GK Software SE — Interim / Quarterly Report 2017

May 30, 2017

Summary of Consolidated Results

				Change
		31.3.2017	31.3.2016	(2016/2017)
Sales	EUR K	20,116	15,436	30.3 %
Operating performance	EUR K	20,116	15,561	29.3 %
Total operating revenue	EUR K	20,564	16,685	23.2 %
EBIT	EUR K	168	(1,471)	-
EBIT margin (on sales)	%	0.8	(9.5)	-
EBIT margin (on total operating revenue)	%	0.8	(8.8)	-
EBITDA	EUR K	999	(480)	-
EBT	EUR K	43	(1,562)
Net loss for the period	EUR K	(374)	(1,554)	75.9 %
Earnings per share (weighted)	EUR	(0.20)	(0.79)	-
Earnings per share (diluted)	EUR	(0.19)	(0.79)	-
Equity ratio	%	40.0	44.2	-
Net debt	EUR K	(3,927)	8,746	(144.9) %
Employees		911	739	23.3 %

First quarter of 2017: Increase in turnover of 30 percent and continuing improvement in earnings situation

Dear shareholders,

We are pleased to once again be able to present you with the quarterly report for GK Software 1  for the first three months of the 2017 financial year; the results continue the positive trend of the past year in an outstanding manner. We again managed to significantly increase the Group's turnover in comparison with the previous year and achieved a figure of EUR 20.12 million. The rise amounts to an increase of more than 30 percent, following a figure of EUR 15.44 million in the previous year. Although the first quarter was only characterised by the low contribution made by the licence business, as is normal at this time of the year, EBITDA at EUR 1.00 million were significantly higher than the figure achieved during the previous year of EUR (0.48) million. This created EBIT of EUR 0.17 million, which exceed the previous year's figure by EUR 1.64 million. Based on these results for the first quarter, we believe that we are well on the way to achieving our goals for the year.

The most important success stories during the first quarter of 2017 was five more productive launches of our new OmniPOS cloud solution in several European countries and the USA, after the first complete rollout had already been concluded in 2016. These results show that we can also demonstrate our ability to complete projects with this new product in a short time. Alongside this, we are continuing to develop OmniPOS all the time and are augmenting the solution with more innovative functions for use in the omni-channel environment. They include new and ongoing developments in the fields of mobile customer engagement, self-scanning or pick&pack.

Among other things, we will be suggesting to the annual shareholders' meeting in June this year that the legal form of GK Software AG should be changed to a European company (Societas Europaea or SE). In the joint view of the Management Board and the Supervisory Board, the planned change in legal form reflects the Company's self-image as a strongly growing firm that is geared towards the international market and it also takes into account the distribution of business across several European business sites. The modern SE legal form also provides the opportunity of optimising the Company's corporate governance structure.

We are expecting further success stories both through our direct sales and also through our partner sales during the 2017 financial year and beyond. Our sales pipeline continues to be very well filled and we believe that we are in an excellent position in several ongoing tender procedures.

1 – The expression GK Software always refers to the corporate Group in the following text. "The Company" is also used as a synonym. When GK Software AG is used, this exclusively refers to the individual company.

Market environment

The prospects for the retail trade continue to be excellent in 2017 too. This is reflected, among other things, in the forecast provided by the German Retail Federation (HDE), which is expecting nominal growth of 2.0 percent to a figure of EUR 491.9 billion during the current year. The German Retail Federation views ongoing excellent consumer confidence, the high level of employment, rising incomes, a steady savings rate and a low level of consumer price increases as the basis for continued growth. The HDE forecast for 2017 is also supported by several surveys of retailers, which are conducted regularly and focus on their business prospects. The latest "e-KIX" retailers' survey in February 2017, for example, showed that approximately 85 percent of the retailers questioned expected their business to remain constant or improve over the twelve-month period. An even more positive picture is provided by Ernst & Young; its survey indicated that 91 percent of retailers expected improvements in their business in 2017 compared to the previous year. The trend towards positive developments in the retail trade seems to be continuing internationally too in most markets where GK Software is active.

Employees

GK Software currently employs 914 members of staff (the figure on 31 March 2017; the previous year's figure was 794); this therefore represents an increase of 120 over the number at the end of the same reporting period in the previous year.

Segment results

The strong growth during the first quarter was sustained by our GK/Retail core business unit (+39.5 percent). If we examine the make-up of the turnover according to different types of work, it is clear that this growth in the GK/Retail business segment primarily took place in software development (+92.2 percent) and maintenance work (+28.3 percent). We recorded a decline of approx. fifty percent in the licence turnover, although we are expecting this figure to pick up during the coming quarters. Other turnover during the first quarter was negligible.

