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Basware Oyj

Interim / Quarterly Report Jul 19, 2017

3257_ir_2017-07-19_f4cafc9a-b382-44e1-bea4-398ce9ec63fe.pdf

Interim / Quarterly Report

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BASWARE HALF YEAR FINANCIAL REPORT JANUARY 1 – JUNE 30, 2017 (IFRS)

SUMMARY

Cloud revenues at historical high

January-June 2017:

  • Net sales EUR 74 090 thousand (EUR 73 073 thousand): growth 1.4 percent.
  • Cloud revenue growth of 23.4 percent, amounting to 51.4 percent (42.3 %) of net sales
  • Adjusted EBITDA EUR -1 282 thousand (EUR -2 978 thousand)
  • Adjusted operating result EUR -6 343 thousand (EUR -6 955 thousand)
  • Adjusted earnings per share (diluted) EUR -0.51 (-0.47)
  • Operating result EUR -7 859 thousand (EUR -7 714 thousand)
  • Earnings per share (diluted) EUR -0.61 (-0.52)

April-June 2017:

  • Net sales EUR 37 289 thousand (EUR 38 948 thousand): decline 4.3 percent
  • Cloud revenue growth of 18.8 percent, amounting to 52.5 percent (42.4 %) of net sales
  • Adjusted EBITDA EUR 320 thousand (EUR -2 461 thousand)
  • Adjusted operating result EUR -2 149 thousand (EUR -4 589 thousand)
  • Adjusted earnings per share (diluted) EUR -0.19 (-0.29)
  • Operating result EUR -2 767 thousand (EUR -4 999 thousand)
  • Earnings per share (diluted) EUR -0.24 (-0.32)

The Interim Report is unaudited.

Basware is targeting accelerated revenue growth during its strategy period 2017-2020. Basware's number one strategic priority is cloud revenue growth which it will achieve by extending its leadership in networked purchase to pay, growing its network and expanding value added services. For 2017, Basware expects its cloud revenues to grow by approximately 20 percent, and adjusted EBITDA at breakeven.

GROUP KEY FIGURES

4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
Net sales 37 289 38 948 -4.3 % 74 090 73 073 1.4 % 148 580
EBITDA -298 -2 870 89.6 % -2 798 -3 737 25.1 % -5 394
Adjusted EBITDA 320 -2 461 -1 282 -2 978 57.0 % 2 063
Operating result -2 767 -4 999 44.6 % -7 859 -7 714 -1.9 % -13 946
% of net sales
Adjusted operating result -2 149 -4 589 53.2 % -6 343 -6 955 8.8 % -6 490
Result before tax -3 621 -5 622 35.6 % -9 707 -9 395 -3.3 % -16 256
Result for the period -3 414 -4 528 24.6 % -8 794 -7 485 -17.5 % -14 318
Return on equity, % -11.0 % -13.2 % -13.9 % -10.7 % -10.5 %
Return on investment, % -7.4 % -14.4 % -9.6 % -11.7 % -9.5 %
Cash and cash equivalents 23 610 21 799 8.3 % 23 610 21 799 8.3 % 35 755
Gearing, % 13.9 % -4.7 % 13.9 % -4.7 % 8.7 %
Equity ratio, % 56.1 % 66.1 % 56.1 % 66.1 % 58.5 %
Earnings per share
Diluted, EUR -0.24 -0.32 24.9 % -0.61 -0.52 -16.8 % -1.00
Adjusted earnings per share
diluted
-0.19 -0.29 32.7% -0.51 -0.47 -7.4 % -0.48
Equity per share, EUR 8.38 9.68 -13.4 % 8.38 9.68 -13.4 % 9.26

BUSINESS OPERATIONS

Basware is the global leader in networked purchase-to-pay solutions, including e-invoicing and financing services. Basware's commerce network connects businesses in over 100 countries and territories around the globe. As the largest open business network in the world, Basware provides scale and reach for organizations of all sizes, enabling them to grow their business and unlock value across their operations by simplifying and streamlining financial processes. Small and large companies around the world achieve significant cost savings, more flexible payment terms, greater efficiencies and closer relationships with their suppliers.

CEO Vesa Tykkyläinen:

As a shareholder, CEO and employee, what excites me about Basware is our mission to help organisations to simplify their operations and spend smarter. We help customers make their purchasing processes 100 percent paperless and we are the best placed to do this because of our Network, the largest e-invoicing network in the world. Every single organisation can make their purchasing processes better by adopting our solutions, and this huge market opportunity is worth EUR 15 billion annually in North America and Europe. The executive team at Basware all share my passion, and following stock purchases made this quarter, all members of the executive team are now Basware shareholders.

I'm therefore proud to report that this quarter we reached a number of key milestones on the route towards our strategic priority of cloud revenue growth. Basware recorded the highest ever quarterly cloud revenues in the second quarter of 2017. Cloud revenues now account for 53 percent of Basware's total revenues, continuing to grow as a proportion of revenues after passing the 50 percent mark in the first quarter.

Basware's subscription order intake continued to be strong, even against a strong comparison period in the second quarter of 2016. We won a number of significant deals from key customers including ATU, Tennis Australia, Thames Valley Police, Hoag Memorial Hospital and BSI (the British Standards Institution). These are just a selection of our wins in the second quarter, but they showcase the geographical and industry breadth of our customers. Our sales performance in the US market continues to be particularly pleasing, winning a number of deals against the US competition. In fact, the US is now the biggest contributor to our purchase-to-pay revenues.

