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QPR SOFTWARE STOCK EXCHANGE RELEASE, FEBRUARY 27, 2020 AT 11:00 AM


Strong growth in process mining continued

January – December 2019

  • Net sales amounted to EUR 9,513 thousand (2018: 10,047), down 5%.
  • Process mining software QPR ProcessAnalyzer´s net sales grew by 49% but the Group net sales decreased by 5 % due to decreasing modeling and performance management software net sales.
  • Recurring revenue accounted for 52% of net sales (54).
  • Operating result (EBIT) was EUR -213 thousand (521).
  • Operating margin was -2.2% (5.2)
  • Result before taxes was EUR -240 thousand (335).
  • Result for the period was EUR -161 thousand (320).
  • Earnings per share was EUR -0.013 (0.027).

October – December 2019

  • Net sales amounted to EUR 2,499 thousand (2018: 2,671), down 6%.
  • Operating result (EBIT) was EUR -123 thousand (130).
  • Operating margin was to -4.9% (4.9).
  • Result before taxes was EUR -126 thousand (128).
  • Result for the quarter was EUR -119 thousand (189).
  • Earnings per share decreased to EUR -0.010 (0.016).

Business operations

QPR Software´s mission is to make customers agile and efficient in their operations. We innovate, develop, and sell software aimed at analyzing, monitoring, and modeling operations in organizations. Furthermore, we offer customers a variety of consulting services.


OUTLOOK

Operating environment and market outlook

In recent years, QPR Software has made significant investments in developing the Company´s process mining software, as well as in renewing the user interfaces of its software products. The Company estimates that the demand for process mining software and related services will continue to grow rapidly over the course of 2020.

In developed markets, we expect the competition for process and enterprise architecture modeling software, as well as for performance management software to remain tight. However, there is still growth potential for these products in emerging markets, especially for performance management software.

Outlook for 2020

Based on actual sales performance in early 2020 and current sales funnel, QPR expects net sales to grow in 2020 (2019: EUR 9,513 thousand). The most significant sources of growth are international process mining and performance management software sales and deliveries. Operating result (EBIT) is estimated to be negative (2019: -213 thousand) due to planned increase in European sales personnel and growth investments in software products. EBITDA is expected to be positive (2019: EUR 1,036 thousand).

Mid-term financial targets

The Company´s mid-term target in 2020 – 2022 is to grow net sales by an average of 15 – 20% per annum. The target is mainly based on international net sales growth in process mining, where we target an annual growth of over 50%.


KEY FIGURES

             
EUR in thousands,
unless otherwise indicated
Oct-Dec,
2019
Oct-Dec,
2018
Change,
%
Jan-Dec,
2019
Jan-Dec,
2018
Change,
%
             
Net sales 2,499 2,671 -6 9,513 10,047 -5
EBITDA 199 362 -45 1,036 1,470 -29
 % of net sales 7.9 13.5   10.9 14.6  
Operating result -123 130 -195 -213 521 -141
 % of net sales -4.9 4.9   -2.2 5.2  
Result before tax -126 128 -199 -240 335 -172
Result for the period -119 189 -163 -161 320 -150
 % of net sales -4.8 7.1   -1.7 3.2  
             
Earnings per share, EUR
(basic and diluted)
-0.010 0.016 -163 -0.013 0.027 -150
Equity per share, EUR 0.222 0.231 -4 0.222 0.231 -4
             
Cash flow from operating
activities
413 159 160 1,349 1,335 1
Cash and cash equivalents 1,035 505 105 1,035 505 105
Net borrowings -251 -505 -50 -251 -505 -50
Gearing, % -9.1 -17.6 -48 -9.1 -17.6 -48
Equity ratio, % 44.5 48.6 -8 44.5 48.6 -8
Return on equity, % -17.0 27.3 -162 -5.7 11.4 -150
Return on investment, % -13.9 19.0 -173 -5.9 18.9 -131

Adoption of IFRS16 has affected key figures, which in that sense are not fully comparable.


REPORTING

QPR Software innovates, develops, sells and delivers software and services in international markets aimed at facilitating 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 licenses, Renewable software licenses, Software maintenance services, Cloud services and Consulting.

