Interim / Quarterly Report • Aug 13, 2020
Interim / Quarterly Report
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JANUARY 1-JUNE 30, 2020
| 4- | 4- | Change- | $1 -$ | $1 -$ | Change | $1 -$ | Rolling | |
|---|---|---|---|---|---|---|---|---|
| 6/2020 | 6/2019 | % | 6/2020 | 6/2019 | % | 12/2019 | 12 mos | |
| Revenue, TEUR | 15,080 | 14,660 | 2.9 | 30,754 | 29,590 | 3.9 | 58,291 | 59,455 |
| Comparable revenue, TEUR | 15,080 | 13,992 | 7.8 | 30,754 | 28,041 | 9.7 | 55,293 | 58,006 |
| EBITDA, TEUR | 2,710 | 1,572 | 72.3 | 4,584 | 4,027 | 13.8 | 9,714 | 10,271 |
| Comparable EBITDA, TEUR | 2,736 | 1,522 | 79.8 | 4,774 | 3,653 | 30.7 | 6,582 | 7,704 |
| Operating profit, TEUR | 1,481 | 571 | 159.3 | 2,197 | 2,101 | 4.6 | 5,711 | 5,808 |
| Comparable operating profit, | ||||||||
| TEUR | 1,507 | 521 | 189.5 | 2,387 | 1,726 | 38.3 | 2,579 | 3,240 |
| Profit for the financial period, | ||||||||
| TEUR | 779 | 131 | 494.5 | 819 | 941 | $-13.0$ | 2,803 | 2,681 |
| Earnings per share, EUR | 0.04 | 0.01 | 491.3 | 0.04 | 0.05 | $-13.5$ | 0.15 | 0.14 |
| Operating profit, % | 9.8 | 3.9 | 7.1 | 7.1 | 9.8 | 9.8 | ||
| Comparable operating profit, % | 10.0 | 3.7 | 7.8 | 6.2 | 4.7 | 5.6 | ||
| Equity ratio, % | 33.1 | 30.3 | 32.0 | 34.7 |
Solteq Group's comparable operating profit is expected to grow significantly.
The company's profitability improved clearly in the second quarter
Solteq Group's second-quarter revenue was EUR 15.1 million, up by 2.9 percent. The increase in comparable revenue – when the absence of the SAP ERP business is taken into account – is $7.8$ percent. Around a fifth of this revenue was derived from outside Finland. The company's own software products and related services contributed around a third and digital services around two thirds of revenue.
The company's profitability improved clearly in the second quarter: operating profit improved, year-onyear, by 159.3 percent, standing at EUR 1.5 million. The company's EBITDA was EUR 2.7 million growing by 72.3 percent year-on-year.
The company has been closely following and assessing the impact of the COVID-19 pandemic on its business. So far, the pandemic has had no negative effects on the company on the whole. The good performance in the review period was based on orders secured during the year before and the capability to deliver in key business areas. Growth was also driven by successful sales efforts in the first half of 2020. Significant new customer projects, especially in the energy sector, balanced lower sales in the travel, restaurant and leisure sectors that were affected by the pandemic. Good performance in the second quarter was also improved by the streamlining measures taken earlier this year and the resulting cost savings.
To ensure a going concern and sufficient funding, the company initiated a written procedure on April 21, 2020, concerning an amendment to the terms and conditions of its fixed-rate bond, with a nominal value of EUR 27.0 million. By permission of the bondholders on May 18, 2020, the maturity date was
extended by 12 months, the new date being July 1, 2021 – six years from the date it was issued. On the half-year reporting date, the company's bond liability is EUR 24.5 million.
The company has performed well in a challenging and unpredictable market situation. The organization's operational capacity and the safety of its stakeholders were ensured by measures adopted in the early stages of the pandemic. The business outlook and profitability are expected to remain favorable.
Solteq primarily operates with selected solutions in chosen sectors of the Nordic IT services and software market. The market offers an opportunity for positive business development although it is overshadowed by uncertainty caused by the COVID-19 pandemic and a prediction by IDC, a market intelligence company, of a 5.1 percent drop in international IT markets. The pandemic is expected to have an impact on the market throughout the year. Negative effects will be felt particularly owing to delayed projects and falling contract volumes within the travel, restaurant, and leisure industries. At the same time, the pandemic is accelerating the digital transition and the change in companies' operating environments. This will speed up demand for, among other things, digital expert services and solutions, such as eCommerce solutions and software products. Customers' investments are focused on new digital services, securing business continuity, and optimizing costs.
Solteq offers industry-specific solutions for trade, manufacturing industry, car retail, energy industry, hotel and restaurant business and the public sector. Demand continues to grow in these sectors for solutions that digitalize core operations and make use of artificial intelligence, data, automation and seamless multichannel systems. The company has a significant competitive advantage based on longterm experience of industry-specific needs. Demand is being further increased by statutory obligations to renew data systems in the energy sector and water resources management.
The company continues to invest in its own product development, in which the main investments have been made into autonomous robotics such as Solteq Retail Robot. Research and advisory company Gartner forecasts that autonomous robotics will become more common in the retail sector within the coming years. Gartner's 2020 report, titled Autonomous Things Ecosystems Open Opportunities for IT Services Providers in Retail, estimates that autonomous robotics is currently utilized by only one percent of retailers in the USA, but the figure will jump to 60 percent by 2025. Demand for autonomous robotics solutions will be accelerated by clear and verifiable benefits, such as more efficient shop operations and a better cost structure.
