DIGIA'S THIRD QUARTER 2015: STRONG GROWTH (13.0%) WITH HEALTHY PROFITABILITY (10.2%)

DIGIA PLC INTERIM REPORT 30 October 2015, 08:00 a.m.

DIGIA'S THIRD QUARTER 2015: STRONG GROWTH (13.0%) WITH HEALTHY PROFITABILITY (10.2%)

SUMMARY:

January-September

- Consolidated net sales EUR 77.3 (70.2) million, up 10.2 per cent
- Operating profit before extraordinary items EUR 6.2 (2.0) million
- Extraordinary items include EUR 0.7 million in restructuring costs
- Operating profit after extraordinary items EUR 5.5 (2.0) million
- Profitability (EBIT%) before extraordinary items 8.0 (2.9) per cent and after extraordinary items 7.1 (2.9) per cent
- Product business accounted for 43.1 (41.4) per cent of net sales
- Earnings per share before extraordinary items EUR 0.21 (0.06) and after extraordinary items EUR 0.18 (0.06)

July-September

- Consolidated net sales EUR 24.6 (21.7) million, up 13.0 per cent
- Operating profit before extraordinary items EUR 2.5 (0.9) million
- Operating profit after extraordinary items EUR 2.5 (0.9) million
- Profitability (EBIT%) 10.2 (3.9) per cent
- Product business accounted for 46.9 (42.4) per cent of net sales
- Earnings per share before extraordinary items EUR 0.09 (0.02) and after extraordinary items EUR 0.09 (0.02)

The Digia Group recorded a solid performance during the review period, with net sales growing and operating profit improving in both segments. Year-on-year consolidated net sales growth was 10.2 per cent in the review period and 13.0 per cent in the third quarter.

With a net sales increase of 34.3 per cent during the review period and 34.9 per cent during the third quarter, the Qt segment showed particularly strong growth. Qt's growth was considerably fuelled by the strengthening of the US dollar against the euro. Excluding the impact of foreign exchange rate changes, Qt's net sales growth amounted to 24.4 per cent in the review period.

Similarly, in the domestic segment net sales developed favourably towards the end of the period. Net sales grew by 3.8 per cent in the review period and 6.5 per cent in the third quarter from the comparison period last year.

Consolidated operating profit showed a marked improvement in the wake of net sales growth. Operating profit improved, particularly in the Qt segment which began to turn a profit during the review period and continued to do so throughout the period. The domestic segment was also able to improve its operating profit from last year's comparison figures. The profitability of the domestic business rose to a healthy level in the third quarter, reaching 10.4 per cent.

Digia expects overall demand to remain moderate in the domestic segment and anticipates continued growth towards the year-end. Profitability in the domestic segment is expected to remain at a healthy level, or close, throughout the second half of 2015.

Digia anticipates continued growth in the Qt business throughout 2015, with profitability on a positive curve compared to the previous year's figures.

Overall, Digia expects a clear full-year improvement in both net sales and operating profit from the previous year's level.

GROUP KEY INDICATORS AND RATIOS

MARKETS AND DIGIA'S BUSINESS OPERATIONS

DOMESTIC SEGMENT:

Demand remained strong for integration and analytics services during the review period. Investments to enhance delivery and service capacity continued, and are expected to bolster net sales development in the future. The availability of skilled workforce is affecting the growth opportunities of the service business in the medium term, which is why Digia will make further investments in personnel training and recruitment. Meanwhile, continued investments in the development of product and business models for site optimisation taxed the segment's overall profitability.

On the whole, the ERP and MES business showed favourable development during the review period, despite the seasonal fluctuations which are typical in this business area. Strong growth of the Microsoft technologies based solutions business continued in the third quarter, with a high profitability level. Similarly, the Microsoft technology based ERP business, which took an upward turn in the second quarter, showed continued growth in the third quarter. Net sales from ERP business based on Digia's own software fell at the end of the period, bringing the full-period net sales on a par with the previous year's level.

