Affecto Plc´s half year financial report 1-6/2017

AFFECTO PLC – HALF YEAR FINANCIAL REPORT – 22 AUGUST 2017 AT 8:31

 

Affecto Plc´s half year financial report 1-6/2017

TOP LINE GROWTH CONTINUED - FULL-STACK DATA CAPABILITIES AS DRIVERS   

Q2 at a Glance (April-June 2017)

• Order intake increased 22% to 33.8 MEUR (27.8 MEUR)
• Revenue increased 15% to 34.6 MEUR (30.1 MEUR)
• Order backlog increased 12% to 51.3 MEUR (45.8 MEUR)
• Comparable operating profit decreased to 0.9 MEUR (2.3 MEUR) and was 2.7% (7.6%) of revenue
• Operating profit decreased to 0.5 MEUR (2.3 MEUR) and was 1.4% (7.6 %) of revenue
• Cash flow from operating activities was 3.2 MEUR (-0.9 MEUR)
• Strong topline growth supported by prior investments into new capabilities and target industry focus
• Profitability decreased due to ongoing and one-time transformation related spending

 

Review Period at a Glance (January-June 2017)

• Order intake increased 11% to 58.2 MEUR (52.6 MEUR)
• Revenue increased 13% to 64.7 MEUR (57.4 MEUR)
• Comparable operating profit decreased to 3.1 MEUR (3.3 MEUR) and was 4.7% (5.7%) of revenue
• Operating profit decreased to 2.3 MEUR (3.3 MEUR) and was 3.6% (5.7 %) of revenue
• Cash flow from operating activities was 1.1 MEUR (-2.2 MEUR)
• Established capabilities as a full-stack data solution company
• The acquisition of BIGDATAPUMP was completed
• Affecto increased its revenue outlook 8 May 2017
• Affecto changes the measure of its profitability outlook from operating profit to comparable operating profit to provide the market more relevant information

Key Figures

MEUR	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Revenue	34.6	30.1	64.7	57.4	112.5	119.8
Operational segment result	0.9	2.3	3,1	3.3	6.7	6.4
% of revenue	2.7	7.6	4.7	5.7	5.9	5.4
Comparable operating profit¹	0.9	2.3	3.1	3.3	6.3	6.1
% of revenue	2.7	7.6	4.7	5.7	5.6	5.1
Operating profit	0.5	2.3	2.3	3.3	6.7	5.7
% of revenue	1.4	7.6	3.6	5.7	5.9	4.8
Profit before taxes	0.5	2.1	2.3	3.0	6.1	5.4
Profit for the period	0.4	1.6	1.6	2.3	4.7	4.0
Equity ratio, %	59.4	60.4	59.4	60.4	59.6	-
Net gearing, %	3.8	3.4	3.8	3.4	-6.7	-
Earnings per share, EUR	0.02	0.07	0.07	0.11	0.22	0.19
Earnings per share (diluted), EUR	0.02	0.07	0.07	0.11	0.22	0.19
Equity per share, EUR	2.84	2.84	2.84	2.84	2.96	-

 

1. Items affecting comparability in the second quarter include amortization of intangible assets from a business acquisition of 0.0 MEUR (0.0 MEUR) and costs associated with the earn-out element from a business acquisition of 0.4 MEUR (0.0 MEUR). Items affecting comparability for the first half of the year include amortization of intangible assets from a business acquisition of 0.0 MEUR (0.0 MEUR) and costs associated with the earn-out element from a business acquisition of 0.7 MEUR (0.0 MEUR). Additional items affecting comparability include the gain on the sale of a disposed business in Q4/2016 of 0.3 MEUR.

 

CEO Juko Hakala comments:

The second quarter marked a strong growth of our topline as our order intake increased 22% and revenue increased 15%. Our prior investments into new capabilities and industry focus enabled a strong topline growth, both as reported and organically. The markets were active across our business segments and we continued to develop our portfolio to meet the changing market demand. The revenue growth in the focus areas, e.g. analytics-as-a-service, next generation master data management and target industries is offsetting the decline in certain traditional areas, such as new implementation of structured data warehouses. 

In Finland, the top line growth was supported by the demand and the capabilities established in unstructured data, master data management and analytics-as-a-service. Also, our growth businesses including BIGDATAPUMP and Weave are on a solid track. In the Baltic, there was a strong growth in business process application and implementation. In Sweden, the growth was based on analytics-as-a-service and a large master data management deal. In Norway, the order intake and revenue decreased due to customers’ postponed decisions. In Denmark, revenue grew driven by the demand for master data management, while order intake decreased due to the timing of large maintenance contracts.

Profit from the underlying business developed steadily due to increasing revenue from the growth areas and good chargeability. Our profit increased in Finland and Baltic segments mainly driven by the delivery of multi-year customer engagements won in 2016 and in the first quarter. Overall, these positive developments were offset by ongoing as well as one-time spending into transformation and by seasonality. Actions continued to improve the profitability of our professional services in Scandinavia. Affecto's comparable operating profit for the second quarter decreased to 0.9 MEUR.

