Financial statements bulletin 1 January-31 December 2017

Fourth quarter: Net sales increased by 14.3 per cent

Fiscal year 2017

Net sales increased by 11.9 per cent to EUR 36,259 thousand (32,395)*. At comparable exchange rates, net sales increased by 13.4 per cent.
The operating result was EUR -3,206 thousand (-1,736).
The operating margin (EBIT %) was -8.8 per cent (-5.4%).
Earnings per share were EUR -0.14 (-0.08).

October–December 2017:

Net sales increased by 14.3 per cent to EUR 10,108 thousand (8,845). At comparable exchange rates, net sales increased by 20.7 per cent.
The operating result was EUR -701 thousand (-305).
The operating margin (EBIT %) was -6.9 per cent (-3.5%).
Earnings per share were EUR -0.03 (-0.01).

* the figures in brackets refer to the comparison period, i.e. the corresponding period in the previous year.
This financial statements bulletin was prepared in compliance with IAS 34 Interim Financial Reporting. The amounts from the financial statements presented in this bulletin are based on the company’s audited financial statements. The Auditor’s Report was issued on 15 February 2018.

BOARD OF DIRECTORS’ DIVIDEND PROPOSAL

The Board of Directors of Qt Group Plc proposes to the Annual General Meeting that no dividend be paid for the fiscal year that ended on 31 December 2017. 

BUSINESS

Qt is responsible for Qt development, productisation and licensing under commercial and open source licences. Qt technology is used globally by over one million software developers. Qt is used for developing cross-platform applications and graphic user interfaces for desktops, embedded systems and mobile devices. Qt technology is used in over 70 different industries and in millions of devices and applications, including consumer electronics, vehicles, airplanes and industrial automation applications. Qt has operating locations in Finland, Norway, Germany, the United States, Russia, China, Japan and South Korea.

Juha Varelius, President and CEO:

The fiscal year 2017 was the first year in the 2017–2021 strategic period for Qt Group. Our long-term financial targets are to achieve annual net sales of EUR 100 million and operating profit of more than 15 per cent in 2021. Although net sales growth for the past fiscal year was slightly lower than our original target, our performance in 2017 still provides a good foundation for achieving our strategic growth targets in the future.

Net sales for 2017 increased by 11.9 per cent compared to the previous fiscal year. Licence sales and consulting grew by 9.3 per cent and support and maintenance by 16.8 per cent. At comparable exchange rates, net sales for the entire year increased by 13.4 per cent.

When it comes to net sales development, 2017 was divided. Net sales growth in the first half of the year was just 8.4 per cent, which was primarily due to a significant transaction in the comparative period of the previous year, which significantly increased net sales for that period. In the second half of the year, growth accelerated to 15.4 per cent compared to the previous year, although the weakening of the US dollar compared to the euro put a clear strain on net sales growth in the second half of the year. At comparable exchange rates, growth during the second half of the year was over 20 per cent.

As expected, the operating result for the fiscal year showed a loss. Qt Group made investments in growth and recruited new personnel in line with its growth strategy following the successful share issue completed in April 2017. As a result of the share issue, the company raised EUR 15.3 million in new capital in order to implement its growth strategy.

During 2017, the company implemented its strategy above all by investing in growing the global sales network. In the sale of embedded systems in particular, which is a pillar of the company’s growth strategy, the sales cycles are long and require a local presence. The company has particularly invested in its biggest market areas, which are currently the United States, Germany, Japan, South Korea and China. During 2017, we hired nearly one hundred new employees, particularly in global sales and sales support functions.

The year 2017 saw the release of the new versions Qt 5.8, Qt 5.9 and Qt 5.10 of the technology, as well as the launch of the new Qt 3D Studio, which supports the design of 3D-based user interfaces in particular. 3D user interfaces are a rising trend in many industries, especially the automotive, healthcare and industrial automation sectors. Innovative, easy-to-use 3D design tools are an important part of user interface design.

Qt is the leading independent technology behind millions of devices and applications. Qt is used by approximately one million developers worldwide and by leading global players in more than 70 industries. As evidence of the long-term competitiveness of Qt technology, we have gained a strong foothold as a technology platform of the automotive industry. We already have several significant automotive manufacturers and their major suppliers as our customers. We continuously engage in negotiations in order to broaden our current partnerships and gain new customers. Over the course of 2017, many significant car manufacturers have released Qt-based concept vehicles, and we are constantly developing new concepts using Qt technology in cooperation with our partners. We are engaging in closer sales and technology cooperation directly with car manufacturers and aim to support their ultimate technology choices in the coming years. However, development cycles in the automotive industry last several years, and significant net sales based on device sales from these possible choices are not expected to be recognised as revenue until starting from 2019 and onwards.

