Zalaris

Investor Presentation • Aug 26, 2021

Presentation of interim financial results | Q2 2021

26 August 2021

Agenda

1. Highlights

• 1. Financial Review
• 1. Markets and Outlook
• 1. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

Second quarter 2021: Continuing the significant ARR build-up

• Revenue of NOK 185.4 million for Q2
• Adjusted EBIT of NOK 11.4 million

• New BPO contracts awarded year-to-date with expected ARR of NOK 71 million
• Completed the acquisition of ba.se GmbH providing a platform for further growth
• New BPO contracts and ba.se expected to increase revenue with >10%
• Successful completion of NOK 120.7 million equity issue
• Paid dividend of NOK 1.00 per share for 2020
• Cash and cash equivalents of NOK 212.0 million

Highlights

Revenue for the quarter negatively impacted by currency changes and sold projects in ramp-up phase not recognizing revenue

Q1 -21

*See Q2 report for definitions of APMs

Payroll & HR Solutions that Enable Fully Digital Organizations

Zalaris – Local presence with one global IT platform

• Zalaris is a leading European provider of Payroll and Human Capital Management Solutions delivered through Software as a Service, Outsourcing, or Consulting delivery models
• Supporting fully digital processes for Payroll and Human Capital Management targeting 20-30% cost savings
• One common multi-country solution satisfying GDPR requirements combined with competent resources serving complex customers from with local competence and language

Managed Services

Professional Services

Diversified customer base with Germany largest market facing unit

Diversified across industries and sectors

Revenue per country Q2 2021 (%)

Q2 Presentation 2021 Acquisition of ba.se service & consulting GmbH completed platform for further growth in Germany and Central Europe

• Leading provider of payroll and HR services within the German retail sector
• Considerable customer base in Germany, Austria, Switzerland and France, including well-known companies, such as Douglas, Christ and Thalia
• ~80 employees located in Hagen, near Düsseldorf and annual revenue of ~EUR 6 million (almost 100% ARR)
• The acquisition will provide Zalaris with an additional platform for further BPO growth in Germany and Central Europe,
• Expected to be accretive (positive impact on multiples and EBIT margin) already in 2021

• Fully consolidated from August

Highlights

Managed Services with all time high new signings currently in the implementation phase with no revenue recognized

Revenue NOK 125.8m (-8.2%) EBIT NOK 16.1m (+NOK 0.1m)

• Lower revenue mainly due to currency movements (-NOK 5.4m) and some lower volume of travel expense processing and change orders due to Covid-19
• Net new signings (net of churn) with annual recurring revenue (ARR) of NOK 15m during the quarter and NOK 43m YTD
• Churn within historic levels YOY and ~90% recurring revenue
• Top priority of Zalaris, following the completion of the EBIT improvement program, has been to focus available resources on the sale and implementation of BPO contracts that will generate ARR long-term

Continued strong development in new signings and pipeline

• Several new BPO contracts and extensions signed during Q2 and recent weeks
• Platform based deals utilizing existing capacity with higher incremental margin
• Pipeline of BPO opportunities continue developing positively in all geographies as companies are reevaluating their business continuity plans and cost situation coming from Covid-19 5-year agreement with CLAAS UK for

5-year expanded agreement with Felleskjøpet for delivery of cloudbased HR solution for 3,000+ employees in Norway and Sweden

5-year agreement with Nordic insurance company Tryg for BPO payroll with 6,000+ employees in the Nordic region

cloud-based HR and payroll solution for 400+ employees in the UK

5-year expanded agreement with Siemens for multi-country payroll BPO for 8,000+ Nordic employees

Q2 Presentation 2021

Significant ARR build-up YTD in MS

Expected ARR in MS (NOKm)

• High sales activity within Managed Services, resulting in a continued build-up of future ARR through several new BPO agreements and extensions during the second quarter
• Total new BPO contracts awarded year-to-date have expected ARR of NOK 71 million (net ARR NOK 43 million), when fully implemented.
• The pipeline remains strong and the conversion to actual BPO contracts is expected to continue, which should increase the expected ARR for MS further
• New BPO contracts won as of 30 June 2021, and revenue from ba.se, represents an expected increase in total annual revenue for Zalaris of >10% over the next 12 months

Revenue

Professional services delivered revenue in line with the same quarter last year when adjusted for currency movements

EBIT

• Most of the variance in revenue vs. Q2'20 (NOK 5.3m) due to currency movements
• In local currency, revenue in Poland grew by ~12% through new and existing customers, offset by a small reduction in Germany
• Short term negative EBIT impact of higherthan-normal use of external consultants in combination with costs for trainee program building new consulting capacity in Germany. Will be productive from Q3/Q4.

