QPR Software
Interim report (Q1 and Q3)

QPR SOFTWARE’S NET SALES GREW 35%, OPERATING PROFIT INCREASED 28% IN THE SECOND QUARTER

QPR SOFTWARE PLC STOCK EXCHANGE RELEASE AUGUST 1, 2012 AT 9.00 AM

INTERIM REPORT 1 JANUARY – 30 JUNE, 2012

QPR SOFTWARE’S NET SALES GREW 35%, OPERATING PROFIT INCREASED 28% IN THE SECOND QUARTER   

Summary

January - June 2012

• Net sales EUR 4,616 thousand (January – June 2011: 3,552), growth 30.0%.
• Net sales growth was achieved through strong organic business growth (15.1%) and the consolidation of Nobultec Ltd.
• Operating profit EUR 429 thousand (336), growth 27.7%
• Operating margin 9.3% (9.5)
• Cash flow from operating activities was EUR 1,632 thousand (968), growth 68.6%.
• Profit before taxes EUR 393 thousand (312), growth 26.0%
• Earnings per share EUR 0.02 (0.02)

April – June 2012

• Net sales EUR 2,404 thousand (April – June 2011: 1,784), growth 34.8%.
• Net sales growth was achieved through strong organic business growth (19.0%) and the consolidation of Nobultec Ltd.
• Operating profit EUR 230 thousand (179), growth 28.5%
• Operating margin 9.6% (10.0)
• Cash flow from operating activities was EUR 53 thousand (447), decrease 88.1%.
• Profit before taxes EUR 196 thousand (171), growth 14.6%
• Earnings per share EUR 0.01 (0.01)

Outlook 2012

Based on good first half of the year, QPR Software updates its estimate for 2012. Earlier, the Company estimated its consolidated net sales 2012 to show significantly faster growth than in the previous year (growth in year 2011: 8.7%). Now the Company estimates its net sales to grow approximately 18 – 24% in 2012. The Company´s growth businesses, especially enterprise architecture software and service sales, are showing strong performance. However, the increased economic uncertainty in the euro area to some extent weakens the visibility for the remainder of the year.

The Company estimates its operating profit in euros to improve slightly from the previous year (2011: EUR 755 thousand), despite the increasing outlays in its growth businesses. Earlier, the Company estimated its operating profit in euros to remain on the same level as in the previous year, or to improve slightly.

In 2012, QPR aims to make significant investments in the development of its new software products QPR ProcessAnalyzer and QPR EnterpriseArchitect, as well as related services. This will, in the short term, have a negative impact on profitability. The Company believes that these outlays are well justified, since these businesses have good growth prospects.

The Company focuses on recruiting new channel partners especially for its QPR ProcessAnalyzer and QPR EnterpriseArchitect software products and also increases significantly its personnel resources for service offering development in 2012. Through service offering development the Company aims to grow its local business in Finland, and to accelerate its international software sales by offering complementary service concepts and solutions to its channel partners.

KEY FIGURES

REPORTING

This interim report complies with requirements of IAS 34 ”Interim Financial Reporting”.  Starting from the beginning of the reporting period, the Group has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2011. The implementation of these new and revised requirements have not materially impacted the reported figures. For all other parts, the accounting and valuation principles are the same as they were in the 2011 financial statements. This interim report is unaudited.

QPR Software´s business operations consist of software sales and professional services sales. The Company reports income for products and services as follows: Software license sales, Software maintenance services, Software rentals and Professional services.

QPR reports the following business segments: Software Sales International (software license and rental sales, maintenance and professional services sales outside of Finland) and Business Operations Finland (software license and rental sales, maintenance and professional services sales in Finland).

NET SALES

QPR Software´s consolidated net sales in April - June were EUR 2,404 thousand (1,784) and grew 34.8% compared to the equivalent period in the previous year. Organic business growth was 19.0%, and in addition the growth was accelerated by the consolidation of Nobultec Ltd, acquired in summer 2011. Business operations in Finland represented 57% and international operations 43% of net sales.

Consolidated net sales in January – June were EUR 4,616 thousand (3,552), and grew 30.0%. Organic business growth was 15.1%, and in addition the growth was accelerated by the consolidation of Nobultec Ltd. Business operations in Finland represented 57 % and international operations 43% of net sales.

Net sales by business segments

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

QPR Software´s net sales in Finland rose 62.0% in April – June. Strong growth was due to organic growth in QPR´s software and professional services sales and the consolidation of Nobultec Ltd as of August 2011. Net sales were strong especially in software aimed at process and enterprise architecture development, and in related professional services.  QPR continued to strengthen its personnel resources in these businesses during the reporting period.

In January – June, net sales in Finland rose 61.6% compared to the equivalent period in the previous year. The sources for growth were the same as in April – June.

