Affecto Plc's half year financial report 1-6/2016 AFFECTO

AFFECTO PLC – HALF YEAR FINANCIAL REPORT – 11 AUGUST 2016 at 13:45

Affecto Plc's half year financial report 1-6/2016

Q2 at a Glance (April-June 2016)

• Order intake decreased by 15% and was 27.8 MEUR (32.6 MEUR).
• Order backlog increased by 6% and was 45.8 MEUR at the end of review period (43.3 MEUR).
• Revenue declined by 2% and was 30.1 MEUR (30.8 MEUR).
• Operating profit declined to 2.3 MEUR (2.9 MEUR) and was 7.6% (9.4%) of revenue.
• Cash flow from operating activities was -0.9 MEUR (0.9 MEUR).

Review Period at a Glance (January-June 2016)

• Order intake decreased by 2% and was 52.6 MEUR (53.6 MEUR).
• Revenue declined by 4% and was 57.4 MEUR (59.9 MEUR).
• Operating profit declined to 3.3 MEUR (5.0 MEUR) and was 5.7% (8.3%) of revenue.
• Cash flow from operating activities was -2.2 MEUR (1.4 MEUR).
• The 2016 outlook remains unchanged.

Key Figures

CEO Juko Hakala comments:

During the second quarter of 2016, our overall order intake was lower y-o-y for the first time in 3 consecutive quarters. This was due to the Baltic y-o-y performance, as expected, and Norway, which was weaker than expected. On the other hand, Finland grew order intake for the 4th consecutive quarter and also Denmark and Sweden developed favorably y-o-y. Our backlog remains up 6% y-o-y.

Our revenue and profit declined y-o-y. Main drivers for this were developments in Finland and Baltics. Finland is transitioning with larger contracts and into new demand areas. Baltic continued to be impacted by the successful completion of key insurance sector projects in 2015. Sweden, Denmark and Norway improved their profit performance much in line with the recent market developments, larger sales successes and as an outcome of a more optimal resource mix.

Our evolution progresses as expressed at our Capital Markets Day in May 2016. During Q2, for example, we closed essential new managed services contracts, ramped up collaboration between our 18 offices with cross-Nordic engagements and made key recruitments to underpin our progress. This, together with proven customer business cases in our growth programs, B2C & Industrial, solidifies our platform for moving into Q3.

2016 Outlook

Affecto expects its revenue to stay at the same level or grow slightly and its operating profit to grow in 2016.

The company does not provide an exact quarterly guidance for revenue or operating profit development, as single projects and timing of license sales may have large impact on quarterly sales and profit.

Analyst and Press Conference

The Company will arrange a briefing for analysts and media 11 August 2016 at 15:00 at Glo Hotel Kluuvi, Kluuvikatu 4, FI-00100 Helsinki.

Additional information: CEO Juko Hakala, + 358 205 777 450 CFO Martti Nurminen, +358 40 751 7194

This release is unaudited.

AFFECTO FINANCIALS

Order Intake

In 4-6/2016, Affecto’s order intake decreased by 15% and was 27.8 MEUR (32.6 MEUR). Order intake increased significantly in Finland and Denmark and increased slightly in Sweden. Order intake decreased significantly in Norway and in Baltic. The group order intake was affected especially by weak Norwegian order intake.

In 1-6/2016, Affecto’s order intake decreased by 2% and was 52.6 MEUR (53.6 MEUR). Order intake increased significantly in Finland and Denmark. Order intake increased slightly in Sweden. Order intake decreased significantly in Norway and Baltic.

Order Backlog

The order backlog increased by 6% and was 45.8 MEUR (43.3 MEUR) at the end of the reporting period. Order backlog increased significantly in Finland, Sweden and Denmark. Order backlog decreased in Norway and Baltic.