Solutions employing autonomous robotics are also expected to become more common in the construction industry. According to the Building Automation System Market report (MarketsandMarkets, 2019), robotics solutions in the global construction industry are expected to increase by 10 percent annually, reaching USD 121.5 billion by 2024. Solteg has joined forces with KONE Corporation and Lassila & Tikanoja Plc to form the Intelligent Sustainable Urban Flows consortium, which is developing more intelligent and automated logistics for large real estate. The project creates synergy benefits for the companies' product development and supports the companies' efforts to reach international markets with their innovations. Business Finland granted Solteq support totaling EUR 0.8 million in July 2020 for the two-year project.
The digitalizing energy sector is creating growth opportunities in the Finnish market, as electricity businesses prepare to join the national Datahub. Solteq is specialized in energy-sector specific software and IT services, which has quickly turned the company into the market leader for energy sector customer information and online service systems in Finland.
Solteg has been consistently building its market position in selected industries as a provider of comprehensive solutions and services. Continuous development of customer needs requires investments in Solteq's own product development and new technologies, especially within cloud services and analytics. In addition, IT sector players are expected to provide more agile and scalable delivery models. Solteq meets the expectations with an organization that makes use of agile methods, and by focusing on the as-a-Service (aaS) model and its own software products.
The digital expert services and software products provided by the company comprehensively cover developments that are expected to emerge in the future. These include intelligent use of data in business processes, the mainstreaming of cloud technologies, and digital services based on user and customer experiences. The digital reality is affecting everyone. Keeping up with the latest developments is therefore on the current and future agenda of companies of different sizes and in various sectors.
Solteq's revenue for second quarter increased by 2.9 percent compared to the previous year and totaled EUR 15,080 thousand (14,660). The increase in comparable revenue - factoring in the absence of the SAP ERP business - was 7.8 percent.
Operating profit totaled EUR 1,481 thousand (571). Comparable operating profit was EUR 1,507 thousand (521).
Profit before taxes was EUR 995 thousand (64) and the profit for the financial period was EUR 779 thousand (131).
Revenue in January-June increased by 3.9 percent compared to the previous year and totaled EUR 30,754 thousand (29,590). The increase in comparable revenue – factoring in the absence of the SAP ERP business - is 9.7 percent.
Operating profit for the review period was EUR 2,197 thousand (2,101). Comparable operating profit was EUR 2,387 thousand (1,726).
Profit before taxes was EUR 1,104 thousand (1,126) and the profit for the financial period was EUR 819 thousand (941).
Solteg Digital's second-quarter revenue was EUR 10,510 thousand (10,355), up by 1.5 percent. The increase in comparable revenue - when the absence of the SAP ERP business is taken into account - is 8.5 percent. The comparable EBITDA was EUR 1,774 thousand (1,189) and comparable operating profit EUR 1,106 thousand (501).
The segment's business consists of three solution areas: digital business and trading; data management and analytics; and business systems. During the second quarter, the digital business and trading and business systems performed as expected, accounting for some 80 percent of the segment's revenue. Data management and analytics continued to increase considerably during the second quarter.
Sales in the Solteq Digital segment were reasonable, considering expectations, during the second quarter. The negative effects of the COVID-19 pandemic have hit the travel and restaurant and leisure projects hardest as project volumes shrink or projects are postponed. Demand remained healthy in the company's key business areas, such as eCommerce solutions and the retail and pharmacy business.
Solteq Digital segment's comparable growth and profitability realized well in the review period. Solteq Digital's revenue was EUR 21,846 thousand (21,052), up by 3.8 percent. The increase in comparable revenue – factoring in the absence of the SAP ERP business – is 12.0 percent. The segment's comparable EBITDA was EUR 3,086 thousand (2,399), accounting for 14.1 percent of revenue. The comparable operating profit of EUR 1,759 thousand (1,057) for the review period accounts for 8.1 percent of the company's revenue. The business outlook for the rest of the year is expected to remain at the current level.
| Solteg Digital | 4-6/2020 | 4-6/2019 | Change % | 1-6/2020 | 1-6/2019 | Change % | 1-12/2019 |
|---|---|---|---|---|---|---|---|
| 10,510 | 10,355 | 1.5 | 21,846 | 21,052 | 3.8 | 41,195 | |
| Revenue, TEUR | |||||||
| Comparable revenue, TEUR | 10,510 | 9,686 | 8.5 | 21,846 | 19,502 | 12.0 | 38,197 |
| Comparable EBITDA, TEUR | 1,774 | 1,189 | 49.1 | 3,086 | 2,399 | 28.7 | 3,871 |
| Comparable EBITDA, % | 16.9 | 12.3 | 14.1 | 12.3 | 10.1 | ||
| EBITDA, TEUR | 1,748 | 1,240 | 40.9 | 2,946 | 2,773 | 6.2 | 7,072 |
| EBITDA, % | 16.6 | 12.0 | 13.5 | 13.2 | 17.2 | ||
| Comparable operating profit, TEUR | 1,106 | 501 | 120.6 | 1,759 | 1,057 | 66.4 | 1,199 |
| Comparable operating profit, % | 10.5 | 5.2 | 8.1 | 5.4 | 3.1 | ||
| Operating profit, TEUR | 1,080 | 552 | 95.5 | 1,619 | 1,432 | 13.1 | 4,401 |
| Operating profit, % | 10.3 | 5.3 | 7.4 | 6.8 | 10.7 |
Solteg Software's second-quarter revenue was EUR 4,570 thousand (4,306), up by 6.1 percent. The comparable EBITDA was EUR 962 thousand (332) and comparable operating profit EUR 401 thousand (19). Comparable EBITDA and operating profit were eroded by the revenue recognition of long-term projects in the Utilities business area, and product development depreciations that were higher than previously. Depreciations were about EUR 100 thousand higher year-on-year.
