Earnings Release • May 14, 2018
Earnings Release
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| 2018 | 2017 | change | change | 2017 | |
|---|---|---|---|---|---|
| All figures in NOK million | $1-3$ | $1-3$ | % | $1 - 12$ | |
| Sales revenue | 131.2 | 118.6 | 12.6 | 11 % | 475.0 |
| Gross profit | 110.3 | 102.6 | 7.7 | 8 % | 401.7 |
| EBITDA | 15.2 | 16.1 | $-0.9$ | $-6\%$ | 59.7 |
| EBITDA margin | 11.6 % | 13.6 % | $-2.0%$ | -2 pts | 12.6% |
| Operating profit (EBIT) | 10.0 | 11.3 | $-1.3$ | $-11 \%$ | 39.3 |
| EBIT margin | 7.6% | 9.5% | $-1.9%$ | $-1.9$ pts | 8.3% |
| Profit before tax | 8.5 | 11.0 | $-2.4$ | $-22%$ | 38.3 |
| Profit for the period | 6.5 | 8.3 | $-1.8$ | $-22%$ | 29.6 |
| Profit margin | 5.0% | 7.0% | $-2.1%$ | $-2.1$ pts | 6.2% |
| Net cash flow from operating activities | $-8.2$ | $-0.8$ | $-7.5$ | $-976%$ | 49.7 |
| No. of employees at the end of the period | 489 | 419 | 70 | 17 % | 491 |
The figures for 2018 have been prepared in accordance with IFRS 15, while the 2017 figures are based on IAS 18.
Itera achieved organic revenue growth of 11% in the first quarter of 2018 relative to the first quarter of 2017. This was driven by growth in the revenue earned for services provided by Itera's own consultants from its onshore as well as its nearshore locations.
The Group's operating profit (EBIT) for the first quarter of 2018 was NOK 10.0 million (NOK 11.3 million), giving an EBIT margin of 7.6% (9.5%). The first quarter of 2018 contained three fewer working days than the first quarter of 2017 due to the Easter holidays falling earlier in 2018. This is estimated to have had an impact on both revenue and earnings of more than NOK 3 million.
This consolidated interim financial report includes Itera ASA and its subsidiaries, and was prepared in accordance with IAS 34, which covers interim reporting, and the Securities Trading Act. The report has not been audited, and does not contain all the information required in an annual financial report. More information about the accounting principles used can be found in Itera's annual report for 2017.
The figures given in brackets in this report refer to the equivalent period in 2017. The comparable figures for balance sheet items are the figures reported at 31 March 2017.
See Note 4 on alternative performance measures.
Itera adopted the new IFRS 15 Revenue from Contracts with Customers standard with effect from 1 January 2018. The cumulative effect of the initial application of IFRS 15 was recognised as an adjustment to Itera's opening balance sheet as at 1 January 2018, reflecting the introduction of contract assets and liabilities in relation to open contracts for trade and other receivables and trade and other payables respectively, with the costs of obtaining and fulfilling a contract capitalised as other current assets. The comparison figures have not been restated, and the financial statements for Q1 2018 as they would have been had they been prepared on the basis of the accounting policies applied in 2017 have been included in note 3, together with the effect of the new standard on the opening balance sheet as at 1 January 2018.
IFRS 9 Financial Instruments (effective from 1 January 2018) replaces the old incurred loss model with an expected loss model. Itera's assessment is that implementing IFRS 9 will not have a significant impact on its financial statements.
A new accounting standard relating to leasing (IFRS 16) has not yet come into force for the Group and has consequently not been applied when preparing the consolidated accounts for the first quarter of 2018. Itera's assessment of the impact on its financial statements of implementing this standard remains unchanged from that set out in its annual report for 2017.
The Group reports operating revenue of NOK 131.2 million (NOK 118.6 million) for the first quarter of 2018, which represents growth of 11%. Revenue from services delivered by Itera's own consultants grew by 16%, while third-party service revenue was up by 33%. Subscription-related revenue grew by approximately 2%. Denmark almost doubled its revenue.
Gross profit (revenue minus cost of sales) was NOK 110.3 million (NOK 102.6 million) in the first quarter. This represents growth of 8% relative to the first quarter of 2017.
The Group's total operating expenses in the first quarter of 2018 were 13% higher at NOK 121.1 million (NOK 107.3 million).