The sold-out Qt World Summit 2017 seminar, which attracted 1,000 participants, was held in the autumn in Berlin, Germany. The event featured more than 90 expert speeches and enabled us to meet with important customers and partners in cooperation.

We estimate that the growth prospects for the company’s business in the next few years will be very promising and are keeping our long-term strategy and goals unaltered. The company’s financial goals are to achieve, in 2021, annual net sales of EUR 100 million and an operating margin (EBIT %) of more than 15 per cent.

We estimate that our net sales in 2018 will increase by more than 15 per cent year-on-year at comparable exchange rates. Due to investments in line with its growth strategy, the company’s operating result will show a substantial loss also in 2018, as was expected based on prior forecasts.

Net sales

Qt’s net sales for 2017 amounted to EUR 36,259 thousand (32,395), up by 11.9 per cent. Licence sales and consulting grew by 9.3 per cent and support and maintenance by 16.8 per cent. At comparable exchange rates, net sales for the entire year increased by 13.4 per cent.

Qt’s net sales for the fourth quarter amounted to EUR 10,108 thousand (EUR 8,845 thousand), up 14.3 per cent. Licence sales and consulting grew by 14.6 per cent and support and maintenance by 13.6 per cent. At comparable exchange rates, net sales during the fourth quarter increased by 20.7 per cent.

Profit performance

Qt’s operating result for October–December 2017 was EUR -701 thousand (EUR -305 thousand). The operating result for the financial year amounted to EUR -3,206 thousand (EUR -1,736 thousand).

The other operating income for the fiscal year includes income gained from events organised by the company, as well as tax-free research and development investment grants received by the company in Norway, totalling approximately EUR 389 thousand. The grants concern the applicable personnel expenses related to the research and development activities of Qt’s Norwegian company, and they were paid to the company in the second half of 2017.
The company’s operating expenses, including materials and services, personnel expenses, depreciation and other operating expenses, amounted to EUR 11,387 thousand (EUR 9,625 thousand) in the fourth quarter, up 18.3 per cent compared to the same period in the previous year. Personnel expenses accounted for 63.4 per cent (60.1%) of operating expenses, or EUR 7,214 thousand (EUR 5,787 thousand).

The company’s net financial expenses in the fourth quarter amounted to EUR 134 thousand (EUR 90 thousand), due to translation differences in currency-denominated internal receivables and debts related to the financing of international subsidiaries.

Qt’s earnings before tax for the fourth quarter totalled EUR -835 thousand (EUR -395 thousand) and the result was EUR -731 thousand (EUR -153 thousand). Taxes for the review period amounted to EUR 104 thousand positive (EUR 242 thousand), which was due to deferred tax assets recognised for losses.

Earnings per share totalled EUR -0.03 during the fourth quarter (EUR -0.01).

Financing and investments

Cash flow from operating activities was EUR -2,939 thousand (EUR -1,385 thousand) in the first half of the year due to growth investments and subsequent loss-making operating result.

The subscription period for the rights offering resolved on by the Board of Directors of Qt Group Plc on 14 March 2017 ended on 5 April 2017, and the company announced the final result of the offering in a stock exchange release on 12 April 2017. The company raised gross proceeds of approximately EUR 15.3 million from the rights offering. A loan of EUR 6.0 million, granted by Ilmarinen Mutual Pension Insurance Company, was repaid in full in May 2017.

Qt’s cash and cash equivalents totalled EUR 11,693 thousand (EUR 6,420 thousand) at the end of the fiscal year.

Qt Group’s consolidated balance sheet total at the end of the fiscal year stood at EUR 37,485 thousand (EUR 29,443 thousand). Net cash flow from investments during the fiscal year was EUR -384 thousand (EUR -374 thousand).

The equity ratio stood at 42.9 per cent (40.0%) and gearing was -54.2 per cent (0.7%). Interest-bearing liabilities amounted to EUR 686 thousand (EUR 6,207 thousand), of which short-term loans accounted for EUR 287 thousand (EUR 6,152 thousand).

The return on investment for the fiscal year was -15.3 per cent (-12.0%) and return on equity was -15.9 per cent (-21.1%).

Research and development

Product development expenses are included in the result for the fiscal year in their entirety and the company has no capitalised product development expenses in its balance sheet.
Product development expenses during the fiscal year totalled EUR 8,527 thousand (EUR 8,347 thousand), accounting for 23.5 per cent (25.8%) of operating expenses. Product development expenses increased by 2.2 per cent year-on-year.