The segment's product development investments and depreciations are having a negative effect on profitability in the short term. Profitability is expected to improve gradually as product development reaches the commercial phase and revenue increases.
The segment's business operations consist of the Utilities business, focusing mainly on the energy sector; and the Point-of-Sale-Platforms business, focusing on multichannel trading in the service industry. Both increased considerably and performed as expected, forming 65 percent of the segment's revenue. In addition to this, Solteq Robotics, which focuses on autonomous robotics and is included in the segment, has significant synergy potential for business, although it is not yet generating revenue.
In the autonomous robotics business area, the company formed the Intelligent Sustainable Urban Flows consortium together with KONE Corporation and Lassila & Tikanoja Plc. The purpose of the consortium is to develop increasingly intelligent and automated solutions for the internal logistics of large real estate. Business Finland granted Solteq EUR 800 thousand to carry out the two-year project.
The company was successful in obtaining new customers, especially in the Utilities business area. Thanks to the new customer delivery contracts, the company became the Finnish market leader as a provider of customer information and service systems for the energy sector.
A total of EUR 718 thousand (1,063) was invested in product development in the second quarter. Product development during the entire financial year is expected to be less than EUR 3,000 thousand. Going forward, product development is expected to be between 10-15 percent of the segment's revenue.
The Solteq Software segment performed as expected in the review period. The segment's January-June revenue was EUR 8,908 thousand (8,539), up by 4.3 percent. The comparable EBITDA of EUR 1,688 thousand (1,254) for the review period accounts for 19.0 percent of the company's revenue. The review period's comparable operating profit was EUR 628 thousand (669), accounting for 7.1 percent of revenue.
The share of recurring revenue during the review period accounted for around 30 percent of the segment's revenue. Recurring revenue consists of software licensing, maintenance and support fees. The company's target is to increase recurring revenue to account for more than 50 percent of the revenue in three years.
During the review period - particularly in the Utilities business area - Solteq was successful in gaining new customers, and the value of new customer delivery contracts in the energy sector already
exceeded EUR 10 million. The new delivery and service agreements consist of delivery projects for the customer information system the company has developed, and related options and license fees for 4-5 years. On the whole, the Solteg Software segment business is expected to develop positively in the second half of the year.
| Solteg Software | 4-6/2020 | 4-6/2019 | Change % | 1-6/2020 | 1-6/2019 | Change % | 1-12/2019 |
|---|---|---|---|---|---|---|---|
| Revenue, TEUR | 4,570 | 4,306 | 6.1 | 8,908 | 8,539 | 4.3 | 17,095 |
| Comparable EBITDA, TEUR | 962 | 332 | 189.6 | 1,688 | 1,254 | 34.6 | 2,711 |
| Comparable EBITDA, % | 21.1 | 7.7 | 19.0 | 14.7 | 15.9 | ||
| EBITDA, TEUR | 962 | 332 | 189.6 | 1,638 | 1,254 | 30.7 | 2,642 |
| EBITDA. % | 21.1 | 7.7 | 18.4 | 14.7 | 15.5 | ||
| Comparable operating profit, TEUR | 401 | 19 | 2.009.6 | 628 | 669 | $-6.1$ | 1,379 |
| Comparable operating profit, % | 8.8 | 0.4 | 7.1 | 7.8 | 8.1 | ||
| Operating profit, TEUR | 401 | 19 | 2.009.6 | 578 | 669 | $-13.6$ | 1,311 |
| Operating profit, % | 8.8 | 0.4 | 6.5 | 7.8 | 7.7 |
Total assets amounted to EUR 77,261 thousand (75,570). Liquid assets totaled EUR 7,755 thousand (4,362). The company has a standby credit limit of EUR 4,000 thousand. At the end of both the review and the comparison periods, the standby credit limit was unused. The company also has a bank account credit limit of EUR 2,000 thousand which was unused at the end of the review period. A total of EUR 1,595 thousand of the bank account credit limit was in use at the end of the comparison period. At the end of the review period, the company had a EUR 1,207 thousand Business Finland loan for product development (857).
The Group's interest-bearing liabilities were EUR 33,468 thousand (34,464).
Solteq Group's equity ratio was 33.1 percent (30.3).
On July 1, 2015 Solteg Plc (Solteg) issued an unsecured bond of EUR 27.0 million. The bond carries a fixed annual interest of 6.0 percent and its maturity is five years. To reduce the company's interest costs, Solteq Plc repurchased and cancelled the share of the above-mentioned bond with a nominal value of EUR 2.5 million during the financial year 2016. The company's bond liability is EUR 24.5 million.
On April 21, 2020, the company initiated a written procedure concerning a change in the terms of the above bond with a nominal value of EUR 27.0 million (with maturity date of July 1, 2020), requesting that the loan period be extended by 12 months. Amendment of the terms was accepted by means of a written procedure on May 18, 2020. The new maturity date is July 1, 2021.
Owing to the COVID-19 pandemic and the prevailing financial market situation, the company considered it judicious to request a 12-month extension to the maturity date. The company is prepared to carry out any refinancing arrangements required and is therefore actively following developments in the financial markets. The management expects operations to continue, with only a low risk of inadequate funding. Uncertainty caused by the COVID-19 pandemic will increase the financing risk that is beyond the company's control; the management estimates that the pandemic will have an impact on
the financial market until at least the end of 2020. The maturity distribution of financial liabilities is presented in the tables section of this Half-Year Report.
The net investments during the review period were EUR 3,755 thousand (2,687). During the review period, EUR 1,767 thousand (2,089) of the net investments were capitalized development costs relating to continued further development of the existing software products and the development of new software products. Other investments were EUR 1,988 thousand (598). Other investments include the net change in rented premises and equipment, totaling EUR 1,699 thousand.
