Solteq Plc Interim Report 1.1.–30.9.2015 (IFRS)

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Solteq Plc: (HEX:STQ1V)

Growth leap taken – building the new organization has begun.

- In the review period a significant company acquisition was completed in which Solteq Plc purchased the entire stock capital of Descom Group Oy.

- Descom Group’s figures consolidated to Solteq Group’s figures as of 2.7.2015.

- To finance the acquisition Solteq Plc issued a bond and carried out a share issue.

- Revenue totalled 33,9 million euros (28,7 million euros), increase 17,9 %.

- Operating profit before non-recurring items was 1.847 thousand euros (1.581 thousand euros), increase 16,8%. Non-recurring costs related to the acquisition 789 thousand euros and the operating profit including the non-recurring costs was 1.058 thousand euros (1.581 thousand euros), decrease 33,1%.

- Solteq Group’s equity ratio was 27,1 % (47,4 %).

- Integration work has begun – targeting to annual cost synergies of 2 million euros in costs which are not related to customer work.

- Due to significant integration and transaction costs the profit guidance for year 2015 is defined.

- Targets of the new strategy are growth and internationalization, the cash flow from business operations is actively used to actualize the growth.

Key figures

  7-9/15   7-9/14  

Change

-%

  1-9/15   1-9/14  

Change

-%

  1-12/14
Revenue, TEUR 14 900 8 326 79,0 % 33 858 28 715 17,9 % 40 933
Operating profit before non-recurring items, TEUR 728 444 64,0 % 1 847 1 581 16,8 % 2 490
Operating profit, TEUR -61 444 -113,7 % 1 058 1 581 -33,1 % 2 490
Profit for the financial period, TEUR -442 316 -239,9 % 439 1 155 -62,0 % 1 893
 
Earnings/share, e -0,03 0,02 -250,0 % 0,03 0,08 -62,5 % 0,13
Operating profit-% -0,4 5,3 -107,5 % 3,1 5,5 -43,6 % 6,1
Equity ratio, % 27,1 47,4 -42,8 % 27,1 47,4 -42,8 % 48,0

Profit guidance 2015

The profit guidance for year 2015 is defined as follows:

Solteq Group’s operating result before non-recurring costs related to the acquisition and the integration is expected to grow compared to financial year 2014.

Previous profit guidance for year 2015 was:

Solteq Group’s operating result is expected to grow compared to financial year 2014.

CEO Repe Harmanen:

During the third quarter, our company took a big leap forward – maybe the biggest since it was established and since it went public. The company acquisition at the beginning of July in which we merged with Descom Group Oy and the measures involved have been extremely successful. They have met our expectations and will bring a significant contribution to the future development of our company. However, we have a lot of work ahead us. The measures we are taking will develop our company strongly, open new markets and offer our clients more comprehensive overall services.

The changes that took place in our ownership structure during the review period were positive with respect to the continuity, strategy implementation and expansiveness of our company. They will maintain and allow increasingly fast growth in the future.

The integration process started with positive momentum, and we reached the objectives we had set for the review period. As planned, we published the new Management Team at the end of the review period, and the Team quickly started work in the new company. Integration will continue in accordance with our plans, the aim being to start operations as the new company on 1 January 2016 and complete the integration process as soon as possible.

We aim at about 2 million euro annual cost savings when the integration process is completed and expect to reach the target by reducing the administrative and support organisation, by concentrating and combining certain basic acquisitions, and by combining our office facilities in Helsinki and Tampere during the first half of 2016. As to personnel adjustments, we have today sent an invitation to co-operation negotiations concerning the support and administrative functions. The invitation does not concern experts who perform customer service or solutions related tasks. The aim of the negotiations is to reach savings in personnel costs representing the costs of 15 – 20 employees by means of part-time solutions, outsourcing, pension arrangements and, to a certain extent, redundancies.

The operative result for the review period was as expected. In certain areas, revenue erosion continued and we did not succeed in growing the new business organically as well as I had expected. Our operative result was also affected negatively by the fact that certain major projects were postponed to the last quarter. I would naturally have been happier if we had succeeded better in them. However, considering the current market situation in Finland, we must regard our performance as fairly good, and especially the adjustment measures that we had taken in 2014 proved to have been well timed.

Our demand situation is good although demand still seems to be directed unevenly to our different solution areas.

We expect that the revenue and profit without non-recurring items for the last quarter of the year will grow from the previous year. If the non-recurring items brought about by organisational restructuring are taken into consideration, our operating profit level will be the same or slightly lower than last year. This is due to our efforts to complete the integration process fast, which means that most of costs affect the profit for 2015. However, this will allows us to build and implement our new strategy at full momentum right from the beginning of 2016.

BUSINESS ENVIRONMENT AND BUSINESS DEVELOPMENT

Solteq is a visionary expert in omnichannel and digital commerce. We offer partnership in supply management, store solutions and e-commerce. Solteq offers its clients superior know-how in commerce, services and industry.

Solteq Plc’s reported segments are

· Grocery and special retail, HoReCa

· Wholesale, Logistics and Services

· Enterprise Asset & Service Business Management

· Descom.

