QPR Software
Interim report (Q1 and Q3)

SECOND QUARTER NET SALES EUR 2.3 MILLION, EARNINGS PER SHARE INCREASED 60%

QPR SOFTWARE PLC       STOCK EXCHANGE RELEASE JULY 30, 2013 AT 9.30 AM

INTERIM REPORT JANUARY-JUNE 2013

SECOND QUARTER NET SALES EUR 2.3 MILLION, EARNINGS PER SHARE INCREASED 60%

Summary second quarter 2013

• Net sales EUR 2,335 thousand (2012: 2,404).
• Net sales decreased 3% due to a significant decrease in software license net sales. Net sales from software rentals increased 44%.
• Recurring revenues (software rentals and maintenance services) increased 5% and were 50% of total net sales (46). The growth in recurring revenues was slowed down by exchange rate changes in maintenance service revenues.
• Operating profit EUR 222 thousand (230). Operating result returned positive after the first quarter operating loss.
• Profit before taxes EUR 222 thousand (196), growth 13%.
• Profit for the quarter EUR 189 thousand (124), growth 52%.
• Earnings per share EUR 0.016 (0.010), growth 60%.

Summary January-June 2013

• Net sales EUR 4,416 thousand (2012: 4,616).
• Net sales decreased 4% due to a significant decrease in software license net sales. Net sales from software rentals increased 44%.
• Recurring revenues (software rentals and maintenance services) increased 8% and were 53% of total net sales (47). The growth in recurring revenues was slowed down by exchange rate changes in maintenance service revenues.
• Operating profit EUR 191 thousand (429).
• Cash flow from operating activities EUR 1,198 thousand (1,632).
• Profit before taxes EUR 180 thousand (393).
• Profit for the period EUR 153 thousand (273).
• Earnings per share EUR 0.013 (0.022).

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 software license net sales to decrease. Operating profit is estimated to be lower than in previous year (2012: EUR 0.9 million), but to improve significantly from the level in January-June 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 continues investing into the growth of its new QPR ProcessAnalyzer software product that offers a fast way to automatically discover 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 the second quarter were EUR 2,335 thousand (2,404) and decreased 3% from the corresponding period of the previous year. Net sales decreased due to a clear decline in software license sales, which was not fully compensated by the continued strong growth in software rental net sales.

Net sales in January-June were EUR 4,416 thousand (4,616) and decreased 4% from the corresponding period of the previous year.

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 second quarter, software license net sales decreased 37%, which the growth of 44% in software rental net sales was not able to fully compensate. Net sales from software maintenance services declined 8%, mainly due to exchange rate changes. Net sales from professional services increased 10%, as especially net sales from enterprise architecture services grew strongly.

Total recurring revenue (net sales from software maintenance services and software rentals) grew 5% in the second quarter. The growth in recurring revenues was slowed down by exchange rate changes in maintenance service revenues. The share of recurring revenue of total net sales increased to 50% (46).

Net sales by product group in January-June also developed similarly as in the second quarter. QPR expects net sales from professional services to grow during the rest of the year, compared to the level in the first half of the year, especially in the enterprise architecture services.

Net sales by business segment 

In the second quarter, net sales in the Direct and OEM business grew 6% from the corresponding period last year. The growth was especially strong in net sales from software and services aiming at developing enterprise architecture.

Net sales in the Resellers unit decreased 15% in the second quarter, mainly due to decline in software license net sales.

Net sales in January-June also developed similarly as in the second quarter.

FINANCIAL PERFORMANCE

Operating profit by business segment:

The Group’s operating loss for the first quarter turned into profit for the second quarter, even though net sales continued to be slightly lower than in the previous year. In the second quarter, operating profit in the Direct and OEM business declined slightly due to continued outlays in the growth businesses. Operating profit in the Resellers unit was on the level of previous year, since the result for the corresponding quarter of the previous year was reduced by credit losses of EUR 119 thousand.

The Group’s expenses in the second quarter declined 4%, mainly due to lower credit losses. Personnel expenses grew 9% and were 70% of total expenses (62).

Net financial expenses in the second quarter were EUR 0 thousand (34). Net financial expenses included foreign exchange gains of EUR 3 thousand (losses of EUR 32 thousand). Income taxes in the second quarter were EUR 33 thousand (72). For new development projects started in 2013, the Company expects to be able to utilize an additional tax deduction on research and development activities, valid for years 2013 – 2014 in Finland, which lowered the Group’s effective tax rate to 15%. Profit before taxes in the second quarter was EUR 222 thousand (196) and profit for the period was EUR 189 thousand (124). Earnings per share for the second quarter increased 60% to EUR 0.016 (positive 0.010).

In January-June, operating profit in the Direct and OEM business declined due to continued outlays in the growth businesses especially in the first quarter. Operating profit in the Resellers unit declined due to lower net sales. Operating profit for the Resellers unit in January-June includes credit losses of EUR 21 thousand (149). Profit before taxes in January-June was EUR 180 thousand (393) earnings per share were EUR 0.013 (0.022).

FINANCE AND INVESTMENTS

Cash flow from operating activities was EUR 1,198 thousand (1,632) in January-June and EUR ‑71 thousand (52) in the second quarter. Cash and cash equivalents at the end of the second quarter were EUR 1,534 thousand (1,817).

Investments in January-June totaled EUR 424 thousand (310). Slightly more than half of the investments were made in product development.

Interest-bearing liabilities decreased and were EUR 226 thousand (452) at the end of the reporting period. The gearing ratio was -50% (-50). Current liabilities include deferred revenue in total of EUR 1,688 thousand (1,600). Return on investment was 13% (25) in January-June and 30% (27) in the second quarter.

At the end of the reporting period, equity ratio was 48% (47) and the consolidated shareholders’ equity was EUR 2,601 thousand (2,748). Return on equity was 11% (19) in January-June and 27% (17) in the second quarter.

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 January-June were EUR 918 thousand (846), representing 21% (18) of net sales. Product development expenses do not include amortization of capitalized product development expenses.

In January-June, product development expenses were capitalized for a total amount of EUR 250 thousand (211). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses in January-June was EUR 137 thousand (111).

Product development employed 27 persons at the end of the quarter, which corresponds to 32% of the total personnel.

In January-June, software product development activities were especially focused on the QPR EnterpriseArchitect and QPR ProcessAnalyzer 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, the Group employed a total of 84 persons (79). Average number of personnel in January-June was 84 (76) and personnel expenses totaled EUR 3,013 thousand (2,654).

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 JANUARY-JUNE

In March, QPR Software 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.

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.

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.

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 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 earlier remained on a moderate level, and has resulted in increased credit losses. During the current year, however, the amount of credit losses and overdue receivables has been clearly lower than in the previous year. In January-June, EUR 21 thousand (149) of credit losses were recorded. The amount of trade receivables over 60 days past due was 7% (10) of total trade receivables at the end of the quarter.

Approximately 65% of Group’s trade receivables were in euro at the end of the quarter. 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 the Company’s short-term risks and uncertainties during January-June. 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 software license net sales to decrease. Operating profit is estimated to be lower than in previous year (2012: EUR 0.9 million), but to improve significantly from the level in January-June 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 continues investing into the growth of its new QPR ProcessAnalyzer software product that offers a fast way to automatically discover 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

Interim Report Q3/2013 will be published on 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 or distributed, directly or indirectly, in or into 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.