Recurring revenue reported by the Company consists of Software maintenance services and Cloud services. In addition, recurring revenue includes Renewable software licenses.

Software licenses are sold to customers for perpetual use or for an agreed, limited period. Renewable software licenses are sold to customers as a user right with an indefinite duration. These contracts are automatically renewed at the end of the agreed period, usually one year, unless the agreement is terminated within notice period. Renewable license revenue is recognized at one point in time, in the beginning of the invoicing 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 headquarter location.

The figures in this financial statements bulletin have been reported in accordance with the IFRS 16 Lease agreement standard, effective from January 1, 2019. Detailed description is included in Accounting Principles section of this report.


REVIEW BY THE CEO

The investments into our process mining software QPR ProcessAnalyzer were paying off in the reporting period, and international software net sales in this business area continued to grow. In 2019, process mining software net sales recorded 49% growth, driven by strong international software sales.

Process mining software is globally strengthening its position as an operational analytics tool, especially in the large organizations segment. Analysis results are used, among others, for improving existing operations, process optimization and automatization as well as digital transformation.

Process mining software product development proceeded well in the reporting period. We added, among others, features that enable fast and accurate process performance measurement and support for process automation initiatives. Thanks to new features added to the product, customers can also perform conformance analyses and compare actual performance to designed processes and operating models. In addition to this, we introduced new features utilizing artificial intelligence, such as clustering and forecasting features.

The competition in process and enterprise architecture modeling software and performance management software markets remained tight, as expected. Our modeling software net sales were negatively impacted by tightened competition and pricing change we implemented for enterprise architecture modeling software cloud services in the Finnish public sector. With this new pricing, we aim at significant increase in users of this software in the long term. Consulting net sales around operational development, digitalization and change management decreased in the latter half of the year in the public sector, where demand decreased after the Parliamentary Election in April.

In the future, we will focus on further developing our process mining software product and seek to strengthen its position in the rapidly growing market. We seek to grow our international software sales through direct sales, as well as with our current reseller partners and through new strategic partnerships. We are planning to add sales resources especially in European key markets, such as United Kingdom and France.

Jari Jaakkola
CEO

NET SALES DEVELOPMENT

NET SALES BY PRODUCT GROUP

             
EUR in thousands Oct-Dec,
2019
Oct-Dec,
2018
Change,
%
Jan-Dec,
2019
Jan-Dec,
2018
Change,
%
             
Software licenses 459 434 6 1,552 1,559 0
Renewable software licenses 194 192 1 1,102 1,126 -2
Software maintenance services 686 739 -7 2,731 2,989 -9
Cloud services 281 347 -19 1,068 1,316 -19
Consulting 879 959 -8 3,061 3,057 0
Total 2,499 2,671 -6 9,513 10,047 -5

                                                                                                                                                                      

NET SALES BY GEOGRAPHIC AREA

             
EUR in thousands Oct-Dec,
2019
Oct-Dec,
2018
Change,
%
Jan-Dec,
2019
Jan-Dec,
2018
Change,
%
             
Finland 1,225 1,428 -14 4,863 5,444 -11
Europe incl. Russia and Turkey 716 850 -16 2,965 2,817 5
Rest of the world 557 393 42 1,686 1,786 -6
Total 2,499 2,671 -6 9,513 10,047 -5


October – December 2019

The fourth quarter net sales were EUR 2,499 thousand (2,671) and decreased by 6% compared to the corresponding period last year.

Software license net sales increased by 6% and were EUR 459 thousand. Software maintenance net sales decreased by 7% from the previous year, which was mainly due to maintenance net sales decrease in our international reseller channel. In process mining, software license net sales and maintenance net sales increased.

Cloud service net sales decreased by 19%. The decrease was due to a pricing change we implemented in the Finnish public sector modeling software cloud services. With this new pricing, we aim at significant increase in users of this software in the long term. In process mining, cloud service net sales increased.

Consulting net sales decreased by 8%, which resulted mainly from a demand decline in consulting sales around operational development, digitalization and change management in the Finnish public sector.

Net sales in international markets grew by 2%, including process mining net sales growth, as well as decline in modeling software net sales. Net sales in Finland decreased by 14%, mainly due to the pricing change in modeling software cloud services described earlier in this report, as well as consulting demand decline in the public sector.