Affecto is today a full-stack data solution company in Northern Europe with a strong core of data-driven technologies. Our growing areas today are equipped with a strong managed services backbone and with new capabilities in advanced analytics, unstructured and real-time data solutions. In the second quarter, we continued to focus on building capabilities for artificial intelligence, machine learning and cognitive systems. They are becoming essential for our customers’ business development, integrate well with our core and are inspiring areas of interest for our experts. We also teamed up with our people and other stakeholders to develop our new strategy around these themes. We look forward to taking these efforts to the next level with our customers and our people now in the third quarter.

 

2017 Outlook

Affecto changes the measure of its profitability outlook from operating profit to comparable operating profit to provide the market more relevant information.

Affecto expects its FY ’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY ’17 comparable operating profit to be above the previous year (2016: 6.3 MEUR). The comparable operating profit outlook does not include any costs related to the voluntary recommended public tender offer for all shares in Affecto Plc launched by CGI.

Previously Affecto expected its FY’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY’17 operating profit to be at the same level or below the previous year (2016: 6.7 MEUR).

 

Analyst and Press Conference

The Company will arrange a briefing for analysts and media 22 August 2017 at 13:00 at the Company’s Espoo premises, Keilaranta 17 C, FI-02150 Espoo.


For additional information, please contact:

Juko Hakala
CEO
juko.hakala@affecto.com

Martti Nurminen
CFO
+358 40 751 7194
martti.nurminen@affecto.com

 

 

 

This release is unaudited.

AFFECTO FINANCIALS

Order intake

In 4-6/2017, Affecto’s order intake increased by 22% and was 33.8 MEUR (27.8 MEUR). Order intake increased significantly in Finland, Sweden and Baltic. In Denmark and Norway, order intake decreased significantly.

In 1-6/2017, Affecto’s order intake increased by 11% and was 58.2 MEUR (52.6 MEUR). Order intake increased significantly in Finland and increased in Sweden and Baltic. Order intake decreased in Denmark and decreased significantly in Norway.

Order Backlog

The order backlog increased by 12% and was 51.3 MEUR (45.8 MEUR). Order backlog increased significantly in Finland, Sweden and Baltic and decreased significantly in Norway and Denmark.

Revenue

Revenue, MEUR	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Finland	15.9	13.4	29.9	24.6	48.1	53.4
Norway	5.2	5.9	10.8	11.5	21.8	21.2
Sweden	6.2	5.0	11.7	9.6	19.1	21.1
Denmark	3.5	3.1	6.5	6.3	13.0	13.2
Baltic	5.4	4.1	8.9	8.3	16.6	17.2
Other	-1.6	-1.5	-3.1	-3.0	-6.1	-6.2
Group total	34.6	30.1	64.7	57.4	112.5	119.8

 

In 4-6/2017, Affecto’s revenue increased by 15% to 34.6 MEUR (30.1 MEUR). Revenue increased in Finland, Sweden, Denmark and Baltic and decreased in Norway. In Q2/2016, revenue in Estonia was 1.1 MEUR.

In 1-6/2017, Affecto’s revenue increased by 13% and was 64.7 MEUR (57.4 MEUR). Revenue increased in Finland, Sweden, Denmark and Baltic and decreased in Norway.  In 1-6/2016, revenue in Estonia was 2.3 MEUR. 

Profitability

Affecto's operating profit for the second quarter decreased to 1.4% and was 0.5 MEUR (2.3 MEUR). The profit of the underlying business developed steadily due to the increasing revenue from growth areas and chargeability. Profit was negatively impacted by one-time transformation spending related to restructuring (-0.5 MEUR), strategy development work (-0.4 MEUR) and other key transformation efforts (-0.2 MEUR) as well as the timing of Easter (-0.7 MEUR).

Net profit for the period was 0.4 MEUR (1.6 MEUR).

In January-June 2017, Affecto's operating profit declined to 3.6% and was 2.3 MEUR (3.3 MEUR). The profitability improved in Finland and Baltic and decreased in Norway, Sweden and Denmark. Net profit for the period was 1.6 MEUR while it was 2.3 MEUR last year.

Taxes corresponding to the profit has been entered as a tax expense.

 

Operational segment result by reportable segments:

Operating segment	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
result, MEUR
Finland	1.0	0.9	2.4	1.0	2.6	4.0
Norway	0.2	0.6	0.6	0.9	1.3	1.0
Sweden	0.3	0.6	0.7	0.9	1.7	1.5
Denmark	0.2	0.3	0.3	0.5	1.3	1.1
Baltic	0.6	0.4	1.1	0.8	1.2	1.6
Other	-1.3	-0.5	-2.1	-0.8	-1.4	-2.7
Operational segment result	0.9	2.3	3.1	3.3	6.7	6.4
Comparable operating profit	0.9	2.3	3.1	3.3	6.3	6.1
IFRS 3 related costs	0.4	0.0	0.7	0.0	0.0	0.7
Operating profit	0.5	2.3	2.3	3.3	6.7	5.7

 

In 4-6/2017, comparable operating profit decreased to 2.7% and was 0.9 MEUR (2.3 MEUR).

In 1-6/2017, comparable operating profit decreased to 4.7% and was 3.1 MEUR (3.3 MEUR).

