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Basware Financial Statements 2010


January 25, 2011 - London

BASWARE FINANCIAL STATEMENTS
Basware fourth quarter and full year 2010

Basware Corporation stock exchange release, January 25, 2011 at 09:00

SUMMARY (last year's corresponding period in parentheses, unless otherwise stated)

Financial year 2010
-     Net sales EUR 103 094 thousand (EUR 92 654 thousand) - growth 11.3 percent
-     Operating profit EUR 13 487 thousand (EUR 11 824 thousand) - growth 14.1 percent
-     Operating profit 13.1 percent of net sales (12.8 %)
-     Operating profit includes EUR 314 thousand costs of unrealized M&A
-     International operations accounted for 54.8 percent of net sales (54.2 %) - growth 12.6 percent
-     Growth of Automation services 56.0 percent
-     Cash flows from operating activities were EUR 12 523 thousand (EUR 14 732 thousand)
-     Earnings per share EUR 0.90 (0.80) - growth 12.6 percent
-     Dividend proposal for 2010: EUR 0.40 per share (2009: EUR 0.36)

 

October-December Q4
-     Net sales EUR 30 149 thousand (EUR 26 600 thousand) - growth 13.3  percent
-     Operating profit EUR 4 937 thousand (EUR 4 058 thousand) - growth 21.7  percent
-     Operating profit 16.4 percent of net sales (15.3 %)
-     Operating profit includes EUR 314 thousand costs of unrealized M&A
-     International operations accounted for 56.8 percent of net sales (53.9 %) - growth 19.5 percent
-     Growth of Automation services 63,2 percent
-     Earnings per share EUR 0.34 (0.35) - decrease 4.2 percent

 

Basware outlook
- Basware expects its net sales in 2011 to grow over 10 percent from previous year
- Operating profit (EBIT) for 2011 is expected to be over 13 percent of net sales

 

This financial statement release has been prepared in accordance with IAS 34, Interim Financial Reporting.


The amounts presented in the summary of financial statements and notes to the financial statements are based on the company's audited financial statements. The Auditor's Report was issued on January 24, 2011.


GROUP KEY FIGURES 

 EUR thousand 10-12/
 2010
10-12/
2009
Change,
 %
1-12/
 2010
1-12/
2009
Change,
 %
 
               
Net sales 30 149 26 600 13.3 103 094 92 654 11.3  
EBITDA 6 215 5 337 16.4 18 604 16 280 14.3  
Operating profit before              
IFRS-3 amortization 5 477 4 600 19.1 15 691 13 788 13.8  
Operating profit 4 937 4 058 21.7 13 487 11 824 14.1  
% of net sales 16.4 15.3   13.1 12.8    
Profit before tax 4 839 4 038 19.8 13 325 11 590 15.0  
Profit for the period 3 913 4 007 -2.4 10 331 9 074 13.9  
               
Return on equity, % 24.2 29.4   16.7 17.2    
Return on investment, % 29.7 25.3   20.1 18.8    
Liquid assets* 13 822 12 210 13.2 13 822 12 210 13.2  
Gearing, % -15.3 -5.3   -15.3 -5.3    
Equity ratio, % 73.3 64.8   73.3 64.8    
               
Earnings per share, EUR 0.34 0.35 -4.2 0.90 0.80 12.6  
Earnings per share (diluted), EUR 0.34 0.35 -4.6 0.89 0.80 11.9  
Equity per share, EUR 5.78 4.97 16.3 5.78 4.97 16.3  

 

*) Includes cash, cash equivalents and financial assets at fair value through profit or loss

 

Basware's business operations consist of License Sales. Maintenance. Professional Services and Automation Services. The core of Basware's license sales consists of the Basware Enterprise Purchase to Pay product suite and local, only in Finland marketed financial management products. The Group's reported market areas are Finland, Scandinavia, Europe and Other areas.

 

Record-high results in challenging market situation

 

Basware's CEO Ilkka Sihvo: "Our net sales exceeded EUR 100 million for the first time in the company's history. Our company is quickly changing from an international software company to an international service company. The fastest growing area is Automation services including also e-invoicing, growing 56.0 percent in 2010.

 

During 2010 we closed several large international Automation services deals which are proof of our strong competitiveness and provide solid basis for future growth. Geographically all segments grew and profitability improved most in Europe segment by 50.2 percent and in Scandinavia segment by 30.5 percent. Operating profit for 2010 grew 14.1 percent being 13.1 percent of net sales.