Segmentation reflects our customers’ demand on different sectors of the services provided.

Grocery and Special Retail, HoReCa

Solteq’s Grocery and Special Retail Segment provides its clients with total solutions that they can utilise to improve efficiency in terms of logistics, store operations, customer service, point of sale operations, as well as loyal customer management.

The grocery and special retail solutions help optimise the management of the product selection, space, deliveries, logistics and customer satisfaction while increasing sales and improving the result. The solutions speed up the basic operations, improve delivery reliability, reduce storage value, increase stock turnover and enhance predict­ability. The store always has the right products in the right place, at the right time, and at the right price.

During the review period the revenue of the Grocery and Special Retail segment totaled 13,7 million euros (15,0 million euros) and the operating result was 0,4 million euros (0,7 million euros).

The decrease in the net sales was mainly due to postponements in decision-making schedules in the early part of the review period. Towards the end of the review period, a large number of the projects were already underway. The result for the review period is affected by a delay in schedule of a customer project. In addition the ongoing projects were in weak marginal profit phase from revenue recognition perspective in the review period.

Wholesale, Logistics and Services

Solteq’s Wholesale, Logistics and Services Segment provides its clients with ERP and financial management systems, as well as optimisation, integration and reporting solutions that support these systems.

Solteq’s solutions help clients manage their operations and enhance purchases, sales, stock management and reporting. The systems can be utilised to improve delivery reliability, reduce storage value, increase stock turnover and enhance predictability. Materials flow management ensures that the right goods reach the right customers at the right time, packed in an optimal manner.

Solteq’s wholesale, logistics and services systems improve the effectiveness of operations and enable more flexible and versatile customer service. At the same time, automated data management enhances the company’s internal operations. Solteq’s solutions are used daily by a large number of clients representing various industries and sectors, such as wholesale, retail and public administration.

During the review period the revenue of the Wholesale, Logistics and Services segment totalled 9,0 million euros (9,8 million euros) and the operating result was 0,7 million euros (0,2 million euros).

The net sales of the review period decreased from the previous year’s level. The development of the revenue was due to the slowness in decision making related to trading of the significant customer projects. In addition the human resources of the segment were focused on the completion of the projects underway. The improvement in the operating result was mainly due to the development of the cost structure and improved resource utilisation.

Enterprise Asset & Service Business Management

Solteq’s Enterprise Asset & Service Business Management Segment provides its clients with ERP and master data management solutions.

The enterprise resource planning solutions developed for the optimisation of service processes help clients manage their operations in many ways, for instance enhance production plant reliability, task and resources manage­ment, field work, sales and customer service, partner network management and materials management. The solutions are utilised by a large number of clients representing various industries and sectors, such as energy produc­tion, maintenance services, life cycle services, engineering and technical services of cities and municipalities, property management services, and home and care services.

The Enterprise Asset & Service Business Management Segment also provides client companies with services and products related to business critical data (master data) in the form of master data improvement projects, data maintenance services outsourced to master data service centers, software technologies for master data management, and consultation services. The aim of these services is to ensure that the data in the systems that support the clients’ enterprise resource planning and decision making processes are of high quality, compatible and up-to-date. Solteq’s master data manage­ment solutions are used by clients across industries and sectors.

During the review period the revenue of the Enterprise Asset & Service Business Manage­ment segment totalled 3,6 million euros (3,9 million euros) and the operating result was 0,2 million euros (0,7 million euros).

Unlike other segments, the main business of the segment is based on the development, supply and marketing of the segment’s own software products. Owing to the nature of its business, the segment is, however, more dependable on the new investments of the client industries than the other segments.

The development of the segment’s net sales was weaker than in the previous year, and the operating result decreased.

The growth and profitability of the operations will be improved by developing products that meet the needs of the client segments better and by looking for new markets and channels. The incorporation of the business of the segment at the turn of the year will allow the development of a product area specific, specialised strategy during 2015.

Descom

The segment includes the business of the Descom Group, acquired July 2, 2015. Solteq Plc has issued three stock exchange releases regarding the acquisition (17.6.2015, 22.6.2015 and 2.7.2015). The figures of the Descom Group have been included in Solteq Plc’s figures as of 2.7.2015 and the interim report of 30.9.2015 will be the first to include this segment.

The main operations of the Descom segment focus on solutions for omnichannel commerce and the improvement of clients’ digital marketing.

Descom Group consists of the parent group Descom Group Oy and the subsidiary, Descom Oy, which includes the group’s business in Finland as well as foreign subsidiaries in Sweden, Poland and Denmark.

In the omnichannel commerce area we provide omnichannel online and physical store sales systems as well as order and product information management solutions. The aim of omnichannel commerce is not only to combine brick-and-mortar with digital channels, but to create a totally new business and different ways to attend to the customer.

In the core Descom’s digital marketing services are search engine optimization and marketing, conversion optimization as well as analytics and customer experience. Our digital marketing services help clients improve the findability of their website and gather and use customer data and analytics to make their online shopping basket bigger, among other things.

In addition, Descom offers its clients applications development, integration and maintenance services.

