Crayon Group Holding — Interim / Quarterly Report 2016

May 6, 2016

CRAYON GROUP HOLDING AS FINANCIAL REPORT Q1 2016

Management commentary – Q1 2016

In Q1 2016, Crayon continued its accelerating growth with gross profit growing from MNOK 193.4 in Q1 2015 to MNOK 249.3 in Q1 2016 (+29% year-over-year ("YoY")). Investments in geographic expansion are centred on Software Asset Management (SAM) and cloud first, providing customers and key strategic vendors global reach with local execution concentrated around value adding products and services. Unlike many other traditional licensing players, around 60% of Crayon's customer facing representatives are SAM and technical specialist, making Crayon a natural go to partner and trusted advisor for many clients.

On the geographical dimension, Crayon continued to ramp up operations in newly established markets with gross profit growing triple digit. Additionally, gross profit stemming from prioritized growth markets¹ grew from MNOK 32.8 in Q1 2015 to MNOK 40.6 in Q1 2016 (+24% YoY), while gross profit coming from established Nordic markets² grew from MNOK 168.5 in Q1 2015 to MNOK 189.0 in Q1 2016 (+12% YoY). The gross profit growth experienced across all markets demonstrates the company's unique go to market model centred on SAM and cloud supported by a distinctive pool of people, systems and tools.

In Q1 2016, Crayon continued to invest and provide additional value and bespoke services to its clients with the launch of the 'SAM-iQ' platform. SAM-iQ is a subscription based SAM as a Service (SAMaaS) offer based on a per user per month agreement structure that is specifically designed to provide a best practice framework for the establishment and maintenance of a world class enterprise wide SAM environment. SAM-iQ is a comprehensive proprietorial platform providing customers with detailed workflow management support, reporting, dashboarding, and access to an exhaustive online library of ready to use documents and procedures. In addition, the unique 'services module' attached to all subscriptions provides access to Crayon's leading SAM consulting teams who ensure that the functionality of the SAM-iQ platform is fully leveraged by every customer.

Financials

As mentioned above, gross profit in Q1 2016 was MNOK 249.3 compared to MNOK 193.4 in Q1 2015. From a geographical perspective, the newly established markets are growing fastest, showing triple digit growth. However, prioritized growth markets and established Nordic markets demonstrate solid double digit growth.

Q1 2016 EBITDA³ was MNOK -8.0 compared to MNOK 8.3 in Q1 2015 (MNOK -16.3 YoY). The principal drivers for the negative YoY EBITDA development were the following:

1) Increased operations in the US incl. Anglepoint, generated a negative Q1 2016 EBITDA of MNOK 16.3 compared to MNOK 0 in Q1 2015.

2) Newly established markets in 2015 excl. US (e.g. Spain, Portugal, and Switzerland) contributed with a negative Q1 2016 EBITDA of MNOK 6.5 compared to MNOK -1.0 in Q1 2015.

3) Increased administrative costs to manage increased global operations in addition to investments in strategic Group personnel to develop and roll out new capabilities and service offerings incl. IP (e.g. 'SAM-iQ'), contributed with a negative Q1 2016 EBITDA of MNOK 5.6 compared to MNOK -2.8 in Q1 2015.

The above negative YoY EBITDA performance drivers were partially offset by the following:

1) Established Nordic markets² generated a positive Q1 2016 EBITDA of MNOK 27.1 compared to MNOK +23.1 in Q1 2015.

2) Prioritized growth markets¹ generated a negative Q1 2016 EBITDA of MNOK 2.0 compared to MNOK -4.2 in Q1 2015.

3) Newly established markets with inception point in 2014 (e.g. Austria, Netherlands, India, Malaysia and Singapore) contributed with a negative Q1 2016 EBITDA of MNOK 4.4 compared to MNOK -6.6 in Q1 2015.