Cost of sales was NOK 20.9 million (NOK 16.0 million) in the first quarter of 2018. Cost of sales principally consists of services purchased from sub-consultants, costs related to the Group's data centres, and third-party software licences and hardware that form part of larger deliveries. Cost of sales can vary significantly from quarter to quarter.
Personnel expenses were NOK 82.0 million (NOK 73.5 million) in the first quarter of 2018, which represents an increase of 12%. This was primarily due to an increase in employee numbers. Personnel expenses per employee were down 6% in the quarter (down 5% excluding IFRS 15 adjustment) due to increasing nearshore ratio.
Other operating expenses were NOK 13.0 million in the first quarter of 2018, which was unchanged from the same period last year, despite relocation and double office rental costs in Kiev.
Depreciation and amortisation totalled NOK 5.2 million (NOK 4.9 million) in the first quarter.
The operating result before depreciation and amortisation (EBITDA) for the first quarter of 2018 was a profit of NOK 15.2 million (NOK 16.1 million), while the operating result (EBIT) was a profit of NOK 10.0 million (NOK 11.3 million). The EBIT margin for the first quarter of 2018 was 7.6% as compared to 9.5% in the first quarter of 2017.
The first quarter of 2018 contained three fewer working days than the first quarter of 2017 due to the Easter holidays falling earlier in 2018. This is estimated to have had an impact on both revenue and earnings of more than NOK 3 million. The company thus regards its underlying profitability to be on par with last year.
Net financial items were NOK -1.5 million (NOK -0.3 million) in the first quarter of 2018 and included foreign exchange losses related to a lease deposit.
The result before tax for the first quarter of 2018 was a profit of NOK 8.5 million (NOK 11.0 million). Accrued tax expense totalled NOK 2.0 million (NOK 2.6 million).
The Group had deferred tax assets totalling NOK 3.8 million (NOK 3.4 million) at 31 March 2018.
Cash flow from operating activities was NOK -8.2 million (NOK -0.8 million) in the first quarter of 2018. This is NOK 23.4 million less than EBITDA, and this was primarily due to seasonal reductions in accounts receivable and other accruals from 31 December 2017 and taxes paid in first quarter.
Work in progress at 31 March 2018 was NOK 10.8 million lower than
at 31 March 2017. The decrease is due to the effect of implementing IFRS 15 and was more than offset by the introduction of contract assets of NOK 18.7 million. Accounts receivable from customers were NOK 14.1 million higher than at 31 March 2017, in part due to the final three days in March being bank holidays.
Accounts payable at 31 March 2018 were NOK 2.9 million higher than at 31 March 2017. Public duties payable were NOK 4.3 million higher than at the end of the first quarter of 2017, while tax payable was NOK 6.5 million, which was down NOK 2.4 million from 31 March 2017. Contract liabilities totalling NOK 11.1 million were introduced due to Itera adopting IFRS 15. Other current liabilities were NOK 2.6 million higher.
Bank deposits totalled NOK 44.0 million (NOK 65.3 million) at 31 March 2018, and the Group had an undrawn credit facility of NOK 25 million.
The Group had interest-bearing liabilities totalling NOK 11.9 million (NOK 18.8 million) at 31 March 2018 related to financial lease agreements entered into in order to finance investments related to IT hosting contracts, with NOK 6.3 million of this amount representing current liabilities and NOK 5.5 million being non-current liabilities.
Itera did not purchase or sell any of its own shares in the first quarter. At 31 March 2018 Itera held 213,935 own shares.
Equity at 31 March 2018 totalled NOK 54.0 million (NOK 62.9 million). This represented an equity ratio of 24.7% (29.2%).
The Group invested a total of NOK 5.5 million (NOK 3.5 million) in the first quarter of 2018.
Investment in Itera's IT hosting activities amounted to NOK 0.3 million (NOK 0.9 million) in the first quarter of 2018. Leasing accounted for NOK 0.2 million (NOK 0.8 million) of this amount. Investment in intangible assets (including software developed inhouse for ongoing yearly agreements) totalled NOK 3.1 million (NOK 2.7 million) in the first quarter of 2018. Investments into office equipment and furniture and fittings in new office premises amounted to NOK 2.3 million (NOK 0.0 million).
