Zalaris

Investor Presentation • Feb 28, 2020

Interim and preliminary full-year presentation | Q4 2019

28 February, 2019

– Value people

Agenda

• Highlights

• Operational review
• Financial review
• Market update and outlook
• Appendix

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

Fourth quarter 2019: All time high revenue

• All time high revenue of NOK 206.2 million for the quarter (+6.2%) and NOK 776.8 million for the full-year (+4.2%) - the 19th year of uninterrupted growth
• Adjusted EBIT of NOK 5.1 million (NOK 12.5 million), and adjusted EBIT for the fullyear of NOK 30.5 million (NOK 27.9 million)
• EBIT-improvement initiatives launched in 2019, resulting in a reduction of 52 FTEs at year-end, of which 48 FTEs were within support and admin. functions - will reduce the cost base going forward
• Several large long-term renewals and new agreements during the quarter
• Cash and cash equivalents of NOK 82.4 million, an increase of NOK 17.6 million from the previous quarter

Several large renewals and new customers

• 5-year renewal with Yara for the provision of multi-country HR services including payroll, time & attendance, and travel expenses
• 4-year extension (up to 5,000 man-days of consulting) with the German state North Rhine-Westphalia, to be delivered by the PS organization in Germany
• 5-year renewal with Gassco in Norway for the provision of HR services including payroll, time & attendance, and travel expenses
• PEKAO bank in Poland, for implementation of a new global HR solution for their 16,000 employees
• MAHLE UK for outsourcing of payroll and transactional HR

Agenda

5

•			Highlights
---	--	--	------------	--

• Operational review

• Financial review
• Market update and outlook
• Appendix

Operational review European Payroll & HR Solutions that Value People

Zalaris – Local presence with one global platform

• Zalaris is a leading provider of Payroll and Human Capital Management Services delivered through Software as a Service (SaaS) and Business Process as a Service (BPaaS) models
• Supporting fully digital processes for Payroll and Human Capital Management
• One common multi-country solution satisfying GDPR requirements combined with competent resources serving complex customers in local markets and native language

Operational review

Attractive and growing market proven to be resilient over time

Operational review All time high revenue during the quarter (NOKm)

Managed Services

• Increased activity in the Nordics, including the new contract with AkerBP, as well as increased volume of change orders, have contributed to the revenue growth within Managed services
• Additional sale of Cloud licenses in Germany and Poland, also contributed to the growth

Professional Services

• Stable growth within Professional services, and revenue grew by 3.6% for the full-year
• Revenue in Q4 has been negatively impacted by the restructuring process, particularly in Germany where offices have been merged, which as now been completed

Operational review

Restructuring program has reduced headcount by 52 employees, with minimal impact on market facing capacity

Operational review Professional services impacted by restructuring program - EBIT (NOKm) and EBIT margin (%)

▪ Stable margins within Managed services for the quarter. Higher margins for 2H 2019 compared to last year is mainly due to a higher share of change orders, which carries a higher margin

Managed Services Professional Services

• EBIT for Professional services for Q4 vs. last year negatively impacted by the restructuring process, as well as timing of expenses
• The restructuring process, particularly in Germany where offices were merged, resulted in a combination of lower utilization and increased use of external consultants (lower margin)
• EBIT margin expected to be negatively affected by the restructuring also in Q1 2020, before new consultants are fully operational

Agenda

• Highlights
• Operational review
• Financial review
• Market update and outlook
• Appendix

Financial review Condensed Profit and Loss

	2019	2018	2019	2018
(NOK 000) 1	Oct-Dec	Oct-Dec	Jan-Dec	Jan-Dec
Revenue	206 235	194 153	776 807	745 434
License costs	23 911	18 636	67 981	60 492
Personell expenses	117 158	104 258	438 403	426 623
Other operating expenses	44 418	45 259	166 887	177 823
Amortization implementation projects costs customer	8 844	9 010	36 602	35 947
Depreciation , amortization and impairments	13 325	6 968	52 684	27 209
EBIT	(1 420)	10 021	14 250	17 339
Adjustment items	6 538	2 470	16 149	10 552
Adjusted EBIT*	5 118	12 491	30 399	27 891
income/(expense) Net financial	(2 971)	(19 256)	(24 642)	(21 501)
Profit/(loss) before tax	(4 391)	(9 235)	(10 391)	(4 161)
Income tax expense	3 067	5 010	5 366	2 888
Profit/(loss) for the period	(1 323)	(4 225)	(5 025)	(1 273)
Basic earnings per share (NOK)	-0 07 ,	-0 21 ,	-0 25 ,	-0 06 ,