Overall revenue and order intake performance in Network was not completely satisfactory this quarter, and the same in consulting. However, I am confident that there is significant further potential in both areas.

The strength of Basware is in its people, so I am very pleased that we further strengthened our sales team with the addition of new sales heads in the UK, Germany and Norway, who all started working at Basware this quarter. In May, our new SVP of Network and Financing Services and our new SVP of Customer Services both also began in their new roles.

Basware is recognised as a trail blazer by industry analysts and in May was cited as a Leader in "The Forrester Wave™: eProcurement, Q2 2017" report. According to the Forrester report, Basware excels in invoice automation for global organizations and is a particularly strong fit for enterprises that want to automate processing of high invoice volumes. Also in May, Basware announced the strengthening of its solutions with the addition of a new strategic sourcing offering to provide customers with a one-stop-shop for the entire Source-to-Pay process. Basware continued the strengthening of its brand with the launch of a new corporate website, which went live in May.

I am very pleased with the progress that Basware has made this quarter. We continue to win significant new customers, we continue to be recognised as an industry leader, and we continue to take actions to improve our operations. I remain very confident in our ability to capture the significant market opportunity ahead of Basware.

NET SALES

Basware Group's net sales for the first half amounted to EUR 74 090 thousand (EUR 73 073 thousand), a growth of 1.4 percent. This equated to 1.8 percent organic growth at constant currencies.

Basware Group's net sales for the second quarter amounted to EUR 37 289 thousand (EUR 38 948 thousand), a decline of 4.3 percent. This equated to 3.7 percent decline at constant currencies. Adjustments for organic growth included deducting net sales from businesses acquired within the 12 months before the end of the second quarter of 2017.

Cloud revenues grew strongly during the second quarter. Cloud revenues in the second quarter were EUR 19 594 thousand (EUR 16 498 thousand), up 18.8 percent and accounted for 52.5 percent of net sales.

SaaS revenues grew significantly compared to the second quarter of 2016 with total growth of 38.2 percent. In the second quarter transaction services revenues grew 7.6 percent. Transaction revenue growth was impacted by less business days in the second quarter of 2017 compared to the same period in 2016 as a result of Easter timing.

In non-cloud revenues, maintenance revenues declined in line with expectations as we transition customers to the cloud. The rate of decline of consulting revenues was affected by business days as well as a number of large implementation projects in the comparison period.

Net sales by revenue type 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
Cloud Revenue
SaaS 8 160 5 904 38.2 15 577 9 467 64.5 22 975
Transaction services 9 633 8 954 7.6 19 271 17 384 10.9 35 996
Other cloud revenue 1 801 1 641 9.8 3 244 4 006 -19.0 7 270
Cloud Revenue total 19 594 16 498 18.8 38 091 30 857 23.4 66 242
Non-Cloud Revenue
Maintenance 9 357 10 385 -9.9 19 206 20 517 -6.4 40 761
License sales 1 120 2 588 -56.7 2 020 4 089 -50.6 7 188
Consulting services 7 324 9 473 -22.7 14 806 17 590 -15.8 34 389
Other non-cloud revenue -105 3 -32 21 0
Non-Cloud Revenue total 17 695 22 450 -21.2 35 999 42 217 -14.7 82 338
Group Total 37 289 38 948 -4.3 74 090 73 073 1.4 148 580

Information on net sales by type

The international share of Basware's net sales was 68.0 percent (65.6 %) in the quarter.

SUBSCRIPTION ORDER INTAKE

Order intake is an important metric for understanding the performance of the Basware sales force as well as an indicator of future cloud revenue growth. From the first quarter of 2017 onwards Basware has reported subscription annual recurring revenue gross order intake. In the second quarter of 2017, this amounted to EUR 4.4 million, up from EUR 2.7 million in the second quarter of 2016, an increase of 60.8 percent. In addition, future cloud revenues will be driven by order intake for transaction services, which is not included in this number. There will be a time lag before order intake is visible in net sales. Further information on the definition of subscription annual recurring revenue gross order intake is included in the Definition of Alternative Performance Measures section.

FINANCIAL PERFORMANCE

Basware's adjusted EBITDA amounted to EUR -1 282 thousand (EUR -2 978 thousand) year-to-date. The operating result for the first half amounted to EUR -7 859 thousand (EUR -7 714 thousand).

Adjusted EBITDA amounted to EUR 320 thousand (EUR -2 461 thousand) in the second quarter. The adjustments to EBITDA totalled EUR 618 thousand (EUR 409 thousand) in the quarter and were mainly related to efficiency related expenses. Basware's operating result for the quarter amounted to EUR -

2 767 (EUR -4 999 thousand).

The company's operating expenses including employee benefits, depreciations and amortizations as well as other operating expenses were EUR 36 582 thousand (EUR 39 988 thousand) in the second quarter, and have decreased by 8.5 percent from the corresponding period the previous year. The effects of the productivity programme announced in the fourth quarter of 2016 are not yet fully visible. Personnel expenses made up 69.3 percent (72.7 %) or EUR 25 375 thousand (EUR 29 068 thousand) of the operating expenses.

Materials and services were EUR 3 630 thousand in the second quarter, down 8.3 percent from the second quarter of 2016. The reduction was driven by the productivity programme, including transition to public cloud infrastructure.

The company's net finance expenses were EUR 458 thousand (EUR 3 thousand) for the quarter. Basware's share of the results of the joint venture with Arrowgrass Capital Partners LLP totalled EUR - 396 thousand (EUR -626 thousand).

