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Zalaris

Quarterly Report Apr 29, 2022

3795_rns_2022-04-29_a0a60568-6d16-4b7f-8015-75b48435f14a.pdf

Quarterly Report

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About Zalaris

Payroll & HR Solutions that enable fully digital organizations - we simplify HR and payroll administration and empower you with useful information so that you can invest more in people

Zalaris ranks among Europe's top providers of human capital management (HCM) and payroll solutions – addressing the entire employee lifecycle, from recruiting and onboarding to compensation, time and attendance, travel expenses and performance management.

Our proven local and multi-country delivery models include: on-premise implementations, software as a service (SaaS), cloud integration and business process outsourcing (BPO). Furthermore, Zalaris' experienced consultants and advisors cover all industries and IT environments.

Headquartered in Oslo, Norway, and publicly traded on the Oslo Stock Exchange (ZAL), we serve more than one million employees each month, across multiple industries and with many of Europe's most reputable employers. We have generated uninterrupted growth since our founding in 2000 and today operate in the Nordics, Baltics, Poland, Germany, Austria, Switzerland, France, India, Ireland, the UK and Australia.

Q1 Highlights

  • All time high quarterly revenue of NOK 209.7 million (NOK 192.8 million) for the first quarter. Revenue grew by +12.0% YoY in constant currency
  • Adjusted EBIT of NOK 14.9 million (NOK 13.8 million) +8.0% YoY
  • Adjusted EBIT margin of 7.1% (7.2%). The margin is expected to increase throughout the year to our 10% target, as our new projects go live and corresponding revenue being recognised
  • Signed a seven-year agreement with Stora Enso in April, a leading Finish industrial company, for delivery of Payroll and Time Management technology and outsourcing services. The contract will be among our 10 largest and strengthens our position in the global production industry vertical
  • Revenue deferred during the quarter was NOK 18.5 million (NOK 8.6 million), an increase of 119% as a result of many new customer contracts being implemented
  • Acquired vyble, a German provider of cloud-based Payroll & HR management system (SaaS) for the SME market
  • Cash and cash equivalents of NOK 134.7 million, +NOK 17.1 million compared to last year
  • The board has proposed a dividend for 2021 of up to NOK 1.00 per share in total, with NOK 0.35 to be paid immediately following shareholder approval, and up to NOK 0.65 planned to be paid before the end of the year pursuant to a proposed board authorization

*Defined in separate section: Alternative Performance Measure (APMs)

Key Figures

Q1 2022 financial summary

2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
Revenue 209 650 192 778 775 265
Growth (YoY) 8,8 % -3,9 % 4,2 %
EBITDA 25 156 28 915 101 948
Adjusted EBITDA1) 27 996 25 890 101 353
Adjusted EBITDA margin (as % of revenue) 13,4 % 13,4 % 13,1 %
EBIT 4 686 10 265 22 585
Adjusted EBIT1) 14 899 13 788 49 574
Adjusted EBIT margin (as % of revenue) 7,1 % 7,2 % 6,4 %
Profit/(loss) for the period 9 457 17 475 12 812
Earnings per share (EPS) 0,44 0,89 0,60
Total comprehensive income (1 558) 5 179 1 148
Free cash flow1) (9 145) (2 187) 12 407
Net interest-bearing debt (NIBD)1) 212 890 242 423 183 019

Q1 2022 financial performance by business segment

2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
Revenue
Managed Services 146 547 128 437 529 685
Professional Services 61 893 64 342 245 580
Revenue 208 440 192 778 775 265
HR & Payroll Tech Investments 1 210 - -
Total revenue 209 650 192 778 775 265
EBIT
Managed Services 15 136 15 378 62 000
Professional Services 6 808 5 490 17 941
HQ and other (13 495) (10 603) (57 355)
EBIT 8 449 10 265 22 586
HR & Payroll Tech Investments (3 763) - -
Total EBIT 4 686 10 265 22 586
EBIT margin (%)
Managed Services 10,3 % 12,0 % 11,7 %
Professional Services 11,0 % 8,5 % 7,3 %
EBIT margin (%) 4,1 % 5,3 % 2,9 %
HR & Payroll Tech Investments n.a n.a n.a
Total EBIT margin (%) 2,2 % 5,3 % 2,9 %

CEO Insights

teamZalaris closed Q1 with record high revenue of NOK 209.7 million growing 12% in constant currency compared to Q1 last year. Our more than NOK 115 million sold ARR in 2021 – securing 11.5% growth on a full year basis - started materializing in recognized revenue and will continue propagating throughout 2022 with full effect in Q1 2023. Add to this NOK 18.8 million of deferred revenue in the quarter– up with more than NOK 10 million from last year - and you find a business that is really humming.

Our adjusted EBIT was NOK 14.9 million (7.1%). 8% up from last year, but still negatively impacted by costs related to build-up of capacity to serve customers not yet in production

We are not directly impacted by the war in Ukraine as we have no operations nor work with any suppliers located in Russia, Ukraine, or Belarus. With a distributed network of service centres operating on one common solution we can move work quickly between various locations if we should need to and still deliver on customer commitments. We are continuously monitoring the situation and are maintaining our business continuity plans. We are actively supporting where we can promote democratic and human values.

Signing Streak Continues

Within Managed Services we continued our streak of signing new fantastic customers further strengthening our recurring revenue streams in all main markets. Including a five-year agreement to deliver a new SaaS Payroll and HR solution to serve Kaefer's 3,000 employees in UK and Ireland and a five-year agreement to deliver a new integrated HR and Payroll solution and outsourcing services to serve German iconic retailer KaDeWe's 1,900 employees. Just after quarter-end we signed a seven-year agreement with Stora Enso, a leading provider of renewable solutions in packaging, biomaterials, wooden construction and paper, to deliver Payroll and Time Management technology and outsourcing services for their 6,000 employees in Finland.

