Published: 2018-04-26 08:00:00 CEST

Net Sales EUR 2.9 Million, Operating Profit 14% of Net Sales


QPR SOFTWARE INTERIM REPORT JANUARY – MARCH 2018, APRIL 26, 2018 AT 9.00 A.M.


Summary first quarter 2018

  • Net sales EUR 2,882 thousand (January-March 2017: 2,813).
  • International net sales 45% of total net sales (36).
  • The share of recurring revenue 57% of net sales (55).
  • Operating profit EUR 400 thousand (488).
  • Operating profit 14% of net sales (17).
  • Cash flow from operating activities EUR 1,597 thousand (1,715).
  • Profit before taxes EUR 211 thousand (477). Net financial items include EUR 184 thousand non-recurring currency losses due to liquidation of the Group´s Russian subsidiary. Currency losses do not have an impact on retained earnings or cash flow from operating activities.
  • Profit for the quarter EUR 124 thousand (365).
  • Earnings per share EUR 0.010 (0.030).


Business operations

QPR Software provides process mining, performance management and enterprise architecture solutions for digital transformation, strategy execution and business process improvement 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 execute strategies, streamline operations, support growth and digitalize businesses swiftly and effectively.


OUTLOOK

Operating environment and market outlook

In recent years, QPR Software has invested heavily in developing the company´s new process mining software, as well as renewing all user interfaces of its software products. The company estimates that the demand for process mining software and related services will continue to grow in 2018. Growth focus is on Europe, even though the demand for process mining software, especially in large organizations, is also growing strong outside Europe. Due to the current early market stage, country specific differences in demand will continue to be significant.

In developed markets, competition in software business for process and enterprise architecture modeling and performance management is expected to remain strong. The company still sees growth potential for these products in emerging markets.


Outlook for 2018 (updated according to IFRS 15)

The content of the outlook is the same as published earlier on 15 February 2018, but it has been updated to comply with IFRS 15 accounting principles.

The Company estimates that its net sales will grow in 2018 (2017: EUR 9,084 million). The growth in net sales will be driven by software business, in particular the process mining software QPR ProcessAnalyzer. Consulting net sales are also expected to grow from previous year.

In 2018, QPR will invest more in its growing business segments and is planning to increase its resources, especially in international sales and marketing. Despite the increase in costs, the company estimates that its operating profit will improve from previous year and will exceed 5% of net sales (2017: EUR 32 thousand).


Previous Outlook for 2018

The Company estimates that its net sales will grow in 2018. The growth in net sales will be driven by software business, in particular the process mining software QPR ProcessAnalyzer. Consulting net sales are also expected to grow from previous year.

In 2018, QPR will invest more in its growing business segments and is planning to increase its resources, especially in international sales and marketing. Despite the increase in costs, the company estimates that its comparable operating profit will improve from previous year.

 

KEY FIGURES

     
EUR in thousands,
unless otherwise indicated
Jan-Mar,
2018
Jan-Mar,
2017
Change,
%
Jan-Dec,
2017
     
Net sales2,8822,81329,084
EBITDA640694-8946
 % of net sales22.224.7 10.4
Operating profit400488-1832
 % of net sales13.917.3 0.4
Profit before tax211477-56-6
Profit for the period124365-66-152
 % of net sales4.313.0 -1.7
     
Earnings per share, EUR0.0100.030-66-0.013
Equity per share, EUR0.2550.302-150.231
     
Cash flow from operating
activities
1,5971,715-7984
Cash and cash equivalents1,7042,015-15318
Net borrowings-1,704-2,015-15-318
Gearing, %-53.6-53.6 -11.0
Equity ratio, %57.862.3 49.5
Return on equity, %16.440.8 -4.8
Return on investment, %53.355.3 1.4

 

REPORTING

The figures in this interim report are reported according to IFRS 15 accounting principles, effective from 1 January 2018. The IFRS 15 restated comparable Group key figures have been published as a stock exchange release on 25 April 2018.

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, Cloud services and Consulting. New accounting principles do not have an impact on Consulting sales revenue recognition, but there are changes in software sales revenue recognition. QPR has not earlier reported the share of Cloud services in its software sales.

Recurring revenue reported by the Company consists of Software maintenance services and Cloud services. In addition, recurring revenue includes that part of software license sales, where user rights have been sold to customers with a long term contract, continuing for the time being, and invoiced in the beginning of the invoicing period. The license part of revenue is recognized at one point in time, in the beginning of the invoicing period. These contracts continuing for the time being are automatically renewed after the end of the agreed period (usually 1 year), unless the agreement is terminated within notice period.

