Notes to the Consolidated Financial Statements

1. Segment informartion 2. Acquired business operations 3. Long-term projects 4. One-off expenses 5. Auditors' fees
6. Other operating income 7. Other operating expenses 8. Product development 9. Depreciation, amortisation and impairment 10. Personnel expenses 11. Financial income and expenses 12. Income taxes 13. Earnings per share
14. Property, plant and equipment 15. Intangible assets 16. Deferred tax assets and liabilities 17. Accounts receivable and other receivables 18. Cash and cash equivalents 19. Notes on share capital 20. Share-based payments
21. Provisions 22. Loans from financial institutions 23. Due dates of finance lease liabilities 24. Non-interest bearing liabilities 25. Operating leases 26. Contingent liabilities 27. The group's shares and holdings 28. Related party transactions 29. Management of financing risks 30. The group's key financial ratios

1. Segment information

 

Digia's business segments are Enterprise Solutions and Mobile Solutions.

Net sales 

€ 000

2009

2008

Enterprise Solutions

70,841

69,796

Mobile Solutions

49,494

53,408

Group total

120,335

123,203

In the Enterprise Solutions segment, no single customer accounted for more than 10 per cent of the consolidated net sales. The Mobile Solutions segment's major customer is Nokia, which accounted for more than 10 per cent of the consolidated net sales in the fiscal year.  

Operating profit before extraordinary items

€ 000

2009

2008

Enterprise Solutions

12,301

8,821

Mobile Solutions

4,634

4,617

Group total

16,936

13,437

Digia's consolidated profitability was significantly affected by extraordinary non-recurrent items comprising a EUR 23.8 goodwill writedown and a EUR 0.9 million restructuring provision related to the closure of sites. The goodwill writedown was entirely attributable to the Mobile Solutions segment. EUR 0.8 million of the restructuring provision was attributable to Mobile Solutions and EUR 0.1 million to Enterprise Solutions. The operating profit before extraordinary items is an indicator of the company's operational profitability.

Operating profit (EBIT) 

 € 000

2009

2008

Enterprise Solutions

12,211

8,821

Mobile Solutions

-20,007

4,617

Group total

-7,796

13,437

 

Assets

€ 000

2009

2008

Enterprise Solutions

61,240

64,777

Mobile Solutions

39,205

67,349

Unallocated

12,308

21,266

Group total

112,753

153,391


The assets of the Enterprise Solutions segment include goodwill arising from the acquisition of Digia Sweden AB (formerly Capital C AB), Samstock Ltd and Sentera Plc, as well as the part of the goodwill arising from the acquisition of Yomi Software Ltd that is attributable to the operations of the segment. The assets of the Mobile Solutions segment include goodwill arising from the acquisition of Digia Inc. and Sunrise Resources Ltd, as well as the part of the goodwill arising from the acquisition of Yomi Software Ltd that is attributable to the operations of the segment. The goodwill items are described in more detail in Note 15.

The most significant unallocated asset item comprises investments and cash equivalents treated from the viewpoint of the Group level.

Liabilities 

€ 000

2009

2008

Enterprise Solutions

11,139

10,975

Mobile Solutions

10,329

10,223

Unallocated

33,101

60,111

Group total

54,570

81,309

 

The most significant item within unallocated liabilities consists of a long-term bank loan.

Depreciation and amortisation 

€ 000

2009

2008

Enterprise Solutions

1,945

2,183

Mobile Solutions

26,106

2,580

Group total

28,051

4,763

 

Capital expenditure 

€ 000

2009

2008

Enterprise Solutions

670

1,216

Mobile Solutions

672

1,296

Group total

1,342

2,512

 

Geographical distribution of net sales

€ 000

2009

2008

Finland

  110,624

108,958

Other countries

  9,711

14,245

Total

  120,335

123,203

  

2. Acquired business operations

 

Acquired business operations in 2009

No business operations were acquired in the 2009 fiscal year.

Acquired business operations in 2008

Acquisition of Sunrise Resources Ltd

The Group acquired the entire share stock of Sunrise Resources Ltd on 14 January 2008. The acquisition price was EUR 3.6 million paid as a cash consideration and Digia financed the transaction through its cash reserves. In addition, the sellers were entitled to an additional purchase price of EUR 0.4 million, which Digia paid in Digia shares. The additional purchase price was paid in April 2009.

The acquisition is part of Digia's internationalisation strategy and has strengthened the company's current services with qualified near-shore development services as well as local support for customers operating in the Russian markets. The acquisition generated EUR 2.4 million of goodwill, in addition to which EUR 0.6 million of the acquisition price was allocated to acquired customer relationships.

€ 000

Fair value recognised upon combination

Book value before combination

Property, plant and equipment

82

82

Intangible assets

636

4

Receivables

479

479

Cash and cash equivalents

865

865

Total assets

2,062

1,430

 

 

 

Income tax liabilities

191

27

Other creditors

277

277

Total liabilities

468

304

 

 

 

Net assets

1,594

1,126

 

 

 

Acquisition cost

4,044

 

Net assets

-1,594

 

Goodwill

2,450

 

 

 

 

Total acquisition cost

-4,044

 

Liquid assets of the acquired subsidiary

865

 

Cash flow effect

-3,179

 

  

Effect of the acquired business operations on the Group's business

No business operations were acquired in the 2009 fiscal year.

3. Long-term projects

 

Consolidated net sales include income recognised on long-term projects totalling EUR 15.9 million in 2009 (EUR 13.0 million in 2008). The consolidated income statement includes income recognised on incomplete long-term projects to the amount of EUR 10.6 million on 31 December 2009 (EUR 11.8 million on 31 December 2008). The statement of financial position includes advance payments recognised on incomplete long-term projects to the amount of EUR 0.7 million on 31 December 2009 (EUR 0.5 million on 31 December 2008).

4. One-off expenses

 

The one-off expenses for the fiscal year 2009 totalled EUR 24.7 million, comprising EUR 23.8 million in a goodwill writedown and EUR 0.9 million in a restructuring provision. There were no one-off expenses during the fiscal year 2008.

