QPR Software
Interim report (Q1 and Q3)

QPR SOFTWARE INTERIM REPORT JANUARY – MARCH 2016

QPR SOFTWARE PLC        STOCK EXCHANGE RELEASE APRIL 28, 2016 AT 9.00 AM
 

INTERIM REPORT JANUARY – MARCH 2016

Summary first quarter 2016

• Net sales EUR 2,042 thousand (2015: 2,524). Net sales were negatively affected especially by decrease in consulting services and software license net sales.
• Operating profit excluding non-recurring items EUR -65 thousand (259).
• Operating profit EUR -105 thousand (259).
• Operating margin was -5.1% (10.3%).
• Cash flow from operating activities EUR 1,230 thousand (1,447).
• Profit before taxes EUR -123 thousand (272).
• Profit for the quarter EUR -105 thousand (225).
• Earnings per share EUR -0.009 (0.019).

Business operations

QPR Software focuses on providing organizations software and professional services for strategy execution, performance and process management, process mining and enterprise architecture. Our software and services are used in over 50 countries. The Company offers its customers insight to their business operations through modeling, analysis and performance monitoring. This insight enables customers to streamline and improve operations and to execute their strategies swiftly and effectively.

OUTLOOK

Operating environment and market outlook

QPR expects the demand for process mining software to grow in its home market in Finland, as well as in the broader European market. The software market for process mining is relatively new and, for the time being, its market size is still small. Market maturity varies greatly from one country to another, but already last year we experienced strong market growth in several European countries. This growth is expected to continue this year, and the Company believes that its QPR ProcessAnalyzer product has a strong position in the market.

In developed markets, competition in process and enterprise architecture modeling and performance management software is expected to continue to increase. In developing markets, especially in the Middle East and Africa, there is still strong growth potential for these software products.

Outlook for 2016

The Company´s outlook is unchanged from published outlook in unaudited financial results bulletin on February 11, 2016.

In process mining software and process analysis services, QPR continues its investments in direct sales in Finland and international channel sales, and estimates that this business will continue to grow this year.

In process and enterprise architecture modeling and performance management software, the tightened competition is expected to continue to have a negative impact on sales in part of QPR´s reseller channel, especially in developed markets. To offset this impact, QPR seeks growth from new reseller partnerships initiated in 2015, especially from Middle East and Africa.

The Company believes that in its home market, Finland, it will maintain the leading position as a process modeling and analysis software vendor targeting operational development functions in organizations; as well as to preserve QPR’s in recent years strengthened position in operational development consulting.

The Company estimates that its operating profit excluding non-recurring items will grow in 2016 compared to 2015.

REPORTING

QPR Software innovates, develops, sells and delivers software and services in international markets aimed at operational development in organizations. QPR Software reports one operating segment: Operational development of organizations. In addition to this, the Company reports revenue from products and services as follows: Software license sales, Software maintenance services, Software rentals, and Consulting. Software rentals and Software maintenance services together form the recurring revenue reported by the Company. Recurring revenue is based on long-term contracts continuing for the time being or for a fixed period of several years. Typically rental and maintenance charges are invoiced annually in advance.

Geographical areas reported are Finland, the rest of Europe (including Russia and Turkey), and the rest of the world. Net sales are reported according to the customer´s location.

REVIEW BY THE CEO

The business environment remained challenging and economic growth was weak in most markets. This was the case especially in the Company’s largest market area, Europe (including Finland).

The Company’s consulting and software net sales decreased compared to the corresponding period last year. Consulting net sales were negatively affected mainly by the decrease in technical SAP consulting and a slow start in operational development consulting projects at the beginning of the year. Software net sales were negatively affected by the tightened competition in process and enterprise architecture modeling software, as well as performance management software.

In the challenging market conditions, we decided to streamline our operations and implemented EUR 0.7 million annual cost savings. This year, we expect these measures to result into approximately EUR 0.4 million in cost reductions after non-recurring items.

In 2015, we invested in recruiting and training new reseller partners; as well as in marketing and product launches in new markets. In process mining software, we expanded distribution especially into developed European markets, such as Germany, Sweden, Belgium and the Netherlands. For performance management and process modeling software, we recruited many new resellers from Middle East, Africa and South America.