Capitalized development costs include EUR 1,177 thousand (1,529) of staff costs.
The number of permanent employees at the end of the review period was 595 (607).
| 4-6/2020 | 4-6/2019 | 1-6/2020 | 1-6/2019 | 1-12/2019 | |
|---|---|---|---|---|---|
| Average number of personnel during | |||||
| period | 592 | 591 | 597 | ||
| Employee benefit expenses, TEUR | 8.060 | 7.956 | 16.251 | 15.822 | 30.951 |
Solteq's related parties include the Board of Directors, CEO and Executive team.
The related party actions and euro amounts are presented in the tables at the end of this Half-Year Report.
Solteq Plc's equity on June 30, 2020 was EUR 1,009,154.17 which was represented by 19,306,527 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.
Solteq Plc did not hold any treasury shares at the end of the review period.
During the financial year 2016 Solteg's Board of Directors decided to adopt a new stock option scheme and share-based incentive scheme for the key employees of the company. The purpose of both schemes is to encourage the key employees to work for the growth of the shareholder value and to
commit the key employees to the employer. Terms and conditions of the stock option scheme and share-based incentive scheme are presented in more detail in the Stock Exchange Bulletin published on July 15, 2016.
The theoretical market value of the incentive scheme was at the time of the implementation about EUR 0.6 million which was recognized as an expense in accordance with IFRS 2 in the years 2016–2018. The expense is not recognized on a cash flow basis except for the share of the share based. The company's current and former management owned one million shares under the option scheme. The subscription period ended on December 31, 2019. No shares were subscribed during the subscription period, and the options expired.
During the review period, the exchange of Solteq's shares in the Nasdaq Helsinki Ltd was 1.5 million shares (0.4) and EUR 1.7 million (0.5). The highest rate during the review period was EUR 1.50 and lowest rate EUR 0.96. The weighted average rate of the share was EUR 1.16 and end rate EUR 1.18. The market value of the company's shares at the end of the review period totaled EUR 22.8 million (28.0).
At the end of the review period, Solteq had a total of 2,350 shareholders (2,193). Solteq's 10 largest shareholders owned 13,316 thousand shares i.e. they owned 69.0 percent of the company's shares and votes. Solteq Plc's members of the Board of Directors and CEO owned 592 thousand shares on June 30, 2020 (592).
Solteq's Annual General Meeting on June 10, 2020 approved the financial statement for period January 1–December 31, 2019 and discharged the CEO and the Board of Directors from liability.
The Board of Directors' proposal of to the General Meeting that no dividend will be paid from the financial year ended on December 31, 2019 was accepted.
The Annual General Meeting authorized the Board of Directors to decide on share issue, carried out with or without payment and on issuing share options, and other special rights referred to in Chapter 10, Section1 of the Finnish Companies Act as follows:
The maximum total amount of shares or other rights is 3,000,000. The authorization includes the right to give new shares or convey company's own shares. The authorization includes a right to deviate from the shareholders' pre-emptive right of subscription if there is a significant financial reason in company's opinion, e.g. to improve the capital structure, to finance and execute business acquisitions and other business improvement arrangements or to implement the Company's incentive schemes. The authorization is proposed to include that the Board of Directors may decide the terms and other matters concerning the share issue and the granting of special rights, including the subscription price and the payment of the subscription price in cash or in whole or in part by other means (subscription in kind) or by using a claim on the subscriber to offset the subscription price and to record it in the company's balance sheet.
The authorization is effective until the next Annual General Meeting, however, no longer than until April 30, 2021 (April 30, 2021 included).
In addition, the Annual General Meeting authorized the Board of Directors to decide on accepting the company's own shares as pledge as follows:
The Board of Directors is authorized to decide on accepting the company's own shares as pledge (directed) regarding business acquisitions or when executing other business arrangements. Accepting pledge may occur at once or in multiple transactions. The number of own shares to be accepted as pledge shall not exceed 2,000,000 shares. The authorization includes that the Board of Directors may decide on other terms concerning the pledge. The authorization is effective until the next Annual General Meeting, however, no longer than until April 30, 2021 (April 30, 2021 included).
The Annual General Meeting on June 10, 2020 decided that The Board of Directors includes six members. Aarne Aktan, Lotta Kopra, Markku Pietilä, Panu Porkka, Katarina Segerståhl and Mika Uotila will continue on the Board.
In the Board meeting, held after the Annual General Meeting, Markku Pietilä was elected as the Chairman of the Board.
In addition, Aarne Aktan, Lotta Kopra and Markku Pietilä were appointed to the members of the Audit Committee. Aarne Aktan acts as the Chairman of the Audit Committee.
KPMG Oy Ab, Authorized Public Accountants, was re-elected as auditors, with Petri Sammalisto, APA, acting as the chief auditor.
On March 23, Solteq Plc announced that the Annual General Meeting scheduled for April 1, 2020 will be cancelled and moved to another date to be announced later.
On April 3, Solteq Plc announced that, for the time being, the company cancels its guidance for the 2020 financial year due to the uncertainty on the markets caused by the COVID-19 pandemic.
On April 6, Solteg Plc announced that it considers requesting an amendment to the terms and conditions of its EUR 27.0 million notes in a written procedure.
On April 20, Solteq Plc released comparable data for the financial year 2019 based on its new reporting structure.
On April 21, Solteq Plc announced a written procedure to amend the terms and conditions of its EUR 27.0 million senior unsecured fixed rate notes due 2020.
On April 28, Solteg Plc announced that it has signed delivery and service agreements worth around EUR 8.0 million (including options) with the energy industry.