Basware's result before tax was EUR -3 621 thousand (EUR -5 622 thousand) and result for the quarter was EUR -3 414 thousand (EUR -4 528 thousand). Taxes for the quarter increased the result by EUR 207 thousand (EUR 1 094 thousand).

Diluted earnings per share were EUR -0.24 (EUR -0.32) for the second quarter.

FINANCING AND INVESTMENTS

Cashflows from operating activities were 2 634 EUR thousand (EUR 9 270 thousand) year-to-date.

Cash flows from operating activities were EUR -4 837 thousand in the second quarter (EUR -2 962 thousand). Basware's operating cash flows are seasonal as a relatively large part of payments for annual maintenance are made in the first quarter. Working capital changes included the cash impact of restructuring provisions related to the productivity programme announced in November 2016. Basware's cash and cash equivalents including short-term deposits totalled EUR 23 610 thousand (EUR 21 799 thousand) at the end of the quarter. In addition to cash and cash equivalents, Basware has an undrawn revolving credit facility of EUR 10 million, bringing total available liquidity at the end of the second quarter of 2017 to EUR 33 610 thousand.

Basware's liquidity position is strong and Basware has a history of using its cash effectively to invest in growth. In 2016 Basware utilised EUR 24.6 million of cash to fund its purchase of Verian, at the same time as investing in expanding its global sales and marketing headcount. Basware is considering putting in place additional financing in order to support future cloud growth.

Basware Group's total assets on the balance sheet at the end of the quarter were EUR 214 399 thousand (EUR 210 072 thousand). Net cash flows from investments were EUR -7 261 thousand (EUR - 33 904 thousand) year-to-date.

The equity ratio was 56.1 percent (66.1 %) and gearing 13.9 percent (-4.7 %). The company's interestbearing liabilities totalled EUR 40 280 thousand (EUR 15 300 thousand), of which current liabilities accounted for EUR 22 096 (EUR 0 thousand). The return on investment was in the quarter -7.4 percent (-14.4 %) and return on equity -11.0 percent (-13.2 %).

Gross investments including acquisitions and capitalized research and development costs totalled EUR 7 224 thousand (EUR 41 029 thousand) year to date.

RESEARCH AND DEVELOPMENT

Basware's research and development investments totalled EUR 6 025 thousand (EUR 6 012 thousand), or 16.2 percent (15.4 %) of net sales during the quarter. The expenses increased by 0.2 percent compared to the corresponding quarter in the previous year. The effects of the productivity programme announced in the fourth quarter of 2016, which included the consolidation of research and development centres, are not yet fully visible. The research and development costs excluding depreciation included in the result for the quarter totalled EUR 3 514 thousand (EUR 3 217 thousand), or 9.4 percent (8.3 %) of net sales. Research and development expenses capitalized during the quarter amounted to EUR 2 511 thousand (EUR 2 794 thousand). A total of 400 (427) people worked in research and development at the end of the quarter.

PERSONNEL

Basware employed 1 837 (1 818) people on average during the quarter and 1 838 (1 828) at the end of the quarter.

Geographical division of personnel:

Personnel 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
Employed, on average 2017 2016 % 2017 2016 % 2016
Finland 445 504 -11.6 453 499 -9.3 500
EMEIA 594 589 0.8 601 582 3.3 599
India 643 562 14.5 635 562 13.1 577
Americas & APAC 155 163 -5.3 158 123 28.8 135
Group total 1 837 1 818 1.0 1 847 1 765 4.6 1 811

At the end of the quarter, the international share of Basware's personnel was 75.7 percent (72.3 %). 11.0 percent (12.7%) of the personnel work in sales and marketing, 60.1 percent (56.3 %) in professional services, production and customer care, 21.8 percent (23.4 %) in research and development, and 7.2 percent (7.6 %) in administration.

The average age of employees is 35.0 (35.5) years. Women account for 27.1 percent (27.1%) of employees, men for 72.9 percent (72.9 %).

OTHER EVENTS OF THE PERIOD

Basware Executive Team members make significant investments into Basware shares

In May Basware Executive Team members personally invested in Basware shares as part of the Matching Share Plan announced in March 2017. All Basware Executive Team members are now shareholders of the company.

Changes in Basware's Executive Team

Mr. Jussi Vasama was appointed as Senior Vice President, Customer Services and as a member of the Executive Team at Basware. He commenced in this position on May 2, 2017 and reports to Vesa Tykkyläinen, CEO, Basware Corporation.

Mr. Mikko Pilkama joined Basware on May 1, 2017 as Senior Vice President, Network and Financing Services and as a member of the Executive Team at Basware and reports to Vesa Tykkyläinen, CEO, Basware Corporation.

RISKS AND UNCERTAINTY FACTORS

Basware has a growth strategy with high net sales growth expectations for the cloud business. Executing the strategy for 2017-2020 requires significant investments in sales and marketing and related resources as well as continued investments in product development. At the same time, the industry transformation from an on-premise license-based business model to a SaaS model will accelerate the decline of certain Basware revenue streams, including license sales and maintenance. The transformation will also make Consulting revenues more volatile. Until the transformation is complete, this will act as a drag on group net sales growth.

Additionally, even higher than expected pace in the license to SaaS transformation would have a negative impact on expected net sales in the short term. In addition to SaaS, Basware expects high growth rates in its network-based transaction services which will, besides successful sales effort, also require an efficient supplier onboarding process. Sales from Value Added Services, including Financing Services, are dependent on Basware's ability to bring innovative and attractive products to the market according to its planned timetable and move customers quickly to a phase where they are using the services extensively enough to provide meaningful revenue to Basware.

