Itera

Interim / Quarterly Report • Aug 17, 2018

INTERIM REPORT

SECOND QUARTER 2018

CEO ARNE MJØS CFO BENT HAMMER

OSLO, 17 AUGUST 2018

HIGHLIGHTS OF THE SECOND QUARTER

• Revenue

• NOK 138 (113) million
• Growth of 21% y-o-y
• Gross Profit
• NOK 114 (96) million
• Growth of 19% y-o-y
• EBITDA
• EBITDA of NOK 14.7 (12.9) million, 10.7% (11.4%) margin
• EBIT
• EBIT of NOK 9.5 (7.8) million, 6.9% (6.8%) margin
• Cash flow
• NOK 21.6 (5.5) million cash flow from operations
• Capacity
• Number of employees up by 56 (13%) last 12 months
• Dividends
• Paid ordinary dividend of NOK 0.25 per share

FINANCIAL REVIEW

	2018	2017	Change	2018	2017	Change	2017
NOK Million	Q2	Q2	%	YTD	YTD	%	FY
Operating revenue	137.6	113.5	21 %	268.7	232.1	16 %	475.0
Gross profit	113.8	95.8	19 %	224.1	198.4	13 %	401.7
EBITDA	14.7	12.9	13 %	29.9	29.1	3 %	59.7
EBITDA margin	10.7 %	11.4 %	-0.7 pts	11.1 %	12.5 %	-1.4 pts	12.6 %
EBIT	9.5	7.8	22 %	19.5	19.1	2 %	39.3
EBIT margin	6.9 %	6.8 %	0 pts	7.2 %	8.2 %	-1 pts	8.3 %
Net cash flow from operations	21.6	5.5	293 %	13.3	4.7	182 %	49.7
Cash and cash equivalents	15.3	52.5	-71 %	15.3	52.5	-71 %	59.9
Equity ratio	11.3 %	27.9 %	-16.6 pts	11.3 %	27.9 %	-16.6 pts	23.7 %
Employees at end of period	486	430	13 %	486	430	13 %	491
Employees in average	486	424	15 %	487	418	17 %	443

• FIGURES High growth in service revenue, especially in nearshore deliveries and in Denmark
• Strong cash conversion beyond Q1 catch-up Equity and cash balance significantly reduced by dividend
• payout and share re-purchase

STATEMENT OF INCOME

2018	2017 Change		2018	2017	Change	2017
						FY
137.6	113.5	21 %	268.7	232.1	16 %	475.0
						73.4
113.8	95.8	19 %	224.1	198.4	13 %	401.7
86.2	70.8	22 %	168.3	144.2	17 %	294.3
5.2	5.2	1 %	10.4	10.0	4 %	20.3
12.9	12.1	6 %	25.9	25.1	3 %	47.7
128.1	105.7	21 %	249.3	213.0	17 %	435.7
9.5	7.8	22 %	19.5	19.1	2 %	39.3
-0.1	-0.3	54 %	-1.6	-0.6	-165 %	-1.0
9.3	7.5	25 %	17.8	18.4	-3 %	38.3
2.3	1.8	27 %	4.3	4.5	-3 %	8.7
7.0	5.6	24 %	13.5	14.0	-3 %	29.6
	Q2 23.8	Q2 17.6	% 35 %	YTD 44.7	YTD 33.6	% 33 %

• Utilisation impacted by the transition of hosting operation into hybrid cloud and devops
• Cost of sales higher due to more 3rd party subcontractors
• Increase in average personnel expenses due to less capitalisation of product development and salary growth

QUARTERLY DEVELOPMENT

EBITDA NOK million

Margin

Employees

End of period

REVENUE

• Revenue increased by 21% y-o-y
• Service revenues from own consultants increased by 21% to NOK 87 million
• Subscription revenue increased by 4% to NOK 33 million
• 3 rd party service revenue increased by 94% to NOK 10 million
• Other revenue, incl. HW/SW sales, increased by 57% to NOK 7 million

Revenue split (quarterly figures) NOK Million

Revenue percentage split (rolling 12 months)