Of the Group net sales, 49% (53) derived from Finland, 29% (32) from the rest of Europe (including Russia and Turkey) and 22% (15) from the rest of the world.

January – December 2019

Net sales in January – December were EUR 9,513 thousand (10,047), down 5%. Recurring revenue accounted for 52% (54) of net sales.

Software license net sales were on the same level as prior year (-1%).Software maintenance net sales decreased by 9% from the previous year, which was mainly due to maintenance net sales decrease in our international reseller channel. In process mining, software license net sales and maintenance net sales increased.

Cloud service net sales were down by 19%, due to the pricing change we implemented in the Finnish public sector modeling software cloud services. In process mining, cloud service net sales increased.

Consulting net sales were EUR 3,061 thousand (3,057) and remained on the same level as prior year.

International net sales increased by 1%. International process mining software net sales increased, but modeling and performance management net sales in international reseller channel decreased. Net sales in Finland decreased by 11%, mainly due to the modeling software pricing change, as described earlier in this report.

Of the Group net sales, 51% (54) derived from Finland, 31% (28) from the rest of Europe (including Russia and Turkey) and 18% (18) from the rest of the world.                                                                                                                                                    


FINANCIAL PERFORMANCE

October – December 2019

Operating profit (EBIT) was EUR-123 thousand and -4.9% of net sales (4.9).

The Group´s October – December fixed costs were EUR 2,243 thousand (2,207), which accounted for an increase of 2% compared to prior year´s corresponding period. Personnel expenses represented 78% (76) of fixed costs and amounted to EUR 1,743 thousand (1,667).

The Group´s October – December result before tax was EUR -126 thousand (128) and result for the period was EUR -119 thousand (189). Earnings per share were EUR -0.010 (0.016).

January – December 2019

In January – December reporting period, the Group operating result (EBIT) was EUR -213 thousand (521), or -2.2% of net sales (5.2). Strategic investments in growth businesses continued, which increased personnel, sales and marketing costs.

The Group´s fixed costs were EUR 8,583 (8,320), which accounted for an increase of 3% compared to prior year. Personnel costs represented 75% (74) of fixed costs and were EUR 6,455 thousand (6,142). Credit losses, included in fixed costs, increased slightly and were valued at EUR 76 thousand (10).

The result before tax was EUR -240 thousand (335) and the result for the period was EUR -161 thousand (320). Earnings per share were EUR -0.013 (0.027).


FINANCE AND INVESTMENTS

Cash flow from operating activities in the reporting period January – December was EUR 1,349 thousand (1,335). Cash and cash equivalents at the end of the reporting period were EUR 1,035 thousand (505). Cash flow was positively affected by a short term bank loan raised by the Group.

Net financial expenses were EUR 26 thousand (187) and included currency exchange losses of EUR 21 thousand (193). Exceptionally large currency exchange losses in the previous year were due to liquidation of the Group´s subsidiary in Russia.

Investments totaled EUR 1,156 thousand (790). Investments were mainly related to product development expenditure.

The Group´s financial position is strong. The gearing ratio was -9% (-18). The change in gearing ratio is mainly due to the adoption of the new IFRS 16 accounting standard in the beginning of this year. At the end of the quarter, the equity ratio was 45% (49).


PRODUCT DEVELOPMENT

QPR innovates and develops software products that analyze, measure and model operations in organizations. The Company develops the following software products: QPR ProcessAnalyzer, QPR EnterpriseArchitect, QPR ProcessDesigner, and QPR Metrics.

In the reporting period 2019, product development expenses were EUR 2,293 thousand (1,989), or 24% of net sales (20). Product development expenses worth EUR 788 thousand (732) were capitalized. The amortization of capitalized product development expenses was EUR 827 thousand (762). The amortization period for capitalized product development expenses is four years.


PERSONNEL

At the end of the reporting period, the Group employed a total of 83 persons (84). The average number of personnel during the reporting period 2019 was 82 (81).

The average age of employees is 42.7 (40.8) years. Women account for 23% (23) of employees, men for 77% (77). 17% (17) work in sales and marketing, 41% (43) in consulting and customer care, 33% (31) in product development, and 10% (9) in administration.