Furthermore, in order to amongst other best position the Company for the upcoming refinancing in 2017 in addition to addressing the impact of the ongoing cloud transition which impacts the distribution of profits stemming from licensing in the short-term as profits are spread out in time, the Company has initiated a cost leadership program. The scope of the cost leadership program is to align the overall cost base of the Company with the increasingly changing competitive landscape that the Company is operating in, focusing on directly controllable expenses with a short, and a consequently long term, effect. Total savings in scope is MNOK ~20 in 2016, with an expected increase in 2017. As per Q1 2016, the cost leadership is delivering on plan harmonizing cost policies and sharing best practice cost leadership across the group.

In line with seasonality, where Q1 and Q3 are the weakest quarters from a liquidity point of view, the net cash position as of 31 March 2016 was MNOK 68.6 compared to MNOK 236.3 at the beginning of the year (MNOK -167.7) and MNOK 167.2 as of end Q1 2015 (MNOK -98.6). The negative YoY cash balance is mainly driven by higher investments (geographic, IP and capabilities), M&A activity i n 2015 in addition to a build-up of trade working capital stemming from increased direct customer billing, increased service based revenue, and increased activity in markets with longer payment cycles. In order to address the trade working capital build up, the company is amongst others increasing awareness and training among the sales representatives, in addition to continued focus on harmonizing payment terms between vendors and customers.

Business areas - Review

As per Q1 2016, all business areas demonstrated a positive YoY gross profit growth, where SAM (+64% YoY), licensing (+34% YoY) and XSP⁴ (+34% YoY) showed the largest YoY growth. Consulting experienced a gross profit growth of +2% YoY, driven by solution consult ing which grew its gross profit from MNOK 42.4 in Q1 2015 to MNOK 45.1 in Q1 2016 (+6% YoY). Solution consulting has during 2015 undergone a turnaround, and the positive momentum experienced during H2 2015 continued in Q1 2016.

1 Germany, France, UK and Middle East

2 Norway, Sweden, Finland, Denmark and Iceland

3 Excluding exceptional items

4 Crayon's offering towards hosters, system integrators and ISVs

		Quarter ended			Year to date ended	Year ended
	Note 31 March, 31 March,			31 December,
		Un-audited	Un-audited	Un-audited	Un-audited	Un-audited
(In thousands of NOK)		2016	2015	2016	2015	2015
Operating revenue	2,5	1 242 233	960 139	1 242 233	960 139	4 687 943
Materials and supplies		992 892	766 717	992 892	766 717	3 773 034
Gross profit		249 341	193 422	249 341	193 422	914 909
Payroll and related cost		221 149	150 995	221 149	150 995	668 332
Other operating expenses		36 165	34 113	36 165	34 113	132 829
EBITDA	5	(7 973)	8 313	(7 973)	8 313	113 748
Exceptional items		671	4 721	671	4 721	16 283
Depreciation and amortization	6	21 215	17 849	21 215	17 849	118 443
Operating profit/EBIT		(29 859)	(14 257)	(29 859)	(14 257)	(20 978)
Interest expense		17 757	16 042	17 757	16 042	62 796
Other financial expense, net	7	8 816	7 329	8 816	7 329	39 273
Ordinary result before tax		(38 800)	(22 969)	(38 800)	(22 969)	(44 501)
Income tax expense on ordinary result		(14 254)	(12 076)	(14 254)	(12 076)	(11 581)
Net income		(24 547)	(10 893)	(24 547)	(10 893)	(32 920)
Comprehensive income		(21 853)	(1 054)	(21 853)	(1 054)	35 079
Total comprehensive income		(46 400)	(11 947)	(46 400)	(11 947)	2 159
Allocation of comprehensive income
Owners of Crayon Group Holding AS		(40 304)	(7 634)	(40 304)	(7 634)	10 564
Minority interest		(6 096)	(4 313)	(6 096)	(4 313)	(8 404)
Total comprehensive income allocated		(46 400)	(11 947)	(46 400)	(11 947)	2 159