 

Also the last quarter in 2010 was successful and operating profit grew by 21.7 percent to EUR 4 937 thousand. In addition to license sales also several Software as a Service (SaaS) deals were closed having an impact on net sales in the long run. Automation services grew 63.2 percent in the last quarter. Profitability grew most in Scandinavia and Other segments.

 

The price of our share has also continued its steady development, increasing by 70.1 percent during the year.The company's market capitalization exceeded the Mid-Cap threshold, and our share is quoted in the Mid-Cap category of NASDAQ OMX since the beginning of 2011. Our up-dated strategy supports solid international growth also in the future. Our strategic lines for organic growth and acquisitions as well as our leading position on the markets/competitive advantage enable strong international growth and positive development of operating profit.

 

The long term target is to grow annually 15-30 percent in net sales and more than 50 percent in Automation Services. The target for operating profit margin is between 15% - 20% improving towards the end of the period."

 

 

REPORTING

Basware's reporting segment is based upon geography as follows: Finland, Scandinavia, Europe and Other.  Following the acquisition of former reseller TAG Services on July 1, 2009. Basware has assets in Australia. Taking into account the nature and extent of the business operations in North America and Australia, these areas were merged into the Other segment as of Q3/2009. The Finland segment includes the Finnish, Russian, and Asia-Pacific (excluding Australia) business operations and corporate services.

 

In addition, the company reports revenue from products and services as follows: License Sales, Professional Services, Maintenance and Automation Services. Automation Services include Software as a Service (SaaS), e-invoicing and Scan and Capture services.

The company also reports an estimate of revenue to be recognized for current Automation Services agreements in production in the next twelve months. Automation Services agreements are typically in force for a fixed period of several years or until further notice. 

 

 

 

FOURTH QUARTER OCTOBER 1 - DECEMBER 31, 2010

 

NET SALES OCTOBER-DECEMBER 2010

The geographical division of net sales by the location of assets:

 

Net sales
(EUR thousand)
10-12/
 2010
10-12
2009
Change,
%
1-12/
2010
1-12/
2009
Change,
%
 
Finland 16 011 15 271 4.8 53 606 50 486 6.2  
Scandinavia 7 708 6 135 25.6 24 188 22 236 8.8  
Europe 5 959 5 629 5.9 21 347 18 717 14.1  
Other 3 898 2 897 34.5 12 101 9 201 31.5  
Sales between segments -3 429 -3 333 -2.9 -8 149 -7 985 -2.0  
Group total 30 149 26 600 13.3 103 094 92 654 11.3  

 

 

The geographical division of net sales by the location of customers:

 

Net sales
(EUR thousand)
10-12/
 2010
10-12/
 2009
Change,
 %
1-12/
 2010
1-12/
 2009
Change,
%
 
Finland 13 015 12 267 6.1 46 550 42 449 9.7  
Scandinavia 7 488 6 003 24.7 23 346 21 719 7.5  
Europe 5 385 5 071 6.2 20 249 18 065 12.1  
Other 4 261 3 258 30.8 12 949 10 421 24.3  
Group total 30 149 26 600 13.3 103 094 92 654 11.3  

 

Basware Group's net sales increased by 13.3 percent in October-December and were EUR 30 149 thousand (EUR 26 600 thousand).


In the fourth quarter, 27.0 percent (29.3 %) of net sales consisted of own product sales and the product sales increased by 4.2 percent. License sales of Basware's own products increased by 8.0 percent, and sales of third-party scanning software decreased considerably while sales of outsourced scan and capture services grew.

 

Maintenance revenue accounted for 29.0 percent (29.7 %) of net sales and grew by 10.6 percent. Professional Services represented 30.5 percent (31.5 %) of net sales and increased by 9.6 percent.

 

During the fourth quarter, Automation Services (SaaS, e-invoicing, Scan and Capture) grew by 63.2 percent and accounted for 13.5 percent (9.5%) of net sales. The estimated revenue to be recognized for current Automation Services agreements in production in the next twelve months is EUR 14.6 million (growth of21.3 percent compared to the estimate made at the end of the previous quarter). The transaction volume processed by the Automation Services business was 4.1 million during the reporting period.

 

Value added resellers provided a net share of 11.6 percent (11.1%) or EUR 942 thousand of product sales in October-December, corresponding to 5.5 percent (6.1%) of international operations' total net sales.


The international share of Basware's net sales was 56.8 percent (53.9 %) in October-December. International operations grew by 19.5 percent.