In addition to securing successful implementation of our numerous ongoing payroll and HR transformation projects Professional services continued its strong development signing new agreements with leading brands like Hitachi, Veolia, and Porsche in the UK. In Poland we signed new and extended agreements with companies like ABB, Lidl, and Ryanair to provide Application Maintenance Services. In Germany we extended our long-term agreement for application maintenance services with the state of Rhineland-Pfalz, extended our agreement with Bitzer AG for a global rollout and finalized a new payroll solution to serve ThyssenKrupp Elevator's 7,000 employees.

Our pipeline continues being strong supporting our communicated ambition of securing ARR to continue on our current growth path in 2023.

Investing in Global Capability

To strengthen our position in the fast growing market for global payroll and to better support large customers complex needs including coverage of the APAC region we established local operations in Australia and Singapore during the quarter. Our initial five-person strong team has come off to a flying start signing an agreement to implement a new payroll solution for Google Australia and have already built a super pipeline of opportunities.

Through our partnership with ActivePayroll announced during the quarter we now can offer a comprehensive suite of cost-effective payroll and HR services to global enterprises with large employee population countries served on Zalaris Peoplehub and small employee population countries served by ActivePayroll. Fully integrated with Zalaris Peoplehub for a seamless user experience.

Acquired vyble® to offer fully digitised HR and Payroll as SaaS to the SME market

With the acquisition of the German entity vyble® in Q1, our ambition is to become a significant player in the growing market for fully digitised payroll and HR solutions for small and medium sized businesses. The German SME market segment, including companies with 10-250 employees, has an estimated annual value of EUR 1.5 billion.

Our initial focus for vyble will be to support the company in the German market using a network of accounting agencies and distributors to scale growth. With ownership of our own IP, we will explore the potential of porting vyble to our other markets.

Building Sustainability into Products and Services

Zalaris has from its inception aimed at creating a business based on Nordic values. We have always

believed in long-term thinking and treating people as human capital.

In 2021, we launched a strategic initiative to build ESG into all our products and services. As we are an office-based business, our environmental footprint is limited to travel, energy consumption related to the powering of our IT solutions and securing a good working environment for our people. To support creating awareness in how we can influence our personal and organizational footprint, we started developing an app, as part of PeopleHub, to help track and visualize our CO2 footprint from commuting and business travel. This was launched in Q1.

We have a key position in providing solutions to help our customers manage their workforce with cloudbased HR and payroll solutions, and are in an advantageous position to support reporting, and to visualize and target performance related to diversity, equity, and inclusion. We have created our first analytics and reporting solution for internal use that we will start marketing to customers later this year.

Continued focus on operational improvement and growth

Further, to improving EBIT through scaling existing operations, we are stepping up our automation and smart shoring efforts with the aim to achieve further margin improvements through the implementation of our Zalaris 4.0 delivery models and packaged solutions.

We will continue pursuing non-organic growth options that can strengthen our position in existing markets and leverage the scale of our existing organization. This includes opportunities that can support expanding our geographic coverage, or companies with new HR Tech solutions that can be utilized by our existing customer portfolio. We successfully raised NOK 120 million in new equity in 2021 o be used in a disciplined manner for this purpose.

Financial Review

Revenue

Consolidated revenue for the first quarter 2022 amounted to NOK 209.7 million (Q1 2021: NOK 192.8 million). The actual revenue increase was +8.8%. Measured in constant currency the increase was +12.0%.

Compared to the first quarter last year, revenue from new customers and the revenue from ba.se, which was acquired in the third quarter 2021, contributed to the growth, and was only partly offset by customers that did not renew their contracts in 2021.

Zalaris has signed several new BPO contracts within Managed Services ("MS") during the first quarter. These will be converted to monthly recurring revenue when the contracts go live. New contracts signed during the first quarter have expected annual recurring revenue ("ARR") of NOK 6 million. In addition, subsequent to quarter end, Zalaris signed a seven-year agreement with major Finish industrial company, Stora Enso, for delivery of Payroll and Time Management technology and outsourcing services for their employees in Finland. This is one of Zalaris' 10 largest contracts to date, and the value will be included in the expected ARR in the interim report for the second quarter.

As an illustration of the revenue impact of new contracts signed, the table below shows the ARR within MS at the end of the first quarter, and how the ARR will increase, when signed contracts as of 31 March 2021 have been implemented (not including the ARR from Stora Enso, which was signed in April).

Contracted ARR* in MS (NOKm)

* Please refer to the APMs section of this report for definition of ARR and contracted

The net ARR to be implemented from new contracts (NOK 65 million) represents an increase in total annual revenue for Zalaris of +8.2% (when compared to revenue last twelve months).

The figure below shows the timing of the expected increase in the ARR for MS, based on signed contracts.

Expected timing of Contracted ARR (NOKm)

Nordics & Baltics

Revenue in the Nordic & Baltic region was NOK 106.1 million in the first quarter. Adjusted for negative currency effects, the revenue was 2.9% higher than the figure last year of NOK 106.0 million. This was explained by the implementation of new customers, partly offset by non-renewals in 2021.

Central Europe

Revenue in the Central Europe region was NOK 94.7 million in the first quarter, compared to NOK 76.6 million last year. An increase of +26.4%, when adjusted for negative currency effects. The revenue was approximately 9% higher when adjusted for the inclusion of bas.se (consolidated from the third quarter 2021).

The organic growth came from Professional Services in Poland and from new customers in Managed Services in Germany that went live during the first quarter.

Within Professional Services, Poland and Germany showed a revenue growth of +37.7% and -4.7% respectively in local currency compared to last year.

UK & Ireland

Revenue in the UK & Ireland region amounted to NOK 8.8 million in the first quarter, compared to NOK 10.2 million in the same quarter last year. There has been increased activity within Manage Services in the region, and revenue from Managed Services has increase significantly. However, Professional Services resources have been utilized on the implementation of new BPO contracts (deferred revenue), which has had a negative impact on revenue in that segment.

Earnings

The adjusted EBIT was NOK 14.9 million for the first quarter (NOK 13.8 million), an increase of +8.0%.