Crayon Group Holding AS Condensed Consolidated Statement of Income

Crayon Group Holding AS Condensed Consolidated Balance Sheet Statement

		31 March	31 December
		Un-audited	Un-audited
(In thousands of NOK)	Note	2016	2015
ASSETS
Current assets:
Inventory		21 929	21 424
Accounts receivable		654 137	962 359
Other receivables		37 789	35 102
Cash & cash equivalents		68 565	236 293
Total current assets		782 419	1 255 178
Non-current assets:
Technology, software and R&D		97 199	98 655
Contracts		142 187	158 723
Software licenses		7 421	7 421
Goodwill		843 754	862 203
Deferred tax asset		-	-
Property & equipment		19 084	19 691
Investment in associates		-	0
Other long-term receivables		3 352	3 535
Total non-current assets		1 112 998	1 150 228
Total assets		1 895 416	2 405 406
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		503 505	905 795
Income taxes payable		(3 231)	(2 662)
Public duties		161 289	180 776
Dividends		-	-
Other current liabilities		175 919	191 024
Total current liabilities		837 482	1 274 933
Long-term liabilities:
Long-term debt	3,4	671 703	679 956
Deferred tax liabilities		27 254	41 365
Other long-term liabilities		33 685	37 425
Total long-term liabilities		732 641	758 746
Shareholders' equity:
Share capital		52 476	52 476
Own shares		(12)	(43)
Share premium		262 320	262 163
Sum paid-in equity		314 784	314 595
Funds		13 238	54 612
Minority interest		(2 728)	2 520
Total shareholders' equity		325 293	371 727
Total liabilities and shareholders' equity		1 895 416	2 405 406

Condensed Consolidated Statement of Cash Flows Crayon Group Holding AS

		Quarter ended	Year to date ended		Year ended
		31 March,	31 March,		31 December,
	Un-audited	Un-audited	Un-audited	Un-audited	Un-audited
(In thousands of NOK)	2016	2015	2016	2015	2015
Cash flows provided by operating activities:
Ordinary result before tax	(38 800)	(22 969)	(38 800)	(22 969)	(44 501)
Taxes paid	(3 125)	(2 939)	(3 125)	(2 939)	(21 436)
Depreciation and amortisation	21 215	17 849	21 215	17 849	118 443
Net interest to credit institutions	13 144	11 335	13 144	11 335	44 395
Changes in inventory, accounts receivable/payable	(88 297)	(98 309)	(88 297)	(98 309)	(97 113)
Changes in other current assets	(44 538)	(9 869)	(44 538)	(9 869)	45 725
Net cash flow from (used in) operating activities	(140 401)	(104 902)	(140 401)	(104 902)	45 513
Cash flows used in investing activities:
Acquisition of assets	(9 232)	(5 587)	(9 232)	(5 587)	(34 639)
Acquisition of subsidiaries	(1 546)	(3 624)	(1 546)	(3 624)	(64 698)
Divestments	50	137	50	137	1 197
Repurchase of own shares	-	-	-	-	(115)
Net cash flow from (used in) investing activities	(10 728)	(9 074)	(10 728)	(9 074)	(98 254)
Cash flow used in financing activities:
Net interest paid to credit institutions	(12 309)	(9 282)	(12 309)	(9 282)	(43 888)
New equity	-	-	-	-
Change in subsidiaries	-	-	-	-	19 298
Proceeds from issuance of interest bearing debt	-	-	-	-	-
Repayment of interest bearing debt	-	67	-	67	(607)
Change in other long-term debt	(334)	(1 697)	(334)	(1 697)	6 072
Net cash flow from (used in) financing activities	(12 642)	(10 912)	(12 642)	(10 912)	(19 125)
Net increase (decrease) in cash and cash equivalents	(163 771)	(124 888)	(163 771)	(124 888)	(71 866)
Cash and cash equivalents at beginning of period	236 293	296 938	236 293	296 938	296 938
Currency translation	(3 957)	(4 881)	(3 957)	(4 881)	11 221
Cash and cash equivalents at end of period	68 565	167 169	68 565	167 169	236 293

