was strengthened by developing vertical applications from the QPR ScoreCard Rapid Implementation service for public and health care sectors. The Company continued investments in Process Management Framework launched in Autumn 2009.

Development of QPR Enterprise Architecture offering was started in the first half of the year. QPR’s Enterprise Architecture resources were strengthened by centralizing all internal expertise in one function at end of the year and by hiring new specialist resources outside of the company.

 SHARES AND TRADING WITH COMPANY'S SHARES

OTHER EVENTS IN THE REPORTING PERIOD                                           

Subsidiary OOO QPR Software started its operations in Russian Federation and CIS countries as of 2 March, 2010. The company is a fully owned subsidiary of QPR Software's subsidiary QPR CIS Oy. OOO QPR Software is domiciled and located in Moscow and employed eleven persons at the end of December.                     

The Executive Management Team (EMT) of QPR Software Plc consisted of the following persons in 1 January, 2010: Chief Executive Officer Jari Jaakkola chairman); Vice President, Software Sales International Antti Ainasoja; Vice President, Software Sales Finland Matti Erkheikki; Vice President, Services and Solutions Maija Erkheikki; Vice President, Marketing and Business Development Teemu Lehto; Chief Financial Officer Päivi Martti, and Vice President, Products and Technology Tony Virtanen.

The distribution of EMT responsibilities were reorganized as of 18 February 2010 when EMT's secretary Jyrki Karasvirta received responsibility for Company's marketing and communications as an EMT member and Teemu Lehto for business development. 

Matti Erkheikki received as of 1^st July responsibility also for Services and Solutions in addition to Software Sales Finland. He was appointed Vice President, Business Operations Finland.

STRATEGY                                   

The Board of Directors approved in its meeting on 22 October, 2010, a new strategy and business targets for years 2010 – 2014 for QPR Software. The Group targets profitable growth and pursues to double its 2009 net sales by year 2014.

QPR aims to accelerate its growth by expanding its offering to small and medium sized organizations. For these organizations, QPR and its resellers offer software subscriptions without any upfront investments, as well as service products that support software implementations and management methods chosen by the customers.

QPR expands its domestic service offering to large enterprises especially in enterprise architecture consulting services. The Company believes that the demand for these services will show strong increase in public and private sector.

The Company delivers its resellers, in addition to software, service products that support software sales. These service products have experienced strong demand in Finland in the past year. The Company also strengthens its reseller network for QPR ProcessGuide software.

QPR pursues strong growth in Russia, where it started its operations this year after acquiring its Russian resellers´ business operations. Russian market is in a strong growth phase, and offers significant opportunities to QPR´s technology products and services.

The Company´s product development focuses on further development of existing products and building innovations aimed at process development. The company continues its close co-operation with Microsoft.

GOVERNANCE                                                                      

The Annual Shareholders' Meeting held on 18 March, 2010 resolved that the Board of Directors consists of five (5) ordinary members. The Annual Shareholders' Meeting elected the following members to the Board of Directors: Aino-Maija Gerdt (prev. Fagerlund), Jyrki Kontio, Antti Laine, Vesa-Pekka Leskinen and Asko Piekkola.   

In its first meeting immediately following the Annual Shareholders' Meeting, the Board of Directors elected Vesa-Pekka Leskinen as Chairman of the Board. The Board of Directors noted that both new members, Aino-Maija Gerdt and Antti Laine, are independent from the Company and its main shareholders. 

KPMG Oy Ab, Authorized Public Accountants, continued as QPR Software Plc's Auditors.

The Annual Shareholders' Meeting decided to authorize the Board of Directors to decide on an issue of new shares and acquisition of its own shares from the market. 

The conditions of all authorizations of the Board and other decisions made by  the Annual Shareholders' Meeting are available in their entirety on the stock  exchange release published by the Company on 18 March, 2010 and available on the investors section of the company's web site, www.qpr.com.      

SHORT-TERM RISKS AND UNCERTAINTIES                                             

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

QPR has identified the following three groups of risks related to its operations: risks related to business operations (country, customer, net sales forecasting process, personnel, legal and financial), risks related to information and products (QPR products, IPR, data security) and risks related to financing (foreign currency, bad debt). Property, operational and liability risks are covered by insurance. QPR started to monitor country, customer, personnel and finance risks also in the Russian subsidiary OOO QPR Software as of January 2011.

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 management of QPR estimates that the  company´s credit loss risk is on a customary and reasonable level.             

The Company has hedged 8.3% of its foreign currency (non-Euro) cash flow.

No significant changes have taken place in QPR's short-term risks and  uncertainties during the financial period. Risks related to QPR Software´s business are further described in the Annual Report 2009, page 25 onwards  (www.qpr.com/annual-reports.html).

EVENTS AFTER THE REPORTING PERIOD

Sami Tähtinen (34) was appointed as Vice President, Products and Technology and Member of the Executive Management Team at QPR Software Plc as of 24 January, 2011. He moves to QPR from CCC Corporation Ltd. Prior to this, Mr. Tähtinen worked as Chief Technology Officer in Frends Technology from 2002 to 2009. Sami Tähtinen holds a Master’s degree in Engineering.