Measures of Profit and Items Affecting Comparability

MEUR	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Comparable operating profit	0.9	2.3	3.1	3.3	6.3	6.1
Items affecting comparability:
IFRS 3 amortization¹	-0.0	0.0	-0.0	0.0	0.0	-0.0
Earn-out from acquisition	-0.4	0.0	-0.7	0.0	0.0	-0.7
Gain on the sale of disposed business	0.0	0.0	0.0	0.0	0.3	0.3
Items affecting comparability, total	-0.4	0.0	-0.7	0.0	0.3	-0.4
Operating profit	0.5	2.3	2.3	3.3	6.7	5.7

¹The IFRS 3 amortization is approximately 0.006 MEUR a month.

 

Business Performance by Segment

The Group’s business is managed through five reportable segments: Finland, Norway, Sweden, Denmark and Baltic.

Finland

The demand for services in Traditional IT & Analytics continued to be stable and the development of demand for business technology & analytics was positive in a period of strengthening local economic outlook.

• Order intake and order backlog grew significantly:
  • Strong organic order intake performance was the result of establishing new capabilities in next gen MDM and unstructured data with industry focus
  • Orders from new and existing customers such as Tulli, HMD and Oriola-KD drove the growth
• Revenue grew 19% and operational segment result improved
  • Organic revenue growth +3% y-o-y (M&A and divestment notes: BIGDATAPUMP Q2 ’17 revenue 2.1 MEUR)
  • Multi-year orders received in 2016 and new orders received in the first quarter improved chargeability in the second quarter. A strong period in technology sales contributed to both the top and the bottom line.
• Business development focus:
  • Investments continued into new capability areas, e.g. machine learning (ML), artificial intelligence (AI), cognitive and robotic process automation.
  • Strengthening of managed services delivery capability continued. It was supported by efficient and agile internal co-operation within Affecto’s PowerGrid providing both skills and scalability.

 

 

Norway

Transformation ongoing to meet evolving market demand into Business Technology and Analytics within target Industries.

• Order intake and order backlog decreased significantly:
  • Software related order intake declined due to several customers postponing decisions.
  • The Company signed several long-term consultancy contracts.
• Revenue and operational segment result decreased:
  • Decreased software sales impacted negatively revenue and profitability as well
  • Ongoing transformation efforts to meet the market demand through the business development focus decreased profitability
• Business development focus:
  • Continued to strengthen capabilities for big data and unstructured data, managed services and master data management
  • Prepared to establish BIGDATAPUMP in Norway by focusing on recruitment and building a customer base

 

Sweden

A continued high demand for analytics and business technology services created the strong growth. Positive impact resulting from high utilization of consultants and successful recruitment of the right kind of talent.

• Order intake and order backlog grew significantly:
  • Strong order intake driven by new and extended contracts related to analytics, managed services and migration projects.
  • Next generation master data management software deal won in June from a public authority, with a total contract value of 1.1 MEUR.
• Revenue increased 24% while operational segment result decreased
  • Ongoing strong professional services deliveries as well as the next gen MDM sales contributed to increased revenue with good profitability.
  • Profitability was negatively impacted by transformational and growth investments.
• Business development focus: 

  • Continued investments in building new capabilities such data scientists and cloud architects as well as growing overall high quality delivery capabilities.
  • BIGDATAPUMP establishment activities continued according to the plan

 

Denmark

Continued demand for data driven business solutions by customers in Financial Services and Industrial industries.

• Order intake and order backlog decreased significantly
  • Order intake was negatively impacted as the renewal of some maintenance agreements was postponed to July
  • Received new key orders from BEC, SKAT and from several high profiled Industrial companies such as CC Jensen
• Revenue grew 13% while operational segment result decreased
  • Big data software platform solutions drove revenue growth
  • Profitability decreased mainly because of continued business development efforts, as well as pricing environment
• Business development focus:
  • Advanced analytics, bigdata and Internet of Things (IoT) based initiatives for Financial Services and Industrial industries
  • BIGDATAPUMP establishment activities continued according to the plan

 

Baltic

The Baltic segment continued improving in terms of order intake, revenue and profitability. Strengthening capabilities for the private sector and go-to-market.

• Order intake and order backlog grew significantly:
  • Organically, order intake growth was very strong
  • Major orders included a software license with a maintenance contract as well as a managed services order from an insurance company
• Revenue grew 29% and operational segment result increased
  • Organically, revenue grew by 78% and operating profit increased by 0.3 MEUR.
  • Revenue growth driven by the delivery of a 1.3 MEUR one-time software license,
  • Delivery of multi-year agreements signed in 2016 and growth of nearshore business drove favorable revenue and operational segment result development
• Business development focus:
  • Continued development of capabilities for private and energy sectors and focus on nearshore development according to the Affecto PowerGrid model
  • Strengthening go-to-market co-operation with the partners in the insurance sector
  • BIGDATAPUMP nearshore delivery capabilities established according to the plan

 

M&A and divestment notes: In 2016 Affecto sold its Estonian business, Q2‘16 Estonia revenue 1.1 MEUR and operating profit 0.1 MEUR.

