QPR SOFTWARE PLC STOCK EXCHANGE BULLETIN 27 October 2004, AT 11.00 AM QPR SOFTWARE PLC INTERIM REPORT JANUARY 1 - SEPTEMBER 30, 2004 1-9/2004 1-9/2003 Net Sales, MEUR 3.861 (3.595) +7.4% Operating Result, MEUR 0.383 (-0.028)+1468.3% -percent of Net Sales 9.9% (-0.8%) Profit before taxes, MEUR 0.314 (-0.472) +166.6% -percent of Net Sales 8.1% (-13.1%) Net Result, MEUR 0.230 (-0.495) +146.5% -percent of Net Sales 6.0% (-13.8%) Liquid Assets, MEUR 0.607 (0.118) +414.4% Earning per Share, EUR 0.02 (-0.05) +141.1% Equity per Share, EUR 0.10 (-0.09) +208.9% Equity Ratio 34.7% (-35.1%) Return on Investment 20.8% (-3.2%) The net sales of the software business increased 21.2% during the review period compared to the corresponding period of the previous year and was MEUR 3.861 (MEUR 3.185). The development of the software business was based in particular on the increase of sales via the global distribution channel. The share of international operations of the Group's turnover for the review period was 69% (65%). Due to the slightly slower than anticipated development of net sales and operating result during the third quarter, the new estimate of the Board of Directors is that the growth in the net sales of the QPR's software business will for 2004 be on an annual level around 15-25%, and based on that the operating result of the Group will be above 10% of net sales. DEVELOPMENT OF OPERATIONS 1-9/2004 The Group's net sales and operating result developed nearly as anticipated. The net sales of the Group for the review period increased 7.4% compared to the corresponding period of the previous year and was MEUR 3.861 (MEUR 3.595 including turnover of MEUR 0.410 from the divested business games operations). The net sales of the software business increased 21.2% during the review period compared to the corresponding period of the previous year and was MEUR 3.861 (MEUR 3.185). The operating profit of the Group for the review period was MEUR 0.383 (MEUR -0.028), which was 9.9% (-0.8%) of turnover. The net result of the Group increased 146.5% compared to the corresponding period of the previous year and was MEUR 0.230 (MEUR -0.495), which was 6.0% (-13.8%) of turnover. The earning per share was EUR 0.02 (EUR -0.05). End user sales (software business less initial partner payments) was MEUR 3.804 and increased 31.2% compared to the corresponding period of the previous year (MEUR 2.900). Out of end user sales, software license sales were MEUR 2.070, in which there was an increase of 38.4% compared to the corresponding period of the previous year (MEUR 1.495). During the review period 80% (76%) of the license sales, MEUR 1.658, accumulated via the global distribution channel, where growth amounted to 47% compared to the corresponding period of the previous year (MEUR 1.132). The turnover of the Group's software business was divided as follows during the review period, MEUR: 1-9/2004 1-9/2003 Software licenses 2.070 (1.495) +38.4% Initial partner payments 0.057 (0.285) -80.0% Maintenance services 1.266 (1.111) +13.9% Professional services 0.469 (0.294) +59.4% Software business in total 3.861 (3.185) +21.2% DEVELOPMENT OF OPERATIONS 7-9/2004 Business in the third quarter, especially in the segments of local government and healthcare continued to be strong in the UK, Sweden and Finland. Further important openings were accomplished and significant new customers acquired in cooperation with local distributors, such as Budapest Airport in Hungary, and Commercial Bank of Dubai in the United Arab Emirates. In addition, demand for consulting and project services continued its strong growth especially in Finland. The Group's net sales and operating result for the third quarter developed slightly slower than anticipated. The net sales for the Group's third quarter, MEUR 1.012 increased 6.9% compared to the corresponding quarter of the previous year (MEUR 0.947) and decreased 29.7% compared to the previous quarter (MEUR 1.440). End user sales (net sales from software business less initial partner payments) were MEUR 1.012, showing an increase of 13.6% compared to the corresponding quarter of the previous year (MEUR 0.891) and a decrease of 27.7% compared to the previous quarter (MEUR 1.400). Sales of software licenses totalled MEUR 0.405, showing a decrease of 12.6% compared to the corresponding quarter