QPR Software
Financial Statement Release

QPR SOFTWARE’S NET SALES GREW 24%, EARNINGS PER SHARE INCREASED 26% IN 2012

QPR SOFTWARE PLC   STOCK EXCHANGE RELEASE FEBRUARY 5, 2013 AT 9.45 AM

FINANCIAL STATEMENT BULLETIN 2012

QPR SOFTWARE’S NET SALES GREW 24%, EARNINGS PER SHARE INCREASED 26% IN 2012

Summary

Full year 2012

• Net sales EUR 9,321 thousand (2011: 7,539), growth 24%.
• Net sales growth was achieved through strong organic business growth (15%) and the consolidation of Nobultec Ltd.
• Recurring revenue (software rentals and maintenance services) grew 17%.
• Operating profit EUR 874 thousand (755), growth 16%.
• Operating margin 9.4% (10.0).
• Cash flow from operating activities was EUR 1,777 thousand (1,261), growth 41%.
• Profit before taxes EUR 833 thousand (705), growth 18%.
• Profit for the period EUR 662 thousand (521), growth 27%.
• Earnings per share EUR 0.054 (0.043), growth 26%.
• The Board of Directors proposes to the Annual General Meeting that the Company pay a dividend of EUR 0.04 per share for the financial year 2012 (2011: 0.03).

Fourth quarter 2012

• Net sales EUR 2,693 thousand (fourth quarter 2011: 2,215), growth 22%.
• Net sales growth was achieved through strong organic business growth.
• Recurring revenue grew 14%.
• Operating profit EUR 281 thousand (267), growth 5%.
• Operating margin 10.4% (12.1).
• Cash flow from operating activities was negative EUR 85 thousand (positive 215).
• Profit before taxes EUR 271 thousand (243), growth 12%.
• Profit for the period EUR 237 thousand (161), growth 47%.
• Earnings per share EUR 0.019 (0.013), growth 46%.

Outlook 2013

QPR estimates its net sales to continue strong organic growth in 2013, arising especially from software rental and enterprise architecture services. The Company estimates its operating profit in euros to be approximately on the same level as in 2012, due to continuing outlays in QPR’s growth businesses.

In 2013, the Company aims to continue significant investments in the development of its new software products. QPR has launched two new software products that have excellent growth prospects. QPR EnterpriseArchitect has already established a leading market position in Finland, and in 2013 the Company focuses on its international growth. The Company also invests in recruiting OEM partners for its innovative new QPR ProcessAnalyzer software product. By developing its professional service offering, 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 report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2012, 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 report is unaudited.

QPR Software’s business operations consist of software 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: International Operations (software license and rental sales, maintenance and professional services sales outside of Finland) and Finland Operations (software license and rental sales, maintenance and professional services sales in Finland).

NET SALES

New software sales by QPR are increasingly made through software rentals rather than perpetual license sales, which in 2012 was reflected as small decline in software license net sales and significant increase in net sales from software rentals. In Finland, clear majority of new sales are made on a rental basis. Internationally, the transition is still ongoing.

Net sales in the fourth quarter were EUR 2,693 thousand (2,215) and grew 21.6% compared to the fourth quarter of 2011. The growth came fully from organic business growth. Net sales growth was accelerated especially by software rentals offered by QPR (+99%) and professional services (+52%). 

Net sales in the full year 2012 were EUR 9,321 thousand (7,539), and grew 23.6%. Organic business growth was 15%, and in addition the growth was accelerated by the acquisition of Nobultec Ltd in late 2011. Finland Operations represented 60% and International Operations 40% of net sales.

Net sales by business segments

Net sales in Finland rose 44% in the fourth quarter, compared to the previous year. Growth was entirely due to organic business growth. 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 quarter.

In the full year 2012, net sales in Finland rose 48% compared to 2011. Strong growth was due to organic business growth in QPR’s software and professional services net sales and the consolidation of Nobultec Ltd as of August 2011. Organic growth was 41%. Fastest sales growth was achieved in software aimed at process and enterprise architecture development and in related professional services.