The revenue of the Descom segment on the period of 2.7.-30.9.2015 was 7,5 million euros, of which 1,2 million was made in the Swedish subsidiary. The operating profit of the segment was 0,4 million euros.

BUSINESS DEVELOPMENT

Integration

The integration work related to the acquisition of Descom has proceeded according to the original plans. The integration work is targeting to legal as well as operational merger by the end of the year.

In addition the integration work is targeting to annual cost savings of 2 million euros. Savings will be carried out by rationalizing the structures in administration, manager and support organizations, by centralizing and accelerating the basic purchases and by merging our office premises in Helsinki and Tampere during the first half year in 2016.

We have convened co-operation negotiations related to personnel changes today. The negotiations involve support, managerial and administration functions. The aim of the negotiations is to reach savings in personnel costs representing the costs of 15 – 20 employees by means of part-time solutions, outsourcing, pension arrangements and, to a certain extent, redundancies.

Related to the legal integration Solteq Plc published a stock exchange release on Descom Ltd, totally owned by Descom Group Ltd, to merge with Descom Group Ltd and Descom Group Ltd, totally owned by Solteq Plc, to merge with Solteq Plc. The planned registration date for the implementation of the merger of Descom Ltd is 1st January 2016 and the planned registration date for the implementation of the merger of Descom Group Ltd is 2nd January 2016.

Strategic outlines of the new merged company

We have started the work to create a strategy for the new merged company. During the last months of the year, the new Board of Directors and Management Team will work on the practical measures to finalise the plans for implementing our strategic areas.

The Board of Directors has outlined core strategy policies, including the long-term goals related to clients, solution offering, internationalisation, gearing ratio and growth.

The most essential competitive advantage of the new company will be the integrated total solutions that it is able to offer its clients. The services combine the whole supply chain from procurement to store networks and thereby to multichannel encounters with customers, and they allow industrial, service business, wholesale and retail operators improve the efficiency and fluency of their operations.

As digital business does not know borders, international operations will open up important growth and expansion opportunities for us in the future with both our current clients and through selected solutions with new clients. Growing with large globally operating clients that provide us with a significant opportunity for organic growth is something that we will continue to develop actively.

One objective of the company is organic growth that is faster than the market growth. Apart from organic growth, we also intend to pursue an active company acquisition policy in areas that strengthen our strategic focuses to develop our customer relationships, solutions or geographic position. We will also estimate the suitability of our current solution offering for the business operations of our clients. In this way, we will be prepared for appropriate operations at both the company acquisition and divestment fronts to reach our objectives.

Our profit distribution policy will support our growth objectives and strategy. We will estimate carefully if it will be more profitable for our shareholders to invest in growth and strategy implementation rather than distribute the profit annually. We consider that the development of the balance sheet structure will be important in the first phase, and at the same time, we will seek balance between growth and profit distribution.

As to the company’s gearing ratio, our long-term goal is that it will be at a level that is three times as high as EBITDA. In our opinion, this policy makes our company an interesting target for investors in the current debt market situation as a company that keeps indebtedness under control but at the same time utilises it capital efficiently to finance both organic and inorganic growth.

REVENUE AND RESULT

Turnover by operation:  
   
%

1-9/15

1-9/14

1-12/14

 
Software services 71 64 62
Licences 25 28 26
Hardware 4 8 12

Revenue increased by 17,9 % compared to the previous year and totalled 33.858 thousand euros (previous review period 28.715 thousand euros).

Revenue consists of several individual customerships. At the most, one client cor­responds to less than ten percentages of the revenue.

The operating result for the review period decreased 33,1 % and was 1.058 thousand euros (1.581 thousand euros). Result before taxes decreased 63,7 % and was 528 thousand euros (1.453 thousand euros) and result for the financial year decreased 62,0 % and was 439 thousand euros (1.155 thousand euros).

The figures reflecting the financial result for the review period include 789 thousand euros non-recurring costs relating to the acquisition of Descom Group Oy. Non-recurring costs are presented in other expenses.

BALANCE SHEET AND FINANCING

The total assets amounted to 58.399 thou­sand euros (24.555 thousand euros). Liquid assets totalled 3.321 thousand euros (1.527 thousand euros). In addition to liquid assets, the company has unused bank account limits amounting to a total of 2.500 thousand euros in the end of the review period.

The Group’s interest-bearing liabilities were 29.124 thousand euros (4.588 thousand euros).

Solteq Group’s equity ratio was 27,1 per cent (47,4 per cent).

Goodwill amounting to 22.506 thousand euros, intangible assets amounting to 3.520 thousand euros and the deferred tax liabilities related to above-mentioned amounting to 704 thousand euros were arised in the acquisition cost calculation related to the business acquisition.

1.083 thousand euros of the non-recurring costs which have cash effects is presented in cash flow from capital expenditure and 361 thousand euros is presented in cash flow from financial activities.

INVESTMENTS, RESEARCH AND DEVELOPMENT

Gross investment during the review period was 23.297 thousand euros (704 thousand euros). 260 thousand euros of the investments of the review period are mainly replacement investments and 23.037 thousand euros is related to the business acquisition. The invest­ments in the reference period are mainly replacement investments.