International net sales increased in April – June by 9.9% from the previous year, which was due to good success in international channel net sales. Net sales developed very well in software aimed at process development.

In January – June, international net sales increased by 3.0%. Growth was negatively impacted by net sales decrease in QPR´s Russian subsidiary.

Net sales by product groups

Consolidated net sales by product groups (EUR 1,000):

Net sales in all product groups grew in April – June from the previous year. Software license net sales (+18.9%) and software maintenance services net sales (+9.4%) developed favorably, but clearly the fastest growth was recorded in software rentals (+78.5%) and professional services net sales (+81.5%).

Recurring revenue (including net sales from software maintenance services and software rentals) grew 21.4%, which was mainly due to very strong new sales performance in late 2011 and during first half of 2012. Strong growth in professional services net sales was due to organic growth and the consolidation of Nobultec Ltd.

Net sales in all product groups rose also in January – June. Recurring revenue (including net sales from software maintenance services and software rentals) grew 15.6%. Sources for growth were the same as in April – June.

In Finland, the Group delivered software and professional services in the reporting period, among others, to Cargotec, Certia, City of Turku, DNA, Finland´s Environmental Administration, The Finnish Communication Regulatory Authority, The Finnish Defence Forces, The Finnish Tax Administration, The Finnish National Board of Education, HK Ruokatalo, Kemira, Lassila & Tikanoja Group, Metso Paper, The Ministry of Agriculture and Forestry, The Ministry of Education, The Ministry of Social Affairs and Health, Nordic Investment Bank, Onninen Group, Outotec Group, Public Sector ICT Unit at The Ministry of Finance, Rautaruukki Corporation, SOK, Tuko Logistics Cooperative, and Vaisala Corporation.

In international markets, the Group delivered software, among others, to Alfa Bank in Russia, Diehl AKO and Robert Bosch GmBH in Germany, Highland Council in the UK, Istanbul CPA in Turkey, Malaysian Administrative Modernisation and Management Planning Unit, Mine Health and Safety Council and North West Corporation in South Africa, City of Pessac and Pouey International in France, Pädagogische Hochschule PHBern and SVA Aargau Sozialversicherung AG in Switzerland, Redecard S.A. in Brazil, and United Chemical Company in Kazakhstan.

FINANCIAL PERFORMANCE

Operating profit by segment (EUR 1,000):

April - June

QPR Software’s consolidated operating profit in the second quarter grew by 28.5%, due to strong growth in net sales, and was EUR 230 thousand (179). Operating profit was negatively affected by increased credit losses, amounting to EUR 119 thousand (21) in April - June. After this, the amount of trade receivables over 60 days past due is on a low level and was at the end of the reporting period 9.8% (29.5%) of total trade receivables.

Depreciation and amortization grew to EUR 168 thousand (134), which was mainly due to the consolidation of Nobultec Ltd and increase in the amortization of capitalized product development expenses. 39.7% of the Group’s depreciation and amortization arise from corporate and business acquisitions made in 2008 – 2011.

Operating profit in both Business Operations Finland and in Software Sales International increased year-on-year due to growth in net sales. Group expenses grew 36.2%, which was mainly due to the consolidation of Nobultec and outlays into the Company´s growth businesses.

January – June

Group operating profit increased to EUR 429 thousand (336), thanks to strong profitable growth in Business Operations Finland. Operating profit in Software Sales International decreased slightly, mainly due to increased credit losses. Credit losses totaling EUR 149 thousand (68) were recorded.

Depreciation and amortization grew to EUR 335 thousand (264). Group expenses increased by 30.0%. Sources for growth in depreciation and amortization and expenses were the same as in April – June. Personnel resources were added in the reporting period mainly into enterprise architecture services, process analysis services and product development. The Company also increased marketing expenses compared to the equivalent period in the previous year.

Net financial expenses in January – June were EUR 36 thousand (24), of which net interests expenses were EUR 2 thousand (net interest income EUR 2 thousand). Currency losses of EUR 27 thousand were the main reason for increased net financial expenses. Profit before taxes was EUR 393 thousand (312).

Income taxes were EUR 120 thousand (65). Profit for the period was EUR 273 thousand (247) and earnings per share were EUR 0.02 (0.02).

FINANCE AND INVESTMENTS

Cash flow from operating activities developed very favorably in the reporting period January – June and was EUR 1,632 thousand (968). Strong growth was due to accelerated turnover of receivables and good development in software subscription sales (software rentals).

Cash and cash equivalents at the end of the reporting period were EUR 1,817 thousand (1,747).

The Group’s investments in January – June totaled EUR 304 thousand (244). The majority of the investments were made in product development.