International net sales decreased in the fourth quarter by 2% from the previous year, mainly due to decrease in software license net sales, which was not fully offset by the increase in software rentals. 

International net sales for the full year 2012 remained on the same level as in 2011. Net sales grew significantly in many markets, such as Germany and Far Eastern countries, but developed unfavorably in Southern Europe and Russia. 

Net sales by product groups

New software sales by QPR are increasingly made through software rentals rather than perpetual license sales, which in 2012 was reflected as small decline in software license net sales and significant increase in net sales from software rentals. In Finland, clear majority of new sales are made on a rental basis. Internationally, the transition is still ongoing.

In the fourth quarter, net sales from software licenses and maintenance services showed a small decline, but on the other hand software rentals and professional services grew strongly. Furthermore, software license sales were negatively affected by the weak new sales development in Southern Europe. 

Total recurring revenue (including net sales from software maintenance services and software rentals) grew 14% in the fourth quarter.  Professional services net sales increased by 52%, and the growth was especially strong in enterprise architecture service sales. 

In the full year 2012, software license net sales decreased slightly, while the other product groups showed increase in net sales. The growth was fastest (+101%) in software rental net sales. Total recurring revenue (software maintenance services and rentals) grew 17%. Professional service net sales also showed strong growth (+60%), with the consolidation of Nobultec accelerating the growth. 

In 2012, QPR delivered software and professional services in Finland, among others, to Aalto University, Cargotec Corporation, 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, 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, and Vaisala Corporation. 

In the international markets, QPR delivered software, among others, to Alfa Bank and Russian Ventures Company in Russia, Diehl AKO and Robert Bosch GmbH in Germany, Purac Petrochem in Belgium, 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:

Fourth quarter

While net sales grew 22% in the fourth quarter, operating profit grew by 5%. QPR has, in line with its strategy, continued investing significantly into its new software products and growth businesses.The Company has recruited new personnel especially into its Finnish service business, product development and QPR ProcessAnalyzer business development.

Operating profit in Finland increased significantly despite outlays in the growth businesses, due to strong growth in net sales. Operating profit in the international business decreased in the fourth quarter, including credit losses of EUR 117 thousand (104).

Depreciation and amortization grew 13%, mainly due to increase in the amortization of capitalized product development expenses. Total expenses grew 27%, due to outlays in growth businesses. Personnel expenses grew 19% and were 65% of total expenses. 

Full year

Operating profit increased 16% to EUR 874 thousand (755). Operating profit in Finland Operations was higher than in the previous year. Personnel recruitments made during the year have increased the level of expenses in Finland as planned. Operating profit in QPR’s international business was lower due to higher credit losses (EUR 319 thousand compared to EUR 191 thousand in 2011).

Depreciation and amortization grew 19%, due to the consolidation of Nobultec Ltd and increase in the amortization of capitalized product development expenses. Total expenses increased 25%, mainly due to the consolidation of Nobultec and outlays in growth businesses. Personnel expenses grew 20% and were 64% of total expenses. 

Net financial expenses in 2012 were EUR 41 thousand (50). Profit before taxes increased 18% to EUR 833 thousand (705).

Income taxes decreased to EUR 171 thousand (184) and the effective tax rate to 21% (26), due to utilization of tax losses from previous years for which no deferred tax benefit was recorded earlier. Profit for the period increased 27% to EUR 662 thousand (521) and earnings per share increased 26% to EUR 0.054 (0.043). 

FINANCE AND INVESTMENTS

Cash flow from operating activities developed very favorably in 2012 and increased 41% to EUR 1,777 thousand (1,261), mainly due to accelerated turnover of receivables. In the fourth quarter, cash flow from operating activities was EUR 85 thousand negative (positive 215), due to postponement of certain customer invoicing from the fourth quarter of 2012 to the first quarter of 2013.

Cash and cash equivalents at the end of the reporting period were EUR 1,404 thousand (1,020).

Investments in 2012 totaled EUR 693 thousand (1,256). The majority of the investments were made in product development.