 

 

FINANCIAL PERFORMANCE OCTOBER-DECEMBER 2010

 

Basware Group's operating profit increased by 21.7 percent in October-December and was EUR 4 937 thousand (EUR 4 058 thousand). Operating profit amounted to 16.4 percent of net sales.

The geographical division of operating profit by the location of assets:

 

Operating profit
(EUR thousand)
10-12/
 2010
10-12/
2009
Change,
 %
1-12/
2010
1-12/
 2009
Change,
%
 
Finland 2 757 3 024 -8.9 7 703 7 714 -0.1  
Scandinavia 1 557 1 041 49.6 4 136 3 169 30.5  
Europe 743 902 -17,7 2 354 1 566 50.2  
Other 284 -517 155.0 924 741 24.7  
Operating profit between segments -405 -393 -2.8 -1 629 -1 365 -19.3  
Group total 4 937 4 058 21.7 13 487 11 824 14.1  

 

Operating profit includes EUR 314 thousand costs of unrealized M&A.


The company's fixed costs were EUR 22 216 thousand (EUR 19 660 thousand) in the quarter, and have increased 13.0 percent on the corresponding period the previous year. Personnel costs made up 74.2 percent (75.5 %) or EUR 16 491 thousand (EUR 14 841 thousand) of the fixed costs.

 

Research and development expenses totaled EUR 4 087 thousand (EUR 3 847 thousand), of which EUR 658 thousand (EUR 360 thousand) or 16.1 percent (9.4 %) were capitalized during the period. Amortization of capitalized research and development costs totaled EUR 484 thousand (EUR 429 thousand).

 

Profit before tax for the period was EUR 4 839 thousand (EUR 4 038 thousand) and profit for the period was EUR 3 913 thousand (EUR 4 007 thousand). Undiluted earnings per share were EUR 0.34 (EUR 0.35).

 

 

BUSINESS OPERATIONS OCTOBER-DECEMBER 2010

 

Finland

 

The Finland segment includes the business operations in Finland, Russia, Asia-Pacific (excluding Australia) and the head office functions. Net sales for the fourth quarter increased by 4.8 percent to EUR 16 011 thousand (EUR 15 271 thousand). The profitability of operations decreased by 8.9 percent and operating profit was EUR 2 757 thousand (EUR 3 024 thousand).

 

Net sales of the Finnish and Russian operation increased by 6.5 percent during the fourth quarter to EUR 13 179 thousand (EUR 12 373 thousand).

 

There are currently14 resellers in all in the area and the number of personnel averaged 584 (460) during the fourth quarter.

 

Scandinavia 

 

Basware's Nordic organization consists of a centrally directed Scandinavian (Sweden, Denmark and Norway) unit.

 

Net sales of the area increased by 25.6 percent in the fourth quarter to EUR 7 708 thousand (EUR 6 135 thousand). The profitability of operations increased by 49.6 percent and operating profit was EUR
1 557 thousand (EUR 1 041 thousand).

 

Business operations are mainly handled by the own organization and there were 124 (130) employees on average in the area.

 

Europe

 

Basware's European business operations consist of the units in Germany, France, the Netherlands and the United Kingdom. Additionally, the reseller network covers the eastern part of Central Europe.

 

Net sales of the Europe segment increased by 5.9 percent in the fourth quarter and totaled EUR 5 959 thousand (EUR 5 629 thousand). The profitability of the operations decreased by 17.7 percent and operating profit was EUR 743 thousand (EUR 902 thousand).

 

There are 35 resellers in Europe, and Basware personnel averaged 131 (119) during the fourth quarter.

 

 

Other

 

Business operations in North America and Australia are reported in this segment.

 

Net sales of the area increased by 34.5  percent in the fourth quarter to EUR 3 898 thousand (EUR 2 897 thousand). The profitability of the operations increased by 155.0 percent and operating profit was EUR 284 thousand (EUR -517  thousand).

 

At the end of the period, there were 10 resellers in this segment. The number of personnel averaged 61 (48) during the fourth quarter.  

 

 

FINANCIAL PERIOD JANUARY 1 - DECEMBER 31, 2010

 

NET SALES

Basware Group's net sales increased by 11.3 percent during the period (January-December) and were EUR 103 094 thousand (EUR 92 654 thousand).


During the period, 23.9 percent (25.6 %) of net sales consisted of own product sales and the product sales grew by 3.9 percent. License sales of Basware's own products increased by 10.2 percent, and sales of third-party scanning software decreased considerably while sales of outsourced scan and capture services grew.

 

Maintenance revenue accounted for 32.3 percent (32.1 %) of net sales and grew by 11.8 percent. Professional Services revenue represented 31.7 percent (33.6 %) of net sales and increased by 4.9 percent.