Revenue

In 4-6/2016, Affecto’s revenue declined by 2% to 30.1 MEUR (30.8 MEUR). Revenue increased in Finland, Norway and Denmark. Revenue decreased in Sweden. As expected, revenue decreased significantly in Baltic and the overall group revenue development year over year continued to be impacted by the successful completion of the key insurance sector projects in Baltic in 2015.

In 1-6/2016, Affecto’s revenue declined by 4% to 57.4 MEUR (59.9 MEUR). Revenue increased in Finland, Norway and Denmark. Revenue decreased significantly in Baltic and decreased in Sweden.

Profitability

Operational segment result by reportable segments:

In 4-6/2016, Affecto's operating profit declined to 7.6% and was 2.3 MEUR (2.9 MEUR). The profitability increased in Norway, Sweden and Denmark and decreased in Finland and Baltic. Net profit for the period was 1.6 MEUR while it was 2.4 MEUR last year. The group operating profit decline was driven by the expected Baltic decrease following the successful completion of the key insurance sector projects in 2015 and continued weak performance in Finland.

In 1-6/2016, Affecto's operating profit declined to 5.7% and was 3.3 MEUR (5.0 MEUR). The profitability improved in Sweden and Denmark, decreased in Norway and decreased significantly in Finland and Baltic. Net profit for the period was 2.3 MEUR while it was 3.8 MEUR last year.

Taxes corresponding to the profit have been entered as tax expense.

Business Performance by Segment

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

Finland

In 4-6/2016, the Finnish market was characterized by an increase in demand for solutions with respect to the Traditional IT & Analytics market, especially in the area of managed services. The Company expects this positive development to continue. The development of the Business Technology & Analytics market was also positive with continued piloting demand for solutions related to big data and advanced analytics for core business processes.

In 4-6/2016, order intake increased significantly and the order backlog is above last year's level. Revenue increased by 8% to 13.4 MEUR (12.4 MEUR). Operational segment result was 0.9 MEUR (1.3 MEUR) or 6% (10%) of revenue. The quarter was the fourth consecutive quarter with improved order intake performance on a year-on-year basis, with one significant managed services deal. This deal has an initial committed deal size of 1.5 MEUR.

Revenue growth in the quarter was mostly driven by software license revenue, while also Professional Services revenue grew. Profitability decline was driven by Finland transitioning with larger contracts and into new demand areas, recruitment and onboarding of new technology-business hybrid roles and seasonality in bonus accruals. The profitability recovered slightly towards the end of the period. The Company is committed to drive profitability by further boosting its capabilities in complex program management, by increasing focus with selected customers and by integrating the core skills together with the new technology roles for an impactful outcome.

In 1-6/2016, order intake increased significantly and the order backlog is above last year’s level. Revenue remained flat at 24.6 MEUR (24.6 MEUR). Operational segment result was 1.0 MEUR (1.9 MEUR) or 4% (8%) of revenue.

In 4-6/2016, revenue of Karttakeskus geographical information system (“GIS”) business, reported as part of Finland, decreased by 14% to 2.9 MEUR (3.3 MEUR). Karttakeskus lost large contracts in 2015 which continued to negatively affect the revenue. The Company expects the effect of the lost deals to continue to affect the revenue until the end of 2016. Business development actions for strengthening the Company’s capabilities in digital content and services to complement the traditional cartographic offerings are ongoing. In 1-6/2016, revenue of Karttakeskus decreased by 15% to 5.3 MEUR (6.2 MEUR).

Norway

In 4-6/2016, the weak oil prices negatively affected the Norwegian economic outlook. This general uncertainty had an effect on the customers’ willingness to execute investment decisions. On the Traditional IT & Analytics market, Affecto experienced a shift in demand towards improving the performance of the customers’ traditional Business Intelligence and Information Management solutions, combined with a willingness to explore managed services and nearshoring based solutions. In the area of Business Technology & Analytics market, buyers were more interested in self-service analytics in order to increase their organizations’ broader use of data and analytics. Customers with digitalization initiatives continued to view the management of customer and product data, as well as customer analytics, as key enablers for their business development. Managed services and digitalization initiatives increase potential deal sizes.