The adjustments made were the calculated costs of the Company's share-based payment plan (NOK 1.9 million), amortisation of excess values on acquisitions (NOK 3.0 million), negative EBIT in newly acquired vyble (NOK 3.8 million) and costs of approximately NOK 1.5 million relating to the establishment of operations in Australia, and the establishment of an Application Maintenance Services centre for Managed Services in Poland. These investments are expected to generate additional revenue in 2022.

There have also been some cost increases in preparation for increased volumes, as new BPO contracts go live.

Consolidated EBIT for the quarter was NOK 4.7 million (NOK 10.3 million). The variance from last year is due to higher calculated costs for sharebased payments, as well the factors noted above.

The Group had net financial income of NOK 6.3 million for the first quarter (net income NOK 11.2 million), including an unrealised currency gain of NOK 11.8 million (gain NOK 17.4 million) relating to the EUR 35 million bond loan and other foreign currency denominated balances.

The net profit for the quarter was NOK 9.5 million (NOK 17.5 million).

Total comprehensive income amounted to negative NOK 1.6 million (NOK 5.2 million), after currency translation differences of negative NOK 11.0 million (negative NOK 12.3 million) relating to foreign subsidiaries.

Business segment performance

Managed Services

The Managed Services ("MS") segment had revenue of NOK 146.5 million for the first quarter 2022, compared to NOK 128.4 million in the same quarter last year. The increase was 17.4% when adjusted for negative currency effects. The inclusion of ba.se service & consulting GmbH ("ba.se") added NOK 13.1 million (+10.2%), while the remaining increase is mainly due to revenue from new customers that have gone live since the first quarter last year, partly offset by non-renewals during 2021.

Revenue Managed Services (NOKm)

As noted earlier in this report, new BPO contracts with a total ARR of NOK 6 million were signed during the first quarter. As a result of the increased number of new contracts in 2021, more resources are being utilized on contract implementation, compared to last year, resulting in increased deferred revenue, which will result in increased revenue as the projects go live during 2022 and onwards. MS revenue deferred for the first quarter was NOK 18.5 million, compared to NOK 8.6 million last year, an increase of 115%.

The EBIT for MS for the first quarter was NOK 15.1 million (NOK 15.4 million).

Professional Services

Revenue in the Professional Service ("PS") segment amounted to NOK 61.9 million for the first quarter 2022, compared to NOK 64.3 million last year. When adjusted for negative currency movements the reduction was approximately 0.5% year-on-year. Higher revenue in Poland, was offset by lower revenue in Germany and UK. The reduction in these countries is mainly due to PS resources being utilized on the implementation of new MS contracts, which has resulted in increased deferred revenue (invoiced but not recognized). The largest PS countries Poland and Germany showed

a revenue growth of +37.7% and -4.7% respectively, in local currency.

Revenue Professional Services (NOKm)

The EBIT for PS for the first quarter was NOK 6.8 million (NOK 5.5 million). The EBIT was positively impacted by higher customer margins in Poland.

HR & Payroll Tech Investments

In February 2022, Zalaris acquired the assets of vyble AG, a payroll and HR solution start-up located in Rostock and Hamburg, Germany. The business is being operated through a 90% owned subsidiary, vyble GmbH ("vyble"). vyble has a complete suite of Payroll and HR solutions delivered as Software as a Service (SaaS) targeting the SME market in Germany.

vyble is in a development phase, and had revenue of NOK 1.2 million and negative EBIT of NOK 3.8 million for the first quarter 2022.

Financial position and cash flow

Zalaris had total assets of NOK 821.5 million as of 31 March 2022, compared to NOK 826.6 million on 31 December 2021.

Cash and cash equivalents were NOK 134.7 million as of 31 March 2022, a decrease of NOK 41.5 million from the end of the previous quarter. The reduction in cash is mainly due to the acquisition of own shares through the announced buy-back program now completed (NOK 17.7 million – 1.6% of the total issued shares) and the acquisition of the assets of vyble AG ( NOK 10 million), and working capital movements.

Total equity as of 31 March 2022 was NOK 189.7 million, compared to NOK 209.0 million as of 31 December 2021. This corresponds to an equity ratio of 23.1% (25.3%).

The Company holds 640,693 own shares at 31 March 2022.

Net interest-bearing debt (interest-bearing debt less cash and cash equivalents) increased from NOK 183.0 million on 31 December 2021 to NOK 212.9 million on 31 March 2022. This corresponds to a ratio of net interest-bearing debt over adj. EBITDA of 2.0 (1.8). The decrease in net interest-bearing debt is mainly due to the reduction in cash noted above.

Operating cash flow during the first quarter 2022 was negative NOK 4.4 million (negative NOK 0.1 million).

Net cash flow from investing activities for the first quarter was negative NOK 14.8 million (negative NOK 2.1 million). The increase was due to the acquisition of the assts of vyble AG during the quarter of NOK 10.1 million, and some additional investments Zalaris' PeopleHub platform.

Net cash flow from financing activities for the first quarter was negative NOK 22.1 million (negative NOK 4.4 million). The increased outflow is due to the purchase of own share of NOK 17.7 million during the quarter

The board will propose a dividend of NOK 0.35 per share to be paid for 2021. The board will also

Outlook

Zalaris is well positioned for future revenue growth, having signed an all-time high level of new longterm BPO contracts within Managed Services during 2021. This high activity level has continued into 2022, with a new major contract entered into with Stora Enso in April, and contracts with new significant customers in Germany and UK.

The increased scale of our operations from this revenue growth will be a key driver for higher profitability. Further automation of our delivery processes, and a more optimised use of resources from different Zalaris locations, are key targets for 2022 – hereunder extended use of offshoring.

Based on industry and market research reports, Zalaris' key markets within multi-country payroll and HR outsourcing are expected to grow in the foreseeable future. The Company is well positioned to capture part of this growth through new customers, as demonstrated by the multicountry contracts with Metsä and Yunex Traffic, entered in in 2021, and by expanding the service offering to existing customers, as we have done with e.g. Siemens and Tryg. Zalaris is also

propose that the general meeting provides an authorisation to the board to distribute additional dividends based on the Company's approved annual accounts for 2021, and may be used to distribute a dividend per share of up to NOK 0.65 to the extent the Company is in a position to distribute such dividend.

