QPR SOFTWARE PLC STOCK EXCHANGE BULLETIN 28.10.2003, AT 5.30 PM QPR SOFTWARE PLC INTERIM REPORT JANUARY ? SEPTEMBER 2003 Summary 1-9/2003 1-9/2002 -Net Sales, MEUR 3.595 (6.611) -Other operating income, MEUR 0.606 (0.414) -Operating Profit, MEUR -0.028 (-1.701) -Net Result, MEUR -0.495 (-2.484) -Earning per Share (EPS)EUR -0.05 (-0.24) -Equity Ratio -35.1% (39.0%) -Equity per Share EUR -0.09 (0.26) -Return on Investment (ROI) -3.2% (-41.6%) 7-9/2003 7-9/2002 -Net Sales, MEUR 0.947 (1.751) -Other operating income, MEUR 0.462 (0.059) -Operating Profit, MEUR 0.223 (-1.508) -Net Result, MEUR 0.115 (-1.565) -Earning per Share (EPS) EUR 0.01 (-0.15) Development of Operations, January ? September 2003 The net sales of QRP Group declined by 45.6% during the review period, compared with the corresponding period in the previous year, and were MEUR 3.595. The net sales of the ongoing software business (including software licences, initial partner payments, sale of maintenance and professional services) were MEUR 3.185, and the net sales of the divested Business Games business were MEUR 0.410. The result of the review period was influenced by the sale of a part of the credit balance for the selling price from Business Game Factory Ltd that contributed MEUR 0.365 to the book result. Excluding the sale of the said credit balance, the positive effect would have been MEUR 0.105 in 3rd Quarter. The operating loss of the review period was MEUR 0.028 (MEUR ?1.701) and the share of the loss of the net sales was ?0.8% (-25.7%). The net result of the Group was MEUR ?0.495 and the earnings per share were EUR ?0,05. During the review period, the net sales of the ongoing business of the Group was distributed as follows (previous year figures in brackets): Software licences 1.495 (2.072) -28% Partner Payments 0.285 (1.255) -77% Maintenance Services 1.111 (0.797) +39% Professional Services 0.294 (0.137) +114% Software Business in Total 3.185 (4.261) -25% Business Games business 0.410 (2.350) -83% The share of the sales to end users (software business excluding partner payments) of the software business net sales was 91% against the 71% during the corresponding period in 2002. The share of the net sales accrued from outside Finland was 65% during the review period. The accrued payments of the selling price of the earlier divested Business Games operations amounted to MEUR 0.532. As of now, no accrual of the selling price is expected during the remaining financial period. The QRP Group continued to put emphasis on software business and to invest on a global distribution network during the review period. QPR continued streamlining its business operations to match the demand of products. The full effect of these measures was beginning to be seen only during the second half of the year. In the stock exchange bulletin of 11 July 2003, the Board of Directors of QPR provided further information of issues affecting the position of the Company. The most material and recent change is the drop in the Company?s headcount from 98 at the beginning of the year to 52 at the end of March 2003 and further to 42 at the end of June 2003, as the result of the restructuring and reorganisation measures the Company initiated in 2002, and partly of the divestment of the Business Games operations. Development of Operations in 3rd Quarter The net sales of the Group in 3rd Quarter MEUR 0.947 rose by 8.2% compared with the previous quarter and declined by 45.9% compared with the corresponding period in 2002. The net sales of the software business to end users (software net sales exclusive of initial partner payments), MEUR 0.891, rose by 67.8% compared with the corresponding period in 2002 (MEUR 0.531). The business result of the Group in 3rd Quarter showed a profit of MEUR 0.223 and rose by MEUR 0.692 compared with the previous quarter and by MEUR 1.730 compared with the corresponding period in 2002. The sale of a part of the credit balance for the selling price from Business Game Factory Ltd affected the result of 3rd Quarter, contributing approx. MEUR 0.365 to the book result. Excluding the sale of the said credit balance, the positive effect would have been MEUR 0.105 in 3rd Quarter. The software sales of the Company showed a slight rise in 3rd Quarter, in particular on the public sectors of England and the U.S.A. whilst the other customer segments remained expectant in respect of their investment decisions. The new QPR 7 customers obtained by the resellers of the Company include for instance T-Systems in Brasil (a subsidiary of Deutsche Telekom), City of Dublin and African Development Bank. Product Development QPR announced a new version