Interim report release for the period 1 January – 30

Helsinki, Finland, 2016-11-04 08:00 CET (GLOBE NEWSWIRE) -- Ixonos Plc Stock Exchange Release04November 2016 at 09:00

Interim report release for the period 1 January –30 September, 2016

CONFIRMED ORDERS INCREASED, RESTRUCTURING NEARING COMPLETION

The third quarter in brief (previous-year figures in brackets):

· Confirmed orders: EUR 4.7 million (EUR 1.6 million), 202.6% growth.

· Turnover was EUR 3.0 million (EUR 3.5 million), 14.3% decline.

· Earnings before interest, taxes, depreciation, and amortisation (EBITDA) were EUR -1.9 million, -62.4% of turnover (EUR -2.3 million, -64.6% of turnover)

· Operating result was EUR –2.0 million, -66.3% of turnover (EUR -2.5 million, -71.0% of turnover).

· Net result was EUR -2.5 million, -82.7% of turnover (EUR -3.0 million, -85.3% of turnover).

· Earnings per share were EUR -0.01 (2015: EUR -0.03).

· Net cash flow from operating activities was EUR -1.8 million (EUR -3.9 million).

The review period in brief (previous-year figures in brackets):

· Confirmed orders: EUR 15.2 million (EUR 9.2 million), 65.6% growth.

· Turnover was EUR 10.8 million (EUR 12.7 million), -15.1% decline.

· Earnings before interest, taxes, depreciation, and amortisation (EBITDA) were EUR -6.3 million -58.4% of turnover (EUR -5.5 million, -43.7% of turnover).

· Operating result was EUR -6.7 million, -61.8% of turnover (EUR -6.4 million, -50.6% of turnover).

· Net result was EUR –8.2 million, 76.5% of turnover (EUR -12.1 million, -95.5% of turnover , including write-off of deferred tax assets EUR -4.9 million ).

· Earnings per share were EUR -0.02 (EUR -0.10).

· Net cash flow from operating activities was EUR -5.2 million (EUR -7.4 million).

Future prospects

Ixonos’ operating profit is expected to improve as compared to its performance in 2015.

CEO’s Review

“The business developed positively during the past quarter. We completed streamlining costs to support profitability improvement in the future. At the same time, the amount of confirmed orders increased over 202 % compared to the same time last year. This increase is more than in previous respective review quarters this year. Deliveries of these orders, are spread over a longer time, so the impact of turnover on the following quarter is limited. On the other hand, the spread of deliveries over a longer period provides longer customer relationships that can be developed further. A great example of this is the frame agreement with the City of Vantaa. Together with the City of Vantaa we are forerunners in the digitalisation of the municipal sector and we create future services for citizens.

We have determinedly worked to renew the contents of our income while focusing on building stronger customer relationships. The effect of this change starts is showing and now we, together with our customers, build the next deliveries and help them to choose competitive and sustainable digital solutions. The core of the business is a successful initial customer delivery that gains our customers’ trust in realizing how our Discover, Design, Deliver (DDD) service offering can be tailormade to their true needs.

During the review quarter, we continued to develop our design-oriented service offering (”DDD-as-a-Service”). One example of this is Discovery-as-a-Service that we develop as a foundation for building new ideas, innovation and business development in line with our customers’ strategy. The benefits of the services that Ixonos provides are based on flexibility, accuracy and speed. We aim to always provide our customers with the knowledge they need at the right time. We have a transparent way of working, and it corresponds to what has been designed and concepted in the beginning. Additionally, our efforts are efficient in terms of timing, ensuring that the service or product is ready when the customer wants it to be. For example, with Provision, we developed a 3D-based motion-camera control for their products that was ready when they needed it.

Ixonos serves customers around the world as a global player and we are improving our position among the international competition. In September, we opened a new subsidiary in Vancouver, BA, Canada. With this, we aim for growth on the North American market, and Vancouver is a very good location for this both in terms of market and availability of skilled personnel. Together with our subsidiaries in San Francisco and New York, this collaboration forms Ixonos North America through which we can serve more customers.

