Qt Group Oyj — Audit Report / Information 2020

Feb 18, 2021

Financial statements bulletin January 1–December 31, 2020

Financial statements bulletin January 1–December 31, 2020

Qt Group Plc Stock exchange release 18 February 2021 at 8:00 (EET)

Fourth quarter: Growth continued and profitability improved more than expected

Fiscal year 2020

•    Net sales increased by 36.1 percent to EUR 79,455 thousand (58,373)*. At
comparable exchange rates, net sales increased by 37.7 percent.
•    Net sales of distribution licenses grew by 4.8 percent to EUR 15,255
thousand (14,556).
•    The operating result was EUR 17,017 thousand (219).
•    The operating margin (EBIT-%) was 21.4 percent (0.4%).
•    Earnings per share were EUR 0.53 (-0.01).

October–December 2020

•    Net sales increased by 40.9 percent to EUR 23,819 thousand (16,907)*. At
comparable exchange rates, net sales increased by 46.6 percent.
•    The operating result was EUR 6,134 thousand (-48).
•    The operating margin (EBIT-%) was 25.8 percent (-0.3%).
•    Earnings per share were EUR 0.19 (-0.01).

*  the figures in brackets refer to the comparison period, i.e. the
corresponding period in the previous year.

This financial statement bulletin was prepared in compliance with IAS 34 Interim
Financial Reporting. The amounts from the financial statements presented in this
bulletin are based on the company’s audited financial statements. The Auditor’s
Report was issued on 17 February 2021.

BOARD OF DIRECTORS’ DIVIDEND PROPOSAL

The Board of Directors of Qt Group Plc proposes to the Annual General Meeting
that no dividend be paid for the fiscal year that ended on December 31, 2020.

Business Report

Financial performance:

Qt’s net sales for the fourth quarter amounted to EUR 23,819 thousand (EUR
16,907 thousand), up 40.9 percent. License sales and consulting grew by 55.3
percent, while maintenance revenue increased by 4.0 percent. The effect of
exchange rates on the comparison period’s net sales was EUR -663 thousand and at
comparable exchange rates, net sales increased by 46.6 percent.

Full-year net sales for 2020 increased by 36.1 percent year-on-year and amounted
to EUR 79,455 thousand (EUR 58,373 thousand). License sales and consulting grew
by 46.9 percent, while maintenance revenue increased by 11.7 percent. As part of
license sales and consulting, the net sales of distribution licenses grew by 4.8
percent to EUR 15,255 thousand (14,556 thousand). The effect of exchange rates
on the comparison period’s net sales was EUR -662 thousand and at comparable
exchange rates, net sales increased by 37.7 percent.

Qt’s operating result for October–December 2020 was EUR 6,134 thousand (EUR -48
thousand). The operating result for the financial year was EUR 17,017 thousand
(EUR 219 thousand). Expenses for the financial period were particularly
increased by subcontracting costs, which were allocated on consulting and
product development, among other things, and an increase in wages due to an
increase in personnel. Travel and marketing expenses were lower than in the
comparison period.

The Group had 366 employees at the end of 2020, compared to 340 a year earlier.
The increase in the number of employees has been strongest in the sales
organization and the Asian consulting organization.

Juha Varelius, President and CEO:

The fiscal year 2020 was exceptional in many ways due to the global COVID-19
pandemic, but a very successful one as a whole for Qt Group. The company
succeeded in increasing its net sales very strongly throughout the year, while
the profitability of operations remained at a very good level. Excellent sales
of developer licenses was a particular growth driver. Sales of developer
licenses were particularly good in the EMEA region. The demand for consulting
services also remained even surprisingly strong despite the COVID-19 epidemic
during the fiscal year.

The growth rate of distribution license revenue, on the other hand, fell short
of the company’s expectations during the fiscal year. Starting from the spring
2020, the COVID-19 epidemic has led to project postponements and production
interruptions of various degrees to many of the company’s customers, which has
meant that the customer companies have not been able to launch their products as
they have previously scheduled. As a result, also the company’s distribution
license revenue from the sales of customers’ products was lower than expected.
During the second half of the fiscal year, growth in net sales also faced
difficulty due to the impact of exchange rates.

Following the publication of the new major product version, Qt 6.0, in December,
the company will migrate to a new recurring invoicing model in developer license
sales. The updated pricing model is expected to have a positive effect on the
net sales of developer licenses in 2021–2023.