The fact that close to 50 percent of the company's sales are expected to come from non-euro countries exposes the Group's net sales growth to foreign exchange rate movements. In case there is a significant depreciation of GBP, USD, NOK, SEK or AUD against the euro, reported net sales may be affected, despite good performance in local currencies. There is a risk that the political uncertainty in the UK leads to UK public sector bodies and UK private companies delaying decisions to implement P2P and Network services.

Execution of the growth strategy and going through constant change puts new demands on the organization as well as its management and leadership capabilities. The company's ability to attract, retain and develop the right type of talent to deliver on its strategy is critical as well as management focus and ability to drive change.

Basware considers acquisitions as part of its strategy. Acquisitions entails risks, such as failure in integrating acquisitions or in ensuring that the planned financial benefits and synergies of the acquisitions materialize.

The cloud transformation process requires cash investment. The company's ability to secure financing for this transformation may affect its ability to deliver on the strategy.

Basware's biggest operational risks relate to service disruption as a result of for example data centre failures, various data security threats and non-compliance risks related to Basware's solutions and services, the company's activities or its employees' behaviour. Operational risks are actively managed by continuous improvement in risk monitoring and protection practices as well as internal training of Basware's personnel.

Basware operates in a market where technological and business model innovation play a key role. While Basware is recognized as a leader within its segments by independent analysts, it is critical that Basware continues to innovate and develop its offering.

FUTURE OUTLOOK

Operating environment and market outlook

All organisations need to manage their purchasing processes from procurement through to handling invoices and paying them. Currently many organisations only have unsophisticated or partial tools to manage these processes and as a result many are faced with unmanaged spending, inefficient manual and paper-based processes and poor visibility of cashflows. Basware offers a uniquely complete solution for these challenges that is differentiated by the Basware network, the largest e-invoicing network in the world, and enables customers to manage 100 percent of their spending and make their purchasing processes completely paperless.

Basware expects the demand for networked purchase to pay services to continue to grow. The total potential market for networked purchase to pay services is estimated to be worth EUR 15 billion in annual revenues in Europe and North America.

Outlook 2017

Basware's number one strategic priority is cloud revenue growth during its strategy period 2017-2020 which it will achieve by extending its leadership in networked purchase to pay, growing its network and expanding value added services. For 2017, Basware expects its cloud revenues to grow by approximately 20 percent, and adjusted EBITDA at breakeven.

Espoo, Finland, Wednesday, July 19, 2017

BASWARE CORPORATION Board of Directors

Vesa Tykkyläinen, CEO, Basware Corporation

For more information, please contact:

Niclas Rosenlew, CFO, Basware Corporation Tel. +358 50 480 2160, [email protected]

Distribution: Nasdaq Helsinki Key media www.basware.com/investors

SUMMARY OF FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS JANUARY 1 – JUNE 30, 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

EUR thousand 1.4.-
30.6.2017
1.4.-
30.6.2016
Change,
%
1.1.-
30.6.2017
1.1.-
30.6.2016
Change,
%
1.1.-
31.12.2016
NET SALES 37 289 38 948 -4.3 74 090 73 073 1.4 148 580
Other operating income 156 0 156 0 4
Materials and services -3 630 -3 959 -8.3 -7 364 -7 570 -2.7 -15 746
Employee benefit expenses -25 375 -29 068 -12.7 -51 835 -52 916 -2.0 -104 600
Depreciation and amortization -2 469 -2 129 16.0 -5 061 -3 977 27.3 -8 552
Other operating expenses -8 738 -8 792 -0.6 -17 846 -16 325 9.3 -33 631
Operating result -2 767 -4 999 44.6 -7 859 -7 714 -1.9 -13 946
Finance income 111 122* -9.2 570 286* 99.2 746*
Finance expenses -568 -120* 373.7 -1 539 -715* 115.3 -887*
Share of results of a joint venture -396 -626 -36.7 -878 -1 252 -29.9 -2 170
Result before tax -3 621 -5 622 35.6 -9 707 -9 395 -3.3 -16 256
Income taxes 207 1 094 -81.1 913 1 910 -52.2 1 939
RESULT FOR THE PERIOD -3 414 -4 528 24.6 -8 794 -7 485 -17.5 -14 318
Other comprehensive income
Other comprehensive income to
be reclassified to profit or loss in
subsequent periods:
Remeasurement of defined benefit
plan
-27 -62 -94
Exchange differences on translating
foreign operations
-3 647 -322 1031.3 -4 167 -2 550 63.4 -1 463
Income tax relating to components
of other comprehensive income
156 -1 186 214 -13.3 311
Other comprehensive income, net
of tax
-3 518 -324 986.9 -4 044 -2 336 73.1 -1 245
TOTAL COMPREHENSIVE
INCOME
-6 933 -4 852 -42.9 -12 838 -9 821 -30.7 -15 563
Result attributable to:
Equity holders of the parent
company
-3 414 -4 528 24.6 -8 794 -7 485 -17.5 -14 318
-3 414 -4 528 24.6 -8 794 -7 485 -17.5 -14 318
Total comprehensive income
attributable to:
Equity holders of the parent
company
-6 933 -4 852 -42.9 -12 838 -9 821 -30.7 -15 563
-6 933 -4 852 -42.9 -12 838 -9 821 -30.7 -15 563
Earnings per share
undiluted, EUR -0.24 -0.32 -0.61 -0.53 -1.00
diluted, EUR -0.24 -0.32 -0.61 -0.52 -1.00