 

Affecto Evolution

Affecto today:

• Full-stack Data Solution company
• Selling to the business and IT organizations of fewer customers while deeper into their processes enabled by the industry alignment
• Strong core capabilities boosted with Advanced Analytics-, unstructured- and real-time data driven solutions
• Large multi-year Managed Services deals at especially mid-sized customers
• More networked company through the PowerGrid for the Company’s people and customers
• Visionary, proactive, solving business technology challenges

 

Next steps:

• Capture the full-stack data growth opportunity in the Nordic metropolitan markets
• Build strong expertise in AI & ML & CS
• Leverage on and develop further the Company’s managed services and mission critical service backbone
• Boost employee focus and PowerGrid, the Company’s network based co-operation model
• Building the Company’s next generation processes and IT to became data driven

 

Q2 Highlights:

• Strong development in cloud analytics with a fast growing headcount and achieving the highest Microsoft partner level in cloud analytics
• Building new expertise areas, e.g. next generation master data management , machine learning and data scientists
• Leadership development across segments with new recruitments, new share based incentive plan establishment and assessment and development of existing leadership
• Teaming up around updating the strategy with the Company’s customers, people, partners and other key stake holders

 

 

Financial Position and Cash Flow

At the end of the reporting period Affecto's balance sheet totaled 113.7 MEUR (12/2016: 117.5 MEUR). Equity ratio was 59.4% (12/2016: 59.6%) and net gearing was 3.8% (12/2016: -6.7%).

The financial loans at the end of the reporting period were 14.5 MEUR (12/2016: 16.5 MEUR). The Company's cash and liquid assets were 12.2 MEUR (12/2016: 20.8 MEUR). The interest-bearing net debt was 2.3 MEUR (12/2016: -4.3 MEUR).

In 4-6/2017, the cash flow from operating activities was 3.2 MEUR (-0.9 MEUR) and cash flow from investing activities was -1.3 MEUR (-0.2 MEUR). Investments in tangible and intangible assets were 0.3 MEUR (0.2 MEUR). The increased cash flow from operating activities was primarily due to the positive change in working capital offset by the lower profitability.    

In 1-6/2017, the cash flow from operating activities was 1.1 MEUR (-2.2 MEUR) and cash flow from investing activities was -4.1 MEUR (-0.3 MEUR). Investments in tangible and intangible assets were 0.4 MEUR (0.3 MEUR). The increased cash flow from operating activities was primarily due to the positive change in working capital.

Mergers & Acquisitions

The acquisition of BIGDATAPUMP was completed on 2 February 2017. The net debt free, base purchase price paid in cash was 3.5 MEUR. In addition, based on the closing accounts of BIGDATAPUMP, a 1.0 MEUR purchase price adjustment was paid in cash based on the cash and net working capital of the acquired entity in Q2/2017. The purchase agreement also includes an earn-out element worth a maximum of 3.0 MEUR, to be paid in cash, subject to the achievement of defined financial targets in three years, at the latest five years.

Based on the preliminary purchase price allocation, net assets of 4.5 MEUR were acquired in the acquisition which included 3.3 MEUR in goodwill, 0.1 MEUR in intangible assets related to customer relationships, 0.1 MEUR in intangible assets related to trademarks, 1.3 MEUR in accounts receivable, 0.8 MEUR in cash and 1.1 MEUR in liabilities primarily related to trade and other payables and taxes. The intangible assets will be amortized over their useful life of three years.

Changes in the management

On 12 April 2017, the Company announced a Leadership Team Update according to which Stig Sandberg, Håvard Ellefsen and Mikko Eerola left the Leadership Team.

With these changes, the Affecto Leadership Team presently consists of Juko Hakala, CEO, Iikka Lindroos, People Operations, Growth and Transformation, Deputy CEO, Martti Nurminen, CFO, Charlotte Darth, Managing Director, Sweden and Henri Engström, Managing Director, Affecto Industrial and Interim Managing Director, Finland.

Personnel

At the end of the reporting period, the number of employees was 1020 (988) persons. 510 (415) employees were based in Finland, 86 (102) in Norway, 110 (98) in Sweden, 67 (67) in Denmark and 247 (306) in the Baltic countries where the Company divested its Estonian business in 2016. The average number of employees during the period was 991 (980).

Corporate Governance

Affecto’s corporate governance practices comply with Finnish laws and regulations, Affecto’s Articles of Association, the rules of Nasdaq Helsinki and the Finnish Corporate Governance Code issued by the Securities Market Association of Finland in 2015. The code is publicly available at http://cgfinland.fi/en/. Affecto has published its corporate governance statement for 2016 in the Financial Statements and Annual Report 2016, and on the Company website www.affecto.com.

 

The Annual General Meeting

The Annual General Meeting of Affecto Plc was held on 7 April 2017. The AGM adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2016. The meeting approved the Board of Directors’ proposal to pay a dividend of EUR 0.16 per share and the dividend was paid on 20 April 2017.
 

Aaro Cantell, Magdalena Persson, Olof Sand and Tuija Soanjärvi were re-elected and Mikko Kuitunen and Timo Vaajoensuu were elected to the Board. The Board of Directors elected Magdalena Persson as the Chairperson and Aaro Cantell as the Vice-Chairperson of the Board and the following members to the Committees:

 

Audit Committee: Tuija Soanjärvi (chairperson) and Timo Vaajoensuu

People, Nomination and Compensation Committee: Magdalena Persson (chairperson), Aaro Cantell and Olof Sand

 

The AGM approved all proposals made by the Board as described in the invitation published on 10 March 2017. The decisions of the AGM were published as a stock exchange release on 7 April 2017 and can be found on the Company’s website www.affecto.com.