*Q2-20 revenue adj. for NOK 3.8m moved from MS

Majority of Professional Services revenue is recurring and supports a continuous presence with customers

Distribution of Projects vs long term AMS based revenue

Revenue customer split

80% 20% 85% Q2-20 17% 83% 15% 84% Q4-20 Q2-21 16% Q1-21 18% 82% New customers** Existing customers*

• ~51 % of Professional Services revenue is recurring, or recurring like, and based on long term agreements and relationships
• ~82 % of Professional Services revenue is from customers that were customers 12 months prior

* Customers that were invoiced in the same quarter previous year

** New customers since the end of the same quarter previous year Q3-20

Agenda

• 1. Highlights
• 2. Financial Review
• 1. Markets and Outlook
• 1. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

Revenue

Currency related reduction in revenue YoY

Adj. EBIT*

6,4%

Q1 -20 Q2 -20 Q3 -20 Q4 -20 Q1 -21 Q2 -21

6,2%

Q4 -19

Q3 -19

• Lower revenue for the quarter vs. last year, mainly due to currency movements (-NOK 10.7m)
• Some lower revenue in NE in Germany as a result of reduced transaction volume (e.g. travel expense processing and change orders)
• Continued strong growth within Professional Services in Poland with a revenue increase of 14% YoY

3,9%

Q2 -19

Marginally lower EBIT YoY – margins expected to improve with scale

Adj. EBIT (NOKm) and margin (%), quarterly Adj. EBIT (NOKm) and margin (%), LTM

• EBIT and EBIT margin approx. in line with last year when adj. for currency effects (~NOK 1m)
• Increased EBIT and EBIT margin in NE, through improved customer margins and higher utilisation, as more resources as being used on new customer projects
• Lower EBIT in Germany, partly due to temporary use of external consultants within PS in Germany and ramp-up for new BPO contracts in MS
• Further margin improvements to reach targeted EBIT 10% to be achieved through scale (revenue growth) and further efficiency improvements

Significant investment in future revenue through transformation projects for new BPO contracts

• Significant potential revenue generating capacity utilised on implementing new BPO contracts, which will generate recurring revenue from go-live date
• Value of employee hours capitalised in Q2 LTM NOK 28.8m vs. NOK 16.5m last year
• The amount of revenue deferred in Q2 was NOK 11.4m (NOK 3.1m) and YTD NOK 20.0m (NOK 5.4m)

Q2 Presentation 2021

28,8

Condensed Profit and Loss

	2021	2020	2021	2020	2020
(NOK 1 000)	Apr-Jun	Apr-Jun	Jan-Jun	Jan-Jun	Jan-Dec
Revenue	185 415	198 445	378 194	399 056	792 326
License costs	16 188	16 237	31 762	33 235	72 517
Personnel expenses	98 961	113 131	205 023	224 710	430 733
Other operating expenses	48 497	39 759	90 723	80 940	167 138
Amortization implementation projects costs customer	6 922	8 939	13 679	17 542	34 666
Depreciation , amortization and impairments	11 748	13 012	23 642	25 811	49 849
EBIT	3 100	7 367	13 365	16 818	37 423
Adjustment items	8 320	5 323	11 843	9 263	17 767
Adjusted EBIT*	11 419	12 690	25 208	26 081	55 190
Adjusted EBIT margin %	6 2% ,	6 4% ,	6 7% ,	6 5% ,	7 0% ,
Net financial income/(expense)	(12 138)	19 785	(919)	(52 211)	(50 813)
Profit/(loss) before tax	(9 039)	27 152	12 446	(35 393)	(13 390)
Income tax expense	2 623	(4 733)	(1 387)	9 262	4 405
Profit/(loss) for the period	(6 416)	22 420	11 059	(26 132)	(8 985)
Basic earnings per share (NOK)	(0 31) ,	1 14 ,	0 53 ,	(1 33) ,	(0 46) ,