STATEMENT OF CASH FLOW

	2018	2017	2018	2017	2017
NOK Million	Q2	Q2	YTD	YTD	FY
Cash flow from operations (EBITDA)	14.7	12.9	29.9	29.1	59.7
Change in balance sheet items	6.9	-7.4	-16.5	-24.4	-10.0
Net cash flow from operating activities	21.6	5.5	13.3	4.7	49.7
Net cash flow from investment activities	-8.0	-3.5	-13.5	-6.2	-19.5
Purchase of own shares	-22.6	-1.6	-22.6	-1.6	-1.6
Borrowings repaid	-2.1	-2.2	-4.2	-4.5	-8.1
External dividend paid	-20.5	-14.6	-20.5	-14.6	-35.1
Net cash flow from financing activities	-45.1	-18.4	-47.2	-20.8	-44.8
Net change in bank deposits and cash	-28.7	-12.8	-44.5	-18.6	-11.2
Bank deposits at the end of the period	15.3	52.5	15.3	52.5	59.9
New borrowing related to leasing	1.5	0.2	1.7	1.0	1.6

• Cash flow from operations NOK 21.6 (5.5) million in Q2
• NOK 43 million used for dividend payments and purchase of own shares

• 12 month rolling cash flow from operations was NOK 58 million

• An ordinary dividend for 2017 of NOK 0.25 per share (68% of net profits) was paid in June

• Share price was NOK 8.62 on 29 June, up NOK 1.62 (23%) from same time in 2017
• Current holding of own shares is 2,214,542 shares, up 2,000,607 from last quarter
• Consistent high distribution of earnings

STATEMENT OF FINANCIAL POSITION

• Group equity ratio of 11% (27%) per 30 June.
• Cash balance of MNOK 15 (MNOK 52).
• Receivables and WIP MNOK 10 higher (MNOK 8 from IFRS 15 effects).
• Equity and cash low from purchase of own shares (MNOK 20) and dividend payout (MNOK 21).

IMPACT OF IFRS 15 IMPLEMENTATION 1 JAN 2018 EQUITY REDUCED BY MNOK 3.0 FROM CHANGE IN ACCOUNTING PRINCIPLES

IFRS 15 implementation effects 2018:

NOK Million	Adjusted (IAS 18) 4-6 2018	Impact IFRS 15	Reported (IFRS 15) 4-6 2018	Adjusted (IAS 18) 1-6 2018	Impact IFRS 15	Reported (IFRS 15) 1-6 2018
Revenue	137.6	0.0	137.6	269.2	-0.5	268.7
EBIT	9.4	0.1	9.5	19.0	0.5	19.5
Net profit	7.0	0.0	7.0	13.3	0.3	13.5

Q2 2018 effects:

• No impact on sales revenue (deferred income recognition)
• Positive EBIT impact of MNOK 0.1 due to capitalisation of costs
• Book equity on 30 June reduced by MNOK 2.7

Affected areas for timing of revenue recognition:

• Customised development based where Itera retains the IP will change from a point in time (at delivery) to over time (over the licence contract period)
• Transition projects will be recognised when the customer can use and benefit from the services rendered

BUSINESS REVIEW

ITERA TOWARDS 2020 #1 in creating digital business

WE FOCUS ON OUR CUSTOMERS' CUSTOMER

through customer

journeys and lean

startup

WE WORK IN MULTIDISCIPLINARY TEAMS

WE TAKE LIFE-CYCLE RESPONSIBILITY

WE BRING VALUE THROUGH OUR HYBRID MODEL

combining communication & technology skills

embracing cloud and data protection issues

for greater scalability and cost-efficiency

FROM VALUE CHAIN TO PLATFORMS

Value creation is linear and one-way

Value creation is continuous and two-way

THE PLATFORM ECONOMY

THE FUTURE OF AI IN PLATFORMS

2018: small spots of AI

2030: AI everywhere

FIRST MOVER PROJECTS

We are working on several first movers projects and opportunities across industries in the new platform economy