Shares and Shareholders

The Company has one share series and all shares have similar rights. At the end of the review period Affecto Plc's share capital consisted of 22 450 745 shares and the Company owned 821 974 treasury shares, approximately 3.7% of the total amount of the shares. Additional information with respect to the shares, shareholding and trading can be found on the Company’s website www.affecto.com.

Risks and Uncertainties

The markets where Affecto operates are going through change. Historically, Affecto has concentrated on the traditional IT market solutions for a broad customer space and mainly on moderate deal sizes and shapes. Affecto’s demand is growing within larger and more complex deal sizes and shapes as well as within the emerging business technology & analytics market. There is a risk as well as an opportunity with respect to the speed of which Affecto is able to develop and build capability in the new emerging areas in proportion to the traditional areas.

Affecto’s success depends also on good customer relationships. Affecto has a diverse customer base. In 2016, the largest customer generated approximately 3% and the 10 largest customers together approximately 20% of Affecto’s revenue. Although none of the customers is critically large for the whole group, there are large customers in various countries that are significant for local business in the relevant country. On the other hand, the diverse customer base may decrease the effectiveness of the sales & delivery efforts and overall agility of the Company.

Affecto also needs to be seen as an interesting employer in order to recruit and retain skilled employees. It is important for Affecto to be seen as an employer the employees can be proud of. High people churn may create inefficiencies in the business and temporarily decrease the utilization rate.

Affecto executed its first acquisition since 2007 at the end of 2016. The Company recognizes the risk with regards to its ability to complete an effective post-merger integration to achieve the anticipated benefits while maintaining the continuity of the growth track of the acquired company. 

The changes in the general economic conditions and the operating environment of customers have direct impact on Affecto’s markets. If the macroeconomic environment remains weak, some countries may introduce new regulations. The uncertain economic outlook may affect Affecto’s customers negatively. Slower IT investment decision making and uncertainty on new investments with respect to new business technology solutions may have negative impact on Affecto, especially in the public sector. Affecto’s order backlog has traditionally been only a few months long. Slower decision making of the customers decreases the predictability of the business and may decrease the utilization rate. Specifically, the insurance sector has been impacted by slower than expected investments, mainly due to product cycle related issues, which may continue to have an effect on the Company in Baltic.  While the Company sees revitalizing demand for traditional IT system investments in Lithuania especially in energy sector, the Lithuanian public sector investments into IT remains modest which may have an effect on the Company’s business.

Affecto sells third party software licenses and maintenance as part of its solutions. Typically, the license sales have the highest impact on the last month of each quarter and especially in the fourth quarter. This increases the fluctuation in revenue between quarters and increases the difficulty of accurately forecasting the quarters. Additionally, the increase of cloud services and other similar market trends may affect the license revenue negatively. Affecto had license revenue of approximately 7 MEUR in 2016.

The Company recognizes that the risks of frauds and cyber security threats have increased. The Company aims to mitigate the increased risks with internal controls, IT-security, training, awareness and security minded culture.

The Company recognizes the disintegration of its IT systems and process. Given the number of separate systems, there is low group wide transparency and risk of suboptimal management of the respective businesses.

Approximately 36% of Affecto’s revenue is generated in Sweden and Norway, thus the development of the currencies of these countries (SEK and NOK) may have an impact on Affecto’s profitability. The main part of the companies’ income and costs are within the same currency, which decreases the risks. In addition, the Company also has business in South Africa and therefore the development of the South African Rand (ZAR) may also affect the business environment in South Africa and thus the Company’s business.

Affecto’s balance sheet includes a material amount of goodwill. Goodwill has been allocated to cash generating units. Cash generating units, to which goodwill has been allocated, are tested for impairment both annually and whenever there is an indication that the unit may be impaired. Potential impairment losses may have material effect on the reported profit and value of assets.

Financial Calendar 2017

Affecto will publish the following financial reports during the course of the year:

Interim Report July-September:             7 November 2017

 

 

2017 Outlook

Affecto changes the measure of its profitability outlook from operating profit to comparable operating profit to provide the market more relevant information.

Affecto expects its FY ’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY ’17 comparable operating profit to be above the previous year (2016: 6.3 MEUR). The comparable operating profit outlook does not include any costs related to the voluntary recommended public tender offer for all shares in Affecto Plc launched by CGI.

Previously Affecto expected its FY’17 revenue to be above the previous year (2016: 112.5 MEUR), and its FY’17 operating profit to be at the same level or below the previous year (2016: 6.7 MEUR).