• Lower personnel expenses, as more personnel are utilized on customer implementation projects (costs and income deferred) and currency movements
• Increased other op. exp. from external m&a costs and use of external SAP consultants
• Unrealised currency loss of NOK 7.3m, relating the EUR 35m bond loan and other foreign currency denominated items

* Items excluded from adjusted EBIT Q2 2021: external m&a costs (NOK 5.1m), share-based payments (NOK 0.7m) and amortization of excess values on acquisitions (NOK 2.6m). (see definition of adj. EBITDA under APMs in Q1 2021 Report)

Equity issue providing strong cash balance for further expansion

• Cash balance at 30 June of NOK 212m following NOK 120.7m private placement
• Operating cash flow for the quarter includes NOK 7m in cash settlement of expired RSUs
• Capex of NOK 4.0m related to internal system and product development projects
• EUR 4.6m (NOK 48.1m) utilized for initial payment for ba.se subsequent to quarter-end

Q2 Presentation 2021

Condensed Balance Sheet

	2021	2020	2020
(NOK 000) 1	30 Jun	30 Jun	31 Dec
Fixed and intangible assets	343 992	372 205	358 008
Trade receivable accounts	145 174	138 118	148 651
Customer projects assets	80 962	84 763	78 246
Cash and cash equivalents	211 952	128 953	124 843
Other assets	23 436	26 391	15 989
Total assets	805 516	750 430	725 738
Equity	207 140	101 522	104 359
Interest-bearing loans and borrowings	366 367	406 892	377 077
Lease liabilities	19 873	30 961	22 896
Customer projects liabilities	60 335	52 255	50 256
Other liabilities	151 800	158 800	171 151
Total equity and liabilities	805 515	750 430	725 738

• Cash and cash equivalents of NOK 212m

• Equity issue of NOK 120.7m at NOK 60 per share (net proceeds NOK 115.9m)

• A dividend of NOK 1.00 per share (NOK 19.6m) paid in June

• Lease liabilities relate to right-of-use assets, and primarily rental contracts for premises (IFRS 16)

• Net interest-bearing debt of NOK 154.4m

Agenda

• 1. Highlights
• 1. Financial Review
• 3. Markets and Outlook
• 1. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

With Q2 as basis - implementing contracted net revenue growth and ba.se are key drivers in our roadmap to >10% EBIT

Managed Services

• Addition of net revenue of NOK 111 mill (ACV* of ba.se + full effect of H1 net signings with incremental margin)

• Implement Zalaris 4.0 and finalize platform consolidation realizing synergies resulting in 2% margin improvement for MS

• Increase revenue of PS with 5% through addition of capacity and optimized pricing

• Maintain existing utilization levels.
• Improve margins with 2.4% through replacing external consultants with internal resources in combination of stabilized resource situation leading to reduced recruiting costs. *) ACV = Annual Contract Value

Group and Regional Overhead

• Maintain and/or slightly reduce overhead levels through further use of near/offshore shared services and automation Professional Services >10%

EBIT

-

Through Q2 and H1 we have been involved in four structured processes that resulted in the signing of ba.se GmbH

With funding successfully secured through NOK 120 mill issue - we actively seek inorganic growth opportunities

• Target pure play HR BPO and combinations of HR Tech and HR BPO in existing and new geographies
• Capacity to finance acquisitions with existing cash/balance sheet
• Larger acquisitions will be financed through combination of new bond/debt/equity
• Continue to execute Capital Discipline with focus on accretive deal shapes

We continue our journey to become the leading European provider of Payroll and HR services

• Creating more Net Promoting Customers - and Employees
• Realizing our roadmap to EBIT >10% through adding volume, implementing Zalaris 4.0, automation and improve Professional Services resource situation
• Deliver our 21st year of uninterrupted growth through continuing our closing streak from our strong pipeline and grow with existing customers
• Execute on non-organic growth ambitions

Agenda

1. Highlights

• 1. Financials
• 1. Markets and Outlook

4. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

"

We simplify HR and payroll administration, and empower you with useful information so that you can invest more in people.

Thank you!

Gunnar.Manum@zalaris.com Hans-Petter.Mellerud@zalaris.com