of its Balanced Scorecard and Process Management software. QPR 7 is a new collaborative management software aimed at committing people to the organisation?s objectives and processes. QPR 7 seamlessly combines the QPR ScoreCard and QPR ProcessGuide. QPR 7 was well received in the markets as a new strategic tool for changing conventional methods in the communication of strategy and in process management. By the end of the review period, QPR 7 software was already translated into 19 different languages. The Company?s R&D expenditure totalled MEUR 0.831 (MEUR 1.847) during the review period, and represented 23.1% (27.9%) of the net sales. The R&D expenditure was not capitalised in the balance sheet. No general costs have been included in the R&D expenditure. Personnel and Organisation At the end of the review period the Group employed in total 41 persons (114). The number of personnel diminished by 57 during the review period. Financing, Investment and Changes in the Shareholders?Equity The shareholders? equity of the Group was MEUR ?0.453 at the end of the review period. The shareholders? equity of the parent company of the Group, QPR Software Plc, was MEUR 0.883 at the end of the review period. The share capital of the parent company was MEUR 1.141 at the end of the review period. The equity ratio of the Group was ?35.1% (39%) at the end of the review period. The liquid assets of the Group were MEUR 0.118 (MEUR 0.644) at the end of the period. The total investments in the fixed assets were MEUR 0 (MEUR 1.053) during the review period. The liquidity of the Group improved during the review period but remained rather tight. At the end of the review period, the liquid cash reserves were MEUR 0.118, short-term receivables MEUR 1.324, current liabilities MEUR 2.687, and the received down payments MEUR 0.626. Consequently, the quick ratio of the Group was 1.04 at the end of the review period. According to the liquidity forecast, the liquid cash reserves of the Group will suffice for the next 12 months. According to the management of the Company, the liquidity may continue to improve if the Company succeeds in divesting assets that are not directly connected with the business operations. The liquidity is estimated to normalise during the next 12 months, resulting from the measures taken and from the estimated economic development. Trading in the Company Shares The number of the shareholders in the Company was 536 at the end of the review period. The turnover of the QPR share totalled MEUR 0.556 during the period, equalling an average of EUR 2.929 per trading day. The total number of shares traded during the period was 1.981 million, meaning an average of 10,428 shares per day. The trading volume equals 19.1% of the stock, the average price being EUR 0.28 per share. The market value of all the shares was MEUR 4.151 at the end of the period, with the closing rate of EUR 0.4 per share. The Company owns none of its own shares. On 9 July 2002, the Extraordinary General meeting authorised the Board of Directors to purchase own shares using the distributable funds until 9 July 2003, provided that the book par value or the voting power of the Company shares held by the Company or its subsidiaries following the purchase will not exceed five (5) per cent of the share capital of the Company or of the aggregate number of votes. The Board of Directors did not exercise the authorisation. Other Events during the Review Period The extraordinary general meeting of 7 January 2003 of QPR Software Plc elected Professor Teemu Malmi, Helsinki School of Economics, an ordinary member of the Board of Directors in place of Mr Jouko Pelkonen who had resigned, and re- elected the former members Professor Esa Saarinen, Helsinki University of Technology, Director Pertti Korhonen, Nokia, and CEO Antti Kosunen, QPR. The meeting authorised the Board of Directors to dispose of the shares in subsidiaries or associated companies held by the Company, either in part or in whole on the conditions approved by the Board of Directors. The Helsinki Stock Exchange placed the QPR Software Plc share on the Surveillance list as of 17 February 2003. On 28 February 2003, QPR announced the termination of the negotiations within the employee participation statutes (co- operation procedure) concerning the future of the whole of Oulu office and cancelled the employment relationship of 19 employees. On 7 March 2003, the Annual General Meeting of QPR Software Plc approved the income statements and the balance sheet of the Company and the Group for the year 2002, and released the Board of Directors and the Managing Director from liability for