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2017-08-22 07:31:02 CEST 2017-08-22 07:31:02 CEST REGULATED INFORMATION Affecto Oyj - Half Year financial reportAffecto Plc´s half year financial report 1-6/2017AFFECTO PLC – HALF YEAR FINANCIAL REPORT – 22 AUGUST 2017 AT 8:31
Affecto Plc´s half year financial report 1-6/2017 TOP LINE GROWTH CONTINUED - FULL-STACK DATA CAPABILITIES AS DRIVERS Q2 at a Glance (April-June 2017)
Review Period at a Glance (January-June 2017)
Key Figures
CEO Juko Hakala comments: The second quarter marked a strong growth of our topline as our order intake increased 22% and revenue increased 15%. Our prior investments into new capabilities and industry focus enabled a strong topline growth, both as reported and organically. The markets were active across our business segments and we continued to develop our portfolio to meet the changing market demand. The revenue growth in the focus areas, e.g. analytics-as-a-service, next generation master data management and target industries is offsetting the decline in certain traditional areas, such as new implementation of structured data warehouses. In Finland, the top line growth was supported by the demand and the capabilities established in unstructured data, master data management and analytics-as-a-service. Also, our growth businesses including BIGDATAPUMP and Weave are on a solid track. In the Baltic, there was a strong growth in business process application and implementation. In Sweden, the growth was based on analytics-as-a-service and a large master data management deal. In Norway, the order intake and revenue decreased due to customers’ postponed decisions. In Denmark, revenue grew driven by the demand for master data management, while order intake decreased due to the timing of large maintenance contracts. Profit from the underlying business developed steadily due to increasing revenue from the growth areas and good chargeability. Our profit increased in Finland and Baltic segments mainly driven by the delivery of multi-year customer engagements won in 2016 and in the first quarter. Overall, these positive developments were offset by ongoing as well as one-time spending into transformation and by seasonality. Actions continued to improve the profitability of our professional services in Scandinavia. Affecto's comparable operating profit for the second quarter decreased to 0.9 MEUR. Affecto is today a full-stack data solution company in Northern Europe with a strong core of data-driven technologies. Our growing areas today are equipped with a strong managed services backbone and with new capabilities in advanced analytics, unstructured and real-time data solutions. In the second quarter, we continued to focus on building capabilities for artificial intelligence, machine learning and cognitive systems. They are becoming essential for our customers’ business development, integrate well with our core and are inspiring areas of interest for our experts. We also teamed up with our people and other stakeholders to develop our new strategy around these themes. We look forward to taking these efforts to the next level with our customers and our people now in the third quarter.
2017 Outlook Affecto changes the measure of its profitability outlook from operating profit to comparable operating profit to provide the market more relevant information. Affecto expects its FY ’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY ’17 comparable operating profit to be above the previous year (2016: 6.3 MEUR). The comparable operating profit outlook does not include any costs related to the voluntary recommended public tender offer for all shares in Affecto Plc launched by CGI. Previously Affecto expected its FY’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY’17 operating profit to be at the same level or below the previous year (2016: 6.7 MEUR).
Analyst and Press Conference
The Company will arrange a briefing for analysts and media 22 August 2017 at 13:00 at the Company’s Espoo premises, Keilaranta 17 C, FI-02150 Espoo.
AFFECTO FINANCIALS Order intake In 4-6/2017, Affecto’s order intake increased by 22% and was 33.8 MEUR (27.8 MEUR). Order intake increased significantly in Finland, Sweden and Baltic. In Denmark and Norway, order intake decreased significantly. In 1-6/2017, Affecto’s order intake increased by 11% and was 58.2 MEUR (52.6 MEUR). Order intake increased significantly in Finland and increased in Sweden and Baltic. Order intake decreased in Denmark and decreased significantly in Norway. Order Backlog The order backlog increased by 12% and was 51.3 MEUR (45.8 MEUR). Order backlog increased significantly in Finland, Sweden and Baltic and decreased significantly in Norway and Denmark. Revenue
In 4-6/2017, Affecto’s revenue increased by 15% to 34.6 MEUR (30.1 MEUR). Revenue increased in Finland, Sweden, Denmark and Baltic and decreased in Norway. In Q2/2016, revenue in Estonia was 1.1 MEUR. In 1-6/2017, Affecto’s revenue increased by 13% and was 64.7 MEUR (57.4 MEUR). Revenue increased in Finland, Sweden, Denmark and Baltic and decreased in Norway. In 1-6/2016, revenue in Estonia was 2.3 MEUR. Profitability Affecto's operating profit for the second quarter decreased to 1.4% and was 0.5 MEUR (2.3 MEUR). The profit of the underlying business developed steadily due to the increasing revenue from growth areas and chargeability. Profit was negatively impacted by one-time transformation spending related to restructuring (-0.5 MEUR), strategy development work (-0.4 MEUR) and other key transformation efforts (-0.2 MEUR) as well as the timing of Easter (-0.7 MEUR). Net profit for the period was 0.4 MEUR (1.6 MEUR). In January-June 2017, Affecto's operating profit declined to 3.6% and was 2.3 MEUR (3.3 MEUR). The profitability improved in Finland and Baltic and decreased in Norway, Sweden and Denmark. Net profit for the period was 1.6 MEUR while it was 2.3 MEUR last year. Taxes corresponding to the profit has been entered as a tax expense.