At its meeting on 15 February 2018, the Board of Directors passed a resolution to propose an ordinary dividend of NOK 0.25 per share at the Annual General Meeting on 22 May 2018. It will also ask for its authorisation to approve possible additional dividends to be renewed.
The market demand for the Group's services is strong, driven by digitalisation in all industries. Artifical intelligence (AI), the Internet of Things, big data and cloud platforms are seeing significant interest and demand not only from small and medium-sized companies with the ability to move fast, but also from large organisations in both the private and public sectors. Furthermore, there is a strong overall trend for organisations to shift from using more traditional working methods to agile approaches, inspired by methodologies such as lean start-up and design thinking. The Group is finding that its position as a specialist at creating digital business is strong, and that the range of services it offers is both unique and in demand from the market.
In the first quarter of 2018, the Group entered into new or extended agreements with strong industry brands including KLP, Gjensidige, Santander, Forsvarsbygg, RiksTV, Islandsbanki and APCOA Parking.
Itera works continuously to keep its position as one of the Top 5 most innovative companies in the market (as recognised by Innovasjonsmagasinet in 2017). The company therefore regards working with customers who are early adopters of new technology as a priority. One such customer is APCOA (formerly Europark), which is part of the APCOA PARKING Group, which currently manages around 1.4 million parking spaces at over 8,500 locations in 12 countries.
Over the past year, Itera has worked with APCOA to develop a machine-based parking solution that improves customer satisfaction and streamlines operations. The system reads each car's number plate when it drives into a car park, interprets the image, and then matches it to various different registers and identifies it. The core of the solution is advanced camera technology and Optical Character Recognition (OCR), a form of machine learning used to interpret images. Challenges that needed to be solved included difficult weather conditions, dirty number plates, technology-based challenges etc. The work started about a year ago, and at the end of the first quarter, the solution had been rolled out to a large number of airports in Norway.
The customer experience has improved as the parking process is now easier and faster than it was traditionally. The process of entering and exiting car parks has been made simpler and automated, and the payment can be done automatically through an app, on a pay station when leaving or by receiving an invoice. No more fines!
New solutions created for businesses in today's modern world are more or less cloud-based by default. There is correspondingly increasing demand in the market for expertise in cloud-based services, deploying DevOps and developing and operating nextgeneration solutions based on advanced services within AI, big data and IoT that run on cloud platforms. The digital platforms used include both horizontal platforms such as Microsoft Azure, Amazon Web Services (AWS) and Google as well as new industry-specific platforms dominated by major companies.
In the first quarter, Itera continued the process of building a very strong environment within DevOps and digital platforms.
Because the General Data Protection Regulation (GDPR) will start to be enforced in 2018, Itera is experiencing demand for advisory services related to compliance. GDPR is a regulation in EU law on data protection and privacy for all individuals in the European Union. GDPR is primarily intended to give citizens and residents control over their personal data. GDPR implies a strict compliance regime, with severe penalties of up to 4% of a company's worldwide turnover.
In order to offer an agile and practical approach, Itera operates interdisciplinary teams that include consultants who specialise in infrastructure and applications, information security, data classification, project management, and processing and analysis, as well as experts from collaborating law firms.
A GDPR delivery involves the customer presenting its detailed insight and knowledge about its business and the data that it processes. Based on this, Itera structures, analyzes and recommends concrete measures with corresponding delivery descriptions to ensure the customer complies with GDPR.
As a company, Itera is part of society, and it correspondingly has a responsibility to make a positive contribution to society. This is communicated by the Group's vision, "MAKE A DIFFERENCE", which constitutes a powerful imperative that is tightly related to the Group's brand. Corporate Social Responsibility (CSR) is important to Itera for several reasons:
Many of Itera's deliveries have an impact on society. A good example of one such delivery in the first quarter was a project that involved some of Itera's service designers working with one of the districts in the City of Oslo to identify how to create effective key arenas for children and young adults in the district.
In relative terms the number of women in the IT sector is low, and Itera wants to help create a more balanced mix. In the first quarter, Itera welcomed 30 female technology students for a full-day visit. This visit attracted political interest, with both the Minister of Children and Equality, Linda Hofstad Helleland, and the Minister of Trade and Industry, Torbjørn Røe Isaksen, visiting Itera to discuss the proportion of women studying tech-related subjects with the participants and Itera.