Demand for solutions for the financial sector remained healthy, and the development of new services for the sector in the Finnish and Swedish markets has progressed according to plan.

In the service business, demand and profitability showed a positive performance trend towards the end of the period.

QT SEGMENT:

Qt business showed very strong growth throughout the period. Operating profit also improved on the back of net sales growth, and the business was profitable.

During the review period, the new Qt 5.5 version was launched. The www.qt.io website launched for the Qt segment has been well received. This website plays an extremely important role in managing the Qt ecosystem, and Digia will continue to make substantial developments in this channel.

Measures to enhance sales were taken during the review period, particularly in Asia. A new office was opened in Korea. Business development efforts were particularly focused on consumer electronics and automotive segments.

NET SALES

Digia’s consolidated net sales for the period totalled EUR 77.3 (70.2) million, representing an increase of 10.2 per cent year-on-year.

Net sales in the domestic segment rose by 3.8 per cent to EUR 57.8 (55.6) million. Net sales in the Qt segment totalled EUR 19.6 (14.6) million, representing an increase of 34.3 per cent.

The increase in the Group's net sales could be largely attributed to the Qt segment's strong growth. This growth in the Qt segment stemmed from good sales combined with major contracts in automotive products and DTV receivers in particular. Favourable trends in net sales were also supported by the US dollar strengthening against the euro. The impact of exchange rate fluctuations on Qt’s net sales growth amounted to a total of EUR 1.4 million during the review period.

During the reporting period, the product business accounted for EUR 33.3 million (1-9/2014: EUR 29.1 million), or 43.1 (41.4) per cent of consolidated net sales.

International operations accounted for EUR 20.2 million (1-9/2014: EUR 14.5 million), or 26.1 (20.6) per cent of consolidated net sales.

Digia’s consolidated net sales for the third quarter were EUR 24.6 (21.7) million, up 13.0 per cent on the same period last year.

Net sales from the domestic segment increased by 6.5 per cent to EUR 17.9 (16.8) million, while net sales from the Qt business increased by 34.9 per cent to EUR 6.7 (4.9) million.

During the quarter, the product business accounted for EUR 11.5 (9.2) million, or 46.9 (42.4) per cent of consolidated net sales.

International operations accounted for EUR 6.8 (5.0) million, or 27.9 (23.0) per cent, of consolidated net sales in Q3.

PROFIT PERFORMANCE AND PROFITABILITY

Digia’s consolidated operating profit before extraordinary items was EUR 6.2 (2.0) million. Profitability (EBIT%) before extraordinary items was 8.0 (2.9) per cent.

Consolidated operating profit before extraordinary items in the third quarter was EUR 2.5 (0.9) million, up 193.5 per cent year-on-year.

Consolidated operating profit after extraordinary items was EUR 5.5 (2.0) million for the review period. Profitability (EBIT%) stood at 7.1 (2.9) per cent.

Operating profit after extraordinary items amounted to EUR 2.5 (0.9) million in the third quarter, with profitability (EBIT%) at 10.2 (3.9) per cent.

In the domestic segment, operating profit before extraordinary items totalled EUR 4.4 (3.6) million, up 22.7 per cent, with profitability (EBIT%) at 7.7 (6.5) per cent. Operating profit after extraordinary items was EUR 3.8 (3.6) million and profitability (EBIT%) 6.6 (6.5) per cent.

Operating profit from domestic operations in the third quarter grew by 55.8 per cent to EUR 1.9 (1.2) million, and profitability (EBIT%) was 10.4 (7.1) per cent.

The Qt segment recorded an operating profit of EUR 1.7 (-1.6) million before extraordinary items with profitability (EBIT%) at 8.9 (-11.1) per cent. Qt's operating profit after extraordinary items for the review period was EUR 1.7 (-1.6) million and profitability (EBIT%) was 8.7 (-11.1) per cent.

Qt's operating profit for the third quarter was EUR 0.6 (-0.3) million and profitability (EBIT%) was 9.2 (-6.9) per cent.

The increase in consolidated operating profit during the review period could be largely attributed to Qt's significant net sales growth and the resulting major profitability improvement in the Qt segment.