Despite of the challenging quarter we are going in the right direction as a company. In domestic market we have shapen our operations and now the focus is on the controlled growth. In terms of international activities we continue to develop the operation model in order to reach the targeted level. After this we focus on the international growth.

We are determined to continue developing our company into one of the internationally leading actors by combining user research, design and technology.

// CEO Sami Paihonen

OPERATIONS

Ixonos is a service company that combines design and technology in a versatile way. We offer creative and versatile digital solutions along with consulting services for several customer segments. The most important part of our services is our deep understanding and extensive knowledge of our customer’s digital challenges, such as utilising digitalisation in their businesses and operations.

We create new digital solutions for our customers. These services are based on the latest technologies and trends that affect their businesses. Premium user experience requires design and technology to work seamlessly together, and Ixonos strives to be the leading expert for our growing clientele.

Our Vision Discover-Design-Deliver contains user research in the initial phases of strategic design and defining feasible, sustainable technology services. The basic idea is to find the right components that are needed to build into customer order delivery, in order to ensure a premium user experience.

Our operations are centralised in Finland, USA, Canada and United Kingdom. Our software development activities are mostly based in Finland, but these activities have been strengthened in our other locations. Design functions currently operate in all locations.

Our Design services consist of digital, mobile, and web design, as well as service and industrial design. We offer design services all the way from design strategy and user research to designing visuals and interaction. Our design services extend further to development workshops, designing prototypes, and usability testing. All our design innovations are implemented on different devices and platforms, as we are always striving for the best possible implementation that can be done within the time frames requested by our customers.

As a technology company, we have extensive knowledge in developing creative software solutions for embedded systems and software. We use open standardised technologies (e.g. Java,Linux, Android, iOS, Net) and cooperate with our technology partners (Eg., IBM, Gigya, Redhat, Salesforce, Maxicaster, gimbal, and Brightcove) . We combine knowledge in software development with world-class technology competence and expert-level knowledge in user interface and usability design with first-class project management skills. Our technology expertise comprises, for example, Software and Hardware, mobile , wireless connectivity and Online services and devices.

The Consulting Services Unit is responsible for Strategic customers and developing end-to-end solutions to meet our customer’s challenges. Concurrently, we help our customers to understand new types of business models and competition and how these can be met on the long term in a digitalising world. The target of our consulting services is to build long-term partnerships with customers.

Organisation

Our organization is composed of international sales and has the following units relating to our services:

· Design: Involving holistic design capabilities that generate strategic service design, a deep understanding of users and innovative design of user interfaces, and product design.

· Technology: Comprised of the implementation of technical solutions, software development and customer projects, and delivering them in the most cost-efficient ways.

· Consulting Services: Focusing on the specifications of end-to-end projects and steering them as consultative services.

Service Units and Marketing reports directly to the CEO, while Sales is managed by COO.

The entire operations of the organization supports Group Services consisting Finance, HR, IT and legal functions.

Locations

Our offices are situated in our main markets: Finland, United States, Canada and Great Britain. All other sites expect just opened Canada site has both technical and design personnel as well as local sales persons. The Canadian organisation is in the development phase. The goal is that USA and Canada together form a strong competence entity.

SEGMENT REPORTING

Ixonos reports its operations as a single segment.

CONFIRMED ORDERS

Confirmed orders during the review period were EUR 15.2 million (2015: EUR 9.2 million), which represents a 65.6 % increase compared to the corresponding period. Our customers increasingly commit themselves to collaborate with us for longer periods of time, which affects the formation of orders confirmed and turnover at different times.

TURNOVER

Turnover in the third quarter was EUR 3.0 million (EUR 3.5 million), which is 14.3% lower compared to the corresponding period.

Turnover in the review period was EUR 10.8 million (EUR 12.7 million), which is 15.1% lower compared to the corresponding period.The main reason for the decline is the divestment of the company's data center business ( decline 1.7 million compared to the corresponding period) and the United States declined turnover (decline 1.6 million compared to the corresponding period). The focus area turnover grew 1.4 million compared to the corresponding period. In particular, the company's Finnish clients have invested heavily with digital technology.