of the previous year (MEUR 0.463) and a decrease of 50.5% compared to the previous quarter (MEUR 0.818). The operating result for the Group's third quarter was MEUR 0.058, showing a decrease of 73.9% compared to the corresponding quarter of the previous year (MEUR 0.223) and a decrease of 70.9% compared to the previous quarter (MEUR 0.200). The net result of the Group for the third quarter was MEUR 0.001, showing a decrease of 99.4% compared to the corresponding quarter of the previous year (MEUR 0.115) and a decrease of 99.4% compared to the previous quarter (MEUR 0.121). PRODUCT DEVELOPMENT The Group's R&D costs for the review period totalled MEUR 0.813 (MEUR 0.831), that is, 21.0% (23.1%) of turnover, and decreased 2.1% compared to the corresponding period of 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. In accordance with the plans, the major R&D effort during the third quarter was the revision of the new QPR 7.3 product version to be released in October 2004. The new product version QPR 7.3 (which was released after the review period in October 2004) supports the implementation of collaborative performance and business process management in private and public sector organisations. QPR 7.3 integrates the dynamic multi-level strategy maps, scorecards and core processes of the organisation. The advanced capabilities to visualise and personalise in the new product release will further increase the usability and effectiveness of the software as the platform for a variety of management systems. The delivery, implementation and adaptation of large-scale management systems were accelerated by enhanced features of scorecard structure inheritance, as well as integration and automation capabilities. QPR 7.3 is an interactive software 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 7.3, organisations support their people's commitment to organisation's objectives and processes. QPR's software has been translated into 20 different languages. PERSONNEL At the end of the review period the Group employed a total of 41 people (41), all of who are working in the software business. The number of employees was same in the beginning and in the end of the review period. For incentive and commitment purposes, the Group has personnel bonus scheme and stock option plan covering the whole personnel. The subscription periods of stock option plan are scaled to begin in 30 September 2004 and 30 September 2005. FINANCING, INVESTMENT AND CHANGES IN EQUITY At the end of the review period, the Group's equity was MEUR 1.654 (MEUR -0.453), and the Group's equity ratio was 34.7% (-35.1%) correspondingly. At the end of the review period, the Group's liquid cash funds were MEUR 0.607 MEUR (0.118). The Group's investments in fixed assets during the review period were MEUR 0.003 (MEUR 0.000), i.e. 0.1% (0.0%) of turnover. The equity of the parent company QPR Software Plc totalled MEUR 2.350, of which MEUR 1.304 share capital. During the review period, the Group's liquidity has further improved. At the end of the review period, liquid cash funds amounted to MEUR 0.607 (MEUR 0.118). Current assets less MEUR 0.698 long-term receivables amounted to MEUR 2.699, short-term liabilities amounted to MEUR 1.722 and deferred revenue amounted to MEUR 0.722. Thus the Quick Ratio key figure at the end of the review period was 2.70. The liquidity prognosis indicates that the Group's cash funds will be sufficient for the next 12 months, and the liquidity situation is estimated to improve further during that time. Factors contributing to the improvement in liquidity are improvement in the profitability of the Group's business operations, and instalments from the sale of Business Games operation during the next 12 months (estimated MEUR 0.4). During the review period, new shares were subscribed with stock options in March 2004. This served to increase share capital by MEUR 0.047 and the Company's equity by MEUR 0.179. During the review period no new subordinated loans were drawn. DECISIONS MADE BY THE ANNUAL SHAREHOLDERS' MEETING The Annual Shareholders' Meeting held on March 8, 2004 adopted QPR Software Plc's financial statements and the consolidated statements and granted the members of the Board of Directors and the Managing Directors discharge from liability for the financial year ended December 31, 2003. The