 

Affecto Plc
Board of Directors
 

 

 

 

Financial information:

1. Consolidated income statement, consolidated comprehensive income statement, balance sheet, cash flow statement and statement of changes in equity
2. Notes
3. Key figures

CONSOLIDATED INCOME STATEMENT

(1 000 EUR)	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Revenue	34 568	30 093	64 740	57 437	112 505	119 808
Other operating income	7	0	7	0	347	354
Changes in inventories of finished goods and work in progress	34	85	65	126	86	25
Materials and services	-10 188	-6 952	-16 095	-12 752	-26 271	-29 613
Personnel expenses	-18 435	-16 275	-36 168	-32 793	-62 612	-65 987
Other operating expenses	-5 301	-4 465	-9 802	-8 271	-16 528	-18 060
Other depreciation and amortization	-200	-209	-406	-457	-861	-810
Operating profit	485	2 278	2 341	3 290	6 667	5 718
Financial income and expenses	-25	-171	-57	-296	-586	-347
Profit before income tax	460	2 107	2 284	2 994	6 081	5 371
Income tax	-98	-506	-669	-704	-1 359	-1 325
Profit for the period	363	1 600	1 615	2 290	4 721	4 046
Profit for the period attributable to:
Owners of the parent company	363	1 600	1 615	2 290	4 721	4 046
Earnings per share (EUR per share):
Basic	0.02	0.07	0.07	0.11	0.22	0.19
Diluted	0.02	0.07	0.07	0.11	0.22	0.19
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(1 000 EUR)	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Profit for the period	363	1 600	1 615	2 290	4 721	4 046
Other comprehensive income
Items that may be reclassified subsequently to the statement of income:
Translation difference	-781	-64	-947	183	466	-664
Total Comprehensive income for the period	-419	1 536	667	2 474	5 187	3 382
Total Comprehensive income attributable to:
Owners of the parent company	-419	1 536	667	2 474	5 187	3 382

 

CONSOLIDATED BALANCE SHEET  

(1 000 EUR)	6/2017	6/2016	12/2016
Non-current assets
Property, plant and equipment	1 239	989	1 295
Goodwill	64 743	62 444	62 215
Other intangible assets	329	109	63
Deferred tax assets	498	725	552
Trade and other receivables	114	93	93
	66 922	64 360	64 218
Current assets
Inventories	463	444	390
Trade and other receivables	34 115	29 244	31 305
Current income tax receivables	61	1 249	787
Cash and cash equivalents	12 158	16 400	20 756
	46 797	47 337	53 239
Total assets	113 719	111 697	117 456
Equity attributable to owners of the parent Company
Share capital	5 105	5 105	5 105
Reserve of invested non-restricted equity	47 737	47 731	47 737
Other reserves	858	858	858
Treasury shares	-1 993	-2 056	-1 993
Translation differences	-5 400	-4 735	-4 452
Retained earnings	15 018	14 433	16 864
Total equity	61 324	61 336	64 118
Non-current liabilities
Loans and borrowings	10 485	14 482	12 483
Deferred tax liabilities	38	29	4
	10 523	14 510	12 487
Current liabilities
Loans and borrowings	4 000	4 000	4 000
Trade and other payables	36 958	31 124	36 104
Current income tax liabilities	676	398	529
Provisions	237	329	218
	41 871	35 851	40 851
Total liabilities	52 395	50 361	53 338
Equity and liabilities	113 719	111 697	117 456

 

SUMMARY CONSOLIDATED CASH FLOW STATEMENT

(1 000 EUR)	4-6/2017		4-6/2016	1-6/2017	1-6/2016	2016
Cash flows from operating activities
Profit for the period	363		1 600	1 615	2 290	4 721
Adjustments to profit for the period	219		923	1 069	1 446	2 364
	582		2 523	2 684	3 737	7 085
Change in working capital	1 912		-2 689	-1 815	-4 761	-2 283
Interest and other financial cost paid	-96		-59	-109	-116	-225
Interest and other financial income received	8		16	21	34	55
Income taxes paid	753		-728	270	-1 105	-1 026
Net cash from operating activities	3 158		-936	1 051	-2 211	3 606
Cash flows from investing activities
Acquisition of tangible and intangible assets	-271		-172	-417	-326	-1 043
Proceeds from sale of tangible and intangible assets Proceeds from disposal of business	- -		- -	- -	- -	6 1 029
Acquisition of a business, net of cash received	-1 030		-	-3 713	-	-
Net cash from investing activities	-1 301		-172	-4 131	-326	-8
Cash flows from financing activities
Repayments of current borrowings	-2 000		-	-2 000	-	-2 000
Repayments of non-current borrowings	-		-18 500	-	-18 500	-18 500
Proceeds from non-current borrowings	-		18 482	-	18 482	18 482
Dividends paid to the owners of the parent company	-3 461		-3 457	-3 461	-3 457	-3 457
Net cash from financing activities	-5 461		-3 475	-5 461	-3 475	-5 475
(Decrease)/increase in cash and cash equivalents	-3 604		-4 583	-8 540	-6 012	-1 878
Cash and cash equivalents at the beginning of the period	15 811		21 044	20 756	22 375	22 375
Foreign exchange effect on cash	-48		-61	-58	37	259
Cash and cash equivalents at the end of the period	12 158		16 400	12 158	16 400	20 756

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Equity attributable to owners of the parent company
(1 000 EUR)	Share capital	Reserve of invested non-restricted equity	Other reserves	Treasury shares	Trans lat. diff.	Ret. earnings	Total equity
Equity at 1 January 2017	5 105	47 737	858	-1 993	-4 452	16 864	64 118
Profit						1 615	1 615
Translation differences					-947		-947
Total compre-hensive income					-947	1 615	667
Dividends paid						-3 461	-3 461
Equity at 30 June 2017	5 105	47 737	858	-1 993	-5 400	15 018	61 324

