2016-10-28 12:30:01 CEST
2016-10-28 12:30:01 CEST
REGULATED INFORMATION
Affecto Oyj - Interim report (Q1 and Q3)
Affecto Plc's Interim Report 1-9/2016
AFFECTO PLC – INTERIM REPORT – 28 OCTOBER 2016 at 13:30
Affecto Plc's Interim Report 1-9/2016
Q3 Financials at a Glance (July-September 2016)
-- Order intake decreased by 11% and was 18.6 MEUR (20.9 MEUR).
-- Order backlog increased by 3% and was 40.5 MEUR at the end of review period
(39.4 MEUR).
-- Revenue declined by 3% and was 24.0 MEUR (24.8 MEUR).
-- Operating profit increased to 0.5 MEUR (-0.7 MEUR) and was 2.3% (-2.9%) of
revenue. However, the operating profit during the comparable period in 2015
was negatively affected by two non-recurring items that were 2.0 MEUR in
total.
-- Cash flow from operating activities was -1.7 MEUR (-1.8 MEUR).
Review Period Financials at a Glance (January-September 2016)
-- Order intake decreased by 4% and was 71.2 MEUR (74.5 MEUR).
-- Revenue declined by 4% and was 81.4 MEUR (84.7 MEUR).
-- Operating profit decreased to 3.8 MEUR (4.3 MEUR) and was 4.7% (5.0%) of
revenue.
-- Cash flow from operating activities was -3.9 MEUR (-0.4 MEUR).
-- The Company changed its 2016 Outlook on 20 October 2016.
Key Figures
MEUR 7-9/16 7-9/15 1-9/16 1-9/15 2015 last 12m
Revenue 24.0 24.8 81.4 84.7 116.0 112.7
Operational segment result 0.5 -0.7 3.8 4.3 7.5 7.1
% of revenue 2.3 -2.9 4.7 5.0 6.4 6.3
Operating profit 0.5 -0.7 3.8 4.3 7.5 7.1
% of revenue 2.3 -2.9 4.7 5.0 6.4 6.3
Profit before taxes 0.4 -0.6 3.4 4.1 7.5 6.7
Profit for the period -0.0 -0.5 2.3 3.3 5.9 4.8
Equity ratio, % 62.3 59.7 62.3 59.7 58.5 -
Net gearing, % 6.2 9.4 6.2 9.4 -6.2 -
Earnings per share, EUR -0.00 -0.02 0.11 0.15 0.27 0.22
Earnings per share (diluted), -0.00 -0.02 0.11 0.15 0.27 0.22
EUR
Equity per share, EUR 2.85 2.76 2.85 2.76 2.88 -
CEO Juko Hakala comments:
During the 3rd quarter of 2016 we started important deliveries and reached wins
that are important for our evolution. We also continued to invest extensively
into our people, our evolution and our capabilities, in line with what we
expressed at the Capital Markets Day in May 2016.
In terms of our financial performance there were key strongholds, such as our
sales performance in Norway and our revenue and operating profit performance
development in Sweden and Denmark. Overall, however, we were not satisfied.
Our order intake decreased as the performance of all other segments than Norway
was weak y-o-y. Our order backlog remains up 2.7% y-o-y. Our revenue decreased
slightly compared with last year and we delivered operating profit growth in
the quarter as reported. However, excluding the two major non-recurring expense
items reported in Q3 ’15, our operating profit declined y-o-y. The main drivers
of the revenue and operating profit development continue to be our Finland and
Baltic segments which are both experiencing a high level of transformation on
the market. On the other hand, our performance in Sweden and Denmark continued
to develop favorably. Performance in Norway was at the same level as the year
before.
As we are now progressing with seasonally important Q4 and planning next year
with our people, we have exciting customer deliveries, sales opportunities and
also steadfast focus in our evolution to look forward to.
2016 Outlook
Affecto expects its FY ’16 revenue to be at the same level or below the
previous year, and its FY ’16 operating profit to be below the previous year.
Analyst and Press Conference
The Company will arrange a briefing for analysts and media 28 October 2016 at
15:00 at Glo Hotel Kluuvi, Kluuvikatu 4, FI-00100 Helsinki.
For additional information, please contact:
Juko Hakala
CEO
juko.hakala@affecto.com
Martti Nurminen
CFO
+358 40 751 7194
martti.nurminen@affecto.com
This release is unaudited.
AFFECTO FINANCIALS
Order Intake
In 7-9/2016, Affecto’s order intake decreased by 11% and was 18.6 MEUR (20.9
MEUR). Order intake increased significantly in Norway. The order intake
weakened significantly in Finland, Denmark and weakened in Baltic and Sweden.
In 1-9/2016, Affecto’s order intake decreased by 4% and was 71.2 MEUR (74.5
MEUR). Order intake increased in Finland. Order intake increased slightly in
Sweden. The order intake in Denmark remained on the same level as last year.
Order intake decreased in Norway and decreased significantly in Baltic.
