QT GROUP PLC HALF YEAR FINANCIAL REPORT 1 JANUARY 2016-30 JUNE 2016

QT GROUP PLC STOCK EXCHANGE RELEASE, 11 AUGUST 2016 at 8:00 

CONTINUED STRONG GROWTH 

Qt Group Plc was formed as a result of the partial demerger of Digia Plc, which took effect on 1 May 2016. As such, Qt Group Plc has not constituted a separate legal group prior to the date in question. The carve-out financial information presented in this half year financial report reflect the financial information of the companies that previously constituted the Digia Group’s Qt segment. The balance sheet and related key figures for 30 June 2016 are based on actual figures, while the income statement, cash flow and comparison figures are based on financial carve-out information. There have been no changes to the carve-out calculation principles, which were described in detail in the demerger prospectus published by Digia Plc on 3 March 2016.  

SUMMARY 

January–June 2016: 

- Net sales EUR 16,084 thousand (EUR 12,873 thousand): up 24.9 per cent 

- Comparable operating profit EUR 1,181 (1,120) thousand, comparable operating margin (EBIT %) 7.3 (8.7) per cent. 

- The comparable operating profit for 2015 includes restructuring costs totalling EUR 36 thousand, while the comparable operating profit for 2016 includes non-recurring costs totalling EUR 1,712 thousand arising from fees paid to external service providers in relation to the demerger as well as costs associated with Digia’s share-based remuneration system.  

- Operating result EUR -530 thousand (EUR 1,084 thousand), operating margin (EBIT %) -3.3 (8.4) per cent. 

- Earnings per share EUR -0.04 

April–June 2016: 

- Net sales EUR 8,935 thousand (EUR 6,620 thousand): up 35.0 per cent 

- Comparable operating profit EUR 721 (655) thousand, comparable operating margin (EBIT %) 8.1 (9.9) per cent. 

- The comparable operating profit for 2016 includes non-recurring costs totalling EUR 1,504 thousand arising from fees paid to external service providers in relation to the demerger as well as costs associated with Digia’s share-based remuneration system.  

- Operating profit EUR -783 thousand (EUR 655 thousand), operating margin (EBIT %) -8.8 (9.9) per cent. 

- Earnings per share EUR -0.04 

Qt has applied the ESMA (European Securities and Markets Authority) guidance on Alternative Performance Measures (see page 11). The guidance entered into effect on 3 July 2016. 

This half year financial report has not been audited. 

KEY FIGURES (EUR thousand) 

BUSINESS  

Qt is responsible for Qt development, productisation and licensing under commercial and open source licences. The Qt offering includes a development environment that enables the reuse of software code across numerous different operating systems, platforms and screen types, ranging from desktops and embedded systems to wearables and mobile devices. Qt is used by approximately 1 million developers worldwide and is the leading independent technology behind millions of devices and applications. Qt is the platform of choice for in-vehicle systems, industrial automation devices and other business critical applications manufacturers, and is used by leading global players in 70+ industries. Qt has operating locations in Finland, Norway, Germany, the United States, Russia, China, Japan and Korea. 

Juha Varelius, President and CEO: 

The past six months were a successful period for the Qt Group. The Group’s net sales saw strong growth, particularly from significant deals completed in the second quarter. 

The rate of growth compared to the previous year was especially strong considering the fact that, in the first half of 2015, the Qt business recorded approximately EUR 0.9 million in net sales based on an exceptional licensing deal made with Nokia Corporation in 2012, but this deal no longer generates any net sales in 2016. 

As expected, the Group’s operating result showed a loss. The loss was primarily attributable to fees paid to external service providers in relation to the Digia demerger as well as costs arising from Digia’s share-based remuneration system. Said non-recurring costs totalled EUR 1.7 million in the first half of the year. The comparison of the Group’s profit performance with the previous year is also affected by the heavier cost structure arising from the setting up of administrative functions required for the Group to operate independently. The Group’s operational efficiency has not otherwise deteriorated. 

During the first half of the year, we released the new versions Qt 5.6 and Qt 5.7. With the release of Qt 5.7, we changed the open source licensing terms with the aim of promoting the sale of licences to commercial operators. The effects of this change are expected to materialize in the coming years. 

In the first half of the year, we opened a new office in Japan to boost local sales. We have also otherwise increased our sales resources, particularly in Asia.  