Annual Shareholders' Meeting resolved that no dividend shall be distributed for the fiscal year 2003. The Annual Shareholders' Meeting decided to use Company's Share Premium Fund in order to cover the retained losses of EUR 3,132,471 from the previous accounting periods. The Annual Shareholders' Meeting resolved that the Board of Directors consists of five (5) ordinary members. The Annual Meeting re-elected the following members to the Board of Directors: Timo Tirkkonen, Vesa-Pekka Leskinen, Teemu Malmi and Asko Piekkola, and elected Jane Moilanen as a new member 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, with Rauno Sipil?, Authorized Public Accountant, as the auditor with primary responsibility. The Annual Shareholders' Meeting authorised, by revoking the previous unused authorisations, the Board of Directors to decide on increase of the share capital, until March 8, 2005, through one or more new issues and/or on one or more convertible bonds and/or granting option rights in one or more instalments. The authorisation is for the maximum amount of EUR 251,300. On the basis of the authorization, the number of company shares in circulation may increase at maximum by 2,284,545 shares totalling in 14,135,901 shares. OTHER EVENTS DURING THE REVIEW PERIOD The 650,000 shares subscribed on stock option rights as part of the Stock Option Plan 2003/I and the 400,000 shares subscribed in the targeted share issue entered public trading on the Helsinki Stock Exchange New Market list together with old shares as of 14 January 2004. The share of QPR Software Plc was removed from the surveillance list by the decision of Helsinki Stock Exchange on 29 January 2004. The 425,000 shares subscribed by 10 March 2004 under the Stock Option Plan 2003/I entered public trading on the Helsinki Stock Exchange New Market list together with old shares as of 19 March 2004. The number of shares available for trading thus rose to 11,851,356. The number of shares can no more increase by stock options under the Stock Option Plan 2003/I. 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 QPR Software Plc will proceed to report in accordance with the IFRS (International Financial Reporting Standards) during 2005. The first interim report in accordance with the IFRS will be published for the first quarter of year 2005. The transition to the Group reporting in accordance with the IFRS has progressed as planned, and the Company will assess the effects of the adoption of IFRS to the Company's accounting principles during the year 2004 and produce the comparative IFRS information for the year of 2005. The Company will consider, with the closing of the books for 2004, the entry of calculatory tax gain and output in the balance sheet. The calculatory tax gain and output is 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. The calculatory tax gain has decreased during January through September 2004 reflecting the accumulated taxable income during that period. In the Group's balance sheet as of September 30, 2004, the remaining calculatory tax gain is 472,030 euro. COMPANY OWNERSHIP AND TRADING IN COMPANY SHARES At the end of the review period the Company had a total of 753 shareholders. In the review period trading in company shares amounted to MEUR 2.212, i.e. an average of EUR 11,581 per trading day. Trading in shares totalled 3,705,206 shares, giving an average of 19,399 shares per trading day. Turnover in shares corresponds to 31.3% of the total shares and the average price was EUR 0.60 per share. The market value of the shares at the end of the review period was EUR 0.59 per share, totalling MEUR 6.992. The number of shares issued by QPR Software Plc at the end of the review period and at the time of review was 11,851,356. In addition to this the Company has issued stock option rights to Board members, management and other personnel, which entitle the holders to subscribe 630,000 new shares. 