Order Backlog
The order backlog increased by 3% and was 40.5 MEUR (39.4 MEUR) at the end of
the reporting period. Order backlog increased significantly in Norway and
Sweden and increased in Finland. Order backlog decreased in Denmark and Baltic.
Revenue
Revenue, MEUR 7-9/16 7-9/15 1-9/16 1-9/15 2015 last 12m
Finland 10.1 10.7 34.7 35.3 49.5 49.0
Norway 4.6 4.6 16.1 15.6 21.1 21.6
Sweden 3.9 3.3 13.5 13.4 18.2 18.3
Denmark 3.0 2.5 9.3 8.1 11.3 12.5
Baltic 3.9 4.7 12.3 15.4 20.1 17.0
Other -1.4 -0.9 -4.4 -3.0 -4.2 -5.6
--------------------------------------------------------------
--------------------------------------------------------------
Group total 24.0 24.8 81.4 84.7 116.0 112.7
In 7-9/2016, Affecto’s revenue declined by 3% to 24.0 MEUR (24.8 MEUR). Revenue
increased significantly in Sweden and Denmark while Norway remained on the same
level as in 2015. Revenue decreased significantly in Baltic and Finland.
In 1-9/2016, Affecto’s revenue declined by 4% to 81.4 MEUR (84.7 MEUR). Revenue
increased significantly in Denmark, increased in Norway and increased slightly
in Sweden. Revenue decreased slightly in Finland and decreased significantly in
Baltic.
Profitability
Operational segment result by reportable segments:
Operational segment 7-9/16 7-9/15 1-9/16 1-9/15 2015 last 12m
result, MEUR
Finland 0.2 -0.3 1.1 1.7 3.5 3.0
Norway 0.1 0.1 1.0 1.2 1.5 1.3
Sweden 0.1 -0.3 0.9 0.2 0.7 1.5
Denmark 0.2 0.1 0.7 0.0 0.4 1.0
Baltic 0.3 0.8 1.1 3.2 3.9 1.8
Other -0.3 -1.2 -1.1 -2.0 -2.5 -1.6
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operational segment result 0.5 -0.7 3.8 4.3 7.5 7.1
--------------------------------------------------------------------------
Operating profit 0.5 -0.7 3.8 4.3 7.5 7.1
In 7-9/2016, Affecto's operating profit increased to 2.3% and was 0.5 MEUR
(-0.7 MEUR). The profitability increased significantly in Sweden and increased
in Finland and Denmark. Norway remained on the same level as last year while
the Baltic profitability decreased significantly. Net profit for the period was
-0.0 MEUR while it was -0.5 MEUR last year. However, the Company had two
non-recurring items that impacted the profitability negatively by approximately
2.0 MEUR in total during the comparable period in 2015: First, a restructuring
provision of approximately 1.0 MEUR was booked in Finland and a non-recurring
item of 1.0 MEUR related to the fraud incident impacted the Other segment.
In 1-9/2016, Affecto's operating profit decreased to 4.7% and was 3.8 MEUR (4.3
MEUR). The profitability improved significantly in Sweden and Denmark, while it
decreased slightly in Finland and Norway. The Baltic profitability decreased
significantly. Net profit for the period was 2.3 MEUR while it was 3.3 MEUR
last year.
Taxes corresponding to the profit have been entered as tax expense.
Business Performance by Segment
The group's business is managed through five reportable segments: Finland,
Norway, Sweden, Denmark and Baltic.
Finland
In 7-9/2016, the Finnish market displayed a continued demand for solutions with
respect to the Traditional IT & Analytics market, especially in the areas of
managed services and custom software development. Development and piloting
demand in the Business Technology & Analytics market progressed positively.
In 7-9/2016, order intake decreased significantly from last year. The total
order backlog remained above last year's level. Revenue decreased significantly
by 6% to 10.1 MEUR (10.7 MEUR). Operational segment result was 0.2 MEUR (-0.3
MEUR) or 1 % (-2%) of revenue. The improved profitability was largely impacted
by the 1.0 MEUR non-recurring expense item related to restructuring provision
last year.
Order intake decline was mainly due to seasonal variance in multi-year
contracts related to the successful contract renewal in 2015. Revenue decrease
was mainly driven by quarterly variance in 3rd party software sales.
Professional Services revenue remained on the same level as previous year.
Operational segment result was impacted by Finland continuing its transition
with larger contracts and into new demand areas and recruitment and onboarding
of new technology-business hybrid roles.
The Company is committed to continue its decided investments into its people
and capabilities to drive improvements in business performance by boosting
further its capabilities in complex program management, increasing focus with
selected customers and integrating the core skills together with the new
technology roles for an impactful outcome. An example of success in this
development is the Finnish Customs selecting Affecto in 9/2016 to deliver their
new business process and document management solution. The final contract of up
to 4.1 MEUR over period of 4 years is subject to negotiations between the
parties and is scheduled to be completed by the end of Q1 2017.
In 1-9/2016, order intake increased. Revenue decreased slightly to 34.7 MEUR
(35.3 MEUR). Operational segment result was 1.1 MEUR (1.7 MEUR) or 3% (5%) of
revenue.