Research and development

Solteq’s research and development costs consist mainly of personnel costs. When developing basic products, it is Solteq’s strategy to cooperate with global actors such as SAP, Symphony EYC and Microsoft and utilize their resources and distribution chan­nels. Own development efforts are focused on added value products and developing tailored service concepts.

During the review period product develop­ment costs were not amortized (none in the reference period, either).

PERSONNEL

The number of permanent employees at the end of the review period was 514 (278). In the end of the review period the number of personnel could be divided as follows: Grocery and special retail, HoReCa segment: 109 people; Wholesale, Logistics and Services: 80 people; Enterprise Asset & Service Business Management; 39 people, Descom: 201 people and 85 people in shared functions.

The key figures for Group’s personnel:

 

1-9/2015

 

1-9/2014

 

1-9/2013

Average number of the personnel during the year 336 280 290
Employee benefit expenses (1, 000 €) 13 229 11 164 11 684

RELATED PARTY TRANSACTIONS

Solteq’s related parties include the board of directors, managing director, the manage­ment team and the companies owned by the management.

SHARES, SHAREHOLDERS AND TREASURY SHARES

Solteq Plc’s equity on 30.9.2015 was 1.009.154,17 euros which was represented by 17 798 059 shares. The shares have no nominal value. All shares have an equal entitlement to dividends and company assets. Shares are governed by a redemption clause.

At the end of the review period, the amount of treasury shares in Solteq Plc and the group companies Solteq Management Oy’s and Solteq Management Team Oy’s possessions were 860.881 shares. The amount of treasury shares represented 4,8 % of the total amount of shares and votes at the end of the review period. The equivalent value of acquired shares was 48.812 euros. On 19 March 2015, Solteq announced that the company’s share-based incentive scheme would be dissolved.

During the review period, eleven flagging announcements were made. On March 19, 2015 Solteq Plc announced that the company would dissolve the share-based incentive scheme by purchasing the capital stocks of the Management Team’s holding companies. The arrangement was implemented on 13 April 2015 and it led to a change in ownership, in which Solteq Plc and its subsidiaries hold more than 5% of Solteq Plc shares and votes.

On June 18, 2015 Solteq Plc received a notification pursuant to Chapter 9, Section 5 of the Securities Markets Act from Sentica Buyout III GP Oy ja Sentica Buyout III Ky. According to the notification Sentica Buyout III Ky and Sentica Buyout III Co-Investment Ky are parties to an agreement or other arrangement which, if completed, would cause the direct holdings of Sentica Buyout III Ky of the shares and voting rights in Solteq Plc to exceed the 5 per cent threshold. According to the notification, Sentica Buyout III GP Oy’s indirect holding through the above mentioned companies of the shares and voting rights in Solteq Plc would at the same time exceed the 5 per cent threshold. The only general partner of Sentica Buyout III Ky and Sentica Buyout III Co-Investment Ky is Sentica Buyout III GP Oy. Sentica Buyout III GP Oy exercises the power of decision in the companies. The investment management functions of both the funds have been transferred to Sentica Partners Oy based on a separate investment management agreement. The change in the holdings results from an issue of new shares in Solteq Plc directed to Sentica Buyout III Ky and Sentica Buyout III Co-Investment Ky where Descom Group’s shares will be transferred against the new shares of Solteq Plc based on the share purchase agreement signed on June 17, 2015 by and between Solteq Plc and the shareholders of Descom Group Oy regarding all the shares in Descom Group Oy. The arrangement was executed on July 2 2015 and Solteq Plc received a notification pursuant to Chapter 9, Section 5 of the Securities Markets Act concerning the changes in ownership caused by the arrangement on July 3 2015. According to the notification the direct holdings of Sentica Buyout III Ky of the shares and voting rights in Solteq Plc to exceed the 5 per cent threshold. According to the notification, Sentica Buyout III GP Oy's indirect holding through Sentica Buyout III Ky and Sentica Buyout III Co-Investment Ky of the shares and voting rights in Solteq Plc exceeds the 5% threshold.

On July 3, 2015 Solteq Plc received four notifications pursuant to Chapter 9, Section 5 of the Securities Markets Act related to the registration of the Solteq’s new shares to trade register on July 3 2015. Due to the arrangement Ali U. Saadetdin's holdings and proportion of voting rights of Solteq Plc has fallen under the 20% threshold, Seppo Aalto's holdings and proportion of voting rights of Solteq Plc has fallen under the 10% threshold, Profiz Business Solution Corp.'s (Company ID number 0830732-2) holdings and proportion of voting rights of Solteq Plc has fallen under the 10% threshold and the share of ownership of holdings and proportion of voting rights of Solteq Plc controlled by the company has fallen under the 5% threshold.