Crayon Group Holding AS Condensed Consolidated Statement of Changes in Shareholders' Equity

Year to date period ending 31 March,		Attributable to equity holders of Crayon Group Holding AS
	Share	Own	Share			Total
(In thousands of NOK)	capital	shares	premium	Funds	Minority	equity
Balance at January 1, 2015	52 476	(216)	262 303	8 889	(2 650)	320 801
Net income	-	-	-	(6 580)	(4 313)	(10 893)
Currency translation	-	-	-	(1 054)		(1 054)
Other	-	-	-	(0)	-	(0)
Balance as of end of period	52 476	(216)	262 303	1 254	(6 963)	308 853

	Attributable to equity holders of Crayon Group Holding AS
	Share	Own	Share			Total
(In thousands of NOK)	capital	shares	premium	Funds	Minority	equity
Balance at January 1, 2016	52 476	(43)	262 163	54 613	2 520	371 729
Opening balance adj.	-	-	-	(1 073)	-	(1 073)
Adjustment	-	-	-	3	847	850
Share repurchase (net)	-	31	156	-	-	188
Net income	-	-	-	(18 719)	(5 828)	(24 547)
Currency translation	-	-	-	(21 585)	(268)	(21 853)
Other	-	(0)	1	(0)	-	0
Balance as of end of period	52 476	(12)	262 320	13 238	(2 728)	325 293

Notes to the Condensed Interim Consolidated Financial Statements - Period ended 31 March,2016

Note 1 - General

The Company is a Norwegian limited liability company and has prepared its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The consolidated condensed interim financial statements have been prepared in accordance with International AccountingStandards ("IAS") No. 34 "Interim Financial Reporting". The interim financial information has not been subject to audit or review.

The accounting policies applied by the Group in these interim financial statements are the same as those applied by the Group in its Consolidated Financial Statements for the year ended 31 December 2014, with the exception of goodwill. According to IAS 21 47, any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate. Other than the above mentioned, there are no changes in accounting policy effective from 1 January 2015 that have impact on the Group accounts.

Gross profit means operating income less direct cost, i.e. raw materials and supplies.

EBIT or "operating profit" means Operating Income less Total operating expenses. EBITDA, when used by the Company, means EBIT adjusted for exceptional items, impairment of non-current assets and depreciation and amortization. EBITDA may not be comparable to other similarly titled measures from other companies. The Company has included EBITDA as a supplemental disclosure because management believes it provides useful information regarding the Company's ability to service debt and to fund capital expenditures, and provides investors with a helpful measure for comparing its operating performance with that of other companies. Exceptional items is defined as extraordinary and non-recurring items in accordance with GAAP.

Note 2 - Seasonality

As with all licensing service providers, Crayon is heavily dependent upon successful sales during the final quarter of the year. Activity normally declines again at the beginning of the new year, before normally increasing again in the second quarter. However, usually the fourth quarter outweighs the second quarter, resulting in lower revenue for the first half year and increased revenue for the second half year.

Note 3 - Issue of new Bond

Crayon Group Holding AS issued in July 2014 a NOK 650 million Bond Issue (initial loan amount) with a potential tap issue of up to NOK 350m, with maturity in July 2017. The bond is to be repaid in full at the maturity date. Interest is set quarterly at NIBOR + 500bps. The proceeds from the initial loan amount was used for refinancing and for general corporate purposes. The proceeds from any tap issue shall be used for Permitted Acquisitions and for general corporate purposes of the Group. The outstanding bond principal (NOK) has been hedged against the relevant currencies comprising underlying cash flow of the company, and is booked as the actual value representing future liabilities based on the exchange rates at the balance sheet date. The bond is listed on the Oslo Stock Exchange. For further information about the Bond we refer to the Bond agreement.

