QPR SOFTWARE PLC STOCK EXCHANGE BULLETIN 26 October 2005, AT 9.00 AM QPR SOFTWARE PLC INTERIM REPORT JANUARY 1 ? SEPTEMBER 30, 2005 1-9/2005 1-9/2004 Net Sales, MEUR 4.477 3.810 +17.5% Operating Result, MEUR 0.265 0.408 -35.1% -percent of Net Sales 5.9% 10.7% Net Result, MEUR 0.322 0.239 +34.7% -percent of Net Sales 7.2% 6.3% Liquid Assets, MEUR 1.390 0.607 +128.9% -Gearing -33.5% 82.7% Earning per Share, EUR 0.03 0.02 +30.9% Earning per Share, diluted, EUR 0.03 0.02 +32.0% Equity per Share, EUR 0.14 0.09 +55.1% Equity Ratio 47.2% 32.6% Return on Investment 22.1% 21.5% QPR Software Plc transferred to reporting according to International Financial Reporting Standards (IFRS) as of January 1, 2005. This interim report, including the comparison figures, is according to IFRS standards. The interim report is unaudited. NET SALES AND FINANCIAL PERFORMANCE 1-9/2005 The Group?s net sales and net result developed positively. The net sales of the Group for the review period increased 17.5% compared to the corresponding period of the previous year and was MEUR 4.477 (MEUR 3.810). The operating profit of the Group for the review period was MEUR 0.265 (MEUR 0.408), which was 5.9% (10.7%) of turnover. The net result of the Group increased 34.7% compared to the corresponding period of the previous year and was MEUR 0.322 (MEUR 0.239), which was 7.2% (6.3%) of turnover. The earning per share was EUR 0.03. The Group?s net sales is accrued in its entirety from the software business, divided as follows during the review period, MEUR: 1-9/2005 1-9/2004 Software licenses 2.069 2.019 +2.5% Maintenance services 1.561 1.266 +23.3% Professional services 0.846 0.526 +61.0% Net sales in total 4.477 3.810 +17.5% The share of international operations of the Group?s turnover for the review period was 54% (68%). During the review period 68% (80%) of the license sales, MEUR 1.411 accumulated via the global distribution channel, and decreased 12.1% compared to the corresponding period of the previous year. The license sales in the domestic market for the review period was MEUR 0.658, and increased 59.6% compared to the corresponding period of the previous year. NET SALES AND FINANCIAL PERFORMANCE 7-9/2005 The net sales for the Group's third quarter, MEUR 1.320 increased 32.6% compared to the corresponding quarter of the previous year (MEUR 0.995). The presentation of the share of the results in associated companies has been revised in accordance with IAS 1. Consequently, the now presented revenue for the comparative period differs slightly from what was presented before (previously reported revenue for the comparative period was MEUR 1.012). During the third quarter, in total of MEUR 0.440 (MEUR 0.264) of the software license sales accumulated via the global distribution channel, and increased 66.7% compared to the corresponding period of the previous year. The operating result for the Group's third quarter was MEUR 0.001 (MEUR 0.070), which was 0.1% (7.0%) of turnover. The net result of the Group for the third quarter was MEUR 0.008 (MEUR 0.003), which was 0.6% (0.3%) of turnover. BUSINESS OPERATIONS 1-9/2005 The positive development of the software business during the review period was based on the increase of sales by domestic direct sales and domestic professional services, and further by international software license sales towards the end of the review period. Investments targeted at the growth of the international sales were increased during the review period. The personnel in the international sales increased by 5 during the review period totalling 13 in the end of the review period. The international distribution network was expanded and partly renewed targeting at sales growth. The increased investments were targeted on the market segments, where company has assessed to have a lead against its main competitors, and where company in this way aims at securing its market position. International Operations and Distribution Network During the review period, in total of 54 international resellers delivered QPR software in 38 countries. During the review period, in total of 19 new reseller agreements were signed, especially in the Latin America, in the new EU countries, and in the Middle East. Geographically strongest regions were South Africa, the United States, the United Kingdom, Switzerland and Sweden. Banking, finance and insurance continued to be the strong industry segment with such distinguished customers as F?reningsSparbanken in