Financial statements bulletin January 1–December 31, 2018
Qt Group Plc, Stock Exchange Release February 15, 2019, at 8:00 a.m.
Net sales increased by 10.2 percent – full-year growth was 25.7 percent
Fiscal year 2018:
• Net sales increased by 25.7 percent to EUR 45,590 thousand (36,259)*. The effect of exchange rates on the comparison period’s net sales was EUR -643 thousand. At comparable exchange rates, net sales increased thus by 28.0 percent.
• Net sales of distribution licenses grew by 27.6 percent to EUR 11,990 thousand (9,396).
• The operating result was EUR -2,322 thousand (-3,206).
• The operating margin (EBIT %) was -5.1 percent (-8.8%).
• Earnings per share were EUR -0.10 (-0.14).
October–December 2018:
• Net sales increased by 10.2 percent to EUR 11,138 thousand (10,108)*. The effect of exchange rates on the comparison period’s net sales was EUR 274 thousand. At comparable exchange rates, net sales increased thus by 7.3 percent.
• The operating result was EUR -1,651 thousand (-701).
• The operating margin (EBIT %) was -14.8 percent (-6.9%).
• Earnings per share were EUR -0.06 (-0.03).
* the figures in brackets refer to the comparison period, i.e. the corresponding period in the previous year.
This financial statement bulletin was prepared in compliance with IAS 34 Interim Financial Reporting. The amounts from the financial statements presented in this bulletin are based on the company’s audited financial statements. The Auditor’s Report was issued on 14 February 2019.
BOARD OF DIRECTORS’ DIVIDEND PROPOSAL
The Board of Directors of Qt Group Plc proposes to the Annual General Meeting that no dividend be paid for the fiscal year that ended on December 31, 2018.
Business report
Financial performance:
Qt’s net sales for the fourth quarter amounted to EUR 11,138 thousand (EUR 10,108 thousand), up 10.2 percent. License sales and consulting grew by 4.8 percent, while net sales of support and maintenance increased by 20.8 percent. The effect of exchange rates on the comparison period’s net sales was EUR 274 thousand. At comparable exchange rates, net sales increased thus by 7.3 percent.
Full-year net sales for 2018 increased by 25.7 percent year-on-year and amounted to EUR 45,590 thousand (36,259). License sales and consulting grew by 33.0 percent, while net sales of support and maintenance increased by 13.0 percent. As part of license sales and consulting, the net sales of distribution licenses grew by 27.6 percent to EUR 11,990 thousand (9,396). The effect of exchange rates on the comparison period’s net sales was EUR -643 thousand. At comparable exchange rates, net sales increased thus by 28.0 percent.
The strong growth of net sales took place unevenly during the fiscal year. During the first half of the year, net sales increased by 36.0 percent, with several significant license sales transactions taking place in the second quarter. However, the timing of these large transactions had a negative impact on net sales performance in the second half of the year, with the rate of growth being 16.3 percent. In the final quarter, in particular, there were only a few significant license sales transactions. As in previous financial years, we expect that the net sales and growth rates of individual quarters will continue to fluctuate to a significant degree due to the timing of major sales transactions.
Qt’s operating result for October–December 2018 was EUR -1,651 thousand (EUR -701 thousand). The operating result for the financial year was EUR -2,322 thousand (EUR -3,206 thousand).
As expected, the operating result for the financial year showed a loss. We have continued to make investments in growth and recruited new personnel in line with our growth strategy, with a particular focus on expanding our sales and consulting network. Our growth strategy relies heavily on the market for embedded systems, where the sales cycles are long and require a local presence. We have made long-term investments in our biggest market areas, which are the United States, Germany, Japan, South Korea and China, and our newest target markets, France, the United Kingdom, Italy and India.
Juha Varelius, President and CEO:
The financial year 2018 was a very successful one for Qt Group, further strengthening our confidence in our ability to achieve our strategic goals, namely annual net sales of EUR 100 million and operating profit of more than 15 percent in 2021.
Qt stands to benefit considerably from the global trend of increasing use of connected devices and touchscreens in both consumer and professional contexts. We provide technology and tools for various industries to use in building user interfaces and solutions on a variety of platforms. Qt can be used in the creation of light low-end as well as advanced high-end products, the value of which is increasingly derived from the customer experience created by the user interface. As before, we will continue to support the production of desktop applications and particularly the creation of graphical user interfaces in all types of environments.
Our most important customer segments are industrial automation, medical devices and automotive industry. We work with leading global brands in various industries, such as Omron, Bosch and LG. Increasing customer expectations are creating new demands on a wide range of industries. The number of displays is growing, while the number of developers designing the displays is not. One of the fundamental features of Qt is that our solutions are platform agnostic. For our customers, this means not having to rewrite code for different platforms. This creates cost savings and reduces time-to-market. These are our strengths and they will continue to be the cornerstones of our operations going forward.
We released several new products during the financial year, such as Qt Automotive Suite 2.0, an automotive industry solution for creating new digital experiences for drivers. It enables the creation of a consistent user experience across all in-vehicle displays. We deepened our cooperation with our significant customers. We already have several significant car manufacturers and their major suppliers among our customers. A number of high-profile brands, such as Peugeot and Daimler, released Qt-based solutions in 2018. As the development cycles in the automotive industry are several years long, we do not expect to recognize significant revenue from the related device sales until 2020.