Consolidated earnings before tax for the period totalled EUR 5.0 (1.5) million, and profit after tax was EUR 3.8 (1.2) million. Consolidated earnings before tax for the third quarter were EUR 2.5 (0.5) million, and net profit EUR 1.9 (0.5) million.

Consolidated earnings per share for the review period were EUR 0.21 (1-9/2014: 0.06) before extraordinary items and EUR 0.18 (0.06) after extraordinary items. Consolidated earnings per share for the third quarter were EUR 0.09 (Q3/2014: 0.02) before extraordinary items and EUR 0.09 (0.02) after extraordinary items.

The Group’s net financial expenses for the review period were EUR 0.5 (0.5) million and for the third quarter EUR 0.1 (0.3) million.

FINANCIAL POSITION AND EXPENDITURE

At the end of the review period, the Digia Group’s consolidated balance sheet total stood at EUR 80.9 million (12/2014: EUR 80.4 million) and the equity ratio stood at 53.8 (12/2014: 51.5) per cent. Net gearing was 29.9 per cent (12/2014: 30.3 per cent). Cash and cash equivalents totalled EUR 3.4 million at period end (12/2014: EUR 5.1 million).

Interest-bearing liabilities amounted to EUR 15.1 (12/2014: 16.2) million at the period end. These consisted of EUR 13.4 million in loans from financial institutions and EUR 1.7 million in financial leasing liabilities.

Consolidated net cash flow from operating activities for the period was EUR 1.9 million (1-9/2014: EUR -3.6 million). Cash flow from investments for the period was negative by EUR 1.4 million (1-9/2014: negative by EUR 0.9 million). Cash flow from finance for the period was negative by EUR 2.3 million (1-9/2014 positive by EUR 1.0 million).

The Group’s investments in fixed assets during the period totalled EUR 1.3 (0.8) million.

Return on investment (ROI) for the period was 15.0 (5.6) per cent, and return on equity (ROE) was 13.3 (4.4) per cent.

PERSONNEL, MANAGEMENT AND ADMINISTRATION

Group personnel totalled 932 at the end of the period, the same as at the end of the 2014 fiscal year (12/2014: 932 employees). During the review period, the number of employees averaged 929, a decrease of 6 employees, or -0.6 per cent, on the 2014 average (2014: 935).

Employees by function at the end of the period:

At the end of the period, 135 (12/2014: 146) employees were working abroad.

The Digia Plc Annual General Meeting of 12 March 2015 re-elected Päivi Hokkanen, Robert Ingman, Pertti Kyttälä, Seppo Ruotsalainen, Leena Saarinen and Tommi Uhari as members of the Board. Kai Öistämö was elected as a new member. At the Board's organisation meeting, Pertti Kyttälä was elected Chairman of the Board and Robert Ingman was elected Vice Chairman.

Juha Varelius has been Digia Plc’s President and CEO since 1 January 2008.

On 12 March 2015, KMPG Oy Ab, Authorised Public Accountants, was elected as the Group's new auditor with Authorised Public Accountant Virpi Halonen as the principal auditor.

RISKS AND UNCERTAINTIES

Digia's short-term business risks and uncertainties have been described in the 2014 Financial Statements and remain unchanged.  

Risks and risk management are also described on the company’s website: www.digia.com.

FUTURE PROSPECTS

Digia expects overall demand to remain moderate in the domestic segment and anticipates continued growth towards the year-end. To fully tap into the growth potential, Digia will invest in personnel training and recruitment. Profitability in the domestic segment is expected to remain at a healthy level, or close, throughout the second half of 2015.

The Qt segment will be placing a strong focus on sales development, thereby creating the potential for further growth. The company will continue to introduce changes to open source code licensing in forthcoming versions of its Qt software. These changes seek to promote licence sales to commercial players.

Considering the time of year and general market situation, demand for the Qt segment's services is at a moderate level, and the company also expects to see continued growth in demand in this major customer segment. However, contract turnaround times in these markets are very long, typically around 6–18 months, which can cause significant fluctuation in quarterly net sales and in profitability in particular.