Subsequent events

There have been no events after the balance sheet date, which have had a material effect on the issued accounts.

expanding its geographical coverage to strengthen its competitive position in this market.

We are actively pursuing non-organic growth options that can strengthen our position in existing markets, and leverage the scale of our existing organisation, exemplified by the acquisition of ba.se during 2021. The key focus is on opportunities that can support expanding our geographic coverage, or companies that add new HR Tech solutions that can be utilized by our existing customers, or that can expand our customer base. An example of this is the acquisition of vyble during the first quarter, which has a payroll and HCM software solution targeting the SME market.

Zalaris is not directly affected by the war in Ukraine, and has no operations or customers in Ukraine or Russia, however Zalaris is following the developments closely. Covid-19 may still have some impact short-term, however, the underlying fundamentals remain strong, and Zalaris has entered 2022 with a solid pipeline of potential new sales in all regions.

The Board of Directors of Zalaris ASA Oslo, 28 April 2022

Interim Consolidated Financial Statements

Consolidated Statement of Profit and Loss

(NOK 1 000) Notes 2022
Jan-Mar
2021
Jan-Mar
2021
Jan-Dec
unaudited unaudited
Revenue 2 209 650 192 778 775 265
Operating expenses
License costs 19 862 15 575 67 481
Personnel expenses 4 107 324 106 062 405 949
Other operating expenses 57 307 42 226 199 886
Depreciation and impairments 1 098 755 4 078
Depreciation right-of-use assets 4 136 3 930 16 114
Amortisation intangible assets 7 214 7 208 29 296
Amortisation implementation costs customer projects 3 8 022 6 756 29 874
Total operating expenses 204 964 182 513 752 679
Operating profit (EBIT) 4 686 10 265 22 585
Financial items
Financial income 5 1 638 1 074 5 491
Financial expense 5 (7 118) (7 304) (29 031)
Unrealized foreign exchange gain/(loss) 5 11 769 17 449 15 968
Net financial items 6 289 11 220 (7 571)
Profit before tax 10 975 21 485 15 014
Tax expense (1 518) (4 010) (2 203)
Profit for the period 9 457 17 475 12 812
Profit attributable to:
- Owners of the parent 9 834 17 475 12 812
- Non-controlling interests -376 0 0
Earnings per share:
Basic earnings per share (NOK) 0,44 0,89 0,60
Diluted earnings per share (NOK) 0,41 0,85 0,56

Consolidated Statement of Comprehensive Income

2020 2021 2021
(NOK 1 000) Notes Jan-Mar Jan-Mar Jan-Dec
unaudited unaudited
Profit for the period 9 457 17 475 12 812
Other comprehensive income
Items that will be reclassified to profit and loss in subsequent periods
Currency translation differences (11 015) (12 296) (11 664)
Total other comprehensive income (11 015) (12 296) (11 664)
Total comprehensive income (1 558) 5 179 1 148
Total comprehensive income attributable to:
- Owners of the parent (1 182) 5 179 1 148
- Non-controlling interests (376) - -

Consolidated Statement of Financial Position

2022 2021 2021
(NOK 1 000) Notes 31. Mar 31. Mar 31. Dec
unaudited unaudited
ASSETS
Non-current assets
Intangible assets 121 667 116 336 120 140
Goodwill 183 503 155 576 187 843
Total intangible assets 305 169 271 912 307 983
Deferred tax asset 26 928 22 326 26 999
Fixed assets
Right-of-use assets 34 603 21 840 29 765
Property, plant and equipment 29 249 30 802 29 855
Total fixed assets 63 852 52 642 59 620
Total non-current assets 395 950 346 881 394 601
Current assets
Trade accounts receivable 154 807 144 859 141 397
Customer projects 3 106 434 74 731 94 799
Other short-term receivables 29 576 25 149 19 614
Cash and cash equivalents 6 134 704 117 561 176 224
Total current assets 425 521 362 300 432 034
TOTAL ASSETS 821 470 709 181 826 635

Consolidated Statement of Financial Position

2022 2021 2021
(NOK 1 000) Notes 31. Mar 31. Mar 31. Dec
unaudited unaudited
EQUITY AND LIABILITIES
Equity
Paid-in capital
Share capital 2 149 1 964 2 185
Other paid in equity 5 534 7 634 3 657
Share premium 158 345 34 250 158 345
Total paid-in capital 166 028 43 847 164 186
Other equity (8 161) 2 184 2 855
Retained earnings 31 456 64 464 41 968
Equity attributable to equity holders of the parent 189 323 110 496 209 009
Non-controlling interest 350 0 0
Total equity 189 673 110 496 209 009
Liabilities
Non-current liabilities
Deferred tax 25 083 23 235 26 836
Interest-bearing loans 7 346 282 358 625 357 887
Other long-term liabilities 3 033 - 3 134
Lease liabilities 21 667 11 433 16 445
Total long-term liabilities 396 065 393 293 404 303
Current liabilities
Trade accounts payable 14 978 21 510 18 257
Customer projects liabilities 3 78 052 53 134 66 452
Interest-bearing loans 7 1 313 1 359 1 356
Lease liabilities 14 191 11 333 14 423
Income tax payable 228 5 406 2 550
Public duties payable 40 720 39 885 36 113
Other short-term liabilities 86 137 72 082 73 921
Derivatives 113 685 249
Total short-term liabilities 235 732 205 393 213 322
Total liabilities 631 797 598 686 617 625
TOTAL EQUITY AND LIABILITIES 821 470 709 181 826 635

