BASWARE INTERIM REPORT JANUARY 1 – SEPTEMBER 30, 2018 (IFRS)

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Cloud order intake growth accelerates to 29 percent

July-September 2018:

  • Net sales EUR 33 991 thousand (EUR 35 827 thousand): decrease of 5.1 percent, organic growth at constant currencies 5.2 percent
  • Organic cloud revenue growth at constant currencies 15.0 percent, amounting to 66.0 percent (56.0 %) of net sales
  • Adjusted EBITDA EUR -877 thousand (EUR 3 661 thousand)
  • Adjusted operating profit/loss EUR -3 600 thousand (EUR 1 361 thousand)
  • Adjusted earnings per share (diluted) EUR -0.21 (0.06)
  • Operating profit/loss EUR -3 787 thousand (EUR 1 205 thousand)
  • Earnings per share (diluted) EUR -0.22 (0.05)

January-September 2018:

  • Net sales EUR 104 929 thousand (EUR 109 924 thousand): decrease of 4.5 percent, organic growth at constant currencies 5.8 percent
  • Organic cloud revenue growth at constant currencies 16.3 percent, amounting to 62.5 percent (53.1 %) of net sales
  •  Adjusted EBITDA EUR -3 538 thousand (EUR 2 386 thousand)
  •  Adjusted operating profit/loss EUR -11 633 thousand (EUR -4 976 thousand)
  •  Adjusted earnings per share (diluted) EUR -1.14 (-0.45)
  •  Operating profit/loss EUR 2 379 thousand (EUR -6 648 thousand)
  •  Earnings per share (diluted) EUR -0.18 (-0.56)

Basware is the global leader in providing networked source-to-pay, e-invoicing and value-added services. Basware’s key strategic priority for the strategy period 2018-2022 is cloud revenue growth. The company continues to strengthen its leading market position in order to grow cloud revenue.

For 2018 Basware expects the following on an organic basis at constant currencies:

  • Cloud revenues to be between EUR 90 and 95 million 
  • Total costs excluding amortization, depreciation and adjustments to be slightly above 2017 levels

Basware has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018 (mandatory application), with full retrospective application. In connection with the IFRS 15 application, the Group has also made certain changes to revenue allocation between Cloud and Non-cloud. Comparatives for 2017 presented in the interim report have been updated to include IFRS 15 restatements and revenue reallocations.

From Q1 2018 onwards, Basware has made certain changes in the presentation of its financial information. The company has adopted a functional income statement showing the company’s cost of sales, gross profit and operating expenses by function. In addition, the company has changed the presentation of its geographical information. From Q1 2018 onwards, the company reports the following geographical areas: Americas, Europe, Nordics and APAC.

In February 2018 Basware completed the divestment of two businesses. As a result, it is important to consider the organic growth rate when comparing 2018 financials with 2017 financials as the divestments decrease revenues and profitability. Additionally, foreign exchange movements, particularly in US dollars and Sterling, have negatively impacted Basware’s headline revenues during the first three quarters. This has a disproportionate effect on our cloud revenues where US dollars and Sterling comprise a larger share than in total revenues.

The interim report is unaudited.

GROUP KEY FIGURES

7-9/  7-9/  Change, 1-9/ 1-9/ Change,   1-12/
EUR thousand  2018  2017  % 2018 2017 %  2017
Net sales  33 991  35 827  -5.1 104 929  109 924 -4.5  149 167 
Cloud revenue 22 440  20 052  11.9 65 566  58 720 11.7 80 332
Cloud order intake* 4 483  3 475  29.0  15 531  12 995  19.5  17 943 
EBITDA  -1 064  3 505  10 474  714  599 
Adjusted EBITDA -877  3 661  -3 538  2 386  3 294 
Operating profit/loss  -3 787  1 205  2 379  -6 648  -9 509 
Adjusted operating profit/loss  -3 600  1 361  -11 633  -4 976 -133.8  -6 814 
Profit/loss before tax  -4 274  688  756  -9 013  -12 276 
Profit/loss for the period  -3 229  694 -2 558  -8 093  68.4  -11 524 
Cash and cash equivalents 46 235  25 275  82.9 46 235  25 275 82.9  20 683 
Earnings per share 
Diluted, EUR  -0.22  0.05  -0.18  -0.56  68.7  -0.80 
Adjusted earnings per share, diluted, EUR  -0.21  0.06  -1.14  -0.45  -155.7  -0.61 

*From Q2 2018 onwards cloud order intake is the key order intake figure reported

BUSINESS OPERATIONS

Basware is the global leader in networked purchase-to-pay solutions, including e-invoicing and financing services. Basware’s commerce network connects businesses in over 100 countries and territories around the globe. As the largest open business network in the world, Basware provides scale and reach for organizations of all sizes, enabling them to grow their business and unlock value across their operations by simplifying and streamlining financial processes. Small and large companies around the world achieve significant cost savings, more flexible payment terms, greater efficiencies and closer relationships with their suppliers.

CEO Vesa Tykkyläinen:

Our vision at Basware is to deliver the best global solution for networked purchasing, invoicing and paying. There is a huge potential market for our services, worth EUR 15 billion annually. We are the best placed to capitalise on this opportunity thanks to our network, which is the largest electronic invoicing network in the world. As a result of this strong combination of opportunity and capability, our growth vision is to become an EUR 1 billion revenue company.

Every day we move closer to becoming a pure cloud company and our cloud revenues now stand at 66 percent of total. This quarter our cloud order intake growth rate accelerated to 29 percent, driven by customer expansions and transformations, new customer acquisitions and partner sales. Customers wins this quarter include National Oilwell Varco, the Government of South Australia, Hoyts and Balenciaga.

In July we announced the outsourcing of our scanning services to Xerox. The deal closed at the beginning of October and 387 employees will transfer to Xerox from Basware. The partnership draws on the strengths of both parties, enabling Basware to focus on electronic invoicing whilst our customers will benefit from the best in paper handling from Xerox. It also simplifies our operations at Basware, which enables us to focus more on our core objective of cloud revenue growth. Additionally, this quarter Klaus Andersen joined us as Chief Technology Officer, completing the key leadership announced in May this year as Basware moved to a functional organisation.

Basware’s industry leading solutions can seamlessly connect to more than 250 different ERP systems. This quarter we continued to release new functionality including Smart Search, which is differentiated by our smart data model, and enables procurement departments to ensure that end users are directed towards the most appropriate purchasing options.

As both CEO and a shareholder of Basware, I am very excited by the progress that we continue to make during this quarter. Our key employees also share my excitement and also invested their own money into Basware this quarter as part of a share matching plan. Together the leadership of Basware is highly confident in our ability to capitalise on the huge market opportunity ahead of us.

NET SALES

Basware’s net sales year-to-date amounted to EUR 104 929 thousand (EUR 109 924 thousand), a decrease of 4.5 percent. This equated to 5.8 percent organic growth at constant currencies. The difference is related to the sale of Banking and Financial Performance Solutions as well as foreign exchange movements, especially US dollar and Sterling.

Basware’s net sales for the third quarter amounted to EUR 33 991 thousand (EUR 35 827 thousand), a decrease of 5.1 percent. This equated to 5.2 percent organic growth at constant currencies.