Turnover in the IT Services segment declined slightly by 2.6 percent to a figure of EUR 3.0 million in comparison with the same period in the previous year. The increases in licence turnover (to EUR 0.07 million) and in the field of maintenance (+37.2 percent to EUR 1.97 million) should be viewed as positive here.

In the relation of types of turnover to each other, licences (3.2 percent) were only able to make a small contribution to turnover, although we are optimistic for the ongoing course of the year. Overall, the turnover for software development services (+85.3 percent to EUR 12.16 million) and maintenance (+29.6 percent to EUR 6.50 million) each increased significantly, although the figure for software development was most striking. As a result, software development services contributed 60.4 percent (42.5 percent in the same quarter in the previous year) and maintenance services 32.3 percent (32.5 in the same quarter in 2016) to total turnover.

The following overview shows the distribution of turnover in terms of products and areas of work:

Turnover by segments
		GK/Retail		SQRS		IT-Services		Eliminations		Group
EUR K		3M 2017 3M 2016 3M 2017 3M 2016 3M 2017 3M 2016 3M 2017 3M 2016 3M 2017 3M 2016
Turnover with third parties	16,921	12,128	201	235	2,994	3,073	-	-	20,116	15,436
Licences	574	1,123	-	-	74	35	-	-	648	1,158
Maintenance	4,332	3,377	200	206	1,968	1,434	-	-	6,500	5,017
Services	11,930	6,206	1	29	227	328	-	-	12,158	6,563
GK Academy	58	66	-	-	-	-	-	-	58	66
Other business	34	1,366	-	-	749	1,294	-	-	783	2,660
Revenue reductions	(7)	(10)	-	-	(24)	(18)	-	-	(31)	(28)
Turnover with other segments	22	76	-	-	156	-	(178)	(76)	-	-
EBIT segment	(357)	(1,356)	104	103	423	(217)	(1)	-	169	(1,470)
Assets	75,221	64,360	2,662	2,504	11,983		9,947 (11,458)	(9,432)	78,408	67,388
Debts	46,807	38,877	305	469	9,180	7,876	(9,248)	(7,222)	47,044	39,998
Cash and cash equivalents	12,354	5,643	635	1,000	3,939	2,055	-	-	16,928	8,698

The decision to no longer continue selling the SQRS solutions in future has been maintained. The exchange of services between the segments is governed by servicing contracts, which are geared towards the normal revenues of the segments in their outside markets. Supply contracts are used as a basis to calculate the administrative services according to the estimated time required to provide these based on experience.

Assets and financial situation

The Group's assets and financial situation improved in comparison with the last published declaration in the financial statement for the year 2016. The Group's cash and cash equivalents in particular rose. There was no change in the Company's opportunities and risks.

Financial forecast and outlook

The Management Board at GK Software is continuing to stand by its forecast without making any changes, as expressed in the financial statement for the year 2016, provided that the general economic and political conditions remain as they are; we are repeating this here.

It is probable that turnover in the GK/Retail segment will continue to increase significantly during 2017. In the medium term (up to 2018), we anticipate that we will be able to increase turnover by fifty percent compared with 2015 (EUR 62.60 million in the reporting year). However, if business develops in a consistently positive manner, it is possible that we could reach this goal in terms of turnover this year. We would still point out that the development to reach our medium-term goal may not necessarily occur in anything approaching a linear fashion.

We cannot provide a forecast for profitability for individual years either. However, we assume that we will once again be able to achieve our former target margin level (EBIT margin) on earnings before interest and taxes of more than 15 percent in our core business segment in the medium term (by 2018). We are expecting further improvements over the previous year's figure of +5.1 percent; however, postponements of projects and other activities in non-European target markets, which have a high degree of priority for us, could entail further considerable costs and lower our expectations regarding profitability.