In 7-9/2016, revenue of Karttakeskus geographical information system (“GIS”)
business, reported as part of Finland, decreased by 7% to 2.3 MEUR (2.5 MEUR).
Karttakeskus lost large contracts in 2015 which continued to negatively affect
the revenue. The Company expects the effect of the lost deals to continue to
affect the revenue until the end of 2016. Business development actions for
strengthening the Company’s capabilities in digital content and services to
complement the traditional cartographic offerings are ongoing, with both areas
showing positive growth. In 1-9/2016, revenue of Karttakeskus decreased by 13%
to 7.6 MEUR (8.7 MEUR).
Norway
In 7-9/2016, general economic environment improved in Norway, but this did not
yet influence customer buying behavior from Affecto. In the Traditional IT &
Analytics market, Affecto continued to experience a shift in demand towards
improving the performance of existing solutions, combined with a willingness to
explore managed services and nearshoring opportunities. In the Business
Technology & Analytics market, buyers continued to be interested in
self-service analytics in order to increase their organizations’ broader use of
data and analytics. Managed services and digitalization initiatives continued
to increase potential deal sizes.
In 7-9/2016, order intake and order backlog increased significantly compared to
last year’s level. Revenue was stable at 4.6 MEUR (4.6 MEUR). Operational
segment result was 0.1 MEUR (0.1 MEUR) or 3% (3%) of revenue.
The positive order intake was driven by new services sales to existing managed
service customers. Also new initiatives were started within both traditional IT
and analytics as well as Business Technology and Analytics market. While
overall software sales were down for the quarter the growth in sales of
self-service analytics software continued. Profitability was slightly weakened
year on year due to low utilization of Professional Services capacity. This was
a result of weak sales in Q2, as well as the ongoing transformation of the
Company’s delivery capability to meet shifting market demands and more complex
delivery models. The change in revenue mix from higher margin software revenue
to lower margin consulting revenue also contribute.
In 1-9/2016, the order intake decreased. Revenue increased by 3% to 16.1 MEUR
(15.6 MEUR). Operational segment result was 1.0 MEUR (1.2 MEUR) or 6% (8%) of
revenue.
Sweden
In 7-9/2016, activity level continued to be high in both the Traditional IT and
Analytics market, as well as the developing Business Technology and Analytics
market. The high activity level continued to create a shortage of resources in
the market. In the Traditional IT & Analytics market, the demand with respect
to managed services solutions increased as the customers wish to secure access
to development resources, improve quality and reduce costs. In the Business
Technology and Analytics market, customer digitalization initiatives continued
to increase as companies showed interest in building analytical capabilities or
digitizing internal processes.
In 7-9/2016, order intake declined, but order backlog remains above last year's
level. Revenue increased significantly by 17% and was 3.9 MEUR (3.3 MEUR).
Operational segment result was 0.1 MEUR (-0.3 MEUR) or 1% (-9%) of revenue.
The decrease of order intake y-o-y was mainly due to capacity constraints and
people focusing on delivery, resulting in lower sales performance. The strong
y-o-y revenue growth was respectively driven by high utilization levels of the
Professional Services business as the Company delivered on Managed Services and
other contracts won during H1. Software sales were low as the Company is
transforming to meet demand for example related to self-service analytics and
master data management software. Increased usage of near-shoring capabilities
continued, and it has been established as an important part of deliveries to
customers. Also profitability continued to be positively affected by increased
nearshoring as well as improved utilization rates and a streamlined
organizational set-up. The pilot of increasing co-operation between the offices
in Malmö, Copenhagen and Århus is working and as a result the Company now has
more scalable operations, as well as better sharing of capabilities across the
region.
In 1-9/2016, order intake slightly increased. Revenue increased slightly by 1%
and was 13.5 MEUR (13.4 MEUR). Operational segment result was 0.9 MEUR (0.2
MEUR) or 7% (1%) of revenue.
Denmark
In 7-9/2016, the Company continued to focus on customers in the Financial
Sector while the Industrial & Energy sector opened up more possibilities to
build new Information Management platforms enabling front-end customer facing
digitalization and self-service analytics initiatives within the Business
Technology & Analytics market. The Company continued to improve the balance
between addressing customers within the Traditional IT & Analytics market and
progress in the area of Business Technology & Analytics market.
In 7-9/2016, order intake decreased significantly and order backlog is below
last year's level. Revenue increased significantly by 18% and was 3.0 MEUR (2.5
MEUR). Operational segment result was 0.2 MEUR (0.1 MEUR) or 6% (2%) of
revenue.
The decreased order intake was due to intensive delivery activity on
engagements sold during H1 as well as related capacity constraints on select
key skills. Good resource utilization driven by delivery of previously won
projects improved in all customer segments contributing to a strong revenue and
profit growth. Software sales grew driven by increased sales of self-service
analytics serving the Business Technology and Analytics market, as well as
traditional Business Intelligence front-end licenses to Traditional IT buyers.