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

International software net sales increased in accordance with our targets in the first quarter, and share of international net sales amounted to 45% of total net sales. The growth in international net sales amounted to 28%, compared to equivalent period in the previous year. Especially grew process mining and analytics software QPR ProcessAnalyzer sales to European customers and performance management software sales to Middle East.

In early 2018 it has been delightful to see that the average size our customer accounts has increased. Cross selling of software and the scope of our consulting projects have developed very favorably.

In the reporting period we delivered process mining and analytics software, among others, to Fennovoima (a company constructing and operating a new nuclear power plant in Finland), Piraeus Bank in Greece and to a global medical device company´s European Business unit. New performance management software customers were, among others, Saudi Railway Company and a large central government organization from Abu Dhabi.

The increased investments in product development last year have significantly increased competitiveness of our software products. The new software versions have been well received in the markets. It is important for us that our software products are competitive and broadly adopted as analytics, measurement and planning tools and suitable for use in business and IT organizations.

Jari Jaakkola
CEO


NET SALES DEVELOPMENT 1 JANUARY – 31 MARCH 2018

Net sales in the first quarter were EUR 2,882 thousand (2,813) and increased 2% compared to the corresponding period last year. The share of recurring revenue was 57% of net sales (55).

Software license net sales, as well as process analysis and operational development consulting net sales increased. Net sales were negatively impacted by the decision to discontinue subcontracted consulting that is not related to QPR software products.

Software license net sales increased to EUR 1,136 thousand (1,048) and grew 8%. In the first quarter, software license net sales include significantly higher share (55%) of renewable software licenses than in the other quarters. In these cases, user rights have been sold to customers with long-term contracts continuing for the time being and invoiced in the beginning of agreed invoicing period. The contracts are automatically renewed after invoicing period, typically 1 year, unless they are terminated within notice period.

Software maintenance net sales decreased to EUR 711 thousand (852), which was due to customer churn and transition to use our Cloud services. Additionally, currency exchange rate changes had a negative impact to software maintenance net sales.

Cloud service net sales amounted to EUR 306 thousand (198) and grew 54%. In line with general industry development, customers are increasingly electing to use QPR software through cloud service. Especially our process mining and analytics customers using QPR ProcessAnalyzer, opt for this choice.

Consulting net sales amounted to EUR 728 thousand and increased 2%. Process analysis and operational development consulting net sales grew, but net sales were negatively impacted by the decision to discontinue subcontracted consulting that is not related to QPR software products.

Consolidated net sales in Finland decreased 12% and international net sales increased 28%. Net sales are reported according to the customer´s headquarter location. Of the Group net sales, 55% (64) were derived from Finland, 30% (25) from the rest of Europe (including Russia and Turkey) and 15% (11) from the rest of the world.

 
NET SALES BY PRODUCT GROUP

     
EUR in thousandsJan-Mar,
2018
Jan-Mar,
2017
Change,
%
Jan-Dec,
2017
     
Software licenses1,1361,04882,326
Software maintenance services711852-173,260
Cloud services30619854819
Consulting72871522,680
Total2,8822,81329,084


NET SALES BY GEOGRAPHIC AREA

     
EUR in thousandsJan-Mar,
2018
Jan-Mar,
2017
Change,
%
Jan-Dec,
2017
     
Finland1,5921,802-125,459
Europe incl. Russia and Turkey854712202,288
Rest of the world436299461,337
Total2,8822,81329,084



FINANCIAL PERFORMANCE 1 JANUARY – 31 MARCH 2018

The Group´s operating profit was EUR 400 thousand (488) and represented 14% of net sales (17). The decrease in operating profit was due to increased marketing, sales and product development costs. Increased headcount led to 11% growth in personnel expenses, which were EUR 1,551 thousand (1,399).

The Group´s fixed costs were EUR 2,089 thousand (1,956), and increased 7% compared to the corresponding period in the previous year. Personnel expenses represented 74% (72) of the fixed costs. Credit losses, included in fixed costs, were EUR 5 thousand (38).

Profit before taxes was EUR 211 thousand (477) and profit for the period was EUR 124 thousand (365). Taxes recorded for the period were EUR 86 thousand (112). Earnings per share (fully diluted) were EUR 0.010 (0.030).