Consolidated Statement of Cash Flow

2022 2021 2021
(NOK 1 000) Notes Jan-Mar Jan-Mar Jan-Dec
unaudited unaudited
Cash Flow from operating activities
Profit (Loss) before tax 10 975 21 485 15 014
Net financial items 5 (6 289) (11 220) 7 571
Share based program 1 877 630 5 679
Depreciation and impairments 1 098 755 4 077
Depreciation right-of-use assets 4 136 3 930 16 114
Amortisation intangible assets 7 214 7 208 29 296
Depreciation implementation costs customer projects 3 8 022 6 756 29 874
Capitalisation implementation costs customer projects 3 (21 118) (7 959) (51 350)
Customer project revenue deferred 3 18 505 8 622 41 356
Customer project revenue recognised 3 (4 565) (4 205) (21 701)
Taxes paid (5 646) (1 563) (4 815)
Changes in accounts receivable (13 410) 3 792 12 464
Changes in accounts payable (3 279) 320 (3 525)
Changes in other items 2 659 (23 669) (27 581)
Interest received 16 15 99
Interest paid (4 596) (4 982) (19 536)
Net cash flow from operating activities (4 400) (85) 33 037
Cash flows to investing activities
Investment in fixed and intangible assets (4 745) (2 102) (20 630)
Investment in fixed and intangible assets business combinations (10 103) - -
Acquisition of subsidiaries, net of cash acquired 9 - - (43 322)
Net cash flow from investing activities (14 848) (2 102) (63 952)
Cash flows from financing activities
Sale of own shares - - 7 235
Buyback of own shares (17 743) - (975)
Capital increase (net proceeds) - - 115 508
Payment of lease liabilities (3 887) (3 957) (15 767)
Repayment of loan (464) (481) (1 919)
Dividend payments to owners of the parent - - (19 639)
Net cash flow from financing activities (22 094) (4 437) 84 444
Net changes in cash and cash equivalents (41 342) (6 624) 53 529
Net foreign exchange difference (177) (657) (2 151)
Cash and cash equivalents at the beginning of the period 176 224 124 843 124 843
Cash and cash equivalents at the end of the period 134 704 117 561 176 224

Consolidated Statement of Changes in Equity

(NOK 1000) Note Share
capital
Share
premium
Other paid in
equity
Total paid-in
equity
Other equity Retained
earnings
Total equity
Equity at 01.01.2021 1 962 34 250 6 655 42 868 14 267 47 224 104 359
Profit of the year 17 475 17 475
Other comprehensive income (12 296) (12 296)
Sale of own shares 2 (1) 1 1
Settlement of share based payments 630 630 630
Other changes 348 348 214 (236) 326
Equity at 31.03.2021 1 964 34 249 7 634 43 847 2 185 64 463 110 495
Unaudited
Profit of the year (4 663) (4 663)
Other comprehensive income 632 632
Sale of own shares 13 6 732 6 745 490 7 234
Purchase of own shares (2) (2) (975) (977)
Share based payments 5 679 5 679 5 679
Settlement of share based payments 8 1 858 (9 014) (7 148) (7 148)
Issue of Share Capital 201 120 537 120 738 120 738
Transaction costs related to issue of new shares (5 032) (5 032) (5 032)
Other changes (642) (642) 38 2 292 1 689
Dividend (19 639) (19 639)
Equity at 31.12.2021 2 185 158 345 3 657 164 186 2 855 41 968 209 009
9 457 9 457
Profit of the year (11 015) (11 015)
Other comprehensive income (35) (35) (17 743) (17 778)
Purchase of own shares 1 877 1 877 1 877
Settlement of share based payments (1 877) (1 877)
Other changes 2 150 158 345 5 534 166 028 (8 161) 31 805 189 673
Equity at 31.03.2022
Unaudited

Notes to the condensed interim consolidated financial statements

Note 1 – General Information and basis for preparation

General information

Zalaris ASA (the Group) is a public limited company incorporated in Norway. The Group's main office is in Hovfaret 4, Oslo, Norway. The Group delivers full-service outsourced personnel and payroll services.

Basis for preparation

These interim consolidated condensed financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). The condensed consolidated interim financial statements do not include all the information and disclosures required by International Financial Reporting Standards (IFRS) for a complete set of financial statements, and these condensed interim financial statements should be read in conjunction with the annual financial statements. The interim condensed consolidated financial statements for the three months ended 31 March 2022, have not been audited or reviewed by the auditors.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December, 2021.

Going concern

With reference to the Norwegian Accounting Act § 3-3, the Board confirms its belief that conditions exist for continuing operations and that these interim consolidated condensed financial statements have been prepared in accordance with the going concern principle.

Note 2 – Segment Information

The Company's operations are split into three main business segments; Managed Services, Professional Services and HR & Payroll Tech Investments. HR & Payroll Tech Investments is a segment established in the first quarter of 2022, following the establishment of vyble GmbH, and subsequent acquisition of the assets of vyble AG.

Managed Services includes a full range of payroll and HR outsourcing services, such as payroll processing, time and attendance, travel expenses as well as related cloud system solutions and services. This includes additional cloud-based HR functionality to existing outsourcing customers as talent management, digital personnel archive, HR analytics, mobile solutions, etc.

Professional Services includes deliveries of change projects based on Zalaris templates or implementation of customer-specific functionality. This business segment also assists with cost-effective maintenance and support of customers' own on-premise solutions. A large portion of these services are of recurring nature and much of the services are based on long-term customer relationships.

HR & Payroll Tech Investments currently only includes the activities of the subsidiary, vyble GmbH, which has a complete suite of Payroll and HR solutions delivered as Software as a Service (SaaS) targeting the SME market in Germany.

Information is organized by business area and geography. The reporting format is based on the Group's management and internal reporting structure. Items that are not allocated are mainly intercompany sales, interestbearing loans and other associated expenses and assets related to administration of the Group. The Group's executive management is the chief decision maker in the Group. The investing activities comprise total expenses in the period for the acquisition of assets that have an expected useful life of more than one year. The operating assets and liabilities of the Group are not allocated between segments.

