of InVision AG for the Financial Year 2017
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 2017, InVision employed 130 employees worldwide (including the Executive Board members). Compared to the end of the previous year, the number of employees increased by 23 percent (31 December 2016: 106 employees). At the end of the year, 93 employees (31 December 2016: 79 employees) were employed in Germany, while 37 employees (31 December 2016: 27 employees) were employed in foreign subsidiaries.
The research and development costs in the fiscal year increased by 37 percent and totalled TEUR 7,486 (previous year: TEUR 5,459). Research and development costs as a percentage of revenues are at 57 percent (31 December 2016: 44 percent).
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 § 71 a 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 2017, 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 2.4 percent in 2017 and 2.2 percent in the United States. The overall good economic situation led to partial bottlenecks on the labour market. According to Bitkom Research GmbH, the market for information technology grew by 3.9 percent during 2017.
The most significant financial performance indicators of the InVision Group are the Group revenues and the EBIT margin (ratio of consolidated earnings before interest and taxes as a percentage of revenues). Due to the Group’s business model, a positive or negative development of these performance indicators has a correlating effect on the development of the net assets and financial position.
During the reporting year, consolidated revenues increased by 6 percent to TEUR 13,163 (previous year: TEUR 12,426). InVision WFM subscription revenues increased by 5 percent to TEUR 11,298 (previous year: TEUR 10,709). The Call Center School revenues increased by 19 percent to TEUR 714 (previous year: TEUR 599). Other revenues increased by 3 percent to TEUR 1,151 (previous year: TEUR 1,118).
Other operating income decreased by 78 percent to TEUR 91 (previous year: TEUR 408). The value of the previous year was primarily caused by an one-off insurance compensation payment.
In the reporting year, personnel expenses rose by 32 percent to TEUR 8,085 (previous year: TEUR 6,105), mainly due to new hirings. Therefore, the personnel expenses ratio equalled 61 percent (previous year: 49 percent).
Other operating expenses increased by 38 percent to TEUR 3,143 (previous year: TEUR 2,274), which is 24 percent of the Group revenues (previous year: 18 percent). Expenses for cloud services increased by 33 percent to TEUR 816 (previous year: TEUR 613). This increase is mainly attributable to a higher demand of storage capacity for the InVision applications and an increasing use of cloud-based products in all areas of operation. Office space expenses decreased by 17 percent to TEUR 460 (previous year: TEUR 557). On the one hand, this decline is attributable to the completion of the reconstruction and renovation measures of the commercial property acquired in Düsseldorf in 2013, and on the other hand to the conversion of a rented commercial property in Leipzig, during the reporting period. As a result of new hiring, the staff-related expenses increased, in particular the travel expenses by 83 percent to TEUR 370 (previous year: TEUR 202), other personnel expenses by 49 percent to TEUR 268 (previous year: TEUR 180), recruitment expenses by 148 percent to TEUR 114 (previous year: TEUR 46). Consulting expenses increased by 8 percent to TEUR 238 (previous year: TEUR 220). Marketing expenses increased by 12 percent to TEUR 343 (previous year: TEUR 305). Communication expenses increased by 18 percent to TEUR 113 (previous year: TEUR 96).
In the reporting period, the operating result (EBIT) declined by 62 percent to TEUR 1,363 TEUR (previous year: TEUR 3,547). The EBIT margin decreased to 10 percent (previous year: 29 percent).
The interest expenses decreased to TEUR 27 (previous year: TEUR 41).
Income tax decreased to TEUR 437 (previous year: TEUR 1,155). This position includes taxes on distributed profits of InVision Software OÜ, Tallinn, Estonia, as well as income taxes on the annual profits of InVision Software Ltd., London, United Kingdom and InVision Software SAS, Paris, France.
In fiscal year 2017, consolidated net profit equalled 884 TEUR (previous year: TEUR 2,328). Earnings per share were EUR 0.36 (previous year: EUR 1.04), based on an average of 2,235,000 shares in 2017 (previous year: 2,235,000 shares).
Overall, business development was favourable and in line with expectations.
Liquid funds decreased by 45 percent to TEUR 2,210 (previous year: TEUR 4,009) as of the end of the fiscal year. The main reasons for this decrease is an inflow of cash from operating activities (TEUR 672), as well as a payment to shareholders of TEUR 1,118, payments for investments in fixed assets of TEUR 579 and payments for the redemption of long-term financing liabilities of TEUR 750.
Trade receivables decreased by 10 percent to TEUR 1,269 (previous year: TEUR 1,415). The income tax claims increased to TEUR 46 (previous year: TEUR 7). The prepaid expenses and other short-term assets equalled TEUR 196 (previous year: TEUR 318). Intangible assets decreased to TEUR 338 (previous year: TEUR 433) due to scheduled depreciations. Tangible assets equalled TEUR 9,569 (previous year: TEUR 9,466). Deferred tax assets decreased to TEUR 39 (previous year: TEUR 154).
Trade payables increased to TEUR 170 (previous year: TEUR 149). The provisions increased by 51 percent to TEUR 256 (previous year: TEUR 169), which is mainly due to the recognition of personnel-related liabilities and consists of accruals for employee severance indemnities and bonuses as well as of additions to holiday accruals likewise. Income tax liabilities decreased by 56 percent to TEUR 406 (previous year: 922 TEUR). The short-term share of deferred income and other short-term liabilities decreased by 41 percent to TEUR 971 (previous year: TEUR 1,636).
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 reduced by payments of TEUR 750 in the fiscal year 2017 and totalled TEUR 1,500 at the balance sheet date (previous year: TEUR 2,250). The scheduled fourth repayment installment of 2017 was debited on 2 January 2018.
The reserves amounted to TEUR 1,191 (previous year: EUR 1,191) and the Group profit totalled TEUR 7,411 (previous year: TEUR 7,644), at the end of the reporting period.
As of 31 December 2017, the balance sheet total equalled TEUR 13,683 (previous year: TEUR 15,823). Equity capital was at TEUR 10,380 (previous year: TEUR 10,697), and the equity ratio equalled 76 percent (previous year: 68 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.
The current statement according to §161 AktG, the current statements on corporate governance practices, the operating principles followed by the Executive Board and the Supervisory Board as well as the composition and operations of their committees are available on the Company’s website at Compliance statement.
According to the forecasts made by the International Monetary Fund, the economic output in the euro area will increase by 2.2 percent in 2018, whereas the economic output in the United States will increase by 2.6 percent. According to the forecast made by Bitkom Research GmbH, the market for information technology will grow by 3.1 percent in 2018.
For the upcoming years, InVision expects a stable demand for the products of the InVision Group, thus offering opportunities for winning new customers and, subsequently, for a sustainable exploitation of the revenue potential as well as sustainable profitability. InVision expects an increase in total revenues for 2018 of 0-10 percent (2017: 6 percent) and an EBIT margin of 0-10 percent (2017: 10 percent).
Düsseldorf, 16 March 2018