5. Auditors fees

  

€ 000

2009

2008

Audit

97

91

Other statutory duties

1

0

Tax counselling

7

6

Other services

19

31

Total

123

128

 

6. Other operating income

 

€ 000

2009

2008

Grants

  191

 23

Other income

  28

 37

Total

  220

 60

 

7. Other operating expenses

 

The following table presents the most significant items included in other operating expenses:

€ 000

2009

2008

Costs of premises

  5,996

 5,798

IT costs

  4,359

 4,409

External services

  808

829

Total

  11,163

11,036

 

8. Product development expenses 

€ 000

2009

2008

Product development expenses

2,623

1,989

Total

2,623

1,989

  

9. Depreciation, amortisation and impairment 

€ 000

2009

2008

Depreciation and amortisation by asset category

 

 

 

 

 

Intangible assets

 

 

  Capitalised development costs

84

155

  Intangible assets

2,477

2,783

Total

2,561

2,938

 

 

 

Property, plant and equipment

 

 

  Buildings

7

7

  Machinery and equipment

1,647

1,817

Total

1,654

1,824

 

 

 

Impairment

 

 

  Goodwill impairment

23,837

-

Total

23,837

-

Depreciation, amortisation and impairment, total

28,051

4,763

     
 

10. Personnel expenses  

€ 000

2009

2008

Wages and salaries

  59,907

58,606

Pension costs, defined-contribution plans

  10,242

10,242

Share-based payments

  659

105

Other personnel expenses

  2,827

3,306

Total

  73,636

72,259

 

Group personnel on average during the period

Group personnel on average during the period

2009

2008

Enterprise Solutions

711

649

Mobile Solutions

627

612

Group management and administration

49

53

Total

1,387

1,314

Information on employee benefits and loans to the management are presented in Note 28, ‘Related party transactions'.

 

11. Financial income and expenses

 

Financial income 

€ 000

2009

2008

Capital gains on assets recognised at fair value through profit and loss

-

155

Interest income from cash and cash equivalents

98

444

Interest income from accounts receivable

4

13

Dividend income

10

30

Exchange rate gains

5

214

Other financial income

2

11

Total

119

867

Financial expenses 

€ 000

2009

2008

Interest expenses for financing loans valued at accrued acquisition cost

1,755

3,585

Interest expenses for accounts payable

2

4

Interest expenses for finance lease liabilities

4

12

Loan administration fees

394

-

Exchange rate losses

73

55

Other financial expenses

214

243

Total

2,442

3,899

 

12. Income taxes 

€ 000

2009

2008

Current tax

3,507

3,194

Taxes from previous periods

-40

-

Deferred tax

77

-197

Total

3,545

2,997

 

Reconciliation between the tax expenses in the income statement and taxes calculated at the tax rate valid in the Group's home country (26 per cent):

€ 000

2009

2008

Earnings before tax

-10,119

10,406

 

 

 

Taxes calculated at the domestic corporation tax rate

-2,630

2,706

Deviating tax rates of foreign subsidiaries

-2

7

Income not subject to tax

-35

-108

Non-deductible expenses

6,253

481

Tax effect of dissolution losses

103

67

Other items

-104

206

Taxes for the period in the income statement

-40

-362

Total

3,545

2,997

 

 

 

Taxes for the period in the income statement

3,545

2,997

     

13. Earnings per share

 

Basic earnings per share are calculated by dividing the earnings before tax for the accounting period attributable to the parent company's shareholders by the weighted average of shares outstanding during the accounting period. Own shares possessed by the company are not included in the calculation of the weighted average of shares outstanding. The calculation of diluted earnings per share includes consideration of the diluting effect of stock options on the weighted average number of shares. Stock options have a diluting effect if their exercise price is lower than the fair value of the share.

 

2009

2008

Profit for the period attributable to parent company shareholders (€ 000)

-13,664

7,409

 

 

 

Weighted average number of shares during the period

20,439,833

20,381,026

Diluting effect of stock options

-

-

Diluted weighted average number of shares during the period

20,439,833

20,381,026

 

 

 

Basic earnings per share (EUR/share)

-0.67

0.36

Diluted earnings per share (EUR/share)

-0.67

0.36

 

14. Property, plant and  equipment

€ 000

Land and water areas

Buildings and structures

Machinery and equipment

Other tangible assets

2009
Total

2008
Total

Acquisition cost 1 January

17

162

11,456

84

11,719

9,705

Additions

-

-

1,148

-

1,148

1,987

Acquisition of subsidiary

-

-

-

-

-

50

Disposals

-

-

-3

-

-3

-23

Acquisition cost 31 December

17

162

12,602

84

12,865

11,719

 

 

 

 

 

 

 

Accumulated depreciation and amortisation 1 January

-

-51

-8,460

-83

-8,594

-6,770

Depreciation

-

-7

-1,647

-

-1,654

-1,824

Impairment

-

-

-

-

-

-

Disposals

-

-

-

-

-

-

Accumulated depreciation and amortisation 31 December

-

-58

-10,107

-83

-10,248

-8,594

 

 

 

 

 

 

 

Book value on 1 January

17

111

2,996

1

3,125

2,935

Book value on 31 December

17

104

2,495

1

2,617

3,125

 

Property, plant and equipment include assets leased under finance lease as follows:

2009, € 000

Land and water areas

Buildings and structures

Machinery and equipment

Other tangible assets

Total

Acquisition cost

-

-

5,676

-

5,676

Accumulated depreciation

-

-

-4,455

-

-4,455

Book value

-

-

1,221

-

1,221

 

2008, € 000

Land and water areas

Buildings and structures

Machinery and equipment

Other tangible assets

Total

Acquisition cost

-

-

5,025

-

5,025

Accumulated depreciation

-

-

-3,524

-

-3,524

Book value

-

-

1,501

-

1,501

 

15. Intangible assets 

€ 000

Goodwill

Development costs

Other intangible assets


2009
Total


2008
Total

Acquisition cost 1 January

89,649

2,487

23,353

115,488

111,615

Capitalised development costs

0

Additions

197

197 

525

Disposals

-2

Acquisition of subsidiary

-267

-267

3,351

Acquisition cost 31 December

89,382

2,487

23,550

115,418

115,488

 

 

 

 

 

 

Accumulated depreciation and amortisation 1 January

0

-2,404

-10,040

-12,444

-9,506

Depreciation

-

-84

-2,477

-2,560

-2,938

Impairment

-23,837

-23,837

-

Accumulated depreciation and amortisation 31 December

-23,837

-2,487

-12,517

-38,841

-12,444

 

 

 

 

 

 

Book value on 31 December

89,649

84

13,313

103,044

102,108

Book value on 31 December

65,545

0

11,033

76,578

103,044

Annual impairment tests in accordance with IAS 36 standard are applied to goodwill and intangible assets with an unlimited useful life.

