QPR SOFTWARE PLC UNOFFICIAL TRANSLATION OF QPR SOFTWARE PLC INTERIM REPORT FROM 29 JULY 2003, 3.00 PM QPR SOFTWARE PLC INTERIM REPORT JANUARY?JUNE 2003 YEAR 2003 Q1 NET SALES BELOW EXPECTATIONS, RESULT NEGATIVE 1-6/2003 1-6/2002 -Net sales, MEUR 2.648 (4.860) -Operating profit, MEUR -0.251 (-0.194) -Net result, MEUR -0.610 (-0.919) -Earnings per share (EPS), EUR -0.06 (-0.09) -Equity ratio -30.4% (52.6%) -Equity per share, EUR -0.10 (0.41) -Return on investment (ROI) -37.0% (-6.6%) Development of operations, January?March 2003 The net sales of the QPR Group declined by 45.5% to 2.648 MEUR in the first half year of 2003, as compared with the corresponding period in 2002. The net sales of the continuing software business operations (including software licences, initial partner payments, and maintenance and professional services) amounted to 2.285 MEUR, and the net sales of the divested Business Games operations amounted to 0.362 MEUR. Due to the exceptionally low accrual of net sales in June, as well as certain non-recurring items, the result for the period was lower than anticipated at 0.251 MEUR (-0.194 MEUR); the share of the operating loss of net sales was -9.5% (-4.0%). The net result for the Group was - 0.610 MEUR, and earnings per share -0.06 EUR. Key figures by continuing business areas (2002 in brackets): Software licences 1.032 (1.778) -42% Partner payments 0.277 (0.863) -68% Maintenance 0.787 (0.606) +30% Professional services 0.190 (0.091) +109% Software business operations 2.285 (3.338) -32% Business Games operations 0.362 (1.522) -76% The share of software sales to end users (excluding partner payments) was 87% (73% in 2002). Net sales accrued from outside Finland during the period amounted to 56%. Accrued payments for the divested Business Games operations amounted to 0.120 MEUR; it is estimated that approximately 0.4 MEUR of the total purchase price will be accrued during the period. The QPR Group continued to develop the software business operations and a global distribution network during the period. In Q2 the Group continued streamlining its business operations to match demand. The impact of these measures will not be fully seen until the second half of 2003. QPR is prepared to take further cost-saving measures in order to achieve a positive result for the period. On 28 February 2003 QPR announced the termination of negotiations within the employee participation statutes (co- operation procedure) concerning the future of the Oulu office and decided to terminate the contracts with 19 employees. In its press release on 11 July 2003 the Board of Directors of QPR gave further information on issues affecting the company. The most important and recent change is the reduction in the company's headcount from 98 at the beginning of 2003 to 52 by the end of March 2003. This change is largely due to the restructuring and reorganisation measures started in 2002, as well as the divestment of the Business Game operations. The headcount continues to decline, and was 42 employees at the end of the period. Product development In March QPR publicised a new version of the Balanced Scorecard and Process Management software. QPR 7 is a new interactive software aimed at committing employees to common objectives and organisational processes. QPR 7 seamlessly combined 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. The Group's R&D expenditure totalled 0.576 MEUR (1.243 MEUR) for the period, which is 32.5% (25.6%) of the company's net sales. This expenditure was not capitalized in the balance sheet. Personnel and organisation At the end of the period the Group employed 42 persons (117 in 2002). The decline in the number of personnel during the period was 56. Finance, investment and capital The Group's shareholders' equity at the end of the period was -0.589 MEUR. The Group's parent company's (QPR Software Plc) shareholders' equity at the end of the period was 0.600 MEUR. The equity ratio at the end of the review period was -30.4% (52.6%). The Group's liquid assets at the end of the period totalled 0.110 MEUR (0.263 MEUR). Total investments in fixed assets during the review period amounted to -0.031 MEUR (1.123 MEUR), which equals -1.2% (23.1%) of net sales. The Group's liquidity at the end of the review period remained tight. Liquid cash reserves amounted to 0.110 MEUR, short-term receivables to 1.511 MEUR, current liabilities to 3.692 MEUR and received down payments to 0.722 MEUR. Consequently, the Group's quick ratio at the end of the period was 0.55. Based on the liquidity forecast, the Group's cash reserves arte sufficient for the next 12 months. The Group's management believes that the company's liquidity may improve if the company can divest