the financial year 2002. In addition, the meeting re-elected CEO Antti Kosunen and Professor Teemu Malmi as members of the Board of Directors. Professor Esa Saarinen and Director Pertti Korhonen resigned from the Board of Directors. Managing Director Asko Piekkola was elected a new member of the Board of Directors. CEO Antti Kosunen resigned from his duties as CEO of QPR Software Plc commencing on 1 July 2003. The Board of Directors of the Company appointed Matti Kanninen as acting CEO from 1 July 2003. On 1 July 2003, the Board of Directors of QPR Software Plc decided on a financing arrangement aimed at improving the Company?s financial situation and liquidity. Accordingly, the Company decided to sell 5,000 of its shares in Mawell Oy and to offer the buyer an option to purchase a further 6,000 shares in Mawell Oy. The Company received EUR 165,000 as the purchase price of the shares. The purchase price value of the option is EUR 198,000. In connection with the financing arrangement, the Company was granted a loan of EUR 450,000 by its major shareholders and sources close to the Company, which loan the Company decided to draw. The loan arrangement and the sale of 5,000 shares in Mawell Oy did not influence the result since the shares were sold to their book value. These measures had also only a minor effect on the equity ratio and balance sheet. In the stock exchange bulletin of 11 July 2003, the Board of Directors of QPR provided further information of issues affecting the position of the Company. The most material and recent change is the drop in the Company?s headcount from 98 at the beginning of the year to 52 at the end of March 2003, and further to 42 at the end of June, as the result of the restructuring and reorganisation measures the Company initiated in 2002, and partly of the divestment of the Business Games operations. On 22 July 2003, the Extraordinary General meeting of QPR Software Plc authorised the Board of Directors to increase the share capital of the Company by issuing new shares, stock options or convertible bonds, in accordance with the Board's proposal. The authorisation may amount to a maximum of EUR 228,270. However, through issuing stock options, the share capital of the Company may be increased by a maximum of EUR 57,067. Based on the authorisation, a maximum of 2,075,182 shares or securities entitling to their subscription may be issued. On 22 July 2003, in conjunction with the financing arrangement aimed at improving the Company?s financial situation and liquidity, the general meeting approved a new stock option plan (Stock Option Plan 2003/I), based on which a total of 1,125,000 stock options will be offered to the lenders. The stock options entitle their holders to subscribe a corresponding number of the shares of the Company. Further the general meeting approved a second stock option plan (Stock Option Plan 2003/II) according to which a total of 259,408 stock options will be distributed to the current CEO, members of the Board of Directors and the Executive Committee, key personnel and personnel in the inner circle of the Group, and to the fully owned subsidiaries. The stock options entitle their holders to subscribe a corresponding number of the shares of the Company. The general meeting resolved to cancel the 270,000 stock options held by the Company, thereby annulling in full the stock option programme approved by the general meeting of 31 August 2000, QPR Software Plc?s Stock Option Plan, and the stock option programme approved by the general meeting of 9 July 2002, QPR Software Plc?s Stock Option Plan 2002. Following the annul, the share capital of the Company can no longer be increased on the basis of the stock option plans referred to above. The general meeting resolved to elect new members to the Board of Directors, and elected Teemu Malmi, Asko Piekkola, Vesa-Pekka Leskinen and Timo Tirkkonen members of the Board of Directors. The Board of Directors of QPR Software Plc elected among themselves Timo Tirkkonen the Chairman of the Board of Directors. At the same time the Board of Directors appointed as the managing director Matti Kanninen who had been the acting managing director from 1 July 2003. On 26 August 2003, the Board of Directors of QPR Software Plc resolved to sell 6,000 shares in Mawell Oy to a purchase price of EUR 198,000 in order to further improve the financial situation and liquidity of the Company. At the same time, the Company agreed to grant the buyer an option to buy a further 4,000 shares in Mawell Oy. The transaction had no influence on the result since the shares were sold to their book value. On 26 August 2003, the Board of