QPR Software
Financial Statement Release

FINANCIAL STATEMENTS BULLETIN 2013

QPR SOFTWARE PLC  STOCK EXCHANGE RELEASE FEBRUARY 7, 2014 AT 9.30 AM
 

TRANSITION FROM LICENSE SALES TO SOFTWARE RENTAL SALES CONTINUED. NET SALES DECREASED 7%; NET SALES FROM SOFTWARE RENTALS INCREASED 36%.

Summary full year 2013

• Net sales EUR 8,688 thousand (2012: 9,321).
• Net sales decreased 7% mainly due to a decrease in software license net sales. Transition from software license sales to software rental sales continued.
• Recurring revenues (software rentals and maintenance services) increased 5% and were 54% of total net sales (48). Net sales from software rentals increased 36%. The growth in recurring revenues was slowed down by exchange rate changes in maintenance service revenues.
• Operating profit EUR 578 thousand (874).
• Cash flow from operating activities EUR 1,661 thousand (1,777).
• Profit before taxes EUR 554 thousand (833).
• Profit for the year EUR 521 thousand (662).
• Earnings per share EUR 0.043 (0.054).
• 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 2013 (2012: 0.04).

Summary fourth quarter 2013

• Net sales EUR 2,310 thousand (2012: 2,693).
• Net sales decreased 14% due to a significant decrease in software license and technical consulting net sales.
• Recurring revenues (software rentals and maintenance services) increased 4% and were 51% of total net sales (42). Net sales from software rentals increased 21%. The growth in recurring revenues was slowed down by exchange rate changes in maintenance service revenues.
• Operating profit EUR 217 thousand (281).
• Cash flow from operating activities EUR 410 thousand (-85).
• Profit before taxes EUR 206 thousand (271).
• Profit for the quarter EUR 225 thousand (237).
• Earnings per share EUR 0.019 (0.019).

OUTLOOK

Operating environment and market outlook

The Company estimates that demand for enterprise architecture based business development services and software will increase in its home market Finland, as well as elsewhere in Europe. Development of operations in an enterprise architecture context, and not just in business process or in system development context, is a necessity in current competitive environment for more and more organizations. QPR provides its customers, through its software and services, an insight and control to various dimensions of their organizations, such as business processes, information, applications and technology.

QPR aims to grow in its home market Finland especially in the enterprise architecture based business development services and in the process analysis business. In the international markets, the Company’s goal is to significantly increase the sales of its innovative software products. In the international markets, the Company operates mainly through its reseller partners and puts effort in recruiting new resellers.

The Company’s target is to reach a 15% annual organic and profitable growth in 2014 – 2016, on the average.

Outlook for 2014

The Company estimates its net sales and operating profit in euros to increase in 2014, compared to 2013.

KEY FIGURES

REPORTING

This report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2013, the Group 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 principles and methods are the same as they were in the 2012 financial statements. This report is unaudited.

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

QPR reports the following operating segments: Direct and OEM business (software license and rental sales, maintenance and consulting services sales to direct customers and OEM customers) and Resellers (software license and rental sales, maintenance and consulting services sales through resellers and the Russian subsidiary).

REVIEW BY THE CEO

After fast and profitable growth in 2012, the development of QPR Software’s business operations has been twofold during 2013. Our new businesses, launched after 2010, have continued their fast growth – and grew organically over 20% in 2013. The new businesses are software and consulting businesses based on enterprise architecture, and the process analysis business. These businesses grew to represent approximately half of our net sales in 2013. This proves that our outlays to growth in recent years have been successful. As a result of the outlays, two new software businesses and related service businesses have been created.

The competitive environment tightened significantly in our traditional businesses, performance management and process modeling, as supply by the local and international software companies increased. In addition, the business was impacted by tight economic situation, which led customers in many markets to favor software rentals as an alternative to purchasing software licenses. Tight economic situation in Finland also had a negative impact on demand for technical SAP consulting and related net sales.

The twofold development led to a 6.8% decline in the Group’s net sales. However, the transition from license net sales to software rentals resulted in strong rental net sales growth and led to an increase in our recurring revenue last year. Customer churn remained in a low level and, according to customer surveys, over 90% of our customers recommend QPR’s products and services.

The outlook for current year is brighter than the last year’s results. Based on the rapid growth of our new businesses, we estimate that net sales will return to a growth path already this year. At the same time, we estimate operating profit to improve from last year. We target profitable net sales growth also in the longer term. Our target is to reach a 15% annual organic and profitable growth in 2014 – 2016, on the average.

Our software and service offering development continued as planned in 2013. The development in 2013 led to new releases of all our software products in January 2014. In addition, we increased our investments significantly from previous years to operational development services based on enterprise architecture. The investments resulted already last year in strong net sales growth of these services.