In our product development, we have invested in facilitating a smoother design process for our customers. We released Qt Design Studio, a tool that significantly reduces time spent on UI design by improving cooperation between designers and developers. We also published Qt 3D Studio 2.0, a tool that makes it easy to introduce 3D graphics to applications.
In spring 2018, we released Qt Safe Renderer 1.0, a tool that significantly improves the software development process of automobile, medical devices, industrial automation and other safety-critical industries by providing our customers with the technology necessary for the development of reliable systems.
We also published Qt for Python, which allows software developers to visualize their Python development projects quickly and easily. This significantly expands the Qt ecosystem, as Python is the fourth most popular programming language worldwide. We also released Qt versions 5.11 and 5.12, further improving performance.
Future outlook
Operating environment and market outlook
The company estimates the growth prospects for its business in the next few years as very promising.
The Group’s business development efforts will particularly focus on desktop applications as well as embedded systems in the automotive, medical devices and industrial automation sectors. Product development efforts will also focus on the value-added features and tools needed in the creation of embedded systems.
Sales growth associated with embedded systems will also reflect on the earnings logic. Volume-based license revenue from these sales accumulates over the long term. The company estimates that the growth of volume-based distribution license revenue from the sale of embedded systems will accelerate to a more significant degree starting from 2020.
Outlook 2019
We estimate that our net sales in 2019 will increase by more than 15 percent year-on-year at comparable exchange rates. We expect our operating result still in 2019 to show a loss due to growth investments.
Financial reporting
Net sales
Qt’s net sales in 2018 amounted to EUR 45,590 thousand (36,259), an increase of 25.7 percent. License sales and consulting grew by 33.0 percent, while net sales of support and maintenance increased by 13.0 percent. As part of license sales and consulting, the net sales of distribution licenses grew by 27.6 percent to EUR 11,990 thousand (9,396). The effect of exchange rates on the comparison period’s net sales was EUR -643 thousand. At comparable exchange rates, net sales increased thus by 28.0 percent.
Qt’s net sales for the fourth quarter amounted to EUR 11,138 thousand (EUR 10,108 thousand), up 10.2 percent. License sales and consulting grew by 4.8 percent and support and maintenance by 20.8 percent. The effect of exchange rates on the comparison period’s net sales was EUR 274 thousand. At comparable exchange rates, net sales increased thus by 7.3 percent.
Profit performance
Qt’s operating result for October–December 2018 was EUR -1,651 thousand (EUR -701 thousand). The operating result for the financial year was EUR -2,322 thousand (EUR -3,206 thousand).
The other operating income for the financial year includes income derived from events organized by the company, as well as tax-free research and development investment grants received by the company in Norway, totaling approximately EUR 436 thousand (EUR 389 thousand). The grants concern the applicable personnel expenses related to the research and development activities of Qt’s Norwegian company, and they were paid to the company in the second half of 2018.
The company’s operating expenses, including materials and services, personnel expenses, depreciation and other operating expenses, amounted to EUR 13,380 thousand (EUR 11,387 thousand) in the fourth quarter, up 17.5 percent year-on-year. Personnel expenses accounted for 61.7 percent (63.4%) of operating expenses, or EUR 8,262 thousand (EUR 7,214 thousand).
The company’s net financial expenses in the fourth quarter amounted to EUR 54 thousand (EUR -134 thousand), due to translation differences in currency-denominated internal receivables and debts related to the financing of international subsidiaries.
Qt’s earnings before tax for the fourth quarter totaled EUR -1,597 thousand (EUR -835 thousand) and the result was EUR -1,451 thousand (EUR -731 thousand). Taxes for the review period amounted to EUR 146 thousand positive (EUR 104 thousand), which was due to deferred tax assets recognized for losses.
Earnings per share totaled EUR -0.06 during the fourth quarter (EUR -0.03).
Financing and investments
Cash flow from operating activities during the financial year was EUR -1,588 thousand (EUR -2,939 thousand) due to investments in growth and the subsequent loss-making operating result.
Qt’s cash and cash equivalents totaled EUR 9,702 thousand (EUR 11,693 thousand) at the end of the financial year.
Qt Group’s consolidated balance sheet total at the end of the financial year stood at EUR 38,760 thousand (EUR 37,485 thousand). Net cash flow from investments during the financial year was EUR -495 thousand (EUR -384 thousand).
The equity ratio was 71.2 percent (73.4%) and gearing was -49.5 percent (-54.2%). Interest-bearing liabilities amounted to EUR 630 thousand (EUR 686 thousand), of which short-term loans accounted for EUR 391 thousand (EUR 287 thousand).
The return on investment for the financial year was -11.6 percent (-18.1%) and return on equity was -12.4 percent (-22.6%).
Research and development
Product development expenses are included in the result for the fiscal year in their entirety and the company has no capitalized product development expenses on its balance sheet.
