of InVision AG for the Financial Year 2016
The following management report was prepared in accordance with the requirements under § 315 of the German Commercial Code (HGB) and contains information about InVision AG, Düsseldorf (hereinafter also referred to as “AG” or “Company”), and its consolidated subsidiaries (hereinafter together with the Company also collectively referred to as “InVision”, “InVision Group” or “the Group”). As the Group’s parent company, InVision AG performs group management functions and, at the same time, is the key member of the InVision Group. The explanations below generally relate to the Group, unless there has been an express reference to the Company itself.
The InVision Group develops and markets products and services for optimising workforce management and for employee training, and is mainly active in Europe and the United States.
On 31 December 2016, InVision employed 106 employees worldwide (including the Executive Board members). Compared to the end of the previous year, the number of employees increased by 20 percent (31 December 2015: 88 employees). At the end of the year, 79 employees (31 December 2015: 56 employees) were employed in Germany, while 27 employees (31 December 2015: 32 employees) were employed in foreign subsidiaries.
The research and development costs in the fiscal year decreased by 2 percent and totalled TEUR 5,459 (previous year: TEUR 5,560). Research and development costs as a percentage of revenues remained at 44 percent, as in the previous year.
The Company’s registered share capital equals EUR 2,235,000 and is divided into 2,235,000 no-par value bearer shares. Each such share represents a notional share of the registered share capital of EUR 1.00. Each share entitles the holder to a single vote. Shareholders may exercise their rights and cast their votes at the Annual Shareholders’ Meeting in accordance with the Company’s articles of association and the statutory rules.
Pursuant to a resolution adopted by the Company’s Shareholders’ Meeting on 18 May 2015, the Executive Board was authorised in accordance with § 4 (4) of the Company’s articles of association but subject to the consent of the Company’s Supervisory Board, to increase the Company’s registered share capital one or more times by a total of up to EUR 1,117,500 on or before 17 May 2020 and to do so by issuing new, no-par bearer shares in exchange for cash and/or non-cash capital contributions (Authorised Capital Account 2015). The new shares can also be transferred to certain banks specified by the Executive Board, which assume the responsibility of offering them to shareholders (indirect subscription rights). Shareholders must generally be granted a pre-emptive right, which gives them an indirect option to subscribe shares (§ 186 (5) AktG). The Executive Board is authorised, however, with the consent of the Supervisory Board, to exclude the shareholders’ pre-emptive right to subscribe shares in the following cases:
Pursuant to a shareholder resolution adopted on 18 May 2015, the registered share capital was increased conditionally by up to EUR 1,117,500 (Conditional Capital Account 2015). The conditional capital increase must carried out only to the extent that the creditors, to whom convertible or warrant-lined bonds were issued by the Company on the basis of the authorising resolution of the Shareholders’ Meeting on 18 May 2015, exercise their conversion rights on or before 17 May 2020 and the Company has not satisfied the conversion claim in some other manner. The new shares will be entitled to draw dividends as of the beginning of the fiscal year in which they are issued. The Executive Board is authorised, with the consent of the Supervisory Board, to stipulate the details concerning the implementation of the respective conditional capital increase.
Pursuant to the shareholder resolution adopted on 18 May 2015, the Company was authorised to buy back its own shares in an amount representing a 10 percent pro rata amount of the registered share capital of EUR 223,500. The repurchased shares, together with the other treasury shares, which the Company has previously acquired and still holds or which must be attributed to the Company under § 71a et seq. AktG, cannot exceed 10 percent of the Company’s registered share capital. The authorisation is in effect until 17 May 2020. The shares purchased on the basis of the authorisation may be used for all legally permissible purposes.
The authorisation to buy back the Company’s own shares was granted to the Company in order, inter alia, to flexibly adjust the equity capital to meet the changing business needs and to be able react to favourable stock market conditions. In addition, the acquired shares may be used as consideration when acquiring companies or when making equity investments in companies.
On the reporting date, the Company did not hold any treasury shares.
To the Company’s knowledge, as of 31 December 2016, the following shareholders held more than 10 percent of the Company’s registered share capital:
Executive Board members are appointed and dismissed in accordance with §§ 84 et seq. of the AktG. Pursuant to § 6 (1) of the articles of association, the Executive Board consists of at least two persons. Alternative members of the Executive Board may be appointed. Pursuant to § 6 (2) of the articles of association, the Supervisory Board is responsible for determining the number of, and appointing the regular Executive Board members and alternate Executive Board members and has the authority to revoke such appointments. The Supervisory Board is also responsible for selecting a member of the Executive Board to serve as that body’s chairman and for selecting other Executive Board members to serve that body’s deputy chairmen.