At the end of the review period, the company had 111 people (87) employed in product development.

Personnel

The number of Group personnel was 275 (218) on average during the fourth quarter and 276 (220) at the end of the fiscal year. The Group’s personnel expenses during the quarter amounted to EUR 7,214 thousand (EUR 5,787 thousand), up 24.7 per cent year-on-year. Personnel expenses totalled EUR 26,975 thousand (EUR 22,990 thousand) during the fiscal year, up 17.3 per cent.

At the end of the fiscal year, international personnel represented 68 per cent (68%) of the total.

Juha Varelius has been Qt Group Plc’s President and CEO since 1 May 2016.

Other events in the review period

Governance

Qt Group Plc's Annual General Meeting (AGM) held on 14 March 2017 adopted the company’s annual accounts, including the consolidated annual accounts for the accounting period 1 January‒31 December 2016, and discharged the members of the Board of Directors and the Chief Executive Officer from liability. The AGM resolved, in accordance with the Board’s proposal, that no dividend will be paid based on the balance sheet adopted for the accounting period that ended on 31 December 2016.

The AGM resolved on the remuneration of the company’s Board of Directors and auditors, decided that the number of members on the Board of Directors would be five (5) and elected the company’s Board of Directors. Robert Ingman, Matti Rossi, Leena Saarinen, Tommi Uhari and Kai Öistämö were re-elected as members of Qt Group Plc’s Board of Directors. At its organising meeting held after the AGM, the Board of Directors elected Robert Ingman as its Chairman and Tommi Uhari as the Vice Chairman.

The Annual General Meeting granted the following authorisations to the Board of Directors of Qt Group Plc:

Authorising the Board of Directors to decide on repurchasing the company’s own shares and/or accepting them as collateral

The AGM authorised the Board of Directors to decide on the repurchase and/or acceptance as collateral of a maximum of 2,000,000 of the company’s own shares by using funds in the unrestricted equity.

According to the authorisation, the Board will decide on how these shares are to be purchased. The shares may be repurchased in a proportion other than that of the shares held by the current shareholders. The authorisation also includes the acquisition of shares through public trading organised by Nasdaq Helsinki Ltd in accordance with its and Euroclear Finland Ltd’s rules and instructions, or through offers made to shareholders.

Shares may be acquired in order to improve the company’s capital structure, to finance or carry out acquisitions or other arrangements, to implement share-based incentive schemes, to be transferred for other purposes, or to be cancelled.

The shares shall be repurchased for a price based on the fair value quoted in public trading. The authorisation is valid for 18 months from the issue date of the authorisation, i.e. until 14 September 2018, and it replaces any earlier authorisations on the repurchase and/or acceptance as collateral of the company's own shares.

Authorising the Board of Directors to decide on a rights issue

The AGM authorised the Board to decide on the issuance of a maximum total of 4,500,000 new shares or treasury shares in one or several rights issues pursuant to the pre-emptive subscription rights of the shareholders.

The authorisation is valid until 31 December 2017. The authorisation does not replace any earlier authorisations on share issues and the granting of special rights.

The authorisation includes the Board of Directors’ right to decide on all terms relating to the share issue(s).

Authorising the Board of Directors to decide on a share issue and the granting of special rights entitling to shares
The AGM authorised the Board to decide on a share issue and the granting of special rights pursuant to Chapter 10, Section 1, of the Companies Act, subject to or free of charge, in one or several tranches on the following terms.

The maximum total number of shares to be issued by virtue of the authorisation is 2,000,000. The authorisation concerns both the issuance of new shares as well as the transfer of treasury shares. By virtue of the authorisation, the Board of Directors is entitled to decide on share issues and the granting of special rights waiving the pre-emptive subscription rights of the shareholders (directed issue).

The authorisation may be used in order to finance or carry out acquisitions or other arrangements, to carry out the company’s share-based incentive schemes and to improve the capital structure of the company, or for other purposes decided by the Board of Directors.

The authorisation includes the Board of Directors' right to decide on all terms relating to the share issue and granting of special rights including the subscription price, its payment and its entry into the company's balance sheet.

The authorisation is valid for 18 months from the issue date of the authorisation, i.e. until 14 September 2018. The authorisation does not replace any earlier authorisations on share issues and the granting of special rights.

Based on the authorisation granted by the AGM, the Board of Directors of Qt Group Plc resolved on 14 March 2017 on a rights offering of a maximum of EUR 15.3 million. In the rights offering, the company offered a maximum of 2,974,039 new shares to its shareholders for subscription in proportion to their current shareholding in the company. The subscription price for the offered shares was EUR 5.15 per share.