Sweden, Commerzbank in Switzerland, Banco Ita? in Brazil, Dubai Islamic Bank and Commercial Bank of Dubai in the United Arab Emirates, The National Company of Co-operative Insurance (NCCI) in Saudi Arabia, the Central Bank of Indonesia, Vero Insurance in New Zealand, and Stanbic Africa in South Africa. Domestic Operations Business in Finland developed positively supported by the strong growth in professional services. An increasing share of the deliveries were focused on delivering larger complete management solutions, and the supporting professional services and project agreements. Deliveries were largely based on the QPR?s industry specific solutions. Telecommunications, Local Government, Manufacturing, Construction, Wholesale and Logistics as well as Food continued to be the strong industry segments with such distinguished customers as Nokia, Finnet Association, City of Kerava, City of Vaasa, Metso, Skanska, SRV Westerlund, Tradeka and Valio. PRODUCT DEVELOPMENT The Group's R&D costs for the review period totalled MEUR 0.934 (MEUR 0.813), that is, 20.9% (21.3%) of turnover, and increased 15.0% compared to the previous year. No overhead costs have been included in the R&D costs, neither have any R&D costs been capitalized in the balance sheet, as the R&D costs for the review period are regarded not to fulfil the particular criteria for R&D costs stated in the IAS 38. Product creation is consistently focused on development of software products for Performance Management, Process Management and Operational Risk Management. The core know-how of product development is on-goingly centralised in the own organisation, and long-term co-operation is continued with subcontractors. All software products developed by QPR are best-of-breed, ready-to- run applications, which are largely adaptable to the particular management methods of the customer, are adaptable also by the customers themselves, are delivered in multiple language versions, and integrate seamlessly to the customer?s other information systems. It is the goal of QPR to expand the current product offering by developing new management software applications that fit into the QPR product portfolio. The new product version QPR 7.4 was released in June 2005, and further the localised versions in September 2005. QPR 7.4 is an interactive management software solution that combines strategic performance management (QPR ScoreCard) and business process management (QPR ProcessGuide) into one complete collaborative management solution (QPR Collaborative Management). With the help of QPR?s software solutions, organisations support their people's commitment to organisation's objectives and processes. QPR's software have been translated into more than 20 different languages. PERSONNEL At the end of the review period the Group employed a total of 52 people (41). The number of employees increased in total by 12 during the review period. For incentive and commitment purposes, the Group has personnel bonus scheme covering the whole personnel and personnel stock option plan. The subscription period for stock options 2003/IIIA began 30 September 2004 and respectively 30 September 2005 for stock options 2003/IIIB. FINANCING, INVESTMENT AND CHANGES IN EQUITY At the end of the review period, the Group?s equity was MEUR 1.728 (MEUR 1.092), and the Group?s equity ratio was 47.2% (32.6%) correspondingly. The Group?s investments in fixed assets during the review period were MEUR 0.121 (MEUR -0.042), i.e. 2.7% (-1.1%) of turnover. During the review period, the Group?s liquidity has further improved. At the end of the review period, liquid cash funds amounted to MEUR 1.390 (MEUR 0.607). Long-term liabilities decreased in total of MEUR 0.511 during the review period. Current assets less MEUR 0.711 long-term receivables amounted to MEUR 3.604, short-term liabilities amounted to MEUR 2.096 and deferred revenue amounted to MEUR 0.960. Thus the Quick Ratio key figure at the end of the review period was 3.17 (2.60). The liquidity situation is estimated to remain good during the next 12 months. The liquidity situation is further supported during the next 12 months by the instalments from the sale of Business Games operation (estimated MEUR 0.3) and instalments from the sale of holding in partly owned company (estimated MEUR 0.1). During the review period, new shares were subscribed with stock options in May 2005. This served to increase share capital by MEUR 0.003 and the Company's equity by MEUR 