Product development expenses during the fiscal year totaled EUR 10,863 thousand (EUR 9,055 thousand), accounting for 23.8 percent (25.0%) of net sales. Product development expenses increased by 20.0 percent year-on-year.
There were, on average, 118 people working in product development during the financial year (103).
Personnel
The number of Group personnel was 303 (275) on average during the fourth quarter and 306 (276) at the end of the financial year. The Group’s personnel expenses during the quarter amounted to EUR 8,262 thousand (EUR 7,214 thousand), up 14.5 percent year-on-year. Personnel expenses totaled EUR 32,896 thousand (EUR 26,975 thousand) during the financial year, up 22.0 percent.
At the end of the financial year, international personnel represented 72 percent (68%) of the total.
Juha Varelius has been Qt Group Plc’s President and CEO since 1 May 2016.
Other events in the review period
Governance
Qt Group Plc's Annual General Meeting (AGM) held on March 13, 2018, adopted the company’s annual accounts, including the consolidated annual accounts for the accounting period January 1‒December 31, 2017, and discharged the Members of the Board and the Chief Executive Officer from liability. The AGM resolved, in accordance with the Board’s proposal, that no dividend will be paid based on the balance sheet adopted for the accounting period that ended on December 31, 2017.
The AGM resolved on the remuneration of the company’s Board of Directors and auditors, decided that the number of members on the Board of Directors would be five (5) and elected the company’s Board of Directors. Robert Ingman, Leena Saarinen and Tommi Uhari were re-elected as members of Qt Group Plc’s Board of Directors and Jaakko Koppinen and Mikko Marsio were elected as new members. At its organizing meeting held after the AGM, the Board of Directors elected Robert Ingman as its Chairman and Tommi Uhari as the Vice Chairman.
The Annual General Meeting granted the following authorizations to the Board of Directors of Qt Group Plc:
Authorizing the Board of Directors to decide on repurchasing the company’s own shares and/or accepting them as collateral
The AGM authorized the Board of Directors to decide on the repurchase and/or acceptance as collateral of a maximum of 2,000,000 of the company’s own shares by using funds in the unrestricted equity.
According to the authorization, the Board will decide on how these shares are to be purchased. The shares may be repurchased in a proportion other than that of the shares held by the current shareholders. The authorization also includes the acquisition of shares through public trading organized by Nasdaq Helsinki Ltd in accordance with its and Euroclear Finland Ltd’s rules and instructions, or through offers made to shareholders.
Shares may be acquired in order to improve the company’s capital structure, to finance or carry out acquisitions or other arrangements, to implement share-based incentive schemes, to be transferred for other purposes, or to be cancelled.
The shares shall be repurchased for a price based on the fair value quoted in public trading. The authorization is valid for 18 months from the issue date of the authorization, i.e. until September 13, 2019, and it replaces any earlier authorizations on the repurchase and/or acceptance as collateral of the company’s own shares.
Authorizing the Board of Directors to decide on a share issue and the granting of special rights entitling to shares
The AGM authorized the Board to decide on a share issue and the granting of special rights pursuant to Chapter 10, Section 1, of the Companies Act, subject to or free of charge, in one or several tranches on the following terms.
The maximum total number of shares to be issued by virtue of the authorization is 2,000,000. The authorization concerns both the issuance of new shares and the transfer of shares held by the company. By virtue of the authorization, the Board of Directors is entitled to decide on share issues and the granting of special rights waiving the pre-emptive subscription rights of the shareholders (directed issue).
The authorization may be used in order to finance or carry out acquisitions or other arrangements, to carry out the company’s share-based incentive schemes and to improve the capital structure of the company, or for other purposes decided by the Board of Directors.
The authorization includes the Board of Directors' right to decide on all terms relating to the share issue and granting of special rights including the subscription price, its payment and its entry into the company's balance sheet.
The authorization is valid for 18 months from the issue date of the authorization, i.e. until September 13, 2019, and it does not replace any earlier authorizations on share issues and the granting of special rights.
Events after the end of the financial year
The company had no other significant events deviating from normal business operations after the end of the review period.
Risks and uncertainties
The company’s short-term risks and uncertainties are related to potential significant changes in the company’s business operations as well as the retention and recruitment of the personnel required for business development.
Exchange rate fluctuations, particularly between the US dollar and euro, may have a large impact on the development of the company’s net sales. Another factor contributing to considerable fluctuation in quarterly net sales and profitability in particular is contract turnaround times which, in the major customer segment, are very long at up to 18 months.
The company’s business risks and preparations for them are also described on the company website at www.qt.io.
Helsinki, February 15, 2019
Qt Group Plc
Board of Directors
Communications
Qt Group will hold a briefing on this financial statement bulletin for analysts on Friday, February 15, 2019, at 10:00 a.m. in the Haven 3 room of Hotel Haven, Unioninkatu 17, 00130 Helsinki, Finland. Welcome!
The financial statement bulletin and presentation will be available in the Investors section at www.qt.io from 10:00 a.m. on February 15, 2019.
Further information
Juha Varelius, President and CEO, tel. +358 9 8861 8040
Distribution:
NASDAQ Helsinki
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