During the review period, no single customer generated a dominating share of the turnover or exceeded 10.0 % of the total turnover.

RESULT

The operating result (EBIT) for the third quarter was EUR -2.0 million (EUR -2.5 million), and the result before taxes was EUR -2.5 million (EUR -3.0 million). The net result for the third quarter was EUR -2.5 million (EUR -3.0 million), earnings per share were EUR-0.01 (EUR -0.03), and cash flow from operating activities per share in the first quarter was EUR -0.01 (EUR -0.02).

During the review period the operating result (EBIT) was EUR -6.7 million (EUR -6.4 million) mainly due the decrease in turnover , and the result before taxes was EUR -8.2 million (EUR -12.1 million). The net result for the was EUR -8,2 million (EUR -12.1 million), Earnings per share were EUR-0.02 (EUR -0.10), and cash flow from operating activities per share was EUR -0.01 (EUR -0.06). Previous year net result included write-off of deferred tax assets EUR -4.9 million.

Financial expenses were higher than a year ago at EUR 1.6 million (EUR 0.7 million), due to increased interest expenses and unrealized foreign exchange losses.

Ixonos did not capitalise the deferred tax assets during the period.

RETURN ON CAPITAL

The Group's equity was negative EUR -2.7 million.The Group's equity was negative, therefore key figure Return on equity (ROE) has not been calculated. Negativity on equity related only to the Group and the parent company.

Return of investments (ROI) was -49.0 % (2015: -51.0%).

INVESTMENTS

Gross investments during the review period totalled to EUR 0.1 million (EUR 0.3 million). All R&D costs are included in the Group's profit for the review period, and nothing is capitalised in the balance sheet.

BALANCE SHEET AND FINANCING

The balance sheet totalled EUR 16.5 million (EUR 17.7 million). Shareholders’ equity was EUR -2.7 million (EUR -7.1 million). The equity to total assets ratio was -16.4% (EUR -40.1) The Group’s liquid assets at the end of the review period amounted to EUR 0.9 million (EUR0.6 million). Non-controlling interest of the equity was EUR 0.0 million (EUR 0.2 million).

The change in shareholders’ equity during the review period was due to both a negative result and a positive impact on convertible bonds of 2.1 million.

At the end of the review period, the balance sheet included EUR 2.9 million (EUR 14.9 million) in loans. This amount covers the overdrafts in use.

Loan agreements with Related party companies are described in detail in 'related party transactions'

CASH FLOW

Consolidated cash flow from operating activities during the review period was EUR -5.2 million (EUR -7.4 million), showing an improvement of 30.2%.

The Group sells most of its Finnish account receivables to reduce the turnaround time of its receivables. During the review period, EUR 4.2 million (EUR 8.5 million) trade receivables were sold.

GOODWILL

On 30 September 2016, the consolidated balance sheet included EUR 11.5 million in goodwill (EUR 12.2 million).

The following parameters were used in the goodwill impairment testing:

· The review period of 4 years

· WACC discount rate of 10%

· 1% growth estimate used for terminal value calculation

Ixonos conducted an impairment test on 30 September 2016, confirming that there is no need for an any other impairment. The present value of future cash flows exceeded the carrying value of assets by EUR 22.0 million.

The present value of the cash flow calculation of EUR 33.6 million is lower than the sum of the Company's financial liabilities (i.e. EUR 12.7 million) and the market price of the shares (i.e. EUR 31.8 million) as of 30 September 2016.

PERSONNEL

The average number of employees during the review period was 192 (222), and at the end of the period, there were 174 (209) employees. At the end of the review period, the Group had 141 employees (170) stationed in Finnish companies, while Group companies in other countries employed 33 (39). During the review period, the number of employees decreased by 27.

SHARES AND SHARE CAPITAL

Share turnover and price

During the financial period, the highest price of the Ixonos’ share was EUR 0.11 (EUR 0.12) and the lowest price was EUR 0.06 (EUR 0.05). The closing price on 30 September 2016 was EUR 0.09 (EUR 0.10). The weighted average price was EUR 0.07 (EUR 0.07). The number of shares traded during the review period was 16,656,497 (40,240,359), which corresponds to 4.71% (19.2%) of the total number of shares at the end of the review period. The market value of the share capital was EUR 31,820,841 (EUR 20,382,260) at closing on 30 September 2016.