 

During the period, Automation Services (SaaS, e-invoicing, Scan and Capture) grew 56.0 percent and accounted for 12.1 percent (8.7%) of net sales. The estimated revenue to be recognized for current Automation Services agreements in production in the next twelve months is EUR 14.6 million (growth of21.3percent compared to the estimate made at the end of the previous quarter). The transaction volume processed by the Automation Services business was 13.6 million during the reporting period.

 

Value added resellers provided a net share of 10.3 percent (9.9%) or EUR 2 543 thousand of product sales in January-December, corresponding to 4.5 percent (4.7%) of international operations' total net sales.


The international share of Basware's net sales was 54.8 percent (54.2 %) in January-December. International operations grew by 12.6 percent.

 

The geographical division of net sales by the location of assets:

 

Net sales
(EUR thousand)
10-12/
 2010
10-12/
 2009
Change,
%
1-12/
 2010
1-12/
2009
Change,
%
 
Finland 16 011 15 271 4.8 53 606 50 486 6.2  
Scandinavia 7 708 6 135 25.6 24 188 22 236 8.8  
Europe 5 959 5 629 5.9 21 347 18 717 14.1  
Other 3 898 2 897 34.5 12 101 9 201 31.5  
Sales between segments -3 429 -3 333 -2.9 -8 149 -7 985 -2.0  
Group total 30 149 26 600 13.3 103 094 92 654 11.3  

 

 

The geographical division of net sales by the location of customers:

 

Net sales
(EUR thousand)
10-12/
 2010
10-12/
 2009
Change,
 %
1-12/
 2010
1-12/
 2009
Change,
 %
 
Finland 13 015 12 267 6.1 46 550 42 449 9.7  
Scandinavia 7 488 6 003 24.7 23 346 21 719 7.5  
Europe 5 385 5 071 6.2 20 249 18 065 12.1  
Other 4 261 3 258 30.8 12 949 10 421 24.3  
Group total 30 149 26 600 13.3 103 094 92 654 11.3  

 

FINANCIAL PERFORMANCE

 

Basware's operating profit for the period increased by 14.1 percent to 13 487 EUR thousand (EUR 11 824 thousand). Operating profit represented 13.1 percent (12.8%) of net sales. Operating profit includes EUR 314 thousand costs of unrealized M&A.

 

 

The geographical division of operating profit by the location of assets:

 

 

Operating profit
(EUR thousand)
10-12/
 2010
10-12/
 2009
Change,
 %
1-12/
 2010
1-12/
2009
Change,
 %
 
Finland 2 757 3 024 -8.9 7 703 7 714 -0.1  
Scandinavia 1 557 1 041 49.6 4 136 3 169 30.5  
Europe 743 902 -17,7 2 354 1 566 50.2  
Other 284 -517 155.0 924 741 24.7  
Operating profit between segments -405 -393 -2.8 -1 629 -1 365 -19.3  
Group total 4 937 4 058 21.7 13 487 11 824 14.1  

 

 

The company's fixed costs were EUR 78 285 thousand (EUR 70 343 thousand) in the period, up 11.3 percent on the corresponding period the previous year. Personnel costs made up 73.2 percent (74.3 %) or EUR 57 337 thousand (EUR 52 294 thousand) of the fixed costs. Bad debt and movement in bad debt accruals are included in fixed costs. Bad debt reservations at the end of the fourth quarter amounted to EUR 996 thousand (EUR 666 thousand).

 

Research and development expenses totaled EUR 14 883 thousand (EUR 14 781 thousand), of which EUR 1 696 thousand (EUR 1 454 thousand) or 11.4 percent (9.8 %) were capitalized during the period. Amortization of capitalized research and development costs totaled EUR 1 883 thousand (EUR 1 624 thousand).Research and development costs equaled 14.4 percent (16.0 %) of net sales. The costs increased by 0.7 percent (decrease by 4.7 %) during the financial year.

 

The company's finance income and finance expenses were EUR -162 thousand (EUR -234 thousand). The company's profit before tax was EUR 13 325 thousand (EUR 11 590 thousand). Taxes for the period totaled EUR 2 994 thousand (EUR 2 517 thousand). Profit for the period was 10.0 percent (9.8 %) of net sales, or EUR 10 331 thousand (EUR 9 074 thousand). Undiluted earnings per share were EUR 0.90 (EUR 0.80).