The distribution of goodwill and values subject to testing between divisions on the balance sheet date was as follows:

€ 000

Specified intangible assets

Unallocated goodwill

Other items

Total value subject to testing

Enterprise Solutions

4,230

43,244

4,129

51,602

Mobile Solutions

6,108

22,301

4,132

32,541

Total

10,338

65,545

8,261

84,143

The goodwill in the Enterprise Solutions segment was mainly associated to the acquisition of Sentera Plc and Digia Sweden Ab and Samstock Ltd. The goodwill in the Mobile Solutions division was mainly associated with the combination of Digia Inc. and SysOpen Plc, as well as the acquisition of Yomi Software Ltd and Sunrise Resources Ltd. Allocated goodwill is presented in the intangible asset group ‘Other intangible assets’ and amortised over a period of 5-10 years.

The other items include the estimated working capital and fixed assets of the divisions.

Impairment testing

The Group has defined its business segments as cash-generating units (CGU). Goodwill impairment is tested by comparing the CGU fair value to the book value. The use values are based on the continuous use of an asset as well as on the financial plans and estimates of the CGU's future development, approved by the relevant CGU management.

In the 2009 fiscal year, the company recorded a EUR 23.8 million goodwill writedown attributable to the Mobile Solutions segment. The writedown was based on the company's evaluation of increased long-term risks for the Mobile Solutions segment, which was carried out according to applicable legislation. The increased risks are due to pricing pressure generated by continuously increasing competition in contract engineering and, especially, the transfer of low-grade manufacturing and customers' decision-making functions to low-cost countries. The company does not expect the Mobile Solutions segment's current target market to grow significantly as a whole from current levels. The Mobile Solutions business will in future focus on technologies and services in which the company can maintain at least a reasonable level of profitability.

Present values were calculated for a five-year forecast period using the following assumptions related to the Mobile Solutions segment: annual growth in net sales 0 per cent; operating profit in 2010 9 per cent and thereafter 8 per cent; discount rate 14.7 per cent. The assumptions for calculating present values for the Enterprise Solutions segment for the forecast period did not change and were: annual growth in net sales 3 per cent; operating profit 10 per cent; discount rate 11.2 per cent. Cash flows following the forecast period are estimated by extrapolating the cash flows, using the assumptions given above.

Net sales growth is reckoned to constitute the most critical factor in calculating the present values of cash flows. The amount of goodwill for Enterprise Solutions requires average annual growth of two per cent for business operations and six per cent profitability. For Mobile Solutions, the goodwill requires business to be maintained at the current level, with 8 per cent profitability.

On the balance sheet date, the Enterprise Solutions segment's use value was EUR 63.5 million higher than the segment's book value. The Mobile Solutions segment's use value was equal to its book value.

16. Deferred tax assets and liabilities

 

Changes in deferred taxes during 2009:  

€ 000

1 Jan 2009

Recognised in income statement

Recognised in equity

Exchange rate differences

Subsidiaries acquired/ divested

31 Dec 2009

Deferred tax assets:

 

 

 

 

 

 

             

Provisions

112

-36

-

-

-

76

Confirmed losses

1,183

-356

-

-

-

827

Internal margin on business transfers

308

-308

-

-

-

0

Other items

150

159

-

-

-

309

Total

1,753

-542

-

-

-

1,212

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

             

Capitalisation of intangible assets

21

-21

-

-

-

0

From business combinations

3,027

-589

-

-

-

2,438

Other items

90

145

-

-

-

234

Total

3,138

-465

-

-

-

2,672

 

Changes in deferred taxes during 2008:

€ 000

1 Jan 2008

Recognised in income statement

Recognised in equity

Exchange rate differences

Subsidiaries acquired/ divested

31 Dec 2008

Deferred tax assets:

 

 

 

 

 

 

             

Provisions

0

112

 -

 -

-

112

Confirmed losses

1,589

-406

 -

-

-

1,183

Impairment of intangible assets

65

-65

 -

 -

-

0

Internal margin on business transfers

562

-254

 -

 -

-

308

Other items

96

55

-

-

-

150

Total

2,312

-558

-

-

-

1,753

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

             

Capitalisation of intangible assets

63

-42

-

-

-

21

From business combinations

3,308

-428

-

-

147

3,027

Other items

71

19

-

-

-

90

Total

3,442

-451

-

 -

147

3,138

 

17. Accounts receiveble and other receivables

€ 000

2009

2008

Accounts receivable and other receivables

 

 

  Accounts receivable

 16,782

20,980

  Security deposit for rental dues

543

595

  Receivables from customers on long-term projects

1,143

2,826

  Prepayments and accrued income

1,360

1,556

  Other receivables

1,220

-

Accounts receivable and other receivables

21,048

25,957

 

€ 000

2009

2008

Non-due accounts receivable

15,943

13,849

Accounts receivable due 1-30 days ago

660

5,722

Accounts receivable due 31-60 days ago

125

907

Accounts receivable due more than 60 days ago

54

502

Total

16,782

20,980

At the end of the fiscal year 2009, credit loss provisions totalled EUR 0.1 million. At the end of the fiscal year 2008, credit loss provisions amounted to EUR 2.1 million. The book value of accounts receivable and security deposits for rental dues is a reasonable estimate of their fair value. Their balance sheet values best correspond with the sum of money that represents the maximum amount of credit risks. Essential items included in prepayments and accrued income are associated with the accrual of statutory insurance premiums and other accrued expenses.

18. Cash and cash equivalents 

€ 000

2009

2008

Financing assets recognised at fair value through profit and loss

 

 

 Mutual funds

293

273

 Bank accounts

10,176

18,606

Total

10,469

18,879



19. Notes on share capital 

€ 000

Number of shares

Share capital

1 Jan 2008

20,853,645

2,085

Increase of share capital

-

-

Exercise of stock options

-

-

31 Dec 2008

20,853,645

2,085

€ 000

Number of shares

Share capital

1 Jan 2009

20,853 645

2,085

Increase of share capital

-

-

Exercise of stock options

-

-

31 Dec 2009

20,853 645

2,085

The maximum number of shares is 48 million (48 million in 2008). The nominal value of each share is EUR 0.1 and the Group's maximum share capital is EUR 4.8 million (EUR 4.8 million in 2008). All outstanding shares are paid in full. At the end of the fiscal year, the company held 265,954 own shares, or 1.3 per cent of all shares.