In 1-9/2016, order intake is on last year’s level. Revenue increased
significantly by 14% and was 9.3 MEUR (8.1 MEUR). Operational segment result
was 0.7 MEUR (0.0 MEUR) or 8% (1%) of revenue.
Baltic
In 7-9/2016, in the Lithuanian market, the Company saw revitalizing interest by
energy companies to invest into the area of Traditional IT & Analytics while
the public sector continued to invest modestly. In Estonia the public sector
investments have been modest causing increased price competition. Across the
segment, the private sector was interested in investing into Traditional IT &
Analytics, renewal projects and solutions while the impact for Affecto is minor
in 2016. The Company also saw that the decisiveness within insurance customers
for systems upgrades remained low. The demand for nearshore is increasing as
Nordic companies are increasingly investing into managed services.
In 7-9/2016, the Baltic (Lithuania, Latvia, Estonia, Poland and South Africa)
order intake decreased and order backlog is below last year’s level. Revenue
declined significantly 16% and was 3.9 MEUR (4.7 MEUR). Operational segment
result was 0.3 MEUR (0.8 MEUR) or 8% (17%) of revenue.
Order intake performance improved as compared to Q1 and Q2 of 2016. However, it
was still less than the year before due to Lithuania, Estonia and insurance
business. Consequently, also order backlog is on the highest level of the year
but below last years’ level. The Company signed a multi-year agreement for
implementation of Enterprise Asset Management solution for Lithuanian
electricity transmission system operator AB Litgrid. The value of the agreement
is approximately 1 MEUR. The revenue decline was due to modest investments into
IT solutions and services by the public sector customers in Estonia and
Lithuania during the previous quarters and insurance customers postponing their
investments into systems upgrades. The same drivers impacted the profitability.
The Company continued to focus on local business development in Baltic, on
nearshoring boost for all Affecto countries and on strong co-operation with its
partners within the insurance sector.
In 1-9/2016, the Baltic order intake decreased significantly. Revenue declined
significantly 20% and was 12.3 MEUR (15.4 MEUR). Operational segment result was
1.1 MEUR (3.2 MEUR) or 9% (21%) of revenue.
Affecto Evolution
Affecto has traditionally operated with a holding company model that consists
of independent and heterogeneous business segments. As the Company’s market has
shifted, Affecto has responded by defining its Strategic Direction and Choices
in February 2015 and in May 2016, as part of its Capital Markets Day (“CMD”).
The Company’s presented direction forms an evolution glide path happening in
three phases. In Q3 the first phase of evolution was finalized. Within this
phase the Company’s focus was: Customer value creation and evolving Affecto’s
core capabilities, Activating collaboration and leadership, Introducing and
executing B2C & industrial growth initiatives and Updating Affecto’s brand.
In 7-9/2016, the first phase evolution activities across Affecto’s 18 offices
were for example the following:
-- Continued to win new business technology and analytics deals in focus
evolution areas, like in self-service analytics in Norway and in industrial
internet in Denmark & Sweden.
-- Executed additional customer pilots and capability developments in the
Company’s select growth programs in B2C and industrial segments.
-- Strengthened leadership capabilities by continuing to execute successful
recruitments for different key leadership positions, like in CFO services
for Affecto’s clients, to ensure capability for continuous development
while running the current business in efficient fashion.
-- Prepared for the office moves and renovated its offices and workplaces in
Helsinki and Tampere, and started workplace processes in Oslo and Stockholm
to improve collaboration and its value for employees.
-- Conducted preparations for the launch of Affecto’s “Weave BCE”
(www.weave.fi), an independent and agile business unit focused on service
design and modern software development, to complement and build Affecto’s
PowerGrid, the collaboration network of 18 offices, further. Weave BCE also
added a new office to Affecto’s network of now 19 offices that form the
PowerGrid.
-- Boosted collaboration and capability development between its Scandinavian
offices by organizing a multi-day evolution event with all the people and
selected partners and customers.
-- Continued to focus on improved customer value by conducting training and
development activities in the areas where the Company sees most customer
value potential, such as areas of unstructured data and self-service
analytics, but also in new capability areas.
-- Started preparations for the second phase of the evolution and the further
buildup of the PowerGrid operational model e.g. by preparing for systems
integration projects.
In 1-9/2016, first phase evolution activities have represented essential
incremental investments into Affecto’s people, building improved collaboration
in our PowerGrid, and building capabilities for competitiveness in the
transforming market place.
During Q4 Affecto is initiating the second phase of its evolution. Within this
phase Affecto will: Boost co-operation and unite its purposes together with its
people and customers, Continue to develop its approach and leadership towards
the transforming market, Step up and scale its growth initiatives with
customers, and Begin the implementation of new IT platforms to integrate its
operating model.
Growth Programs
Industrial
In the industrial growth program, the demand for prototyping and piloting of
solutions for core business processes continued strong. The total revenue from
the growth program in 2016 has been relatively low because of the piloting
approach.