 

 

FINANCE AND INVESTMENTS

 

Basware Group's total assets on the balance sheet at the end of the financial period were EUR 91 470 thousand (EUR 87 287 thousand). The company's cash and liquid assets were EUR 13 822 thousand (EUR 12 210 thousand), of which cash and cash equivalents were EUR 13 787 thousand (EUR 12 176 thousand) and financial assets at fair value through profit or loss were EUR 35 thousand (EUR 34 thousand).


Cash flow from operating activities was EUR 12 523 thousand (EUR 14 732 thousand). Cash flow from investments was EUR -4 454 thousand (EUR -5 009 thousand).

 

Equity ratio was 73.3 percent (64.8%) and gearing was -15.3 percent (-5.3%). The company's interest-bearing liabilities totaled EUR 3 582 thousand (EUR 9 230 thousand), of which current liabilities accounted for EUR 3 550 thousand (EUR 5 555 thousand). Return on investment was 20.1 percent (18.8%) and return on equity 16.7 percent (17.2%).

 

Basware increased its shareholding in Basware Einvoices Oy to 100 percent on January 30, 2009, by acquiring 12.55% of the company's shares and control from the company's management. The purchase price paid on the date of the transaction was approximately EUR 720 thousand and the additional purchase price to be paid based on the business volume for 2009 in February 2010 was EUR 293 thousand. Basware Einvoices Oy was merged into the parent company in 2009.

 

Basware AS purchased the Norwegian invoice automation solution business of Itella Information AS on January 26, 2009. The purchase price was NOK 6.38 million (approximately EUR 0.72 million) and it was paid in cash on the day the acquisition was completed, April 1, 2009. In addition, Basware AS paid an additional purchase price of NOK 4 434 thousand (EUR 559 thousand) in February 2010, determined on the basis of the volume of the purchased operations' service sales in 2009.

 

Basware Corporation acquired the entire share capital of TAG Services Pty Ltd in Australia on July 1, 2009. The acquisition price was 2.1 million Australian dollars (approximately EUR 1.2 million) and was paid in cash in two parts in July and August 2009. In addition, an additional acquisition price that was based on the company's net sales of the period from July 1, 2009 to June 30, 2010 was paid in August 2010. The additional acquisition price was 2.0 Australian dollars (EUR 1.4 million).

 

On October 5, 2010 Basware acquired TNT Post's Connectivity operations, which is a part of TNT Post's electronic invoicing operations in the Netherlands. The purchase price paid in connection with the transaction was EUR 50 thousand, and an estimated additional purchase price of EUR 100 thousand will be paid in January 2011 on the basis of the number of customers that have migrated to the Basware e-invoicing environment. No other assets were transferred. Based upon the preliminary purchase price allocation, the purchase price does not include goodwill. EUR 200 thousand associated with customer relationships has been allocated to intangible assets, taking deferred liabilities into consideration. The acquisition would not have had a material impact on the Group's net sales or operating profit had the consolidation taken place at the beginning of the financial period. The acquisition has not had a material impact on the Group's net sales and operating profit.
The company's capital expenditure, resulting from regular additional and replacement investments required for growth, was EUR 970 thousand (EUR 2 047 thousand) in the period. Gross investments which include, in addition to those mentioned above, the capitalized research and development costs and acquisitions (TNT Post's Connectivity operations) totaled EUR 4 567 thousand (EUR 7 448 thousand).

 

Impairment tests indicate no impairments of assets. Amortization of intangible assets totaled EUR 4 579 thousand (EUR 3 968 thousand), of which amortization associated with business acquisitions amounted to EUR 2 233 thousand (EUR 2 020 thousand).

 

 

RESEARCH, DEVELOPMENT AND NEW PRODUCTS

Research and development expenses were EUR 14 883 thousand (EUR 14 781 thousand) in the period, corresponding to 14.4 percent (16.0 %) of net sales. Research and development costs increased by 0.7 percent (decrease by 4.7 %) compared with the same period last year. Of the research and development costs, EUR 1 696 thousand (EUR 1 454 thousand) or 11.4 percent (9.8 %) were capitalized during the period. Amortization of capitalized research and development costs totaled EUR 1 883 thousand (EUR 1 624 thousand).

 

A total of 239 (195) people worked in Software Production at the end of 2010. The Software Production unit is expanding in India, where there are currently 95 employees.

 

 

PERSONNEL

Basware employed 845 (747) people on average and 913 (761) people at the end of the period. The number of personnel increased by 152 persons and by 20.0 percent compared with the same period the previous year. The acquisition of TNT Post's Connectivity operations increased the personnel by 2 people.