In international business, our focus last year was in new sales channel development for enterprise architecture and process modeling software. This channel development and packaging of our offering according to channel business needs will continue this year.

Jari Jaakkola
CEO

NET SALES

Net sales in 2013 were EUR 8,688 thousand (9,321) and decreased 6.8% from the previous year. Net sales decreased mainly due to a decline in software license sales, which was not fully compensated by the continued strong growth in software rental net sales.

Net sales in the fourth quarter were EUR 2,310 thousand (2,693) and decreased 14.2% from the corresponding period of the previous year. Net sales decreased due to a decline in software license and technical consulting net sales, which were not fully compensated by the continued strong growth in software rental net sales.

Net sales by product group

In 2013, software license net sales decreased significantly when competition has increased and new product alternatives have entered the market. Competition increased especially in the market for performance management software. In the developed markets, more and more customers favor software rentals instead of purchasing software licenses. This had a negative impact on software license net sales and, on the other hand, a positive impact on software rental net sales.

Software maintenance services relate to contract based customer support and software updates for earlier sold software licenses. The majority of decline in the maintenance service net sales in 2013 was due to strengthening of the euro against main export currencies (U.S. dollar, South African rand, Russian ruble, and Japanese yen). In 2013, 65% of maintenance service net sales came from international customers and 35% from Finnish customers.

Rental net sales of QPR’s software have grown strongly already for several years, and this development continued also in 2013. Of all new software sales, the share of rental sales is especially large in the Company’s home market Finland. The vast majority of software rentals is based on continuing agreements signed with the customers. Strong growth in net sales from software rentals continued in 2013 (+36%).

Consulting net sales declined 3% in 2013, mainly due to a difficult market situation for technical consulting. The consulting for enterprise architecture based operational development, on the other hand, grew strongly in 2013.

Total recurring revenue (net sales from software maintenance services and software rentals) grew 5% in 2013. 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 was 54% (48) in 2013.

In the fourth quarter, net sales by product group developed similarly as in the full year 2013, except for consulting net sales which declined 20% from the corresponding quarter in 2012. Net sales from consulting decreased due to a difficult market situation for technical consulting and due to an exceptionally large technical consulting project in Russia in the corresponding quarter in the previous year.

Net sales by segment

In 2013, net sales in the Direct and OEM business grew 2%. The growth was especially strong in net sales from software and services for enterprise architecture based operational development. Net sales from software licenses and technical consulting decreased.

Net sales in the Resellers business decreased 19% in 2013, due to a decline in software license net sales, exchange rate changes in maintenance service revenues, and an exceptionally large technical consulting project in Russia in the previous year.

In the fourth quarter, net sales in both segments declined, in Direct and OEM business due to a decline in technical consulting net sales, and in the Resellers business due to lower license sales and lower net sales from technical consulting in Russia. The comparative figure for the previous year was boosted by an exceptionally large technical consulting project in Russia in the fourth quarter.

FINANCIAL PERFORMANCE

In 2013, the Group’s operating profit was EUR 578 thousand (874), or 6.7% of net sales (9.4). Operating profit decreased from the previous year mainly due to lower net sales.

The Group’s expenses in 2013 declined 5%, mainly due to lower credit losses of EUR 53 thousand (319) and due to lower expenses for external services. The Group’s personnel expenses increased 4% from the previous year.

In the fourth quarter, operating profit was EUR 217 thousand (281), or 9.4% of net sales (10.4). Expenses for the quarter declined 17%, mainly due to lower credit losses of EUR 17 thousand (118), lower personnel expenses, and lower expenses for external services.

Operating profit by segment:

Operating profit in the Direct and OEM business declined in 2013 from the previous year, due to increased outlays in the growth businesses.

Operating profit in the Resellers business declined in 2013 from the previous year, due to lower net sales. Operating profit for the Resellers business includes credit losses of EUR 53 thousand (319).

In the fourth quarter, operating profit in the Direct and OEM business declined from the previous year, due to continued outlays in the growth businesses. Operating profit in the Resellers business increased in the fourth quarter, as credit losses of EUR 17 thousand (118) included in the results were lower than in the previous year. 

Other items in the comprehensive income statement

Net financial expenses in 2013 were EUR 25 thousand (41). Net financial expenses included foreign exchange losses of EUR 15 thousand (29).

Profit before taxes in 2013 was EUR 554 thousand (833). Income taxes of EUR 33 thousand (171) were significantly lower than in the previous year, since the Company expects to be able to utilize an additional tax deduction on research and development activities, valid for years 2013 – 2014 in Finland.

Profit for the financial year was EUR 521 thousand (662). Earnings per share in 2013 were EUR 0.043 (0.054).