Business development efforts will particularly focus on embedded systems in automotive, digital TV and DTV receivers. Areas targeted in product development include value-added features and tools required for building embedded systems.

Sales growth associated with embedded systems will also reflect on the earnings logic. Licence revenue from these sales accumulates over the long term as opposed to one-off licence payments. 

Digia anticipates continued growth in the Qt business throughout 2015, with profitability on a positive curve compared to the previous year's figures.

Overall, Digia expects a clear full-year improvement in both net sales and operating profit from the previous year's level.

OTHER MAJOR EVENTS OF THE REVIEW PERIOD

Digia Plc’s Annual General Meeting (AGM) was held on 12 March 2015. The AGM adopted the financial statements for 2014, released the Board members and the CEO from liability, determined Board and auditor fees, resolved to keep the number of Board members at seven (7), elected the company’s Board of Directors for a new term, and elected a new auditor. 

With regard to profit distribution for 2014, the AGM approved the Board’s proposal to pay a dividend of EUR 0.05 per share to all shareholders listed in the shareholder register maintained by Euroclear Finland Ltd on the reconciliation date of 16 March 2015. The dividend payment date was 23 March 2015.

The AGM granted the following authorisations to the Board:

Authorisation of the Board of Directors to decide on buying back own shares and/or accepting them as collateral

The AGM authorised the Board to decide on the buyback and/or acceptance as collateral of no more than 2,000,000 shares in the company. This buyback can only be executed by means of the company’s unrestricted equity. The Board shall decide on how these shares are to be bought. Own shares may be bought back in disproportion to the holdings of the shareholders. The authorisation also includes acquisition of shares through public trading organised by NASDAQ OMX Helsinki Oy in accordance with the rules and instructions of NASDAQ OMX Helsinki and Euroclear Finland Ltd, or through offers made to shareholders. Shares may be acquired in order to improve the company’s capital structure, to fund acquisitions or other business transactions, for offering share-based incentive schemes, to sell on, or to be annulled. The shares must be acquired at the market price in public trading. This authorisation supersedes that granted by the AGM of 11 March 2014 and is valid for 18 months, i.e. until 12 September 2016.

Authorising the Board of Directors to decide on a share issue and granting of special rights

The AGM authorised the Board to decide on an ordinary or bonus issue of shares and the granting of special rights (as defined in Section 1, Chapter 10 of the Limited Liability Companies Act) in one or more instalments, as follows: The issue may total 4,000,000 shares at a maximum. The authorisation applies both to new shares and to treasury shares held by the company. By virtue of the authorisation, the Board has the right to decide on share issues and the granting of special rights, in deviation from the pre-emptive subscription rights of the shareholders (a directed issue). The authorisation may be used to fund or complete acquisitions or other business transactions, for offering share-based incentive schemes, to develop the company’s capital structure, or for other purposes. The Board was authorised to decide on all terms related to the share issue or special rights, including the subscription price, its payment in cash or (partly or wholly) in capital contributed in kind or its being written off against the subscriber’s receivables, and its recognition in the company's balance sheet. This authorisation supersedes that granted by the AGM of 11 March 2014 and is valid for 18 months, i.e. until 12 September 2016.

Digia explores possibilities of a spin-off to form two distinct listed companies

On 28 August 2015, Digia Plc announced that its Board of Directors had decided to explore a possible spin-off that would separate its domestic and Qt businesses and create two distinct companies, with identical ownership, listed on NASDAQ OMX Helsinki.

The purpose of the arrangement would be to enable both businesses to focus on maximising their respective business opportunities in line with their strategy and creating further added value for shareholders.

The aim is to implement the arrangement during 2016, once the analysis has been completed. Digia may issue a separate stock exchange release on its progress in this matter.

SHARE CAPITAL AND SHARES

On 30 September 2015, the number of Digia Plc shares totalled 20,875,645.

According to Finnish Central Securities Depository Ltd, Digia had 4,149 shareholders on 30 September 2015.