Operational segment result by reportable segments:
In 4-6/2017, comparable operating profit decreased to 2.7% and was 0.9 MEUR (2.3 MEUR). In 1-6/2017, comparable operating profit decreased to 4.7% and was 3.1 MEUR (3.3 MEUR). Measures of Profit and Items Affecting Comparability
¹The IFRS 3 amortization is approximately 0.006 MEUR a month.
Business Performance by Segment The Group’s business is managed through five reportable segments: Finland, Norway, Sweden, Denmark and Baltic. Finland The demand for services in Traditional IT & Analytics continued to be stable and the development of demand for business technology & analytics was positive in a period of strengthening local economic outlook.
Norway Transformation ongoing to meet evolving market demand into Business Technology and Analytics within target Industries.
Sweden A continued high demand for analytics and business technology services created the strong growth. Positive impact resulting from high utilization of consultants and successful recruitment of the right kind of talent.
Denmark Continued demand for data driven business solutions by customers in Financial Services and Industrial industries.
Baltic The Baltic segment continued improving in terms of order intake, revenue and profitability. Strengthening capabilities for the private sector and go-to-market.
M&A and divestment notes: In 2016 Affecto sold its Estonian business, Q2‘16 Estonia revenue 1.1 MEUR and operating profit 0.1 MEUR.
Affecto Evolution Affecto today:
Next steps:
Q2 Highlights:
Financial Position and Cash Flow At the end of the reporting period Affecto's balance sheet totaled 113.7 MEUR (12/2016: 117.5 MEUR). Equity ratio was 59.4% (12/2016: 59.6%) and net gearing was 3.8% (12/2016: -6.7%). The financial loans at the end of the reporting period were 14.5 MEUR (12/2016: 16.5 MEUR). The Company's cash and liquid assets were 12.2 MEUR (12/2016: 20.8 MEUR). The interest-bearing net debt was 2.3 MEUR (12/2016: -4.3 MEUR). In 4-6/2017, the cash flow from operating activities was 3.2 MEUR (-0.9 MEUR) and cash flow from investing activities was -1.3 MEUR (-0.2 MEUR). Investments in tangible and intangible assets were 0.3 MEUR (0.2 MEUR). The increased cash flow from operating activities was primarily due to the positive change in working capital offset by the lower profitability. In 1-6/2017, the cash flow from operating activities was 1.1 MEUR (-2.2 MEUR) and cash flow from investing activities was -4.1 MEUR (-0.3 MEUR). Investments in tangible and intangible assets were 0.4 MEUR (0.3 MEUR). The increased cash flow from operating activities was primarily due to the positive change in working capital. Mergers & Acquisitions The acquisition of BIGDATAPUMP was completed on 2 February 2017. The net debt free, base purchase price paid in cash was 3.5 MEUR. In addition, based on the closing accounts of BIGDATAPUMP, a 1.0 MEUR purchase price adjustment was paid in cash based on the cash and net working capital of the acquired entity in Q2/2017. The purchase agreement also includes an earn-out element worth a maximum of 3.0 MEUR, to be paid in cash, subject to the achievement of defined financial targets in three years, at the latest five years. Based on the preliminary purchase price allocation, net assets of 4.5 MEUR were acquired in the acquisition which included 3.3 MEUR in goodwill, 0.1 MEUR in intangible assets related to customer relationships, 0.1 MEUR in intangible assets related to trademarks, 1.3 MEUR in accounts receivable, 0.8 MEUR in cash and 1.1 MEUR in liabilities primarily related to trade and other payables and taxes. The intangible assets will be amortized over their useful life of three years. Changes in the management On 12 April 2017, the Company announced a Leadership Team Update according to which Stig Sandberg, Håvard Ellefsen and Mikko Eerola left the Leadership Team. With these changes, the Affecto Leadership Team presently consists of Juko Hakala, CEO, Iikka Lindroos, People Operations, Growth and Transformation, Deputy CEO, Martti Nurminen, CFO, Charlotte Darth, Managing Director, Sweden and Henri Engström, Managing Director, Affecto Industrial and Interim Managing Director, Finland. Personnel At the end of the reporting period, the number of employees was 1020 (988) persons. 510 (415) employees were based in Finland, 86 (102) in Norway, 110 (98) in Sweden, 67 (67) in Denmark and 247 (306) in the Baltic countries where the Company divested its Estonian business in 2016. The average number of employees during the period was 991 (980). Corporate Governance Affecto’s corporate governance practices comply with Finnish laws and regulations, Affecto’s Articles of Association, the rules of Nasdaq Helsinki and the Finnish Corporate Governance Code issued by the Securities Market Association of Finland in 2015. The code is publicly available at http://cgfinland.fi/en/. Affecto has published its corporate governance statement for 2016 in the Financial Statements and Annual Report 2016, and on the Company website www.affecto.com.