*The automatic currency valuation booking policy of cashpool accounts has been clarified. Comparative information from year 2016 has been changed accordingly and the change has no impact on net financial items or result for the period.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR thousand 30.6.2017 30.6.2016 Change, % 31.12.2016
ASSETS
Non-current assets
Intangible assets 48 245 44 389 8.7 47 325
Goodwill 93 673 95 389 -1.8 96 811
Tangible assets 2 228 1 763 26.4 1 585
Share of investment in a joint venture 323 2 119 -84.7 1 201
Available-for-sale investments 38 41 -8.6 38
Trade and other receivables 2 932 2 557 14.7 2 789
Deferred tax assets 10 724 7 646 40.3 8 403
Non-current assets 158 164 153 903 2.8 158 152
Current assets
Inventories 0 22 0
Trade receivables 23 373 27 208 -14.1 24 638
Other receivables 8 938 6 935 28.9 8 372
Income tax receivables 314 204 53.7 126
Cash and cash equivalents 23 610 21 799 8.3 35 755
Current assets 56 235 56 168 0.1 68 891
ASSETS 214 399 210 072 2.1 227 043

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR thousand 30.6.2017 30.6.2016 Change, % 31.12.2016
EQUITY AND LIABILITIES
Shareholders' equity
Share capital 3 528 3 528 3 528
Share premium account 1 187 1 187 1 187
Treasury shares -841 -1 043 -19.3 -1 043
Invested unrestricted equity fund 111 132 111 333 -0.2 111 333
Other reserves 540 540 540
Translation differences -8 845 -6 048 46.3 -4 863
Retained earnings 13 654 29 360 -53.5 22 182
Shareholders' equity 120 354 138 858 -13.3 132 864
Non-current liabilities
Deferred tax liability 5 395 4 367 23.5 4 904
Interest-bearing liabilities 18 184 15 300 18.8 36 732
Other non-current financial liabilities 1 171 1 933 -39.4 1 555
Liabilities from employee benefits 598 0 506
Non-current liabilities 25 348 21 600 17.4 43 697
Current liabilities
Interest-bearing liabilities 22 096 0 10 548
Trade payables and other liabilities 44 184 48 659 -9.2 34 225
Income tax liabilities 196 954 -79.5 637
Current provisions 2 220 0 5 072
Current liabilities 68 696 49 613 38.5 50 482
EQUITY AND LIABILITIES 214 399 210 072 2.1 227 043

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

EUR thousand Share
capital
Share
premium
account
Treasury
shares
Inv. un
restricted
equity
Other
reserves
Translation
differences
Retained
earnings
Total
SHAREHOLDERS' EQUITY
1.1.2017
3 528 1 187 -1 043 111 333 540 -4 863 22 182 132 864
Comprehensive income -3 982 -8 794 -12 776
Share based payments 202 -202 328 328
Defined benefit plans -62 -62
SHAREHOLDERS' EQUITY
30.6.2017
3 528 1 187 -841 111 132 540 -8 845 13 654 120 354
EUR thousand Share
capital
Share
premium
account
Treasury
shares
Inv. un
restricted
equity
Other
reserves
Translation
differences
Retained
earnings
Total
SHAREHOLDERS' EQUITY
1.1.2016
3 528 1 187 -1 108 104 334 540 -3 712 36 378 141 147
Comprehensive income -2 336 -7 485 -9 821
Share based payments 65 -65 468 468
Share issue 7 065 7 065
SHAREHOLDERS' EQUITY
30.6.2016
3 528 1 187 -1 043 111 333 540 -6 048 29 360 138 858

CONSOLIDATED STATEMENT OF CASH FLOWS

EUR thousand 1.4.-
30.6.2017
1.4.-
30.6.2016
1.1.-
30.6.2017
1.1.-
30.6.2016
1.1.-
31.12.2016
Cash flows from operating activities
Result for the period -3 414 -4 528 -8 794 -7 485 -14 318
Adjustments 3 450 1 897 6 528 4 220 9 528
Working capital changes -4 084 -2 6 597 12 229 3 268
Financial items in operating activities -121 -1 -416 -270 -487
Income taxes paid/received -668 -329 -1 280 575 234
Cash flows from operating activities -4 837 -2 962 2 634 9 270 -1 774
Cash flows used in investing activities
Purchase of tangible and intangible
assets
-3 325 -3 649 -7 261 -6 662 -12 660
Proceeds from sale of tangible and
intangible assets
0 0 0 0 11
Acquisition of subsidiaries and
businesses
0 -24 205 0 -24 205 -25 013
Investment made to a joint venture 0 -1 994 0 -3 037 -3 037
Cash flows used in investing activities -3 325 -29 848 -7 261 -33 904 -40 698
Cash flows from financing activities
Proceeds from current borrowings 0 0 0 0 10 548
Repayment of current borrowings 0 0 -7 000 -1 667 -1 667
Proceeds from non-current borrowings 0 0 0 15 300 36 732
Cash flows from financing activities 0 0 -7 000 13 633 45 613
Net change in cash and cash
equivalents
-8 162 -32 812 -11 626 -11 001 3 141
Cash and cash equivalents at the
beginning of period
32 281 54 654 35 755 33 238 33 238
Net foreign exchange difference -509 -43 -519 -437 -624
Cash and cash equivalents at the end of
period
23 610 21 799 23 610 21 799 35 755

ACCOUNTING PRINCIPLES

The Interim Report has been prepared in accordance with IAS 34, Interim Financial Reporting. The same accounting principles have been followed as in the annual financial statements.