Share capital

At the beginning of the review period, the Company’s registered share capital was EUR 585.394.16, and the number of shares was 353.564.898. At the end of the review period, the registered share capital was EUR 585.394.16, and the number of shares was 353.564.898.

Option plans 2011 and 2014

2011 plan

The Board of Directors of Ixonos Plc decided, on 30 November 2011, to grant new options. This decision was based on the authorisation given at the Annual General Meeting on 29 March 2011.

The options were issued by 31 December 2011, free of charge, to a subsidiary wholly owned by Ixonos Plc. This subsidiary will distribute the options, as the Board decides, to employees of Ixonos Plc and other companies in the Ixonos Group, to increase their commitment and motivation. Options will not be issued to members of the Board of Directors of Ixonos Plc or to the Ixonos Group’s senior management.

The options will be marked IV/A, IV/B and IV/C. A total of 600.000 options will be issued. According to the terms of the options, the Board of Directors will decide how the options will be divided between option series and, if needed, how undistributed options will be converted from one series to another.

Each option entitles its holder to subscribe for one new or treasury share in Ixonos Plc.

The exercise period for the IV/A options began on 1 October 2014. The option plans for IV/B options have been cancelled, and for the IV/C options, the exercise period will begin on 1 October 2016. The exercise periods for all options will end on 31 December 2018. The exercise price for each option series is a trade volume weighted average price at NASDAQ OMX Helsinki. Exercise prices will be reduced by the amount of dividends, and they can also be adjusted under other circumstances specified in the option terms.

In order to ensure the equal treatment of shareholders and the holders of 2011 stock options, the Board of Directors of Ixonos has, due to the Rights Offering December 2015, adjusted the subscription ratios and the subscription prices of the Option Rights 2011 in accordance with the terms and conditions of the aforementioned option rights as follows:

The subscription ratio of stock options IV/A shall be amended to 8.287 and the subscription price shall be amended to EUR 0.2 per share. As regards stock options IV/C, the subscription ratio shall be amended to 8.287 and the subscription price shall be amended to EUR 0.1497 per share.

The total amount of shares is rounded down to full shares in connection with subscription of the shares, and the total subscription price is calculated using the rounded amount of shares and rounded to the closest cent. Due to the above mentioned adjustments concerning stock options IV/A, the adjusted maximum total number of shares to be subscribed for based on the 2011 stock options shall be 4,971,966.

2014 plan

The Board of Directors of Ixonos Plc decided to issue stock options on 18 February 2014 on the basis of the authorisation granted by the Extraordinary General Meeting held on 30 October 2013.

The stock options will be offered to the global management team and certain key personnel of Ixonos Plc and its subsidiaries for the purpose of improving commitment and motivation. The stock options will be marked as series 2014A, 2014B and 2014C. The aggregate number of stock options is 5,000,000. The Board of Directors will, in accordance with the terms and conditions of the stock options, decide on the allocation of the stock options between different series and, if necessary, on the conversion of stock options that has not been allocated into another series of stock options.

Each option entitles its holder to subscribe for one new or treasury share in Ixonos Plc. The share subscription period with 2014A stock options starts on 1 March 2016, with 2014B stock options on 1 March 2017 and with 2014C stock options on 1 March 2018. The share subscription period ends with all stock options on 31 December 2018. The share subscription price for each series is the volume weighted average price of Ixonos’ share on the Helsinki Exchange during the period of 1 March to 31 May 2014 for 2014A; 1 January to 31 March 2015 for 2014B; and 1 January to 31 March 2016 for 2014C. The subscription price may be decreased with the amount of dividends paid and may also be otherwise subject to change in accordance with the terms and conditions of the stock options among others.