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 mainly on the Group and business unit net sales performance. In 2019, the maximum annual bonus for members of the executive management team, including the CEO, was 30% of the annual base salary. A bonus totaling EUR 5 thousand (22) is paid to the executive management team for 2019.


STOCK OPTION PLAN

The Board of Directors of QPR Software Plc resolved in its meeting on January 29, 2019 to launch a new key employee stock option plan, based on an authorization granted by the Annual General Meeting. The purpose of the stock options is to encourage the key employees to work on a long-term basis to increase the shareholder value and to retain the key employees at the Company.

The maximum total number of stock options issued is 910,000 and they entitle their owners to subscribe for a maximum total of 910,000 new shares in the Company or existing shares held by the Company. The stock options are issued gratuitously. Of the stock options, 437,000 are marked with the symbol 2019A and 473,000 are marked with the symbol 2019B. The share subscription period, for stock options 2019A, will be January 1, 2022 – January 31, 2023, and for stock options 2019B, January 1, 2023 – January 31, 2024.

The number of shares subscribed by exercising stock options issued corresponds to a maximum total of 6.81% of all shares and votes of the shares in the Company after the potential share subscriptions if new shares are issued in the share subscription. After the share subscriptions with stock options, the number of the Company’s shares may be increased by a maximum total of 910,000 shares, if new shares are issued in the share subscription. The share subscription price for stock options 2019A is EUR 1.70 per share, which corresponded to the market price of the Company’s share at the time of launching the option plan. The share subscription price for stock options 2019B is EUR 2.55 per share, which corresponds to the market price of the Company’s share with an addition of 50%. The total expected cost effect of the stock option plan is about EUR 190 thousand.


STRATEGY

Our target is to grow our net sales by an average of 15 – 20% per annum over the next three years. The target is mainly based on international net sales growth in process mining, where we target annual growth of over 50%.

We innovate, develop and sell software and related services aimed at analyzing, measuring and modeling operations in organizations. Furthermore, we offer customers consulting services in operational development and digital business optimization.

We will further accelerate product development by increasing our resources in a controlled manner. In software development, we place special focus on excellent user experience. We focus our product development to meet the challenges our client organizations face, especially in leading and developing their operations in a digitalizing world. A special focus area for development is process mining.

In the next few years, we seek growth especially in our international software sales. To reach this target, we will continue to increase our resources and investments in international marketing and sales.

We also actively seek strategic partnerships to strengthen our international software sales and product development.


SHARES AND SHAREHOLDERS

       
Trading of shares Jan-Dec,
2019
Jan-Dec,
2018
Change,
%
       
Shares traded, pcs 1,091,153 1,026,097 6
Volume, EUR 2,229,163 1,694,088 32
% of shares 9.1 8.6  
Average trading price, EUR 2.04 1.65 24
       
Shares and market capitalization Dec 31,
2019
Dec 31,
2018
Change,
%
       
Total number of shares, pcs 12,444,863 12,444,863
Treasury shares, pcs 457,009 457,009
Book counter value, EUR 0.11 0.11
Outstanding shares, pcs 11,987,854 11,987,854
Number of shareholders 1,146 1,151 0
Closing price, EUR 2.34 1.63 44
Market capitalization, EUR 28,051,578 19,540,202 44
Book counter value of all treasury
shares, EUR
50,271 50,271
Total purchase value of all treasury
shares, EUR
439,307 439,307
Treasury shares, % of all shares 3.7 3.7

                                                                                          

GOVERNANCE

The Annual General Meeting held on April 4, 2019 approved the Board’s proposal that no dividend be paid for the financial year 2018.

The Annual General Meeting resolved that the number of Board Members is four (4) and re-elected Vesa-Pekka Leskinen and Topi Piela. as members of the Company´s Board of Directors. As new members of the Board of Directors, Jarmo Rajala and Salla Vainio were elected. 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 4, 2019, and available in the Investors section of the Company’s website, https://www.qpr.com/investors/stock-exchange-and-press-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 covering property, operational and liability risks.

Financial risks include reasonable credit risk concerning individual business partners, which is characteristic of any international business. QPR seeks to limit this credit risk by continuously monitoring standard payment terms, receivables and credit limits. The value of trade receivables over 60 days past due was 22% (10) of total trade receivables at the end of the quarter.