Preparation of financial statements in accordance with the IFRS standards requires Basware's management to make estimates and assumptions that have an effect on the amount of assets and liabilities on the balance sheet at the closing date as well as the amounts of income and expenses for the financial period. In addition, the management must exercise its judgment regarding the application of accounting policies. Since the estimates and assumptions are based on the views at the date of the Financial Statements, they include risks and uncertainties. The actual results may differ from the estimates and assumptions.

The amounts presented in the income statement and balance sheet are Group figures. The amounts presented in the release are rounded, so the sum of individual figures may differ from the sum reported. Percentage changes for net figures are shown on an absolute basis.

The Group made a preliminary analysis of the impacts of IFRS 15 during 2016. The impacts were assessed in joint meetings reviewing customer contracts in relation to the IFRS 15 revenue recognition model. Subsequently, further analysis has been conducted with a focus in particular on the timing of revenue related to consulting and start up revenue types.

DEFINITION OF ALTERNATIVE PERFORMANCE MEASURES

Basware presents the following financial measures to supplement its Consolidated Financial Statements which are prepared in accordance with IFRS. These measures are designed to measure growth and provide insight into the company's underlying operational performance. The Group has applied the guidance from ESMA (the European Securities and Markets Authority) on Alternative Performance Measures which is applicable as of July 3, 2016 and defined alternative performance measures as follows.

Recurring revenue reported by the company consists of net sales excluding license sales and consulting revenue for deliveries. Alliance fees from financing-related value-added services are not included in recurring revenue.

Cloud revenue includes net sales from transactions services, SaaS and other subscription revenues, and financing services excluding alliance fees.

Non-cloud revenue includes net sales from licences, maintenance and consulting, as well as alliance fees.

Organic revenue growth is calculated by comparing net sales between comparison periods in constant currencies excluding alliance fees as well as net sales from acquisitions that have taken place in the past 12 months. Net sales in constant currencies is calculated by eliminating the impact of changes in currencies by calculating the net sales for the period by using the comparable period's exchange rates.

Gross investments are total investments made to non-current assets including acquisitions and capitalized research and development costs.

Other capital expenditure consists of investments in property, plant & equipment and intangible assets excluding acquisitions and capitalized research and development costs.

EBITDA is defined as operating profit plus depreciation and amortization.

Adjusted EBITDA is reported excluding any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.

Adjusted operating result (Adjusted EBIT) is reported excluding any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.

Adjusted earnings per share (Adjusted EPS) is calculated by excluding from the result any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.

Subscription annual recurring revenue gross order intake is calculated by summing the total order intake in the period expressed as an annual contract value. This includes SaaS and other subscription types. Per transaction cloud revenue is not included. Gross new order intake covers new cloud customers, add-ons and renewal uplifts but excludes churn. There will be a time lag before this order intake is visible in net sales.

Adjusted EBITDA

Adjusted EBITDA 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
EBITDA -298 -2 870 89.6 -2 798 -3 737 25.1 -5 394
Adjustments:
Acquisition, disposal and
restructuring expenses
-93 355 6 646 -99.1 894
Efficiency related expenses 711 54 1 216.7 1 511 113 1 237.2 5 888
Settlements 0 0 0 0 675
Total adjustments 618 409 51.2 1 517 759 99.8 7 456
Adjusted EBITDA 320 -2 461 -1 282 -2 978 57.0 2 063

Adjusted Operating Result

Adjusted Operating Result
EUR thousand
4-6/
2017
4-6/
2016
Change,
%
1-6/
2017
1-6/
2016
Change,
%
1-12/
2016
Operating Result -2 767 -4 999 44.6 -7 859 -7 714 -1.9 -13 946
Adjustments:
Acquisition, disposal and
restructuring expenses
-93 355 6 646 -99.1 894
Efficiency related expenses 711 54 1 216.7 1 511 113 1 237.2 5 888
Settlements 0 0 0 0 675
Total adjustments 618 409 51.2 1 517 759 99.8 7 456
Adjusted Operating Result -2 149 -4 589 53.2 -6 343 -6 955 8.8 -6 490

BUSINESS COMBINATIONS

Basware signed an agreement on March 31, 2016 to acquire all membership interest of US based Verian Technologies LLC ("Verian"). The acquisition of Verian, a leading cloud-based e-procurement solution provider in the US, closed on April 1, 2016.

The measurement period ended in March 2017. The values of assets, liabilities and goodwill have not changed from the values reported in the annual financial statements for 2016.

SEGMENT REPORTING

Basware reports one operating segment. The reported segment is comprised of the entire Group, and the segment figures are consistent with the Group figures.

INFORMATION ON PRODUCTS AND SERVICES

From Q1 2016 onwards, Basware reports revenues by type. The revenue types are split by Transaction services (consisting of e-invoicing, scan and capture services, printing services and network start-up fees), SaaS, Consulting services (consisting of professional services and customer services management), Maintenance, License sales, Other cloud and Other non-cloud.