Cloud revenues grew well during the third quarter. Cloud revenues in the third quarter were EUR 22 440 thousand (EUR 20 052 thousand), up by 11.9 percent, and accounted for 66.0 percent (56.0 %) of net sales. This equated to 15.0 percent organic growth at constant currencies. Using 2017 exchange rates to calculate 2018 revenues, Cloud revenues in the third quarter would have been EUR 22 541 thousand.

In the third quarter SaaS revenues grew 14.3 percent and transaction services revenues 11.7 percent compared to the third quarter of 2017. The SaaS growth rate equated to 21.0 percent and transaction growth rate to 12.4 percent organic growth at constant currencies.

In non-cloud revenues, maintenance and licence revenues declined in line with expectations as we transition customers to the cloud. Non-cloud revenues were significantly impacted by the divestments made in the first quarter. The maintenance revenues declined 8.9 percent and licences 36.7 percent on an organic basis at constant currencies. Consulting revenues declined 8.6 percent on an organic basis at constant currencies.

Basware has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018. In connection with the IFRS 15 application, the Group has also made certain changes in revenue allocation between Cloud and Non-cloud. The net impact of IFRS 15 restatements and the changes in revenue allocation between Cloud and Non-cloud for 2017 comparatives is EUR -74 thousand for the full year and EUR 383 thousand for Q3 2017 on Group level, with Cloud revenue increasing by EUR 1 163 thousand for full year 2017 and EUR 700 thousand for Q3 2017 and Non-cloud revenue decreasing by EUR 1 236 thousand for full year 2017 and EUR 317 thousand for Q3 2017.

Net sales by revenue type  7-9/  7-9/  Change,  1-9/  1-9/  Change,  1-12/ 
EUR thousand  2018  2017  %  2018  2017  %  2017 
Cloud Revenue
SaaS  10 177 8 903 14.3 29 416 25 276 16.4 34 808 
Transaction services  11 029 9 875 11.7 32 405 28 919 12.1 39 689 
Other cloud revenue  1 233 1 274 -3.2 3 744 4 525 -17.3 5 835 
Cloud Revenue total 22 440  20 052  11.9  65 566 58 720 11.7 80 332 
Non-Cloud Revenue 
Maintenance 6 150  8 965  -31.4  20 212 28 170 -28.3 37 026 
License sales 401  790  -49.3  1 589 2 810 -43.4 4 192 
Consulting services 4 966  6 063  -18.1  17 504 20 299 -13.8 27 746 
Other non-cloud revenue 34  -42  59 -74 -129 
Non-Cloud Revenue total 11 551  15 776  -26.8  39 364 51 204 -23.1 68 836 
Group Total 33 991 35 827 -5.1 104 929 109 924 -4.5 149 167 

CLOUD ORDER INTAKE

Basware’s total cloud annual recurring revenue (ARR) gross order intake in the third quarter amounted to EUR 4.5 million, up from EUR 3.5 million in the third quarter of 2017, an increase of 29.0 percent. This equated to 35.0 percent growth on an organic constant currency basis. There will be a time lag before order intake is visible in net sales. Typically, around one quarter of new ARR order intake converts into revenues in the year that it is won, with roughly fifty to sixty percent converting to revenues in the second year and the remainder thereafter. Further information on the definition of annual recurring revenue gross order intake is included in the section on Definition of Alternative Performance Measures.

Annual recurring revenue gross order intake 7-9/  7-9/  Change,   1-9/  1-9/  Change,   1-12/ 
EUR thousand  2018  2017  %  2018  2017  %  2017 
Cloud 4 483 3 475 29.0 15 531 12 995 19.5 17 943
Purchase-to-Pay subscriptions 3 130 1 988 57.5 9 321 8 303 12.3 11 246

FINANCIAL PERFORMANCE

Basware’s adjusted EBITDA was EUR -877 thousand (EUR 3 661 thousand) in the third quarter. The adjustments to EBITDA totalled EUR 187 thousand (EUR 156 thousand) in the quarter. Basware’s operating profit/loss for the quarter amounted to EUR -3 787 thousand (EUR 1 205 thousand).

Basware’s adjusted EBITDA was EUR -3 538 thousand (EUR 2 386 thousand) year-to-date. The operating profit/loss for the first three quarters amounted to EUR 2 379 thousand (EUR -6 648 thousand).

Basware’s profitability year-to-date and particularly in the third quarter of 2018 has been impacted by the disposals that closed in the first quarter, increased spending on sales and marketing and increased share-based compensation, all of which are in line with Basware’s strategy. The disposed businesses were contributing roughly EUR 8 million of EBITDA in 2017. In line with the strategy we have spent an additional EUR 3 million on sales and marketing in the third quarter of 2018 compared to the third quarter of 2017. As we further align our employees with shareholders, the costs related to share-based compensation increased by roughly EUR 1 million compared to the comparison period.

The company’s cost of sales was EUR 16 101 thousand (EUR 16 966 thousand) and total operating expenses including depreciation and amortization EUR 21 361 thousand (EUR 17 400 thousand) in the third quarter. Out of total operating expenses, sales and marketing expenses were EUR 10 759 thousand (EUR 7 809 thousand), research and development expenses EUR 6 599 thousand (EUR 6 539 thousand) and general and administration expenses EUR 4 003 thousand (EUR 3 052 thousand). Other operating income and expenses were EUR -316 thousand (EUR -257 thousand).

Research and development expenses in the income statement totalled EUR 6 599 thousand (EUR 6 539 thousand). Of this, EUR 1 535 thousand related to depreciation (EUR 1 126 thousand). Research and development expenses capitalized during the quarter amounted to EUR 1 751 thousand (EUR 2 192 thousand). Basware’s research and development investments totalled EUR 6 815 thousand (EUR 7 606 thousand), or 20.0 percent (21.2 %) of net sales during the quarter.

The company’s net finance expenses were EUR -487 thousand (EUR -401 thousand) for the quarter.

Basware’s profit/loss before tax was EUR -4 274 thousand (EUR 688 thousand) and profit/loss for the quarter EUR -3 299 thousand (EUR 694 thousand). Taxes for the quarter impacted the profit/loss by EUR 1 045 thousand (EUR 7 thousand).

Diluted earnings per share were EUR -0.22 (EUR 0.05) for the quarter.

FINANCING AND INVESTMENTS

Cash flows from operating activities were EUR -2 676 thousand in the third quarter (EUR -4 840 thousand) and year-to-date EUR -3 421 thousand (EUR -2 206 thousand). Basware’s operating cash flows are seasonal as a relatively large part of payments for annual maintenance are made in the first quarter.

Basware’s cash and cash equivalents including short-term deposits totalled EUR 46 235 thousand (EUR 25 275 thousand) at the end of the quarter. In addition to cash and cash equivalents, Basware has an undrawn revolving credit facility of EUR 10 million, bringing total available liquidity at the end of the quarter to EUR 56 235 thousand (EUR 35 275 thousand).

In the third quarter of 2018, the company participated in a new fixed rate bond with a loan share totalling EUR 10 million. The bond’s maturity is five years.

Basware’s total assets on the balance sheet at the end of the quarter were EUR 219 252 thousand (EUR 220 439 thousand). Net cash flows from investments were EUR -1 489 thousand (EUR -2 453 thousand) in the quarter.