In response to the COVID-19 epidemic, the company widely adopted remote work
arrangements already in the spring 2020. As shown by the company’s success,
remote work has gone well in the company. However, remote work has had a
negative impact on the number and quality of customer meetings. We slowed down
recruitment efforts early in the COVID-19 crisis but restored the normal level
of recruitment towards the end of the year. The COVID-19 epidemic has also
resulted in many marketing events being cancelled, postponed, or replaced by
virtual events.

The strong growth in net sales was also favorably reflected in the development
of the operating result. The positive development of the operating result was in
part supported by costs being lower than budgeted, as growth investments could
not be made in all respects as planned due to the COVID-19 pandemic. The
operating result showed a profit by a clear margin throughout the fiscal year,
and the operating margin even exceeded 25% during the second half of the fiscal
year.

The company launched new versions of several products during the fiscal year
2020. In addition to the new major product version Qt6, the company released new
versions of Qt for MCUs 1.4, Qt Design Studio 1.6 and Qt Automotive Suite 5.15
products, among others, to improve compatibility between the different tools and
enable customers to further enhance their development of embedded systems.

The company has systematically progressed in accordance with the growth targets
set in 2016 and is in an excellent position to reach its goals going forward as
well, both during its current strategy period ending in 2021 and the new
strategy period extending to 2025.

Future Outlook

Operating environment and market outlook

The company estimates the growth prospects for its business in the next few
years as very promising. The Group’s business development efforts will focus on
desktop applications as well as embedded systems in the automotive industry,
consumer electronics, medical devices, and industrial automation sectors.
Product development efforts will also focus on the value-added features and
tools needed in the creation of embedded systems. Sales growth associated with
embedded systems will also reflect on the earnings logic. Volume-based
distribution license revenue from these sales accumulates over the long term.
Accordingly, it is typical of Qt as a company that quarterly net sales and
growth may vary significantly between quarters. In addition to organic growth,
the company also pursues growth opportunities through acquisitions that support
its strategy.

The future outlook involves increased short-term uncertainty due to the
coronavirus epidemic. The coronavirus epidemic has caused diverse negative
impacts of varying degrees to the business of many companies globally. From the
company’s point of view, these impacts have mainly been visible in the form of
slower growth in net sales from distribution license sales for the time being.
If the epidemic continues, these impacts on the company’s operations will
presumably also continue. Should it be prolonged, the negative impacts of the
epidemic may also extend to the consulting services provided by the company.
Going forward, in the event the company succeeds in pursuing its growth
investments according to plans, associated costs will burden the development of
the operating result more than in the past fiscal year.

Outlook 2021

We estimate that the impacts of the COVID-19 epidemic on the general market
situation as well as the company’s business will continue during the first half
of 2021, after which the situation will start to get better during the second
half of the year. We estimate that our full-year net sales for 2021 will
increase by 25–35 percent year-on-year at comparable exchange rates and our
operating profit margin will be at least 15 percent.
Financial reporting

Net sales and profit performance

Qt’s net sales for the fourth quarter amounted to EUR 23,819 thousand (EUR
16,907 thousand), up 40.9 percent.  License sales and consulting grew by 55.3
percent, while maintenance revenue increased by 4.0 percent. The effect of
exchange rates on the comparison period’s net sales was EUR -663 thousand and at
comparable exchange rates increased by 46.6 percent.

Qt’s operating result for the period under review October–December 2020 was EUR
6,134 thousand (EUR -48 thousand). The company’s operating expenses, including
materials and services, personnel expenses, depreciation and other operating
expenses, amounted to EUR 17,781 thousand (EUR 17,636 thousand) in the fourth
quarter, up 0.8 percent year-on-year. Personnel expenses accounted for 65.1
percent (62.6%) of operating expenses, or EUR 11,572 thousand (EUR 11,040
thousand).

The company’s net financial expenses in the fourth quarter amounted to EUR 442
thousand (EUR 66 thousand positive), due to translation differences in currency
-denominated internal receivables and debts related to the financing of
international subsidiaries.

Qt’s earnings before tax for the fourth quarter totaled EUR 5,691 thousand (EUR
18 thousand) and the result was EUR 4,462 thousand (EUR -205 thousand). Taxes
for the period under review amounted to EUR 1,229 thousand (EUR -222 thousand).