Directors further resolved to sell a part of the credit balance for the selling price from Business Game Factory Ltd. The sale of the credit balance had a direct positive effect of approx. MEUR 0.365 on the book result. However, the positive effect of the arrangement may be estimated to be only approx. MEUR 0.1 since a major part of the credit balance would even otherwise have accrued during the current financial period. The Group companies still have a credit balance for the selling price from Business Games Factory Ltd worth MEUR 0.66 that should for the major part be accrued in 2004, pursuant to the conditions of the purchase. The remaining credit balance for the selling price was not entered into books earlier for reasons of caution. Events after the review period On 1 October 2003, the Board of Directors of QPR Software Plc resolved in accordance with the authorisation granted by the general meeting on 22 July 2003 to issue and distribute stock options to QPR Software Group personnel and to QPR Services Oy, a fully owned subsidiary of QPR Software Plc. The number of stock options totals 518,790 and they entitle subscription of 518,790 shares of QPR Software Plc. Of the stock options 259,395 will be marked 2003/IIIA and 259,395 will be marked 2003/IIIB. The subscription price of a share with the stock options marked 2003/IIIA and 2003/IIIB is EUR 0.25 per share. The subscription price will be lowered after 1 October 2003 and on each fix date for payment of dividend, by the amount of the dividends, payment of which was resolved prior to the subscription. The minimum subscription price of a share shall be the book value equivalent of the share. The subscription period for the stock options marked 2003/IIIA is from 30 September 2004 to 31 December 2008 and for the stock options marked 2003/IIIB from 30 September 2005 to 31 December 2008. The stock options are meant to prompt the personnel toward a long-term commitment of increasing the value of the Company for the shareholders. Further, the stock options are aimed at binding the personnel to the employer through the condition that should the employment of a stock option holder be terminated prior to 30 September 2005, such person shall offer his or her stock options to the Company with no indemnification payable for the value eventually accrued on such stock options. A total of 210,000 of stock options marked 2003/IIIA, and 210,000 of stock options marked 2003/IIIB were distributed to the personnel of QPR Software Group. The remaining 98,790 of the stock options marked 2003/III were distributed to QPR Services Oy for later distribution to the current or future personnel of QPR Software Group. On 1 October 2003, the Board of Directors of QPR Software Plc resolved to distribute to the managing director of the Company a total of 50,000 and to each member of the Board of Directors a total of 30,000 stock options, of the stock options marked 2003/II issued by the Extraordinary General meeting on 22 July 2003. The distributed stock options marked 2003/II total 170,000. The remaining 89,408 of the stock options marked 2003/II were distributed to QPR Service Oy, a subsidiary of QPR Software Plc. The stock options marked 2003/II entitle the subscription of max. 259,408 shares in QPR Software Plc. The subscription price of a share with such stock option is EUR 0.30 per share and the subscription period is from 30 September 2004 to 31 December 2008. The number of the issued shares of QPR Software Plc is at present 10,376,356. In addition, the Company has issued stock options subscribed by the members of the Board of Directors, the management and key personnel of the Company entitling a subscription of a total of 590,000 new shares. Such stock options are also held by the Company?s subsidiary for subscription by the present and future personnel of the Company, a number that entitles the subscription of max. 188,198 new shares. Further and as authorised by the general meeting on 22 July 2003, the Company has issued stock options that entitle the subscription of 1,125,000 new shares, distributed and subscribed by the lenders that were involved in the financing arrangement carried out in order to improve the financial situation and liquidity of the Company. Pursuant to the authorisation by the general meeting on 22 July 2003, the Board of Directors of the Company may further issue securities that may increase the number of the currently issued shares by max. 1,556,392 shares. Outlook The general economic situation and postponed investment decisions by major companies have had an adverse effect on sales efforts despite the high technical competitiveness of QPR?s software. Since the field not yet shows big enough signs of a general change for the better, it is difficult to make any longer-term estimates on the net sales or profit development while the present economic situation prevails and while the restructuring of the Company remains incomplete. According to the estimate of the management of the Company, the net sales of the Group would be MEUR 5.0 ? 