The equity ratio was 52.3 percent (53.4 %) and gearing 9.6 percent (20.4 %). The company’s interest-bearing liabilities totalled EUR 57 202 thousand (EUR 49 282 thousand), of which current liabilities accounted for EUR 17 089 thousand (EUR 1 996 thousand). The return on investment was -9.2 percent (2.8 %) and return on equity -11.2 percent (2.3 %) in the quarter.

PERSONNEL

Basware’s personnel expenses were EUR 22 045 thousand (EUR 21 370 thousand) in the quarter.

Basware employed 1 727 (1 826) people on average during the quarter and 1 736 (1 827) at the end of the quarter. Following the partnership with Xerox announced in the third quarter, 387 employees will transfer from Basware to Xerox in the fourth quarter.

Geographical division of personnel:

Personnel   7-9/  7-9/  Change, 1-9/ 1-9/ Change,   1-12/ 
Employed, on average  2018  2017  %  2018  2017  %  2017
Americas  138  130  6.2 137 131 4.8  131
Europe   457  463  -1.2 461 479 -3.8  475
Nordics  473  555  -14.7 497 562 -11.6  558
APAC  658 678 -2.9 673 668 0.8 673
Group total  1 727  1 826  -5.4 1 768 1 840 -3.9  1 838

In accordance with the new organisational structure announced on June 1, 2018, at the end of the quarter 12.4 percent of the personnel worked in sales and marketing, 48.6 percent in R&D and production and products, 31.0 percent in customer services and 8.0 percent in administration.

The average age of employees is 35.4 (35.2) years. Women account for 28.0 percent (27.5 %) of employees, men for 72.0 percent (72.5 %).

OTHER EVENTS OF THE PERIOD

Composition of the Audit Committee 

David Bateman, member of the Board of Directors of Basware Corporation, joined the Board’s Audit Committee as of July 1, 2018. All other members of the Audit Committee remain unchanged.

Changes in Basware’s Executive Team

Klaus Andersen was appointed as Chief Technology Officer (CTO) and as a member of the Executive Team at Basware. Andersen joined Basware in September and reports to the CEO.

Basware launches new Matching Share Plan for key employees

The Board of Directors of Basware Corporation resolved in its meeting on July 17, 2018 to establish a new Matching Share Plan 2018-2020 for the Group’s key employees.

The aim of the plan is to further align the objectives of shareholders and key employees, to retain key employees at the company, and to offer them competitive reward plans based on acquiring and holding the company’s shares.

The potential rewards from the plan will be paid partly in Basware shares and partly in cash. The cash proportion is intended to cover taxes and tax-related costs arising from the reward to the employee.

The prerequisite for receiving reward on the basis of the Matching Share Plan is that the plan member acquires Basware shares. The plan member will, as a reward, receive matching shares for each share subject to the share ownership prerequisite after a matching period of three (3) years. Receipt of matching shares is contingent on the continuation of employment or service and on the plan member holding the acquired shares upon reward payment.

The rewards to be paid in aggregate to plan members on the basis of the Matching Share Plan correspond to the value of a maximum total of 77,714 Basware Corporation shares, including also the proportion to be paid in cash.

The plan as a whole entails an aggregate share ownership interest of approximately 116,571 shares for the plan members, via personal share acquisitions and the right to future share ownership through the Matching Share Plan.

EVENTS AFTER THE PERIOD

Basware announces EUR 1 billion revenue growth vision

Basware’s vision is to deliver the best global solution for networked purchasing, invoicing and paying.

All organisations need to manage their purchasing processes from procurement through to handling invoices and paying them. Currently many organisations only have unsophisticated or partial tools to manage these processes and as a result many are faced with unmanaged spending, inefficient manual and paper-based processes and poor visibility of cashflows. Basware offers a uniquely complete solution for these challenges that is differentiated by the Basware Network, the largest e-invoicing network in the world. This enables customers to manage 100 percent of their spending, make their purchasing processes completely digital, and improve their carbon footprint by reducing paper usage.

As every organization in the world can benefit from our solutions, the market opportunity is huge, worth EUR 15 billion per year. Growth in demand for our solutions is underpinned by several megatrends, including digitalization, automation, and artificial intelligence. Basware’s ambition is to be the number one by market share in the networked source-to-pay industry in the large European countries and a leader in the US market. As a result, we today announce that our growth vision is to become an EUR 1 billion revenue company.

At the end of the second quarter 2018 Basware announced that it has moved to a growth phase after almost two years of simplifying and improving its operations. We are now focused fully on cloud revenue growth and will make the necessary investments to accelerate this growth.

Undisputed market leader

Basware has four sources of cloud revenue growth: new customer acquisitions, customer expansions, customer transformations, and partnering.

New customer acquisitions: Basware’s key growth markets are the US, UK, Germany and France. These continue to be the areas where we see the greatest opportunity to win new customers, and this is where we will continue to invest the majority of our new sales and marketing spending and where the “hunters” in our sales force will focus.

Customer expansions: We have a fantastic existing cloud customer base with approximately 200 key customers for whom the average annual recurring cloud revenue is approximately EUR 200 thousand. We want to support each of our customers across the full spectrum of networked source to pay cloud solutions and in all jurisdictions where they operate. We are the best placed in our industry to do so given the global reach of our network, the largest e-invoicing network in the world. By investing in account management, serving our customers more intimately and more globally, and by improving customer satisfaction, we believe that we can significantly increase the average revenues from our key customers.

Customer transformations: We are focused on actively transforming the largest of our on-premise customers to our cloud solutions. When our customers transform to the cloud they benefit from a modern, more useable, constantly updated solution and as a result typically the revenues from each of these customers more than doubles.

Partnering: In the past Basware has focused more on direct sales than partner sales with the share of cloud revenues in 2017 from partners being approximately 5 percent. Reaching more end customers via partners is a scalable way to grow both in our existing key markets and in the future in new geographies, and therefore a dedicated partnering function was created as part of the move to a functional organisation structure announced in May 2018. The goal is to increase the percentage of cloud revenues from partners to 20 percent in the long run.

Increasing investments into sales and marketing

Basware will increase its investments significantly into sales and marketing during the strategy period 2019 to 2022 in order to grow cloud order intake. We are confident that this will be a good investment, because our historical ratio of customer life time value to customer acquisition cost has been 7 times. This means that for every one Euro invested in sales and marketing a return of seven Euros will be generated. In fact, with a gross renewal rate of 95 percent and a net renewal rate of 106 percent, a typical customer lifetime is 19 years.

Simplify global trade interactions

We have a powerful cloud platform which enables customers to manage all source-to-pay processes. We have the largest open e-Invoicing network in the world. These assets combined put us in a unique position to leverage the rapid technological developments in the industry to bring more value to our customers by simplifying global trade interactions.

The role of analytics solutions will be increasingly more important to increase the value of our offering to customers - from getting actionable insights to making strategic business decisions.

We will selectively consider partnering and acquisitions to complement our technology portfolio.

Customer value beyond expectations

We strive to provide an excellent customer experience and maximize customers’ service adoption and benefits so that they want to purchase even more of our solutions. We will make our consulting and customer service organization more scalable.