On July 6 Solteq Plc received three notifications pursuant to Chapter 9, Section 5 of the Securities Markets Act. Due to disposal of shares on July 3 2015 Ali U. Saadetdin's holdings and proportion of voting rights of Solteq Plc has fallen under the 10% threshold. In addition due to disposal of shares on July 3 2015 Seppo Aalto's holdings and proportion of voting rights of Solteq Plc has fallen under the 5% threshold. Due to the acquisition of shares on July 3 2015 Sentica Buyout III Ky's share of ownership of shares and voting rights of Solteq Plc exceeded the 25% threshold on 3 July 2015 due to acquisition of shares and Sentica Buyout III GP Oy's indirect holding through Sentica Buyout III Ky and Sentica Buyout III Co-Investment Ky of the shares and voting rights in Solteq Plc exceeded the 25% threshold due to the acquisition.

Exchange and rate

During the review period, the exchange of Solteq’s shares in the Helsinki Stock Exchange was 4,1 million shares (0,5 million shares ) and 9,9 million euros (0,8 million euros). Highest rate during the financial year was 1,94 euros and lowest rate 1,32 euros. Weighted average rate of the share was 1,70 euros and end rate 1,70 euros. The market value of the company’s shares in the end of the financial year totalled 30,3 million euros (22,6 million euros).

Ownership

In the end of the financial year, Solteq had a total of 1.723 shareholders (1.720 sharehold­ers). Solteq’s 10 largest shareholders owned 12.655 thousand shares i.e. they owned 71,1 per cent of the company’s shares and votes. Solteq Plc’s members of the board owned a total of 2.516 thousand shares which equals 14,1 per cent of the company’s shares and votes.

ANNUAL GENERAL MEETING

At Solteq Plc’s Annual General Meeting on 16 March 2015 the 2014 financial statements were adopted and the members of the board and the managing director were discharged from liability for the 2014 financial period.

In the meeting was accepted the proposal by the board that for the financial year 2014, there will be paid a dividend of 0.03 euros per each share on the market. In addition to this, the annual general meeting authorized the board to decide, in accordance with the Finnish Companies Act 13 chapter 6§ 2 paragraph, on a distribution of dividend, or other distribution of funds from the equity trust, for an amount of maximum 0.05 euros. The board is also allowed to decide on the timing and other details of this. The authorization is valid until the beginning of the next Annual General Meeting.

The Annual General Meeting authorized the Board of Directors to decide on the purchase of the Company’s own shares to improve the capital structure, to be used as a part of remuneration of personnel, to finance and execute business acquisitions and other business arrangements or to be further transferred or cancelled. The proposal includes authorization to take company’s own shares as a pledge. According to the proposal, the total number of the shares purchased shall not exceed 10 percent of all shares of the Company and they can be purchased otherwise than in proportion to the shareholdings of the shareholders. The shares shall be purchased at a price formed in public trading. The authorization includes that the Board of Directors may decide the terms and other matters concerning the purchase of own shares. The authorization is effective until the next Annual General Meeting.

The Annual General Meeting authorized the Board of Directors to give new shares or convey company’s own shares. The authoriza­tion would be executed by one or more share issues, maximum total amount being 5.000.000 shares. The authorization includes a right to deviate from the shareholders’ pre-emptive right of subscription. The authorization includes that the Board of Direc­tors may decide the terms and other matters concerning the share issue. The authorization is effective until the next Annual General Meeting.

BOARD OF DIRECTORS AND AUDITORS

Seven members were elected to the Board of Directors. Ali Saadetdin, Seppo Aalto, Markku Pietilä, Sirpa Sara-aho, Jukka Sonninen, Matti Roininen and Olli Välimäki. The Board elected Ali Saadetdin to act as the Chairman of the Board.

KPMG Oy Ab, Authorized Public Account­ants, was re-elected as Solteq’s auditors. Lotta Nurminen, APA, acted as the chief auditor.

EVENTS AFTER THE REVIEW PERIOD

After the review period Solteq decided to appoint new Group Management Team October 1 2015 and published a stock exchange release on changes in organizational structure that are effective as of January 1 2016. Members of management team, which focuses on operative issues of Solteq Group are from October 1 2015: Repe Harmanen (CEO), Joni Henkola (VP, Sales), Tiina Honkiniemi (VP, Client Technologies), Virpi Hyytiä (VP, Accounts), Harri Ilvonen (VP Digital Customership), Antti Kärkkäinen (CFO), Konsta Saarela (VP, International Business) and Riina Tervaoja (VP, Projects). Extended management team focuses on developing the operations of Solteq Group with longer time perspective. Members of extended management team, in addition to above mentioned, are: Kirsi Jalasaho (VP, IR and Marketing), Mari Kuha (VP, HR and Culture) and Juha Luomala (VP, Services Development).

In addition, as part of ongoing organizational development has Solteq Group decided to simplify its reporting structure. There will be two reported segments from 1.1.2016 on: Client Technologies and Digital Customership.

In an extraordinary General Meeting of Shareholders held after the review period on October 19 2015 new board of directors was elected and resolution on the remuneration of the members of the board of directors was made. The General Meeting decided that The Board of Directors includes six (6) members for the term of office that expires at the end of the first Annual General Meeting of Shareholders. The General Meeting decided that Aarne Aktan, Eeva Grannenfelt, Kirsi Harra-Vauhkonen, Markku Pietilä, Mika Uotila and Olli Väätäinen are elected as Board members. In the Board meeting, held after the Annual General Meeting, Mika Uotila was elected as the Chairman of the Board. In addition the Extraordinary General Meeting decided that a 7500 euros remuneration will be paid to the Chairman of the Board and to each Board Member for the term of office that expires at the end of the first Annual General Meeting of Shareholders.