Net sales by revenue type

Net sales by revenue type 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
Cloud Revenue
SaaS 8 160 5 904 38.2 15 577 9 467 64.5 22 975
Transaction services 9 633 8 954 7.6 19 271 17 384 10.9 35 996
Other cloud revenue 1 801 1 641 9.8 3 244 4 006 -19.0 7 270
Cloud Revenue total 19 594 16 498 18.8 38 091 30 857 23.4 66 242
Non-Cloud Revenue
Maintenance 9 357 10 385 -9.9 19 206 20 517 -6.4 40 761
License sales 1 120 2 588 -56.7 2 020 4 089 -50.6 7 188
Consulting services 7 324 9 473 -22.7 14 806 17 590 -15.8 34 389
Other non-cloud revenue -105 3 -32 21 0
Non-Cloud Revenue total 17 695 22 450 -21.2 35 999 42 217 -14.7 82 338
Group Total 37 289 38 948 -4.3 74 090 73 073 1.4 148 580

GEOGRAPHICAL INFORMATION

Basware reports geographical areas Finland, EMEIA, and Americas & APAC. The Finland area includes the Finnish operations and corporate services. EMEIA combines Scandinavia and the rest of Europe, as well as operations in Russia and Africa. Americas & APAC includes business operations in North and South America and the Pacific region.

Net sales by the location of customer

Net sales 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
Finland 11 928 13 386 -10.9 23 740 25 564 -7.1 50 093
EMEIA 17 105 17 962 -4.8 34 393 35 468 -3.0 71 163
Americas & APAC 8 257 7 600 8.6 15 956 12 041 32.5 27 324
Group total 37 289 38 948 -4.3 74 090 73 073 1.4 148 580

Geographical information by the location of assets

Net sales 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
Finland 21 303 20 366 4.6 41 346 38 930 6.2 80 623
EMEIA 20 587 19 679 4.6 41 762 37 254 12.1 78 698
Americas & APAC 8 248 7 475 10.3 15 852 11 740 35.0 26 870
Between areas -12 848 -8 572 49.9 -24 870 -14 850 67.5 -37 612
Group total 37 289 38 948 -4.3 74 090 73 073 1.4 148 580
Operating result 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
EUR thousand 2017 2016 % 2017 2016 % 2016
Finland -3 883 -4 603 15.6 -10 215 -9 540 -7.1 -15 425
EMEIA 638 -251 1 294 2 082 -37.9 436
Americas & APAC 767 198 287.9 1 528 369 313.8 2 006
Between areas -289 -342 15.5 -467 -626 25.4 -962
Group total -2 767 -4 999 44.6 -7 859 -7 714 -1.9 -13 946
Personnel 4-6/ 4-6/ Change, 1-6/ 1-6/ Change, 1-12/
Employed, on average 2017 2016 % 2017 2016 % 2016
Finland 445 504 -11.6 453 499 -9.3 500
EMEIA 594 589 0.8 601 582 3.3 599
India 643 562 14.5 635 562 13.1 577
Americas & APAC 155 163 -5.3 158 123 28.8 135
Group total 1 837 1 818 1.0 1 847 1 765 4.6 1 811

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

EUR thousand 30.6.2017
Book value
30.6.2017
Fair value
30.6.2016
Book Value
30.6.2016
Fair value
31.12.2016
Book value
31.12.2016
Fair value
Financial assets
Non-current:
Available-for-sale financial assets 38 38 41 41 38 38
Non-current trade and other
receivables
1 120 1 120 2 557 2 557 1 212 1 212
Current:
Current trade receivables 23 373 23 373 27 208 27 208 24 838 24 838
Current other receivables 119 119 6 935 6 935 208 208
Cash and cash equivalents 23 610 23 610 21 799 21 799 35 755 35 755
Financial liabilities
Non-current:
Financial liabilities valued at amortized
acquisition cost:
Loans from financial institutions,
interest-bearing
18 184 18 184 15 300 15 300 36 732 36 732
Current:
Loans from financial institutions,
interest-bearing
22 096 22 096 0 0 10 548 10 548
Trade payables and other liabilities 10 030 10 030 48 659 48 659 11 350 11 350

COMMITMENTS AND CONTINGENT LIABILITIES

EUR thousand 30.6.2017 30.6.2016 31.12.2016
Own guarantees
Business mortgages of own debts 1 200 1 200 1 200
Guarantees 234 304 273
Commitments on behalf of subsidiaries
and group companies
Guarantees 100 37 100
Other own guarantees
Lease liabilities
Current lease liabilities 959 1 101 1 169
Lease liabilities maturing in 1–5 years 860 1 310 1 362
Total 1 818 2 411 2 530
Other rental liabilities
Current rental liabilities 5 763 5 043 4 989
Rental liabilities maturing in 1–5 years 10 690 7 704 9 421
Rental liabilities maturing later 0 509 41
Total 16 453 13 256 14 452
Other own contingent liabilities, total 18 271 15 667 16 983
Total commitments and contingent liabilities 19 805 17 208 18 555

RELATED PARTY TRANSACTIONS

EUR thousand 30.6.2017 30.6.2016 31.12.2016
Joint venture:
Sales 0 526 784
Trade receivables 0 99 200

GROUP QUARTERLY INCOME STATEMENT

EUR thousand 4-6/
2017
1-3/
2017
10-12/
2016
7-9/
2016
4-6/
2016
1-3/
2016
10-12/
2015
7-9/
2015
NET SALES 37 289 36 801 40 211 35 295 38 948 34 125 39 210 33 569
Other operating income 156 0 4 0 0 0 85 -3
Materials and services -3 630 -3 734 -4 600 -3 576 -3 959 -3 611 -4 098 -3 852
Employee benefit expenses -25 375 -26 459 -27 614 -24 070 -29 068 -23 848 -22 456 -19 238
Depreciation and
amortization
-2 469 -2 592 -2 391 -2 185 -2 129 -1 848 -1 919 -1 827
Other operating expenses -8 738 -9 108 -9 623 -7 682 -8 792 -7 533 -6 517 -7 654
Operating result -2 767 -5 092 -4 014 -2 218 -4 999 -2 716 4 305 996
% 11.0% 3.0%
Finance income 111 459 379* 80* 122* 164* 556 609
Finance expenses -568 -971 -84,* -88,* -120* -595* -605 87
Share of results of a joint
venture
-396 -482 -373 -544 -626 -626 -975 -205
Result before tax -3 621 -6 086 -4 091** -2 770** -5 622 -3 773 3 281 1 488
% 8.4% 4.4%
Income taxes 207 706 43 -15 1 094 816 -327 -240
RESULT FOR THE
PERIOD
-3 414 -5 380 -4 048** -2 785** -4 528 -2 957 2 954 1 249
% 7.5% 3.7 %

*The automatic currency valuation booking policy of cashpool accounts has been clarified. Comparative information from year 2016 has been changed accordingly and the change has no impact on net financial items or result for the period.