FINANCE AND INVESTMENTS

Net financial expenses in the review period were EUR 189 thousand (11) and included currency exchange losses of EUR 189 thousand (10). Exceptionally large currency exchange losses are due to liquidation of the Group´s subsidiary in Russia. The currency exchange losses arise from the subsidiary´s working capital and were initiated when Russian rouble weakened significantly in years 2009 – 2018. Currency differences have in previous years been reported in other comperensive income, and after liquidation of the subsidiary as financial expenses in the Group´s profit and loss statement. Thus these currency losses do not have any impact on retained earnings or cash flow from operating activities.

Cash flow from operating activities was EUR 1,597 thousand (1,715) in the first quarter. The decreased cash flow from operating activities resulted mainly from changes in invoicing practices. Due to these changes, the share of cash flow from total annual recurring revenue was smaller than in the previous year in January – March. Cash and cash equivalents at the end of the reporting period were EUR 1 704 thousand (2 015).

Investments in the first quarter totaled EUR 210 thousand (265). Investments were mainly related to product development expenditure.

The Group´s financial position is strong. At the end of the quarter, the Company had no interest-bearing liabilities. The gearing ratio was -54% (-54). Current liabilities include deferred revenue in total of EUR 1,251 thousand (1,387).

At the end of the quarter, the equity ratio was 58% (62) and the consolidated shareholders’ equity was EUR 3,179 thousand (3,759).


PRODUCT DEVELOPMENT

QPR innovates and develops software products that analyze, measure and model operations in organizations. Product development expenses in the first quarter were EUR 501 thousand (564), equal to 17% (20) of net sales. Product development expenses do not include amortization of capitalized product development expenses

In first the quarter, product development expenses were capitalized for a total amount of EUR 196 thousand (231). The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses for the quarter was EUR 187 thousand (151).

The focus in product development continued to be great user experience, as well as versatile and high quality analytics and measurement functionalities. The Company develops the following software products: QPR EnterpriseArchitect, QPR Metrics, QPR ProcessDesigner, and QPR ProcessAnalyzer.


PERSONNEL

At the end of the quarter, the Group employed a total of 79 persons (75). The average number of personnel during the quarter was 78 (72).

The average age of employees is 40.2 (38.9) years. Women account for 21 % (26) of employees, men for 79% (74). 18% (15) work in sales and marketing, 42% (43) in consulting, 32% (32) in product development, and 9% (10) in administration.

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 mainly on the Group and business unit net sales performance.


QPR SOFTWARE’S STRATEGY FOR 2018–2020

QPR Software innovates, develops and sells software for the international marketplace aimed at analyzing, measuring and modeling operations in organizations. Furthermore, we offer customers a variety of services for operational development planning and execution.

We focus our product development to meet the challenges organizations face, especially in leading and developing their operations in a digitalizing world. Our focus areas for development are process mining and modeling, as well as performance measurement. We believe that the relevant market for these focus areas will grow significantly in the future, as companies collect more and more data on transactions and other events from their operations. Our target is to gain a significant share in the rapidly growing process mining and analytics market.

We accelerate product development by increasing our resources in a controlled manner and allocating them especially to process mining and analytics. In software development, special focus is placed on excellent user experience.

In the next few years, QPR seeks to grow, especially its international software sales. To reach this target, the Company will continue to increase its resources and investments in international marketing and sales in 2018. QPR’s reseller channel will continue to play a strategic role in international sales and distribution of QPR’s modeling and performance management products. QPR’s own international direct sales will focus on the process mining and analytics product. 

 

SHARES AND SHAREHOLDERS

     
Trading of sharesJan-Mar,
2018
Jan-Mar,
2017
Change,
%
Jan-Dec,
2017
     
Shares traded, pcs178,451580,957-691,552,104
Volume, EUR299,150822,746-642,463,215
% of shares1.54.8 12.9
Average trading price, EUR1.681.42181.59
     
Shares and market capitalizationMar 31,
2018
Mar 31,
2017
Change,
%
Dec 31,
2017
     
Total number of shares, pcs12,444,86312,444,863-12,444,863
Treasury shares, pcs457,009457,009-457,009
Book counter value, EUR0.110.11-0.11
Outstanding shares, pcs11,987,85411,987,854-11,987,854
Number of shareholders1,2031,18911,246
Closing price, EUR1.741.44211.71
Market capitalization, EUR20,858,86617,262,5102120,499,230
Book counter value of all treasury
shares, EUR
50,27150,271-50,271
Total purchase value of all treasury
shares, EUR
439,307439,307-439,307
Treasury shares, % of all shares3.73.7-3.7