0.008. DECISIONS MADE BY THE ANNUAL SHAREHOLDERS? MEETING The Annual Shareholders? Meeting held on March 15, 2005 adopted QPR Software Plc?s financial statements and the consolidated statements and granted the members of the Board of Directors and the Managing Director discharge from liability for the financial year ended December 31, 2004. The Annual Shareholders? Meeting resolved that no dividend shall be distributed for the fiscal year 2004. The Annual Shareholders? Meeting resolved that the Board of Directors consists of five (5) ordinary members. The Annual Meeting re-elected Vesa-Pekka Leskinen, Teemu Malmi, Jane Moilanen, Asko Piekkola and Timo Tirkkonen to the Board of Directors. The Board of Directors elected Timo Tirkkonen to continue as Chairman of the Board. Ernst & Young Oy, Authorised Public Accountants, continues as QPR Software Plc?s auditors. The Annual Shareholders? Meeting resolved on approving the proposals of the Board of Directors on issuing stock options and authorisation of Board of Directors to decide on the increase of share capital. The proposals of the Board of Directors are available in the QPR Software Plc?s stock exchange bulletin released on 23 February 2005. OTHER EVENTS DURING THE REVIEW PERIOD The Board of Directors of QPR Software Plc resolved on 26 April 2005 that the hitherto undistributed stock options issued on 1 October 2003 be partly distributed to the personnel of the QPR Software Group. The total number of stock options issued to the personnel of the QPR Software Group was 7,500 stock options 2003/IIIA and 22,500 stock options 2003/IIIB. The Board of Directors resolved as well that of the hitherto undistributed stock options 2003/II, issued by the Extraordinary General Meeting of Shareholders on 22 July 2003, be distributed a total of 11,917 stock options to the CEO of the Company. The 30,000 shares subscribed by 27 May 2005 under the QPR Software Plc Stock Option Plan 2003/III with the hitherto unconverted options entered public trading on the Helsinki Stock Exchange New Market list together with old shares as of 10 June 2005. COMPANY OWNERSHIP AND TRADING IN COMPANY SHARES At the end of the review period the Company had a total of 686 shareholders. Company announced during the review period the following notices of holding changes in accordance with Chapter 2, Section 10 of the Securities Market Act: 12 May 2005, the holding of Antti Kosunen (Helsinki) in QPR Software Plc decreased from 21.12% to 0.00% of QPR Software Plc's share capital and votes. 12 May 2005, the holding of Ulkomarkkinat Oy (Company ID 0115507- 1) in QPR Software Plc increased above one-tenth (1/10) to 13.08% of QPR Software Plc's share capital and votes. 12 May 2005, the holding of Alesco SA (RCS Luxemburg B64824) in QPR Software Plc increased above one-tenth (1/10) to 10.78% of QPR Software Plc's share capital and votes. In the review period trading in company shares amounted to MEUR 2.948, i.e. an average of EUR 15,848 per trading day. Trading in shares totaled 5,152,670 shares, giving an average of 27,703 shares per trading day. Turnover in shares corresponds to 42.6% of the total shares and the average price was EUR 0.57 per share. The market value of the shares at the end of the review period was EUR 0.63 per share, totaling MEUR 7.618. The number of shares issued by QPR Software Plc at the end of the fiscal period and at the time of review was 12,092,606. In addition to this the Company has issued stock option rights to Board members, management and other personnel, which entitle the holders to further subscribe 415,667 new shares with the hitherto unconverted options. Thereof, the subscription period for a total of 209,417 options began in 30 September 2004, and began for a total of 206,250 options in 30 September 2005. In addition, stock option rights are also in the possession of the subsidiary to be given to present and future employees and management, which would entitle holders to subscribe a maximum of 321,281 shares. On the basis of the authorization given at the annual general meeting of 15 March 2005 the Board of Directors could further issue securities, which would increase the number of company shares in circulation at maximum by 2,412,518 shares. This authorization is in force until 15 March 2006. CORPORATE GOVERNANCE QPR Software Plc complies with the Helsinki Exchanges' Guidelines for Insiders entered into force on 1 March 2000 and the Recommendation on Corporate Governance entered