The premium fund comprises the amount paid for shares in excess of the nominal value. The ‘Other reserves’ amount arises from fair valuation of acquired business operations in the consolidated financial statements. The translation differences reserve comprises translation differences arising from the translation of financial statements of non-Finnish units. The unrestricted invested shareholders' equity reserve comprises investments similar to shareholders' equity and the subscription price of shares when a specific decision is made not to enter it in shareholders' equity.

20. Share-based payments

 

The Group has had stock option schemes in place since 15 September 1999 and has also offered share-based bonuses as part of key personnel commitment and incentive scheme as of 31 May 2007. Options granted after 2003 have been recognised in the financial statements for 2005 in accordance with the standard IFRS 2 Share-based Payment. Stock options expire if they are not exercised during a period separately defined in the option scheme. Stock options are also lost if the employee resigns from the company before the right is vested.

On 30 September 2009, the Digia Board of Directors decided to offer key personnel an option conversion, such that one Digia share and a cash amount equalling the value of the share would be provided in exchange for twenty (20) A options, for four (4) B options and for two and two-thirds (2 2/3) C options. The conversion offer was made to the holders of warrants under the 2005 scheme. The conversion offer was approved fully, and a total of 276,000 warrants held by key personnel were converted into 51,900 Digia shares and the equivalent cash amount in order to cover the tax cost of the incentive. The conversion was carried out with existing Digia shares.

At the end of the financial year, all A options in the 2005 scheme had expired. 22,000 B options were held by previous employees of the company, while all the rest had been returned to the company. All C options had been returned. The returned options will not be exercised for subscribing shares. The maximum dilution effect of the remaining warrants was 0.1 per cent on 31 December 2009.

The Group had the stock option schemes described below in the financial year:

Option scheme 2005

The number of warrants under the 2005 stock option scheme totals 900,000, 300,000 of which are marked as 2005A, 300,000 as 2005B and 300,000 as 2005C. The warrants entitle their holders to subscribe a maximum total of 900,000 Digia Plc shares.

The share subscription price for 2005B warrants is EUR 3.75 (dividend-adjusted) and for 2005C warrants it is EUR 3.78. The 2005A warrants expired on 30 November 2009. On the record date for each distribution of dividends, the share subscription price based on the stock options will be deducted by the amount of dividends for which the decision to distribute has been made between the beginning of the price-setting period and the date of subscription. However, the minimum subscription price will always be the nominal value of the share. The share subscription period for the 2005A warrants will be between 1 November 2007 and 30 November 2009, for the 2005B warrants between 1 November 2008 and 30 November 2010 and for the 2005C warrants between 1 November 2009 and 30 November 2011. As a result of share subscriptions using warrants 2005A, 2005B and 2005C, the share capital of Digia Plc may increase by a maximum of EUR 90,000, and the number of shares may increase by a maximum of 900,000 new shares. On 31 December 2009, Digia Plc's wholly owned subsidiary Digia Partners Oy held a total of 578,000 warrants under the 2005 option scheme. 

 

Warrants 2005

2009

 2005A
  2005B
2005C
       

Maximum number of options

300,000

300,000

300,000

Shares available for subscription per option

1

1

1

Original subscription price *

€ 4.33

€ 3.98

€ 3.93

Dividend adjustment

Yes

Yes

Yes

Subscription price on 31 December 2005

€ 4.33

-

-

Subscription price on 31 December 2006

€ 4.28

€ 3.98

-

Subscription price on 31 December 2007

€ 4.20

€ 3.90

€ 3.93

Subscription price on 31 December 2008

€ 4.10

€ 3.80

€ 3.83

Subscription price on 31 December 2009

expired

€ 3.75

€ 3.78

Vesting date

1 November 2007

1 November 2008

1 November 2009

Expiry date

30 November 2009

30 November 2010

30 November 2011

Exercise period, years

expired

0.9

1.9

Persons at end of financial period

expired

2

no longer binding

 

 

 

 

 

 

 

 

Amounts on 1 January 2009

 

 

 

Options granted

326,000

148,000

60,000

Options returned

106,000

55,000

0

Options outstanding

220,000

93,000

60,000

Options in reserve

80,000

207,000

240,000

 

 

 

 

Changes during the period

 

 

 

Options granted

0

0

0

Options returned

123,000

71,000

60,000

 

 

 

 

Amounts on 31 December 2009

 

 

 

Options granted

326,000

148,000

60,000

Options returned

229,000

126,000

60,000

Options outstanding

0

22,000

0

Options in reserve

0

278,000

300,000

* At the end of the fiscal year, the subscription price for warrants in force was determined as follows:

2005A: Trading-weighted average share price on the Helsinki Stock Exchange calculated for the 20 days following the publication of Digia's Interim Report Q1/2005.
2005B: Trading-weighted average share price on the Helsinki Stock Exchange calculated for the 20 days following the publication of Digia's Interim Report Q1/2006.
2005C: Trading-weighted average share price on the Helsinki Stock Exchange calculated for the 20 days following the publication of Digia's Interim Report Q1/2007.

On the recorded date for each distribution of dividends, the share subscription price will be deducted by the amount of dividends for which the decision to distribute has been made between the beginning of the price-setting period and the date of subscription.

The following table presents a summary of the number of warrants and subscription prices on 31 December 2009. 