Investments in business development have been particularly allocated to the consumer electronics and automotive segments. In the first half of the year, we unveiled the Qt Automotive Suite, a product targeted at the automotive segment and developed in co-operation with our key partners. The new product complements our basic product offering by introducing added value components developed specifically to serve the needs of the automotive industry. 

Our quality management system received ISO9001:2008 certification during the first half of the year. 

NET SALES 

Qt’s net sales for the first half of the year amounted to EUR 16,084 thousand (EUR 12,873 thousand), up 24.9 per cent. 

Qt’s net sales for the second quarter amounted to EUR 8,935 thousand (EUR 6,620 thousand), up 35.0 per cent. 

PROFIT PERFORMANCE 

Qt’s operating result for the first half of the year was EUR -530 thousand (EUR 1,084 thousand). The operating result for the second quarter was EUR -783 thousand (EUR 655 thousand). 

The result for the first half of the year includes non-recurring costs totalling EUR 1,712 thousand, attributable to fees paid to external service providers in relation to the Digia demerger as well as costs arising from Digia’s share-based remuneration system. The comparable operating profit for the first half of the year was EUR 1,181 (1,120) thousand and the comparable operating margin (EBIT %) was 7.3 (8.7) per cent. 

The Group’s operating expenses, including materials & services, personnel expenses, depreciation and other operating expenses, amounted to EUR 16,666 thousand (EUR 12,512 thousand) in the first half of the year, up 33.2 per cent year-on-year. Personnel expenses accounted for 68.6 per cent (70.6%) of operating expenses, or EUR 11,438 thousand (EUR 8,839 thousand). Taking the items affecting comparability, EUR 1,712 thousand (EUR 36 thousand), into account, fixed costs increased by 19.9 per cent. 

The Group’s financial expenses in the second quarter amounted to EUR 219 thousand (EUR 16 thousand) due to fees totalling EUR 210 thousand related to the drawing down of a loan of EUR 6.0 million granted by Ilmarinen Mutual Pension Insurance Company.  

Qt’s earnings before tax for the first half of the year totalled EUR -817 thousand (EUR 1,080 thousand) and the result was EUR -837 thousand (EUR 1,042 thousand). Taxes for the review period amounted to EUR 19 thousand (EUR 38 thousand). 

Earnings per share were EUR -0.04 in the first half of the year. 

FINANCING AND INVESTMENTS 

The comparison figures presented in this section are carve out figures for 31 December 2015. 

Cash flow from operating activities was EUR -2,050 thousand (EUR 1,165 thousand) in the first half of the year due to the operating result and cash being tied up in working capital. 

Qt’s cash and cash equivalents totalled EUR 5,693 thousand (EUR 3,577 thousand) at the end of the first half of the year. A loan of EUR 6.0 million, granted by Ilmarinen Mutual Pension Insurance Company, was drawn down in two instalments in May 2016. The loan will mature in its entirety in November 2017 and the Group will pay interest on the loan semiannually. 

The Qt Group’s consolidated balance sheet total at the end of the first half of the year stood at EUR 29,653 thousand (EUR 23,869 thousand). Net cash flow from investments in the first half of the year was EUR -283 thousand (EUR -233 thousand). 

The equity ratio stood at 41.5 per cent (54.7%) and gearing was 6.8 per cent (-24.8%). Interest-bearing liabilities amounted to EUR 6,302 thousand (EUR 1,365 thousand), of which short-term loans accounted for EUR 194 thousand (EUR 553 thousand). 

In the first half of the year, return on investment was -3.5 per cent (25.0%) and return on equity was -9.3 per cent (11.0%).

PERSONNEL, MANAGEMENT AND ADMINISTRATION 

The number of Qt’s personnel was 213 (174) on average during the quarter and 214 (174) at the end of the quarter. 

The geographical distribution of personnel:  

At the end of the quarter, international personnel represented 69 per cent (71%) of the total. 

At Digia Plc’s Annual General Meeting held on 16 March 2016, Robert Ingman, Matti Rossi, Leena Saarinen, Tommi Uhari and Kai Öistämö were elected as members of Qt Group Plc’s Board of Directors. At the Board’s organisation meeting, Robert Ingman was elected Chairman of the Board and Tommi Uhari was elected Vice Chairman. 