Interest-bearing liabilities decreased and were EUR 452 thousand (680) at the end of the reporting period. The gearing ratio was -49.8% (-42.4). Current liabilities include deferred revenue in total of EUR 1,600 thousand (1,302). Return on investment rose to 25.4% (20.1).

Equity ratio rose from last year and was 47.1% (46.6). At the end of the reporting period, the consolidated shareholders’ equity stood at EUR 2,748 thousand (2,525).  Return on equity was 19.1% (18.9).

The Annual General Meeting on 22 March, 2012 authorized the Board of Directors to decide on issuing a maximum of 4,000,000 new shares, to decide on conveyance of a maximum of 500,000 own shares held by the Company, and to decide on acquiring a maximum of 250,000 own shares. The authorizations are in force until the next Annual General Meeting. The Company issued a stock exchange release on the Board of Directors’ decision to start acquiring own shares through public trading in NASDAQ-OMX Helsinki Ltd on March 22, 2012.

PRODUCT AND SERVICE DEVELOPMENT

Product development expenses in the reporting period were EUR 846 thousand (688), representing 18.3% of consolidated net sales (19.4).

In the reporting period, product development expenses have been capitalized for a total amount of EUR 211 thousand (161).  The amortization period for capitalized product development expenses is four years. In the reporting period, the amortization was EUR 111 thousand (90).

Product development employed 25 persons at the end of the reporting period, which corresponds to 31.6% of the total personnel (24.6).

In the reporting period, product development activities focused on the development of a new version of the QPR product family, planned to be released in the autumn 2012. Product development activities are especially focused on the QPR ProcessAnalyzer and QPR EnterpriseArchitect products.

In its new process analysis business, the Company has adopted a more active IPR strategy than previously. As a result of this, QPR filed patent applications in respect of five separate inventions in Finland and the USA in the first quarter of 2012. The inventions relate to automated business process discovery based on processing event data.

The Company aims to significantly increase its personnel resources for service offering development in 2012. Through service offering development the Company aims to grow its local business in Finland, and to accelerate its international software sales by offering complementary service concepts and solutions to its channel partners.

PERSONNEL

At the end of the reporting period, the Group employed a total of 79 persons (65). Average number of personnel in the reporting period was 76 (68). At the end of the reporting period 7 persons (10) were working abroad, and the average number of personnel working abroad was 7 (10). Employee benefit expenses totaled EUR 2,654 thousand (2,175).

The average age of employees is 35.7 years (35.4). Of the employees, 72% percent have a Master's or Bachelor's degree. 16% of the employees are women (22) and 84% are men (78). For incentive purposes, the Company has a bonus program that covers all employees.

Short-term remuneration of the top management (executive management team of the Company) consists of salary, fringe benefits and a possible annual bonus based on net sales and operating profit performance. The maximum annual bonus of executive management team, including the CEO, is 40% of the base salary. Long-term remuneration of the executive management team consists of a share-based incentive plan. In 2011, the Board of Directors of QPR Software decided on a share-based incentive plan for executive management team in years 2011 – 2013. The plan aims to align the objectives of shareholders and key employees to increase shareholder value, to commit key employees to the Company, and to offer them a competitive reward plan based on ownership of shares in the Company. Information on the share-based incentive plan is published in a stock exchange release on 25 March, 2011.

SHARES AND TRADING IN THE COMPANY’S SHARES

The Annual General Meeting held on 22 March, 2012 approved the Board's proposal that a per-share dividend of EUR 0.03 (0.03), a total of EUR 367,314 (362,876), be paid for the financial year 2011. The dividend was paid to shareholders entered in the Company's shareholder register, maintained by Euroclear Finland Oy, on the record date of March 27, 2012. The dividend payment date was April 3, 2012.

OTHER EVENTS IN THE REPORTING PERIOD

In the beginning of the reporting period, QPR started the integration of Nobultec Ltd´s business into its Finnish business operations. In connection with the integration, the Group´s service offering, consulting and sales resources have been strengthened and a process driven operating model, suitable for the requirements of growing business, has been adopted. This integration advanced as planned and was finalized in the second quarter.

In June, Jaakko Riihinen was appointed Senior Vice President, Products & Technology and member of the executive management team. Mr Riihinen will begin his work  on 13 August, 2012. He moves to QPR from Nokia Siemens Networks, where he has since 2008 worked as Head of Research & Development at OSS Business Line as well as in the company’s restructuring program. Prior to this, in 2001-2008, he worked as Director, Enterprise Architecture in Nokia and Nokia Siemens Networks.  Current VP, Products & Technology Sami Tähtinen will move to develop QPR ProcessAnalyzer OEM business.  He continues as member of the executive management team until 12 August, 2012.