into force on 1 July 2004. The Company's Corporate Governance Statement is available in the Investor sector of the Company's website. ADOPTION OF IFRS, CALCULATORY TAX GAIN The date of transition to IFRS for QPR Software Plc is January 1, 2004. The major effects of the adoption of IFRS on QPR Software Plc?s financial information is available in the QPR Software Plc?s stock exchange bulletin released on 25 February 2005. QPR Software Plc will prepare its first IFRS financial statements for the fiscal year ending December 31, 2005. This interim report released on October 26, 2005, for the review period ending September 30, 2005, including the comparison figures, is according to IFRS. The calculatory tax gain and output based on the mother company's losses prior to January 1, 2004, for which, in accordance with generally accepted accounting principles considering precaution, a calculatory tax gain and output of 540,000 euro, was entered in the mother company's and the Groups annual books in 2003. The amount entered for calculatory tax gain was not affected by the transition to IFRS. The calculatory tax gain has decreased during January through September 2005 reflecting the accumulated taxable income during that period. In the Group's balance sheet as of 30 September 2005, the remaining calculatory tax gain is 301,653 euro. FUTURE PROSPECTS It is the conception of the Board of Directors that the organic growth in the net sales of the QPR Group will for 2005 be on an annual level around 20%, instead of previously estimated 20-30%, and based on that the operating profit percentage will be approximately 10%, instead of the previously estimated 15%. In addition, the Company further intends to follow the developments in the re-structuring of software industry, and aims to actively participate in it. GROUP INCOME STATEMENT 1-9/05 1-9/04 1-12/04 (MEUR) change NET SALES 4.477 3.810 17% 5.446 Other operating income 0.032 0.058 -45% 0.085 Expenses 4.089 3.260 25% 4.398 Depreciation 0.155 0.200 -22% 0.251 OPERATING PROFIT/LOSS 0.265 0.408 -35% 0.882 Net financial income and expenses 0.146 -0.040 465% -0.142 Share of the results in associated companies 0.000 -0.045 100% -0.046 PROFIT BEFORE TAXES 0.410 0.323 27% 0.694 Taxes -0.089 -0.084 6% -0.224 NET PROFIT/LOSS 0.322 0.239 35% 0.470 Earnings per share (EUR) 0.027 0.020 31% 0.040 Earnings per share, diluted (EUR) 0.026 0.020 32% 0.039 9/05 9/04 12/04 GROUP BALANCE SHEET (MEUR) ASSETS FIXED ASSETS AND OTHER NON-CURRENT ASSETS 0.304 0.748 -59% 0.339 Intangible assets 0.150 0.229 -34% 0.207 Tangible assets 0.150 0.135 11% 0.127 Investments in associated companies 0.000 0.379 -100% 0.000 Other investments 0.005 0.005 0% 0.005 CURRENT ASSETS 4.315 3.321 30% 4.453 Deferred tax gain 0.302 0.472 -36% 0.362 Long-term receivables 0.409 0.324 26% 0.509 Short-term receivables 2.214 1.917 15% 2.815 Cash and cash equivalents 1.390 0.607 129% 0.767 TOTAL ASSETS 4.620 4.068 14% 4.792 SHAREHOLDERS' EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY 1.728 1.092 58% 1.459 Share capital 1.330 1.304 2% 1.327 Other shareholders' equity 0.398 -0.211 288% 0.132 LIABILITIES 2.892 2.976 -3% 3.333 Subordinated loans 0.486 0.486 0% 0.486 Other long-term liabilities 0.310 0.716 -57% 0.821 Short-term liabilities 2.096 1.774 18% 2.026 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 4.620 4.068 14% 4.792 Shareholders' equity per share (Euro) 0.14 0.09 55% 0.12 Equity ratio 47.2% 32.6% 36.7% ROI 22.1% 21.5% 31.4% R&D expenditure (MEUR) 0.934 0.813 15% 1.095 Gross-investments in non-current assets (MEUR) 0.121 -0.042 391% 0.024 Average number of personnel 47 38 39 Adjusted average number of 12,261,209 12,015,841 11,999,804 shares in review period Number of shares at the 12,092,606 11,851,356 12,062,606 end of review period GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Other Translation Retained (kEUR) capital funds differences earnings Total SHAREHOLDERS' EQUITY 1 JANUARY 2004 1,257 3,163 146 -3,901 664 Issuance of new shares 47 47 Share premium 132 132 Covering retained losses with share premium fund -3,132 3,132 0 Share-related compensation 24 24 Translation differences -14 -14 Profit for the period 239 239 CHANGE IN SHAREHOLDERS' EQUITY 47 -2,977 -14 3,371 428 SHAREHOLDERS' EQUITY 30 SEPTEMBER 2004 1,304 186 132 -530 1,092 Issuance of new shares 23 23 Share premium 40 40 Share-related compensation 8 8 Translation differences 65 65 Profit for the period 231 231 CHANGE IN SHAREHOLDERS' EQUITY 