2022 Jan-Mar

HR & Payroll
Managed Professional Tech Gr.Ovhd &
(NOK 1 000) Services Services Investments Unallocated Total
Revenue, external 146 547 61 893 1 210 - 209 650
Operating expenses (120 383) (52 669) (4 745) (6 739) (184 536)
EBITDA 26 164 9 224 (3 535) (6 739) 25 114
Depreciation and amortisation (11 028) (2 416) (228) (6 756) (20 428)
EBIT 15 136 6 808 (3 763) (13 495) 4 686
Net financial income/(expenses) - 6 289 6 289
Income tax - (1 518) (1 518)
Profit for the period 15 136 6 808 (3 763) (8 724) 9 457
Cash flow from investing activities (17 019)

2021 Jan-Mar

HR & Payroll
Managed Professional Tech Gr.Ovhd &
(NOK 1 000) Services Services Investments Unallocated Total
Revenue, external 128 437 64 342 - - 192 778
Operating expenses (103 707) (56 800) - (5 752) (166 259)
EBITDA 24 730 7 542 - (5 752) 26 519
Depreciation and amortisation (9 352) (2 052) - (4 851) (16 254)
EBIT 15 378 5 490 - (10 603) 10 265
Net financial income/(expenses) - 11 220 11 220
Income tax - (4 010) (4 010)
Profit for the period 15 378 5 490 - (3 393) 17 475
Cash flow from investing activities (2 102)

2021 Jan-Dec

Managed Professional Tech Gr.Ovhd &
(NOK 1 000) Services Services Investments Unallocated Total
Revenue, external 529 685 245 580 - - 775 265
Operating expenses (428 087) (218 921) - (26 309) (673 317)
EBITDA 101 598 26 658 (26 309) 101 947
Depreciation and amortisation (39 598) (8 717) - (31 047) (79 362)
EBIT 62 000 17 941 (57 355) 22 585
Net financial income/(expenses) - (7 571) (7 571)
Income tax - (2 202) (2 202)
Profit for the period 62 000 17 941 - (67 128) 12 812
Cash flow from investing activities (63 952)

Geographic Information

The Group's operations are carried in several countries, and information regarding revenue based on geography is provided below. Information is based on location of the entity generating the revenue, which to a large extent, corresponds to the geographical location of the customers.

Revenue from external customers attributable to:

2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
Norway 46 369 50 586 200 875
Northern Europe ex Norway 59 738 55 430 221 047
Central Europe 94 709 76 550 314 540
UK & Ireland 8 835 10 213 38 803
Total 209 650 192 778 775 265

Note 3 – Revenue from contracts with customers

Disaggregated revenue information

The Group's revenue from contracts with customers has been disaggregated and presented in note 2.

Contract balances:

2022 2021 2021
(NOK 1 000) 31. Mar 31. Mar 31. Dec
Trade receivables 154 807 144 859 141 397
Customer project assets 106 434 74 731 94 799
Customer project liabilities (78 052) (53 134) (66 452)
Prepayments from customers (14 030) (11 845) (9 474)

Customer project assets are costs specific to a given contract, generate or enhance the Group's resources that will be used in satisfying performance obligations in the future, and are recoverable. These costs are deferred and amortized evenly over the period the outsourcing services are provided.

Customer project liabilities are prepayments from customer specific to a given contract and are recognized as revenue evenly as the Group fulfills the related performance obligations over the contract period.

Prepayments from customers comprises a combination of short- and long-term advances from customers. The short-term advances are typically deferred revenues related to smaller projects or change orders related to the system solution. The long-term liabilities relate to initial advances paid upon signing the contract. These advances are contracted to be utilized by the customer to either transformation-, change- or other projects. These advances are open for application until specified, or when the contract is terminated, where the eventual remainder of the amount become the property of Zalaris and is hence rendered as income by the Group.

Movements in customer project assets through the period:

(NOK 1 000) 2022 2021 2021
Jan-Mar Jan-Mar 31. Dec
Opening balance in the period 94 799 78 246 78 246
Cost capitalised 21 118 7 959 51 350
Amortisation (8 022) (6 756) (29 874)
Disposals & currency (1 460) (4 718) (4 923)
Customer projects assets end of period 106 435 74 731 94 799

Movements in customer project liabilities through the period:

(NOK 1 000) 2022 2021 2021
Jan-Mar Jan-Mar Jan-Dec
Opening balance in the period (66 452) (50 256) (50 256)
Revenue deferred (18 505) (8 622) (41 356)
Revenue recognised 4 565 4 205 21 701
Disposals & currency 2 341 1 539 3 458
Customer project liabilities end of period (78 052) (53 134) (66 452)

Note 4 – Personnel expenses

(NOK 1 000) 2022
Jan-Mar
2021
Jan-Mar
2021
Jan-Dec
Salary 100 993 90 475 357 333
Bonus 5 122 3 160 19 452
Social security tax 15 796 14 903 55 823
Pension costs 4 528 4 495 18 480
Share based payments 1 888 631 5 749
Other personnel expenses 3 651 2 988 11 906
Capitalised to internal development projects (3 537) (2 631) (11 444)
Capitalised to customer project assets (21 118) (7 959) (51 350)
Total personnel expenses 107 324 106 062 405 949

Note 5 – Finance income and finance expense

2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
Interest income on bank accounts and receivables 16 15 99
Currency gain 1 432 800 4 020
Other financial income 190 259 1 372
Finance income 1 638 1 074 5 491
Interest exp. on financial liab. measured at amortised cost 4 013 4 524 17 625
Currency loss 1 576 1 373 5 685
Interest expense on leasing 446 263 1 281
Other financial expenses 1 083 1 143 4 440
Finance expenses 7 118 7 303 29 031
Unrealized foreign exchange profit/(loss) 11 769 17 449 15 968
Net financial items 6 289 11 220 (7 571)

Note 6 - Cash and cash equivalents and short-term deposits

2022 2021 2021
(NOK 1 000) 31. Mar 31. Mar 31. Dec
Cash in hand and at bank - unrestricted funds 128 981 112 293 170 034
Deposit accounts - guarantee rent obligations - restricted funds 2 955 2 448 2 078
Employee withheld taxes - restricted funds 2 767 2 821 4 112
Cash and cash equivalents 134 704 117 561 176 224

Note 7 – Interest-bearing loans and borrowings

2022 2021 2021
(NOK 1 000) Annual interest Maturity 31. Mar 31. Mar 31. Dec
Bond loan 3 m Euribor + 4.75% 28.09.2023 336 020 346 082 346 806
Commerzbank - DE 1.3% 31.12.2031 11 029 12 587 11 687
Landesbank Baden-Würtenberg 2,45% 31.12.2022 544 1 315 750
Total interest-bearing loans 347 594 359 984 359 244
346 282 358 625 357 887
Total long-term interest-bearing loans
Total short-term interest-bearing loans
1 313 1 359 1 356

The Company's bond loan of EUR 35 million is listed on the Oslo Stock Exchange. The loan in Commerzbank DE relates to the office building in Leipzig, which is owned by the Company.