A key part of Itera's strategy is to maintain and develop the Group's largest and most strategic relationships across national borders and areas of expertise. Itera has a strong customer portfolio in the Nordic region, where many customers are served from more than one of Itera's various locations.
The revenue from Itera's 30 largest customers grew by 14% in the first quarter of 2018 and accounted for 80% of the Group's operating revenue, up from 76% in the first quarter of 2017.
The Group is witnessing a clear tendency for more and more Nordic customers to purchase a wider range of services from Itera across international borders. Nearshoring and cloud services are natural drivers of this, but we are also seeing a greater tendency for personnel resources to be mobile and for project teams to be distributed across international borders in the Nordic region. This is making local presence less critical.
A good example of this scalability is Itera's entry model into the Icelandic market where more than 35 consultants are working from Itera various locations.
The Group's headcount at the end of the first quarter of 2018 was 489 as compared to 419 at the end of the first quarter of 2017.
The proportion of Itera's capacity that is located nearshore (its
nearshore ratio) was 44% (38%) at the end of the first quarter. The Group has development centres in Slovakia and Ukraine, and is approaching its long term strategic target of achieving a nearshore ratio of more than 50%.
To support a further and strong increase in the Group's scalability, the close to 200 employees that work at Itera's development centre in Kiev moved into larger, modern and newly built premises in central Kiev during the first quarter.
Itera's activities are influenced by a number of different factors, both within and outside of the company's control. As a service company, Itera faces business risks associated with competition and pressure on prices, project overruns, recruitment, loss of key employees, customers' performance and bad debts. Market-related risks include risks related to the business cycle. Financial risks include currency fluctuations against the Norwegian krone (NOK), principally in relation to the Danish krone (DKK), the US dollar (USD) and the euro (EUR). In addition, interest rate changes will affect the returns earned by the Group on its bank deposits, as well as leasing costs and the cost of credit facilities.
The Group is exposed through its nearshore activities in Ukraine to additional risk factors such as country risk, data security and corruption. Itera has a zero-tolerance policy on corruption and therefore does not deliver services to the public or private sectors in Ukraine.
More information about risks and uncertainties can be found in Itera's annual report for 2017.
Shortly after the end of the first quarter, KLP announced that it had selected Itera as its partner for digitalising its customer channels.
The agreement will be a continuation of Itera's long-standing relationship with KLP, to which the Group has delivered a wide range of services and solutions within development, communication and user experience for 17 years. Going forward, Itera will work closely with KLP to design and develop the future digital customer experience offered by the company to its 900,000 members, 403 municipalities, 16 county authorities, 24 health trusts and 2500 companies. KLP plays a very important role in society as an investment manager and partner in the lives of many people. Itera is looking forward to helping to make a difference by creating great digital customer experiences for so many people.
