iLOQ is a Finnish, rapidly expanding and internationalizing technology company that transforms mechanical locking into digital access management. iLOQ’s technological solutions enable electronic locking without batteries or cables.

The company’s founder and long-time CEO Mika Pukari changed responsibilities at his own request. In the future, he will support the company’s strategy through the Board of Directors. Pukari resigned from the position of CEO at the end of February 2017. In the beginning of August 2017, the company’s current CEO Heikki Hiltunen took up the position. From the beginning of March to the end of July, the current Vice President of the company, Esa Myllylä, was responsible for the CEO’s duties.

The company’s products are sold through iLOQ’s distribution channel providing professional installation and maintenance services. The company has approximately 600 resellers globally.

In 2017, iLOQ continued to expand in export markets and established new country offices in Norway. The company has country offices also in Sweden, Denmark, Germany, and the Netherlands. Growth in sales was emphasised in the second half of the year. Sales increased in both the oval and DIN lock cylinder markets.

iLOQ continued its long-term product development based on self-powered technology and at the same time increased the number of its product development personnel.

The manufacturing of the products is based on outsourced, flexibly scalable production, distributed by the iLOQ-managed distribution centre. In addition, the company has a small-scale production unit to support product development needs.

In 2017, the company was once again granted external recognition when it received the Internationalisation Award of the President of the Republic. The criteria include a strong will to develop and evolve and thus promote Finnish business activities in both good and bad times.

BUSINESS ACTIVITIES DURING THE FINANCIAL PERIOD

iLOQ turned a profit for the fifth consecutive year, despite strong growth and large investments in internationalisation. iLOQ Group’s net sales grew by 20% and operating

profit by 79% compared to the previous year. Net sales for 2017 amounted to EUR 40.3 million (EUR 33.7 million in 2016), and operating profit for 2017 was EUR 9.1 million (EUR 5.1 million in 2016). The highest growth rates were achieved in Germany and Denmark.

SIGNIFICANT EVENTS AFTER THE END OF THE FINANCIAL PERIOD

Since the end of the financial period, there have been no material changes in the company’s operations and financial position.

ASSESSMENT OF LIKELY FUTURE DEVELOPMENTS

The company’s management predicts that net sales will grow also in 2018, thanks to development measures in current market areas. The company invests in international growth by developing its sales concept and product offering and by strengthening its personnel. Profitability is projected to remain at the current level despite investments in growth.

FINANCIAL ARRANGEMENTS AND SPECIAL RIGHTS

The Annual General Meeting on 22 March 2017 authorised the Board of Directors to decide on a share issue. Under the authorisation granted, the Board of Directors has decided to issue a maximum of 70,000 series K shares. By 31 December 2017, 51,000 shares of the issue were subscribed for.

The Annual General Meeting on 30 March 2016 authorised the Board of Directors to decide on the issuance of special rights entitling to shares. Under the authorisation, a maximum of 50,000 series K shares could be issued. No options have been issued for the open authorisation.

In 2013, to engage personnel, the Board of Directors of iLOQ Oy decided to issue a stock option plan for the Group’s entire personnel. By 31 December 2017, a total of 39,250 options have been issued under the stock option plan, 30,460 of which have been subscribed for.

LOANS TO RELATED PARTIES AND RESPONSIBILITIES

The company has issued related party loans to engage key personnel. The loans amount to a total of EUR 2,292,000. The loan period is 10 years and the interest rate is 12-month Euribor +1.5%. The shares subscribed for with the loans by key personnel are used as loan collateral.

FINANCIAL POSITION OF THE COMPANY

The company’s financial position and liquidity were at an excellent level at the end of the financial period.

REPORT ON THE SCOPE OF RESEARCH AND DEVELOPMENT ACTIVITIES

The company has invested in the development of new products and the further development of the features and manufacturing processes of existing products. The most important development project has been the development of mechanics, electronics, and software for the iLOQ S40 NFC locking system.

R&D expenses in the company totalled EUR 2,597 thousand in 2017, of which EUR 1,028 thousand were capitalized (EUR 2,241 thousand in 2016, of which EUR 771 were capitalised).

BUSINESS RISKS

The company operates with a network business model in the manufacture and distribution of products. The aim is to prevent business risks by identifying risks and by providing an alternative supplier for critical and slowly substitutable parts and components.

Due to the nature of the company’s security products, product-related risks are prevented through thorough product testing, both internally and by external testing institutions, as well as high-quality operations at all stages of product development and manufacturing.

The above-mentioned and other business risks are also covered by insurance policies, in addition to the development of operational processes. The Board of Directors is not aware of any judicial or credit loss risks that would substantially affect the company’s performance.

KEY INDICATORS OF iLOQ FINANCIAL POSITION, RESULTS OF OPERATIONS AND PERSONNEL

QUALITY AND ENVIRONMENT

The company uses a certified ISO 9001:2015 quality management system and ISO 14001:2015 environmental management system. The iLOQ S10 SaaS service is produced by Fujitsu Services Oy. The information security management system of Fujitsu Services is ISO 27001:2013 certified.

BOARD OF DIRECTORS’ PROPOSAL FOR PROFIT DISTRIBUTION

Profit for the financial period, EUR 7,190,852.93, is recognized in the retained earnings account. The company’s distributable funds on 31 December 2017 total EUR 17,814,296.00, of which the amount of retained earnings is EUR 7,699,434.38 and the distributable funds in the invested unrestricted equity fund are EUR 12,463,697.00. The distributable funds are reduced by capitalised development expenses totalling EUR 2,348,835.38.

The Board of Directors proposes to the Annual General Meeting that of the distributable earnings totalling EUR 7,699,434.38, a dividend of EUR 1.45 be distributed per each outstanding series K share registered by the time of the decision. In addition, the Board of Directors proposes to the General Meeting that EUR 6.70 of capital repayment from the invested unrestricted equity fund be distributed per each outstanding series K share registered by the time of the General Meeting’s decision on capital repayment. The Board of Directors proposes that the dividend and capital repayment be paid on 12 April 2018.

Since the end of the financial period, there have been no material changes in the company’s financial position. The company’s liquidity is good and, in the view of the Board of Directors, the proposed distribution of profits and capital repayment will not endanger the company’s solvency.

SHARES OF THE COMPANY

The company’s share capital is divided as follows:

All shares have equal rights to dividends and company assets. Both series of shares are subject to the redemption clause of the Articles of Association.

OWN SHARES

The company does not have any holdings of its own shares on 31 December 2017.

AUDITING

The company’s auditor has been KPMG Oy Ab, Authorised Public Accountants, with Tapio Raappana, APA as the principal auditor.