RISKS AND UNCERTAINTIES

The key uncertainties and risks in short term are related to the success of the integration work, management of changes in financing and balance sheet structures, the timing and pricing of business deals that are the basis for revenue, changes in the level of costs and the com­pany’s ability to manage extensive contract agreements and deliveries.

The key business risks and uncertainties of the company are monitored constantly as a part of the board of directors’ and manage­ment team’s duties. The company has not organized a separate internal audit organiza­tion or committee.

Financial reporting

This Interim Report 1.1.-30.9.2015 has been prepared in accordance with IAS 34 Interim Financial Reporting –standard and using the same accounting policies as the financial statements 2014.

The financial result is reported through four business areas. Grocery and special retail, HoReCa segment, Wholesale, Logistics and Services, Enterprise Asset & Service Business Management and Descom. The most essential product and service types of the Solteq group of companies are software services, licenses and hardware sales.

All forecasts and estimates presented in the bulletin are based on the current views of management on the economic environment and outlook. Because of this, the results can differ as a result of, among other factors, changes in economy, markets and competitive conditions, changes in the regulatory environment and other government actions.

The interim report is unaudited.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(TEUR)          
1.7.- 1.7.- 1.1.- 1.1.- 1.1.-
30.9.2015 30.9.2014 30.9.2015 30.9.2014 31.12.2014
 
 
REVENUE 14 900 8 326 33 858 28 715 40 933
 
 
Other income 16 0 16 0 0
 
Materials and services -4 549 -2 375 -9 023 -7 840 -12 508
 
Employee benefit expenses -6 817 -3 945 -16 337 -13 871 -18 897
 
Depreciation -561 -337 -1 222 -976 -1 320
 
Other expenses -3 050 -1 225 -6 234 -4 447 -5 718
 
OPERATING RESULT -61 444 1 058 1 581 2 490

Financial income

and

expenses

-486 -33 -531 -128 -177
 
RESULT BEFORE TAXES -546 411 528 1 453 2 313
 
Income tax expenses 105 -95 -88 -298 -420
 
RESULT FOR THE FINANCIAL PERIOD
-442 316 439 1 155 1 893
 
OTHER COMPREHENSIVE INCOME TO BE RECLASSIFIED TO PROFIT OR LOSS IN SUBSEQUENT PERIODS
 
Cash flow hedges 20 6 29 6 6
 
Other comprehensive income,
net of tax 16 5 23 5 5
 
TOTAL COMPREHENSIVE INCOME
-426 321 462 1 160 1 898
 

Total profit for the period

attributable to owners of the parent -442 316 439 1 155 1 893
 
Total comprehensive income
attributable to owners of the parent -426 321 462 1 160 1 898
 
Earnings/share,
e(undiluted) -0,03 0,02 0,03 0,08 0,13
Earnings/share,
e(diluted) -0,03 0,02 0,03 0,08 0,13

Taxes corresponding to the result have been presented as taxes for the period.

CONSOLIDATED BALANCE SHEET (TEUR)   30.9.2015   30.9.2014   31.12.2014
 
ASSETS
 
NON-CURRENT ASSETS
 
Tangible assets 2 292 1 566 1 652
 
Intangible assets
Goodwill 35 236 12 730 12 730
Other intangible rights 5 299 2 409 2 231
 
Available-for-sale financial assets 561 551 555
 
Trade and other receivables 208 17 15
 
Total non-current
assets 43 596 17 273 17 183
 
CURRENT ASSETS
 
Inventories 19 133 35
 
Trade and other receivables 11 463 5 622 5 290
 
Cash and cash equivalents 3 321 1 527 2 530
 
Total current
assets 14 803 7 282 7 855
 
TOTAL ASSETS 58 399 24 555 25 038

EQUITY AND LIABILITIES

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

Share capital   1 009   1 009   1 009
Share premium reserve 74 74 75
Hedging reserve 0 -23 -23
Reserve for own shares -1 109 -1 012 -1 069
Distributable equity
reserve 10 307 6 392 6 392
Retained earnings 5 321 5 037 5 328
 
Total equity 15 602 11 477 11 712
 
Non-current liabilities
Deferred tax liabilities 816 551 512
Financial liabilities 27 472 2 707 2 591
 
Current liabilities 14 509 9 820 10 223
 
Total liabilities 42 797 13 078 13 326
 
TOTAL EQUITY AND
LIABILITIES 58 399 24 555 25 038
CASH FLOW STATEMENT (MEUR)    

1-9/2015

 

1-9/2014

1-12/2014

Cash flow from business

operations

1,66 1,36 3,27

 

Cash flow from capital

expenditure

-18,18 -0,22 -0,24
Cash flow from financing activities
Own shares -0,04 -0,08 -0,14
Dividend distribution -0,45 -0,45 -0,90
Loan agreements 17,80 -1,45 -1,82

Cash flow from financing

activities

17,31 -1,97 -2,86
 
Change in cash and cash equivalents 0,79 -0,84 0,16

The cash flows related to finance leasing agreements are presented in more detail.