 

The share of personnel working in foreign units has increased compared with the previous year. At the end of the period, 54.9 percent (47.4 %) of Basware personnel worked outside of Finland and 45.1 percent (52.6 %) in Finland. 14.2 percent of the personnel work in sales and marketing, 51.6 in consulting and services, 26.2 percent in Software Production, and 8.0 percent in administration.

 

The average age of employees is 35.7 (36.6) years. Of the employees, 33.1 percent have a Master's degree and 34.9 percent have a Bachelor's degree. Women account for 27.8 percent of employees, men for 72.2 percent.

 

For incentive purposes, the company has a bonus program that covers all employees.

 

The Executive Team's remuneration consists of salary in money, fringe benefits, a possible annual bonus based on performance, warrants and a share-based incentive scheme. The compensation principles of the Executive Team members are decided by the Board. A long-term incentive program was in place during 2006-2008. Based on the program, warrants could be granted to the members of the top management, country managers and key personnel.

 

The members of the Basware Executive Team have a share-based incentive scheme as of 2009. The possible reward of the system for the earning period 2009 is based on Basware Corporation's earnings per share (EPS). Any reward for the earning period 2009 will be paid in December 2011 partially as shares in the company and partially in cash.

 

 

Geographical distribution of personnel:  

 

Personnel (employed, on average) 10-12/
2010
10-12/
 2009
Change,
%
1-12/
 2010
1-12/
2009
Change,
 %
 
Finland 584 460 26.8 539 454 18.8  
Scandinavia 124 130 -4.1 124 135 -7.8  
Europe 131 119 9.8 126 119 5.6  
Other 61 48 26.2 55 39 41.4  
Group total 900 758 18.8 845 747 13.1  

 

 

BUSINESS OPERATIONS

Finland

 

The Finland segment includes the business operations in Finland, Russia, Asia-Pacific (excluding Australia) and the head office functions. Net sales for the financial period increased by 6.2 percent to EUR 53 606 thousand (EUR 50 486 thousand). The profitability of the operations decreased by 0.1  percent and operating profit was EUR 7 703 thousand (EUR 7 714 thousand).

 

Net sales of the Finnish and Russian operations increased by 8.7 percent during the financial period to EUR 47 013 thousand (EUR 43 250 thousand).

 

There are currently 14 resellers in all in the area and the number of personnel averaged 539 (454).

 

Scandinavia 

 

Basware's Nordic organization consists of a centrally directed Scandinavian (Sweden, Denmark and Norway) unit.

 

Net sales of the Scandinavian business operations increased by 8.8 percent to EUR 24 188 thousand (EUR 22 236 thousand). The profitability of the operations increased by 30.5  percent and operating profit was EUR 4 136 thousand (EUR 3 169 thousand).

 

Business operations are mainly handled by the own organization and there were 124  (135) employees on average in the area.

 

 

Europe

 

Basware's European business operations consist of the units in Germany, France, the Netherlands and the United Kingdom. Additionally, the reseller network covers the eastern part of Central Europe.

 

Net sales in the Europe segment increased by 14.1 percent in the financial period and totaled EUR 21 347 thousand (EUR 18 717 thousand). The profitability of the operations improved by 50.2 percent and operating profit was EUR 2 354 thousand (EUR 1 566 thousand).

 

There are 35 resellers in Europe, and Basware personnel averaged 126 (119) during the period.

 

Other

 

Business operations in North America and Australia are reported in this segment.

 

Net sales of the area increased by 31.5 percent in the financial period to EUR 12 101 thousand (EUR 9 201 thousand). The profitability of the operations grew by 24.7 percent and operating profit was EUR 924 thousand (EUR 741 thousand).

 

At the end of the period, there were 10 resellers in the segment. On average, there were 55  (39) employees in the area.

 

 

OTHER EVENTS OF THE FINANCIAL PERIOD

Basware Board of Directors approved in its meeting on January 25, 2010 the subscription of total of 11 500 shares subscribed for with Basware Warrant Programs. The share subscriptions were based on the Warrant Program 2006 series B.

 

Basware Board of Directors approved in its meeting on April 13, 2010 the subscription of total of 130 100 shares subscribed for with Basware Warrant Programs. The share subscriptions were based on the Warrant Program 2006 series B warrants (56 400 shares) and Warrant Program 2007 series D warrants (73 700 shares).

Basware Board of Directors approved in its meeting on July 8, 2010 the subscription of total of 79 200 shares subscribed for with Basware Warrant Programs. The share subscriptions were based on the Warrant Program 2006 series C warrants (39 000 shares) and Warrant Program 2007 series E warrants (40 200 shares).