 

	Equity attributable to owners of the parent company
(1 000 EUR)	Share capital	Reserve of invested non-restricted equity	Other reserves	Treasury shares	Trans lat. diff.	Ret. earnings	Total equity
Equity at 1 January 2016	5 105	47 731	858	-2 056	-4 919	15 599	62 319
Profit						2 290	2 290
Translation differences					183		183
Total compre-hensive income					183	2 290	2 474
Dividends paid						-3 457	-3 457
Equity at 30 June 2016	5 105	47 731	858	-2 056	-4 735	14 433	61 336

 

 

2. Notes

2.1. Basis of preparation

This interim report has been prepared in accordance with the IFRS recognition and measurement principles and in accordance with IAS 34, Interim Financial reporting. The interim report should be read in conjunction with the annual financial statements for the year ended 31 December 2016. In material respects, the same accounting policies have been applied as in the 2016 annual consolidated financial statements. The amendments to and interpretations of IFRS standards that entered into force on 1 January 2017 had no material impact on this interim report.

IFRS 15 Revenue from Contracts with Customers (effective for fiscal years beginning on or after 1 January 2018) is a new standard that includes a five-step guidance for revenue recognition arising from contracts with customers and replaces IAS 18 Revenue, IAS 11 Construction Contracts standards and interpretations. Affecto is still assessing the overall impact and materiality of IFRS 15 related to licenses and long term contracts and maintenance contracts. Affecto’s IFRS 15 implementation project, which is in three phases, has been progressing for over a year. Affecto has completed its first two phases and is on the third phase. The final phase, in which Affecto assesses and determines the overall impact between the new standard and previous accounting standards for its consolidated financial statements began in the spring of 2017 and will continue until early 2018.

 

2.2. Segment information

Affecto's reporting segments are based on geographical locations and are Finland, Norway, Sweden, Denmark and Baltic.

Segment revenue and result

(1 000 EUR)	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Total revenue
Finland	15 943	13 424	29 921	24 630	48 061	53 353
Norway	5 160	5 922	10 842	11 501	21 816	21 157
Sweden	6 208	5 010	11 678	9 646	19 098	21 131
Denmark	3 505	3 109	6 543	6 306	12 998	13 235
Baltic	5 352	4 139	8 890	8 331	16 596	17 156
Other	-1 600	-1 510	-3 135	-2 977	-6 065	-6 224
Group total	34 568	30 093	64 740	57 437	112 505	119 808
Operational segment result
Finland	998	871	2 445	975	2 561	4 031
Norway	222	608	605	904	1 330	1 031
Sweden	276	564	707	888	1 652	1 472
Denmark	201	279	332	546	1 301	1 087
Baltic	554	424	1 114	780	1 233	1 568
Other	-1 327	-468	-2 131	-802	-1 411	-2 739
Total operational segment result	924	2 278	3 073	3 290	6 667	6 449
IFRS 3 related costs	439	0	732	0	0	732
Operating profit	485	2 278	2 341	3 290	6 667	5 718
Financial income and expenses	-25	-171	-57	-296	-586	-347
Profit before income tax	460	2 107	2 284	2 994	6 081	5 371

 

 

 

Revenue by business lines

(1 000 EUR)	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Information Management Solutions	33 908	28 586	63 011	54 698	107 293	115 606
Karttakeskus	2 566	2 868	5 241	5 281	10 449	10 409
Other	-1 906	-1 361	-3 512	-2 541	-5 237	-6 207
Group total	34 568	30 093	64 740	57 437	112 505	119 808

 

 

2.3. Changes in intangible and tangible assets

(1 000 EUR)	1-6/2017	1-6/2016	1-12/2016
Carrying amount at the beginning of period	63 573	63 594	63 594
Additions	3 871	326	1 043
Disposals	-	-	-342
Depreciation and amortization for the period	-406	-457	-861
Exchange rate differences	-727	79	139
Carrying amount at the end of period	66 311	63 542	63 573

 

2.4. Share capital, reserve of invested non-restricted equity and treasury shares

(1 000 EUR)	Number of shares outstanding	Share capital	Reserve of invested non-restricted equity	Treasury shares
1 January 2016	21 604 510	5 105	47 731	-2 056
30 June 2016	21 604 510	5 105	47 731	-2 056
1 January 2017	21 628 771	5 105	47 737	-1 993
30 June 2017	21 628 771	5 105	47 737	-1 993

 

Affecto Plc owns 821 974 treasury shares, which correspond to 3.7% of the total amount of the shares. The amount of registered shares is 22 450 745 shares.

2.5. Interest-bearing liabilities

(1 000 EUR)	30 June 2017	31 Dec 2016
Loans from financial institutions, non-current portion	10 485	12 483
Loans from financial institutions, current portion	4 000	4 000
	14 485	16 483

 

Affecto's loan facility agreement includes financial covenants, breach of which might lead to an increase in cost of debt or cancellation of the facility agreement. The covenants are based on total net debt to earnings before interest, taxes, depreciation and amortization and total net debt to total equity. The covenants will be measured quarterly, and these terms and conditions of covenants were met at the end of the reporting period.