A scalable business model

The cloud business model that Basware is transforming to, now accounting for 66 percent of revenues, is very scalable. This means that as revenues grow, the cost of sales does not grow as quickly, improving our gross margin over time. Whilst we will invest more in sales and marketing during the strategy period, underlying profitability will improve as cost of sales declines as a percentage of sales and we exercise discipline in research and development and general and administrative spending. As a general cost philosophy, we will continuously reallocate spending from less productive to more productive areas.

Basware’s priority is cloud revenue growth. In addition to the long-term growth vision to become a EUR 1 billion revenue company, Basware today announces a mid-term target to replace any previous targets: Basware will accelerate annual organic cloud growth to more than 20 percent by 2022.

There is a huge market opportunity ahead of Basware which requires ambition to capture. That is why we today announce our EUR 1 billion revenue growth vision. We believe that Basware has the building blocks to be the leader in our industry and with these actions are confident that we can further strengthen our global position and drive cloud revenue growth.

Definitions related to cloud metrics included in EUR 1 billion vision statement:

Cloud gross churn rate is defined as the total amount of cloud revenues lost during the period, divided by the total cloud revenues at the beginning of the period.

Cloud net churn rate is defined as the total amount of cloud revenues lost during the period minus the new cloud ARR won from add-on sales to existing customers during the period, divided by the total cloud revenues at the beginning of the period.

Cloud gross renewal rate is defined as 100 percent minus the cloud gross churn rate.

Cloud net renewal rate is defined as 100 percent minus the cloud net churn rate.

Customer lifetime is defined as 1 divided by the cloud gross churn rate.

Lifetime value of the order intake won during the period is calculated by multiplying Cloud ARR order intake during the period by the cloud gross margin and dividing by the cloud gross churn rate.

The customer acquisition cost is defined as the total expenditure on sales and marketing for the 12 months prior to the period (to account for the lead time between new sales and marketing expenditure converting to order intake).

RISKS AND UNCERTAINTY FACTORS    

Basware has a growth strategy with high net sales growth expectations for the cloud business. Executing the strategy requires significant investments in sales and marketing and related resources as well as continued investments in product development. At the same time, the industry transformation from an on-premise license-based business model to a SaaS model will accelerate the decline of certain Basware revenue streams, including license sales and maintenance. The transformation will also make consulting revenues more volatile. Until the transformation is complete, this will act as a drag on Group net sales growth.

Additionally, even higher than expected pace in the license to SaaS transformation would have a negative impact on expected net sales in the short term. In addition to SaaS, Basware expects high growth rates in its network-based transaction services which will, besides successful sales effort, also require an efficient supplier onboarding process. Sales from Value Added Services, including Financing Services, are dependent on Basware’s ability to bring innovative and attractive products to the market according to its planned timetable and move customers quickly to a phase where they are using the services extensively enough to provide meaningful revenue to Basware.

The fact that more than 50 percent of the company’s sales are expected to come from non-euro countries exposes the Group’s net sales growth to foreign exchange rate movements. In case there is a significant movement of GBP, USD, NOK, SEK or AUD against the euro, reported net sales may be affected. In addition, a proportion of Basware’s costs are denominated in INR and RON.

Execution of the growth strategy and going through constant change puts new demands on the organization as well as its management and leadership capabilities. The company’s ability to attract, retain and develop the right type of talent to deliver on its strategy is critical as well as management focus and ability to drive change.

Basware considers acquisitions as part of its strategy. Acquisitions entail risks, such as failure in integrating acquisitions or in ensuring that the planned financial benefits and synergies of the acquisitions materialize.

The cloud transformation process requires cash investment. The company’s ability to secure financing for this transformation may affect its ability to deliver on the strategy.

Basware’s biggest operational risks relate to service disruption as a result of for example data centre failures, various data security threats and non-compliance risks related to Basware’s solutions and services, the company’s activities or its employees’ behaviour. Operational risks are actively managed by continuous improvement in risk monitoring and protection practices as well as internal training of Basware’s personnel.

Basware operates in a market where technological and business model innovation play a key role. While Basware is recognized as a leader within its segments by independent analysts, it is critical that Basware continues to innovate and develop its offering.

FUTURE OUTLOOK

Operating environment and market outlook

All organisations need to manage their purchasing processes from procurement through to handling invoices and paying them. Currently many organisations only have unsophisticated or partial tools to manage these processes and as a result many are faced with unmanaged spending, inefficient manual and paper-based processes and poor visibility of cashflows. Basware offers a uniquely complete solution for these challenges that is differentiated by the Basware Network, the largest e-invoicing network in the world, and enables customers to manage 100 percent of their spending and make their purchasing processes completely paperless.

Basware expects the demand for networked purchase-to-pay services to continue to grow. The total potential market for networked purchase-to-pay services is estimated to be worth EUR 15 billion in annual revenues.

Outlook for 2018

Basware is the global leader in providing networked source-to-pay, e-invoicing and value-added services. Basware’s key strategic priority for the strategy period 2018-2022 is cloud revenue growth. The company continues to strengthen its leading market position in order to grow cloud revenue.

Themes affecting cloud revenues in 2018:

  • SaaS revenues anticipated to continue to grow strongly on an organic basis
  • Transaction services revenues growth anticipated to accelerate as growth initiatives take effect
  • Other cloud revenues continue to be impacted by UK public sector revenues
  • Cloud revenues have a higher proportion of US dollar and Sterling and so are disproportionately affected by foreign exchange movements

Themes affecting non-cloud revenues in 2018:

  • Maintenance and licence revenues will continue to decline as Basware transitions existing customers to cloud services
  • Consulting revenues are also affected by the cloud transition and more standardised implementations
  • Non-cloud revenues are disproportionately affected by the divestments completed in February 2018

For 2018 Basware expects the following on an organic basis at constant currencies:

  • Cloud revenues to be between EUR 90 and 95 million 
  • Total costs excluding amortization, depreciation and adjustments to be slightly above 2017 levels

Constant currencies means that the effects of any changes in currencies are eliminated by calculating the figures for the period using 2017 exchange rates. Organic means that the figures are adjusted to remove the effects of any acquisitions or disposals within the past 12 months.

Espoo, Finland, Tuesday, October 16, 2018

BASWARE CORPORATION
Board of Directors

Vesa Tykkyläinen, CEO, Basware Corporation

For more information, please contact:
Niclas Rosenlew, CFO, Basware Corporation
Tel. +358 50 480 2160, niclas.rosenlew@basware.com


Distribution:
Nasdaq Helsinki
Key media
investors.basware.com/en

SUMMARY OF FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS JANUARY 1 – SEPTEMBER 30, 2018   