In 4-6/2016, order intake decreased significantly and order backlog is below last year's level. Revenue increased by 7% to 5.9 MEUR (5.5 MEUR). Operational segment result was 0.6 MEUR (0.5 MEUR) or 10% (8%) of revenue. The negative order intake performance was influenced by large deals being delayed, existing customers prolonging ongoing engagements for a shorter time frame than in 2015 and sales execution issues. Further, the order intake year-over-year performance was also impacted by a single large multi-year managed services and development deal closed in Q2/2015. The key driver for revenue growth was increased software license revenue. The positive software license revenue development was driven by demand from the Business Technology & Analytics market as business side users wish to enhance their abilities to analyze data independently of IT organizations, as well as increased usage of traditional Business Intelligence solutions. In addition to the increased software license revenue, the profitability improvement was driven by increased nearshoring and reduced labor cost. However, revenue and profit growth was negatively affected by the weakened NOK. In constant currency, the revenue increased by 16%. Additionally, the Company conducted recruitment to strengthen its focus on two of the key customer industries, Financial Sector and Public to Citizen, and the Company built experience in sales and delivery of managed services and addressing big data.

In 1-6/2016, the order intake decreased significantly and order backlog is below last year's level. Revenue increased by 5% to 11.5 MEUR (11.0 MEUR). Operational segment result was 0.9 MEUR (1.0 MEUR) or 8% (9%) of revenue.

Sweden

In 4-6/2016, the Swedish economic growth continued. The growth increased market demand and created shortage of resources in the market. In the area of Traditional IT & Analytics market, the demand with respect to managed services solutions increased as the customers wish to secure access to development resources, improve quality and reduce costs. In the Business Technology and Analytics market, customer digitalization initiatives increased as companies showed interest in building analytical capabilities or digitizing internal processes.

In 4-6/2016, order intake slightly increased and order backlog is above last year's level. Revenue decreased by 9% and was 5.0 MEUR (5.5 MEUR). Operational segment result was 0.6 MEUR (0.4 MEUR) or 11% (7%) of revenue. The order intake was positively affected by Professional Services performance, e.g. the Company managed to secure a major managed services deal with an international industrial services company. Winning this deal, the usage of near-shoring capabilities was a key success factor. However, the positive effect on total order intake was offset by decreased software license orders as Q2/2015 was characterized by a single large software license deal. The decreased software license orders also affected the year-over-year revenue decline. Revenue from Professional Services increased driven by new managed services deals and increased demand from existing and new customers. People churn is down to normal level and the Company is actively working to increase local capacity to meet the market demand. Profitability was positively affected by increased nearshoring and improved utilization rate. The profitability was also positively impacted by a streamlined organizational set-up.

In 1-6/2016, order intake slightly increased and order backlog is above last year's level. Revenue decreased by 5% and was 9.6 MEUR (10.1 MEUR). Operational segment result was 0.9 MEUR (0.5 MEUR) or 9% (5%) of revenue.

Denmark

In 4-6/2016, within the Business Technology & Analytics market, the Company’s focus on customers in Financial Sector and the Industrial & Energy sector opened up more possibilities to build new Information Management platforms enabling front-end customer facing digitalization and self-service analytics initiatives. The Company was also able to improve the balance between addressing customers within the Traditional IT & Analytics market and progress in the area of Business Technology & Analytics market.