• All time high revenue for the quarter and full-year
• Personnel costs negatively impacted by restructuring process reduction of 52 FTEs going into Q1 2020
• Other operating expenses vs. 2018 impacted by IFRS 16 (~NOK 22 million moved to depreciation for 2019)
• EBIT for the quarter negatively impacted by timing of expenses (e.g. NOK 4m bonus reversal in Q4 2018) and restructuring process – also impacting EBIT for the full year

* Items excluded from adjusted EBIT Q4 2019: restructuring costs (NOK 3.2m), share based payments (NOK 0.7m) and amortization of excess values on acquisitions (NOK 2.6m)

Financial review Significant positive cash flow during the quarter (NOKm)

• Operating cash flow for quarter of NOK 48.2m increased in trade payables (year low end-Sep.) and a reduction in receivables contributed to the positive cash flow
• Capex of NOK 11.8m mainly related to internal development projects (partly a reclassification from prior periods)
• Purchases of own shares of NOK 6.5m during the quarter
• Year-end cash balance of NOK 82.4m

Financial review Condensed Balance Sheet

	2019	2018
(NOK 1 000)	31. Dec	31. Dec
Fixed and intangible assets	350 364	330 252
Trade accounts receivable	148 596	158 118
Customer projects assets	92 628	97 272
Cash and cash equivalents	82 448	107 844
Other assets	30 922	32 121
Total assets	704 958	725 607
Equity	107 318	108 905
Interest-bearing loans and borrowings	369 058	378 430
Lease liabilities	35 635	-
Customer projects liabilities	51 920	64 284
Other liabilities	141 027	173 988
Total equity and liabilities	704 958	725 607

▪ Cash and cash equivalents of NOK 82.5 million, up by NOK 17.6 million from previous quarter

▪ Only minor net movements in customer projects (NOK 3.9 million)

• Lease liabilities relate to right-of-use assets (IFRS 16)
• Net interest-bearing debt of NOK 286.6 million, reduced by NOK 24.4 million from previous quarter

Agenda

15

• Highlights

• Operational review

• Financial review
• Market update and outlook
• Appendix

Market update and outlook

Grow2020 to focus on utilizing the scale of Zalaris' Sustainable Business Model

The CEO is the founder of Zalaris and the second largest owner

Management team and board of directors with significant experience within the sector

Market update and outlook

Our goal for 2020 is besting ourselves by staying close to our values of Aiming high, Teamwork and Endurance – and to deliver on our stakeholders' expectations

• Grow2020 delivering on our expectations of continuing 19 years of uninterrupted growth
• Utilizing the scalability of our proven Payroll SaaS and HR Outsourcing models successfully into Central Europe and UK/Ireland for growth in Managed Services
• Operating Professional Services as a global business unit and further develop the potential of our solid partnership with SAP
• Creating more Net Promoting Customers and Employees
• Continue improving margins through increased productivity, simplification, automation and utilization of our near- and offshore assets
• The market for HR solutions and Technology is more buoyant than ever and Zalaris is perfectly positioned to capitalize on our position as a European leader in the space

We open for questions

Agenda

19

• Highlights

• Operational review

• Financial review
• Market update and outlook
• Appendix

Appendix European Payroll & HR Solutions that Value People

Zalaris – Local presence with one global platform

• Zalaris is a leading provider of Payroll and Human Capital Management Services delivered through Software as a Service (SaaS) and Business Process as a Service (BPaaS) models
• Supporting fully digital processes for Payroll and Human Capital Management
• One common multi-country solution satisfying GDPR requirements combined with competent resources serving complex customers in local markets and native language

Appendix

Zalaris own implementation of Next Generation Human Capital Management is an example what we can do for customers

SuccessFactors Employee Central

Zalaris Next Gen Payroll, Time and Travel powered by SAP

• Fully integrated solution combining the power of SuccessFactors Employee Central and Zalaris Payroll, Time and Travel – powered by SAP
• Big bang rollout covering ten countries including Nordics, Baltics, Poland, Germany, UK, Ireland and India
• Enhanced Quality and Efficiency through eFile, Help Desk solution, Payroll Control Center, Payment solution supporting On-Demand payments, Robotized processes and Intelligent Automation (Chatbots)
• Mobile solution supporting all processes on the go

Appendix Sustainable business model

4 5 6

Zalaris is present in 12 countries and offers expertise in local laws and regulations in the local language

Low reliance on single clients and clients are distributed amongst most sectors

High degree of recurring and contracted revenues

Long-term contracts with an average duration of 5 years. Large number extended with new 5-year terms during the last 18 months Low churn rate between 1.5-2% and recurring revenue > 80%