Note 4 - Net interest-bearing debt

Net interest-bearing debt means long-term interest bearing debt less cash. Net interest-bearing debt is not adjusted for normalized working capital.

As of 31 March,
2015
660 245
167 169
493 076

Note 5 - Segment information

"Other" includes administration costs, unallocated Global Shared Cost and intercompany transactions.

Depreciation and amortization, Interest expense, Other financial expense (net), income tax expense and Other comprehensive income are not included in the measure of segment performance.

Licensing is Crayon's license offering from its partners (e.g. Microsoft, Adobe, Symantec, Citrix, VMware, Oracle, IBM and others). The emphasis is towards standard software which customers use consistently year after year, and which play a key role in their technological platforms and critical commercial processes. XSP is Crayon's service offering towards hosters which include license advisory/optimization, software license sale and access to Crayon's reporting portal. Software Asset Managment (SAM) services include process & tools for enabling clients to build in-house SAM capabilities, license spend optimization and support for clients in vendor audits.

Consulting services is related to deployment and application services. Crayon offers IT infrastructure services (planning and analysis support related to larger IT upgrade projects) and tailored software or application development.

Established markets is defined as markets where operations begun before FY 2014, while New markets is defined as markets

where the Company has been operating since FY 2014.

Gross profit by operating segment and country classification:

	Year to date ended
	31 March,
(In thousands of NOK)	2016	2015
Gross profit by operating segment:
- Licensing	82 955	61 871
- XSP	26 656	19 844
- SAM	59 357	36 153
- Consulting	75 515	74 283
Gross profit from operations	244 483	192 151
- Other	4 857	1 271
Total gross profit	249 341	193 422

		Year to date ended
		31 March,
(In thousands of NOK)	2016	2015
Gross profit by country classification:
- Established markets	229 653	201 374
- New markets	32 629	4 461
Gross profit from operations	262 281	205 835
- Other	(12 940)	(12 413)
Total gross profit	249 341	193 422

EBITDA by operating segment and country classification:

	Year to date ended
		31 March,
(In thousands of NOK)	2016	2015
EBITDA by operating segment:
- Licensing	10 219	14 375
- XSP	11 025	12 184
- SAM	1 226	(1 370)
- Consulting	2 228	7 670
EBITDA from operations	24 697	32 859
- Other	(32 671)	(24 546)
Total EBITDA	(7 973)	8 313

	Year to date ended
	31 March,
(In thousands of NOK)	2016	2015
EBITDA by country classification:
- Established markets	25 087	18 884
- New markets	(27 318)	(7 571)
EBITDA from operations	(2 232)	11 313
- Other	(5 742)	(2 999)
Total EBITDA	(7 973)	8 313

Crayon Group Holding AS • Sandakerveien 114A • Pb 4384 Nydalen, 0402 Oslo Tlf + 47 23 00 67 00 • Faks + 47 22 89 10 01 • Org.nr 997 602 234 • www.crayon.com

Investor relations: www.crayon.com/en/about-us/investor-relations/

Note 6 -Depreciation and amortization

Depreciation and amortization consists of the following:

	Year to date ended		Quarter ended		Year ended
		31 March,	31 March,		31 December,
(In thousands of NOK)	2016	2015	2016	2015	2015
Depreciation	3 781	4 766	3 781	4 766	18 114
Amortization of intangibles (incl. write-down)	17 434	13 083	17 434	13 083	100 329
Total	21 215	17 849	21 215	17 849	118 443

Note 7 - Other financial expense, net

Other financial expense, net consists of the following:

	Year to date ended		Quarter ended		Year ended
	31 March,		31 March,		31 December,
(In thousands of NOK)	2016	2015	2016	2015	2015
Interest income	4 613	4 707	4 613	4 707	18 400
Other financial income	18 655	24 495	18 655	24 495	112 993
Other financial expenses	14 452	21 872	14 452	21 872	92 120
Total	8 816	7 329	8 816	7 329	39 273

***END OF REPORT***