Earnings per share totaled EUR 0.19 during the fourth quarter (EUR -0.01).

Full-year net sales for 2020 increased by 36.1 percent year-on-year and amounted
to EUR 79,455 thousand (EUR 58,373 thousand). License sales and consulting grew
by 46.9 percent, while maintenance revenue increased by 11.7 percent. As part of
license sales and consulting, the net sales of distribution licenses grew by 4.8
percent to EUR 15,255 thousand (EUR 14,556 thousand). The effect of exchange
rates on the comparison period’s net sales was EUR -662 thousand and at
comparable exchange rates, net sales increased by 37.7 percent.

The operating result for the financial year was EUR 17,017 thousand (EUR 219
thousand). The company’s operating expenses, including materials and services,
personnel expenses, depreciation and other operating expenses, amounted to EUR
62,901 thousand (EUR 59,434 thousand), up 5.8 percent year-on-year. Personnel
expenses accounted for 67.0 percent (66.2%) of operating expenses, or EUR 42,140
thousand (EUR 39,359 thousand). Expenses for the period under review were
particularly increased by subcontracting costs, which were allocated on
consulting and product development, higher salary expenses driven by increased
number of personnel and a performance-based bonus scheme for revenue growth.
Travel and marketing expenses were lower than in the comparison period.

The company’s net financial expenses for the financial year amounted to EUR 657
thousand (EUR 102 thousand), due to translation differences in currency
-denominated internal receivables and debts related to the financing of
international subsidiaries.

The other operating income includes income from events held and tax-free
research and development investment grants received by the company in Norway,
totaling approximately EUR 222 thousand (EUR 351 thousand). The grants concern
the applicable personnel expenses related to the research and development
activities of Qt’s Norwegian company, and they were paid to the company in the
second half of 2020.

Qt’s earnings before tax for the financial year totaled EUR 16,360 thousand (EUR
117 thousand) and the result was EUR 12,826 thousand (EUR -352 thousand). Taxes
for the period under review amounted to EUR 3,534 thousand (EUR 469 thousand).

Earnings per share for the financial yar totaled EUR 0.53 (EUR -0.01).

Financing and investments

Cash flow from operating activities during the financial year was EUR 12,745
thousand (EUR 6,110 thousand) due to positive result. Qt’s cash and cash
equivalents totaled EUR 22,046 thousand (EUR 11,944 thousand) at the end of the
financial year.

Qt Group’s consolidated balance sheet total at the end of the financial year
stood at EUR 61,416 thousand (EUR 49,996 thousand). Net cash flow from
investments in the financial year was EUR -630 thousand (EUR -465 thousand).

The equity ratio was 66.6 percent (54.3%) and gearing was -64.9 percent (
-46.4%). Interest-bearing liabilities amounted to EUR 2,655 thousand (EUR 4,081
thousand) of which short-term loans accounted for EUR 1 282 thousand (EUR 1,625
thousand).

The return on investment for the financial year was 63.6 percent (1.1%) and
return on equity was 54.8 percent (-2.0%).

Research and development

Product development expenses are included in the result for the fiscal year in
their entirety and the company has no capitalised product development expenses
on its balance sheet.

Product development expenses during the fiscal year totaled EUR 13,601 thousand
(EUR 12,865 thousand), accounting for 17.1 percent (22.0%) of net sales. Product
development expenses increased by 5.7 percent year-on-year.
There were, on average, 117 people working in product development during the
financial year (119).

Personnel

The number of Group personnel was 361 (342) on average during the fourth quarter
and 366 (340) at the end of the financial year. The Group’s personnel expenses
during the quarter amounted to EUR 11,572 thousand (EUR 11,040 thousand), up 4.8
percent year-on-year. Personnel expenses totaled EUR 42,140 thousand (EUR 39,359
thousand), during the financial year, up 7.1 percent.

At the end of the financial year, international personnel represented 73 percent
(71%) of the total.

Other events in the review period

Governance

Qt Group Plc’s Annual General Meeting held on March 10, 2020, adopted the
company’s annual accounts, including the consolidated annual accounts for the
accounting period January 1‒December 31, 2019, approved the Remuneration Policy
of the company’s governing bodies and discharged the Members of the Board and
the Chief Executive Officer from liability. The general meeting resolved, in
accordance with the Board’s proposal, that no dividend will be paid based on the
balance sheet adopted for the accounting period that ended on December 31, 2019.