In 4-6/2016, order intake increased and order backlog is above last year's level. Revenue increased by 14% and was 3.1 MEUR (2.7 MEUR). Operational segment result was 0.3 MEUR (-0.1 MEUR) or 9% (-3%) of revenue. The order intake growth was driven by Business Intelligence and data integration projects within Professional Services area with key customers in focus industries, particularly within the Financial Sector and Industrial & Energy sector. On the other hand, software license order intake was lower than last year, which also affected the revenue slightly negatively. However, overall revenue and profitability improved, due to Professional Services business where utilization and use of nearshoring increased. The increased use of nearshoring and competencies from other Affecto offices helped broaden capabilities to serve customers. Closer cooperation between offices in Malmö, Copenhagen and Århus is targeted at serving customers in the region without being limited by country borders. The Company also successfully developed its technology practices to serve the Business Technology & Analytics market better, leading to acquisition of new customers.

In 1-6/2016, order intake increased and order backlog is above last year's level. Revenue increased by 13% and was 6.3 MEUR (5.6 MEUR). Operational segment result was 0.5 MEUR (-0.0 MEUR) or 9% (0%) of revenue.

Baltic

In 4-6/2016, in the Lithuanian market, the Company saw revitalizing interest by energy companies to invest into the area of Traditional IT & Analytics while the public sector continued to invest modestly. In Estonia the public sector invested into improvement of their processes and digital services for citizens but the price competition is increasing. Across the segment, the private sector was interested in investing into Traditional IT & Analytics, renewal projects and solutions. The Company also saw that the decisiveness within insurance customers for systems upgrades remained low. The demand for nearshore is increasing as Nordic companies are increasingly investing into managed services.

As expected, in 4-6/2016, the Baltic (Lithuania, Latvia, Estonia, Poland and South Africa) order intake decreased significantly and order backlog is below last year’s level. Revenue declined 27% and was 4.1 MEUR (5.6 MEUR). Operational segment result was 0.4 MEUR (1.1 MEUR) or 10% (20%) of revenue. Improved sales performance in Lithuania as well as growing demand for nearshore from other Affecto countries contributed to order intake positively. However, as expected, the successful completion of insurance sector projects in 2015 was the main driver for the decrease of order intake, revenue and operational result compared to 2015. Additionally, increased price competition in Estonia influenced negatively the order intake, revenue and operational result negatively.

As expected, in 1-6/2016, the Baltic (Lithuania, Latvia, Estonia, Poland, South Africa) order intake decreased significantly and order backlog is below last year’s level. Revenue declined 22% and was 8.3 MEUR (10.7 MEUR). Operational segment result was 0.8 MEUR (2.4 MEUR) or 9% (23%) of revenue.

Affecto Evolution

Affecto has traditionally operated with a holding company model that consists of independent and heterogeneous business segments. As the Company’s market has shifted, Affecto has responded by defining its Strategic Direction and Choices in February 2015 and in May 2016, as part of its Capital Markets Day (“CMD”).

Affecto is finalizing the first stage of its evolution as described in the CMD glide path which describes the three stages of the Company’s evolution. In 4-6/2016, the evolution activities across Affecto’s 18 offices were for example the following:

• Continued successes in managed services order intake: building Affecto’s recurring revenue base (estimated in the CMD as ~2/5 of Affecto’s revenue based on 2015 revenue mix), the Company closed several important deals e.g. with a Nordic telecom operator and with an international industrial services company, and started successful deliveries in previously closed important managed services engagements.
• Continued recruitment for key positions within Company, growth initiative and finance leadership. This enables and increases capacity for strategy creation and execution with Affecto’s people.
• Continued construction of cross-region operating model and co-operation: Launch of closer co-operation between offices across Malmö, Copenhagen and Århus, leverage of Estonian nearshore delivery capability to win an important managed services deal, and significant contribution by Swedish consultants within a Finnish consulting engagement, all building Company’s Power Grid further
• Successful pilot deliveries and business outcome validation in select growth programs (see chapter Growth Programs)
• Preparation for systems integration projects

Growth Programs

Industrial

In the Industrial growth program, Affecto continued implementations and prototyping. During the second quarter, the Company designed and delivered prototype instrumentations for several customer use cases to create digital access points for interacting with physical phenomena. The Company also created advanced designs for cloud based architecture for capturing and handling large amounts of data. Furthermore, the Company implemented an advanced analytics model suitable for power plants maintenance together with Empower Group’s Industry division. Affecto sees a growing market for accessing, seizing and analyzing data related to real processes in real-time. The revenue from the growth program has been relatively low because of the piloting approach during 2016.

