Crayon Group Holding — Interim / Quarterly Report 2019

Aug 13, 2019

Q2 2019

Crayon Group – Interim financial report

Content

• Highlights and key figures
• Business review
• Financial review
• Financial statements and notes

Highlights

• Crayon experience strong commercial momentum across all business areas and market clusters in Q2 2019.Gross profit grew by 21.2% compared to the same quarter last year (year-over-year, "YoY"), driven by strong growth in the Software Direct (NOK 43.6m/ +23.2% YoY) and Software Indirect (NOK 15.1m/ +37.8% YoY) segments. From a market cluster perspective, all market clusters delivered solid gross profit growth, and the fact that the international markets delivered two thirds of the gross profit growth demonstrates the value of the historic investments into international expansion.
• Continuing the trend from previous quarters. Adjusted EBITDA continues to grow. In Q2 2019, adjusted EBITDA¹ increasing with NOK 32.5m YoY. The major contributor to the YoY EBITDA improvement was the Growth market cluster.

Key consolidated figures

			Year to date	Year to date	Full year
	Q2 2019	Q2 2018	Q2 2019	Q2 2018	2018
(NOK in thousands, unless stated)	Un-audited	Un-audited	Un-audited	Un-audited	Audited
Operating revenue	4 235 733	2 966 946	6 909 879	4 762 028	9 047 526
Gross profit	493 732	407 528	888 985	717 264	1 486 108
EBITDA	105 455	91 155	134 771	101 666	177 055
Adjusted EBITDA	124 273	91 773	160 054	105 101	188 141
Operating profit/EBIT	76 521	72 700	79 400	65 499	100 576
Net income	45 883	49 186	36 870	36 997	11 000
Cash flow from operations	712 538	114 205	474 429	(136 991)	114 744
Gross profit margin (%)	11,7 %	13,7 %	12,9 %	15,1 %	16,4 %
Adjusted EBITDA margin (%)	2,9 %	3,1 %	2,3 %	2,2 %	2,1 %
Adjusted EBITDA / Gross profit margin (%)	25,2 %	22,5 %	18,0 %	14,7 %	12,7 %
Earnings per share (NOK per share)	0,57	0,61	0,47	0,46	0,20
			June 30, 2019	June 30, 2018	December 31, 2018
Liquidity reserve			841 739	319 408	515 708
Net working capital			(717 910)	(182 190)	(343 216)
Average headcount (number of employees)			1 298	1 059	1 128

(See Alternative Performance Measures section in the note disclosure for definitions)

¹ Adjusted EBITDA is EBITDA excluding other income and expenses. Reference made to Alternative Performance Measures Section in note disclosure. Please note that NOK 9.7 m improvement in adjusted EBITDA (Q2 2019) is driven by the implementation of IFRS 16, as detailed in note 13.

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Business review

Q2 2019 is another quarter of strong gross profit and EBITDA growth. Q2 2019 YoY revenue growth was +42.8% while gross profit growth was +21.2%/ NOK 86.2m, leading to a total Q2 2019 gross profit of NOK 493.7m. Adjusted EBITDA in Q2 2019 was NOK 124.3m (NOK 91.8m), an increase of NOK 32.5m compared with Q2 2018.

As outlined in note 8, Crayon has a strong underlying seasonality to its financial results driven by external factors, with Q2 and Q4 being the strongest quarters, while Q1 and Q3 are typically slower quarters. To compare the performance of the business across this seasonality the relevant comparison is YoY.

All market clusters (See Note 4 for additional information) had positive gross profit growth in Q2 2019 compared to Q2 2018. Nordics is the largest market cluster and delivered a +15.2% gross profit growth, reflecting the strong market position in the Nordics. Growth Markets and Start-Ups market cluster both delivered strong gross profit YoY growth of +24.9% and +49.0% respectively, while the US market cluster had a gross profit YoY development of +47.7%.

The Software division overall, had a strong growth of +25.8% YoY, composed of Software Direct with +23.2% gross profit growth YoY, and Software Indirect with +37.8% gross profit growth YoY. Within the Software segment, gross profit in Start-Ups grew with +59.8% YoY, Growth Markets +18.0% YoY and the Nordics +14.8% YoY. Software in the USA grew by +99.0% YoY, although from a small base of NOK 11.7m in Q2 2018. Across all market clusters, this represents solid commercial performance in the Software segment. Within the Services segment, the overall gross profit growth was +22.1%, driven by Consulting with +26.6% YoY growth and Software Asset Management ("SAM") of +16.4% YoY growth. Within the Services segment, Nordics grew by +17.5% YoY, while Growth Markets, Start-Ups and USA grew by +49.9% YoY, +17.8% YoY and +24.0% YoY respectively.