Approximately 56% of the Group’s trade receivables were in euro at the end of the quarter (67). At the end of the quarter, the Company had not hedged its non-euro trade receivables.

Risks and risk management practices related to the Company’s business are further described in the Annual Report 2018, pages 21-23 (https://www.qpr.com/investors/financialinformation/annualreports)


THE BOARD OF DIRECTORS’ PROPOSAL ON DIVIDEND

The distributable funds of the parent company were EUR 943 thousand on December 31, 2019. The Board of Directors will propose to the Annual General Meeting to be held on April 7, 2020 that no dividend be paid for the financial year 2019.

No material changes have taken place in the Company’s financial position after the end of the financial year.


FINANCIAL INFORMATION

In 2020, QPR Software Plc will publish its financial information, in Finnish and English, as follows:

  • Annual Report 2019: Thursday, March 12, 2020
  • Interim Report 1-3/2020: Tuesday, April 28, 2020
  • Half-year Financial Report 1-6/2020: Thursday, July 30, 2020
  • Interim Report 1-9/2020: Tuesday, October 27, 2020

The Annual General Meeting will be held on Tuesday, April 7, 2020.

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.


FINANCIAL STATEMENTS

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

             
EUR in thousands, unless
otherwise indicated
Oct-Dec,
2019
Oct-Dec,
2018
Change,
%
Jan-Dec,
2019
Jan-Dec,
2018
Change,
%
             
Net sales 2,499 2,671 -6 9,513 10,047 -5
Other operating income 0   0 -10 102
             
Materials and services 379 335 13 1,143 1,196 -4
Employee benefit expenses 1,743 1,667 5 6,455 6,142 5
Other operating expenses 178 308 -42 878 1,229 -29
EBITDA 199 362 -45 1,036 1,470 -29
             
Depreciation and amortization 322 231 39 1,250 949 32
Operating result -123 130 -195 -213 521 -141
             
Financial income and expenses -3 -2 -23 -26 -187 86
Result before tax -126 128 -199 -240 335 -172
             
Income taxes 7 62 -89 78 -15 638
Result for the period -119 189 -163 -161 320 -150
             
             
Earnings per share, EUR
(basic and diluted)
-0.010 0.016 -163 -0.013 0.027 -150
             
Consolidated statement of
comprehensive income:
           
 Result for the period -119 189 -163 -161 320 -150
Other items in comprehensive
income that may be reclassified
subsequently to profit or loss:
           
 Exchange differences on
 translating foreign operations
-1 0 -614 -5 179 -103
Total comprehensive income -121 189 -164 -166 499 -133


CONSOLIDATED BALANCE SHEET

       
EUR in thousands Dec 31,
2019
Dec 31,
2018
Change,
%
       
Assets      
       
Non-current assets:      
 Intangible assets 2,044 1,831 12
 Goodwill 513 513 0
 Tangible assets 371 116 220
 Other non-current assets 141 62 128
Total non-current assets 3,068 2,521 22
       
Current assets:      
 Trade and other receivables 2,904 3,409 -15
 Cash and cash equivalents 1,035 505 105
Total current assets 3,939 3,915 1
       
Total assets 7,007 6,436 9
       
Equity and liabilities      
       
Equity:      
 Share capital 1,359 1,359 0
 Other funds 21 21 0
 Treasury shares -439 -439 0
 Translation differences -66 -61 8
 Invested non-restricted equity fund 5 5 0
 Retained earnings 1,882 1,987 -5
Equity attributable to shareholders of
the parent company
2,762 2,873 -4
       
Current liabilities:      
 Interest-bearing liabilities 784  
 Advances received 800 523 53
 Accrued expenses and prepaid income 2,083 2,489 -16
 Trade and other payables 579 551 5
Total current liabilities 4,245 3,563 19
       
Total liabilities 4,245 3,563 19
       
Total equity and liabilities 7,007 6,436 9

                                                                                                         

CONSOLIDATED CASH FLOW STATEMENT

             
EUR in thousands Oct-Dec,
2019
Oct-Dec,
2018
Change,
%
Jan-Dec,
2019
Jan-Dec,
2018
Change,
%
             