Attractive and growing market proven to be resilient over time

2 3

Significant growth expected in markets Zalaris is present in

Trends in the market are supportive of Zalaris continued growth

Clear value proposition with

Clients save on average 20-30% when outsourcing to Zalaris

Clear upsell potential, both in services and cross-boarders

Regional HRO leader

Uniquely positioned towards multinational companies with a sustainable competitive advantage

Offering of one technology platform that works efficiently cross-boarder

substantial upsell potential 19 year of uninterrupted growth with scalable business model in market with organic and nonorganic growth opportunities

Highly experienced management team and committed owners

The CEO is the founder of Zalaris and the second largest owner

Management team and board of directors with significant experience within the sector

7

Appendix

1

Diversified business model with blue-chip client base

Low reliance on single clients

Diversified blue-chip client base… …relying on Zalaris' local knowledge and presence

Appendix Attractive and growing market proven to be resilient over time

Appendix Everest estimates Zalaris to have approximately 9% of the number of HRO deals in the European Multi-process HR market

• Multi-process human resources outsourcing (MPHRO) market growth 6- 7%
• Zalaris with a strong footprint in North and Central Europe with 9 % share of the European market
• Strong demand for products and services within SuccessFactors
• More than 50'000 SAP HCM on premise installations worldwide that are target for conversion for cloud based solutions
• The future of HR outsourcing models have digital pillars such as Cloud and Mobile-based solutions

Appendix Analysts as Nelson Hall positions Zalaris as a Leader in Cloud based HR Services

"As organizations adopt cloud HR technology, HR BPaaS capabilities necessarily become increasingly important along with corresponding cloud services. Zalaris has established itself as a leader for HR BPaaS services, especially in the Nordics, due to its strong partnership with SAP and SuccessFactors coupled with its payroll and transactional HR administration support. "

• Amy Gurchensky, NelsonHall

Source: Nelson Hall, NEAT

4 Appendix High degree of recurring and contracted revenues…

Recurring revenues with low churn

Long agreements - Low churn

• "Sticky" service – substantial costs related to change of vendor

date is 5%

• Maximum churn in any year to 1.5 – 3% average churn per annum
• Long term agreements with initial duration normally 5 years

Recently new or extended customer agreements

Appendix

I

5

…with substantial upsell potential for additional services and across geographies

Clearly identified upsell potential of high margin additional services to 50% of annual contract value in the current client base

? ? ? ?

Appendix Highly experienced management team…

Management team		Competence and experience
	Hans-Petter Mellerud Founder & CEO	Prior to his founding of Zalaris, Hans-Petter was a partner with Accenture, where he was responsible for business development in the company's Nordic Outsourcing Unit. His educational background includes an MBA from IMD, Lausanne, Switzerland, and a BSc, magna cum laude, as well as a MSc, cum laude, in Computer Science from The University of Tulsa, USA
	Gunnar Manum CFO	Manum joined Zalaris in January, 2020, and previously held the position as CFO of Vistin Pharma ASA. He has extensive experience as CFO for publicly listed companies, and has previously held the position as CFO at Clavis Pharma ASA and Weifa ASA (now Karo Pharma ASA). Prior to that he was a senior advisor at Handelsbanken Capital Markets, Corporate Finance, for eight years, and has been an auditor at PwC. Manum holds a MCom in Finance and Accounting from the University of New South Wales, Sydney.
	Halvor Leirvåg CTO	Halvor joined Zalaris in 2006 as a developer in Zalaris Consulting. He was responsible for establishing Zalaris integration platform based on SAP PI. He was appointed CTO in 2011. Prior to joining Zalaris, He held positions at Hewlett-Packard and the Swedish IT consultancy WM-data. Halvor has a Master's of Information Technology from Queensland University of Technology in Brisbane, Australia
	Øyvind Reiten Executive VP Sales	Before being appointed Vice President of business development in 2012, Øyvind held several positions within product development, key account management and new business and sales. He has extensive experience working with new business opportunities and negotiations across the Nordic and Central Eastern European region. Øyvind holds a bachelor's degree in Business & Economics at the Norwegian School of Management
	Harald Goetsch Executive VP Central Europe	Prior to founding of sumarum AG, Harald was an Associate Partner with Accenture, where he was responsible for the German outsourcing unit Accenture Services for HR. Prior to Accenture, Harald focused on outsourcing-related business issues in companies like NorthgateArinso Germany and Computer Sciences Corporation. He holds a Diploma Degree in economics and technical economics of the Offenburg University of applied sciences.
	Will Jackson Executive VP UK/IRL	Will was previously a Director within the ROC Group prior to the acquisition by Zalaris ASA. Will has predominantly focused his career in HRIT having previously worked across multiple continents and geographies within industries such as Oil and Gas, Public Sector, Manufacturing, Healthcare, Distribution and Technology.
	Balakrishnan Narayanan Executive VP APAC	Bala has headed Zalaris' offshore center in India from it's inception in 2015 and has been instrumental in the growth and expansion of Zalaris India. Bala has more than 13 years of experience in the HR Operations industry and has worked with some of the top corporate in India and around the world including Fidelity Investments, Tata Consultancy Services, IBM Business Services and Wipro
	Richard E. Schiørn Executive VP Managed Services	Richard joined the company in September 2015 after nearly 20 years in Accenture with experience from technology, consulting and outsourcing business. In Accenture he held a Managing Director/Partner position in the business unit Communication, Media and Technology. He holds a Master's degree in Industrial Economy and Labour Science/Technology at the Norwegian University of Science and Technology (NTH/NTNU)
	Hilde Karlsmyr Chief Human Resources Officer	Hilde joined the company in September 2018. Hilde has more than 10 years of Executive Human Resource Management experience, last as Chief HR Officer at Steen & Strøm ASA and before that as HR Director at REMA 1000. Hilde's experience also includes 10 years as Executive Search consultant with Korn/Ferry International and previous sales and marketing management. Hilde holds a Master of Business and Marketing from BI Norwegian business School and a Master Program in both Human Resource Management and Labour Law
	Sami Seikkula Executive VP Northern Europe	Prior to starting in Zalaris, Sami has been ramping up businesses within software sales, finance, accounting & payroll outsourcing services. He has also gained experience from M&A, heading acquisition processes and integration projects in Norway, Germany, the Baltics and Poland. Sami holds a MSc in Engineering with a major in Industrial Engineering and Management from the Technical University of Tampere.

