QPR Software
Interim report (Q1 and Q3)

INTERIM REPORT JANUARY-MARCH 2013: NET SALES EUR 2.1 MILLION, OPERATING PROFIT SLIGHTLY NEGATIVE

QPR SOFTWARE PLC       STOCK EXCHANGE RELEASE APRIL 25, 2013 AT 9.30 AM
 

INTERIM REPORT JANUARY-MARCH 2013

NET SALES EUR 2.1 MILLION, OPERATING PROFIT SLIGHTLY NEGATIVE

Summary January-March 2013

• Net sales EUR 2,082 thousand (2012: 2,212).
• Net sales decreased 6% due to a significant decrease in software license net sales. Net sales from software rentals increased 45%.
• Recurring revenues (software rentals and maintenance services) increased 11% and were 56% of total net sales (47).
• Operating profit negative EUR 31 thousand (positive 199).
• Cash flow from operating activities EUR 1,269 thousand (1,580).
• Profit before taxes negative EUR 42 thousand (positive 197).
• Profit for the period negative EUR 36 thousand (positive 149).
• Earnings per share negative EUR 0.003 (positive 0.012).

Outlook 2013

QPR estimates its net sales in 2013 to remain on the same level or to grow slightly compared to previous year (2012: EUR 9.3 million). Especially net sales from software rentals and enterprise architecture services are expected to grow, but license net sales to decrease. Operating profit is likely to be smaller than in previous year (2012: EUR 0.9 million), but to improve significantly from the level in January-March 2013.

In 2013, the Company aims to continue investments in the development of its new software products. In recent years, QPR has launched two new software products that have excellent growth prospects. The strong growth of QPR EnterpriseArchitect business in Finland is estimated to continue, and in 2013 the Company is building a new international reseller network for the product. QPR EnterpriseArchitect is software for agile management of all dimensions in the enterprise architecture. The Company also invests in recruiting OEM partners for its innovative new QPR ProcessAnalyzer software product, which offers a fast way to automatically discover business processes by using data stored in the IT systems of an organization.

The Company is also developing its professional service offering, with the aim to grow its local business in Finland and to accelerate its international software sales. Internationally, this happens by offering complementary service concepts and solutions to the Company’s reseller partners.

 KEY FIGURES

REPORTING

This report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2013, the Company has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2012. 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 2012 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: Direct and OEM business (software license and rental sales, maintenance and professional services sales to direct customers and OEM customers) and Resellers (software license and rental sales, maintenance and professional services sales through resellers and the Russian subsidiary).

NET SALES

Net sales in January-March were EUR 2,082 thousand (2,212) and decreased 6% from the corresponding period of the previous year. Net sales decreased due to a clear and stronger than expected decline in software license sales, which was not fully compensated by the continued strong growth in software rental net sales.

Net sales by product group

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

In the first quarter, software license net sales decreased 56%, which the growth of 45% in software rental net sales was not able to fully compensate. The comparative figure for software license net sales in 2012 was positively impacted by a very significant license sale to the Malaysian public administration. Net sales from software maintenance services and professional services remained roughly on the same level as in the corresponding period last year. In professional services, net sales from enterprise architecture services grew strongly, while net sales from other professional services decreased due to, among others, changes in project timing. QPR expects net sales from professional services to grow during the rest of the year, compared to the level in the first quarter.

Total recurring revenue (net sales from software maintenance services and software rentals) grew 11% in the first quarter. The share of recurring revenue of total net sales increased to 56% (47).

 Net sales by business segment

In the first quarter, net sales in the Direct and OEM business grew 7% from the corresponding period last year. The growth was especially strong in net sales from software and services aiming at developing enterprise architecture. During the quarter, QPR strengthened further its personnel resources in this business.

Net sales in the Resellers unit decreased 23% in the first quarter, mainly due to decline in software license net sales, which was not fully compensated by the growth in software rental net sales.

FINANCIAL PERFORMANCE

Operating profit by business segment:

The Group’s operating profit in the first quarter was negative, as net sales declined by 6%. Operating profit in the Direct and OEM business declined due to continued outlays in the growth businesses. Operating profit in the Resellers unit declined in the first quarter mainly due to lower net sales.

The Group’s expenses grew 6% due to outlays in the growth businesses. Personnel expenses grew 18% and were 71% of total expenses (64).

Net financial expenses were EUR 11 thousand (2). Profit before taxes was negative EUR 42 thousand (positive 197). Profit for the period was negative EUR 36 thousand (positive 149) and earnings per share was negative EUR 0.003 (positive 0.012).

FINANCE AND INVESTMENTS

Cash flow from operating activities was EUR 1,269 thousand (1,580). Cash and cash equivalents at the end of the reporting period were EUR 2,443 thousand (2,283).

Investments in the reporting period totaled EUR 214 thousand (175). Slightly more than half of the investments were made in product development.

Interest-bearing liabilities decreased and were EUR 339 thousand (452) at the end of the reporting period. The gearing ratio was -72% (-60). Current liabilities include deferred revenue in total of EUR 2,028 thousand (1,938). Return on investment was negative 3% (positive 23).

Equity ratio was 53% (53). The consolidated shareholders’ equity stood at EUR 2,935 thousand (3,046). Return on equity was negative 5% (positive 20).