 

 

2.6. Contingencies and commitments

The future aggregate minimum lease payments under non-cancelable operating leases:

(1 000 EUR)	30.6.2017	31.12.2016
Not later than one (1) year	3 044	2 807
Later than one (1) year, but not later than five (5) years	4 502	4 410
Later than five (5) years	345	484
Total	7 891	7 701

 

Other securities given on own behalf:

(1 000 EUR)	30.6.2017	31.12.2016
Pledges	52	31
Other guarantees	1 385	1 000

 

Other guarantees are mostly securities issued for customer projects. These guarantees include both bank guarantees secured by parent company of the group and guarantees issued by the parent company and subsidiaries.

2.7. Related party transactions

Key management compensation and remunerations to the board of directors:

(1 000 EUR)	1-6/2017	1-6/2016	1-12/2016
Salaries and other short-term employee benefits	1 324	1 057	1 995
Post-employment benefits	181	127	246
Termination benefits	62	112	112
Share-based payments	-	-	-
Total	1 567	1 296	2 353

 

 

Purchases from related party:

 

(1 000 EUR)	1-6/2017	1-6/2016	1-12/2016
Purchases from the entity that are controlled by key management personnel of the group	-	13	13
Outstanding balance of purchases from the entity that are controlled by key management personnel of the group	-	-	-

 

 

 

3. Key figures

	4-6/17	4-6/16	1-6/17	1-6/16	2016	last 12m
Revenue, 1 000 eur	34 568	30 093	64 740	57 437	112 505	119 808
EBITDA, 1 000 eur	686	2 487	2 747	3 747	7 528	6 528
Comparable operating profit,  1 000 eur	924	2 278	3 073	3 290	6 347	6 129
Operational segment result, 1 000 eur	924	2 278	3 073	3 290	6 667	6 449
Operating result, 1 000 eur	485	2 278	2 341	3 290	6 667	5 718
Result before taxes, 1 000 eur	460	2 107	2 284	2 994	6 081	5 371
Profit attributable to the owners of the parent company, 1 000 eur	363	1 600	1 615	2 290	4 721	4 046
EBITDA, %	2.0 %	8.3 %	4.2 %	6.5 %	6.7 %	5.4 %
Comparable operating profit %	2.7 %	7.6 %	4.7 %	5.7 %	5.6 %	5.1 %
Operational segment result, %	2.7 %	7.6 %	4.7 %	5.7 %	5.9 %	5.4 %
Operating result, %	1.4 %	7.6 %	3.6 %	5.7 %	5.9 %	4.8 %
Result before taxes, %	1.3 %	7.0 %	3.5 %	5.2 %	5.4 %	4.5 %
Net income for equity holders of the parent company, %	1.1 %	5.3 %	2.5 %	4.0 %	4.2 %	3.4 %
Equity ratio, %	59.4 %	60.4 %	59.4 %	60.4 %	59.6 %
Net gearing, %	3.8 %	3.4 %	3.8 %	3.4 %	-6.7 %
Interest-bearing net debt, 1 000 eur	2 327	2 081	2 327	2 081	-4 273
Gross investment in non-current assets (excl. acquisitions), 1 000 eur	271	172	417	326	1 043
Gross investments, % of revenue	0.8 %	0.6 %	0.6 %	0.6 %	0.9 %
Order backlog, 1 000 eur	51 268	45 817	51 268	45 817	55 033
Average number of employees	1 006	976	991	980	987
Earnings per share, eur	0.02	0.07	0.07	0.11	0.22	0.19
Earnings per share (diluted), eur	0.02	0.07	0.07	0.11	0.22	0.19
Equity per share, eur	2.84	2.84	2.84	2.84	2.96
Average number of shares, 1 000 shares	21 629	21 605	61 629	21 605	21 613	21 625
Number of shares at the end of period, 1 000 shares	21 629	21 605	61 629	21 605	21 629	21 629

 

 

 

Calculation of key figures

EBITDA	=	Earnings before interest, taxes, depreciation, amortization and impairment losses
Operational segment result	=	Operating profit before amortizations on fair value adjustments due to business combinations (IFRS3), expenses related to the earn-out from acquisitions and goodwill impairments
Equity ratio, %	=	Total equity ________________________________	*100
		Total assets – advance payments
Gearing, %	=	Interest-bearing liabilities – cash and cash equivalents __________________________________	*100
		Total equity
Interest-bearing net debt	=	Interest-bearing liabilities – cash and cash equivalents
Earnings per share (EPS)	=	Profit attributable to owners of the parent company ______________________________________
		Weighted average number of ordinary shares in issue during the period
Equity per share	=	Total equity ______________________________________
		Adjusted number of shares at the end of the period
Market capitalization	=	Number of shares at the end of period (excluding company’s own shares held by the company) x share price at closing date
Comparable operating profit	=	Operating profit – Items affecting comparability.
Items affecting comparability		Items affecting comparability are related to restructuring measures and charges for events or activities, which are not part of the normal business operations such as, but not limited to, IFRS 3 related costs and goodwill impairments.
IFRS 3 related costs		IFRS 3 related costs are amortizations on fair value adjustments due to business combinations and expenses related to the earn-out from acquisitions.