The ten major shareholders were:

Distribution of holdings by number of shares held on 30 September 2015

Shareholding by sector on 30 September 2015

The weighted average number of shares during the reporting period, adjusted for share issues, came to 20,777,214 in total. The number of outstanding shares at the end of the review period was 20,741,144.

Digia Plc held a total of 134,501 treasury shares at the end of the review period. The accounting counter value of these treasury shares is EUR 0.10 per share. The company held about 0.6 per cent of the capital stock as of 30 September 2015. Digia has financed the acquisition of 121,000 treasury shares for distribution through incentive schemes for key personnel. During the period, 43,871 such shares were distributed. At the end of the period, 77,129 of these shares remained undistributed and were under the management of Evli Alexander Management Ltd.

REPORTED SHARE PERFORMANCE ON THE HELSINKI STOCK EXCHANGE

Digia Plc shares are listed on the NASDAQ OMX Nordic Exchange under IT, IT Consulting & Other Services. The company's short name is DIG1V. The lowest reported share quotation was EUR 2.74 and the highest was EUR 5.65. The share officially closed at EUR 5.53 on the last trading day. The trade-weighted average was EUR 3.75. The Group’s market capitalisation totalled EUR 115,442,317 at the end of the period.

The company received the following flagging notifications during the review period:

-    On 26 February 2015, the Ingman Group announced that, as a result of internal restructuring, the Ingman Group had divested its entire holding in Digia Plc to Ingman Development Oy Ab. As a result of the transaction, the Ingman Group's holding in Digia Plc has fallen under the 5% flagging threshold and Ingman Development Oy Ab's holding has risen by a corresponding amount over the 20% flagging threshold, that is, to 20.21 per cent of the company's shares and voting rights.

STOCK OPTION SCHEMES

Digia Plc had no outstanding options.

Helsinki, 30 October 2015

Digia Plc

Board of Directors

BRIEFING

Digia will hold a briefing on this Interim Report for analysts on Friday 30 October 2015 at 11 am, in the Tapiola cabinet of Hotel Scandic Simonkenttä, Simonkatu 9, 00100 Helsinki, Finland. Welcome.

FURTHER INFORMATION

CEO Juha Varelius, exchange +358 (0)10 313 3000

The Interim Report and CEO’s presentation will be available on www.digia.com, in the ‘Investors’ section, as of 11 am on 30 October 2015.

DISTRIBUTION
NASDAQ OMX Helsinki
Key media

CONDENSED FINANCIAL STATEMENTS AND NOTES
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Shareholders’ Equity
NOTES TO THE ACCOUNTS

CONSOLIDATED INCOME STATEMENT, EUR 1,000

CONSOLIDATED BALANCE SHEET, EUR 1,000

CONSOLIDATED CASH FLOW STATEMENT, EUR 1,000

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY, EUR 1,000

a = share capital
b = rights issue
c = share premium
d = unrestricted invested shareholders’ equity
e = other reserves
f = currency translation differences
g = retained earnings
h = total shareholders’ equity

NOTES TO THE ACCOUNTS

This Interim Report has not been audited.

Accounting principles:
The interim report has been prepared in compliance with IFRS and the IAS 34 standard.
Otherwise, the same accounting principles have been applied as in the 2014 Financial Statements. The amendments to and interpretations of IFRS standards effective as of 1 January 2015 had no material effect on this Interim Report.

Seasonal nature of business:
The Group's business is affected by the number of workdays each month, as well as by holiday seasons.

Dividends paid:
Dividends paid during the reporting period totalled EUR 1,038,763.65.

Related-party transactions:
Digia Group’s related parties include the CEO and the members of the Board of Directors and Group Management Team. Digia Group had no significant transactions with related parties during the review period.

Segment information:
Digia’s business operations are divided into two main business segments: Domestic and Qt.

Consolidated income statement by quarter:

Group key indicators and ratios:

Formulae for key figures and ratios are presented in the 2014 financial statements. These remained unchanged during the reporting period.