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

KPMG Oy Ab, Authorised Public Accountants, has served as the auditor of the Qt Group since 1 May 2016, with Authorised Public Accountant Kim Järvi as the principal auditor. 

OTHER EVENTS IN THE REVIEW PERIOD 

Qt Group Plc was established by a partial demerger decided on by Digia Plc’s Annual General Meeting on 16 March 2016. The partial demerger was registered on 1 May 2016. 

Trading in Qt Group Plc (trading code: QTCOM) shares began on the Nasdaq Helsinki stock exchange on 2 May 2016. 

The Annual General Meeting that decided on the partial demerger of Digia Plc approved the articles of association of Qt Group Plc and 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 and auditor. 

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 Annual General Meeting authorised the Board of Directors of Qt Group Plc to decide on the repurchase and/or acceptance as collateral of a maximum of 1,000,000 of the company’s own shares. This repurchase can only be executed by means of the company’s unrestricted equity. The Board shall 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 acquisition of shares through public trading organised by NASDAQ Helsinki Oy in accordance with the rules and instructions of NASDAQ Helsinki and Euroclear Finland Ltd, 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 until 16 September 2017. The Board of Directors of Qt Group Plc can take a decision based on this authorisation only after the implementation of the demerger has been registered. 

Authorising the Board of Directors to decide on a share issue and the granting of special rights entitling to shares 

The Annual General Meeting authorised the Board of Directors of Qt Group Plc to decide on a share issue and the granting of special rights prescribed in Chapter 10, Section 1 of the Companies Act, either subject to or free of charge, in one or several instalments 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 and 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 implement the company's share-based incentive schemes and to improve the capital structure of the company, or to be used 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 the granting of special rights, including the subscription price, its payment not only by cash, but also entirely or partly by other assets (property given as capital contribution) or setting the subscription price off against a subscriber’s receivable, and the entry into the company's balance sheet. The authorisation is valid until 16 September 2017. The Board of Directors of Qt Group Plc can take a decision based on this authorisation only after the implementation of the demerger has been registered. 

By virtue of the authorisation granted to it by the Annual General Meeting, the Board of Directors of Qt Group Plc decided at its meeting on 22 June 2016 to issue stock options to the key persons of the company or its Group companies on the following terms and conditions: 

The maximum total number of stock options issued is 2,000,000, and they entitle their holders to subscribe for a maximum total of 2,000,000 new shares in the company. The stock options shall be marked with the symbol 2016. No stock option certificates shall be issued for the stock options. The stock options shall be issued gratuitously to the company’s key persons. 

Each stock option entitles its holder to subscribe for one (1) new share in the company or an existing share held by the company. The share subscription price shall be credited to the company’s reserve for invested unrestricted equity. 

The share subscription period for the stock options shall be 19 December 2019–31 December 2022. A precondition for the share subscription is that the value of the company’s share based on the trade volume weighted average quotation on the NASDAQ OMX Helsinki Ltd is at least five euros and eighty-five cents (EUR 5.85) between 18 November 2019 and 13 December 2019. 

The share subscription price for the stock options shall be the trade volume weighted average quotation of the company’s share between 1 June 2016 and 30 June 2016 and the share subscription price shall, nevertheless, always amount to at least the highest share price quoted on the closing day 22 June 2016 when the stock options have been issued and assigned to the key persons added with one euro cent (EUR 0.01). The subscription price was determined to be EUR 4.84 based on the highest share price quoted on 22 June being EUR 4.83 and the trade volume weighted average quotation between 1 June 2016 and 30 June 2016 being EUR 4.6102. 

RISKS AND UNCERTAINTIES 

The company’s short-term risks and uncertainties are related to potential significant changes in the company’s business operations, ensuring adequate financing for 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 Qt’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 PROSPECTS 

Operating environment and market outlook 

Considering the time of year and general market situation, demand for the Group’s services is at a moderate level, and the long-term business outlook is promising.  

The Group’s business development efforts will particularly focus on embedded systems in the automotive sector, digital TV and industrial automation. Areas targeted in product development include value-added features and tools required for building embedded systems.  

Sales growth associated with embedded systems will also reflect on the earnings logic. Licence revenue from these sales accumulates over the long term, as opposed to one-off licence payments. Consequently, the company anticipates no major impact from embedded systems sales growth on consolidated net sales in 2016. 