As of January 24, 2011 QPR Software´s Executive Management Teams consists of Chief Executive Officer Jari Jaakkola (chairman); Vice President, Software Sales International Antti Ainasoja; Vice President, Business Operations Finland Matti Erkheikki; Vice President, Communications and Marketing Jyrki Karasvirta; Vice President, Business Development Teemu Lehto; Chief Financial Officer Päivi Martti; and Vice President, Products and Technology Sami Tähtinen. 

QPR Software Plc’s Management System received ISO9001:2008 quality certification covering Company’s all actions on 27 January, 2011. Scope of the certificate is design, marketing and delivery of software, services and solutions for Process Excellence. (Operations of the Russian Subsidiary, OOO QPR Software, were not included in the audit.)

FUTURE OUTLOOK                                                                 

Market forecasts published in the beginning of 2011 estimate that value of global software sales will increase approximately 7.5% and global professional services sales will increase 5-8% in 2011 compared to 2010.                                   

QPR Software estimates the Group´s net sales in 2011 to grow faster than in the previous year and operating profit to remain approximately 10% of net sales. In Finland, growth is expected especially in software subscription net sales and enterprise architecture services sales. In international markets, growth is expected especially from Russia and CIS countries. Seasonality of large software deals can affect significantly net sales and profit of one individual quarter.          

QPR SOFTWARE PLC'S FINANCIAL INFORMATION IN 2011                               

In 2011, QPR Software Plc will publish its financial information as follows:   

- Annual Report 2010, in Finnish and English: Friday, February 25, 2011 
- Interim Report 1-3/2011: Wednesday, April 27, 2011
- Interim Report 1-6/2011: Thursday, July 28, 2011
- Interim Report 1-9/2011: Thursday, October 20, 2011

The Annual General Meeting will be held on Friday, March 18, 2011

QPR SOFTWARE PLC                                                              
BOARD OF DIRECTORS                                                             

Further information:                                                           

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

DISTRIBUTION                                                                   
NASDAQ OMX Helsinki Ltd
Main Media           

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

APPENDIX:

ACCOUNTING PRINCIPLES   

This interim report complies with accounting and valuation principles of IFRS, but in preparations not all the requirements of IAS 34-standard have been considered. Apart from the changes in accounting principles stated below, the accounting principles applied in the interim report are the same as in the financial statements at December 31, 2009.

Changes in the accounting principles

The Group adopted the following standards, amendments to standard interpretations from 1 January, 2010 onwards:

• Revised IFRS 3 Business Combinations
• Revised IAS 27 Consolidated and Separate Financial Statements.

 Following newly adopted standards and interpretations have not had any effect on interim financial statements:

• Revised IFRS 2 Share-based Payment
• Revised IAS 39 Financial Instruments: recognition and measurement
• IFRIC 17 Distributions of Non-cash Assets to Owners
• IFRIC 18 Transfer of Assets from customers

 QPR Software´s business consists of software license sales, software subscription sales, software maintenance sales and professional services sales. Software subscription net sales are reported as part of maintenance services net sales.

 In 2010, QPR Software Plc had three business segments: Software Sales International (software license and maintenance sales outside of Finland), Software Sales Finland (software license and maintenance sales in Finland) and Service and Solutions (global professional service sales).    

The geographical segments used by the Company are Domestic (Finland) and International markets.

The Company introduced hedging for its foreign currency cash flows in June 2010. The company does not apply hedge accounting, but the changes in fair value are recognized in income.

In 2011, the Company started to report two business segments, which are Business Operations Finland (software license, maintenance and professional services sales in Finland) and International Business Operations (software license, maintenance and professional services sales outside of Finland).         

CALCULATION OF KEY INDICATORS:

Return on equity (ROE), % (counted on yearly level):

Profit for the period x 100
_____________________________________________
Shareholders' equity + non-controlling interest (average)

Return on capital employed (ROCE), % (counted on yearly level): 

Profit before taxes + interest and other financial expenses x 100
____________________________________________________
Balance sheet total - non-interest bearing liabilities (average)

Equity ratio, %: 

Shareholders' equity x 100
_______________________________
Balance sheet total - deferred revenue

Gearing, %: 

Interest bearing liabilities - cash and cash equivalents x 100
_________________________________________________
Shareholders' equity

Earnings per share, Euro: 

Profit for the period attributable to parent company shareholders
___________________________________________________
Adjusted number of shares over the financial year (average)

Equity per share, Euro:

 Profit for the period attributable to parent company shareholders
_____________________________________________________
Adjusted number of shares at the end of the financial period

Dividend per share, Euro: 

Total dividend paid
________________________________________________
Adjusted number of shares at the end of the financial period

Market value of share capital: 

(Number of shares - own shares) x share price at the end of the financial period

Turnover of shares, % of share capital:

Turnover (number of shares) x 100
_____________________________
Number of shares issued (average)

Quick ratio: 

Current assets - inventories
_____________________________
Current liabilities - deferred revenue