Amendments to the articles of association are adopted by the Shareholders’ Meeting if, in accordance with § 179 AktG, a majority of at least three-quarters of the registered share capital represented at the meeting votes in favour of the amendment.
Pursuant to § 10 (2) of the articles of association, the Supervisory Board is authorised to amend the articles, provided the amendment involves only the wording. Pursuant to § 21 (1) of the articles of association, the shareholder resolutions require a simple majority of the votes cast, unless the laws prescribe another majority. In those cases in which the laws require a majority of the registered share capital represented at the time the resolution is adopted, a simple majority of the represented registered share capital will suffice, unless the laws prescribe a higher majority.
There are no significant agreements which are subject to a restriction relating to a change of control resulting from a takeover offer. Likewise, no agreements for indemnifying employees or members of the Executive Board in the event of a takeover offer have been reached.
According to the International Monetary Fund, the economic output in the euro area increased by 1.7 percent in 2016, whereas the economic output in the United States increased by 1.5 percent.
Consolidated revenues during the reporting year decreased by 2 percent to TEUR 12,426 (previous year: TEUR 12,708). InVision WFM subscription revenues decreased by 1 percent to TEUR 7,961 (previous year: TEUR 8,012). injixo revenues increased by 35 percent to TEUR 2,748 (previous year: TEUR 2,035). The Call Center School revenues increased by 37 percent to TEUR 599 (previous year: TEUR 436). Project revenues decreased by 50 percent to TEUR 1,118 (previous year: TEUR 2,225).
Other operating income primarily increased due to an one-off compensation payment by 214 percent to TEUR 408 (previous year: TEUR 130).
Personnel expenses declined in the reporting year by 3 percent to TEUR 6,105 (previous year: TEUR 6,322). Therefore, the personnel expenses ratio equalled 49 percent (previous year: 50 percent).
Other operating expenses decreased by 23 percent to TEUR 2,274 (previous year: TEUR 2,940), which is 18 percent of the group revenues (previous year: 23 percent). This decrease is mainly attributable to a reduction in office space expenses of 35 percent to TEUR 557 (previous year: TEUR 854). Communication expenses also decreased by 38 percent to TEUR 96 (previous year: TEUR 155). Consulting expenses declined by 15 percent to TEUR 220 (previous year: TEUR 258). Marketing expenses totalled TEUR 305 (previous year: TEUR 307). Expenses for cloud services increased by 20 percent to TEUR 613 (previous year: TEUR 512). Leasing and maintenance expenses slightly increased to TEUR 22 (previous year: TEUR 20). Miscellaneous operating expenses increased by 67 percent to TEUR 845 (previous year: TEUR 505). The income from reversing of provisions increased by 184 percent to TEUR 384 (previous year: TEUR 135).
In the reporting period, the operating result (EBIT) increased by 33 percent to TEUR 3,547 TEUR (previous year: TEUR 2,676). The EBIT margin increased to 29 percent (previous year: 21 percent).
The interest expense decreased to TEUR 40 (previous year: TEUR 58). Interest income decreased to TEUR 0 (previous year: TEUR 18).
Income tax increased to TEUR 1,155 (previous year: TEUR 537). This increase is mainly attributable to the taxation of distributed profits of InVision Software OÜ, Tallinn, Estonia, and the taxation of the annual profits of injixo AG, Cham, Switzerland.
In fiscal year 2016, consolidated net profit equalled TEUR 2,328 (previous year: TEUR 2,132). Earnings per share were EUR 1.04 (previous year: EUR 0.96), based on an average of 2,235,000 shares in 2016 (previous year: 2,235,000 shares).
Overall, business development was in line with expectations in the fiscal year of 2016.
Liquid funds increased by 185 percent to TEUR 4,009 (previous year: TEUR 1,405) as of the end of the fiscal year.
Trade receivables decreased by 49 percent to TEUR 1,415 (previous year: TEUR 2,756). The income tax claims decreased to TEUR 7 (previous year: TEUR 98). The prepaid expenses and other short-term assets equalled TEUR 318 (previous year: TEUR 172). Intangible assets decreased to TEUR 433 (previous year: TEUR 583) due to scheduled depreciations. Tangible assets increased to TEUR 9,466 (previous year: TEUR 8,809) primarily due to the investments in a commercial property for own use. Deferred tax assets decreased by 60 percent to TEUR 154 (previous year: TEUR 387).
Trade payables increased to TEUR 149 (previous year: TEUR 116). The provisions decreased by 73 percent to TEUR 169 (previous year: TEUR 628). Income tax liabilities increased to TEUR 922 (previous year: 21 TEUR). This increase is mainly attributable to the taxation of distributed profits of InVision Software OÜ, Tallinn, Estonia, and the taxation of the annual profits of injixo AG, Cham, Switzerland. The short-term share of deferred income and other short-term liabilities decreased to TEUR 1,636 (previous year: TEUR 1,852).