Cash flow from operating activities:            
 Result for the period -119 189 -163 -161 320 -150
 Adjustments to the result 372 171 118 1,250 1,327 -6
 Working capital changes 133 -191 170 306 -267 214
 Interest and other financial
 expenses paid
-9 -6 -48 -51 -28 -84
 Interest and other financial
 income received
6 2 193 25 9 162
 Income taxes paid 29 -6 589 -18 -27 -33
Net cash from operating activities 413 159 160 1,349 1,335 1
             
Cash flow from investing activities:            
 Purchases of tangible and
 intangible assets
-278 -188 48 -1,041 -790 32
Net cash used in investing activities -278 -188 48 -1,041 -790 32
             
Cash flow from financing activities:            
 Proceeds from short term
 borrowings
500   500  
 Repayments of short term
 borrowings
-70   -278  
 Dividends paid 0   0 -360  
Net cash used in financing activities 430   222 -360  
             
Net change in cash and cash
equivalents
564 -30 1,994 530 185 186
Cash and cash equivalents
at the beginning of the period
470 534 -12 505 318 59
Effects of exchange rate changes
on cash and cash equivalents
0 1 -97 0 2 -116
Cash and cash equivalents
at the end of the period
1,035 505 105 1,035 505 105


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

               
EUR in thousands Share
capital
Other
funds
Translation
differences
Treasury
shares
Invested non-
restricted
equity fund
Retained
earnings
Total
Equity Jan 1, 2018 1,359 21 -240 -439 5 2,027 2,733
Dividends paid           -360 -360
Comprehensive income     179     320 499
Equity Dec 31, 2018 1,359 21 -61 -439 5 1,987 2,873
Dividends paid           0 0
Stock option plan           56 56
Comprehensive income     -5     -161 -166
Equity Dec 31, 2019 1,359 21 -66 -439 5 1,882 2,762

                                                                                                                                                                                        

NOTES TO INTERIM FINANCIAL STATEMENTS

ACCOUNTING PRINCIPLES 

This report complies with requirements of IAS 34 ”Interim Financial Reporting”. Starting from the beginning of 2019, the Group has applied certain new or revised IFRS standards and IFRIC interpretations, as described in the Consolidated Financial Statements 2018.

As of beginning of 2019, in accordance with the new IFRS 16 Leases -standard, leases are recognized in the balance sheet as a right-of-use asset and a corresponding financial liability at the date at which the lease asset is available for the use by the Group. Lease payments are allocated in liabilities and financial expenses. The financial expense is recognized in the income statement over the lease period. The right-of-use asset is depreciated on a straight-line basis over the asset’s useful life or the shorter lease term. The lease liabilities are discounted at the borrowing average rate of 2% as of January 1, 2019. The Group has adopted the new IFRS 16 standard using modified retrospective approach and the comparative information has not been restated.

The Group leases mainly offices to be used as working premises. Rental contracts are typically made for fixed periods with possible extension options, or for an indefinite period with a notice period of typically less than a year. The Group continues to treat leases of 12 months or less and leases of low-value assets as other leases. Until end of the year 2018 leases of property, plant and equipment were classified as operating leases. Payments made under operating leases were recognized in the income statement on a straight-line basis over the period of the lease.

The change in the accounting policy affected the balance sheet items of January 1, 2019, as follows:
– material assets increased with the right-of-use asset by approximately EUR 560 thousand
– non-current liabilities increased by approximately EUR 280 thousand
– current liabilities increased by approximately EUR 280 thousand

The implementation of other new and revised requirements has not impacted the reported figures. For all other parts, the accounting principles and methods are the same as they were in the 2018 financial statements.

When preparing the consolidated financial statements, the 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.

The Group has adopted a new option plan for key persons as of beginning of the year 2019. In the Group incentive plan payments can be made in the form of equity instruments. The benefits granted under the plans are recognized at fair value on the date on which they were granted and entered as costs evenly throughout the period during which they were earned. The effect of the plans on profit or loss is presented under costs of employee benefits. At the end of the year 2018 the Group did not have any option plans. During the reporting period, the Group did not have any financial instruments measured at fair value.  