Schöneck, 30 May 2017

The Management Board

Rainer Gläss CEO

André Hergert CFO

Consolidated balance sheet on 31 March 2017

Assets

T.02

	31.3.2017	31.12.2016
EUR	(not audited)	(audited)
Property, plant and equipment	9,588,087.50	8,901,911.66
Intangible assets	23,233,220.52	23,827,867.37
Financial assets	5,300.00	6,660.00
Active deferred taxes	4,091,343.19	4,633,639.37
Total non-current assets	36,917,951.21	37,370,078.40
Goods	1,025,667.92	955,799.48
Auxiliary materials and supplies	300,565.39	224,437.31
Initial payments made	80,428.59	44,202.34
Trade accounts receivable	13,349,048.68	18,031,736.01
Trade accounts receivable from ongoing work	3,821,208.93	3,480,270.93
Income tax claims	351,088.99	281,750.19
Accounts receivable with associated firms	2,820.45	2,820.45
Other accounts receivable and assets	5,631,803.95	5,206,555.81
Cash and cash equivalents	16,927,588.28	6,017,394.86
Total current assets	41,490,221.18	34,244,967.38
Balance sheet total	78,408,172.39	71,615,045.78

T.03

Liabilities

Balance sheet total	78,408,172.39	71,615,045.78
Total current liabilities	31,150,020.37	25,118,392.43
Other current liabilities	23,990,585.54	15,037,216.39
Income tax liabilities	200,438.02	392,446.33
Initial payments received	1,270,067.37	269,587.96
Liabilities from trade payables	1,719,221.73	2,187,040.24
Current bank liabilities	2,729,324.43	5,776,643.68
Current provisions	1,240,383.28	1,455,457.83
Total non-current liabilities	15,894,112.46	14,842,562.01
Deferred tax liabilities	2,961,915.37	3,162,764.06
Deferred government grants	915,935.22	926,136.83
Non-current bank liabilities	10,271,638.87	8,986,687.12
Provisions for pensions	1,744,623.00	1,766,974.00
Total equity	31,364,039.56	31,654,091.34
Shortfall for period	(374,132.63)	2,825,866.05
Profit brought forward	11,998,085.79	9,172,219.74
Other reserves (OCI from introducing IAS 19 2011, IAS 21)	(825,033.97)	(853,054.50)
Retained earnings	31,095.02	31,095.02
Capital reserves	18,644,025.35	18,587,965.03
Subscribed capital	1,890,000.00	1,890,000.00
EUR	(not audited)	(audited)
	31.3.2017	31.12.2016

Consolidated profit and loss statement and other results from 1 January to 31 March 2017

consolidated surplus/ shortfall - undiluted Earnings per share (EUR/ share) from the	(0.20)	(0.82)	1.50
Earnings per share (EUR/ share) from the
of which attributable to the owners of the parent company	(346,112.11)	(1,637,643.18)	2,464,064.46
Overall results	(346,112.11)	(1,637,643.18)	2,464,064.46
Actuarial gains/ losses from defined benefit pension plans	0.00	0.00	(285,098.57)
Items, which will not be reclassified in the consolidated profit and loss statement in future
Differences in exchange rates from recalculating for eign business operations	28,020.52	(83,991.33)	(76,703.02)
Items, which will be reclassified in the consolidated profit and loss statement in future under certain conditions
Other results after income taxes
Consolidated surplus/ shortfall for the period	(374,132.63)	(1,553,651.85)	2,825,866.05
Income taxes	(417,011.40)	8,231.28	(625,835.17)
Income tax results	42,878.77	(1,561,883.13)	3,451,701.22
Financial results	(124,884.96)	(90,422.85)	(490,747.94)
Financial expenditure	(141,055.71)	(134,697.89)	(637,160.67)
Financial income	16,170.75	44,275.04	146,412.73
Operating results	167,763.73	(1,471,460.28)	3,942,449.16
Total operating expenses	(20,396,415.95)	(18,156,882.46)	(75,540,520.48)
Other operating expenditure	(4,038,252.87)	(3,830,464.64)	(16,329,889.01)
Depreciation and amortisation	(831,488.33)	(991,722.76)	(3,860,678.44)
Materials expenditure Personnel expenditure	(1,868,391.02) (13,658,283.73)	(2,018,331.61) (11,316,363.45)	(7,680,693.58) (47,669,259.45)
Turnover and other revenues	20,564,179.68	16,685,422.18	79,482,969.64
Other operating revenues	448,428.84	1,124,765.23	1,768,668.62
Own work capitalised		125,023.50	381,689.00
Turnover revenues	- 20,115,750.84	15,435,633.45	77,332,612.02
Ongoing business operations
			(audited)
	31.3.2017	31.3.2016	31.12.2016
EUR	(not audited)	(not audited)