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

EUR thousand  7-9/2018  7-9/2017  Change, % 1-9/2018 1-9/2017 Change, %  1-12/2017
NET SALES  33 991 35 827  -5.1  104 929  109 924  -4.5  149 167
Cost of sales -16 101  -16 966  -5.1  -52 595  -56 804  -7.4  -75 891
GROSS PROFIT 17 890  18 862  -5.2  52 335  53 120  -1.5  73 276
Sales and marketing -10 759  -7 809  37.8  -31 072  -26 508 17.2  -36 455
Research and development -6 599  -6 539  0.9  -20 374  -22 026 -7.5  -29 629
General and administration -4 003  -3 052  31.2  -12 185  -9 645  26.3  -14 110
Total operating expenses -21 361  -17 400  22.8  -63 631  -58 179 9.4  -80 194
Other operating income and expenses -316  -257  22.7  13 675  -1 589  -2 593
OPERATING PROFIT/LOSS -3 787  1 205  2 379  -6 648  -9 509
Finance income and expenses -487  -401  21.5  -1 470  -1 370  7.3  -1 719
Share of profit/loss of a joint venture -117  -100.0  -153  -995  -84.6  -1 048
PROFIT/LOSS BEFORE TAX -4 274  688  756  -9 013  -12 276
Income tax 1 045  -3 314  920  752
PROFIT/LOSS FOR THE PERIOD -3 229  694  -2 558  -8 093  68.4  -11 524
Other comprehensive income
Other comprehensive income that will not be reclassified to profit or loss
Remeasurement of employee benefits -25  18  -87  155
Other comprehensive income that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations 350  -1 118  1 502  -5 395  -6 743
Income tax relating to components of other comprehensive income -11  69  -60  255  290
Cash flow hedges -112  -76  0 0
Other comprehensive income for the year net of tax 227  -1 074  1 384  -5 277  -6 299
TOTAL COMPREHENSIVE INCOME -3 002  -380  -691.0  -1 175  -13 320  91.2  -17 823
Profit/loss attributable to: 
Equity holders of the parent company -3 229  694  -2 558  -8 093  68.4  -11 524
Total comprehensive income attributable to:
Equity holders of the parent company -3 002  -380  -691.0  -1 175  -13 320  91.2  -17 823
Earnings per share
undiluted, EUR -0.22  0.05  -0.18  -0.56  68.6  -0.80
diluted, EUR -0.22  0.05  -0.18  -0.56  68.7  -0.80

 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR thousand  Sept. 30, 2018  Sept. 30, 2017  Change, %  Dec. 31, 2017
ASSETS 
Non-current assets 
Intangible assets  45 299  48 980  -7.5  49 039
Goodwill  79 129  92 826  -14.8  91 961
Tangible assets  923  1 480  -37.6  1 291
Share of investment in a joint venture 207  153
Non-current financial assets  38  38  38 
Trade and other receivables  3 530  3 109  13.6  3 617
Contract assets 1 404  2 651  -47.0  2 450
Deferred tax assets  7 821  10 982  -28.8  10 362
Non-current assets  138 144  160 271  -13.8  158 910
Current assets 
Trade receivables   24 617  23 839  3.3  24 534
Other receivables  6 820  6 901  -1.2  6 880
Contract assets 3 076  3 536  -13.0  3 446
Income tax receivables  361  616  -41.4  358
Cash and cash equivalents  46 235  25 275  82.9  20 683
Current assets  81 108  60 167  35.5  55 900
     
ASSETS  219 252  220 439  -0.5  214 811

 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR thousand Sept. 30, 2018  Sept. 30, 2017  Change, %  Dec. 31, 2017
EQUITY AND LIABILITIES 
Shareholders' equity 
Share capital  3 528  3 528  3 528 
Share premium account  1 187  1 187  1 187 
Treasury shares  -638  -841  -24.2  -841
Invested unrestricted equity fund   110 928  111 132  -0.2  111 132
Other reserves 516  540  -4.4  592
Translation differences  -9 781  -9 917  -1.4  -11 229
Retained earnings  8 868  12 014  -26.2  8 920
Shareholders' equity  114 609  117 643  -2.6  113 289
Non-current liabilities 
Deferred tax liability  4 734  5 647  -16.2  4 569
Interest-bearing liabilities  40 113  47 286  -15.2  47 286
Other non-current financial liabilities 127  1 319  -90.4  1 693
Contract liabilities 2 996  3 005  -0.3  2 374
Liabilities from employee benefits  361  616  -41.4  434
Non-current liabilities  48 331  57 874  -16.5 56 357
Current liabilities 
Interest-bearing liabilities  17 089  1 996  756.2  1 996
Trade payables and other liabilities  23 276  24 635  -5.5  31 409
Contract liabilities 15 575  16 918  -7.9  10 656
Income tax liabilities  109  132  -17.3  177
Current provisions 264  1 241  -78.7  928
Current liabilities  56 313  44 922  25.4 45 165
EQUITY AND LIABILITIES  219 252  220 439  -0.5 214 811 

 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 

EUR thousand  Share capital Share premium account  Treasury shares  Inv. un-restricted equity  Other reserves  Translation differences  Retained earnings  Total 
SHAREHOLDERS’ EQUITY Jan. 1, 2018  3 528  1 187  -841  111 131  592  -11 229  8 920  113 289 
Effect of IFRS 9 restatement – bad debt provision -128  -128 
Effect of IFRS 2 amendment 1 043  1 043 
SHAREHOLDERS’ EQUITY Jan. 1, 2018 (restated)  3 528  1 187 -841 111 131 592  -11 229  9 835 114 204 
Comprehensive income 1 442   -2 564  -1 123 
Share based payments  204 -204 1 580  1 580 
Defined benefit plan 6 18 24
Cash flow hedges -76 -76
SHAREHOLDERS’ EQUITY Sept. 30, 2018  3 528 1 187 -638 110 928 516 -9 781 8 868 114 609
EUR thousand  Share capital   Share premium account  Treasury shares  Inv. un-restricted equity  Other reserves  Translation differences  Retained earnings  Total 
SHAREHOLDERS’ EQUITY Jan. 1, 2017  3 528  1 187  -1 043  111 333  540  -4 863  22 182 132 864
Effect of IFRS 15 restatement to revenue 86 -2 495 -2 409
SHAREHOLDERS’ EQUITY Jan. 1, 2017 (restated) 3 528  1 187 -1 043 111 333 540 -4 776  19 687 130 455
Effect of IFRS 15 restatement to revenue 7 7
Comprehensive income  -5 140 -8 100 -13 240
Share based payments  202  -202  507 507
Defined benefit plan -87 -87
SHAREHOLDERS’ EQUITY Sept. 30, 2017 (restated)  3 528 1 187 -841 111 132 540 -9 917 12 014 117 643

CONSOLIDATED STATEMENT OF CASH FLOWS 

EUR thousand 7-9/2018 7-9/2017 1-9/2018 1-9/2017 1-12/2017
Cash flows from operating activities 
Profit/loss for the period  -3 229 694 -2 558 -8 093 -11 524 
Adjustments for profit: 
Depreciation and amortisation 2 723 2 300 8 095 7 361 10 108 
Share of profit/loss of a joint venture 0 117 153 995 1 048 
Gain (-) / loss (+) on disposals of assets 0 0 -16 276 0
Unrealised foreign exchange gains and losses 176 158 141 773 764 
Financial income and expenses 354 207 1 276 621 1 002 
Tax on income from operations -1 045 -7 3 314 -920 -752 
Other adjustments 542 -60 1 271 412 642 
Total adjustments 2 750 2 715 -2 026 9 243 12 812 
Changes in working capital: 
Increase (-) / decrease (+) in trade and other receivables 4 651 -2 030 1 860 -2 351 -3 123
Increase (+) / decrease (-) in trade and other payables -5 490 -4 805 1 932 4 958 4 766
Increase (+) / decrease (-) in provisions -618 -979 -683 -3 831 -4 141
Total changes in working capital -1 457 -7 813 3 108 -1 224 -2 499
Financial items in operating activities  -505 -163 -1 378 -579 -958 
Income taxes paid (-) / received (+)  -235 -273 -567 -1 553 -1 832 
Cash flows from operating activities  -2 676 -4 840 -3 421 -2 206 -4 001 
Cash flows used in investing activities 
Purchase of tangible and intangible assets  -2 174 -2 453 -8 689 -9 714 -12 485 
Net proceeds from sale of tangible and intangible assets* 686 0 29 641 0
Cash flows from investing activities  -1 489 -2 453 20 952 -9 714 -12 485 
Cash flows from financing activities 
Repayment of current borrowings -998 -20 998 -1 996 -27 998 -27 998 
Proceeds from non-current borrowings  9 923 30 000 9 923 30 000 30 000 
Cash flows from financing activities  8 925 9 002 7 927 2 002 2 002 
Net change in cash and cash equivalents  4 760 1 708 25 458 -9 918 -14 484 
Cash and cash equivalents at the beginning of period  41 413 23 610 20 683 35 755 35 755 
Net foreign exchange difference  63 -43 94 -562 -588 
Cash and cash equivalents at the end of period  46 235 25 275 46 235 25 275 20 683 