B2C
In the B2C growth program, prototypes and pilots continued in Finland and in
the UK. However, development in this area has been slower than the Company has
expected. On the one hand, B2C companies are investing into the area of
real-time sensing technologies through pilots and ramping up more slowly than
expected. On the other hand, this is a new area for the Company and still in
the process of integrating itself into the core operations.
Financial Position and Cash Flow
At the end of the reporting period Affecto's balance sheet totaled 107.4 MEUR
(12/2015: 120.3 MEUR). Equity ratio was 62.3% (12/2015: 58.5%) and net gearing
was 6.2% (12/2015: -6.2%).
The financial loans were 18.5 MEUR (12/2015: 18.5 MEUR) at the end of reporting
period. The Company's cash and liquid assets were 14.7 MEUR (12/2015: 22.4
MEUR). The interest-bearing net debt was 3.8 MEUR (12/2015: -3.9 MEUR).
In 7-9/2016, the cash flow from operating activities was -1.7 MEUR (-1.8 MEUR)
and cash flow from investing activities was -0.1 MEUR (-0.1 MEUR). Investments
in tangible and intangible assets were 0.1 MEUR (0.1 MEUR). The slight
improvement y-o-y in cash flow from operating activities was due to the
improved profitability and simultaneous negative change in working capital
mainly in Sweden and Baltic segment.
In 1-9/2016, the cash flow from operating activities was -3.9 MEUR (-0.4 MEUR)
and cash flow from investing activities was -0.5 MEUR (-0.4 MEUR). Investments
in tangible and intangible assets were 0.5 MEUR (0.4 MEUR). The weakened cash
flow from operating activities was driven by lower profitability and especially
by the negative change in working capital mainly driven by the Sweden and
Baltic segments.
Personnel
The number of employees was 1001 (1018) persons at the end of the reporting
period. 423 (425) employees were based in Finland, 93 (96) in Norway, 112 (112)
in Sweden, 67 (63) in Denmark and 306 (322) in the Baltic countries. The
average number of employees during the period was 983 (1012).
On 11 August 2016, the Company announced that it has appointed Iikka Lindroos
as deputy CEO and to the Affecto Leadership Team.
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 2015 in the Financial Statements 2015 and on the Company website
www.affecto.com.
The Annual General Meeting
Annual General Meeting of Affecto Plc (“AGM”) was held on 8 April 2016. The AGM
adopted the financial statements and discharged the members of the Board of
Directors and the CEO from liability for the financial year 2015. The meeting
approved the Board of Directors’ proposal to pay a dividend of EUR 0.16 per
share and the dividend was paid on 19 April 2016.
Aaro Cantell, Magdalena Persson, Jukka Ruuska, Olof Sand, Tuija Soanjärvi and
Lars Wahlström were re-elected to the Board. The Board of Directors elected
from among its members Aaro Cantell as its Chairman and Olof Sand as
Vice-Chairman and the following members to the Committees:
Audit Committee: Tuija Soanjärvi (chairman), Lars Wahlström and Jukka Ruuska
People, Nomination and Compensation Committee: Magdalena Persson (chairman)
Aaro Cantell and Olof Sand
The AGM approved all proposals made by the Board as described in the invitation
published on 11 March 2016. The resolutions of the AGM were published as a
stock exchange release on 8 April 2016 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 2015, the largest customer generated approximately 2%
and the 10 largest customers together approximately 18% 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 our employees can be proud of. High people churn may create
inefficiencies in the business and temporarily decrease the utilization rate.
The changes in the general economic conditions and the operating environment of
customers have direct impact on Affecto’s markets. 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. 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 2015.
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 35% 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.
Events after the Review Period
On 10 October 2016, Affecto’s Weave BCE (www.weave.fi), an independent and
agile business unit focused on service design and modern software development,
was launched. Weave’s BCE is already working with major digital services, such
as Yle Areena.
2016 Outlook
Affecto expects its FY ’16 revenue to be at the same level or below the
previous year, and its FY ’16 operating profit to be below the previous year.