B2C

In the B2C growth program, Affecto Video Analytics solution customer projects with real-time cloud analytics and reporting capabilities progressed during the first quarter. During the second quarter, the Company validated the business impact of the Affecto Video Analytics solution for example with Expert ASA, where the piloted product categories experienced double digit revenue increases. With Affecto’s partner FirstView Digital Signage, the Company also signed two new customer pilots for the UK market, to be delivered during the second half of 2016. The Company sees a growing market interest towards the Affecto Video Analytics solution especially in Sweden and Finland. Due to the piloting approach of the B2C growth program, revenue from the program has been minor during 2016.

Financial Position and Cash Flow

At the end of the reporting period Affecto's balance sheet totaled 111.7 MEUR (12/2015: 120.3 MEUR). Equity ratio was 60.4% (12/2015: 58.5%) and net gearing was 3.4% (12/2015: -6.2%).

The financial loans were 18.5 MEUR (12/2015: 18.5 MEUR) at the end of reporting period. The Company's cash and liquid assets were 16.4 MEUR (12/2015: 22.4 MEUR). The interest-bearing net debt was 2.1 MEUR (12/2015: -3.9 MEUR).

On 17 June 2016, the Company announced that it has entered into a new EUR 18.5 million term loan agreement with OP Corporate Bank plc. The new loan replaced the previous loan of EUR 18.5 million that expired in the end of June 2016. Affecto will repay the loan in semi-annual instalments of EUR 2 million starting in December 2016.

In 4-6/2016, the cash flow from operating activities was -0.9 MEUR (0.9 MEUR) and cash flow from investing activities was -0.2 MEUR (-0.1 MEUR). Investments in tangible and intangible assets were 0.2 MEUR (0.1 MEUR). The weakened cash flow from operating activities was driven by lower profitability and especially by the negative change in working capital driven by the Finnish segment.

In 1-6/2016, the cash flow from operating activities was -2.2 MEUR (1.4 MEUR) and cash flow from investing activities was -0.3 MEUR (-0.3 MEUR). Investments in tangible and intangible assets were 0.3 MEUR (0.3 MEUR). The weakened cash flow from operating activities was driven by lower profitability and especially by the negative change in working capital driven by the Norwegian and Swedish segments.

Personnel

The number of employees was 988 (1012) persons at the end of the reporting period. 415 (425) employees were based in Finland, 102 (88) in Norway, 98 (115) in Sweden, 67 (64) in Denmark and 306 (320) in the Baltic countries. The average number of employees during the period was 980 (1014).

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 2015 in the Financial Statements 2015 and on the Company website www.affecto.com .

The Annual General Meeting

Annual General Meeting of Affecto Plc (“AGM”) was held on 8 April 2016. The AGM adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2015. The meeting approved the Board of Directors’ proposal to pay a dividend of EUR 0.16 per share and the dividend was paid on 19 April 2016.

Aaro Cantell, Magdalena Persson, Jukka Ruuska, Olof Sand, Tuija Soanjärvi and Lars Wahlström were re-elected to the Board. The Board of Directors elected from among its members Aaro Cantell as its Chairman and Olof Sand as Vice-Chairman and the following members to the Committees:

Audit Committee: Tuija Soanjärvi (chairman), Lars Wahlström and Jukka Ruuska

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

The AGM approved all proposals made by the Board as described in the invitation published on 11 March 2016. The resolutions of the AGM were published as a stock exchange release on 8 April 2016 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 846 235 treasury shares, approximately 3.8% 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 2015, the largest customer generated approximately 2% and the 10 largest customers together approximately 18% 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 our employees can be proud of. High people churn may create inefficiencies in the business and temporarily decrease the utilization rate.