Interest-bearing liabilities decreased and were EUR 339 thousand (566) at the end of the reporting period. The gearing ratio was -36% (-15). Current liabilities include deferred revenue in total of EUR 1,044 thousand (1,046). Return on investment rose to 25% (21).

Equity ratio rose from the previous year and was 51% (44). At the end of 2012, the consolidated shareholders’ equity stood at EUR 2,981 thousand (2,973). Return on equity rose to 22% (18).

The Annual General Meeting on March 22, 2012 authorized the Board of Directors to decide on issuing a maximum of 4,000,000 million new share 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. On March 22, 2012, 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.

PRODUCT AND SERVICE DEVELOPMENT

Product development expenses in 2012 were EUR 1,619 thousand (1,313), representing 17% (17) of net sales. Product development expenses do not include amortization of capitalized product development expenses.

In 2012, product development expenses were capitalized for a total amount of EUR 380 thousand (356). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses in the reporting period was EUR 278 thousand (203).

Product development employed 28 persons at the end of 2012, which corresponds to 35% of the total personnel.

In the reporting period, product development activities focused on the development of a new version of the QPR product family, released in October 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 2012. The inventions relate to automated business process discovery based on processing event data.

The Company increased significantly its efforts 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 2012, QPR employed a total of 81 persons (73). Average number of personnel in the reporting period was 78 (72). Personnel expenses totaled EUR 5,491 thousand (4,594).

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 annual 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 resolved on a new share-based incentive plan for management 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 share-based incentive plan was published in a stock exchange release on March 25, 2011.

SHARES AND TRADING IN THE COMPANY’S SHARES

The Annual General Meeting held on March 22, 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), is 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 3 April, 2012.

OTHER EVENTS IN THE REPORTING PERIOD

During the first half of 2012, QPR integrated the business of Nobultec Ltd into its Finnish business operations. In connection with the integration, the Group’s service offering, consulting and sales resources were strengthened and a process driven operating model, suitable for the requirements of growing business, was adopted. 

In June, Jaakko Riihinen was appointed Senior Vice President, Products & Technology, and member of the executive management team. Mr Riihinen began his work on August 13, 2012. He moved to QPR from Nokia Siemens Networks, where he 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. 

In August, Jaakko Salminen started as acting VP and member of the executive management team, responsible for international resellers and Russian business. Jaakko Salminen has previously worked as CEO of Finnish Software Entrepreneurs, Managing Director of Ravensoft and in several other management positions in technology companies. 

In September, QPR established a Global OEM Business team to speed up the international growth for QPR ProcessAnalyzer and to search for OEM partners who will include QPR’s products as part of their software or services.

In October, Pauli Leppänen was appointed as Chief Financial Officer at QPR Software Plc as of January 7, 2013. He moves to QPR from Sagacitas Finance Partners Oy, where he has worked as a Partner.  In addition, he has worked as SVP, Head of Corporate Control and acting CFO at TeliaSonera AB (2003-2010), and in financial management leadership positions in Sonera Corporation (1998-2002) and Outokumpu Oyj (1990-1997). The previous CFO, Mrs. Päivi Martti, continued in her position until January 7, 2013. After this, from her own initiative, she started as Director, HR & Administration at QPR.

In October, QPR Software and ProcessGold, a German pioneer in process mining, announced that the two companies have signed a strategic partnership agreement. The goal of the co-operation is to pave way for Automated Business Process Discovery (ABPD) by using QPR ProcessAnalyzer software product. The partnership involves resale rights of QPR ProcessAnalyzer for ProcessGold, sharing of best practices and other co-operation initiatives. Combined, both companies have over 200 commercial process analysis projects under their belt making them the ultimate ABPD pioneers.

In November, QPR released the fourth generation of the QPR ProcessAnalyzer software product. QPR ProcessAnalyzer 4.0 provides a Web user interface with collaborative functionalities targeted to business users and process owners, and a Microsoft Excel client with robust capabilities for the more demanding needs of process analysts.