GOVERNANCE

The Annual General Meeting on 22 March, 2012 resolved that the Board of Directors consists of four (4) ordinary members. The Annual General Meeting elected the following members to the Board of Directors: Kirsi Eräkangas, Jyrki Kontio, Vesa-Pekka Leskinen and Topi Piela. In its first meeting immediately following the Annual General Meeting, the Board of Directors elected Vesa-Pekka Leskinen as Chairman of the Board.

KPMG Oy Ab, Authorized Public Accountants, continues as QPR Software Plc's auditors.

The conditions of all authorizations of the Board and other decisions made by the Annual General Meeting are available in their entirety in the stock exchange release published by the Company on 22 March, 2012 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 the continuity of its business.

QPR has identified the following four groups of risks related to its operations: risks related to business operations (country, customer, service delivery, personnel, legal and financial risks as well as risks related to the Company´s resellers), risks related to information and products (QPR products, IPR, data security), risks related to financing (foreign currency, bad debt), and risks related to new businesses (growth of new business, product development investments in new business). The Company has an insurance policy for property, operational and liability risks. The Company monitors country, customer, personnel and finance risks also in the Russian subsidiary OOO QPR Software.

QPR has not paid the remaining purchase price of EUR 99 thousand, recognized in its balance sheet, for the business operations of Trodos Consulting and United Project and Services Group to their sellers. In QPR´s opinion, the sellers have not fulfilled the terms set in defining the purchase price. The Company has previously paid a consideration of EUR 165 thousand to the sellers. QPR and the sellers have differing opinions on the purchase price and the employment relationships between the sellers and QPR. QPR seeks to find a solution on the matter primarily through negotiations, and secondarily through arbitration in accordance with the Rules for Expedited Arbitration of the Arbitration Institute of the Central Chamber of Commerce of Finland in Helsinki by a sole arbitrator, as agreed in the Co-operation Agreement signed by QPR and the sellers.

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 escalated economic crisis in the euro area has, according to the Management´s estimate, to some extent increased the credit risk that has remained on a moderate level in recent years. In the reporting period, EUR 149 thousand (68) credit losses were recorded. After this, the amount of trade receivables over 60 days past due is on a low level and was at the end of the reporting period 9.8% (30 June 2011: 29.5%, 31 Dec 2011: 11.0%) of total trade receivables.

At the end of the reporting period, the Company had not hedged its foreign currency (non-euro) trade receivables.

No other significant changes have taken place in QPR's short-term risks and uncertainties during the reporting period. Risks related to the Company’s business are further described in the Annual Report 2011, page 16 onwards (www.qpr.com/annual-reports.html).

FUTURE OUTLOOK

Recent forecasts published by market research firms estimate that the value of global software sales will increase approximately 6% and global professional services sales will increase almost 5% in 2012 compared to 2011.

Based on good first half of the year, QPR Software updates its estimate for 2012. Earlier, the Company estimated its consolidated net sales 2012 to show significantly faster growth than in the previous year (growth in year 2011: 8.7%). Now the Company estimates its net sales to grow approximately 18 – 24% in 2012. The Company´s growth businesses, especially enterprise architecture software and service sales, are showing strong performance. However, the increased economic uncertainty in the euro area to some extent weakens the visibility for the remainder of the year.

The Company now estimates its operating profit in euros to improve slightly from the previous year (2011: EUR 755 thousand), despite the increasing outlays in its growth businesses. Earlier the Company estimated its operating profit in euros to remain on the same level as in the previous year, or to improve slightly. The timing of large software deals can significantly affect net sales and profit for individual quarters.

In 2012, QPR aims to make significant investments in the development of its new software products QPR ProcessAnalyzer and QPR EnterpriseArchitect, as well as related services. This will, in the short term, have a negative impact on profitability. The Company believes that these outlays are well justified, since these businesses have good growth prospects.

The Company focuses on recruiting new channel partners especially for its QPR ProcessAnalyzer and QPR EnterpriseArchitect software products and also increases significantly its personnel resources for service offering development in 2012. Through service offering development the Company aims to grow its local business in Finland, and to accelerate its international software sales by offering complementary service concepts and solutions to its channel partners.

FINANCIAL INFORMATION

Interim Report Jan-Sep 2012 will be published on Thursday, October 25, 2012.

QPR SOFWARE 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 or distributed in or into the United States of America or its territories or possessions or to any person located or resident in any other jurisdiction where it is unlawful to distribute this document.

NOTES TO INTERIM FINANCIAL STATEMENTS

ACCOUNTING PRICIPLES

This interim report complies with requirements of IAS 34 ”Interim Financial Reporting”.  Starting from the beginning of the reporting period, the Group has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2011. The implementation of these new and revised requirements have not materially impacted the reported figures. For all other parts, the accounting and valuation principles are the same as they were in the 2011 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 interim 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 interim report is unaudited.