⁷ …and committed owners and Board of Directors

TOP 20 Shareholders as of 24.01.2020 Board members

Rank	Holding	Stake	Name	Citizenship	Type of account
1	3 091 482		15,36% NORWEGIAN RETAIL AS	Norway	Ordinary
2	2 635 352		13,10% Skandinaviska Enskilda Banken AB	Sweden	Nominee
3	1 794 939		8,92% HANDELSBANKEN Nordiska Smabolag	Sweden	Ordinary
4	1 349 533		6,71% PROTECTOR FORSIKRING ASA	Norway	Ordinary
5	1 039 887		5,17% STRAWBERRY CAPITAL AS	Norway	Ordinary
6	795 508		3,95% VERDIPAPIRFONDET NORDEA KAPITAL	Norway	Ordinary
7	795 255		3,95% ATHANASE	Cavman Islands	Ordinary
8	755 973		3,76% Commerzbank Aktiengesellschaft	Germany	Nominee
9	572 230		2,84% Danske Bank A/S	Denmark	Nominee
10	537 525		2,67% VESTLAND INVEST AS	Norway	Ordinary
11	505 705		2,51% VERDIPAPIRFONDET NORDEA AVKASTNING	Norway	Ordinary
12	500 000		2,48% ZALARIS ASA	Norway	Ordinary
13	368 603		1,83% J.P. Morgan Bank Luxembourg S.A.	Luxembourg	Nominee
14	366 016		1,82% VERDIPAPIRFONDET NORDEA NORGE PLUS	Norway	Ordinary
15	303 217		1,51% NÆRINGSLIVETS HOVEDORGANISASJON	Norway	Ordinary
16	300 212		1,49% Taconic AS	Norway	Ordinary
17	296 646		1,47% Avanza Bank AB	Sweden	Nominee
18	295 139		1,47% UBS Switzerland AG	Switzer and	Nominee
19	225 000		1,12% A/S Skarv	Norway	Ordinary
20	211 500		1,05% Lundhs Labradoreksport A/S	Norway	Ordinary
Top20	16 740 622	83,19%

Lars Henriksen (DK) Chairman of the Board

Liselotte Hägertz Engstam (SE)

Jan Koivurinta (FI)

Adele Bugge Norman Pran (NO)

Jon Erik Haug (NO)

Kenth Eriksson (SE)

Corinna Schaefer (DE)

Disclaimer

This Presentation includes certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates. Forward-looking statements relate to future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources, are solely opinions and forecasts which are subject to material risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. Neither the Company nor any of its subsidiaries or any such person's officers or employees provide any assurance that the assumptions underlying such forward-looking statements are free from errors, nor do any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. The Company assumes no obligation, except as required by law, to update any forward-looking statements or to conform these forward-looking statements to its actual results.

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Thank you!

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

+47 4000 3300 www.zalaris.com – Value people