Affecto Plc
Board of Directors
Financial information:
1. Consolidated income statement, consolidated comprehensive income statement,
balance sheet, cash flow statement and statement of changes in equity
2. Notes
3. Key figures
1. Consolidated income statement, consolidated comprehensive income statement,
balance sheet, cash flow statement and statement of changes in equity
CONSOLIDATED INCOME STATEMENT
(1 000 EUR) 7-9/16 7-9/15 1-9/16 1-9/15 2015 last
12m
--------------------------------------------------
--------------------------------------------------
Revenue 23 981 24 847 81 418 84 720 116 026 112 723
Other operating income 0 0 0 1 22 21
Changes in inventories of -38 61 87 171 -195 -278
finished
goods and work in progress
Materials and services -5 866 -5 805 -18 -17 -23 978 -25 324
617 272
Personnel expenses -13 -14 539 -46 -48 -64 957 -62 289
406 200 868
Other operating expenses -3 931 -5 028 -12 -13 -18 352 -16 873
202 681
Other depreciation and -195 -268 -652 -817 -1 089 -925
amortisation
Operating profit 544 -733 3 834 4 255 7 475 7 055
Financial income and expenses -149 90 -444 -112 4 -329
Profit before income tax 396 -643 3 390 4 143 7 479 6 726
Income tax -413 188 -1 117 -805 -1 585 -1 897
Profit for the period -17 -455 2 274 3 338 5 894 4 830
Profit for the period
attributable to:
Owners of the parent company -17 -455 2 274 3 338 5 894 4 830
Earnings per share
(EUR per share):
Basic -0.00 -0.02 0.11 0.15 0.27 0.22
Diluted -0.00 -0.02 0.11 0.15 0.27 0.22
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
(1 000 EUR) 7-9/16 7-9/15 1-9/16 1-9/15 2015 last
12m
--------------------------------------------------
--------------------------------------------------
Profit for the period -17 -455 2 274 3 338 5 894 4 830
Other comprehensive income
Items that may be
reclassified subsequently to
the statement of income:
Translation difference 240 -1 435 423 -775 -649 548
Total Comprehensive income 223 -1 890 2 696 2 563 5 245 5 378
for the period
Total Comprehensive income
attributable to:
Owners of the parent company 223 -1 890 2 696 2 563 5 245 5 378
CONSOLIDATED BALANCE SHEET
(1 000 EUR) 9/2016 9/2015 12/2015
-------------------------------------------------------------
-------------------------------------------------------------
Non-current assets
Property, plant and equipment 965 1 227 1 095
Goodwill 62 578 62 161 62 367
Other intangible assets 79 155 132
Deferred tax assets 680 1 086 976
Trade and other receivables 93 190 242
64 394 64 819 64 813
Current assets
Inventories 395 665 300
Trade and other receivables 26 736 27 166 32 067
Current income tax receivables 1 191 1 281 778
Cash and cash equivalents 14 671 14 877 22 375
42 993 43 989 55 520
-------------------------------------------------------------
-------------------------------------------------------------
Total assets 107 387 108 808 120 333
Equity attributable to owners
of the parent Company
Share capital 5 105 5 105 5 105
Reserve of invested non-restricted 47 737 47 731 47 731
equity
Other reserves 858 857 858
Treasury shares -1 993 -2 056 -2 056
Translation differences -4 496 -5 044 -4 919
Retained earnings 14 416 13 043 15 599
-------------------------------------------------------------
-------------------------------------------------------------
Total equity 61 627 59 637 62 319
Non-current liabilities
Loans and borrowings 14 482 - -
Deferred tax liabilities 46 142 177
14 528 142 177
Current liabilities
Loans and borrowings 4 000 20 476 18 484
Trade and other payables 26 538 27 626 38 476
Current income tax liabilities 408 423 420
Provisions 285 503 456
31 232 49 028 57 836
Total liabilities 45 760 49 170 58 013
-------------------------------------------------------------
-------------------------------------------------------------
Equity and liabilities 107 387 108 808 120 333
SUMMARY CONSOLIDATED CASH FLOW STATEMENT
(1 000 EUR) 7-9/20 7-9/201 1-9/201 1-9/201 2015
16 5 6 5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cash flows from operating activities
Profit for the period -17 -455 2 274 3 338 5 894
Adjustments to profit for the period 839 132 2 285 1 824 2 850
822 -323 4 558 5 162 8 744
Change in working capital -2 227 -1 135 -6 988 -3 334 2 949
Interest and other financial cost -16 -68 -133 -237 -305
paid
Interest and other financial income 10 6 43 41 50
received
Income taxes paid -291 -244 -1 395 -2 012 -2 107
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net cash from operating activities -1 703 -1 764 -3 914 -380 9 332
Cash flows from investing activities
Acquisition of tangible and -139 -123 -465 -448 -566
intangible assets
Proceeds from sale of tangible and - - - - 6
intangible assets
--------------------------------------------------------------------------------
Net cash from investing activities -139 -123 -465 -448 -561
Cash flows from financing activities
Proceeds from non-current borrowings - - 18 482 - -
Repayments of non-current borrowings - - -18 500 -2 000 -4 000
Dividends paid to the owners - - -3 457 -3 453 -3 453
of the parent company
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net cash from financing activities - - -3 475 -5 453 -7 453
(Decrease)/increase in cash and cash -1 842 -1 887 -7 855 -6 282 1 318
equivalents
Cash and cash equivalents 16 400 17 161 22 375 21 380 21 380
at the beginning of the period
Foreign exchange effect on cash 114 -396 151 -222 -324
Cash and cash equivalents 14 671 14 877 14 671 14 877 22 375
at the end of the period
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable to owners of the parent
company
---------------------------------------------------------
---------------------------------------------------------
(1 000 EUR) Share Reserve of Other Treasur Trans Ret. Total
capita invested reserv y lat. earnin equity
l non-restricted es shares diff. gs
equity
Equity at 1 5 105 47 731 858 -2 056 -4 919 15 599 62 319
January 2016
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Profit 2 274 2 274
Translation 423 423
differences
Total 423 2 274 2 696
compre-hensive
income
Treasury shares 6 63 68
as
compensation
to the Board
Dividends paid -3 457 -3 457
--------------------------------------------------------------------------------
Equity at 30 5 105 47 737 858 - 1 993 -4 496 14 416 61 627
September 2016
Equity attributable to owners of the parent
company
---------------------------------------------------------
---------------------------------------------------------
(1 000 EUR) Share Reserve of Other Treasu Trans Ret. Total
capita invested reserv ry lat. earnin equity
l non-restricted es shares diff. gs
equity
Equity at 1 5 105 47 718 835 -2 111 -4 269 13 159 60 437
January 2015
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Profit 3 338 3 338
Translation -775 -775
differences
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total -775 3 338 2 563
compre-hensive
income
Share-based 23 23
payments
Treasury shares 14 55 68
as
compensation
to the Board
Dividends paid -3 453 -3 453
--------------------------------------------------------------------------------
Equity at 30 5 105 47 731 858 -2 056 -5 044 13 043 59 637
September 2015
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 2015. In material respects,
the same accounting policies have been applied as in the 2015 annual
consolidated financial statements. The amendments to and interpretations of
IFRS standards that entered into force on 1 January 2016 had no material impact
on this interim report.