In order to ensure the equal treatment of shareholders and the holders of 2011 stock options, the Board of Directors of Ixonos has, due to the Rights Offering December 2015, adjusted the subscription ratios and the subscription prices of the Option Rights 2014 in accordance with the terms and conditions of the aforementioned option rights as follows:

As regards stock options 2014A, the subscription ratio shall be amended to 1.65 and the subscription price shall be amended to EUR 0.0903 per share. As regards stock options 2014B, the subscription ratio shall be amended to 1.65 and the subscription price shall be amended to EUR 0.06 per share.

The total amount of shares is rounded down to full shares in connection with subscription of the shares, and the total subscription price is calculated using the rounded amount of shares and rounded to the closest cent. Due to the above adjustments concerning the Option Rights 2014, the adjusted maximum total number of shares to be subscribed for based on the Option Rights 2014 shall be 8,250,000.

Shareholders

On 30 September 2016, Ixonos had 3,142 shareholders (2,992). Private persons owned 12.6% (17.0%), institutions owned 86.8% (80.2%), foreigners owned 0.5% (0.6%), and nominee-registered ownership was 1.8% (2.2%) of all shares.

Tremoko Oy Ab, a related party, owns 82.17% of the Company’s shares. Options held by Tremoko increases their ownership to 82.29%.

Related-party transactions

On 14 March 2016, the Company entered a loan agreement with Tremoko Oy Ab. The new loan enabled additional financing of 1.5 million Euros.

On 8 April 2016, Tremoko Oy Ab (“Tremoko”) subscribed to a convertible bond in full with a capital of EUR 9,200,000.95 (“Loan”) and attached an option or other special rights referred to in Chapter 10 Section 1(2) of the Limited Liability Companies Act (“Special Rights”), which were directed to be subscribed to by Tremoko as a result of decision-making in the Ixonos Plc (“Company”) General Meeting that took place on on 7 April 2016. The Board of Directors of our Company has accepted Tremoko’s subscription.

The Loan and attached Special Rights have been issued in order to strengthen the Company’s working capital and reorganise the capital structure as well as lower financing costs. Hence, there are weighty financial reasons for taking the Loan and granting the Special Rights. The Loan’s issuing price and conversion price have been defined according to market terms.

The main specifications of the Terms of the Loan and the Special Rights are as follows:

· The amount of the Loan is EUR 9,200,000.95.

· A annual interest of Euribor 6 months (at least ≥ 0 %) + 4.0 per cent is paid on the principal of the Loan.

· The conversion option attached to the Loan entitles Tremoko to a maximum amount of 131,428,585 of new Company’s shares.

· The rate of conversion is fixed at EUR 0.07, and it shall be revised as set out in the Terms.

· The loan period is 8 April 2016–8 April 2020, so that as of 8 April 2016, altogether EUR 1,700,000.05 of the loan will be paid biannually in five tranches of EUR 340,000.01. Additionally on 8 April 2020, the remaining loan, altogether EUR 7,500,000.90, will be paid in a one-off payment.

Tremoko has paid the Loan and attached Special Rights in full by setting off receivables it has from the Company, amounting altogether to EUR 9,200,000.95.

On 28 April 2016, Turret Oy Ab and Holdix Oy Ab were granted a directly enforceable guarantee (“Guarantee”) with the total amount of EUR 1,2 million to Nordea Bank Finland Plc on behalf of Ixonos Plc’s (“Ixonos”) and Ixonos Finland Ltd’s commitments. The Guarantee was given as a substitute to former guarantee given by Finnvera Plc. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, which is the main owner of Ixonos.

On 13 May 2016, Ixonos Plc’s (“Ixonos”), together with Ixonos Finland Ltd, did give countersecurity to Turret Oy Ab and Holdix Oy Ab in which, inter alia, they have undertaken to pay guarantee commission. The countersecurity has been given related to financial arrangements announced on 28 April 2016. The rate of the guarantee commission has been defined in market terms. Turret Oy Ab and Holdix Oy Ab have granted a directly enforceable guarantee with the total amount of EUR 1.2 million to Nordea Bank Finland Plc as collateral for Ixonos and Ixonos Finland Ltd’s commitments. Turret Oy Ab and Holdix Oy Ab are the owners of Tremoko Oy Ab, which is the main owner of Ixonos.