On April 29, Solteg Plc announced that the Board of Directors has decided to change the proposal for the distribution of dividend.
On May 18, Solteg Plc announced that it has successfully completed a written procedure in order to amend the terms and conditions of its EUR 27.0 million senior unsecured fixed rate notes.
The company's management is not aware of any events of material importance after the review period that might have affected the preparation of the Half-Year Report.
Material uncertainties and near-term risks consist of the direct and indirect impacts of the COVID-19 pandemic on the company's business and financial position.
On April 21, 2020, the company initiated a written procedure concerning a change in the terms of a bond worth EUR 27.0 million (with maturity date July 1, 2020), requesting that the loan period be extended by 12 months. The company's bond liability is EUR 24.5 million. Amendment of the terms was accepted by means of a written procedure on May 18, 2020. The bond will mature on July 1, 2021.
Other key uncertainties and risks are related to the 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, developing company's own products and their commercialization, and the company's capability to manage extensive customer contracts and deliveries.
The key business risks and uncertainties of the company are monitored constantly as a part of the Board of Directors' and Executive team's duties. In addition, the Company has the Audit Committee appointed by the Board of Directors.
The company is continuously monitoring the COVID-19 pandemic situation, assessing its impact on the company's operations, strategy and realization of targets, performance, financial position, and cash flows.
Based on information currently available, the COVID-19 pandemic is not expected to have any longterm impact on the company's financial performance. The company management has assessed the goodwill impartment test included in the 2019 financial statements to the company's performance in the 2020 financial year, and in terms of long-term expectations. The management has not identified any need to further test its goodwill during the reporting period, and the pandemic has not had an effect on asset item valuations.
The company has not historically incurred material credit losses, so the probability of such losses is low, and provisions for them have been small. Considering the situation, the company prepared for any increased credit losses due to the COVID-19 pandemic in the first quarter by increasing the credit loss
provisions in the balance sheet. No significant changes have yet been observed in customers' payment behavior. The company is following the situation closely.
The company has also assessed the valuation of its other asset items and discovered that the pandemic has had no effect on their valuation so far.
The company's EUR 24.5 million bond will mature on July 1, 2021. The company is prepared to carry out any refinancing arrangements required and is therefore actively following developments in the financial markets. Uncertainty caused by the COVID-19 pandemic will nevertheless increase the financing risk that is beyond the company's control; the management estimates that the pandemic will have an impact on the financial market until at least the end of 2020.
On April 21, 2020, the company initiated a written procedure concerning a change in the terms of an unsecured, senior bond with fixed interest and a nominal value of EUR 27.0 million (with maturity date July 1, 2020), requesting that the loan period be extended by 12 months. Amendment of the terms was accepted by means of a written procedure on May 18, 2020. The company's bond liability is EUR 24.5 million.
The prerequisite of going concern was to rearrange financing before the original maturity date of the current bond. The procedure ended successfully. Owing to the prevailing financial market situation, the company considered it prudent to request a 12-month extension to the maturity date. The company's EUR 24.5 million bond will mature on July 1, 2021. The company is prepared to carry out any refinancing arrangements required and is therefore actively following developments in the financial markets. Uncertainty caused by the COVID-19 pandemic will nevertheless increase the financing risk that is beyond the company's control, and the management estimates that the pandemic will have an impact on the financial market at least throughout 2020.
The company's operations are on a solid foundation and it is the management's view that the company has the capacity to overcome the COVID-19 pandemic's negative impacts on its business operations. On this basis, the management expects operations to continue, with only a low risk of inadequate funding.
This Half-Year Report was drawn up under the going concern principle, taking account of the financial restructuring either already carried out or pending.
This Half-Year Report has been prepared in accordance with the recognition and valuation principles of IFRS standards and using IAS 34 and the same accounting policies as the Financial Statements 2019. The new IFRS standards, taken into use on January 1, 2020, do not have a significant impact in the Group's Half-Year Report. The information presented in the Half-Year Report has not been audited.
On October 29, 2019, Solteg Plc announced that the company is changing its segment structure to create a better match with the Group's business structure and revenue sources and to promote business growth, particularly in international markets. Going forward, in 2020 Solteq Group will have two business segments: Solteq Software (software business) and Solteq Digital (consulting).
In the previous reporting structure, the Group's business was presented as a single segment. The new structure divides Solteq's business areas into distinct reportable segments, in accordance with their revenue models.
Solteq Software includes businesses based on the company's own products. The segment's revenue is mainly derived from license and maintenance fees for Solteq's own products, and the related services such as integrations and implementation projects.
The revenue of the Solteq Digital segment mainly comprises IT expert services. These services include consulting, the implementation of customer systems as projects, continuous development services and maintenance.
The comparable data for the financial year 2019 was released on April 20, 2020 in a separate Stock Exchange Bulletin.