Basware Board of Directors approved in its meeting on October 12, 2010 the subscription of total of 1 100 shares subscribed for with Basware Warrant Programs. The share subscriptions were based on the Warrant Program 2007 series E warrants.

The subscription time for the last warrants of the Warrant Program 2006 series C warrants and Warrant Program 2007 series E warrants will expire on March 31, 2011.

 

SHARE AND SHAREHOLDERS

Basware Corporation's share capital totaled EUR 3 507 007.20 at the end of the period and the number of shares was 11 690 024.

 

 

Share price and trade

 

During the reporting period, the highest price of the share was EUR 24.80  (EUR 14.66), the lowest was EUR 15.00 (EUR 6.60) and the closing price was EUR 24.75 (EUR 14.52). The average price of the share was EUR 19.27 (EUR 10.79) during the period.

 

A total of 2 131 071 (2 038 565) shares were traded during the financial period which is the equivalent of 18.5 percent (17.9 %) of the average number of shares. Market capitalization with the period's closing price on December 31, 2010 was EUR 287 093 169 (EUR 165 206 004).

 

 

Shareholders

 

Basware had 15 752 (16 480) shareholders on December 31 including nominee-registered holdings (8). Nominee-registered holdings accounted for 10.8 percent of the total number of shares.

 

The company holds 90 300 Basware Corporation shares, corresponding to approximately 0.77% of all shares in the company.

 

Basware announced five notifications of change in ownership. On February 2, 2010 the total number of shares held by Nordea Rahastoyhtiö Suomi Oy represented less than 5 % of Basware Corporation's share capital and voting rights. On March 12, 2010 the total number of shares held by Nordea Rahastoyhtiö Suomi Oy represented more than 5 % of Basware Corporation's share capital and voting rights.

 

The total number of shares held by Ilmarinen Mutual Pension Insurance Company represented over 5 % of Basware Corporation's share capital and voting rights on April 16, 2010

 

On July 26, 2010 the total number of shares held by Nordea Rahastoyhtiö Suomi Oy represented less than 5 % of Basware Corporation's share capital and voting rights. On July 30, 2010 the total number of shares held by Nordea Rahastoyhtiö Suomi Oy represented more than 5 % of Basware Corporation's share capital and voting rights.

 

 

Shareholding of Management and Board

 

According to the shareholder register managed by Euroclear Finland Oy, on December 31, 2010 CEO Ilkka Sihvo holds 1 081 800 Basware's shares, Olli Hyppänen 500 shares and Esa Tihilä 500 shares. Other members of Basware Executive Team do not hold Basware's shares.

 

According to the shareholder register managed by Euroclear Finland Oy, on December 31, 2010 Hannu Vaajoensuu holds 962 100 Basware's shares, Pentti Heikkinen 1 621, Ilkka Toivola 2 362, Sakari Perttunen 1 045 800, Matti Copeland 2 771 and Eeva Sipilä 605 shares.

 

 

GOVERNANCE

 

The Annual General Meeting of Shareholders on February 18, 2010, confirmed the number of Board members as six. The Annual General Meeting resolved to agree on the proposal and elected Matti Copeland, Pentti Heikkinen, Sakari Perttunen, Eeva Sipilä, Ilkka Toivola and Hannu Vaajoensuu members of the Board of Directors.

 

The Annual General Meeting further resolved to elect Ernst & Young Oy, Authorized Public Accountants as the auditor, with APA Heikki Ilkka in charge and APA Terhi Mäkinen as the deputy auditor.

 

A separate stock exchange release has been issued on the Board authorizations and other resolutions of the Annual General Meeting of Shareholders on February 18, 2010.

 

This Corporate Governance Statement has been composed in accordance with Recommendation 51 of the new Corporate Governance Code and Chapter 2, Section 6 of the Finnish Securities Market Act. The Corporate Governance Statement is issued separately from the company's annual report.

 

Basware's Corporate Governance principles are available in full on the company's website at http://www.basware.com/Investors/corporate_governance/Pages/default.aspx

 

 

Share repurchase

 

On February 18, 2010 the AGM authorized the Board to resolve on the acquisition of a maximum of 1 146 812 own shares, pursuant to the Chapter 15, section 5 of the Companies Act.

 

The new shares are acquired with invested non-restricted equity on the market price at the Helsinki Stock Exchange at the time of the acquisition. The shares can either be held by the Company, nullified or conveyed further. The authorization for acquisition is valid until March 31, 2011. The AGM decided to approve Boards proposal to repurchase own shares in the proposed form.