On 20 June 2016, Ixonos Plc (“Ixonos”) and Savox Communications Oy Ab Ltd (“Savox”) concluded a framework agreement concerning product development. Ixonos had, for the duration of the Agreement, undertaken to provide Savox with research, design and/or product development services ordered separately later by Savox.

The Agreement will remain in force for a minimum of one year. The parties have non-bindingly estimated the potential value of the services provided by Ixonos to Savox to amount to EUR 1–2 million.

Savox Communications Oy Ab (Ltd) is part of the Savox Communications Group, which is one of the world’s most notable suppliers of communication systems for professional use in demanding and dangerous circumstances. The Savox Communications Group has over three decades of experience in serving police and security, fire and rescue, military, maritime and industrial sectors. The Savox Communications Group is part of the Savox Group, into which Turret Oy Ab, one of the owners of Ixonos’ main owner Tremoko Oy Ab, also belongs.

On 17 August 2016 The Company entered a loan agreement with Tremoko Oy Ab with. The loan agreement enables additional financing for a maximum of 2.5 million Euros until August 18, 2018.

OTHER EVENTS DURING THE REPORTING PERIOD

On 2 August 2016 Ixonos started co-operation negotiations with its personnel in Finland in order to adjust personnel costs mainly temporary measures and in order to enhance the effiency of the company's operation. Outcome of the negotiations was temporary lay-offs (maximum 90 days) for part of the personnel and job terminations for 8 persons.

On 30 August 2016 Ixonos Plc and the City of Vantaa concluded a framework agreement concerning development of digital services. Ixonos has, for the duration of the Agreement, undertaken to provide the City of Vantaa with service design and graphic user interface design services. The Agreement will remain in force for until year 2020. The value of the services provided by Ixonos to the City of Vantaa amount to EUR 1.878 million.

On 29 September 2016 the Company set up a subsidiary in Vancouver Canada in order to expand the company’s reach in North America. The new subsidiary is not expected to have a significant impact on the company’s result in 2016.

Market events in the review

During the period, a notable amount of Augmented Reality (AR) and Virtual Reality (VR) solutions were designed. Courage to take on both AR- and VR-projects are seen within the consumer, industrial- and service sectors. Transformation projects are increasing the importance of user experience and successful service design, and there is intent for new openings in these markets.

Within Digital Transformation and Smart Data IoT—focus areas with the most visible action—we organised the IoT Business Lab event together with IoT Lab. Within these areas, several speeches were given in industry forums globally.

Within InVenue and Smart Devices—areas in which the Company published an ISA-partnership with Intel within IoT—all our customer projects continued with further appreciating of the customer experience.

Annual General Meeting on 7 April 2016

The Company held its Annual General Meeting on 7 April 2014. The minutes of Annual General Meeting and decisions are presented on the Company’s internet page, www.ixonos.com.

Stock Exchange releases during the period are available on company’s websitewww.ixonos.com/investors/releases

RISK MANAGEMENT AND NEAR-FUTURE UNCERTAINTY FACTORS

Ixonos Plc’s risk management aims to ensure undisturbed continuity and development of the Company’s operations, support attainment of the commercial targets set by the Company and promote increasing Company value. Details on risk management organisation and process, as well as on recognised risks, are presented on the Company’s website at www.ixonos.com.

Despite efficiency actions taken, Ixonos Plc results have been negative during recent years, which has directly impacted Ixonos’ sufficiency of working capital. The risk related to sufficient working capital is managed by maintaining readiness for various financing methods.

Changes in key customer accounts may have adverse effects on Ixonos’ operations, earning power and financial position. Should a major customer switch its purchases from the Company to its competitors or make forceful changes to its own operating model, Ixonos would have limited ability to acquire, in the short term, new customer volume to compensate for such changes.

The Group’s turnover consists primarily of relatively short-term customer contracts. Forecasting the starting dates and scope is from time to time is challenging; yet at the same time, the cost structure is fairly rigid. This may result in unexpected fluctuations in turnover and profitability.