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 148,198 shares. On the basis of the authorization given at the annual general meeting of 8 March 2004 the Board of Directors could further issue securities, which would increase the number of company shares in circulation at maximum by 2,284,545 shares. This authorization is in force until 8 March 2005. FUTURE PROSPECTS Due to the slightly slower than anticipated development of net sales and operating result during the third quarter, the new estimate of the Board of Directors is that the growth in the net sales of the QPR's software business will for 2004 be on an annual level around 15-25%, and based on that the operating result of the Group will be above 10% of net sales. GROUP INCOME STATEMENT (MEUR) 1-9/04 1-9/03 1-12/03 change NET SALES 3.861 3.595 7% 5.166 Other operating income 0.058 0.606 -90% 1.327 Share of the results in associated companies -0.096 -0.122 21% -0.144 Expenses 3.325 3.948 -16% 5.338 Depreciation according to plan 0.115 0.159 -28% 0.212 OPERATING PROFIT/LOSS 0.383 -0.028 1468% 0.800 Net financial income and expenses -0.069 -0.444 84% -0.613 PROFIT BEFORE EXTRAORDINARY ITEMS 0.314 -0.472 167% 0.188 Extraordinary earnings 0.000 0.000 0.540 Extraordinary expenses 0.000 0.000 0.000 PROFIT BEFORE TAXES 0.314 -0.472 167% 0.727 Taxes -0.084 -0.023 -265% -0.018 Minority interest 0.000 0.000 0.000 NET PROFIT/LOSS 0.230 -0.495 147% 0.709 Earnings per share (EUR) 0.02 -0.05 139% 0.02 09/04 09/03 12/03 GROUP BALANCE SHEET (MEUR) ASSETS FIXED ASSETS AND OTHER NON-CURRENT ASSETS 0.696 1.147 -39% 0.852 Intangible assets 0.229 0.341 -33% 0.301 Tangible assets 0.083 0.134 -38% 0.123 Investments in associated companies 0.379 0.668 -43% 0.424 Other investments 0.005 0.005 0% 0.005 CURRENT ASSETS 3.397 2.150 58% 3.578 Deferred tax gain 0.472 0.000 100% 0.540 Long-term receivables 0.433 0.709 -39% 1.221 Short-term receivables 1.885 1.324 42% 1.947 Cash and cash equivalents 0.607 0.118 414% 0.410 TOTAL ASSETS 4.092 3.297 24% 4.430 SHAREHOLDERS' EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY 1.654 -0.453 465% 1.259 Share capital 1.304 1.141 14% 1.257 Other shareholders' equity -0.136 -2.080 93% -0.484 Subordinated loans 0.486 0.486 0% 0.486 MINORITY INTERESTS 0.000 0.000 0.000 LIABILITIES 2.438 3.750 -35% 3.171 Long-term liabilities 0.716 1.063 -33% 0.102 Short-term liabilities 1.722 2.687 -36% 3.069 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 4.092 3.297 24% 4.430 Shareholders' equity per share (Euro) 0.10 -0.09 0.07 Equity ratio 34.7% -35.1% 20.7% ROI 20.8% -3.2% 35.4% R&D expenditure (MEUR) 0.813 0.831 -2% 1.085 Gross investments in non-current assets (MEUR) 0.003 0.000 100% 0.098 Average number of personnel 38 57 54 Adjusted average number of shares in review period 12,015,841 10,376,356 10,413,753 Number of shares at the end of review period 11,851,356 10,376,356 11,426,356 Consolidated cash-flow for the review period and for the corresponding period in the previous year (MEUR): 1-9/04 1-9/03 1-12/03 CASH-FLOW FROM OPERATING ACTIVITIES EBIT 0.383 -0.028 0.800 Depreciation according to plan 0.115 0.159 0.212 Other income and expenses that include no payment 0.020 0.064 0.099 Net financial income -0.069 -0.444 -0.613 Incidental revenue and expense 0.000 0.000 0.540 Taxes -0.021 -0.023 -0.018 Net change in interest- free receivables 0.088 1.986 1.176 Net change in interest- free loans -0.295 -2.162 -1.859 Net change in long-term receivables and debts 0.253 0.193 -0.959 Net cash-flow from operating activities 0.474 -0.254 -0.623 CASH-FLOW FROM INVESTING ACTIVITIES Capital expenditure 0.000 0.000 0.020 Investment in associated companies 0.000 0.000 -0.109 Purchase of investments 0.000 0.000 0.693 Proceeds from sale of tangible/intangible assets -0.003 0.395 0.000 Proceeds from repayments of loans 0.000 0.000 0.000 Cash-flow from investing activities -0.003 0.395 0.604 CASH-FLOW FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 0.000 0.000 0.000 Repayment of long-term borrowings -0.438 -0.380 -0.445 Net change in minority shares 0.000 0.000 0.000 Proceeds from convertible subordinated debentures 0.000 0.000 0.000 Proceeds from issuance of new shares 0.178 0.000 0.447 Dividends paid 0.000 0.000 0.000 Foreign exchange adjustments -0.014 0.085 0.156 Cash-flow from financing activities -0.237 -0.295 0.158 Net change in cash and cash equivalents (+) / (-) 0.197 -0.152 0.139 Cash and cash equivalents at beginning of period 0.410 0.270 0.270 Cash and cash equivalents at end of period 0.607 0.118 0.410 CONTINGENT LIABILITIES Securities for own commitments (MEUR) Mortgages for loans 1.325 1.325 1.325 The Group has no liabilities from derivatives. 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.