 

 

SHORT-TERM RISKS AND RISK MANAGEMENT  

 

In accordance with Basware's risk management policy, risks are divided into six categories: risks related to business operations, products, personnel as well as legal, financial and data security risks. Basware takes risks that are a natural part of its strategy and objectives. These risks are managed and decreased in various ways. Short-term risks are considered to be risks in the current reporting year.

 

According to market estimates released at the end of 2010, the software market is expected to grow at a slower rate in 2011 than previously forecasted. The software market is expected to grow by 7.1 percent globally and by 8.4 percent in the United States.

 

The IT services market is also expected to grow globally at a slower rate than previously forecasted, at a rate of approximately 7.3 percent. The US IT market growth estimate stands unchanged at 7.4 percent. Nevertheless, the Purchase to Pay service market is expected to grow by more than 10 percent in 2011.

 

In previous economic downturns, the demand for the company's products and services has remained more positive than the general economic market as a whole as the company's software solutions generate cost savings.

 

Sales receivables are one part of operational business risks and accuracy of financial reporting for this part is managed by reserving for bad debts. Basware Corporation's sales receivable are calculated on a monthly basis in Basware's centralized Financial Shared Service Center.  The company will intensify its management and collection of sales receivables. Business management regularly monitors the payment of sales receivables as part of the management of customer accounts.

 

The Group's main currency is Euro, accounting for approximately 60 percent of net sales in 2010 (approximately 61% in 2009). The significance of exchange rate fluctuations between the euro and other currencies will increase hand in hand with the share of international operations. In addition to the euro area, Basware operates in various areas, the most significant of them in 2010 being Norway, the United Kingdom, the United States and Sweden. The company is exposed to exchange rate risks in these countries through intra-company trade, exports and imports as well as through the equity and funding of foreign subsidiaries. The company did not realize hedging for exchange rate fluctuations during the financial year as the foreign-currency-denominated cash flow in the subsidiaries did not exceed the foreign-currency-specific limit for hedging measures in accordance with the company's hedging policy.

 

Goodwill has been tested during the last quarter of 2010. In accordance with the testing for impairment of assets, no depreciation of goodwill was made.

 

Basware's objective is to become the world's leading company in e-invoicing. Automation services including e-invoicing and the supporting scan and capture also target suppliers and buyers outside Basware's existing customer base, which increases the customer potential. The company's long-term objective is annual growth of more than 50 percent in Automation Services.SaaS and e-invoicing are scalable business models with a high business potential. The realization of this growth potential requires a new operating model as well as active and continuous development of competencies because of the strong growth of the number of customers and transaction volumes.  These include sales and commissioning as well as customer support and product development.

 

Basware has in accordance with its strategy carried out organic growth by acquisitions. Acquisition projects are managed carefully and internal as well as external expertise is utilized in planning phase (e.g. due diligence), take over phase (e.g. immediate implementation of Basware's IT systems) and in integration phase (e.g. implementation of HR processes).

 

In other respects, no significant changes have taken place in Basware's short-term risks and uncertainties during the financial period.

 

 

ACQUISITIONS AND CHANGES IN GROUP STRUCTURE

 

The company has branch offices in Singapore, Russia and India.

 

Basware increased its shareholding in Basware Einvoices Oy to 100 percent on January 30, 2009, by acquiring 12.55% of the company's shares and control from the company's management. The purchase price paid on the date of the transaction was approximately EUR 720 thousand and the additional purchase price to be paid based on the business volume for 2009 in February 2010 was EUR 293 thousand. Basware Einvoices Oy was merged into the parent company in 2009.

 

Basware AS purchased the Norwegian invoice automation solution business of Itella Information AS on January 26, 2009. The purchase price was NOK 6.38 million (approximately EUR 0.72 million) and it was paid in cash on the day the acquisition was completed, April 1, 2009. In addition, Basware AS paid an additional purchase price of NOK 4 434 thousand (EUR 559 thousand) in February 2010, determined on the basis of the volume of the purchased operations' service sales in 2009.

 

Basware Corporation acquired the entire share capital of TAG Services Pty Ltd in Australia on July 1, 2009. The acquisition price was 2.1 million Australian dollars (approximately EUR 1.2 million) and was paid in cash in two parts in July and August 2009. In addition, an additional acquisition price that was based on the company's net sales of the period from July 1, 2009 to June 30, 2010 was paid in August 2010. The additio

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