Qt Group Oyj - Inside information

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

QT GROUP PLC
STOCK EXCHANGE RELEASE
FEBRUARY 16, 2017
The Board of Directors of Qt Group Plc have updated the company strategy for the
years 2017-2021. In accordance with the updated strategy, the company is
announcing its new long-term financial goals to achieve in 2021 an annual
turnover of 100 million euros with more than 15 percent operating profit margin
(EBIT%). The updated strategy is based on strong investment in growth, focusing
mainly on increasing Qt's market share among major device vendors as the
preferred solution for touch screen-based technology software development. To
finance the growth, the Board of Directors will be seeking authorization to
organize a rights issue for approximately EUR 15 million in the company's Annual
General Meeting on 14/03/2017.
We are surrounded by touch screens and smart devices as digitalization is
everywhere—not only in the consumer market but also in industrial equipment. The
market penetration of touch screens, and the importance of a great user
experience has grown so that the consumers are often making purchase decisions,
such as on a car or a smart TV, based on its software content and user
experience, and not on the form factor. On the other hand, the same user
experience and content should work seamlessly across all the end user devices.
Qt technology allows manufacturers to easily create graphical user interfaces
for touch screens and software that works across all consumer devices such as
desktop computers, smart phones, TVs and cars, as well as in industry, for
example, on the factory floor.

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

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

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

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

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

Long-term financial goals

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

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

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

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

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

Growing the global sales network

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

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

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

Product offering for selected industries

Qt provides technology solutions for two main market segments:

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

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

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

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

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

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

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

Dual-licensed technology

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

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

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

Rights Issue to Fund Investments into Growth

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

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

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

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

Qt Group Plc

Qt Group Plc is responsible for Qt development, productization and licensing
under commercial and open source licenses. The Qt offering includes a
development environment that enables the reuse of software code across numerous
different operating systems, platforms and screen types, ranging from desktops
and embedded systems to wearables and mobile devices. Qt is used by
approximately 1 million developers worldwide and is the leading independent
technology behind millions of devices and applications. Qt is the platform of
choice for in-vehicle systems, industrial automation devices and other business
critical applications manufacturers, and is used by leading global players in
70+ industries. The Qt Company operates in China, Finland, Germany, Japan,
Korea, Norway, Russia and USA with about 200 employees worldwide. The Qt Group
is headquartered in Espoo, Finland and is listed on Nasdaq Helsinki Stock
Exchange. The company’s net sales in year 2015 was 27 MEUR. To learn more visit
http://qt.io