5.3 in this financial period. The business and net result in 4Q is estimated to be positive. The net result in the current financial period is estimated to still remain negative, whereas the business result to become positive. GROUP INCOME STATEMENT (MEUR) 1-9/03 1-9/02 1-12/02 change NET SALES 3.595 6.611 -46% 8.728 Other operating income 0.606 0.414 46% 0.501 Share of results in associated Companies -0.122 -0.126 3% -0.178 Expenses 3.948 8.284 -52% 11.699 Depreciation according to Plan 0.159 0.316 -50% 0.740 OPERATING PROFIT/LOSS -0.028 -1.701 98% -3.390 Net financial income -0.444 -0.729 -39% -2.385 PROFIT BEFORE EXTRAORDINARY -0.472 -2.430 81% -5.775 ITEMS Extraordinary earnings 0.000 0.000 0.000 Extraordinary expenses 0.000 0.000 0.000 PROFIT BEFORE TAXES -0.472 -2.430 81% -5.775 Taxes -0.023 -0.053 -56% -0.041 Minority interest 0.000 0.000 0.020 NET PROFIT/LOSS -0.495 -2.484 80% -5.795 Earnings per share (EUR) -0.05 -0.09 44% -0.56 GROUP BALANCE SHEET (MEUR) 09/03 09/02 12/02 ASSETS FIXED ASSETS AND OTHER NON-CURRENT ASSETS 1.147 3.894 -71% 1.773 Intangible assets 0.341 0.859 -60% 0.469 Tangible assets 0.134 0.316 -58% 0.187 Investments in associated companies 0.668 2.714 -75% 1.112 Other investments 0.005 1.796 -100% 0.005 CURRENT ASSETS 2.150 3.849 -44% 3.659 Long-term receivables 0.709 0.348 104% 0.262 Short-term receivables 1.324 2.857 -54% 3.127 Cash and cash equivalents 0.118 0.644 -82% 0.270 TOTAL ASSETS 3.297 7.743 -57% 5.433 SHAREHOLDERS? EQUITY AND LIABILITIES SHAREHOLDERS? EQUITY -0.453 3.208 -114% -0.043 Share capital 1.141 1.141 1.141 Other shareholders? equity -1.594 2.066 -177% -1.184 MINORITY INTERESTS 0.000 0.020 0.000 LIABILITIES 3.750 4.516 -17% 5.475 Long-term liabilities 1.063 0.909 17% 0.565 Short-term liabilities 2.687 3.607 -25% 4.911 TOTAL SHAREHOLDERS?S EQUITY AND LIABILITIES 3.297 7.743 -57% 5.433 Shareholders? equity per share (EUR) -0.09 0.26 -135% -0.05 Equity ratio -35.1% 39% -12.3% ROI -3.2% -41.6% -89.2% R&D expenditure MEUR 0.831 1.847 -55% 2.434 Gross investments in non-current assets MEUR 0.000 1.053 0.973 Average number of personnel 57 117 113 Adjusted average no of shares 10.376.356 10.311.777 10.328.054 Adjusted no of shares at the end of the period 10.376.356 10.376.356 10.376.356 CONSOLIDATED CASH FLOW STATEMENT FOR THE REVIEW PERIOD AND FOR THE CORRESPONDING PERIOD IN 2002 (MEUR): 1-9/03 1-9/02 1-12/02 CASH FLOW FROM OPERATING ACTIVITIES EBIT -0.028 -1.701 -3.390 Depreciation according to plan 0.159 0.316 0.740 Other income and expenses that include no payment 0.064 2.116 2.837 Net financial income -0.444 -0.729 -0.862 Taxes -0.023 -0.053 -0.041 Net change in short-term Receivables 1.986 -1.025 -1.060 Net change in short-term Interest-free loans -2.162 -1.501 -0.291 Net change in long-term Receivables and debts 0.193 1.076 0.239 Net cash flow from operating Activities -0.254 -1.501 -1.826 CASH FLOW FROM INVESTMENTS Capital expenditure 0.000 -0.130 -0.130 Investment in associated Companies 0.000 -1.621 0.000 Invest. in other assoc. 0.000 1.790 0.000 Proceeds from sale of assets 0.022 0.000 0.095 Proceeds from sale of other Associated 0.373 0.000 0.000 Cash flow from investments 0.395 0.040 -0.036 CASH FLOW FROM FINANCING Proceeds from long-term Borrowings 0.000 0.000 1.200 Repayment of long-term Borrowings -0.380 0.865 -0.370 Net change in minority shares 0.000 0.020 0.020 Proceeds from convertible subordinated debentures 0.000 0.274 0.274 Issue of new shares 0.000 1.276 1.276 Dividends paid 0.000 -0.699 -0.699 Foreign exchange adjustments 0.085 0.102 0.163 Cash flow from financing -0.295 1.838 1.865 Net change in cash -0.153 0.376 0.003 Cash and cash equivalents at the beginning of the period 0.270 0.268 0.268 Cash and cash equivalents at the end of the period 0.118 0.644 0.270 CONTINGENT LIABILITIES Securities for own commitments (MEUR) Mortgages for loans 1.325 1.325 1.325 Contingent liabilities on behalf of other companies Guarantees for loans 0.330 0.000 0.000 The Group has no liabilities from derivates. The Interim Report is unaudited QPR SOFTWARE PLC Board of Directors Further information Mr Matti Kanninen, CEO, tel. (mobile) 040-545 5877 matti.kanninen@qpr.com http://www.qpr.com DISTRIBUTION: Helsinki Stock Exchange Main Media