The structure and content of the Ixonos’ turnover has changed. Part of the Company’s business operations is based on fixed-price project deliveries. Fixed-price projects may include risks related to their duration and content. These risks are being managed by means of contract management as well as project management.

A significant part of the Group’s turnover is invoiced in foreign currency. Risks related to currency fluctuation are managed through different means.

The Company’s balance sheet includes a significant amount of goodwill, which may still be impaired should internal or external factors reduce the profit expectations of the Company’s cash flow. Goodwill is tested each quarter and, if necessary, at other times.

The Company’s financial agreements have covenants attached to them. A covenant breach may increase the Company’s financial expenses or lead to a call for swift partial or full repayment of non-equity loans. The main risks related to covenant breaches are associated with EBITDA fluctuation, due to the market situation, and with a potential need to increase the Company’s working capital through non-equity funding. Ixonos manages these risks by negotiating with financiers and by maintaining readiness for various financing methods.

NEXT REPORTS

The financial statement for the period of 1 January – 31 December 2016 will be published on Friday, 3 March 2017

IXONOS PLC

Board of Directors

For more information, please contact:

Ixonos Plc

Sami Paihonen, President and CEO

Telephone: +358 50502 1111

Email: sami.paihonen@ixonos.com

Kristiina Simola, CFO

Telephone: +358 40756 3132

Email: kristiina.simola@ixonos.com

Distribution:
NASDAQ OMX Helsinki
Main media

THE IXONOS GROUP

SUMMARY OF FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS 1 January – 30 September, 2016

CONSOLIDATED INCOME STATEMENT, EUR 1,000

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, EUR 1,000

CONSOLIDATED STATEMENT OF FINANCIAL POSITION, EUR 1,000

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY, EUR 1,000

A: Share capital

B: Share premium reserve

C: Share Issue

D: Invested non-restricted equity fund

E: Translation difference

F: Retained earnings

G: Total equity attributable to equity holders of the parent

H: Non-controlling interests

I: Total equity

CONSOLIDATED CASH FLOW STATEMENT, EUR 1,000

Accounting principles

This interim report has been prepared in accordance with IAS 34 (Interim Financial Reporting) and the accounting policies for the annual financial statement of 31 December 2015. The IFRS amendments and interpretations that entered into force on 1 January 2016 have not affected the consolidated financial statements.

Preparing interim reports in accordance with IFRS requires Ixonos’ management to make estimates and assumptions that affect the amounts of assets and liabilities on the balance sheet date as well as the amounts of income and expenses for the financial period. In addition, judgement must be used in applying the accounting policies. The estimates and assumptions are based on views prevailing at the time of releasing the interim report, which involves risks and uncertainty factors. Actual results may differ from estimates and assumptions.

The figures in the income statement and balance sheet are consolidated. The consolidated balance sheet includes all Group companies as well as Ixonos Management Invest Oy, a company owned by members of Ixonos management. The original interim report is in Finnish. The interim report in English is a translation of the original report.

As the figures in the report have been rounded, sums of individual figures may differ from the sums presented. The annual report is unaudited.

Going concern

This interim report has been prepared according to the current principle, which takes into account the financial arrangements during the financial year 2015–2016 and financial estimations made up to the end of year 2016. The estimations take into consideration probable or foreseeable changes in future expectations of revenues and costs.

The Company estimates that its net working capital is expected to be sufficient to fund its operations over the next 12 months .

Ixonos loan agreements’ related arrangement includes covenants regarding equity ratio, EBITDA, and net debts/EBITDA, which will be considered for the first time on 31 December 2016.Value of loans under covenants is EUR 0.6 million.

Goodwill impairment

Ixonos conducted an impairment testing for the goodwill value on the balance sheet on 30 September 2016. The goodwill is attributed to the one cash-generating unit (CGU), starting from 1 November 2013.