The comparatives in the cash flow statement have been restated accordingly.

STATEMENT OF CHANGES IN GROUP EQUITY (TEUR)

A=Share capital

B=Reserve for own shares

C=Share premium account

D=Hedging reserve

E=Distributable equity reserve

F=Retained earnings

G=Total

  A   B   C   D   E   F   G
 
EQUITY 1.1.2014 1 009 -933 75 -28 6 392 4 331 10 846
 

Total comprehensive income

5 1 155 1 160
 

Transactions with owners

Acquiring of own shares -79 -79

Dividend distribution

-449 -449
Transactions with owners, total -79 -449 -528
 
EQUITY 30.9.2014 1 009 -1 012 75 -23 6 392 5 037 11 477
 
 
EQUITY 1.1.2015 1 009 -1 069 75 -23 6 392 5 328 11 712
 
Total comprehensive income 23 439 462
 
Transactions with owners
Acquiring of own shares -40 -40
Directed share issue 4 242 4 242
The fees for the board members in the
form of treasury shares 61 61
Dividend distribution -447 -447
Remuneration of the
management -389 -389
Transactions with owners, total -40 3 914 -447 3 427
 
EQUITY 30.9.2015 1 009 -1 109 75 0 10 306 5 321 15 602

SEGMENT INFORMATION

Turnover by segment:              
 
Me

1-9/15

 

1-9/14

 

Change
 
Grocery and special retail, HoReCa 13,7 15,0 -1,3
Wholesale, Logistics and Services 9,0 9,8 -0,8
Enterprise Asset & Service Business Management 3,6 3,9 -0,3
Descom* 7,5 0,0 +7,5
Total 33,9 28,7 +5,1
 
Operating result by segment:
 
Me

1-9/15

 

1-9/14

 

Change
 
Grocery and special retail, HoReCa 0,5 0,7 -0,2
Wholesale, Logistics and Services 0,7 0,2 +0,5
Enterprise Asset & Service Business Management 0,2 0,7 -0,5
Descom* 0,4 0,0 0,4
Total 1,8 1,6 0,2
 
Operating result, total 1,8 1,6
Unallocated transaction costs -0,8 0
Operating result, total, income statement 1,1 1,6

*Descom is consolidated into the Solteq Group as of 2.7.2015

QUARTERLY KEY INDICATORS (MEUR)  
  4Q/13   1Q/14   2Q/14 3Q/14
Net turnover 9,82 9,87 10,52 8,33
Operating result 0,43 0,59 0,55 0,44
Result before taxes 0,36 0,51 0,54 0,41
 
4Q/14 1Q/15 2Q/15 3Q/15
Net turnover 12,22 9,13 9,82 14,90
Operating result 0,91 0,46 0,66 -0,06
Result before taxes 0,86 0,44 0,64 -0,55
TOTAL INVESTMENTS (TEUR)
 

1-9/2015

 

 

1-9/2014

 

 

1-12/2014

 

 

Continuing operations,

group total

23 297 704 958
LIABILITIES (MEUR) 30.9.2015 30.9.2014 31.12.2014
 
Business mortages 10,00 10,00 10,00
Other lease liabilities 0,32 0,11 0,15
Lease liabilities
for premises 6,57 2,78 4,90
 
 
RELATED PARTY TRANSACTIONS (TEUR) 30.9.2015 30.9.2014 31.12.2014
Renting arrangements 55 62 85

Transactions with the insiders have been done at market price and are part of the company’s normal software service business.

FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The fair values of the financial assets and liabilities are mainly the same as the book values on both 30.9.2015 and 30.9.2014. Hence they are not presented in table form in the bulletin.

MAJOR SHAREHOLDERS 30.9.2015

  Shares and votes
number   %
1. Sentica Buyout III Ky 4 621 244 25,96 %
2. Keskinäinen Työeläkevakuutusyhtiö Elo 2 000 000 11,24 %
3. Profiz Business Solution Oyj 1 756 180 9,87 %
4. Saadetdin Ali 1 394 553 7,84 %
5. Aalto Seppo 666 882 3,75 %
6. Keskinäinen työeläkevakuutusyhtiö Varma 644 917 3,62 %
7. Roininen Matti 415 000 2,33 %
8. Pirhonen Jalo 405 780 2,28 %
9. Solteq Management Oy 400 000 2,25 %
10. Solteq Management Team Oy 350 000 1,97 %
10 largest shareholders total 12 654 556 71,10 %
Total of nominee-registered 403 052 2,26 %
Others 4 740 451 26,63 %
Total 17 798 059 100,0 %
FINANCIAL PERFORMANCE INDICATORS (IFRS)  

1-9/2015

 

 

1-9/2014

 

 

1-9/2014

 