The company announced the final result of the rights offering in a stock exchange release published on 12 April 2017. A total of 3,431,175 shares were subscribed for in the share issue. The Board of Directors accepted all primary subscriptions and secondary subscriptions in accordance with the terms and conditions of the offering, with a total of 2,974,039 new shares issued in the rights offering and registered with the Trade Register maintained by the Finnish Patent and Registration Office on 13 April 2017. As a result of the share issue, the total number of shares in the company increased to 23,792,312.

In its stock exchange release from 27 September 2017, the company announced that the programme involving the issue of a maximum of 2,000,000 stock option rights to key personnel of the company, approved at its meeting on 22 June 2016, will be continued so that the still existing 480,000 options will be issued to the key personnel according to the conditions of the option programme. At the same time, the Board of Directors of the company decided to issue a total of 52,348 option rights from the above-mentioned amount gratuitously to those key personnel who had previously been granted option rights based on the option programme. These additional options were issued as an offering correction due to the fact that the share issue approved by the board on 14 March 2017 increased the number of company shares by 2,974,039 and the board did not want this change to affect the value of the options already granted to those who received them.

Share

Qt Group Plc has one series of shares. Each share confers one vote and equal rights. The total number of shares is 23,792,312, and the share capital is EUR 500,000. Qt Group Plc did not hold any treasury shares during the reporting period.

Qt Group Plc’s share (trading code: QTCOM) is traded on the Nasdaq Helsinki stock exchange. A total of 2,031,554 shares changed hands during the reporting period. This accounts for 8.5 per cent of the total number of shares. The volume-weighted average price of the share was EUR 6.38, with the lowest price being EUR 5.13 (21 December 2017) and the highest price EUR 7.58 (13 April 2017). The closing price at the end of December was EUR 5.21 per share, and Qt Group’s market capitalisation was EUR 124.0 million. The company had a total of 4,006 shareholders at the end of December 2017.

The company did not receive any flagging notifications during the fiscal year 2017.

Events after the end of the fiscal year

The company does not have any significant events after the end of the fiscal year that would have affected the financial statements.

Risks and uncertainties

The company’s short-term risks and uncertainties are related to potential significant changes in the company’s business operations as well as the retention and recruitment of the personnel required for business development.

Exchange rate fluctuations, particularly between the US dollar and euro, may have a large impact on the development of the company’s net sales. Another factor contributing to considerable fluctuation in quarterly net sales and profitability in particular is contract turnaround times which, in the major customer segment, are very long at up to 18 months.

The company’s business risks and preparations for them are also described on the company website at www.qt.io.

Future outlook

Operating environment and market outlook

The company estimates the growth prospects for its business in the next few years as very promising.

The foundation of the company’s business is the stable market for platform-independent desktop applications, which the company will continue to support by offering customers new versions of Qt and innovations related to 3D technology, for example. Growth potential on the desktop application side is, however, constrained by the limited number of software developers.

The company aims to achieve net sales growth by developing and expanding its sales and product offering, particularly in selected industries that create embedded systems, such as the automotive industry, household and industrial automation and medical device industry. Because many device manufacturers use desktop applications as part of their overall systems for purposes such as device data visualisation, this part of the company’s product offering will also continue to be an important part of the comprehensive solutions the company offers its customers. The company’s earnings model in the embedded systems market is based on the number of devices developed using Qt, which means that the future growth potential in this market is significantly greater than in the desktop applications market. In order to support this, the focus of the company’s product development is targeted towards developing value-adding features of embedded systems required for the above-mentioned industries, as well as on innovating development tools.

Sales growth associated with embedded systems will also reflect on the earnings logic. Volume-based licence revenue from these sales accumulates over the long term. Consequently, the company anticipates no major impact from embedded systems sales growth on consolidated net sales in 2018.

Outlook 2018

The company estimates the growth of its net sales to pick up speed in 2018 with over 15 per cent growth at comparable exchange rates from the previous year. Due to investments in line with its growth strategy, the company’s operating result will show a substantial loss also in 2018, as was expected based on prior forecasts.

Helsinki, 16 February 2018

Qt Group Plc

Board of Directors

Communications

Qt Group will hold a briefing on this fiscal year report for analysts on Friday, 16 February 2018 at 11:00 a.m. in the Eino Leino room of Hotel Kämp, Pohjoisesplanadi 29, 00100 Helsinki, Finland. Welcome! The financial statements report and CEO’s presentation will be available in the Investors section at www.qt.io from 11:00 a.m. on 16 February 2018.

Further information

Juha Varelius, CEO, tel. +358 9 8861 8040

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