*Includes proceeds and disbursements directly attributable to the divestments made in Q1 2018

ACCOUNTING PRINCIPLES

This interim report has been prepared in accordance with IAS 34. The same accounting principles have been followed as in the annual financial statements except for the adoption of new standards and amendments effective as of January 1, 2018. 

Preparation of financial statements in accordance with IFRS requires Basware’s management to make estimates and assumptions that have an effect on the amount of assets and liabilities on the balance sheet at the closing date as well as the amounts of income and expenses for the financial period. In addition, the management must exercise its judgment regarding the application of accounting policies. Since the estimates and assumptions are based on the views at the date of the financial statements, they include risks and uncertainties. The actual results may differ from the estimates and assumptions.

The amounts presented in the income statement and balance sheet are Group figures. The amounts presented in the release are rounded, so the sum of individual figures may differ from the sum reported. Percentage changes for net figures are shown on an absolute basis.

New and amended IFRS standards

Basware has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018 (mandatory application), with full retrospective application. Revenue for different revenue types are recognized over time except for licenses which is recognized at a point in time. As the new standard affects only a minority of the Group’s customer contracts, the impact of the standard on the Group’s 2017 restated total revenue is not material, being EUR -74 thousand in total. However, as a result of the application of the standard, part of Cloud revenue will be recognized later and part of Non-cloud revenue earlier compared to the previous revenue recognition standard. Due to this, 2017 restated IFRS 15 Cloud revenue is EUR 1 667 thousand lower and Non-cloud revenue EUR 1 596 thousand higher compared to the reported revenue.

In connection with the IFRS 15 application, the Group has made certain changes in the revenue allocation between Cloud and Non-cloud. Revenues related to dedicated customer services as part of SaaS subscriptions will now be allocated as Cloud revenues. This reallocation does not impact total Group revenue. However, for 2017 a total of EUR 2 830 thousand of revenues reported as part of Non-cloud is now recorded as Cloud revenue.

The total net impact of IFRS 15 restatements and the changes in revenue allocation between Cloud and Non-cloud for full year 2017 is EUR -74 thousand on Group level, with Cloud revenue increasing EUR 1 163 thousand and Non-cloud revenue decreasing EUR 1 236 thousand. As a result, the share of Cloud revenue of the Group’s total 2017 revenue has increased slightly.

Net sales by revenue type after IFRS 15 restatements and changes in revenue allocation

Net sales by revenue type  1-3/ 4-6/ 7-9/ 10-12/
EUR thousand  2017 2017 2017 2017
Cloud Revenue
SaaS 8 002 8 372 8 903 9 532
Transaction services  9 471 9 573 9 875 10 770
Other cloud revenue  1 444 1 807 1 274 1 310
Cloud Revenue total 18 917  19 752  20 052  21 612
Non-Cloud Revenue 
Maintenance 9 849  9 357  8 965  8 856
License sales 900  1 120  790  1 383
Consulting services 7 071  7 165  6 063  7 447
Other non-cloud revenue 73  -105  -42  -54
Non-Cloud Revenue total 17 893  17 536  15 776  17 631
Group Total 36 810 37 287 35 827 39 243

IFRS 15 restatements increased the Group’s non-current assets on December 31, 2017 by EUR 2 082 thousand, current assets by EUR 1 181 thousand, non-current liabilities by EUR 2 374 thousand, current liabilities by EUR 3 525 thousand, and decreased equity by EUR 2 636 thousand. IFRS 15 restatements had no material impact on basic or diluted EPS, and no impact on cash flows.

IFRS 15 restatements and the changes in revenue allocation between Cloud and Non-cloud also affect the subscription annual recurring revenue gross order intake reported in 2017. The restated numbers are outlined below also adjusting for the effect of the divested businesses. The annual recurring revenue gross order intake related to the divested businesses was EUR 1.3 million in 2017.

Purchase-to-pay subscription annual recurring revenue gross order intake after IFRS 15 restatements and changes in revenue allocation, and adjusting for divestments: 

Annual recurring revenue gross order intake  7-9/ 4-6/ 1-3/  10-12/  7-9/  4-6/ 1-3/
EUR thousand  2018 2018 2018  2017  2017  2017 2017
Purchase-to-Pay subscriptions   3 130 3 449 2 742 2 943 1 988 3 809 2 506

Basware has adopted IFRS 9 Financial Instruments (effective date January 1, 2018), which replaces the previous IAS 39 Financial Instruments: Recognition and Measurement. The main impact of IFRS 9 concerns the timing of recording expected credit losses. IFRS 9 has not been applied retrospectively.

The Group has adopted the amendment to IFRS 2 Share-based Payment (effective date January 1, 2018). The amendment concerns incentive schemes with “net settlement” features to cover withholding tax obligations and where the employer has an obligation to withhold tax from the received benefit of the share-based payment in the country in question. From 2018 onwards, a compensation cost pursuant to IFRS 2 will be recognized for such payments, based on the entire scheme being an equity-settled payment.

DEFINITION OF ALTERNATIVE PERFORMANCE MEASURES

Basware presents the following financial measures to supplement its consolidated financial statements which are prepared in accordance with IFRS. These measures are designed to measure growth and provide insight into the company’s underlying operational performance. The Group has applied the guidance from the European Securities and Markets Authority (ESMA) on Alternative Performance Measures which is applicable as of July 3, 2016, and defined alternative performance measures as follows:

Cloud revenue includes net sales from SaaS and other subscription types, transaction services and financing services excluding alliance fees.

Non-cloud revenue includes net sales from licences, maintenance and consulting, as well as alliance fees.

Organic revenue growth is calculated by comparing net sales between comparison periods in constant currencies excluding alliance fees as well as net sales from acquisitions or disposals that have taken place in the past 12 months.

Net sales in constant currencies is calculated by eliminating the impact of exchange rate fluctuations by calculating the net sales for the current period by using the comparable period’s exchange rates.

Gross investments are total investments made to non-current assets including acquisitions and capitalized research and development costs.

Other capitalized expenditure consists of investments in property, plant & equipment and intangible assets excluding acquisitions and capitalized research and development costs.

EBITDA is calculated as operating profit/loss plus depreciation and amortization.

Adjusted EBITDA is calculated from EBITDA excluding any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.