Outlook 2016 

The company estimates that the growth of net sales will slow down in the second half of 2016 compared to the growth figures posted earlier in the year. The company estimates that full-year net sales for 2016 will show year-on-year growth of approximately 15 per cent. An exceptional licensing deal made with Nokia Corporation in 2012 in connection with the acquisition of the Qt business will no longer generate net sales in 2016. In 2015, net sales of a total of about EUR 1.4 million were still recognised from this deal.  

Digia's demerger and the resulting establishment of Qt as an independent public listed company involve considerable expenses that weigh down on the Group’s profitability. Due to these expenses and growth investments, the company estimates that its reported operating profit will remain in the red in 2016. 

Helsinki, 11 August 2016 

Qt Group Plc 

Board of Directors 

BRIEFING 

Qt Group will hold a briefing on this half year financial report for analysts on Thursday, 11 August 2016 at 11:00 am, in the Eino Leino cabinet of Hotel Kämp, Pohjoisesplanadi 29, 00100 Helsinki, Finland. Welcome. 

FURTHER INFORMATION 

Juha Varelius, CEO, tel. +358 400 855 849  

The half year financial report and CEO’s presentation will be available in the Investors section at www.qt.io from 11:00 am on 11 August 2016. 

DISTRIBUTION 

NASDAQ Helsinki 

Key media 

CONDENSED FINANCIAL STATEMENTS AND NOTES 1 JANUARY–30 JUNE 2016 

CONSOLIDATED INCOME STATEMENT, EUR 1,000 

CONSOLIDATED BALANCE SHEET, EUR 1,000 

CONSOLIDATED CASH FLOW STATEMENT, EUR 1,000 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY, EUR 1,000 

*carve out

ACCOUNTING PRINCIPLES 

This half-year financial report was prepared in compliance with IAS 34 Interim Financial Reporting. The information presented in this half year financial report has not been audited. 

The preparation of IFRS financial statements requires the application of judgement by the management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the balance sheet date and the reported amounts of income and expenses for the financial year. The management also has to make judgements when applying the accounting policies of the Group. As the estimates and related assumptions are based on the management’s view at the end of the review period, they include risks and uncertainties. Actual results may differ from the estimates and assumptions used. The figures shown in the income statement and balance sheet are consolidated figures. As the figures in this report are independently rounded, the sums of individual figures may deviate from the sum figures shown. 

Background information 

Qt Group Plc was established by the partial demerger of Digia Plc on 1 May 2016, which saw Digia’s Qt business transferred to a new parent company. As such, Qt did not constitute a separate legal group prior to 1 May 2016. The balance sheet and related key figures for 30 June 2016 are based on actual figures, while the income statement, cash flow statement and comparison figures are based on carve-out financial information. 

The carve-out financial information presented herein reflect the income, expenses, assets, liabilities and cash flows of the companies that previously constituted the Digia Group’s Qt business. Following the demerger, they now constitute a separate legal group referred to as “the Qt Group” or “the Group” in the carve-out financial information presented in this half year financial report. 

There have been no changes to the carve-out calculation principles, which were described in detail in the demerger prospectus. 

ALTERNATIVE PERFORMANCE MEASURES 

Qt has applied the new guidance from ESMA (European Securities and Markets Authority) on Alternative Performance Measures, which entered into force on 3 July 2016, and presents the following alternative performance measure in addition to its consolidated IFRS financial statements. The purpose of this alternative performance measure is to illustrate the company’s operational profit performance. 

Comparable operating profit is defined as operating profit + items affecting comparability. 

Result mEASURES and items affecting comparability  

SEGMENT REPORTING 

Qt reports one business segment. The reported segment covers the entire Group and its figures are congruent with the consolidated figures. 

THE GROUP’S PLEDGES, MORTGAGES AND CONTINGENT LIABILITIES 

CONSOLIDATED KEY FIGURES, EUR 1,000 

CALCULATION FORMULAS FOR KEY FIGURES 

SHARE AND SHAREHOLDERS 

On 30 June 2016, the number of Qt Plc shares totalled 20,818,273.  

According to Euroclear Finland Ltd, the company had 4,262 shareholders on 30 June 2016.  

The ten largest shareholders were: 

Distribution of holdings by number of shares held on 30 June 2016 

Shareholding by sector on 30 June 2016 

The number of outstanding shares at the end of the reporting period was 20,818,273. 

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