2009

 Options total

 Subscription prices (weighted)

Amounts on 1 January 2009

   

Options granted

534,000

€ 3.99

Options returned

139,000

€ 4.03

Shares subscribed using options

0

-

Options outstanding

395,000

€ 3.97

Options in reserve

505,000

€ 3.86

 

 

 

Changes during the period

 

 

Options granted

0

-

Options returned

276,000

€ 3.89

Shares subscribed using options

0

-

 Options expired

300,000

€ 4.05

 

 

 

Amounts on 31 December 2009

 

 

Options granted

534,000

€ 3.94

Options returned

415,000

€ 3.92

Shares subscribed using options

0

-

Options outstanding

22,000

-

Options in reserve

578,000

€ 3.77

Determination of fair value

The fair value of the options is determined using the Black-Scholes option pricing model. A fair value is determined for the date of granting the options and charged to personnel expenses over the vesting period. The granting date is the date of the decision by Board of Directors. The effect of options on the company's earnings in 2009 is EUR 12,509 (2008: EUR 45,563). In addition, an increase in fair value of EUR 85,587 was made during the fiscal year, caused by the conversion of options into shares according to the share conversion scheme. The cash portion of the conversion scheme caused expenses of EUR 250,282.

The change to the 2005 stock option scheme was valued using the following assumptions: 

Essential assumptions for the Black-Scholes model

Option scheme change, 2009

Options granted in 2008

 

 

 

Options granted

0

120,000

Shares granted in conversion

51,900

-

Average share price, €

3.20

3.03

Subscription price, €

3.89

3.90

Interest rate, %

0.9%

4.1%

Exercise period, years

0.9

3.3

Volatility, % *

44.0%

21.0%

Returned options, %

0%

0%

Fair value of remuneration payable in cash per share at the payment date, €

3.23

-

B&S value per option, €

0.29

0.32

Fair value total, €

335,869

38,611

Expense effect in 2009, handled as shareholders' equity, €

85,587

12,509

* Volatility is estimated on the basis of historical variations in the share price based on monthly observations over a period corresponding to the exercise period.

Comparison data for 2008

The following table presents the situation on 31 December 2008 as comparative data


Option scheme

2008 

 

2003D

 

2005A

 

 2005B

 

2005C

 

Total

Subscription price €

Amounts on 1 January 2009

           

Options granted

158,763

326,000

88,000

0

572,763

€ 4.15

Options returned

28,845

106,000

22,000

0

156,845

€ 4.16

Shares subscribed using options

0

0

0

0

0

-

Options outstanding

129,918

220,000

66,000

0

415,918

€ 4.15

Options in reserve

20,082

80,000

234,000

300,000

634,082

€ 3.96

 

 

 

 

 

 

 

Changes during the period

 

 

 

 

 

 

Options granted

0

0

60,000

60,000

0

-

Options returned

0

0

33,000

0

33,000

€ 3.80

Shares subscribed using options

0

0

0

0

0

-

Trading-weighted average price during subscription period, € *

 

3.11

 

2.96

 

1.93

 

-

 

-

 

-

Options expired

150,000

0

0

0

150,000

€ 4.09

       

 

 

 

Amounts on 31 December 2009

 

 

 

 

 

 

Options granted

expired

326,000

148,000

60,000

534,000

€ 3.99

Options returned

 

106,000

55,000

0

161,000

€ 4.00

Shares subscribed using options

 

0

0

0

0

-

Options outstanding

 

220,000

93,000

60,000

373,000

€ 3.98

Options in reserve

 

80,000

207,000

240,000

527,000

€ 3.86

* Trading-weighted average price of Digia Plc's share from January to October 2008 (2003D) and from January to December 2008 (2005A and 2005B).

Share-based bonuses

In addition to stock option schemes, the company offers share-based bonuses as part of its key personnel commitment and incentive scheme. The share-based bonus scheme offers the target group an opportunity to receive shared in Digia Plc shares as a reward for the achievement of specified goals set for an earning period. The Board of Directors decides the earning criteria for the scheme and specifies the targets, as well as the maximum remuneration for the earning period for each person belonging to the target group.

On 30 September 2009, the Board of Directors made the following decisions regarding share-based bonus systems for management and key personnel:

It was decided that the terms of the Chief Executive Officer's 2008 share-based incentive system would be changed so that in October 2009 the CEO received a bonus equivalent to the value of 100,000 shares, paid 50/50 in shares and cash. This bonus system entirely replaced the 2008 share-based incentive system.

The CEO's new share-based incentive system covers the period 2009 and 2010. It entitles the CEO to a maximum bonus equal to the value of 160,000 company shares according to the terms of the scheme, based on the company's EPS. The bonus is payable 50/50 in shares and cash and is made available to the CEO annually after the financial statements are approved.

In a system directed at key personnel, a maximum bonus totalling the value of 200,000 shares will be payable as a 50/50 combination of shares and cash. The instalments will be paid in 2009, 2010, 2011 and 2012. The bonus will be paid annually, without any disposition restrictions, beginning on 30 January 2010, depending on the fulfilment of certain goals set by the Board and on the condition that the recipient is still employed by the company on the payment date.

The basic details of the schemes are listed in the table below. 

31 Dec 2009

 

CEO's share-based bonus in 2009

CEO's share-based incentive system 2009-2010

Key personnel share-based incentive system 2009-2010

 

 

 

 

Granting date

30 September 2009

30 September 2009

30 September 2009

Instrument

Shares and cash

Shares and cash

Shares and cash

Target group

CEO

CEO

Key personnel

Maximum amount of share-based bonuses *

100,000

160,000

200,000

Beginning of the earning period

30 September 2009

1 October 2009

1 October2009

End of the earning period

23 October 2009

30 March 2010 /

30 January 2010 /
   

30 March 2011

30 January 2011 /

     

30 January 2012 /

     

30 January 2013

Vesting condition

-

Earnings per share, employment requirement

Earnings requirement, employment requirement

Maximum validity, years

-

1.5

3.3

Remaining validity, years

0

1.2

3.1

Number of persons (31 December 2009)

expired

1

31

* In addition to the bonus payment in shares, a cash bonus is paid to cover the cost of taxes and similar expenses.

The items related to share-based incentive systems in 2009 are given in the table below. Because the cash portion of the bonus payment is also recorded as a share-based expense, the sums below are gross, i.e. the bonuses include the shares and the equivalent cash sum. 