Consolidated cash flow statement on 31 March 2017

EUR K	31.3.2017 (not audited)	31.3.2016 (not audited)
Cash flows from operating business
Surplus/ shortfall for period	(374)	(1,554)
Share option scheme (non-cash expenditure)	56
Income taxes affecting results	417
Interest income/ expenses affecting results	125
Profit/ loss from the sale or disposal of property, plant and equipment	(2)
Reversals of deferred public sector subsidies	(10)
Write-downs recognised for receivables	0
Depreciation and amortisation	831
Net foreign currency losses	255
Net profits from financial tools assessed at their fair value	104	(610)
Other non-cash revenues and expenditure	2
Cash flow from operating business	1,404	(1,087)
Changes in net current assets
Changes in trade accounts receivable and other receivables	3,734	3,886
Changes in inventories	(182)	(163)
Changes in trade accounts payable and other liabilities	8,456
Changes in initial payments received	1,000	(227)
Changes in provisions	(257)
Interest paid	(116)
Income taxes paid	(337)	(328)

Cash flows from investment activities and financing activities, loans and means of payment
--------------------------------------------------------------------------------------------	--

EUR K	31.3.2017 (not audited)	31.3.2016 (not audited)
Amount carried forward
Net inflow of funds (net outflow in previous year) from operating activities	13,702	2,553
Cash flow from investment activities
Payments for property, plant and equipment and non-current assets	(1,149)	(231)
Proceeds from disposals of fixed assets	2	1
Disbursement as part of a company acquisition	-	(71)
Interest payments received	54	30
Disbursed loans	-	(8)
Proceeds from the repayment of loans	64	2
Net cash outflow for investment activities	(1,029)	(277)
Cash flow from financing activities
Taking out loans	1,927	467
Repayment of loans	(596)	(479)
Net inflow (previous year: net outflow) in cash from financing activities	1,331	(12)
Net outflow of cash and cash equivalents	14,004	2,264
Cash and cash equivalents at the beginning of the financial year	2,812	7,377
Cash and cash equivalents at the end of the financial year	16,855	9,641
Impact of changes in exchange rates on cash and cash equivalents	39	0
Limited available funds	1,055	1,037
Cash and cash equivalents
EUR K	31.3.2017 (not audited)	31.3.2016 (not audited)

Cash and cash equivalents at the end of the financial year	16,855	9,641
Utilisation of current account credit/ credit card/ exchange rate	(73)	894
Liquid assets	16,928	8,747
EUR K	(not audited)	(not audited)

Financial Calendar

22 June 2017 Annual shareholders' meeting 2017 in Schöneck/V.

30 August 2017 Interim report as of 30 June 2017

27 – 29 November 2017 Analyst conference in Frankfurt/M.

29 November 2017 Interim statement as of 30 September 2017

26 April 2018 Annual report as of 31 December 2017

30 May 2018 Interim statement as of 31 March 2018

21 June 2018 Annual shareholders' meeting 2018 in Schöneck/V.

30 August 2018 Interim report as of 30 June 2018

November 2018 Analyst conference in Frankfurt/M.

26 November 2018 Interim statement as of 30 September 2018

Imprint/Notes

Imprint

Publisher:

GK Software AG Waldstraße 7 08261 Schöneck

P: +49 37464 84-0 F: +49 37464 84-15

www.gk-software.com investorrelations@gk-software.com

Chairman of the Supervisory Board:

Dipl.-Volkswirt Uwe Ludwig

Management board:

Dipl.-Ing. Rainer Gläß, CEO Dipl.-Kfm. André Hergert, CFO

Amtsgericht Chemnitz HRB 19157

USt.-ID. DE 141 093 347

Contact Investor Relations

GK Software AG Dr. René Schiller Friedrichstr. 204 10117 Berlin

P: +49 37464 84-264 F: +49 37464 84-15

rschiller@gk-software.com

Notes

Note to the statement

This interim statement is the English translation of the original German version. In case of deviations between these two the German version prevails. This interim statement is in both languages can be downloaded at https://investor.gk-software.com.

Note regarding the rounding of figures

Due to the commercial rounding of figures and percentages small deviations may occur.

Disclaimer

This interim statement includes statements concerning the future, which are subject to risks and uncertainties. They are estimations of the Board of Management of GK Software AG and reflect their current views with regard to future events. Such expressions concerning forecasts can be recognised with terms such as "expect", "estimate", "intend", "can", "will" and similar terms relating to the Company. Factors, which can have an effect or influence are, for example (without all being included): the development of the retail and IT market, competitive influences including price changes, regulatory measures and risks with the integration of newly acquired companies and participations. Should these or other risks and uncertainty factors take effect or should the assumptions underlying the forecasts prove to be incorrect, the results of GK Software AG could vary from those, which are expressed or implied in these forecasts. The Company assumes no obligation to update such expressions or forecasts.