In the fourth quarter, net financial expenses were EUR 11 thousand (9). Net financial expenses included foreign exchange losses of EUR 10 thousand (8). Profit before taxes for the quarter was EUR 206 thousand (271). Profit for the quarter was EUR 225 thousand (237) and earnings per share were EUR 0.019 (0.019).

FINANCE AND INVESTMENTS

Cash flow from operating activities was EUR 1,661 thousand (1,777) in 2013 and EUR 410 thousand (-85) in the fourth quarter. Cash and cash equivalents at the end of the year were EUR 1,365 thousand (1,404).

Investments in 2013 totaled EUR 849 thousand (693). Slightly more than half of the investments were made in product development.

Interest-bearing liabilities decreased and were EUR 113 thousand (339) at the end of the year. The gearing ratio was -44% (-36). Current liabilities include deferred revenue in total of EUR 1,406 thousand (1,044). Return on investment was 18% (25) in 2013 and 29% (34) in the fourth quarter.

At the end of the year, equity ratio was 42% (51) and the consolidated shareholders’ equity was EUR 2,871 thousand (2,981). Return on equity was 18% (22) in 2013 and 32% (32) in the fourth 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 DEVELOPMENT

Product development expenses in 2013 were EUR 1,683 thousand (1,619), equal to 19% (17) of net sales. Product development expenses do not include amortization of capitalized product development expenses.

In 2013, product development expenses were capitalized for a total amount of EUR 464 thousand (380). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses in 2013 was EUR 277 thousand (278).

Product development employed 27 persons at the end of the year, equal to 34% of the total personnel.

The Company develops the following software products: QPR EnterpriseArchitect, QPR Metrics, QPR ProcessDesigner, and QPR ProcessAnalyzer.

By developing its consulting 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 year, the Group employed a total of 79 persons (81). Average number of personnel in 2013 was 82 (78) and personnel expenses totaled EUR 5,703 thousand (5,491).

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. In 2013, the maximum annual bonus of executive management team, including the CEO, was 40% of the annual base salary. No bonuses were paid to the executive management team, including the CEO, for the year 2013. In 2011 – 2013, long-term remuneration of the executive management team consisted of a share-based incentive plan, which did not result in any payments during the three years. More information on incentive plans can be found in the Annual Report 2012 (www.qpr.com/investors/key-figures-and-reports.htm).

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), be 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 2013

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 clientele.

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 October, QPR Software released version 4.5 of its QPR ProcessAnalyzer software. This version enables continuous process analytics by providing automated ETL (Extract, Transform, Load) functionalities. This supports the transition from one-off analyses to real-time monitoring of process performance that can be used, for example, to optimize order-to-delivery process. Through continuous automated process analysis, companies have good visibility over their process efficiency and operations.

In October, QPR Software signed with the Finnish Tax Administration a frame agreement on management consulting services until the end of 2017.

SUBSEQUENT EVENTS

On January 8, 2014, QPR Software released QPR Suite 2014, which includes the software tools for architecture based business development, as well as the related supporting methodology.

On January 23, 2014, QPR Software released a new version of the QPR ProcessAnalyzer software. Release 2014.1 brings added efficiency to the process analysis with an integrated data extraction. In addition to the most common IT systems, data can now also be extracted directly from databases used by the companies. Automated email notifications and process flow animation raise the control and visualization of the process performance to a totally new level.

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. 

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. In 2013, however, the amount of credit losses was clearly lower than in the previous year. In 2013, EUR 53 thousand (319) of credit losses were recorded. The amount of trade receivables over 60 days past due was 5% (3) of total trade receivables at the end of the year.

Approximately 80% of Group’s trade receivables were in euro at the end of the year. At the end of the year, 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 2013. 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).

THE BOARD OF DIRECTORS’ PROPOSAL ON DIVIDEND

The Board of Directors proposes to the Annual General Meeting on March 13, 2014 that a dividend of EUR 0.04 per share be paid to shareholders for the financial year 2013, totaling EUR 481 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 18, 2014. The Board of Directors proposes to the AGM that the dividend be paid on April 3, 2014.

The dividend proposed by the Board for the financial year 2013 represents 29% of the Company’s consolidated cash flow from operations in 2013.

The distributable funds of the parent company were EUR 1,248 thousand at December 31, 2013. No material changes have taken place in the Company’s financial position after the end of the financial year.

FINANCIAL INFORMATION

In 2014, QPR Software will publish its Annual Report and three interim reports in English and Finnish on the following dates:

• Annual Report 2013: Thursday, February 20, 2014
• Interim Report Q1/2014: Tuesday, April 29, 2014
• Interim Report Q2/2014: Thursday, July 31, 2014
• Interim Report Q3/2014: Wednesday, October 29, 2014

The Annual General Meeting will take place on Thursday, March 13, 2014.

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 Group 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 principles and methods 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.