The Annual General Meeting on March 14, 2013 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 550,000 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 20, 2013, the Company issued a stock exchange release on a decision to start acquiring own shares through public trading in NASDAQ OMX Helsinki Ltd.

PRODUCT AND SERVICE DEVELOPMENT

Product development expenses in the reporting period were EUR 461 thousand (403), representing 22% (18) of net sales. Product development expenses do not include amortization of capitalized product development expenses.

During the quarter, product development expenses were capitalized for a total amount of EUR 110 thousand (101). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses in the reporting period was EUR 69 thousand (67).

Product development employed 28 persons at the end of the quarter, which corresponds to 33% of the total personnel.

In the reporting period, product development activities were especially focused on the QPR ProcessAnalyzer and QPR EnterpriseArchitect products.

By developing its service products, 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 reseller partners.

PERSONNEL

At the end of the quarter, QPR employed a total of 84 persons (73). Average number of personnel in the reporting period was 84 (74). Personnel expenses in the quarter totaled EUR 1,528 thousand (1,294).

For incentive purposes, the Company has a bonus program that covers all employees. Short-term remuneration of the top management 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. Information on incentive plans in the Annual Report 2012: www.qpr.com --> “Investors” section.

SHARES AND SHAREHOLDERS

The Annual General Meeting held on March 14, 2013 approved the Board's proposal that a per-share dividend of EUR 0.04 (0.03), a total of EUR 486 thousand (367), is paid for the financial year 2012. The dividend was paid to shareholders entered in the Company's shareholder register, maintained by Euroclear Finland Oy, on the record date of March 19, 2013. The dividend payment date was April 3, 2013.

OTHER EVENTS IN THE REPORTING PERIOD

In March, QPR and the German software company JobRouter AG announced a new process analysis service based on QPR ProcessAnalyzer software. The companies have agreed on cooperation, where JobRouter will use QPR ProcessAnalyzer software in fact-based visualizing and analysis of their customers’ processes in the JobRouter workflow solution.

SUBSEQUENT EVENTS

In April, after a tender competition, Hansel Oy, the central procurement unit of the Finnish Government, elected QPR Software as one of the frame agreement providers of management consulting services for years 2013–2017. The frame agreement enables QPR to offer its professional services in simplified tender competitions by government entities in their operational development and enterprise architecture projects.

In April, QPR Software published an agreement with CGI, the leading IT and business process services company, for a new process analysis service based on QPR ProcessAnalyzer software product. With the service, CGI will be able to show their customers the real state of their processes and help support them in reaching operational efficiency. For QPR, the partnership gives the opportunity to bring QPR ProcessAnalyzer to a larger audience.

GOVERNANCE

The Annual General Meeting on March 14, 2013 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 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, as QPR Software Plc's auditors, with Kirsi Jantunen, Authorized Public Accountant, acting as principal auditor.

The AGM authorized the Board to decide on issuing new shares and repurchasing the Company’s own shares. 

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 14, 2013 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 the reporting period, EUR 21 thousand (30) of credit losses were recorded. The amount of trade receivables over 60 days past due was 8% (21) of total trade receivables at the end of the quarter.

Approximately 70% of Group’s trade receivables are in euro. At the end of the quarter, the Company had not hedged its foreign currency (non-euro) trade receivables.

No significant changes have taken place in QPR’s short-term risks and uncertainties during the reporting period. Risks and risk management related to the Company’s business are further described in the Annual Report 2012, pages 14-15 (www.qpr.com/investors/key-figures-and-reports.htm).

OUTLOOK 2013

QPR estimates its net sales in 2013 to remain on the same level or to grow slightly compared to previous year (2012: EUR 9.3 million). Especially net sales from software rentals and enterprise architecture services are expected to grow, but license net sales to decrease. Operating profit is likely to be smaller than in previous year (2012: EUR 0.9 million), but to improve significantly from the level in January-March 2013.

In 2013, the Company aims to continue investments in the development of its new software products. In recent years, QPR has launched two new software products that have excellent growth prospects. The strong growth of QPR EnterpriseArchitect business in Finland is estimated to continue, and in 2013 the Company is building a new international reseller network for the product. QPR EnterpriseArchitect is software for agile management of all dimensions in the enterprise architecture. The Company also invests in recruiting OEM partners for its innovative new QPR ProcessAnalyzer software product, which offers a fast way to automatically discover business processes by using data stored in the IT systems of an organization.

The Company is also developing its professional service offering, with the aim to grow its local business in Finland and to accelerate its international software sales. Internationally, this happens by offering complementary service concepts and solutions to the Company’s reseller partners.

FINANCIAL INFORMATION

In 2013, QPR Software will publish interim reports on the following dates:

• Interim Report Q2/2013: Tuesday, July 30, 2013
• Interim Report Q3/2013: Tuesday, October 29, 2013

QPR SOFTWARE PLC
BOARD OF DIRECTORS

Further information:

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

DISTRIBUTION:

NASDAQ OMX Helsinki Ltd
Main Media

Neither this press release nor any copy of it may be taken, transmitted 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 2013, the Company has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2012. 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 2012 financial statements.

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

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

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

Names of the segments have been changed in 2013. Earlier, these segments were called Finland operations and International operations.