Events in 2009 fiscal year

 

 

CEO's share-based bonus in 2009

 

CEO's share-based incentive system 2009-2010

Key personnel share-based incentive system 2009-2010

 

 

 

Total

Gross amounts 1 January 2009 **

 

 

 

 

  Outstanding on 1 Jan

210,000

0

0

210,000

 

 

 

 

 

Changes during the period

 

 

 

 

  Granted during the year

0

160,000

182,000

342,000

  Forfeited during the year

110,000

0

0

110,000

  Exercised during the year

100,000

0

0

100,000

  Expired during the year

210,000

0

0

210,000

 

 

 

 

 

Gross amounts 31 December 2009 **

 

 

 

 

  Outstanding on 31 Dec

0

160,000

182,000

342,000

  Available for exercising on 31 Dec

0

160,000

 182,000

342,000

** The amounts include the cash portion (in shares) granted according to the terms of the incentive scheme.

Expense effect of share-based incentive schemes on 2009 income statement 

Effect on earnings and financial position

 

 

CEO's share-based bonus in 2008

 

 

CEO's share-based bonus in 2009

 

CEO's share-based incentive system 2009-2010

Key personnel share-based incentive system 2009-2010

Share-based payment expense for the fiscal year, €

 

58,256

 

306,294

  98,966

 

112,574

 

Comparison data for 2008

Effect on earnings and financial position

CEO's share-based bonus in 2008

Share-based payment expense for the fiscal year, €

59,399

Share-based payment expense for the fiscal year, shareholders' equity, €

36,478

Liabilities from share-based payments on 31 December 2008, €

22,921

 

21. Provisions

 

Changes in provisions during 2009: 

€ 000

Restructuring provision

Unprofitable agreements

Total

1 Jan 2009

0

432

432

Increase in provisions

895

157

1,052

Provisions used

-

-432

-432

Reversals of unused provisions

-

-

-

31 Dec 2009

895

157

1,052


Changes in provisions during 2008:

€ 000

Restructuring provision

Unprofitable agreements

Total

1 Jan 2008

0

0

0

Increase in provisions

-

432

432

Provisions used

-

-

-

Reversals of unused provisions

-

-

-

31 Dec 2008

0

432

432

 

Restructuring provision

The restructuring provision is associated with restructuring of entities in connection with acquisitions and the reorganisation of unprofitable business operations.

To improve its operating conditions, the company launched measures in 2009 for rationalising its site network in line with market requirements, and concentrating its expertise into fewer but larger units. In this way, customers' needs will be met more effectively. The measures encompassed the closure of the company's offices in Kuopio, Turku, Lahti and Vaasa, and the reduction of personnel in certain parts of the Pori unit. Due to these measures, the company made an operational restructuring provision of EUR 0.9 million in its financial statements.

Unprofitable agreements

A loss provision is created for fixed-price projects if it becomes apparent that the completion of the project will require significantly more work input than has been estimated in connection with selling the project and can be invoiced from the customer on the basis of the agreement.

On the balance sheet date 31 December 2009, there were two fixed-price projects for which loss provisions had been recorded on the basis of remaining work.

22. Loans from financial institutions

 

 

2009

2008

2009

2008

€ 000

Fair values

Fair values

Balance sheet values

Balance sheet values

Non-current

 

 

 

 

   Bank loan

20,081

-

23,000

-

   Subordinated loan

79

146

89

170

   Finance lease liabilities

478

679

513

765

  Total

20,639

825

23,601

935

 

 

 

 

 

Current

 

 

 

 

   Bank loan

5,797

51,132

6,000

55,000

   Subordinated loan

73

216

82

242

   Finance lease liabilities

716

742

745

772

  Total

6,586

52,090

6,827

56,015

Total

27,225

52,915

30,429

56,950

         

The fair value of loans has been calculated by discounting the loan capital on the balance sheet date using a discount rate of 8.86%, which has been determined with regard to the industry's general risk level.

On 3 February 2009 Digia signed a syndicated loan agreement that replaced the company's prior loans in their entirety. The loan agreement is financed by Pohjola Bank, Nordea Bank and Varma. In addition to a three-year bank-financed package of EUR 42 million, the package included EUR 8 million in re-borrowing of pension contributions. There is also a maximum EUR 5 million credit limit. As a part of the financing package, the company committed to covenants concerning the maintenance of the company's financial standing and liquidity. Loan covenant terms related to this package were modified during the reporting period to stipulate that regardless of the earnings reported for 2009, the company is allowed to distribute a maximum of EUR 3 million in dividends in 2010. In future years, the maximum dividend sum will be 30 per cent of the previous year's net operating profit.

During the financial year, the company repaid EUR 26.3 million in loans, reducing its interest-bearing liabilities to EUR 29.0 million. The loans have floating interest rates tied to Euribor, plus a margin. The covenants for the loans are linked to certain financial indicators. The average interest rate of the loans in 2009 was 3.4% (5.8% in 2008). The shares of Digia Finland Ltd and Digia Financial Software Ltd are pledged as collateral for the loans.

A subordinated loan has been granted by TEKES for product development. The loan has a fixed interest rate, which ranged between 1.00% and 4.00% until 31 December 2009. The effective interest rates on finance lease liabilities during the fiscal year was 4.99% (5.04% in 2008).

Interest-bearing liabilities fall due as follows: 

Year, € 000

2009

2008

2009

 

56,014

2010

6,827

822

2011

6,447

57

2012

15,640

57

Later

1,515

-

Total

30,429

56,950

 

The tables below describe agreement-based maturity analysis results for 2009 and the 2008 comparison period. The figures are undiscounted and include interest payments and the repayment of loan capital:

€ 000 

 

 

 

 

 

31 Dec 2009 

Balance sheet values

Cash flow

less than 1 year

1-2 years

2-5 years

Bank loans 

29,000

30,715

6,872

6,675

17,169

Subordinated loans

170

174

84

45

45

Finance lease liabilities

1,259

1,311

785

410

116

Total

30,429

32,200

7,741

7,130

17,730

 

€ 000 

 

 

 

 

 

31 Dec 2008 

Balance sheet values

Cash flow

less than 1 year

1-2 years

2-5 years

Bank loans

55,000

57,658

57,658

 

 

Subordinated loans

412

434

247

60

127

Finance lease liabilities

1,537

1,575

787

789

 

Total

56,950

59,667

58,692

849

127

 

23. Due dates of financial lease liabilities 

€ 000

2009

2008

Finance lease liabilities, total of minimum lease payments

 

 

  Within one year

785

809

  Within more than one but less than five years

525

789

  After more than five years

-

-

 

 

 

Finance lease liabilities, present value of minimum lease payments

 

 

  Within one year

705

756

  Within more than one but less than five years

437

765

  After more than five years

-

-

 

 

 

Financial expenses to be accrued in the future

51

77

 

 

 

Total amount of finance lease liabilities

1,311

1,537


The finance leases concern IT and office equipment and have durations of two to three years.