The long-term bank loan in the amount of TEUR 4,000, that was raised in 2014 to partly finance a commercial property for own use, was repaid as scheduled in fiscal year 2016 and totalled TEUR 2,250 at the balance sheet date (previous year: TEUR 3,250).
The reserves amounted to TEUR 1,191 (previous year: EUR 1,191) and the Group profit totalled TEUR 7,644 (previous year: TEUR 5,316), at the end of the reporting period.
As of 31 December 2016, the balance sheet total equalled TEUR 15,823 (previous year: TEUR 14,243). Equity capital was at TEUR 10,697 (previous year: TEUR 8,376), and the equity ratio equalled 68 percent (previous year: 59 percent).
Cash flow from operating activities reached TEUR 4,742 in the reporting period (previous year: TEUR 2,334) and corresponds to a share of 38 percent of the Group revenues (previous year: 18 percent).
In addition to the reimbursement of expenditures which they incurred in discharging their official duties, the members of the Company’s Supervisory Board are paid a fixed fee of EUR 5,000. The Chairman of the Supervisory Board receives twice that amount, and the Deputy Chairman receives one and one-half times that amount. The fee is paid after the fiscal half-year has ended. Any value added tax charged on the costs for reimbursement and fees is reimbursed.
The Executive Board compensation consists of a fixed-base salary, which increases if contractually defined revenue thresholds are met. Executive Board members also have a right to use a car leased by the Company. Furthermore, the Executive Board members will be paid an allowance to cover their costs for health insurance and long-term care insurance. Moreover, the Company has executed a D&O insurance policy with a deductible.
For the InVision Group, a comprehensive and self-contained risk management programme is a significant component of the Group’s corporate strategy. A company-wide monitoring system ensures the systematic identification and assessment of risks regarding any likelihood of occurrence or the possible quantitative effects on corporate value.
Risk management is intended to identify, at an early stage, specifically any risks which threaten the Company’s very existence in an effort to launch effective counter-measures for avoiding the risks. Another goal is to minimise the possible adverse effects, which all risks could have on the net assets, financial position and results of operation, while largely preserving the corresponding opportunities.
Potential counter-measures for dealing with risk include, for example, avoiding high-risk activities, reducing individual areas of potential risk by utilising commercial alternatives with a lower potential for risk, diversifying and limiting individual risks, and shifting risks onto insurance carriers or contracting parties.
The Executive Board is responsible for administering the risk management. A fundamental review of all risks is made once each year, at least. There are standardised accounting rules used in the Group’s companies, the compliance with which is continuously monitored. This also guarantees that the accounts conform to the standard accounting rules applicable from time to time. An internal ad hoc report is prepared in the event that there are significant changes or newly emerged risks. All risk-relevant topics and the then-current economic situation over time are constantly monitored. If necessary, operational teams or external experts are called in to participate.
The risk management is described and stipulated in a group risk management policy and its suitability and functionality is reviewed each year in connection with the audit of the annual financial statements.
Since 2011, InVision increasingly offers cloud-based services. If customers do not accept this offering, due to data security issues or any other considerations in principle, revenues of the InVision Group could permanently decrease accordingly.
InVision relies on seasoned and well-trained teams of employees. The future success of InVision will also depend on finding and retaining, on a long-term basis, highly qualified employees. The competition for employees with scientific, technical or industry-specific expertise is quite intense. It is therefore possible that the Company will be unable to promptly recruit new staff on the open labour market and that this may give rise to additional costs. The loss of qualified staff or long-term difficulties in hiring suitable employees could result in InVision’s inability to successfully implement important decisions and courses of action, which in turn would impair its business operations. This particularly applies in the case of a zombie apocalypse.
The aforementioned risks, both individually and collectively, could have adverse effects on the net assets, financial position and results of operation of the Company and of the InVision Group as a whole.
According to the forecasts made by the International Monetary Fund, the economic output in the euro area will increase by 1.6 percent in 2017, whereas the economic output in the United States will increase by 2.3 percent.
For the upcoming years, InVision expects a stable demand for the products of the InVision Group, thus offering opportunities for a sustainable exploitation of the revenue potential. For the coming months, corporate planning outlines an aggressive expansion of sales and marketing activities, resulting in an expected strong increase in personnel costs and other operating expenses. Subsequently, the planned measures will significantly accelerate the revenue growth of the products injixo and The Call Center School. Therefore, InVision expects a slight increase in total revenues for 2017. Currently, it is not possible to give a specific forecast of the 2017 EBIT with sufficient probability, as the strong expansion of the headcount and its resulting impact on sales are uncertain regarding both the respective amount and the timing. However, InVision is planning with an overall positive result.
Düsseldorf, 13 March 2017