certain non-operational assets. Liquidity for the next 12 months is expected to remain tight. Trading in shares The company had 520 shareholders at the end of the period. The turnover of the QPR share totalled 0.384 MEUR during the period, equalling an average of 3.096 euro per trading day. The total number of shares traded during the period was 1.291 million, which equals 10,408 shares per day. The trading volume equals 12.4% of the share capital, the average price being 0.30 euro per share. The total market value of all shares at the end of the period was 2.594 MEUR, with a closing rate of 0.25 euro per share. The company does not have own shares. The Extraordinary Shareholders' Meeting on 9 July 2002 authorised the Board of Directors to purchase own shares on distributable funds until 9 July 2003 on condition that the accounting total par value of shares in the company held by the Company or its subsidiaries, or the voting power of such shares, does not exceed five (5) per cent of the Company's share capital or the aggregate number of votes after the purchase. The Board did not exercise the authorisation. Other events during the period On 7 January 2003 the Extraordinary Shareholders' Meeting of QPR Software plc elected Professor Teemu Malmi (Helsinki School of Economics) a member of the Board of Directors in place of Mr. Jouko Pelkonen, who had voluntarily resigned, as well as Professor Esa Saarinen (Helsinki University of Technology), Director Pertti Korhonen (Nokia) and CEO Antti Kosunen (QPR). The meeting authorised the Board to dispose of shares in subsidiaries or associated companies held by the Company either in part or in full on the conditions approved by the Board. The Helsinki Stock Exchange placed the QPR Software Oyj share on the Surveillance list as of 17 February 2003. On 7 March 2003 the Annual General Meeting (AGM) of QPR Software Oyj approved the profit and loss account, as well as the balance sheet, of the Company and the Group for 2002, and discharged the members of the Board of Directors and the CEO from liability. The AGM also 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. Managing Director Asko Piekkola was elected a new member of the Board. Events after the review period CEO Antti Kosunen has resigned from his duties as CEO of QPR Software Oyj as of 1 July 2003. The Board of Directors has nominated Mr. Matti Kanninen as Acting CEO from that date. On 1 July 2003 the Board of QPR Software Oyj decided on a financing arrangement aimed at improving the Company's financial situation and liquidity. According to this decision, the Company resolved to sell 5,000 shares in Mawell Oy as well as to offer the buyer an option to purchase a further 6,000 shares. The Company received 165,000 euro as the purchase price of the shares; the option purchase price equals 198,000 euro. In conjunction with the financing arrangement the Company was given an option on a loan of 450,000 euro from its main shareholders and sources close to the Company, which the Company decided to draw. The loan arrangement and the disposal of 5,000 Mawell Oy shares did not impact on the result, as the disposal of the shares was implemented according to the accounting par value of the shares. The impacts of these measures on the equity ratio and balance sheet were also negligible. On 22 July 2003 the Extraordinary Shareholders' Meeting of QPR Software Oyj (QPR) accepted a Board proposal and authorised the Board of Directors to increase the share capital by issuing new shares, stock options or convertible bonds. The authorisation may amount to a maximum of 228,270 euro, but in such a manner that the Company's share capital may be increased by a maximum of 57,067 euro through the issuance of stock options. Based on this 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 Company's financial situation and liquidity, the AGM approved a new stock option plan as proposed (Stock Option Plan 2003/I), based on which an aggregate number of 1,125,000 stock options will be offered for subscription by the lenders. The stock options entitle their holders to subscribe a corresponding number of Company shares. The AGM also approved a second stock option plan (Stock Option Plan 2003/II), according to which the current CEO, members of the Board of Directors and the Executive Committee, key people and people in the inner circle of the Group, as well as in the Company's fully owned subsidiaries, be granted an aggregate number of 259,408 stock options. The stock options entitle their holders to subscribe a corresponding number of Company shares. The AGM approved the cancellation of 270,000 own options held by the Company so that the stock options approved by the AGM on 31 