Adjusted operating profit/loss (Adjusted EBIT) is calculated from operating profit/loss excluding any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.

Adjusted earnings per share (Adjusted EPS) is calculated by excluding from the profit/loss any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.

Annual recurring revenue gross order intake is calculated by summing the total order intake in the period expressed as an annual contract value. For cloud order intake this includes all SaaS and Network recurring revenues including transaction revenues. For the subscription order intake this includes SaaS and other purchase-to-pay subscription types and excludes transaction revenue. Gross order intake covers new cloud customers, add-ons and renewal uplifts but excludes churn. There will be a time lag before this order intake is visible in net sales.

Historical quarterly order intake for cloud and purchase-to-pay subscriptions is shown below:

Annual recurring revenue gross order intake 7-9/ 4-6/ 1-3/  10-12/  7-9/  4-6/  1-3/ 
EUR thousand 2018 2018 2018  2017  2017  2017 2017
Cloud 4 483 6 392 4 657 4 948 3 475 5 496 4 024
Purchase-to-Pay subscriptions 3 130 3 449 2 742 2 943 1 988 3 809 2 506

Adjusted operating profit/loss and adjusted EBITDA

7-9/  7-9/  Change,   1-9/  1-9/  Change,   1-12/ 
EUR thousand     2018  2017  %  2018  2017  %  2017 
Operating profit/loss -3 787 1 205 2 379 -6 648 -9 509
Adjustments:
Acquisition, disposal and restructuring income (-) -553  -17 758  -133 -133
Acquisition, disposal and restructuring expenses (+) 625  108 478.7  2 707  246 416
Efficiency related expenses 115  -65  1 039  1 445  -28.1 2 023
Settlements 114 114 389
Total adjustments 187  156 19.9 -14 012  1 672 2 695
Adjusted operating profit/loss  -3 600  1 361  -11 633  -4 976 -133.8 -6 814
Depreciation and amortization -2 723  -2 300 18.4  -8 095  -7 361 10.0 10 108
Adjusted EBITDA -877  3 661 -3 538  2 386 3 294

DIVESTMENTS

Basware signed an agreement on February 2, 2018 to sell its Financial Performance Solutions and Banking businesses to Verdane Capital. The divestments were completed on February 28, 2018 and starting from March 1, 2018 Basware Group has not consolidated these businesses in its consolidated financial statements.

In 2017, the combined net sales of Financial Performance Solutions and Banking businesses were approximately EUR 15 million and combined direct costs approximately EUR 7 million.

The combined sale price of the two businesses was EUR 35.0 million, and after purchase price adjustments related mainly to net working capital, the net cash proceeds from the divestments are estimated to be EUR 30.1 million. In addition, EUR 14.0 million of consolidated goodwill has been allocated to the divested businesses, and EUR 4.8 million of fixed assets, mainly capitalized research and development expenses, was written down. In total, the Group recognized a gain on sale of assets amounting to EUR 16.3 million in the first quarter as a result of the divestments. Tax impact of the divestments will be covered by deferred tax assets recognized for accumulated tax losses.

SEGMENT REPORTING

Basware reports one operating segment. The reported segment is comprised of the entire Group, and the segment figures are consistent with the Group figures.

INFORMATION ON PRODUCTS AND SERVICES

Basware reports revenues by type. Cloud revenue includes SaaS, Transaction services (consisting of e-invoicing, scan and capture services, printing services and network start-up fees) and Other cloud revenue. Non-cloud revenue includes Maintenance, License sales, Consulting services (consisting of professional services and customer services management) and Other non-cloud revenue.

Net sales by revenue type  7-9/  7-9/  Change,   1-9/  1-9/  Change,   1-12/ 
EUR thousand  2018  2017  %  2018  2017  %  2017 
Cloud Revenue
SaaS 10 177  8 903  14.3  29 416  25 276  16.4  34 808 
Transaction services  11 029  9 875  11.7  32 405  28 919  12.1  39 689 
Other cloud revenue  1 233  1 274  -3.2  3 744  4 525  -17.3  5 835 
Cloud Revenue total 22 440  20 052  11.9  65 566  58 720  11.7  80 332 
Non-Cloud Revenue 
Maintenance 6 150  8 965  -31.4  20 212  28 170  -28.3  37 026 
License sales 401  790  -49.3  1 589  2 810  -43.4  4 192 
Consulting services 4 966  6 063  -18.1  17 504  20 299  -13.8  27 746 
Other non-cloud revenue 34  -42  59  -74  -129 
Non-Cloud Revenue total 11 551  15 776  -26.8  39 364  51 204  -23.1  68 836 
Group Total 33 991  35 827  -5.1  104 929  109 924  -4.5  149 167

GEOGRAPHICAL INFORMATION

From Q1 2018, the company has changed the presentation of its geographical information. Basware reports geographical areas Americas, Europe, Nordics and APAC. Americas includes business operations in North and South America. Europe includes operations in Europe and Russia, excluding the Nordic countries (Denmark, Finland, Norway and Sweden), which are reported separately. APAC includes operations in Asia and the Pacific region.

Net sales by the location of customer  7-9/  7-9/  Change,   1-9/  1-9/  Change,   1-12/ 
EUR thousand  2018  2017  %  2018  2017  %  2017 
Americas  6 954  5 945 17.0  19 661 18 307  7.4 24 403
Europe   11 673  11 529  1.3  35 268 33 361  5.7 45 401
Nordics  13 526 16 410  -17.6 44 771 52 608  -14.9 71 818
APAC  1 838  1 944  -5.5  5 228 5 648  -7.4 7 545
Group total  33 991  35 827 -5.1  104 929 109 924  -4.5 149 167


Personnel   7-9/  7-9/  Change,   1-9/ 1-9/ Change, 1-12/ 
Employed, on average  2018  2017  %  2018 2017 %  2017
Americas  138  130  6.2  137 131  4.8  131
Europe   457  463  -1.2  461 479 -3.8  475
Nordics  473  555  -14.7  497 562 -11.6  558
APAC  658 678 -2.9  673 668 0.8  673
Group total  1 727 1 826  -5.4  1 768 1 840 -3.9%  1 838

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

Sept. 30, 2018  Sept. 30, 2017  Dec. 31, 2017
EUR thousand  Book value Fair value Book value Fair value Book value Fair value
Financial assets 
Non-current:
Non-current financial assets  38  38 38  38  38 38
Non-current trade and other receivables 911  911 1 498  1 498  1 400 1 400
Current:
Current trade receivables 24 617  24 617 23 839  23 839  24 534 24 534
Current other receivables 165 165 146  146  182 182
Cash and cash equivalents 46 235  46 235 25 275  25 275  20 683 20 683
Financial liabilities 
Non-current:
Financial liabilities valued at amortized acquisition cost: 
Loans from financial institutions, interest-bearing  40 113  40 113  47 286  47 286  47 286 47 286
Current: 
Loans from financial institutions, interest-bearing  17 096  17 096 1 996  1 996  1 996 1 996
Trade payables and other liabilities  9 952  9 952 8 262  8 262  12 532 12 532


Financial liabilities arising from derivative financial instruments of EUR 76 thousand are classified as level 2 and unquoted equity shares of EUR 38 thousand as level 3 in the fair value measurement hierarchy.