The Annual General Meeting
The Annual General Meeting of Affecto Plc was held on 7 April 2017. The AGM adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2016. The meeting approved the Board of Directors’ proposal to pay a dividend of EUR 0.16 per share and the dividend was paid on 20 April 2017. Aaro Cantell, Magdalena Persson, Olof Sand and Tuija Soanjärvi were re-elected and Mikko Kuitunen and Timo Vaajoensuu were elected to the Board. The Board of Directors elected Magdalena Persson as the Chairperson and Aaro Cantell as the Vice-Chairperson of the Board and the following members to the Committees:
Audit Committee: Tuija Soanjärvi (chairperson) and Timo Vaajoensuu People, Nomination and Compensation Committee: Magdalena Persson (chairperson), Aaro Cantell and Olof Sand
The AGM approved all proposals made by the Board as described in the invitation published on 10 March 2017. The decisions of the AGM were published as a stock exchange release on 7 April 2017 and can be found on the Company’s website www.affecto.com. Shares and Shareholders The Company has one share series and all shares have similar rights. At the end of the review period Affecto Plc's share capital consisted of 22 450 745 shares and the Company owned 821 974 treasury shares, approximately 3.7% of the total amount of the shares. Additional information with respect to the shares, shareholding and trading can be found on the Company’s website www.affecto.com. Risks and Uncertainties The markets where Affecto operates are going through change. Historically, Affecto has concentrated on the traditional IT market solutions for a broad customer space and mainly on moderate deal sizes and shapes. Affecto’s demand is growing within larger and more complex deal sizes and shapes as well as within the emerging business technology & analytics market. There is a risk as well as an opportunity with respect to the speed of which Affecto is able to develop and build capability in the new emerging areas in proportion to the traditional areas. Affecto’s success depends also on good customer relationships. Affecto has a diverse customer base. In 2016, the largest customer generated approximately 3% and the 10 largest customers together approximately 20% of Affecto’s revenue. Although none of the customers is critically large for the whole group, there are large customers in various countries that are significant for local business in the relevant country. On the other hand, the diverse customer base may decrease the effectiveness of the sales & delivery efforts and overall agility of the Company. Affecto also needs to be seen as an interesting employer in order to recruit and retain skilled employees. It is important for Affecto to be seen as an employer the employees can be proud of. High people churn may create inefficiencies in the business and temporarily decrease the utilization rate. Affecto executed its first acquisition since 2007 at the end of 2016. The Company recognizes the risk with regards to its ability to complete an effective post-merger integration to achieve the anticipated benefits while maintaining the continuity of the growth track of the acquired company. The changes in the general economic conditions and the operating environment of customers have direct impact on Affecto’s markets. If the macroeconomic environment remains weak, some countries may introduce new regulations. The uncertain economic outlook may affect Affecto’s customers negatively. Slower IT investment decision making and uncertainty on new investments with respect to new business technology solutions may have negative impact on Affecto, especially in the public sector. Affecto’s order backlog has traditionally been only a few months long. Slower decision making of the customers decreases the predictability of the business and may decrease the utilization rate. Specifically, the insurance sector has been impacted by slower than expected investments, mainly due to product cycle related issues, which may continue to have an effect on the Company in Baltic. While the Company sees revitalizing demand for traditional IT system investments in Lithuania especially in energy sector, the Lithuanian public sector investments into IT remains modest which may have an effect on the Company’s business. Affecto sells third party software licenses and maintenance as part of its solutions. Typically, the license sales have the highest impact on the last month of each quarter and especially in the fourth quarter. This increases the fluctuation in revenue between quarters and increases the difficulty of accurately forecasting the quarters. Additionally, the increase of cloud services and other similar market trends may affect the license revenue negatively. Affecto had license revenue of approximately 7 MEUR in 2016. The Company recognizes that the risks of frauds and cyber security threats have increased. The Company aims to mitigate the increased risks with internal controls, IT-security, training, awareness and security minded culture. The Company recognizes the disintegration of its IT systems and process. Given the number of separate systems, there is low