We believe these investments will have a positive impact on net sales this year, but at the same time, we estimate that the tightened competition will continue to have a negative impact on sales in part of QPR´s reseller channel. We estimate that the operating profit excluding non-recurring items will grow in 2016, as compared to 2015.

Jari Jaakkola

CEO

NET SALES DEVELOPMENT 1 JANUARY – 31 MARCH, 2016

Net sales in the first quarter were EUR 2,042 thousand (2,524) and decreased 19% compared to the corresponding period last year. The decrease resulted especially due to the decline in consulting net sales and software license net sales.

Software license net sales decreased 42% compared to previous year. Net sales were negatively affected by the tightened competition in process and enterprise architecture modeling software, as well as performance management software.  The majority of license sales derived from international markets.

Net sales from software maintenance services and software rentals decreased (-7% and -6% respectively). Currency exchange rates had a negative impact to software maintenance service net sales. The share of recurring revenues was 54% (47) of total net sales.

Consulting net sales (-26%) were negatively affected by the decrease in technical SAP consulting net sales and a slow start in operational development consulting projects at the beginning of the year.

Of the Group net sales, 69% (69) derived from Finland, 20% (18) from the rest of Europe (including Russia and Turkey) and 11% (13) from the rest of the world.

FINANCIAL PERFORMANCE 1 JANUARY – 31 MARCH, 2016

In the first quarter, the Group’s operating result weakened due to decreased net sales. Operating loss before non-recurring items was EUR -65 thousand (operating profit EUR 259 thousand), or –3.2% of net sales (10.3). Non-recurring items were related to organizational downsizing implemented in the first quarter. Group operating loss was EUR 105 thousand (operating profit EUR 259 thousand), or -5.1% of net sales (10.3).  

The Group´s fixed costs were EUR 2,012 thousand (2,160), and decreased 7% compared to the corresponding period in the previous year. Personnel expenses represented 77% (75) of the fixed costs and amounted to EUR 1,557 thousand (1,622). Credit losses, included in fixed costs, were EUR 4 thousand (22).

Net financial expenses in the review period were EUR 18 thousand (net financial income EUR 14 thousand) and included currency exchange losses of EUR 10 thousand (currency exchange gains of EUR 14 thousand). Profit before taxes was EUR -123 thousand (272) and profit for the period was EUR -105 thousand (225). Earnings per share (fully diluted) were EUR -0.009 (0.019).

FINANCE AND INVESTMENTS

Cash flow from operating activities was EUR 1,230 thousand (1,447) in the first quarter. Cash and cash equivalents at the end of the quarter were EUR 1,116 thousand (2,427).

Investments in the first quarter totaled EUR 199 thousand (441). Investments were mainly related to product development expenditure.

At the end of the quarter, the Company had no interest-bearing liabilities. The gearing ratio was -40% (-71). Current liabilities include deferred revenue in total of EUR 2,739 thousand (2,142).

At the end of the quarter, the equity ratio was 66% (57) and the consolidated shareholders’ equity was EUR 2,807 thousand (3,411).

PRODUCT DEVELOPMENT

Product development expenses in the first quarter added up to EUR 488 thousand (479), equal to 24% (19) 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 180 thousand (166). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses for the quarter was EUR 108 thousand (115).

The Company develops the following software products: QPR EnterpriseArchitect, QPR Metrics, QPR ProcessDesigner, and QPR ProcessAnalyzer. In addition, QPR develops services and solutions that are complementary to its software.

PERSONNEL

At the end of the quarter, the Group employed a total of 76 persons (85). The average number of personnel during the quarter was 80 (84).

For incentive purposes, the Company has a bonus program that covers all employees. Remuneration of the top management consists of salary, fringe benefits and a possible annual bonus based on net sales performance. In 2016, the maximum annual bonus of the executive management team, including the CEO, is 30% of the annual base salary. More information on the bonus program can be found in the Annual Report 2015 (http://cdn.qpr.com/sites/default/files/QPR_Software_Annual_Report_2015_1.pdf).

The Annual General Meeting held on March 22, 2016 approved the Board's proposal to pay a per-share dividend of EUR 0.02 (0.05), a total of EUR 240 thousand (599) for the financial year 2015. Dividends were paid to all shareholders registered in the Company's shareholder register, maintained by Euroclear Finland Oy, on the record date of March 24, 2016. Dividends were paid on April 5, 2016.