In November, QPR ProcessAnalyzer won the Quality Innovation Award 2012 in the SME category. The competition organized by the Finnish Quality Association assesses nominees based on innovativeness and quality. QPR ProcessAnalyzer is an Automated Business Process Discovery (ABPD) software product that enables organizations to use the data in their business support systems for process development and improvement. QPR ProcessAnalyzer follows the track of the 2011 winner Angry Birds, developed by Rovio Entertainment Ltd.

In November, QPR paid the remaining purchase price of EUR 100 thousand for the business operations of Trodos Consulting and United Project and Services Group in Russia. At the same time, QPR purchased the remaining 20% of shares in its subsidiary QPR CIS Oy, operating in Russia and CIS countries, for EUR 80 thousand and recorded the amount as an adjustment in equity in accordance with step acquisitions under IFRS 3.

In December, a merger of a 100% subsidiary StrongDocs Oy into the parent company QPR Software Plc was completed. The merger did not have any impact on consolidated results or balance sheet. 

SUBSEQUENT EVENTS

Starting January 9, 2013, when acting VP (Resellers & Russia) Jaakko Salminen’s contract ended, CEO Jari Jaakkola leads the Resellers & Russia unit until VP Maija Erkheikki returns from her maternity leave in August 2013.

GOVERNANCE

The Annual General Meeting on March 22, 2012 resolved that the Board of Directors consists of four (4) ordinary members. The AGM 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. 

The AGM elected KPMG Oy Ab, Authorized Public Accountants, to continue 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 on the stock exchange release published by the Company on March 22, 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, reacts to changes in the market and operational environment, 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.

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 management’s estimate, to some extent increased the credit risk that has remained on a moderate level in recent years. In 2012, EUR 319 thousand (191) of credit losses were recorded. The amount of trade receivables over 60 days past due is currently on a low level and was 2.6% of total trade receivables at the end of 2012 (11.6).

75% of Group’s trade receivables are in euro. At the end of 2012, 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/investors/key-figures-and-reports.htm).

OUTLOOK 2013

Recent forecasts published by market research firms estimate that in 2013, the value of global software sales will grow approximately 6% and global professional services sales will grow approximately 5%.

QPR estimates its net sales to continue strong organic growth in 2013, arising especially from software rental and enterprise architecture services. The Company estimates its operating profit in euros to be approximately on the same level as in 2012, due to continuing outlays in QPR’s growth businesses. 

In 2013, the Company aims to continue significant investments in the development of its new software products. QPR has launched two new software products that have excellent growth prospects. QPR EnterpriseArchitect has already established a leading market position in Finland, and in 2013 the Company focuses on its international growth. The Company also invests in recruiting OEM partners for its innovative new QPR ProcessAnalyzer software product. By developing its professional service offering, 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.

THE BOARD OF DIRECTORS’ PROPOSAL ON DIVIDEND

The Board of Directors proposes to the Annual General Meeting on March 14, 2013 that a dividend of EUR 0.04 per share be paid to shareholders for the financial year 2012, totaling EUR 486 thousand. The dividend shall be paid to a shareholder that has been entered into the Company’s shareholder register on the record date of the dividend payment on March 27, 2013. The Board of Directors proposes to the AGM that the dividend be paid on April 3, 2013. 

The dividend proposed by the Board for the financial year 2012 represents 27% of the Company’s consolidated cash flow from operations in 2012. 

The distributable funds of the parent company were EUR 1,410 thousand at December 31, 2012. No material changes have taken place in the Company’s financial position after the end of the financial year.

FINANCIAL INFORMATION

In 2013, QPR Software will publish its Annual Report and three interim reports in English and Finnish on the following dates:

• Annual Report 2012: Thursday, February 21, 2013
• Interim Report Q1/2013: Thursday, April 18, 2013
• Interim Report Q2/2013: Friday, July 19, 2013
• Interim Report Q3/2013: Tuesday, October 22, 2013

  The Annual General Meeting will take place on Thursday, March 14, 2013.

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 into or distributed in the United States of America or its territories or possessions.

NOTES TO INTERIM FINANCIAL STATEMENTS

ACCOUNTING PRICIPLES

This report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2012, 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 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.