| TEUR | 4-6/2020 4-6/2019 1-6/2020 1-6/2019 1-12/2019 | ||||
|---|---|---|---|---|---|
| Revenue | 15,080 | 14,660 | 30,754 | 29,590 | 58,291 |
| Other income | 112 | 46 | 134 | 12 | 2,594 |
| Materials and services | $-1,405$ | $-1,380$ | $-3,076$ | $-2,303$ | $-5,440$ |
| Employee benefit expenses | $-9,521$ | $-9,443$ | $-19,041$ | $-18,744$ | $-36,757$ |
| Depreciations and impairments | $-1,228$ | $-1,001$ | $-2,387$ | $-1,926$ | $-4,003$ |
| Other expenses | $-1,556$ | $-2,312$ | $-4,187$ | $-4,528$ | $-8,974$ |
| Operating profit | 1,481 | 571 | 2,197 | 2,101 | 5,711 |
| Financial income and expenses | -486 | $-507$ | $-1,094$ | $-975$ | $-2,032$ |
| Profit before taxes | 995 | 64 | 1,104 | 1,126 | 3,679 |
| Income taxes | $-217$ | 67 | $-285$ | $-185$ | $-876$ |
| Profit for the financial period | 779 | 131 | 819 | 941 | 2,803 |
| Other comprehensive income to be reclassified to profit or loss in subsequent periods |
|||||
| Currency translation differences Other comprehensive income |
55 | 0 | $-24$ | $-45$ | $-44$ $-29$ |
| Other comprehensive income, net of tax | 55 | 0 | $-24$ | $-45$ | $-73$ |
| Total comprehensive income | 834 | 131 | 794 | 896 | 2,731 |
| Total profit for the period attributable to owners of the parent |
779 | 131 | 819 | 941 | 2,803 |
| Total comprehensive income attributable to owners of the parent |
834 | 131 | 794 | 896 | 2,731 |
| Earnings per share, EUR (undiluted) | 0.04 | 0.01 | 0.04 | 0.05 | 0.15 |
| Earnings per share, EUR (diluted) | 0.04 | 0.01 | 0.04 | 0.05 | 0.15 |
Taxes corresponding to the profit have been presented as taxes for the period.
| TEUR | 30 Jun 2020 | 30 Jun 2019 | 31 Dec 2019 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Tangible assets | 545 | 604 | 654 |
| Right-of-use assets | 7,706 | 7,468 | 7,298 |
| Intangible assets | |||
| Goodwill | 38,845 | 40,374 | 38,840 |
| Other intangible assets | 11,250 | 8,616 | 10,151 |
| Other investments | 481 | 481 | 481 |
| Other long-term receivables | 158 | 211 | 108 |
| Non-current assets total | 58,983 | 57,754 | 57,531 |
| Current assets | |||
| Inventories | 125 | 119 | 164 |
| Trade and other receivables | 10,398 | 13,334 | 15,638 |
| Cash and cash equivalents | 7,755 | 4,362 | 3,648 |
| Current assets total | 18,278 | 17,816 | 19,449 |
| Total assets | 77,261 | 75,570 | 76,980 |
| Equity and liabilities | |||
| Equity attributable to equity holders of the parent company | |||
| Share capital | 1,009 | 1,009 | 1,009 |
| Share premium reserve | 75 | 75 | 75 |
| Distributable equity reserve | 12,910 | 12,910 | 12,910 |
| Retained earnings | 11,328 | 8,699 | 10,533 |
| Total equity | 25,322 | 22,693 | 24,528 |
| Non-current liabilities | |||
| Deferred tax liabilities | 502 | 845 | 588 |
| Financial liabilities | 25,492 | 25,276 | 1,201 |
| Lease liabilities | 5,498 | 5,055 | 5,156 |
| Non-current liabilities total | 31,492 | 31,176 | 6,945 |
| Current liabilities | |||
| Financial liabilities | 1,600 | 26,461 | |
| Trade and other payables | 17,920 | 17,463 | 16,657 |
| Provisions | 50 | 105 | 41 |
| Lease liabilities | 2,478 | 2,534 | 2,349 |
| Current liabilities total | 20,447 | 21,701 | 45,508 |
| Total equity and liabilities | 77,261 | 75,570 | 76,980 |
| TEUR | 1-6/2020 | 1-6/2019 | 1-12/2019 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Profit for the financial period | 819 | 941 | 2,803 |
| Adjustments for operating profit | 3,700 | 2,413 | 3,732 |
| Changes in working capital | 1,264 | $-1,227$ | $-595$ |
| Interests paid | $-458$ | $-199$ | $-1,829$ |
| Interests received | 19 | 10 | 16 |
| Net cash from operating activities | 5,345 | 1,939 | 4,128 |
| Cash flow from investing activities | |||
| Divested businesses | 4,071 | ||
| Investments in tangible and intangible assets | $-2,090$ | $-2,224$ | $-4,668$ |
| Net cash used in investing activities | 1,981 | $-2,224$ | $-4.668$ |
| Cash flow from financing activities | |||
| Long-term loans, increase | 7 | 857 | 1,201 |
| Short-term loans, increase | 1,595 | 3,595 | |
| Short-term loans, decrease | $-2,000$ | $-2,000$ | $-3,595$ |
| Payment of finance lease liabilities | $-1,225$ | $-1,151$ | $-2,361$ |
| Net cash used in financing activities | $-3,218$ | $-699$ | $-1,160$ |
| Changes in cash and cash equivalents | 4,107 | -985 | $-1,700$ |
| Cash and cash equivalents at the beginning of period | 3,648 | 5,347 | 5,347 |