Note 8 – Equity

During Q1 202, there were no new share options granted to employees. As of 31 March 2022, there are 1,506,000 share options and 125,268 RSUs outstanding.

Note 9 – Business Combination

On 1 February 2022, the Group acquired 90% of the voting shares of vyble GmbH, a non-listed company based in Germany without previous activity. Subsequently vyble GmbH purchased assets from vyble AG, a payroll and HR solution start-up located in Rostock and Hamburg, Germany. vyble has a complete suite of Payroll and HR solutions delivered as Software as a Service (SaaS) targeting the SME market in Germany.

The Group has elected to measure the non-controlling interests in the acquiree at fair value.

Following is a preliminary purchase prices analysis ("PPA") for the acquisition of vyble.

(NOK 1 000) Amount
Estimated purchase consideration 11 317
Identified assets to fair value 7 393
Excess value to be allocated 3 924
Customer contracts 2 684
Deferred taxes (805)
Total alocated to identifiable intangible assets 1 879
Goodwill 2 045

* The acquired goodwill is not tax deductable and mainly relates to human relations

** The PPA performed is preliminary and may be adjusted

The goodwill is calculated on the basis of expected synergies between Zalaris' experience and technical solutions and vyble's market presence, and established customer relations, in addition to the assembled workforce. The intangible assets in vyble are license costs posted at face value. There are no contingent agreements. There are no transactions recognised separately from the acquisition of the assets and liabilities.

From the date of acquisition, vyble had revenue of NOK 1.2 million and negative EBIT of NOK 3.8 million for the first quarter 2022.

Alternative Performance Measures (APMs)

Zalaris' financial information is prepared in accordance with IFRS. In addition, financial performance measures (APMs) are used by Zalaris to provide supplemental information to enhance the understanding of the Group's underlying financial performance. These APMs take into consideration income and expenses defined as items regarded as special due to their nature and include among others restructuring provisions and write-offs. Financial APMs should not be considered as a substitute for measures of performance in accordance with IFRS. Disclosures of APMs are subject to established internal control procedures.

Adjusted EBITDA and EBIT

EBIT, earnings before interest and tax is defined as the earnings excluding the effects of how the operations where financed, taxed and excluding foreign exchange gains & losses. EBIT is used as a measure of operational profitability. EBITDA is before depreciation, amortization and impairment of tangible assets and in-house development projects. To abstract non-recurring or income not reflective of the underlying operational performance, the Group also lists the adjusted EBIT and EBITDA. Adjusted EBIT is defined as EBIT excluding non-recurring costs, costs relating to share based payments to employees, and amortization of excess values on acquisition. Adjusted EBITDA is EBITDA excluding non-recurring costs and costs relating to share based payments to employees, but after depreciation of right-of-use assets.

2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
EBITDA 25 156 28 915 101 948
Restructuring costs* - 275 275
Mergers & Acquisitions - - 7 677
Settlement of VAT dispute from 2018-2019 - - 1 844
vyble (new segment) 3 606 - -
Cost incurred in establishing new regions (Australia) 440 - -
Cost incurred in establishing AMS centre in Poland 1 053 - -
Share-based payments 1 877 630 5 723
Depreciation right-of-use assets (IFRS 16 effect) (4 136) (3 930) (16 114)
Adjusted EBITDA 27 996 25 890 101 353
2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
EBIT 4 686 10 265 22 585
Restructuring costs* - 275 275
Mergers & Acquisitions - - 7 677
Settlement of VAT dispute from 2018-2019 - - 1 844
vyble (new segment) 3 839 - -
Cost incurred in establishing new regions (Australia) 440 - -
Cost incurred in establishing AMS centre in Poland 1 053 - -
Share-based payments 1 877 630 5 723
Amortization of excess values on acquisition 3 004 2 618 11 469
Adjusted EBIT 14 899 13 788 49 574

*Relates mainly to redundancy costs/severance pay for employees

Free cash flow

Free cash flow represents the cash flow that Zalaris generates after capital investments in the Group's business operations have been made. Free cash flow is defined as operational cash flow.

2022 2021 2021
(NOK 1 000) Jan-Mar Jan-Mar Jan-Dec
Net cash flow from operating activities (4 400) (85) 33 037
Investment in fixed and intangible assets (4 745) (2 102) (20 630)
Free cash flow (9 145) (2 187) 12 407

Net interest-bearing debt (NIBD)

Net interest-bearing debt (NIBD), consists of interest-bearing liabilities, less cash and cash equivalents.

The Group risk of default and financial strength is measured by the net interest-bearing debt.

2022 2021 2021
(NOK 1 000) 31. Mar 31. Mar 31.Dec
Cash and cash equivalents 134 704 117 561 176 224
Interest-bearing loans and borrowings - long-term 346 282 358 625 357 887
Interest bearing loans and borrowings - short-term 1 313 1 359 1 356
Net interest-bearing debt (NIBD) 212 890 242 423 183 019

Annual recurring revenue (ARR)

ARR is defined as the annualised value of revenue the Company expects to receive from SaaS (software as a service) and BPaaS (business process as a service) contracts with customers, but excludes change orders that do not result in regular future revenue. The ARR is calculated by taking the revenue for Managed Services in the applicable quarter, adjusted for change orders and, contracts that have not generated revenue for part of the quarter (revenue from customers that have exited during the quarter is deducted, and estimated revenue for new contracts that have gone live during the quarter is added), multiplied by four. Contracted ARR includes the ARR at the end of the quarter, plus the estimated ARR of new contracts yet to go live.