 

EVENTS AFTER THE REPORTING PERIOD

Governance 

The Annual General Meeting held on April 12, 2018 approved the Board's proposal to pay a per-share dividend of EUR 0.03 (0.03), a total of EUR 360 thousand (360) for the financial year 2017. Dividends were paid to all shareholders registered in the Company's shareholder register, maintained by Euroclear Finland Oy, on the record date of April 16, 2017. Dividends were paid on April 23, 2018.

The Annual General Meeting resolved that the number of Board Members is four (4) and re-elected Juha Häkämies, Vesa-Pekka Leskinen, Topi Piela and Taina Sipilä 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 April 12, 2018 and available on the investors section of the Company's web site, http://www.qpr.com/investors/stock-exchange-releases.


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 three 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. The amount of trade receivables over 60 days past due was 15% (9) 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 (71). At the end of the quarter, the Company had not hedged its non-euro trade receivables.

Risks and risk management related to the Company’s business are further described in the Annual Report 2017, pages 21-23 (https://www.qpr.com/investors/financial-information/annual-reports)


FINANCIAL INFORMATION

In 2018, QPR Software will publish interim reports in English and Finnish on the following dates:

  • Half Year Report Q2/2018: Thursday, August 2, 2018.
  • Interim Report Q3/2018: Thursday, October 25, 2018.

 

QPR SOFTWARE PLC
BOARD OF DIRECTORS

 

Further information:

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

Jaana Mattila, CFO
Tel. +358 (0) 40 532 7328 

 

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.

 

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

     
EUR in thousands, unless
otherwise indicated
Jan-Mar,
2018
Jan-Mar,
2017
Change,
%
Jan-Dec,
2017
     
Net sales2,8822,81329,084
Other operating income-50 18
     
Materials and services38837051,154
Employee benefit expenses1,5511,399115,682
Other operating expenses297351-151,320
EBITDA640694-8946
     
Depreciation and amortization24020616913
Operating profit400488-1832
     
Financial income and expenses-189-111,663-38
Profit before tax211477-56-6
     
Income taxes-86-112-23-146
Profit for the period124365-66-152
     
     
Earnings per share, EUR
(basic and diluted)
0.0100.030-66-0.013
     
Consolidated statement of
comprehensive income:
    
 Profit for the period124365-66-152
Other items in comprehensive
income that may be reclassified
subsequently to profit or loss:
    
 Exchange differences on
 translating foreign operations
1790 -7
Total comprehensive income304365-17-159


CONSOLIDATED BALANCE SHEET

     
EUR in thousandsMar 31,
2018
Mar 31,
2017
Change,
%
Dec 31,
2017
     
Assets    
     
Non-current assets:    
 Intangible assets1,9362,008-41,952
 Goodwill5135130513
 Tangible assets139199-30153
 Other non-current assets12727365127
Total non-current assets2,7152,746-12,745
     
Current assets:    
 Trade and other receivables2,3322,655-123,744
 Cash and cash equivalents1,7042,015-15318
Total current assets4,0364,669-144,061
     
Total assets6,7517,416-96,807
     
Equity and liabilities    
     
Equity:    
 Share capital1,3591,35901,359
 Other funds2121021
 Treasury shares-439-4390-439
 Translation differences-61-233-74-240
 Invested non-restricted equity fund5505
 Retained earnings2,2943,046-252,169
Equity attributable to shareholders of
the parent company
3,1793,759-152,875
     
Current liabilities:    
 Advances received1,2511,387-10997
 Accrued expenses and prepaid income2,0181,93542,314
 Trade and other payables304335-9620
Total current liabilities3,5723,657-23,932
     
Total liabilities3,5723,657-23,932
     
Total equity and liabilities6,7517,416-96,807


CONSOLIDATED CASH FLOW STATEMENT

     
EUR in thousandsJan-Mar,
2018
Jan-Mar,
2017
Change,
%
Jan-Dec,
2017
     
Cash flow from operating activities:    
 Profit for the period124365-66-152
 Adjustments to the profit6963291111,091
 Working capital changes7891,062-26200
 Interest and other financial
 expenses paid
-9-17-51-37
 Interest and other financial
 income received
34-2110
 Income taxes paid-7-28-73-128
Net cash from operating activities1,5971,715-7984
     