| Cash and cash equivalents at the end of period | 7,755 | 4,362 | 3,648 |
| TEUR | Share capital |
Share account |
Invested premium unrestricted translation equity reserve |
Currency difference |
Retained earnings |
Total |
|---|---|---|---|---|---|---|
| Equity 1 Jan 2019 | 1,009 | 75 | 12,910 | $-56$ | 7,859 | 21,797 |
| Profit for the financial period | 941 | 941 | ||||
| Other items on comprehensive income | $-45$ | $-45$ | ||||
| Total comprehensive income | 0 | $\mathbf 0$ | 0 | $-45$ | 941 | 896 |
| Equity 30 Jun 2019 | 1,009 | 75 | 12,910 | $-101$ | 8,800 | 22,693 |
| Equity 1 Jan 2020 | 1,009 | 75 | 12,910 | $-100$ | 10,633 | 24,528 |
| Profit for the financial period | 819 | 819 | ||||
| Other items on comprehensive income | $-24$ | 0 | $-24$ | |||
| Total comprehensive income | 0 | $\mathbf 0$ | 0 | $-24$ | 819 | 794 |
| Transactions with owners | ||||||
| Returned dividends | 0 | 0 | ||||
| Transactions with owners | 0 | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | 0 | $\mathbf 0$ |
| Equity 30 Jun 2020 | 1,009 | 75 | 12,910 | $-124$ | 11,452 | 25,322 |
Group
| TEUR | 4-6/2020 | 4-6/2019 | 1-6/2020 | 1-6/2019 1-12/2019 | |
|---|---|---|---|---|---|
| Services | 11.987 | 11.060 | 25.054 | 22.640 | 45.415 |
| Revenue from long-term projects | 1,629 | 1,206 | 2,599 | 2.992 | 5,922 |
| Revenue from software licenses | 1.409 | 2,191 | 2.943 | 3,724 | 6,386 |
| Hardware sales | 55 | 204 | 158 | 235 | 568 |
| Total | 15.080 | 14.660 | 30,754 | 29.590 | 58,291 |
Solteq Digital
| TEUR | 4-6/2020 | 4-6/2019 | $1 - 6/2020$ | 1-6/2019 1-12/2019 | |
|---|---|---|---|---|---|
| Services | 8,751 | 8.193 | 18.855 | 16,838 | 33,508 |
| Revenue from long-term projects | 1,081 | 1,000 | 1,560 | 2,281 | 4,188 |
| Revenue from software licenses | 644 | 1,004 | 1,334 | 1,754 | 3,176 |
| Hardware sales | 34 | 157 | 97 | 179 | 323 |
| Total | 10.510 | 10.355 | 21.846 | 21.052 | 41,195 |
Solteq Software
| TEUR | 4-6/2020 | 4-6/2019 | $1 - 6/2020$ | $1 - 6/2019$ | 1-12/2019 |
|---|---|---|---|---|---|
| Services | 3,236 | 2,867 | 6,200 | 5,803 | 11,907 |
| Revenue from long-term projects | 548 | 205 | 1,039 | 711 | 1,734 |
| Revenue from software licenses | 765 | 1,187 | 1,609 | 1,970 | 3,210 |
| Hardware sales | 21 | 47 | 61 | 55 | 244 |
| Total | 4,570 | 4.306 | 8.908 | 8,539 | 17,095 |
| TEUR | 4-6/2020 | 4-6/2019 | 1-6/2020 | 1-6/2019 | 1-12/2019 |
|---|---|---|---|---|---|
| Group total | 1.630 | 1.442 | 3.755 | 2.687 | 4.632 |
| TEUR | Book value | Contractual cash flows |
$1-12$ months |
13-24 months |
25-36 months |
Later |
|---|---|---|---|---|---|---|
| Financial lease liabilities, 30 Jun 2020 | ||||||
| Bond | 24,285 | 27,440 | 1,470 | 25,970 | ||
| Loans from financial institutions | 1,207 | 1,255 | 12 | 92 | 410 | 740 |
| Lease liabilities | 7,976 | 8,261 | 2,752 | 2,065 | 1,518 | 1,925 |
| Trade payables | 3,295 | 3,295 | 3,295 | |||
| Financial liabilities total | 36,763 | 40,251 | 7,530 | 28,128 | 1,929 | 2,665 |
| Financial assets, 30 Jun 2020 | ||||||
| Trade receivables | 8,842 | |||||
| Cash and cash equivalents | 7,755 | |||||
| Financial assets total | 16,597 |
The company has a standby credit limit of EUR 4,000 thousand and a bank account credit limit of EUR 2,000 thousand. At the end of the review period, June 30, 2020 both were unused.
The company's business fundaments are strong, and the operating profit and cash flow from operating activities are positive, which provides funding for the working capital requirements of the business. In addition, the company's management is actively monitoring the development of capital markets and has started preparations for executing a financial restructuring of the bond maturing July 1, 2021 (EUR 24,5 million) as well as to secure the company's financial position and growth strategy of the review period.
| TEUR | 30 Jun 2020 | 30 Jun 2019 | 31 Dec 2019 | ||
|---|---|---|---|---|---|
| Business mortgages | 10,000 | 10,000 | 10,000 | ||
| Off-balance sheet lease liabilities | 1,160 | 530 | 1,027 | ||
| Related party transactions | |||||
| TEUR | 4-6/2020 | 4-6/2019 | 1-6/2020 | $1 - 6/2019$ | 1-12/2019 |
| Service sales | 6 | ||||
| Purchases | $\mathbf{1}$ | $\overline{2}$ | 3 | 8 4 |
|
| Total | 1 | $\overline{2}$ | 3 | 14 4 |
Transactions with the related parties have been done at the market price and are part of the company's normal business.