The company's overall strategy of developing large, long-term customer relationships, increasing the number of project deliveries which involve the full range of the Group's services, using nearshore resources and focusing on operational efficiency remains unchanged.
Itera develops its range of services to meet customers' requirements, and its services are based on combining communication and technology.
The interim report for the second quarter of 2018 will be published and presented on 17 August 2018.
| 2018 | 2017 | change | change | 2017 | |
|---|---|---|---|---|---|
| All figures in NOK 1000 | $1-3$ | $1-3$ | % | $1 - 12$ | |
| Sales revenue | 131 151 | 118 569 | 12 582 | 11 % | 475 025 |
| Operating expenses | |||||
| Cost of sales | 20 856 | 15 976 | 4 8 8 0 | 31 % | 73 360 |
| Gross Profit | 110 294 | 102 593 | 7702 | 8% | 401 666 |
| Gross Margin | 84 % | 87 % | $-2%$ | $-2.4$ pts | 85 % |
| Personnel expenses | 82 046 | 73 450 | 8 5 9 6 | 12 % | 294 316 |
| Depreciation | 5 200 | 4 8 6 5 | 334 | 7 % | 20 335 |
| Other operating expenses | 13 033 | 12 994 | 39 | 0 % | 47 682 |
| Total operating expenses | 121 136 | 107 286 | 13850 | 13 % | 435 692 |
| Operating profit | 10 015 | 11 283 | $-1268$ | $-11%$ | 39 333 |
| Financial items | |||||
| Other financial income | 155 | 265 | $-110$ | $-42%$ | 713 |
| Other financial expenses | 1635 | 576 | 1 0 5 9 | 184 % | 1721 |
| Net financial items | $-1480$ | $-311$ | $-1169$ | $-376%$ | $-1008$ |
| Ordinary profit before tax | 8 5 3 5 | 10 972 | $-2437$ | $-22%$ | 38 325 |
| Tax expense | 2 0 0 2 | 2629 | $-627$ | $-24%$ | 8691 |
| Profit for the period | 6 5 3 3 | 8 3 4 3 | $-1810$ | $-22%$ | 29 635 |
| Earnings per share | 0.08 | 0.10 | $-0.02$ | $-22%$ | 0.36 |
| Fully diluted earnings per share | 0.08 | 0.10 | $-0.02$ | $-22%$ | 0.36 |
| Statement of other income and costs | |||||
| Currency translation differences | $-197$ | 264 | -461 | $-174%$ | 693 |
| Profit for the period | 6 5 3 3 | 8 3 4 3 | $-1810$ | $-22%$ | 29 635 |
| Total profit | 6 3 3 6 | 8608 | -2 272 | $-26%$ | 30 328 |
| Attributable to: | |||||
| Shareholders in parent company | 6 3 3 6 | 8608 | $-2272$ | $-26%$ | 30 328 |
| 2018 | 2017 | endring | endring | 2017 | |
|---|---|---|---|---|---|
| All figures in NOK 1000 | 31. mar | 31. mar | % | 31. des | |
| ASSETS | |||||
| Non-current assets | |||||
| Deferred tax assets | 3 8 2 2 | 3 3 5 5 | 467 | 14 % | 3 0 2 3 |
| Other intangible assets | 23 126 | 16 163 | 6962 | 43 % | 22 27 2 |
| Fixed assets | 20 452 | 25 768 | $-5316$ | $-21%$ | 21 235 |
| Total non-current assets | 47 400 | 45 286 | 2 1 1 4 | 5 % | 46 530 |
| Current assets | |||||
| Work in progress | 10 165 | 20 992 | $-10826$ | $-52%$ | 15 7 94 |
| Accounts receivable | 77 834 | 63 688 | 14 146 | 22 % | 70 364 |
| Contract assets | 18 684 | 0 | 18 684 | $\bf{0}$ | |
| Other receivables | 20 610 | 20 4 9 5 | 116 | 1% | 21 230 |
| Bank deposits | 44 014 | 65 298 | $-21284$ | $-33%$ | 59 854 |
| Total current assets | 171 308 | 170 473 | 835 | 0% | 167 241 |
| TOTAL ASSETS | 218 708 | 215 759 | 2 9 4 9 | 1% | 213 771 |
| EQUITY AND LIABILITIES | |||||
| Equity | |||||
| Share capital | 24 656 | 24 65 6 | 0 | 0% | 24 656 |
| Other equity | 22 825 | 29 923 | $-7099$ | $-24%$ | $-3653$ |
| Net profit for the period | 6 5 3 3 | 8 3 4 3 | $-1810$ | $-22%$ | 29 635 |