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
(1 000 EUR) 7-9/16 7-9/15 1-9/16 1-9/15 2015 last 12m
--------------------------------------------------
--------------------------------------------------
Total revenue
Finland 10 056 10 675 34 686 35 254 49 539 48 971
Norway 4 583 4 579 16 084 15 556 21 068 21 596
Sweden 3 869 3 310 13 514 13 424 18 219 18 309
Denmark 2 954 2 508 9 261 8 104 11 297 12 454
Baltic 3 927 4 679 12 258 15 405 20 128 16 981
Other -1 409 -905 -4 386 -3 023 -4 226 -5 589
-------- -------- ---------
--------------------------------------------------------------------------------
Group total 23 981 24 847 81 418 84 720 116 026 112 723
Operational segment result
Finland 151 -266 1 125 1 654 3 528 2 999
Norway 136 145 1 040 1 185 1 451 1 306
Sweden 55 -288 943 192 718 1 469
Denmark 173 62 719 41 355 1 033
Baltic 323 786 1 103 3 224 3 930 1 809
Other -294 -1 172 -1 096 -2 042 -2 507 -1 561
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total operational segment 544 -733 3 834 4 255 7 475 7 055
result
--------------------------------------------------------------------------------
Operating profit 544 -733 3 834 4 255 7 475 7 055
Financial income and expenses -149 90 -444 -112 4 -329
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Profit before income tax 396 -643 3 390 4 143 7 479 6 726
Revenue by business lines
(1 000 EUR) 7-9/16 7-9/15 1-9/16 1-9/15 2015 last 12m
--------------------------------------------------
--------------------------------------------------
Information Management 22 736 23 239 77 434 78 922 107 887 106 398
Solutions
Karttakeskus GIS business 2 345 2 533 7 625 8 748 12 201 11 078
Other -1 099 -925 -3 641 -2 950 -4 062 -4 753
------------------------------ -------- -----------------
--------------------------------------------------------------------------------
Group total 23 981 24 847 81 418 84 720 116 026 112 723
2.3. Changes in intangible and tangible assets
(1 000 EUR) 1-9/16 1-9/15 1-12/15
------------------------
------------------------
Carrying amount at the beginning of period 63 594 64 573 64 573
Additions 465 448 566
Disposals -1 -2 -2
Depreciation and amortization for the period -652 -816 -1 089
Exchange rate differences 215 -661 -454
---------------------------------------------------------------------
Carrying amount at the end of period 63 622 63 542 63 594
2.4. Share capital, reserve of invested non-restricted equity and treasury
shares
(1 000 EUR) Number of Share Reserve of Treasury
shares capital invested shares
outstanding non-restricted
equity
------------------------------------------------------
------------------------------------------------------
1 January 2015 21 583 526 5 105 47 718 -2 111
Treasury shares of 20 984 - 14 55
compensation to the
Board of Directors
30 September 2015 21 604 510 5 105 47 731 -2 056
1 January 2016 21 604 510 5 105 47 731 -2 056
Treasury shares of 24 261 - 6 63
compensation to the
Board of Directors
30 September 2016 21 628 771 5 105 47 737 -1 993
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
(1 000 EUR) 30.9.2016 31.12.2015
Interest-bearing non-current liabilities
Loans from financial institutions, 14 482 -
non-current portion
Loans from financial institutions, 4 000 18 484
current portion
---------------------------------------------------------------
---------------------------------------------------------------
18 482 18 484
On 17 June 2016, the Company announced that it has entered into a new EUR 18.5
million term loan agreement with OP Corporate Bank plc. The new loan replaced
the previous loan of EUR 18.5 million that expired in the end of June 2016.
Affecto will repay the loan in semi-annual instalments of EUR 2 million
starting in December 2016.