group wide transparency and risk of suboptimal management of the respective businesses. Approximately 36% of Affecto’s revenue is generated in Sweden and Norway, thus the development of the currencies of these countries (SEK and NOK) may have an impact on Affecto’s profitability. The main part of the companies’ income and costs are within the same currency, which decreases the risks. In addition, the Company also has business in South Africa and therefore the development of the South African Rand (ZAR) may also affect the business environment in South Africa and thus the Company’s business. Affecto’s balance sheet includes a material amount of goodwill. Goodwill has been allocated to cash generating units. Cash generating units, to which goodwill has been allocated, are tested for impairment both annually and whenever there is an indication that the unit may be impaired. Potential impairment losses may have material effect on the reported profit and value of assets. Financial Calendar 2017 Affecto will publish the following financial reports during the course of the year: Interim Report July-September: 7 November 2017
2017 Outlook Affecto changes the measure of its profitability outlook from operating profit to comparable operating profit to provide the market more relevant information. Affecto expects its FY ’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY ’17 comparable operating profit to be above the previous year (2016: 6.3 MEUR). The comparable operating profit outlook does not include any costs related to the voluntary recommended public tender offer for all shares in Affecto Plc launched by CGI. Previously Affecto expected its FY’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY’17 operating profit to be at the same level or below the previous year (2016: 6.7 MEUR).
Affecto Plc
Financial information:
1. Consolidated income statement, consolidated comprehensive income statement, balance sheet, cash flow statement and statement of changes in equity CONSOLIDATED INCOME STATEMENT
CONSOLIDATED BALANCE SHEET
SUMMARY CONSOLIDATED CASH FLOW STATEMENT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
2. Notes 2.1. Basis of preparation This interim report has been prepared in accordance with the IFRS recognition and measurement principles and in accordance with IAS 34, Interim Financial reporting. The interim report should be read in conjunction with the annual financial statements for the year ended 31 December 2016. In material respects, the same accounting policies have been applied as in the 2016 annual consolidated financial statements. The amendments to and interpretations of IFRS standards that entered into force on 1 January 2017 had no material impact on this interim report. IFRS 15 Revenue from Contracts with Customers (effective for fiscal years beginning on or after 1 January 2018) is a new standard that includes a five-step guidance for revenue recognition arising from contracts with customers and replaces IAS 18 Revenue, IAS 11 Construction Contracts standards and interpretations. Affecto is still assessing the overall impact and materiality of IFRS 15 related to licenses and long term contracts and maintenance contracts. Affecto’s IFRS 15 implementation project, which is in three phases, has been progressing for over a year. Affecto has completed its first two phases and is on the third phase. The final phase, in which Affecto assesses and determines the overall impact between the new standard and previous accounting standards for its consolidated financial statements began in the spring of 2017 and will continue until early 2018.
2.2. Segment information Affecto's reporting segments are based on geographical locations and are Finland, Norway, Sweden, Denmark and Baltic. Segment revenue and result
Revenue by business lines
2.3. Changes in intangible and tangible assets
2.4. Share capital, reserve of invested non-restricted equity and treasury shares
Affecto Plc owns 821 974 treasury shares, which correspond to 3.7% of the total amount of the shares. The amount of registered shares is 22 450 745 shares. 2.5. Interest-bearing liabilities
Affecto's loan facility agreement includes financial covenants, breach of which might lead to an increase in cost of debt or cancellation of the facility agreement. The covenants are based on total net debt to earnings before interest, taxes, depreciation and amortization and total net debt to total equity. The covenants will be measured quarterly, and these terms and conditions of covenants were met at the end of the reporting period.
2.6. Contingencies and commitments The future aggregate minimum lease payments under non-cancelable operating leases:
Other securities given on own behalf:
Other guarantees are mostly securities issued for customer projects. These guarantees include both bank guarantees secured by parent company of the group and guarantees issued by the parent company and subsidiaries. 2.7. Related party transactions Key management compensation and remunerations to the board of directors:
Purchases from related party:
3. Key figures
Calculation of key figures
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