Definitions for key indicators can be found in the end of the latest annual report, on page 55: https://www.qpr.com/investors/financial-information/annual-reports


INTANGIBLE AND TANGIBLE ASSETS

     
EUR in thousands Jan-Dec,
2019
Jan-Dec,
2018
     
Increase in intangible assets:    
 Acquisition cost Jan 1 10,057 9,318
 Increase 1,102 739
     
Increase in tangible assets:    
 Acquisition cost Jan 1 2,433 1,821
 Increase 54 50


PLEDGES AND COMMITMENTS

       
EUR in thousands Dec 31,
2019
Dec 31,
2018
Change,
%
       
Business mortgages (held by the Company) 1,385 1,386 0
       
Minimum lease payments based on lease agreements:      
 Maturing in less than one year 17 267 -94
 Maturing in 1-5 years 0 254 -100
Total 17 521 -97
       
Total pledges and commitments 1,402 1,907 -26


CHANGE IN INTEREST-BEARING LIABILITIES

     
EUR in thousands Jan-Dec,
2019
Jan-Dec,
2018
     
Interest-bearing liabilities Jan 1 562
Proceeds from short term borrowings 500
Repayments 278
Interest-bearing liabilities Dec 31 784

                                                                                                         

RECONCILIATION OF LEASE LIABILITY

   
EUR in thousands  
Minimum lease payments based on lease agreements as of Dec 31, 2018 521
Relief option for short- term leases -6
Other incl. treatment of extension options 59
Effect of discounting* -12
Lease liability as of Jan 1, 2019 562


LEASES

Due to the adoption of the new IFRS 16 Leases -standard, the balance sheet as at December 31, 2019 and the income statement of the reporting period January – December include the following items in right-of-use assets of material assets, lease liabilities, depreciation and interest expenses.


LEASES IN THE BALANCE SHEET

   
EUR in thousands Dec 31, 2019
Asset  
Non-current assets  
Tangible assets 281
Total 281
   
Equity and liabilities  
Lease liabilities, current 284
Total 284


LEASES IN THE INCOME STATEMENT

   
EUR in thousands Jan-Dec, 2019
Other lease expenses 0
Depreciation of right-of-use assets -281
Interest expenses -9
Total -290


CONSOLIDATED INCOME STATEMENT BY QUARTER

             
EUR in thousands Q4
2019
Q3
2019
Q2
2019
Q1
2019
Q4
2018
Q3
2018
             
Net sales 2,499 1,981 2,285 2,748 2,671 2,222
Other operating income 0 0 0
             
Materials and services 379 243 260 263 335 218
Employee benefit expenses 1,743 1,375 1,644 1,693 1,667 1,321
Other operating expenses 178 175 228 296 308 336
EBITDA 199 188 153 497 362 348
             
Depreciation and amortization 322 307 310 310 231 239
Operating result -123 -119 -158 187 130 109
             
Financial income and expenses -3 3 -6 -20 -2 4
Result before tax -126 -116 -164 167 128 113
             
Income taxes 7 31 66 -26 62 -22
Result for the period -119 -85 -98 141 189 91

                                                                                                                                                              

GROUP KEY FIGURES

     
EUR in thousands, unless
otherwise indicated
Jan-Dec or
Dec 31, 2019
Jan-Dec or
Dec 31, 2018
     
Net sales 9,513 10,047
Net sales growth, % -5.3 12.4
EBITDA 1,036 1,470
 % of net sales 10.9 14.6
Operating result -213 521
 % of net sales -2.2 5.2
Result before tax -240 335
 % of net sales -2.5 3.3
Result for the period -161 320
 % of net sales -1.7 3.2
     
Return on equity (per annum), % -5.7 11.4
Return on investment (per annum), % -5.9 18.9
Cash and cash equivalents 1,035 505
Net borrowings -251 -505
Equity 2,762 2,873
Gearing, % -9.1 -17.6
Equity ratio, % 44.5 48.6
Total balance sheet 7,007 6,436
     
Investments in non-current assets 1156 790
 % of net sales 12.2 7.9
Product development expenses 2,293 1,989
 % of net sales 24.1 19.8
     
Average number of personnel 82 81
Personnel at the beginning of period 84 76
Personnel at the end of period 83 84
     
Earnings per share, EUR
(basic and diluted)
-0.013 0.027
Equity per share, EUR 0.222 0.231

Adoption of IFRS16 has affected key figures, which in that sense are not fully comparable.