Revenue growth constant currency

The following table reconciles the reported growth rates to a revenue growth rate adjusted for the impact of foreign currency. The impact of foreign currency is determined by calculating the current year revenue using foreign exchange rates consistent with the prior year.

2022 2021 2021
Jan-Mar Jan-Mar Jan-Dec
Revenue growth, as reported 8,8 % -3,9 % -2,2 %
Impact of foreign currency 3,2 % 0,3 % 3,2 %
Revenue growth, constant currency 12,0 % -3,6 % 1,0 %
MS revenue growth, as reported 14,1 % -9,8 % -2,7 %
Adj. for customers moved from MS to PS in Q2 2020 0,0 % 4,0 % 1,2 %
Impact of foreign currency 3,3 % -0,4 % 2,1 %
MS revenue growth, constant currency 17,4 % -6,2 % 0,6 %
PS revenue growth, as reported -3,7 % 10,3 % -1,0 %
Adj. for customers moved from MS to PS in Q2 2020 0,0 % -9,8 % -2,6 %
Impact of foreign currency 3,2 % 2,0 % 5,3 %
PS revenue growth, constant currency -0,5 % 2,5 % 1,7 %

Full time equivalents (FTEs)

The ratio of the total number of normal agreed working hours for all employees (part-time or full-time) by the number of normal full-time working hours in that period (i.e. one FTE is equivalent to one employee working fulltime).

Key Figures

(NOKm unless otherwise stated) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022
Revenues 200,6 198,4 189,7 203,5 192,8 185,4 195,4 201,7 209,7
Revenue growth (YoY) 4,3 % 5,8 % -0,5 % -1,3 % -3,9 % -6,5 % -4,0 % 8,8 % 3,9 %
EBITDA adjusted 26,8 26,8 27,0 29,3 25,9 23,7 26,9 24,9 28,0
EBITDA margin 13,4 % 13,5 % 14,2 % 14,4 % 13,4 % 12,8 % 13,8 % 12,3 % 13,4 %
EBIT adjusted 13,4 12,7 13,3 15,9 13,8 11,4 14,1 10,2 14,9
EBIT margin 6,7 % 6,4 % 7,0 % 7,8 % 7,2 % 6,2 % 7,2 % 5,1 % 7,1 %
Profit Before Tax (62,5) 27,2 (3,1) 25,1 21,5 (9,0) 1,0 1,6 11,0
Income Tax Expense 14,0 (4,7) 1,4 (6,2) (4,1) 2,6 (0,4) (0,3) (1,5)
Net income (48,6) 22,4 (1,8) 18,9 17,4 (6,4) 0,7 1,2 9,5
Profit margin -24,2 % 11,3 % -0,9 % 9,3 % 9,0 % -3,5 % 0,3 % 0,6 % 4,5 %
Weighted # of shares outstanding (m) 19,6 19,6 19,6 19,6 19,6 20,7 21,1 21,3 21,5
Basic EPS (NOK) (2,48) 1,14 (0,09) 0,96 0,89 (0,31) 0,03 0,06 0,44
Diluted EPS (NOK) (2,48) 1,11 (0,09) 0,86 0,85 (0,31) 0,03 0,06 0,41
Cash flow items
Cash from operating activities 16,9 45,4 13,3 16,7 (0,1) (3,4) 13,4 23,2 (4,4)
Investments (3,7) (3,6) (5,0) (2,0) (2,1) (4,0) (8,4) (6,2) (4,7)
Net changes in cash and cash equi. 3,9 41,0 (14,0) 8,1 (6,6) 93,9 (41,3) 7,5 (41,3)
Cash and cash equivalents end of period 87,5 129,0 116,3 124,8 117,6 211,3 168,8 176,2 134,7
Net interest-bearing debt 344,5 277,9 280,7 252,2 242,4 154,4 198,1 183,0 212,9
Equity 95,9 101,5 108,1 104,4 110,5 207,1 208,4 207,3 189,3
Equity ratio 12,4 % 13,5 % 14,9 % 14,4 % 15,6 % 25,7 % 24,9 % 25,0 % 23,0 %
ROE -63,5 % -36,9 % -31,4 % -8,8 % 53,7 % 21,2 % 19,4 % 7,0 % 2,4 %
Number of FTE (Period End) 728 723 713 712 754 - - - -
Segment overview Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022
Revenues 200,6 198,4 189,7 203,5 192,8 185,4 195,4 201,7 209,7
Managed Services 142,3 137,1 127,4 137,5 128,4 125,8 132,5 143,0 146,5
Professional Services 58,3 61,3 62,4 66,0 64,3 59,6 62,9 58,7 61,9
HR & Payroll Tech Investments 1,2
EBIT 9,5 7,4 9,2 11,3 10,3 3,1 7,7 1,5 4,7
Managed Services 16,7 16,0 14,8 15,6 15,4 16,1 16,4 14,1 15,1
as % of revenue 11,8 % 11,7 % 11,6 % 11,3 % 12,0 % 12,8 % 12,4 % 9,9 % 10,3 %
Professional Services 6,3 4,1 6,8 8,2 5,5 3,6 4,1 4,8 6,8
as % of revenue 10,8 % 6,7 % 11,0 % 12,5 % 8,5 % 6,0 % 6,5 % 8,1 % 11,0 %
HR & Payroll Tech Investments (3,8)
as % of revenue -310,9 %
Gr.ovhd & Unallocated (13,6) (12,7) (12,4) (12,5) (10,6) (16,6) (12,7) (17,4) (13,5)

IR contacts:

Hans-Petter Mellerud CEO [email protected] +47 928 97 276

Gunnar Manum CFO [email protected] +47 951 79 190

Financial information

Interim report Q2 2022 to be published on 25 August, 2022

All financial information is published on the Zalaris' website: http://www.zalaris.com/Investor-Relations/

Financial reports can also be ordered at [email protected].

Zalaris ASA PO Box1053 Hoff 0218 Oslo Norway

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