August 2000 (QPR Software Oyj stock option plan) and the stock option approved by the AGM on 9 July 2002 (QPR Software Oyj stock option plan 2002) will be annulled in full. After the cancellation the Company's shareholders' equity based on the aforementioned stock option plans cannot increase. The AGM approved the election of a new Board of Directors. Mr. Teemu Malmi, Mr. Asko Piekkola, Mr. Vesa-Pekka Leskinen and Mr. Timo Tirkkonen were elected Board members. Outlook The general economic situation and postponed investment decisions by larger companies have had a negative impact on sales, despite the high technical competitiveness of QPR?s products. There are no signs of a general improvement in the business atmosphere, which makes longer-term estimates for net sales and profit development further difficult. The management estimates that the Group's net sales for the period will be 5.0?6.0 MEUR. All the prerequisites for achieving a positive net result in the period are still available. GROUP INCOME STATEMENT (MEUR) 1-6/03 1-6/02 1-12/02 change NET SALES 2.648 4.860 -46% 8.728 Other operating income 0.144 0.355 -59% 0.501 Share of results in associated companies -0.043 -0.029 48% -0.178 Expenses 2.894 5.172 -44% 11.699 Depreciations according to plan 0.106 0.208 -49% 0.740 OPERATING PROFIT/LOSS -0.251 -0.194 -30% -3.390 Net financial income -0.330 -0.677 -51% -2.385 PROFIT BEFORE EXTRAORDINARY ITEMS -0.581 -0.870 -33% -5.775 Extraordinary earnings 0.000 0.000 0.000 Extraordinary expenses 0.000 0.000 0.000 PROFIT BEFORE TAXES -0.581 -0.870 -33% -5.775 Taxes -0.028 -0.048 -41% -0.041 Minority interest 0.000 0.000 0.020 NET PROFIT -0.610 -0.919 -34% -5.795 Earnings per share (EUR) -0.06 -0.09 -35% -0.56 GROUP BALANCE SHEET (MEUR) 06/03 06/02 12/02 ASSETS FIXED ASSETS AND OTHER NON-CURRENT ASSETS 1.636 4.072 -60% 1.773 Intangible assets 0.384 0.919 -58% 0.469 Tangible assets 0.144 0.346 -58% 0.187 Investments in associated companies 1.104 1.012 9% 1.112 Other investments 0.005 1.796 -100% 0.005 CURRENT ASSETS 2.620 5.195 -50% 3.659 Long-term receivables 0.999 0.920 9% 0.262 Short-term receivables 1.511 4.013 -62% 3.127 Cash and cash equivalents 0.110 0.263 -58% 0.270 TOTAL ASSETS 4.256 9.268 -54% 5.433 SHAREHOLDERS' EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY -0.589 4.784 -112% -0.043 Share capital 1.141 1.141 1.141 Other shareholders' equity -1.731 3.643 -148% -1.184 MINORITY INTERESTS 0.000 0.000 LIABILITIES 4.846 4.483 8% 5.475 Long-term liabilities 1.153 0.492 134% 0.565 Short-term liabilities 3.692 3.991 -7% 4.911 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 4.256 9.268 -54% 5.433 Shareholders' equity per share (EUR) -0.10 0.41 -125% -0.05 Equity ratio -30.4% 52.6% -12.3% ROI -37.0% -6.6% -89.2% R&D costs (MEUR) 0.576 1.240 -53.5% 2.434 Gross investments in non-current assets (MEUR) -0.031 1.123 0.973 Average number of personnel 53 107 113 Adjusted average nr of shares 10,376,356 10,278,952 10,328,054 Adjusted nr 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 CORRESPONDING PERIOD IN 2002 (MEUR): 1-6/03 1-6/02 1-12/02 CASH FLOW FROM OPERATING ACTIVITIES EBIT -0.251 -0.194 -3.390 Depreciations according to plan 0.106 0.208 0.740 Other income and expenses that include no payment 0.057 1.002 2.837 Net financial income -0.330 -0.677 -0.862 Taxes -0.028 -0.048 -0.041 Net change in short-term receivables 1.920 -1.164 -1.060 Net change in short-term loans -1.458 -0.613 -0.291 Net change in long-term receivables and debt 0.031 0.728 0.239 Net cash flow from operating activities 0.046 -0.757 -1.826 CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure 0.022 -0.111 -0.130 Investments in associated companies 0.000 0.179 0.000 Proceeds from sales of assets 0.000 0.000 0.095 Cash flow from investment activities 0.022 0.067 -0.036 CASH FLOW FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 0.000 0.000 1.200 Repayment of long-term borrowings -0.292 -0.279 -0.370 Net change in minority shares 0.000 0.000 0.020 Proceeds from convertible subordinated debentures 0.000 0.274 0.274 Issuance of new shares 0.000 1.276 1.276 Dividends paid 0.000 -0.699 -0.699 Foreign exchange adjustments 0.063 0.113 0.163 Cash flow financing operations -0.229 0.685 1.865 Net change in cash -0.160 -0.005 0.003 Cash and cash equivalents at the beginning of the period 0.270 0.268 0.268 Cash and cash equivalent at the end of the period 0.110 0.263 0.270 CONTINGENT LIABILITIES Mortgages for loans (MEUR) 1.325 0.425 1.325 The Group does not have liabilities from derivatives. The Interim Report is unaudited. QPR SOFTWARE PLC Board of Directors Further information Mr. Matti Kanninen, CEO, tel. (mobile) +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.