| Total equity | 54 014 | 62 923 | $-8909$ | $-14%$ | 50 638 |
| Non-current liabilities | |||||
| Non-current interest bearing liabilities | 5 5 3 0 | 11 949 | $-6419$ | $-54%$ | 6799 |
| Total non-current liabilities | 5 5 3 0 | 11 949 | $-6419$ | $-54%$ | 6799 |
| Current liabilities | 21 152 | 18 27 2 | 2880 | 16 % | 20 710 |
| Accounts payable Tax payable |
6 5 4 8 | 9 0 7 8 | $-2530$ | $-28%$ | 8 5 3 1 |
| Public duties payable | 38 708 | 34 437 | 4 2 7 1 | 12 % | 33 041 |
| Contract liabilities | 11 095 | 0 | 0 | ||
| Other short-term liabilities | 81 661 | 79 100 | 11 095 | 3% | |
| 2 5 6 0 | 94 052 | ||||
| Total current liabilities | 159 164 | 140 887 | 18 277 | 13 % | 156 334 |
| Total liabilities | 164 694 | 152 836 | 11858 | 8% | 163 133 |
| TOTAL EQUITY AND LIABILITIES | 218 708 | 215 759 | 2 9 4 9 | 1% | 213 771 |
| Equity ratio | 24.7 % | 29.2% | $-4.5$ pts | 23.7% |
| 2018 | 2017 | change | change | 2017 |
|---|---|---|---|---|
| $1-3$ | $1-3$ | ℅ | $1 - 12$ | |
| 8535 | 10 972 | $-2437$ | 550 % | 38 325 |
| -4 459 | $-1702$ | $-2757$ | 38 % | $-8708$ |
| 5 200 | 4 8 6 5 | 334 | 1355 % | 20 335 |
| $-488$ | $-6681$ | 6 192 | $-208%$ | $-1482$ |
| $-7470$ | $-7749$ | 279 | -2878 % | $-14425$ |
| 442 | $-6170$ | 6 612 | $-193%$ | $-3732$ |
| $-10202$ | 6 5 2 4 | $-16726$ | 139 % | 18 713 |
| 214 | -825 | 1039 | -179 % | 639 |
| $-8228$ | $-765$ | $-7463$ | 90 % | 49 664 |
| $-2409$ | $-31$ | $-2.378$ | 99% | $-6041$ |
| $-3101$ | $-2684$ | $-416$ | $-545%$ | $-13418$ |
| -5 509 | $-2715$ | $-2794$ | 3% | $-19458$ |
| $-1590$ | ||||
| 0 | 0 | 0 | 0 % | 3 2 9 8 |
| $-2088$ | $-2317$ | 230 | $-8114$ | |
| 0 | 0 | 0 | 0 % | $-35$ 113 |
| $-2088$ | $-2317$ | 230 | -1109 % | -41 519 |
| 75 | ||||
| $-15841$ | $-5794$ | $-10047$ | 42 % | $-11238$ |
| 71 092 | ||||
| 59 854 | ||||
| 172 | 800 | $-628$ | 227 % | 1577 |
| 0 $-16$ 59 854 44 014 |
0 4 71 092 65 298 |
0 $-19$ $-11238$ $-21284$ |
0 % $-1109%$ 119 % 733 % 407 % |
| All figures in NOK 1000 | Share capital |
Own shares |
Other equity |
Translation differences |
Other equity |
Total equity |
|---|---|---|---|---|---|---|
| Shareholders' equity as of 31 Dec 2016 | 24 656 | $-290$ | 480 | $-928$ | 30 397 | 54 315 |
| Comprehensive income for the year 2017 | 0 | 0 | 0 | 693 | 29 635 | 30 328 |
| Option costs | 0 | 0 | 216 | 0 | $-1134$ | $-918$ |
| Employee share purchase programme | 0 | $\bf{0}$ | 318 | 0 | 0 | 318 |
| Purchase of own shares | 0 | $-75$ | 0 | 0 | $-1515$ | $-1590$ |
| Sale of own shares | 0 | 300 | 0 | 0 | 2998 | 3 2 9 8 |
| Dividend | 0 | $\bf{0}$ | 0 | 0 | $-35$ 113 | $-35113$ |
| Shareholders' equity as of 31 Dec 2017 | 24 656 | $-64$ | 1 0 1 4 | $-235$ | 25 268 | 50 637 |
| Implementation of IFRS 15 | 0 | $\Omega$ | 0 | 0 | $-2961$ | -2961 |
| Comprehensive income year to date 2018 | 0 | 0 | 0 | $-197$ | 6 5 3 3 | 6 3 3 6 |
| Shareholders' equity as of 31 Mar 2018 | 24 656 | $-64$ | 1 0 1 4 | -432 | 28 840 | 54 014 |
There have been no material transactions with related parties during the reporting period 1 January 2018 to 31 March 2018.
There have been no events after 31 March 2018 that would have a material effect on the interim accounts.
The IASB has issued a new standard on the recognition of revenue, IFRS 15 Revenue from Contracts with Customers. IFRS 15 replaces IAS 18, which covers contracts for goods and services, and IAS 11 (Construction Contracts). Itera adopted IFRS 15 with effect from 1 January 2018.