The general meeting resolved on the remuneration of the company’s Board of
Directors and auditors, decided that the number of members on the Board of
Directors would be five (5) and elected the company’s Board of Directors. Robert
Ingman, Jaakko Koppinen, Mikko Marsio, Leena Saarinen and Tommi Uhari were re
-elected as members of Qt Group Plc’s Board of Directors. At its organizing
meeting held after the general meeting, the Board of Directors elected Robert
Ingman as its Chairman and Tommi Uhari as the Vice Chairman.

The general meeting granted the following authorizations to the Board of
Directors of Qt Group Plc:

Authorizing the Board of Directors to decide on repurchasing the company’s own
shares and/or accepting them as collateral

The general meeting authorized the Board of Directors to decide on the
repurchase and/or acceptance as collateral of a maximum of 2,000,000 of the
company’s own shares by using funds in the unrestricted equity.

According to the authorization, the Board will decide on how these shares are to
be purchased. The shares may be repurchased in a proportion other than that of
the shares held by the current shareholders. The authorization also includes the
acquisition of shares through public trading organized by Nasdaq Helsinki Ltd in
accordance with its and Euroclear Finland Ltd’s rules and instructions, or
through offers made to shareholders.

Shares may be acquired in order to improve the company’s capital structure, to
finance or carry out acquisitions or other arrangements, to implement share
-based incentive schemes, to be transferred for other purposes, or to be
cancelled.

The shares shall be repurchased for a price based on the fair value quoted in
public trading. The authorization is valid for 18 months from the issue date of
the authorization, i.e. until September 10, 2021, and it replaces any earlier
authorizations on the repurchase and/or acceptance as collateral of the
company’s own shares.

Authorizing the Board of Directors to decide on a share issue and the granting
of special rights entitling to shares

The general meeting authorized the Board to decide on a share issue and the
granting of special rights pursuant to Chapter 10, Section 1, of the Companies
Act, subject to or free of charge, in one or several tranches on the following
terms.

The maximum total number of shares to be issued by virtue of the authorization
is 2,000,000.
The authorization concerns both the issuance of new shares and the transfer of
shares held by the company. By virtue of the authorization, the Board of
Directors is entitled to decide on share issues and the granting of special
rights waiving the pre-emptive subscription rights of the shareholders (directed
issue).

The authorization may be used in order to finance or carry out acquisitions or
other arrangements, to carry out the company’s share-based incentive schemes and
to improve the capital structure of the company, or for other purposes decided
by the Board of Directors.

The authorization includes the Board of Directors’ right to decide on all terms
relating to the share issue and granting of special rights including the
subscription price, its payment, and its entry into the company’s balance sheet.

The authorization is valid for 18 months from the issue date of the
authorization, i.e. until September 10, 2021, and it replaces any earlier
authorizations on the granting of shares or special rights entitling to shares.

Events after the review period
The company had no other significant events deviating from normal business
operations after the end of the review period.

Risks and uncertainties

The company’s short-term risks and uncertainties are related to potential
significant changes in the company’s business operations as well as the
retention and recruitment of the personnel required for business development.
Furthermore, the prolongation of the coronavirus epidemic may slow down the
growth of the business and affect the valuation of assets. The epidemic has not
affected the valuation of assets thus far.

Exchange rate fluctuations, particularly between the US dollar and euro, may
have a large impact on the development of the company’s net sales. Another
factor contributing to considerable fluctuation in quarterly net sales and
profitability in particular is the contract turnaround times which, in the major
customer segment, are very long at up to 18 months.

The company’s business risks and preparations for them are also described on the
company website at www.qt.io.

Espoo, February 18, 2021

Qt Group Plc

Board of Directors

Communications

Qt Group will hold a briefing on this financial statement bulletin for analysts
in Finnish via MS Teams on Thursday, February 18, 2020, at 10:00 a.m.  Advance
registration is kindly requested by Thursday, February 18, 2021 at 9:45 by
sending the request to jouni.lintunen(a)qt.io. The participation link will be
sent prior to the briefing.

The financial statement bulletin and presentation will be available in the
Investors section at www.qt.io from 10:00 a.m. on February 18, 2020.

Further information

Juha Varelius, CEO, tel. +358 9 8861 8040

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