The Annual General Meeting approved the Board´s proposal to authorize the Board of Directors, subject to its discretion, on payment of an extra dividend of EUR 0.01 during 2016. The authorization is valid until 31 December, 2016.
 

OTHER EVENTS DURING THE QUARTER

In January, QPR and the Swedish business and IT services company iStone announced that they have signed a reseller agreement for QPR ProcessAnalyzer - the software that enables automated process analysis based on existing data from Enterprise Resource Planning  (ERP) systems. The partnership creates new opportunities in automated process mapping and process flow optimization, especially for those organizations using the ERP system Infor M3.

QPR Software and PricewaterhouseCoopers (PwC) Portugal announced in February that they have signed a consulting agreement on using QPR ProcessAnalyzer in PwC’s process and operational improvement consulting in Portugal. QPR ProcessAnalyzer enables automated process analysis based on existing data from enterprise IT systems, utilizing technology patented in the United States by QPR.

In March, QPR completed co-determination negotiations with its personnel. As a result of the negotiations, the Company reduces its annual expenses by approximately EUR 0.7 million. Of the total, EUR 0.1 million will be realized by reducing external purchases and EUR 0.6 million through personnel reductions.

QPR signed an agreement in March on delivering software for business process management purposes in one of the world’s largest lighting manufacturing companies. The signed agreement is valid for three years, and the value of the entire three year agreement is approximately EUR 0.2 million before reseller commissions.

In March, QPR announced the launch of QPR MobileDashboard, an application that makes it even easier to access and browse actionable performance information on the go.

EVENTS AFTER THE REPORTING PERIOD

There were no significant events after the reporting period.

GOVERNANCE

The Annual General Meeting on March 22, 2016 resolved that the number of Board Members is four (4).

The Annual General Meeting re-elected Kirsi Eräkangas, Vesa-Pekka Leskinen, Juho Malmberg and Topi Piela as members of the Company´s Board of Directors. The term of office of the members of the Board of Directors expires at the end of the next Annual General Meeting. At its organizing meeting, the Board of Directors elected Vesa-Pekka Leskinen as its Chairman.

The Annual General Meeting re-elected Authorized Public Accountants KPMG Oy Ab as QPR Software´s auditor with Kirsi Jantunen, Authorized Public Accountant, acting as principal auditor. The term of office of the auditor expires at the end of the next Annual General Meeting.

The Annual General Meeting decided to authorize the Board of Directors to decide on an issue of new shares and conveyance of the own shares held by the Company (share issue) either in one or in several occasions. The share issue can be carried out as a share issue against payment or without consideration on terms to be determined by the Board of Directors.

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, 2016 and available on the investors section of the Company's web site, http://www.qpr.com/investors/stock-exchange-releases.htm.

SHORT-TERM RISKS AND UNCERTAINTIES

Internal control and risk management at 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 groups of risks related to its operations: risks related to business operations (country, customer, personnel, legal), risks related to information and products (QPR products, IPR, data security) and risks related to financing (foreign currency, short-term cash flow). The Company has an insurance policy for property, operational and liability risks.

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. In the reporting period, EUR 4 thousand (22) of credit losses were recorded. The amount of trade receivables over 60 days past due was 13% (6) of total trade receivables at the end of the quarter.

Approximately 71% of Group’s trade receivables were in Euro at the end of the quarter (66). At the end of the quarter, the Company had not hedged its non-euro trade receivables.

No significant changes have taken place in the Company’s short-term risks and uncertainties during the quarter. Risks and risk management related to the Company’s business are further described in the Annual Report 2015, pages 14-15 (http://cdn.qpr.com/sites/default/files/QPR_Software_Annual_Report_2015_1.pdf).

FINANCIAL INFORMATION

In 2016, QPR Software will publish interim reports in English and Finnish on the following dates:

• Interim Report Q2/2016: Tuesday, August 2, 2016.
• Interim Report Q3/2016: Thursday, October 27, 2016

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 2016, the Group has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2015. The implementation of these new and revised requirements have not impacted the reported figures. For all other parts, the accounting principles and methods are the same as they were in the 2015 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.