Qt Group Plc updates its strategy and long-term goals and is planning to seek additional funding via rights issue

QT GROUP PLC
STOCK EXCHANGE RELEASE
FEBRUARY 16, 2017

The Board of Directors of Qt Group Plc have updated the company strategy for the years 2017-2021. In accordance with the updated strategy, the company is announcing its new long-term financial goals to achieve in 2021 an annual turnover of 100 million euros with more than 15 percent operating profit margin (EBIT%). The updated strategy is based on strong investment in growth, focusing mainly on increasing Qt's market share among major device vendors as the preferred solution for touch screen-based technology software development. To finance the growth, the Board of Directors will be seeking authorization to organize a rights issue for approximately EUR 15 million in the company's Annual General Meeting on 14/03/2017.

We are surrounded by touch screens and smart devices as digitalization is everywhere—not only in the consumer market but also in industrial equipment. The market penetration of touch screens, and the importance of a great user experience has grown so that the consumers are often making purchase decisions, such as on a car or a smart TV, based on its software content and user experience, and not on the form factor. On the other hand, the same user experience and content should work seamlessly across all the end user devices. Qt technology allows manufacturers to easily create graphical user interfaces for touch screens and software that works across all consumer devices such as desktop computers, smart phones, TVs and cars, as well as in industry, for example, on the factory floor.

Today, Qt technology is already in use in more than 70 industries. For example, the automotive industry has in recent years taken Qt as a fundamental technology for the development of digital entertainment and control systems. Qt has business and development activities with most of the major global automobile manufacturers.

The Board of Directors of Qt Group Plc wishes to accelerate this growth as witnessed in recent years by investing more in strategic growth areas, such as:

  • Growing the global sales network and
  • Product offering in selected industries

Many of the key industries in which the company is pursuing growth in market share are undergoing technological transformations that involve making choices of technology platforms for the coming years. As these markets are being divided between the market players right now, it is essential for the company to aggressively capture market share and, most importantly, conclude significant commercial contracts with major OEMs.

Contracts with large manufacturers enable scalable growth and continuous revenue streams in Qt’s distribution licensing based revenue model in embedded systems. The more devices are produced with Qt technology, the larger the number of distribution licenses sold. As the product development lifecycles in many industries—such as the automotive industry—are 2–3 years long, the investments being made now are geared towards boosting distribution license revenue particularly from 2019 onwards.

Long-term financial goals

In accordance with the updated strategy, the Board of Directors has set the following financial targets to be reached by the end of 2021:

Value Target
Annual turnover 100 million euro
Operating profit margin (EBIT-%) Over 15 %

Due to investments made into the company’s growth, operating profit is estimated to be negative between 2017 and 2018 because of the upfront investments. In 2019, a positive commercial result is expected, at which time the operating profit margin is estimated to increase and operating profit of more than 15 percent of sales to be realized in 2021.

Growth in net sales is primarily based on organic growth by increasing investments into embedded systems and industrial sectors, focusing on product development and expanding the sales network. Selected acquisitions, regarding the technology or services, are a possibility for accelerating the growth.

The company's aim is to refrain from the distribution of dividends until further notice.

Growing the global sales network

Qt Group aims to expand its sales network by increasing the number of its own operating locations as well as the number of retailers. The plan for the company’s own operating locations is to cover the company’s largest geographical markets, which are currently the United States, Germany, China, South Korea and Japan. In the sales of embedded systems in particular, sales cycles are long and they require a local presence. Growth will also be pursued by developing the sales model and organisation with more focus on named strategic customer accounts.

The company will seek to grow its network of retailers, particularly in countries with smaller business potential or where the local operating methods or markets deviate significantly from the company’s current operating methods or markets. The aim is also to expand the network of retailers to technology partners that operate globally or have their own distribution networks.

The sales network will also be enhanced by increasing online distribution via the Internet. The current view of Qt Group’s Board of Directors is that the self-service based sales channel has limited significance to Qt’s business, but it enables the company to allocate its own sales resources better.