 
Net turnover MEUR 33,9 28,7 40,9
Change in the net turnover 17,9 % 1,5 % 7,4 %
Operating result MEUR 1,1 1,6 2,5
% of turnover 3,1 % 5,5 % 6,1 %
Result before taxes MEUR 0,5 1,5 2,3
% of turnover 1,6 % 5,1 % 5,7 %
Equity ratio, % 27,1 47,4 48,0
Gearing, % 165,4 % 26,7 % 16,3 %
Gross investments MEUR 23,3 0,7 1,0
Return on equity, % 4,3 % 13,9 % 16,8 %
Return on investment, % 4,8 % 13,4 % 15,5 %
Personnel at end of
period 514 278 279
Personnel average
for period 336 280 281
 
KEY INDICATORS PER SHARE
 
Earnings / share, e 0,03 0,08 0,13
Earnings / share,
e(diluted) 0,03 0,08 0,13
Equity / share, e 0,92 0,77 0,79
Solvency ratio, in percentage
  equity x 100
----------------------------------
balance sheet total - advances received
 
Gearing
interest bearing liabilities - cash,
bank balances and securities X 100
-------------------------------------------
equity
 
Return on Equity (ROE) in percentage
profit or loss before taxation - taxes x 100
----------------------------------------
equity
 
Profit from invested equity in percentage
profit or loss before taxation +
interest expenses and other financing expenses x 100
----------------------------------------
balance sheet total - non-interest bearing
liabilities
 
Earnings per share
pre-tax result - taxes
+/- minority interest
------------------------------------
diluted average share issue
corrected number of shares
 
Diluted earnings per share
diluted profit before taxation -
taxes +/- minority interest
-----------------------------------------------
diluted average share issue
corrected number of shares
Equity per share
equity
-----------------------
number of shares

ACQUISITIONS

Descom Group Oy

Description of the acquired company:

On July 2 2015, Solteq acquired the entire capital stock of Descom Group Oy at a purchase price of approx 11.1 million euros and the capital loans at a purchase price of approx. 11.9 million euros. As a result of the corporate acquisition, Descom Group Oy became a subsidiary entirely owned by Solteq Plc.

Descom offers sales, marketing and customer service solutions for companies in trade, industry and the service sector. Descom Group has about 240 employees in Finland, Sweden and Poland. Descom Group is consolidated to Solteq Group from July 2 2015.

The impact of the acquired company on Solteq Group
 
Aggregate figures for the acquisition 2.7.2015
thousand EUR
 
Consideration
Paid in cash 6 601
Directed issue 4 536
Total 11 137
 
Provisional values of the assets and liabilities arising from the acquisition
Tangible fixed assets 992
Intangible assets, customerships* 3 520
Other intangible assets 164
Deferred tax assets 181
Available-for-sale financial assets 8
Trade and other receivables 7 850
Cash and cash equivalents 1 139
Total assets 13 854
 
Capital loans -11 950
Trade payables and other liabilities -5 399
Loans -6 949
Provisions -187
Deferred tax liabilities -738
Total liabilities -25 223
 
The goodwill value from the acquisition 22 506
 
 
Cash flow from the acquisition
Consideration paid in cash and the purchase of capital loans 18 501
Cash and cash equivalents of the acquired company 2.7.2015 1 139
Total cash flow from the acquisition 17 362
*Depreciations of the intangible rights during the reporting period are 110 thousand euros (customerships)
 
Goodwill consists of assets that cannot be separated like synergy benefits, competent personnel, market share and entrance to new markets.
 
Adjustments of the fair value to the other intangible assets reflect the value of Descom Group's customerships.
 
Expenses related to the acquisition
Other expenses 789
Transaction costs of the Bond (allocated to financial expenses during the loan period) 360
Distributable equity reserve 294
Total expenses related to the acquisition 1 443
 
Impact on the Solteq Group's number of personnel240
 
 
Impact on the Solteq Group's comprehensive income statement

7-9/2015

Revenue** 7 488
Operating profit** 388

**The amount of the revenue and the operating profit from acquisition date to the end of the reporting period. The acquired company is consolidated into the Solteq Group as of 2.7.2015. The revenue and the operating profit of the acquired company as the acquisition had taken place at the first day of the reporting period are not presented, because many significant pre-acquisition arrangements were performed in June 2015. Related to the company acquisition Descom Data Center –business was sold from Descom Group before the acquisition was completed.The Group had no business acquisitions during financial year 2014.

Financial reporting

Solteq Plc estimates to publish the financial statements bulletin from the financial year 2015 February 19, 2016 at 8.00 am.

More investor information is available from Solteq’s website at www.solteq.com.

Distribution: NASDAQ OMX Helsinki Key media www.solteq.com

This information was brought to you by Cision http://news.cision.com

Contacts

Solteq Pl
CEO, Repe Harmanen
Tel +358 400 467 717
E-mail repe.harmanen@solteq.com
or
CFO, Antti Kärkkäinen
Tel +358 40 8444 393
E-mail antti.karkkainen@solteq.com

Contacts

Solteq Pl
CEO, Repe Harmanen
Tel +358 400 467 717
E-mail repe.harmanen@solteq.com
or
CFO, Antti Kärkkäinen
Tel +358 40 8444 393
E-mail antti.karkkainen@solteq.com