The changes in the general economic conditions and the operating environment of customers have direct impact on Affecto’s markets. 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. 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, in the short term, the Company experienced a slowdown in customers' investment decisions within the traditional market areas in Norway. However, the Company expects this to normalize in near-future. Further, 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. Finally, in 4-6/2016, the Company experienced improved demand in Lithuania, especially in the public sector. The Company expects that this trend will continue but recognizes that the continuity of the trend is uncertain.

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 2015.

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 35% 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.

Brexit is estimated to have a minimal effect on Affecto or its business. Any possible impacts are estimated to be caused by possible currency fluctuations or elevated macroeconomic uncertainty.

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.

Events after the Review Period

On 4 July 2016, the Company announced that it has evaluated its disclosure principles as part of its EU Market Abuse Regulation (MAR) implementation and has decided to change the way it communicates orders and business contracts. Previously, Affecto had a practise of announcing all orders and business contracts over EUR 1 million as formal stock exchange releases. Going forward, the announcement of each order and business contract is assessed individually. At the same time, the Company starts regular press release communications of material orders and business contracts that are not assessed to have an effect on the financial instruments of the Company. Affecto believes that this change enhances transparency and enables clearer and more coherent communications to ensure that capital market participants have a clear picture of the Company and its business operations.

On 11 August 2016, the Company announced that, it has appointed Iikka Lindroos as deputy CEO and to the Affecto Leadership Team. Lindroos starts in his role during the Autumn 2016.

2016 Outlook

Affecto expects its revenue to stay at the same level or grow slightly and its operating profit to grow in 2016.

The company does not provide an exact quarterly guidance for revenue or operating profit development, as single projects and timing of license sales may have large impact on quarterly sales and profit.

Financial Calendar 2016

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

Interim Report 1 January – 30 September:          28 October 2016

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

1. Consolidated income statement, consolidated comprehensive income statement, balance sheet, cash flow statement and statement of changes in equity

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET   

SUMMARY CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

2. Notes

2.1. Basis of preparation

This half year financial report has been prepared in accordance with the IFRS recognition and measurement principles and in accordance with IAS 34, Interim Financial reporting. The half year financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2015. In material respects, the same accounting policies have been applied as in the 2015 annual consolidated financial statements.  The amendments to and interpretations of IFRS standards that entered into force on 1 January 2016 had no material impact on this half year financial report.

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

Revenue by business lines

2.3. Changes in intangible and tangible assets

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

Affecto Plc owns 846 235 treasury shares, which correspond to 3.8% of the total amount of the shares. The amount of registered shares is 22 450 745 shares.

2.5. Interest-bearing liabilities

On 17 June 2016, the Company announced that it has entered into a new EUR 18.5 million term loan agreement with OP Corporate Bank plc. The new loan replaced the previous loan of EUR 18.5 million that expired in the end of June 2016. Affecto will repay the loan in semi-annual instalments of EUR 2 million starting in December 2016.

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:

Guarantees given:

On 17 June 2016, the Company announced that it has entered into a new EUR 18.5 million term loan agreement with OP Corporate Bank plc. The new loan replaced the previous loan of EUR 18.5 million that expired in the end of June 2016. The pledges that were used to secure the previous term loan were released. The previous term loan were secured by bearer bonds with a nominal value of 52.5 million euro. In addition, the shares in Affecto Finland Oy and Affecto Norway AS were pledged to secure the previous term loan.

Other securities given on own behalf:

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:

Purchases from related party:

3. Key figures

Affecto has revised the terminology used in its financial reporting. Prior to Q1-2016 release, the Company used the term ‘ net sales’. In this report and going forward, the term ‘ net sales’ is replaced with ‘ revenue ’, however, the meaning of the two terms is identical.

Calculation of key figures