23 48 65 231 367 SHAREHOLDERS' EQUITY 31 DECEMBER 2004 1,327 234 197 -298 1,459 Issuance of new shares 3 3 Share premium 4 4 Share-related compensation 24 24 Translation differences -85 -85 Profit for the period 322 322 CHANGE IN SHAREHOLDERS' EQUITY 3 28 -85 322 269 SHAREHOLDERS' EQUITY 30 SEPTEMBER 2004 1,330 262 112 23 1,728 Consolidated cash-flow for the review period, for 2004 and for the corresponding period in the previous year (MEUR) 1-9/05 1-9/04 1-12/04 CASH-FLOW FROM OPERATING ACTIVITIES EBIT 0.265 0.408 0.882 Depreciation 0.155 0.200 0.251 Other income and expenses that include no payment 0.306 0.020 0.509 IFRS-adjustments, that include no payment 0.024 -0.021 -0.014 Items included in other cash-flow in EBIT 0.000 0.085 0.105 Other adjustments 0.000 0.004 0.005 Net financial income 0.063 -0.040 -0.142 Taxes -0.028 -0.021 -0.031 Net change in interest- free receivables 0.378 0.055 -0.768 Net change in interest- free loans 0.301 -0.349 -0.022 Net change in long-term receivables and debts 0.099 0.221 -0.015 Net cash-flow from operating activities 1.563 0.563 0.760 CASH-FLOW FROM INVESTING ACTIVITIES capital expenditure -0.122 0.000 -0.024 Proceeds from sale of tangible/intangible assets 0.000 -0.003 0.000 Cash-flow from investing activities -0.122 -0.003 -0.024 CASH-FLOW FROM FINANCING ACTIVITIES Repayment of long-term borrowings -0.741 -0.438 -0.563 Proceeds from issuance of new shares 0.007 0.178 0.241 IFRS-adjustments 0.000 -0.089 -0.110 Translation differences -0.084 -0.014 0.051 Cash-flow from financing activities -0.817 -0.363 -0.381 Net change in cash and cash equivalents (+) / (-) 0.624 0.196 0.355 Cash and cash equivalents at beginning of period 0.767 0.410 0.410 Cash and cash equivalents at end of period 1.390 0.607 0.767 CONTINGENT LIABILITIES Securities for own commitments (MEUR) Motgages for loans 0.000 1.325 1.325 Rent commitments 0.036 0.034 0.032 RECONCILIATION OF PROFIT IN THE COMPARATIVE PERIOD Group Income Statement January 1-September 30, 2004 FAS IFRS- IFRS- (kEUR) 1-9/04 adjustments 1-9/04 NET SALES 3,861 -51 3,810 Other operating income 58 58 Share of the results in associated companies -96 96 0 Material and services 271 271 Personnel expenses 1,864 24 1,888 Depreciation and amortization 115 85 200 Tangible assets 40 85 126 Intangible assets 75 75 Other operating expenses 1,190 -89 1,101 Operating profit 383 25 408 Financing income and expenses -69 29 -40 Financial income 31 33 64 Financial expenses -100 -4 -104 Share of the results in associated companies 0 -45 -45 Profit before tax 314 9 323 Taxes -84 -84 Profit for the period 230 9 239 RECONCILIATION OF PROFIT IN THE COMPARATIVE PERIOD Group Income Statement July 1-September 30, 2004 FAS IFRS- IFRS- (kEUR) 7-9/04 adjustments 7-9/04 NET SALES 1,012 -17 995 Other operating income 39 39 Share of the results in associated companies -36 36 0 Material and services 17 17 Personnel expenses 586 8 586 Depreciation and amortization 34 14 48 Tangible assets 9 14 23 Intangible assets 25 25 Other operating expenses 320 -15 304 Operating profit 58 12 70 Financing income and expenses -47 9 -38 Financial income -13 10 -3 Financial expenses -35 -1 -35 Share of the results in associated companies 0 -19 -19 Profit before tax 11 2 13 Taxes -10 -10 Profit for the period 1 2 3 RECONCILIATION OF SHAREHOLDERS' EQUITY Group balance sheet 30 September 2004 FAS IFRS- IFRS- (kEUR) 6/04 adjustments 6/04 Share capital 1,304 1,304 Share premium account 257 -125 132 Share-related compensation 0 32 32 Reserve fund 22 22 Retained earnings -645 9 -637 Profit for the period 230 9 239 Subordinated loans 486 -486 0 SHAREHOLDERS' EQUITY 1,654 -562 1,092 Reconciliation of shareholders' equity between FAS and IFRS on January 1, 2004 has been published as a stock exchange release on February 25, 2005. In addition, the impact of adoption of IFRS on the profit for the period of 1 January 2004 through 31 December 2004 and on the shareholders' equity as of 31 December 2004 has been published in reconciliations in a stock exchange bulletin, published on 27 April 2005. The interim report is unaudited. QPR SOFTWARE PLC Board of Directors Further information: QPR SOFTWARE PLC Mr. Matti Kanninen, Managing Director tel. +358-40-545 5877 matti.kanninen@qpr.com http://www.qpr.com DISTRIBUTION: Helsinki Stock Exchange Main media Neither this press release nor any copy of it may be taken, transmitted into or distributed in the United States of America or its territories or possessions.