The fair values of the financial assets and liabilities are mainly the same as the book values. Hence, they are not presented in table form in the Half-Year Report.
| Shares and votes | |||||
|---|---|---|---|---|---|
| number | % | ||||
| 1. | Sentica Buyout III Ky | 4,621,244 | 23.94 | ||
| 2. | Profiz Business Solution Oy | 2,060,769 | 10.67 | ||
| 3. | Keskinäinen Työeläkevakuutusyhtiö Elo | 2,000,000 | 10.36 | ||
| 4. | Saadetdin Ali | 1,403,165 | 7.27 | ||
| 5. | Keskinäinen Työeläkevakuutusyhtiö Varma | 1,245,597 | 6.45 | ||
| 6. | Aalto Seppo Tapio | 730,000 | 3.78 | ||
| 7. | Roininen Matti Juhani | 450,000 | 2.33 | ||
| 8. | Väätäinen Olli Pekka | 400,000 | 2.07 | ||
| 9. | Lamy Oy | 225,000 | 1.17 | ||
| 10. | Sentica Buyout III Co-Investment Ky | 180,049 | 0.93 | ||
| 10 largest shareholders total | 13,315,824 | 68.97 | |||
| Total of nominee-registered | 985,523 | 5.10 | |||
| Others | 5,005,180 | 25.92 | |||
| Total | 19,306,527 | 100.00 |
| 4-6/2020 | 4-6/2019 | $1-6/2020$ | $1-6/2019$ | 1-12/2019 | |
|---|---|---|---|---|---|
| Revenue, MEUR | 15.1 | 14.7 | 30.8 | 29.6 | 58.3 |
| Change in revenue, % | 2.9 | 3.0 | 3.9 | 1.7 | 2.5 |
| Operating profit, MEUR | 1.5 | 0.6 | 2.2 | 2.1 | 5.7 |
| % of revenue | 9.8 | 3.9 | 7.1 | 7.1 | 9.8 |
| Profit before taxes, MEUR | 1.0 | 0.1 | 1.1 | 1.1 | 3.7 |
| % of revenue | 6.6 | 0.4 | 3.6 | 3.8 | 6.3 |
| Net investments in non-current assets, MEUR | 1.6 | 1.4 | 3.8 | 2.7 | 4.6 |
| Equity ratio, % | 33.1 | 30.3 | 32.0 | ||
| Net debt, MEUR | 25.7 | 30.1 | 31.5 | ||
| Gearing, % | 101.5 | 132.6 | 128.5 | ||
| Return on equity, rolling 12 months, % | 11.2 | 4.3 | 12.1 | ||
| Return on investment, rolling 12 months, % | 10.0 | 6.0 | 10.4 | ||
| Personnel at end of period | 595 | 607 | 598 | ||
| Personnel average for period | 592 | 591 | 597 | ||
| Key indicators per share | |||||
| Earnings per share, EUR (undiluted) | 0.04 | 0.01 | 0.04 | 0.05 | 0.15 |
| Earnings per share, EUR (diluted) | 0.04 | 0.01 | 0.04 | 0.05 | 0.15 |
| Equity per share, EUR | 1.31 | 1.18 | 1.27 |
Solteq uses alternative performance measures to describe the company's underlying financial performance and to improve the comparability between review periods. The alternative performance measures should not be regarded as indicators that replace the financial key figures as defined in IFRS standards.
Performance measures used by Solteg Group are EBITDA, equity ratio, gearing, return on equity, return on investment and net debt. The calculation principles of these financial key figures are presented as part of this Half-Year Report. The performance measures presented as rolling 12 months include the total figures of the past four quarters.
Transactions that are unrelated to the regular business operations, or valuation items that do not affect the cash flow, but have an important impact on the income statement, are adjusted as items affecting comparability. These non-recurring items may include the following:
Significant restructuring arrangements and related financial items $\bullet$
| TEUR | 4-6/2020 | 4-6/2019 | 1-6/2020 | 1-6/2019 1-12/2019 | |
|---|---|---|---|---|---|
| Revenue | 15,080 | 14,660 | 30,754 | 29,590 | 58,291 |
| Items affecting comparability | |||||
| SAP ERP business transfer agreement | -668 | -1,549 | -2,998 | ||
| Items affecting comparability total | 0 | -668 | 0 | -1,549 | -2,998 |
| Comparable revenue | 15,080 | 13,992 | 30,754 | 28,041 | 55,293 |
| TEUR | 4-6/2020 | 4-6/2019 | 1-6/2020 | 1-6/2019 1-12/2019 | |
|---|---|---|---|---|---|
| Operating profit (EBIT) | 1,481 | 571 | 2,197 | 2,101 | 5,711 |
| Items affecting comparability | |||||
| SAP ERP business transfer agreement | -112 | -446 | -3,479 | ||
| Cost of integrating the acquired business | 61 | 72 | 72 | ||
| Non-recurring severance packages | 26 | 190 | 39 | ||
| Damages from completed customer projects | 98 | ||||
| Costs incurred by the re-organization of operations | 138 | ||||
| Items affecting comparability total | 26 | -51 | 190 | -375 | -3,132 |
| Comparable operating profit (EBIT) | 1,507 | 521 | 2,387 | 1,726 | 2,579 |
Solvency ratio, %: equity / (balance sheet total - advances received) x 100
Gearing, %: (interest bearing liabilities - cash, bank balances and securities) / equity x 100
Return on Equity (ROE), %: profit for the financial period (rolling 12 months) / equity (average for the period) x 100
Return on investment (ROI), %: (profit before taxes + finance expenses (rolling 12 months)) / (balance sheet total - interest free debt (average for the period)) x 100
Earnings per share: (profit before taxes -/+ minority interest) / adjusted average basic number of shares
Diluted earnings per share: (profit before taxes -/+ minority interest) / adjusted average diluted number of shares
EBITDA: operating profit + depreciation and impairments
Net debt: interest bearing liabilities - cash and cash equivalents
There were no acquisitions during the review or comparison period.
Solteq Plc's financial information bulletins in 2020 have been scheduled as follows:
Interim Report 1-9/2020 Thursday October 29, 2020 at 8.00 am (EET) $\bullet$
More investor information is available on Solteq's website at www.solteq.com.
CEO Olli Väätäinen Tel: +358 50 557 8111 E-mail: [email protected]
CFO Kari Lehtosalo Tel: +358 40 751 7194 E-mail: [email protected]
NASDAQ OMX Helsinki Key media www.solteq.com
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