The impairment test showed a surplus of EUR 10.8 million, based on discounted cash flow valuation compared to the tested amount, and no impairment was recognised. The carrying amount of goodwill is EUR 11.5 million. Given the present value of the cash flows calculated, EUR 22.3 million is lower than the sum of the Company's financial liabilities (EUR 12.7 million) and the market price of the shares (EUR 31.8 million) on 30 September 2016.

The impairment test of the Company is based on operative Company value. The forecasting period used in impairment testing on 30 September 2016 was Q4 2016 to Q3 2020.

In the forecast, the year 2016 is a year of stabilisation with relatively small growth. The Company expects to reach stronger growth for the years of 2017–2020, on average of 13.0%, as digitalisation will impact an ever-growing part of the business community. The forecasted EBIT level is assumed to increase to an estimated average of 10%.

The impairment test is conducted by comparing the carrying value of assets to the present value of future cash flow, taking into consideration forecasted cash flows during the forecast period, discount factor, and growth rate used in calculating terminal value. The discount factor used is 10% p.a. and growth rate used in calculating terminal value is 1% p.a. When calculating the terminal value, the weighted average EBIT % level for the period was used.

The impairment test is most sensitive to the following two factors: the cash flow forecast itself (and the assumptions behind it) and the growth rate used (when calculating the terminal value and to the discount factor). If any of the following conditions applied, then the tested value would have been equal to the discounted cash flow: (1) the growth rate of -11% had been used instead of 1%; (2) the discount factor had been 31% instead of 10%; or (3) the EBIT % used had been 3.7% instead of 13%.

Loan covenants

Ixonos has a total of EUR 12.7 million in loans as of 30 September 2016. The amount of the financing loans that included covenants had a capital of EUR 0.6 million on 30 September 2016 (2015: EUR 5.8 million). The amount of the financing loans that include covenants are after the financial period changed, so the actual value is 0.6 million.

Loan agreements include covenants regarding equity ratio, EBITDA, and net debts/EBITDA, all of which will be considered for the first time on 31 December 2016. Should the Company not be within the limits of a covenant, the creditors are entitled to call in the loans to which each covenant applies. The covenant levels are reviewed semi-annually on a rolling twelve-month basis. Depending on the point in time, the equity ratio must be 15–35%. The rolling 12 past months’ EBITDA may not exceed EUR -1.0 million on 31 December 2016. Depending on the point in time, the ratio of interest-bearing liabilities (i.e. interest-bearing liabilities in the balance sheet, including leasing liabilities) to EBITDA may not exceed 3.0–1.0 from 30 June 2017 onward. The ratios of interest-bearing liabilities to EBITDA, as well as the ratio of interest-bearing net liabilities to EBITDA, are calculated based on IFRS principles.

On 30 September 2016, the Company's equity ratio was -16.4% (2015: -40.1 %), EBITDA was -6.3 MEUR (2014: -5.5 MEUR), and the ratio of interest-bearing liabilities to the EBITDA was negative (2015: negative). Loans under covenants are all described in detail in short-term liabilities.

Instalment scheme for loans under covenants:

CONSOLIDATED INCOME STATEMENT, QUARTERLY, EUR 1,000

RELATED PARTY TRANSACTIONS, 1000 EUR

CHANGES IN FIXED ASSETS, EUR 1,000

FINANCIAL RATIOS

OTHER INFORMATION

CALCULATION DEFINITIONS OF KEY FIGURES

EBITDA = Earnings before Interest, Taxes, Depreciation and Amortisation

Diluted earnings per share = Result for the period ∕ number of shares, adjusted for issues and dilution, on average

Earnings per share = Result for the period ∕ number of shares, adjusted for issues, on average

Shareholders’ equity per share = Shareholders’ equity ∕ number of shares, undiluted, on the closing date

Cash flow from operating activities, per share, diluted = Net cash flow from operating activities ∕ number of shares, adjusted for issues and dilution, on average

Return on investment = (Result before taxes + interest expenses + other financial expenses) ∕ (balance sheet total - non-interest-bearing liabilities, on average) × 100

Return on equity = Net result ∕ shareholders’ equity, on average × 100

Net gearing from total equity= (Interest-bearing liabilities - liquid assets) / shareholders’ equity × 100