The new standard is based on the principle of recognising revenue when control of goods or services transfers to a customer. The notion of control replaces the existing notion of risks and rewards. The most important change to current practice is that revenue from consulting services rendered related to subscription contracts in some cases will be recognised over the contract period for the subscription contract and not at point in time when the services have been delivered as previously done. Under IFRS 15 control is considered transferred when the subscription contracts are fulfilled, not when these services are rendered. Cost for fulfilling a contract, such as cost related to delivering the services mentioned, were under the previous accounting policy expensed as incurred. IFRS 15 requires capitalisation of such cost as Conctract Asset if the amortisation period is more than 12 months. The amortisation period is the expected contract period, including renewals. Payments from customers for delivering these services are under IFRS considered prepayments and classified as Contract Liabilities under current liabilities. Itera has reconsidered its approach and will use the prospective approach in adopting the standard, which means that the cumulative impact of adopting the standard has been recognised in retained earnings at 1 January 2018. The new accounting standard will have some impact on the timing of when Itera recognises revenue, the cost of resources and tax. In addition, certain line items in the statement of financial position have changed, mainly in relation to contract assets and liabilities.
The tables below show the impact of IFRS 15 on the statement of consolidated income for the first quarter of 2018 and on the statement of financial position as at 31 March 2018. The impact on retained earnings at 1 January 2018 has been estimated to be NOK -3.0 million.
| Old Principles Q1 2018 |
Effect of IFRS 15 |
New Principles |
|
|---|---|---|---|
| All figures in NOK 1000 | Q1 2018 | ||
| Sales revenue | 131 663 | $-512$ | 131 151 |
| Cost of sales | 21 200 | $-344$ | 20 856 |
| Personnel expenses | 82 659 | $-612$ | 82 046 |
| Depreciation | 5 200 | ٠ | 5 200 |
| Other operating expenses | 13 033 | ٠ | 13 033 |
| Operating profit | 9 5 7 1 | 444 | 10 015 |
| Net financial items | $-1394$ | $-86$ | $-1480$ |
| Ordinary profit before tax | 8 177 | 357 | 8 5 3 5 |
| Tax expense | 1919 | 82 | 2 0 0 2 |
| Profit for the period | 6 2 5 8 | 275 | 6 5 3 3 |
| All figures in NOK 1000 | Old Principles Q1 2018 |
Effect of IFRS 15 |
New Principles Q1 2018 |
|---|---|---|---|
| ASSETS | |||
| Deferred tax assets | 3 0 20 | 802 | 3822 |
| Other intangible assets | 23 126 | 0 | 23 126 |
| Fixed assets | 20 452 | 0 | 20 452 |
| Total non-current assets | 46 598 | 802 | 47 400 |
| Work in progress | 20 967 | $-10801$ | 10 165 |
| Accounts receivable | 77 834 | 0 | 77 834 |
| Contract assets | 0 | 18 6 84 | 18 684 |
| Other receivables | 20 610 | 0 | 20 610 |
| Bank deposits | 44 014 | 0 | 44 014 |
| Total current assets | 163 425 | 7883 | 171 308 |
| TOTAL ASSETS | 210 023 | 8685 | 218 708 |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Total equity | 56 699 | $-2685$ | 54 014 |
| Non-current interest bearing liabilities | 5 5 3 0 | 0 | 5 5 3 0 |
| Total non-current liabilities | 5 5 3 0 | $\bf{0}$ | 5 5 3 0 |
| Accounts payable | 21 152 | 0 | 21 152 |
| Tax payable | 6 5 4 8 | 0 | 6 5 4 8 |
| Public duties payable | 38 708 | 0 | 38 708 |
| Contract liabilities | 0 | 11 095 | 11 095 |
| Other short-term liabilities | 81 386 | 275 | 81 661 |
| Total current liabilities | 147 794 | 11 370 | 159 164 |
| TOTAL EQUITY AND LIABILITIES | 210 022 | 8685 | 218 708 |
| Equity ratio | 27.0% | $-2.3$ pts | 24.7% |
In accordance with the guidelines issued by the European Securities and Markets Authority on alternative performance measures (APMs), Itera is publishing definitions for the alternative performance measures used by the company. Alternative performance measures, i.e. performance measures not based on financial reporting standards, provide the company's management, investors and other external users with additional relevant information on the company's operations by excluding matters that may not be indicative of the company's operating result or cash flow. Itera has adopted non-recurring costs, EBITDA, EBITDA margin, EBIT, EBIT margin and equity ratio as alternative performance measures both because the company thinks these measures will increase the level of understanding of the company's operational performance and because these represent performance measures that are often used by analysts and investors and other external parties.
Non-recurring costs are significant costs that are not expected to reoccur under normal circumstances.