• Building a digital health platform across industries for a leading Nordic business
• Accessing fitness and health data from all kind of digital devices and using AI to improve people's life

Digital Health Smart Energy Market Smart Building & City

• Several projects in building the new intelligent utility with smart grids and distributed energy resources (i.e. solar, batteries)

• In addition to IoT and AI, blockchain is considered as key enabling technology

• Our award winning AirBnBinspired solution for the Norwegian Defense is extended with a platform for digital locks

• Several upcoming opportunities where smart buildings and smart energy are combined towards future smart city

SPECIALISTS IN CREATING DIGITAL BUSINESS

FAST AND HYBRID

NEW DIRECTOR OF DIGITAL BUSINESS AND EXPERIENCE

• Ole Morten Damlien, former CEO in Creuna and Director Digital Business Integration in Accenture
• More than 50 specialists, high ambitions for further development
• "With experience from and solid knowledge of Accenture and Creuna, I find Itera somewhere in the middle: it is listed, and large enough to have the structure and scalability of the big companies, while the agility and dynamics reminds me more of the agencies that set new user experience standards, which include AI and new technology platforms. This is what I find unique with Itera." Ole Morten Damlien

DELIVERING THE NEW EXPERIENCE

experiences

Open & scalable cloud platform

Data driven

intelligence

DevOps: Continuous innovation

Digital Business & Experience

50+ consultants

Cloud platforms Azure, Amazon, Google

150+ consultants

DevOps & Hybrid Cloud

100+ consultants

MASSIVE DATA STREAMING FOR UEFA

• Engaged by UEFA in Switzerland to set up the technology platform to handle real-time data at massive scale delivered to the entire eco-system of football in Europe
• Data from Champions League, Europa League and Nations League
• Persons (managers, referees etc.)
• Players
• Results

• Teams

• Club rankings

• League setup
• Travel logistics

• Live streaming of all matches

• The platform will be available for all consumers of European football data

• Supporters
• Media
• Betting companies

Order intake from existing and new customers

• Book-to-bill ratio*) of 0.8 in Q2 2018

*) The book-to-bill ratio is the ratio of orders received to the amount of revenue for a specific period for Itera units

CUSTOMER DEVELOPMENT

• New business
• Existing clients accounted for 95.2% of revenues in Q2 2018
• New customers won over the past year generated revenues of NOK 6.7 million in Q2 2018
• Increasing visibility
• Share of revenue from top 30 customers up by 4 points y-o-y to 80%
• Increasing number of large projects and services managed by Itera
  • Strategic relationships
  • Full range of services
  • Hybrid delivery across borders

Revenue customers split

Share of revenue

* Existing customers defined as customers that were invoiced in the corresponding quarter last year

^** New customers (Rolling Twelve Months) defined as customers won since end of corresponding quarter last year

Nearshore ratio % of all staff located nearshore

• Nearshore ratio of 44 % in Q2
• Target >50%
• Mixed teams of onshore and nearshore are increasing our price flexibility as well as providing access to a very large resource pool

TOP 25 MOST INNOVATIVE COMPANY

For the third consecutive year, Itera is recognised as one of the 25 most innovative companies across all industries in Norway

Accompanied by strong brands:

• DNB
• Telenor
• Tine
• The Norwegian Tax Administration
• Sbanken
• DNV GL

Awarded 2016, 2017 and 2018 by Innovasjonsmagasinet, the leading innovation publication in Norway with more than 25.000 readers and wide-spread national distribution

• Customer demand remains strong in all Nordic markets
• Profitable growth and cash flow are key focus areas
• Digitalisation creates a strong market demand in all sectors where Itera is operating
• Larger projects and customers expected to continue to increase revenue visibility, efficiency and scalability

Itera does not provide guidance to the market on future prospects

TOP 20 SHARE-HOLDERS

		*

*Arne Mjøs Invest AS holds a future contract expiring 21 September 2018 on 3 200 000 shares currently owned by DNB Nor Bank ASA. The total controlling interest of Arne Mjøs Invest AS is thus 25 073 645 (31.5%).