Product offering for selected industries

Qt provides technology solutions for two main market segments:

  1. Platform independent application development for desktop and mobile applications
  2. Development of embedded systems

Desktop and mobile application development markets are stable for Qt, where the development tool has a good reputation, market share and a large customer base. The company’s Board of Directors believe this market will continue to grow steadily and will continue to bring a steady cash flow. However, these market growth opportunities are restricted by the limited number of software developers. In the embedded systems market the company’s revenue model is, to a large extent, based on the number of products manufactured by means of the distribution license. For this reason, the embedded systems market provides a more scalable target market in comparison to desktop and mobile applications.

The Internet of Things (IoT) will revolutionize many industries and change the way in which future devices and systems are developed. As a result of these changes, more and more devices are intelligent, connected to other devices, and connected to the network. The value provided by embedded devices to the user is often based on the user experience, this is also the case in an industrial environment. Although the device will only be used by a trained specialist, for example, in a factory or a hospital environment, it is important that the usability of the device is comparable to the usability of a consumer device, such as a smartphone. Thus with the proliferation of the Internet of Things, above all, the need to create good user interfaces will increase. On the other hand, when the same user experience needs to be available on every device easily and effectively, the need for a platform-agnostic solution like Qt grows.

By using Qt, embedded equipment manufacturers can develop software for their devices, and, above all, create user interfaces efficiently. In practice, this means delivering products to the market faster using Qt. In addition, Qt offers device manufacturers with the ability to create their own platforms with external software, such as intelligent-TV or in-car entertainment systems, which offer external services.

Qt technology is ideally suited for making embedded systems and platform-independent applications and user interfaces. This competitive advantage will be further developed with a focus on development tools, and thus enhancing customers' development cycles, support for new software and hardware technologies and additional features for creating user interfaces, among other things.

Industry-focused approach enables long-term growth —Automotive industry the primary one

A specific strategic focus area for the company regarding the embedded systems market is the additional investment in selected industries such as Automotive, Automation and Digital Television sectors. By introducing additional industry-specific solutions and integrations the company can offer better value and grow the market share and revenue in these industries. Especially for the Automotive industry the company will continue its additional investments to grow the market share by developing specific technology solutions and expanding the automotive-specific sales network.

Dual-licensed technology

A growing trend in the software industry is the utilization of open source code and solutions. Qt technology has been dual-licensed under open source and commercial licenses over the whole 20 years of its history. Because of this, Qt has a wide and vibrant ecosystem of over one million developers. The development of Qt technology itself takes widely place in the open source community together with other companies, organizations and individual code contributors which enhances the product quality, creditability and the ability to introduce new features to the technology.

As an open source solution Qt offers device vendors a truly independent solution for creating their own software platforms and ecosystems for their own application developers. For instance automotive OEMs and smart TV vendors can create entertainment systems that enable external 3rdparty content so that the vendors maintain their ownership and control of the end user data. This is a highly important competitive advantage of Qt compared to other application ecosystems.

The open source licensing scheme of Qt was updated during 2016 with Qt 5.7 release so that it is clearer when a commercial license is required over an open source license especially when creating commercial end user devices. The Board of Directors believes that this will have a positive impact on the development of the company’s revenue as it improves the commercial conversion during years 2017-2019.

Rights Issue to Fund Investments into Growth

Qt's Board of Directors has decided to propose 14/03/2017 convening the Company's Annual General Meeting on authorizing the Board to decide on seeking additional funding of approximately EUR 15 million via share issue based on shareholders' pre-emptive subscription-based rights offering (the "Share Issue").

The Board of Directors proposes to the AGM that the AGM authorize the Board to decide on issuing a total maximum of 4,500,000 new shares or treasury shares in one or more Share Issues against payment.

The company's four largest shareholders, Ingman Development Oy Ab, Keskinäinen Eläkevakuutusyhtiö Ilmarinen, Jyrki Hallikainen and Kari Karvinen, have preliminarily announced their intention to participate in the Share Issue in proportion to their respective share of ownership.

In accordance with the authorization as proposed by the Board of Directors, the Board of Directors will decide on detailed terms and conditions of the Share Issue.

Qt Group Plc

Qt Group Plc is responsible for Qt development, productization and licensing under commercial and open source licenses. 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. The Qt Company operates in China, Finland, Germany, Japan, Korea, Norway, Russia and USA with about 200 employees worldwide. The Qt Group is headquartered in Espoo, Finland and is listed on Nasdaq Helsinki Stock Exchange. The company’s net sales in year 2015 was 27 MEUR. To learn more visit http://qt.io

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