24. Non-interest bearing liabilities

€ 000

2009

2008

Non-current

 

 

  Deferred tax liabilities

2,672

3,138

Total

2,672

3,138

 

 

 

Current

 

 

 Accounts payable

1,575

1,668

Total

1,575

1,668

 

 

 

Other non-interest bearing current liabilities

 

 

 Advance payments received

1,400

460

 Accrued expenses

11,098

10,686

 Provisions

1,052

432

 Income tax liabilities

551

2,083

 Other liabilities

5,793

5,892

Total

19,894

19,553

Total non-interest bearing liabilities

24,141

24,359

The book value of non-interest bearing current liabilities represents a reasonable estimate of their fair value. Material items included in accrued expenses arise from the accrual of holiday pay, as well as accrued provisions for salaries and fees.

25. Operating leases

 

Minimum lease payments on the basis of other non-cancellable leases: 

€ 000

2009

2008

Within one year

5,053

4,317

Within more than one but less than five years

2,477

2,134

After more than five years

-

-

Total

7,530

6,451

The Group leases all of its production facilities and office premises. The average duration of the leases is three to five years, and they normally include the option of extension after the original date of expiry. The Group has also leased motor vehicles on maintenance lease agreements. The normal duration of maintenance lease agreements is three years.

 

26. Contingent liabilities 

€ 000

2009

2008

Collateral pledged for own commitments

 

 

   Business mortgages granted

0

3,067

   Other

905

1,029

Total

905

4,096

 

Other contingent liabilities are associated with guarantee deposits or are units in fixed-income mutual funds pledged as collateral for the credit limit. The credit limit is used as the collateral for rents on premises. Furthermore, the item includes a guarantee deposit pledged as collateral.

 

27. The group's shares and holdings

Group companies

Domicile

Home country

Share of ownership

Share of votes

Digia Plc

Helsinki

Finland

Parent company

 

Digia Estonia Oü *

Tallinn

Estonia

100%

100%

Digia Financial Software Oy

Jyväskylä

Finland

100%

100%

Digia Finland Oy

Helsinki

Finland

100%

100%

Digia Hong Kong Ltd *

Hong Kong

China

100%

100%

Digia Service Oy

Jyväskylä

Finland

100%

100%

Digia Software (Chengdu) Co. Ltd

Chengdu

China

100%

100%

Digia Sweden Ab

Stockholm

Sweden

100%

100%

OOO Digia RUS

St. Petersburg

Russia

100%

100%

Sunrise Resources Oy

Helsinki

Finland

100%

100%

Digia Partners Oy *

Helsinki

Finland

100%

100%

Microext Oy *

Helsinki

Finland

100%

100%

* The companies are not engaged in business operations.

Other shares and holdings

€ 000

Keimola Golf Club Oy

7

Kiinteistö Oy Rukan Kuukkeli

62

Kytäjä Golf Oy

39

Vierumäki Golf Oy

17

Vierumäki Golf Club Oy

35

Vierumäen Loma-aika Oy

138

Vierumäen Kuntoharju Oy

270

Rikunniemen Huolto Oy

6

Tahko Golf Club Oy

39

Tahkovuorenpeikko Oy

11

Other

3

Total

627

 

28. Related party transactions

 

Two parties are considered related if one party can exercise control or significant power in decision-making associated with the other party's finances and business operations. The Group's related parties include the parent company and subsidiaries, in addition to the members of the Board of Directors and the Management Team.

Remuneration paid to the CEO and Group management during the financial period, including fringe benefits, was as follows:

€ 000

2009

2008

Salaries and other short-term employee benefits

2,079

1,226


The salaries and fees paid in 2008 to the CEO and members of the Board of Directors were as follows:

 

 

 € 000

Sivonen Pekka

Chairman of the Board of Directors

209

Kyttälä Pertti

Vice Chairman of the Board

45

Karvinen Kari

Member of the Board

33

Mehtälä Martti

Member of the Board

34

Mäkijärvi Heikki

Member of the Board

26

Pasanen Jari

Member of the Board

26

Varelius Juha

CEO

846

Total

 

1,220

During the 2009 fiscal year, the Board decided to terminate the management's stock option schemes and replace them with share-based incentive schemes. The incentive schemes are described in Note 20 Share-based payments and in the separate report on corporate governance. Transactions related to the sale of services to related parties totalled EUR 8,400 (0 in 2008). Transactions associated with the purchase of goods or services totalled EUR 14,700 (EUR 19,700 in 2008). The Group has no related-party loans.

29. Management of financing risks

 

Digia Plc's internal and external financing and the management of financing risks is concentrated in the finance function of the Group's parent company. The function is responsible for the Group's liquidity, sufficiency of financing, and the management of interest rate and currency risk. The Group is exposed to several financing risks in its normal course of business. The objective of the Group's risk management is to minimise the adverse effects of changes in the financial markets on the Group's earnings. The primary types of financing risks are interest rate risk, credit risk and funding risk. The general principles of risk management are approved by the Board of Directors, and the Group's finance function together with the business segments is responsible for their practical implementation.

Foreign exchange risks

The Group is not significantly exposed to foreign exchange risk in its operations. The Group's key foreign exchange risks involve the Swedish krona, Russian rouble and Chinese yuan. The Group has currency holdings of EUR 3.4 million through its Swedish, Russian and Chinese subsidiaries, which entails an exchange risk when the investments are converted into euro. The Group has not hedged these investments. In the financial statements, accounts receivable denominated in foreign currency comprised EUR 0.7 million in receivables in Swedish krona. Accounts payable denominated in foreign currency were very small. The most significant currency risks relating to accounts receivable and accounts payable can be managed by means of forward foreign exchange contracts when necessary. At the end of the fiscal year 2009, the company had no such forward contract in force.