COMMITMENTS AND CONTINGENT LIABILITIES

EUR thousand  Sept. 30, 2018 Sept. 30, 2017 Dec. 31, 2017
Own guarantees 
Business mortgages of own debts 0 1 200 1 200
Guarantees  605 218 202
Commitments on behalf of subsidiaries and group companies 
Guarantees 327 100 100
Other own guarantees 
Lease liabilities 
Current lease liabilities  930 864 850
Lease liabilities maturing in 1–5 years  909 698 847
Total  1 839 1 562 1 697
Other rental liabilities 
Current rental liabilities  6 554  5 753  6 424
Rental liabilities maturing in 1–5 years  8 749  10 880  11 368
Rental liabilities maturing later  33  230  180
Total  15 336 16 863 17 973
Other own contingent liabilities, total  17 174 18 425 19 670
Total commitments and contingent liabilities  18 106 19 943 21 172

RELATED PARTY TRANSACTIONS

Loans from related parties

EUR thousand  Sept. 30, 2018  Sept. 30, 2017 Dec. 31, 2017
Arrowgrass Master Fund LTD 10 000  10 000

Loans from related parties includes the share of Arrowgrass Master Fund LTD of the Group’s term loan financing signed in September 2017 and totaling EUR 30 million. The other lenders are Nordea Bank AB, OP Corporate Bank Plc and Ilmarinen Mutual Pension Insurance Company. Loans from related parties have been provided at commercial interest rates. 

GROUP QUARTERLY INCOME STATEMENT

EUR thousand  7-9/2018 4-6/2018 1-3/2018 10-12/2017 7-9/2017 4-6/2017 1-3/2017
NET SALES  33 991  34 969 35 969 39 243  35 827  37 287  36 810 
Cost of sales  -16 101  -18 580 -17 913  -19 087  -16 966  -19 363  -20 476 
GROSS PROFIT/LOSS 17 890  16 389 18 056  20 156  18 862  17 924  16 334 
Sales and Marketing  -10 759 -10 434 -9 879  -9 947 -7 809 -9 304 -9 395
Research and Development  -6 599 -6 964 -6 811  -7 603 -6 539 -7 657 -7 830
General and Administration  -4 003 -4 315 -3 868  -4 465 -3 052 -3 335 -3 257
Total operating expenses  -21 361 -21 712 -20 558  -22 015 -17 400 -20 296 -20 483
Other operating income and expenses  -316 -1 006 14 997  -1 003 -257 -397 -934
OPERATING PROFIT/LOSS  -3 787 -6 329 12 495  -2 862 1 205 -2 769 -5 084
% of net sales  34.7 % 3.4 %
Finance income and expenses  -487 -382  -600 -349  -401  -457  -512 
Share of results of a joint venture  0 -153 -53  -117  -396  -482 
Profit/loss before tax  -4 274 -6 712  11 741 -3 264  688  -3 623  -6 077 
% of net sales  32.6 % 1.9 % 
Income taxes  1 045 966  -5 325 -168  207  706 
PROFIT/LOSS FOR THE PERIOD  -3 229 -5 746  6 416 -3 431  694  -3 416  -5 371 
% of net sales  17.8 % 1.9 % 

GROUP KEY INDICATORS

 

EUR thousand 1-9/2018  1-9/2017  1-12/2017 
Net sales  104 929  109 924  149 167 
Growth of net sales, %  -4.5 %  1.4 %*  0.4 %* 
Organic revenue growth 5.8 % 2.2 %* 1.5 %*
EBITDA  10 474 714  599 
% of net sales 10.0 % 0.6 %  0.4 % 
Adjusted EBITDA -3 538 2 386 3 294
% of net sales  2.2 % 2.2 % 
Operating profit/loss  2 379 -6 648  -9 509 
% of net sales 2.3 % 
Adjusted operating profit/loss -11 633 -4 976 -6 814 
% of net sales
Profit/loss before tax  756  -9 013  -12 276 
% of net sales  0,7 % 
Profit/loss for the period  -2 558  -8 093  -11 524 
% of net sales 
Return on equity, %  -3.0 %  -8.6 %  -9.4 % 
Return on investment, %  1.8 %  -5.4 %  -5.8 % 
Interest-bearing liabilities  57 202  49 282  49 282 
Cash and cash equivalents  46 235  25 275  20 683 
Gearing, %  9.6 %  20.4 %  25.2 % 
Equity ratio, %  52.3 %  53.4 %  52.7 % 
Total assets  219 252  220 439  214 811 
Gross investments  8 656 9 670  12 498 
% of net sales  8.2 %  8.8 %  8.4 % 
R&D investments, expensed**  15 882 18 285 24 372
R&D costs, capitalised   6 643 7 558 9 879
R&D investments, total  22 526  25 844  34 251 
% of net sales  21.5 %  23.5 %  23.0 % 
Depreciation and amortization 8 095 7 361 10 108
Other capitalised expenditure  1 983 2 113 2 620
Personnel expenses  72 053  73 204  99 083 
Personnel on average during the period  1 768  1 840  1 838 
Personnel at end of period  1 736  1 827  1 829 
Change in personnel from comparison period, %  -5.0 %  -2.9 %  -3.2 % 

* Based on IFRS15 restated revenue including reallocations for 2017 and reported revenue for 2016

** R&D expenses excluding depreciation

Group Share Indicators  1-9/2018 1-9/2017  1-12/2017
Earnings per share, undiluted (EUR) -0.18 -0.56  -0.80 
Earnings per share, diluted (EUR) -0.18  -0.56 -0.80 
Adjusted earnings per share, undiluted (EUR) -1.15 -0.45 -0.61 
Adjusted earnings per share, diluted (EUR) -1.14 -0.45 -0.61 
Equity per share (EUR) 7.94 8.19  7.89 
Price per earnings (P/E) 200.88 -70.96  -59.18 
Share price performance (EUR)
- lowest price 30.20  31.96  31.96
- highest price 47.60 42.47  47.50
- average price 40.88 39.68  38.84
- closing price 35.60 40.00  47.50
Market capitalization at end of period* (EUR) 513 828 898  574 388 120  682 085 892
Share issue adjusted number of
traded shares 1 545 773  1 299 650  1 681 791
% of average number of shares 10.7 %  8.6 %  11.7 % 
Number of shares*
- at end of the period 14 433 396  14 359 703  14 359 703
- average during the period 14 436 935  14 356 548  14 357 343
- average during the period, diluted 14 436 935  14 395 519  14 406 674

* Excluding treasury shares



SHARE AND SHAREHOLDERS

Basware Corporation’s share capital totalled EUR 3 528 369 (3 528 369) at the end of the quarter and the number of shares was 14 433 396 (14 359 703). Basware Corporation holds 31 460 (42 233) of its own shares, corresponding to approximately 0.2 percent (0.3 %) of the total number of shares.

Basware had 11 467 (11 992) shareholders at the end of the quarter, including 11 nominee-registers (9). Nominee-registered holdings accounted for 51.8 percent (44.7 %) of the total number of shares.

The company’s Annual General Meeting of March 15, 2018 authorized the Board of Directors to decide on the repurchase of the company’s own shares and on share issue as well as on the issuance of options and other special rights entitling to shares.

Additional information on shareholdings of major shareholders is available on the company’s investor website at investors.basware.com/en.

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