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:
(1 000 EUR) 30.9.2016 31.12.2015
Not later than one (1) year 2 958 3 167
Later than one (1) year, 3 254 1 911
but not later than five (5) years
Later than five (5) years - -
--------------------------------------------------------
Total 6 212 5 078
Guarantees given:
(1 000 EUR) 30.9.2016 31.12.2015
Liabilities secured by a mortgage
Financial loans - 18 500
On 17 June 2016, the Company announced that it has entered into a new EUR 18.5
million term loan agreement with OP Corporate Bank plc. The new loan replaced
the previous loan of EUR 18.5 million that expired in the end of June 2016. The
pledges that were used to secure the previous term loan were released. The
previous term loan were secured by bearer bonds with a nominal value of 52.5
million euro. In addition, the shares in Affecto Finland Oy and Affecto Norway
AS were pledged to secure the previous term loan.
Other securities given on own behalf:
(1 000 EUR) 30.9.2016 31.12.2015
Pledges 32 36
Other guarantees 887 1 925
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:
(1 000 EUR) 1-9/16 1-9/15 1-12/15
Salaries and other short-term employee benefits 1 520 1 829 2 219
Post-employment benefits 186 227 268
Termination benefits 113 134 275
Share-based payments - 1 1
------------------------------------------------------------------------
------------------------------------------------------------------------
Total 1 819 2 190 2 763
Purchases from related party:
(1 000 EUR) 1-9/16 1-9/15 1-12/1
5
Purchases from the entity that are controlled by key 13 189 289
management personnel of the group
Outstanding balance of purchases from the entity that - 103 36
are controlled by key management personnel of the group
3. Key figures
7-9/16 7-9/15 1-9/16 1-9/15 2015 last 12m
--------------------------------------------------
--------------------------------------------------
Revenue, 1 000 eur 23 981 24 847 81 418 84 720 116 026 112 723
EBITDA, 1 000 eur 739 -465 4 487 5 071 8 565 7 980
Operational segment result, 544 -733 3 834 4 255 7 475 7 055
1 000 eur
Operating result, 1 000 eur 544 -733 3 834 4 255 7 475 7 055
Result before taxes, 1 000 396 -643 3 390 4 143 7 479 6 726
eur
Profit attributable to the -17 -455 2 274 3 338 5 894 4 830
owners
of the parent company, 1 000
eur
EBITDA, % 3.1 % -1.9 % 5.5 % 6.0 % 7.4 % 7.1 %
Operational segment result, % 2.3 % -2.9 % 4.7 % 5.0 % 6.4 % 6.3 %
Operating result, % 2.3 % -2.9 % 4.7 % 5.0 % 6.4 % 6.3 %
Result before taxes, % 1.7 % -2.6 % 4.2 % 4.9 % 6.4 % 6.0 %
Net income for equity holders -0.1 % -1.8 % 2.8 % 3.9 % 5.1 % 4.3 %
of the parent company, %
Equity ratio, % 62.3 % 59.7 % 62.3 % 59.7 % 58.5 %
Net gearing, % 6.2 % 9.4 % 6.2 % 9.4 % -6.2 %
Interest-bearing net debt, 3 811 5 599 3 811 5 599 -3 891
1 000 eur
Gross investment in 139 123 465 448 566
non-current
assets (excl. acquisitions),
1 000 eur
Gross investments, % of 0.6 % 0.5 % 0.6 % 0.5 % 0.5 %
revenue
Order backlog, 1 000 eur 40 475 39 423 40 475 39 423 50 672
Average number of employees 989 1 008 983 1 012 1 010
Earnings per share, eur -0.00 -0.02 0.11 0.15 0.27 0.22
Earnings per share (diluted), -0.00 -0.02 0.11 0.15 0.27 0.22
eur
Equity per share, eur 2.85 2.76 2.85 2.76 2.88
Average number of shares, 21 614 21 595 21 608 21 587 21 592 21 607
1 000 shares
Number of shares at the end 21 629 21 605 21 629 21 605 21 605 21 629
of
period, 1 000 shares
Affecto has revised the terminology used in its financial reporting. Prior to
Q1-2016 release, the Company used the term ‘net sales’. In this report and
going forward, the term ‘net sales’ is replaced with ‘revenue’, however, the
meaning of the two terms is identical.
Calculation of key figures
EBITDA = Earnings before interest, taxes,
depreciation, amortization and impairment losses
Operational segment result = Operating profit before amortizations on
fair value adjustments due to business
combinations (IFRS3) and goodwill
impairments
Equity ratio, % = Total equity *100
________________________________
Total assets – advance payments
Gearing, % = Interest-bearing liabilities – cash *100
and cash equivalents
__________________________________
Total equity
Interest-bearing net debt = Interest-bearing liabilities – cash and
cash equivalents
Earnings per share (EPS) = Profit attributable to owners of the parent
company
______________________________________
Weighted average number of ordinary shares in
issue during the period
Equity per share = Total equity
______________________________________
Adjusted number of shares at the end of
the period
Market capitalization = Number of shares at the end of period
(excluding company’s own shares held by
the company) x share price at closing date
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