Interest rate risks

The Group's interest rate risk is primarily associated with a long-term bank loan that has an interest rate linked to Euribor rates. Changes in market interest rates have a direct effect on the Group's future interest payments. During the financial period 2009, the interest rate on the long-term bank loan varied between 2.3% and 4.6% (between 4.6% and 6.2% in 2008). The impact of a +/- 1% change in the loan's interest rate is EUR 0.3 million per annum. The Group's money market investments are a source of interest rate risk, but the overall impact of these investments is negligible. Interest rate developments are monitored systematically in different bodies within the company, and possible interest rate hedges will be made with the appropriate instruments.

Credit risks

The Group's customers are mostly well-known Finnish and foreign companies with well-established credit, and thus the Group has no significant credit risks. The Group's policy defines creditworthiness requirements for customers, investment transactions and counterparties. Services and products are only sold to companies with a good credit rating. The counterparties in investment transactions are companies with a good credit rating. Credit risks associated with commercial operations are primarily the responsibility of operational units. The parent company's finance function provides customer financing services in a centralised manner and ensures that the principles of the financing policy are observed with regard to terms of payment and collateral required. At the end of the fiscal year 2009, credit loss provisions totalled EUR 0.1 million. In 2009, the Group recorded credit losses totalling EUR 2.1 million, of which EUR 1.8 million was related to the bankruptcy of UIQ Technologies Ab. The maturity analysis of accounts receivable for 2009 and 2008 is presented in Note 16.

Liquidity risk

The Group aims to continuously estimate and monitor the amount of financing required for business operations in order to maintain sufficient liquid funds for financing operations and repaying loans falling due. The availability and flexibility of financing is ensured by maintaining an unused credit facility and using several banks for financing. The amount of unwithdrawn standby credit on 31 December 2009 was EUR 5.0 million. The Group maintains its immediate liquidity with the help of cash management solutions such as Group accounts and credit facilities at banks. Cash and cash equivalents on 31 December 2009 totalled EUR 10.5 million. An agreement-based maturity analysis on discounted equity and interest payments for the reporting periods 2009 and 2008 is presented in Note 21.

Management of the capital structure

The Group's capital management aims at supporting company business by means of optimal management of the capital structure, ensuring normal operating conditions and increasing shareholder value with a view to achieving the best possible profit. At the end of the period, the Group's interest-bearing net liabilities were EUR 19,960,000 (EUR 38,071,000 at year-end 2008). When calculating gearing, the interest-bearing net liabilities are divided by shareholders' equity. Gearing includes interest-bearing net liabilities less cash and cash equivalents. Interest-bearing net liabilities have primarily been used for financing the Group's company acquisitions, and at the end of the reporting period, gearing stood at 34% (53% in 2008).

The share of liabilities of total shareholders' equity on 31 December 2009 and 31 December 2008 was as follows: 

€ 000

2009

2008

Interest-bearing liabilities

30,429

56,950

Cash and cash equivalents

10,469

18,879

Interest-bearing net liabilities

19,960

38,071

Total shareholders' equity

58,184

72,083

Gearing, %

34%

53%



30. The group's key financial ratios 

€ 000

2009

2008

2007

2006

2005

 

 

 

 

 

 

Scope of operations

 

 

 

 

 

Net sales, € 000

120,335

123,203

105,839

84,968

60,525

  - change on previous year, %

-2%

16%

25%

40%

131%

Gross capital expenditure, € 000

1,342

2,512

1,979

1,876

2,288

  - % of net sales

1%

2%

2%

2%

4%

Capitalisation for research and development * 

-

-

-

256

1,464

  - % of net sales

0%

0%

0%

0%

2%

Number of personnel, 31 December

1,471

1,337

1,155

1,087

793

Average number of personnel

1,387

1,314

1,116

981

731

 

 

 

 

 

 

Profitability

 

 

 

 

 

Operating profit, € 000

-7,796

13,437

11,080

8,354

4,229

  - % of net sales

-6%

11%

10%

10%

7%

Net profit, € 000

-13,664

7,409

5,871

4,867

2,355

  - % of net sales

-11%

6%

6%

6%

4%

Return on equity, %

-21%

11%

9%

8%

5%

Return on investment, %

-7%

11%

9%

9%

6%

 

 

 

 

 

 

Financing and financial standing

 

 

 

 

 

Loans from financial institutions, € 000

30,429

56,950

56,413

56,664

26,055

Cash and cash equivalents, € 000

10,469

18,879

11,739

11,506

12,326

Gearing, %

34%

53%

65%

72%

26%

Equity ratio, %

52%

47%

47%

44%

56%

Cash flow from operations, € 000

20,232

15,473

6,157

5,756

5,691

Dividends (paid), € 000

1,025

2,041

1,625

930

1,020

Earnings per share, €, basic

-0.67

0.36

0.29

0.25

0.14

Earnings per share, €, diluted

-0.67

0.36

0.29

0.25

0.14

Equity per share 

2.79

3.46

3.32

3.10

2.83

Dividend per share**

0.14

0.05

0.10

0.08

0.05

Dividend payout ratio **

-

14%

35%

32%

35%

Effective dividend yield **

4%

3%

3%

2%

1%

Price/earnings ratio (P/E)

-

5.17

10.39

13.70

33.07

Lowest share price, €

1.39

1.73

2.93

3.00

3.43

Highest share price, €

3.88

3.35

4.26

4.97

4.93

Average share price, €

2.72

2.83

3.77

3.75

4.36

Market capitalisation, € 000

71,528

38,788

61,079

69,669

85,170

Trading volume, shares

9,123,589

7,321,002

9,583,795

13,899,149

14,524,798

Trading volume, %

45%

36%

47%

71%

87%

 

* In connection with the acquisition of Digia Inc. in 2005, the consolidated balance sheet includes EUR 0.9 million of capitalised product development costs.

** Digia Plc's Board of Directors will propose to the Annual General Meeting that the Board of Directors be authorised to decide on dividend distribution for 2009, with the maximum dividend being EUR 0.14 per share, and that the authorisation be valid until the next Annual General Meeting.

The weighted average number of shares during the accounting period, adjusted for share issues, was 20,853,645. The number of shares at the end of the accounting period, adjusted for dilution, was 20,853,645. The number of shares outstanding at the end of the accounting period was 20,587,691. At the end of the fiscal year 2009, the company held 129,964 own shares. The company has financed the purchase of 300,000 own shares for use in the incentive schemes for key personnel. At the end of the review period Evli Bank held 135,990 shares.