EBITDA is short for earnings before interest, tax, depreciaton and amortisation. It is calculated as profit for the period before (i) tax expense, (ii) financial income and expenses and (iii) depreciation and amortisation.
EBITDA margin is calculated as EBITDA as a proportion of operating revenue.
EBIT is short for earnings before interest and tax and is calculated as profit for the period before (i) tax expense and (ii) financial income and expenses.
EBIT margin is calculated as EBIT as a proportion of operating revenue.
Equity ratio is calculated as total equity as a proportion of total equity and liabilities.
| 2018 | 2017 | change | change | 2017 | |
|---|---|---|---|---|---|
| All figures in NOK 1000 | $1-3$ | $1-3$ | % | $1 - 12$ | |
| Profit & Loss | |||||
| Sales revenue | 131 151 | 118 569 | 12 582 | 11 % | 475 025 |
| Gross profit 1 | 110 294 | 102 593 | 7702 | 8 % | 401 666 |
| EBITDA | 15 215 | 16 148 | $-933$ | $-6\%$ | 59 668 |
| EBITDA margin | 11.6% | 13.6% | $-2$ pts | $-2$ pts | 12.6% |
| Operating profit (EBIT) | 10 015 | 11 283 | $-1268$ | $-11%$ | 39 333 |
| EBIT margin | 7.6% | 9.5% | $-1.9$ pts | $-1.9$ pts | 8.3% |
| Profit before taxes | 8535 | 10 972 | $-2437$ | -22 % | 38 325 |
| Profit for the period | 6 5 3 3 | 8 3 4 3 | $-1810$ | $-22%$ | 29 635 |
| Balance sheet | |||||
| Non-current assets | 47 400 | 45 286 | 2 1 1 4 | 5 % | 46 530 |
| Bank deposits | 44 014 | 65 298 | $-21284$ | $-33%$ | 59 854 |
| Other current assets | 127 294 | 105 175 | 22 120 | 21 % | 107 388 |
| Total assets | 218 708 | 215 759 | 2949 | 1% | 213 771 |
| Equity | 54 014 | 62 923 | $-8909$ | $-14%$ | 50 638 |
| Total current liabilities | 159 164 | 140 887 | 18 277 | 13 % | 156 334 |
| Equity ratio | 24.7% | 29.2% | $-4.5$ pts | $-4.5$ pts | 23.7% |
| Current ratio | 0.80 | 0.75 | 0.05 | 7 % | 0.69 |
| Cash flow | |||||
| Net cash flow from operating activities | $-8228$ | $-765$ | $-7463$ | $-976%$ | 49 664 |
| Net cash flow | $-15841$ | $-5794$ | -10 047 | $-173%$ | $-11238$ |
| Share information | |||||
| Number of shares | 82 186 624 | 82 186 624 | 0 | 0% | 82 186 624 |
| Weighted average basic shares outstanding | 81 972 689 | 81 221 179 | 751 510 | 1% | 81 690 873 |
| Weighted average diluted shares outstanding | 82 864 915 | 82 163 129 | 701 786 | 1% | 82 590 747 |
| Profit per share | 0.08 | 0.10 | $-0.02$ | $-22%$ | 0.36 |
| Diluted Profit per share | 0.08 | 0.10 | $-0.02$ | $-22%$ | 0.36 |
| EBITDA per share | 0.19 | 0.20 | $-0.01$ | $-7%$ | 0.73 |
| Equity per share | 0.66 | 0.77 | $-0.12$ | $-15%$ | 0.62 |
| Dividend per share | 0.00 | 0.00 | 0.00 | 0% | 0.43 |
| Employees | |||||
| Number of employees at the end of the period | 489 | 419 | 70 | 17% | 491 |
| Average number of employees | 489 | 411 | 77 | 19 % | 443 |
| Operating revenue per employee | 268 | 288 | -20 | $-7%$ | 1 0 7 2 |
| Gross profit 1 per employee | 226 | 249 | $-24$ | $-10%$ | 906 |
| Personnel expenses per employee | 168 | 179 | $-11$ | $-6\%$ | 664 |
| Other operating expenses per employee | 27 | 32 | $-5$ | $-16%$ | 108 |
| EBITDA per employee | 31 | 39 | -8 | $-21%$ | 135 |
| EBIT per employee | 20 | 27 | -7 | $-25%$ | 89 |
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