**Timing of the unrealized exchange loss from intragroup financing arrangements has been adjusted between Q3 and Q4 2016 interim report numbers. Adjustment doesn't have impact on total equity or other balance sheet items at group level in the quarters, nor on Financial Statements 2016 at yearly level.

GROUP KEY INDICATORS

EUR thousand 1-6/2017 1-6/2016 1-6/2015 1-12/2016
Net sales 74 090 73 073 70 631 148 580
Growth of net sales, % 1.4 % 3.5 % 12.4% 3.6 %
Organic revenue growth* 1.8 % 2.5 % 0.3 %
EBITDA -2 798 -3 737 2 855 -5 394
% of net sales 4.0%
Adjusted EBITDA -1 282 -2 978 1 797 2 063
% of net sales 2.5 % 1.4 %
Operating result -7 859 -7 714 -625 -13 946
% of net sales
Adjusted operating result -6 343 -6 955 -1 682 -6 490
Result before tax -9 707 -9 395 -1 206 -16 256
% of net sales
Result for the period -8 794 -7 485 -1 120 -14 318
% of net sales
Return on equity, % -13.9 % -10.7 % -1.6% -10.5 %
Return on investment, % -9.6 % -11.7 % 0.5% -9.5 %
Interest-bearing liabilities 40 280 15 300 15 833 47 280
Cash and cash equivalents** 23 610 21 799 62 570 35 755
Gearing, % 13.9 % -4.7 % -33.7% 8.7 %
Equity ratio, % 56.1 % 66.1 % 67.9% 58.5 %
Total assets 214 399 210 072 204 289 227 043
Gross investments 7 224 41 029 31 232 51 882
% of net sales 9.8 % 56.1 % 44.2 % 34.9 %
Acquisitions 0 34 118 26 415 36 341
Investments in Joint Ventures 0 3 037 0 3 037
Research and development investments, expensed*** 6 796 6 139 4 904 12 146
Research and development costs, capitalised 5 365 5 059 3 834 10 878
Research and development investments, total 12 161 11 199 8 738 23 024
% of net sales 16.4 % 15.3 % 12.4 % 15.5 %
R&D personnel at end of period 400 427 358 419
Other capitalised expenditure 1 859 1 815 904 1 625
Personnel expenses 51 835 52 916 23 221 104 600
Personnel on average during the period 1 847 1 765 1 601 1 811
Personnel at end of period 1 838 1 828 1 649 1 889
Change in personnel, % 0.6 % 10.9 % 13.0% 14.6 %

*at constant currencies

**including short term deposits maturing within 3 months from the period end

***R&D expenses modified excluding depreciation

Group Share Indicators 1-6/2017 1-6/2016 1-6/2015 1-12/2016
Earnings per share, undiluted -0.61 -0.53 -0.08 -1.00
Earnings per share, diluted -0.61 -0.52 -0.08 -1.00
Adjusted earnings per share, undiluted -0 51 -0.47 -0.15 -0.48
Adjusted earnings per share, diluted -0.51 -0.47 -0.15 -0.48
Equity per share 8.38 9.68 9.80 9.26
Price per earnings (P/E) -64.40 -66.41 -505.44 -36.24
Share price performance
lowest price 34.40 30.48 35.98 30.48
highest price 39.50 39.91 44.89 40.90
average price 35.51 35.60 39.93 36.22
closing price 39.45 34.57 40.00 36.30
Market capitalization at end of period* 566 490 283 495 848 365 566 030 800 520 662 298
Share issue adjusted number of
traded shares 160 210 948 598 1 809 791 1 931 525
% of average number of shares 1.1 % 6.6 % 12.8 % 13.5 %
Number of shares
- at end of the period 14 359 703 14 343 314 14 150 770 14 343 314
- average during the period 14 354 944 14 244 170 14 149 810 14 293 754
- average during the period, diluted 14 371 672 14 261 081 14 164 540 14 313 442

*Excluding treasury shares

SHARE AND SHAREHOLDERS

Basware Corporation's share capital totalled EUR 3 528 368 (3 528 368) at the end of the quarter and the number of shares was 14 401 936 (14 401 936). Basware Corporation holds 45 189 (58 622) of its own shares, corresponding to approximately 0.3 percent (0.4 %) of the total number of shares.

Basware had 12 278 (13 099) shareholders at the end of the quarter, including 9 nominee-registered holdings (10). Nominee-registered holdings accounted for 39.6 percent (33.9 %) of the total number of shares.

The company's Annual General Meeting of March 16, 2017, authorized the Board of Directors to decide on the repurchase of the company's own shares and on share issue as well as on the issuance of options and other special rights entitling to shares.

Additional information on shareholdings of major shareholders is available on the company's investor site at www.basware.com/investors.

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