Cash flow from investing activities:    
 Purchases of tangible and
 intangible assets
-210-265-21-872
Net cash used in investing activities-210-265-21-872
     
Cash flow from financing activities:    
 Dividends paid-- -360
Net cash used in financing activities-- -360
     
Net change in cash and cash
equivalents
1,3871,450-4-247
Cash and cash equivalents
at the beginning of the period
318565-44565
Effects of exchange rate changes
on cash and cash equivalents
-10 0
Cash and cash equivalents
at the end of the period
1,7042,015-15318


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

        
EUR in thousandsShare
capital
Other
funds
Translation
differences
Treasury
shares
Invested non-
restricted
equity fund
Retained
earnings
Total
Equity Dec 31, 20161,35921-233-43952,5383,252
Equity IFRS changes     142142
Equity Jan 1, 20171,35921-233-43952,6813,394
Comprehensive income  0  365365
Equity Mar  31, 20171,35921-233-43953,0463,759
Dividends paid     -360-360
Comprehensive income  -7  -517-524
Equity Dec 31, 20171,35921-240-43952,1692,875
Comprehensive income  179  124304
Equity Mar 31, 20181,35921-61-43952,2933,179

 

NOTES TO INTERIM FINANCIAL STATEMENTS


ACCOUNTING PRINCIPLES

This report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2018, the Group has applied certain new or revised IFRS standards and IFRIC interpretations as described in the Consolidated Financial Statements 2017. Implementation of IFRS 15 Revenue from Contracts with Customers –standard has changed revenue recognition, generation of operating profit and key figures as described in the Reporting section of this interim report. The implementation of other 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 2017 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. 


INTANGIBLE AND TANGIBLE ASSETS

    
EUR in thousandsJan-Mar, 2018Jan-Mar, 2017Jan-Dec, 2017
    
Increase in intangible assets:   
 Acquisition cost Jan 19,3188,5218,521
 Increase196231797
    
Increase in tangible assets:   
 Acquisition cost Jan 11,8211,7461,746
 Increase143475

 

PLEDGES AND COMMITMENTS

     
EUR in thousandsMar 31,  2018Mar 31,  2017Dec 31,  2017Change, %
     
Business mortgages (held by the Company)1,3861,3901,3880
     
Minimum lease payments based on lease agreements:    
 Maturing in less than one year2952802786
 Maturing in 1-5 years1429588-84
Total309575365-15
     
Total pledges and commitments1,6951,9651,754-3

 

CONSOLIDATED INCOME STATEMENT BY QUARTER

      
EUR in thousandsQ1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
      
Net sales2,8822,1071,9662,1982,813
Other operating income-55670
      
Materials and services388246241297370
Employee benefit expenses1,5511,5061,3041,4731,399
Other operating expenses297432226311351
EBITDA640-72201123694
      
Depreciation and amortization240250235223206
Operating profit400-322-34-99488
      
Financial income and expenses-189-7-7-14-11
Profit before tax211-329-41-113477
      
Income taxes-86-70927-112
Profit for the period124-398-32-86365



GROUP KEY FIGURES 

    
EUR in thousands, unless
otherwise indicated
Jan-Mar or
Mar 31, 2018
Jan-Mar or
Mar 31, 2017
Jan-Dec or
Dec 31, 2017
    
Net sales2,8822,8139,084
Net sales growth, %2.5  
EBITDA640694946
 % of net sales22.224.710.4
Operating profit40048832
 % of net sales13.917.30.4
Profit before tax211477-6
 % of net sales7.317.0-0.1
Profit for the period124365-152
 % of net sales4.313.0-1.7
    
Return on equity (per annum), %16.440.8-4.8
Return on investment (per annum), %53.355.31.4
Cash and cash equivalents1,7042,015318
Net borrowings-1,704-2,015-318
Equity3,1793,7592,875
Gearing, %-53.6-53.6-11.0
Equity ratio, %57.862.349.5
Total balance sheet6,7517,4166,807
    
Investments in non-current assets210265872
 % of net sales7.39.49.6
Product development expenses5015642,274
 % of net sales17.420.125.0
    
Average number of personnel787276
Personnel at the beginning of period766363
Personnel at the end of period797576
    
Earnings per share, EUR0.0100.030-0.013
Equity per share, EUR0.2550.3020.231