Q2 2019 adjusted EBITDA was NOK 124.3m (NOK +32.5m YoY). Of this improvement, NOK 9.7m is driven by the implementation of IFRS 16, leaving the direct comparable YoY improvement at NOK +22.8m*. The YoY adjusted EBITDA improvement was driven by the Nordics (NOK +8.7m YoY), Growth Markets (NOK +14.7m YoY), Start-Ups (NOK +1.8m YoY) and USA (NOK 2.2 YoY). USA is experiencing significant commercial momentum (gross profit +47.7% YoY), and Q2 2019 has a positive YoY development in adjusted EBITDA, which demonstrates the potential in the US market.In the business area segment, the adjusted EBITDA improvement was driven by Software Direct (NOK +31.7m YoY), Software Indirect (NOK +4.8 YoY) and Consulting (NOK +6.7m YoY), and SAM (NOK -2.5m).

In Q2 2019, Crayon acquired Sequint, a local player in the Software Indirect space in the Netherlands, and the results of Sequint are reported as part of Software Indirect segment and Growth market cluster. See note 16 for further information on acquisitions during Q2 2019.

Software Gross Profit

In millions of NOK

Services Gross Profit

In millions of NOK

Gross Profit per Market Cluster and growth (%) In millions of NOK

Q2 2018 Q2 2019

The figure above shows gross profit per Market Cluster and the percentage of total gross profit per period, with the total gross profit for the period in the box above each bar.

The figure above shows adjusted EBITDA per Market Cluster, with the total adjusted EBITDA for the period in the box above each bar.

Financial review

Items below the EBITDA line

Depreciation and amortisation are in line with expectations, with the NOK 10.4 m YoY increase. The increase of depreciation is driven by higher investments in recent periods into platforms and ERP systems, but also impact from IFRS 16 of NOK 7.8m. (see note 13 for further explanation).

Interest expenses are increased YoY with NOK 3.6m, where IFRS 16 impact is NOK 2.6m.

Net income before tax decreases YoY by NOK -5.6m to NOK 59.2m, mainly due to higher net financial expenses. Income tax expense for Q2 2019 is NOK 13.3m.

Net income in the period was NOK 45.9m, a decrease from NOK 49.2m in Q2 2018.

Earnings per share decreased from 0.61 per share in Q2 2018 to 0.57 per share in Q2 2019.

Adjusted EBITDA

Adjusted EBITDA is adjusted for share based compensation and other income and expenses, totaling NOK 18.8m in Q2 2019.

For more details, see the 'Alternative Performance Measures' section in this report.

Balance sheet

As of 30.06.2019 Crayon had assets of NOK 4 934m (NOK 3 509m on 30.06.2018) which is primarily composed of accounts receivables NOK 2 872m (NOK 2 171m), goodwill NOK 877m (NOK 828m) and Cash & cash equivalents NOK 708m (NOK 166m). Total liabilities as of 30.06.2019 is NOK 4 350m (NOK 2 916m), consisting primarily of accounts payables NOK 3 079m (NOK 1 913m) and a bond loan NOK 448m (NOK 445m). The bond loan is due in April 2020 and is therefore reclassified from long term to short term debt in the balance sheet as of 30.06.2019.

Trade working capital decreased YoY with NOK -477.6m, which is a strong achievement when comparing with the 42.8% YoY revenue growth.

Management is continuing its efforts to control working capital, in particular in light of the growth in emerging markets with varying credit risks and payment cycles.

Leverage

Net interest-bearing debt as end of end June 2019 was NOK -225m with a net cash position of NOK 708m (the Company reports its cash balance net of drawdown on its revolving credit facility ("RCF")), corresponding to a leverage ratio of 2.5x EBITDA¹ . The Group had significant headroom with regards to its bank covenants as of quarter end.

Cash flow

In line with the underlying seasonality of the business, Q2 2019 had positive cash flow from operations. Cash flow from operations in Q2 2019 was NOK 712.5m, compared with NOK 114.2m in Q2 2018. The improvement of NOK 598.3m is mainly driven by the change in the trade working capital. Implementation of IFRS 16 has a positive impact on cash flow from operations of NOK 9.7m, and a negative impact on cash flow from financing activities of NOK 9.7m.

The net cash position as of 30 June 2019 was NOK 707.8m (the Company reports its cash balance net of drawdown on its revolving credit facility ("RCF")) compared to NOK 165.5m as of 30 June 2018.

The liquidity position of the group remains strong, with a total liquidity reserve as of June 30, 2019 of NOK 841.7m, compared to NOK 319.4m as of June 30, 2018. For more information on the definition of liquidity reserve, please see the 'Alternative Performance Measures' section in this report.

Employees

Crayon is a people business with teammates being our greatest asset. We strive to continuously attract, develop, and retain top talent, but perhaps even more importantly, we empower our employees to do their best every single day at work.

The average number of employees during Q2 2019 was 1 298, compared to an average during Q2 2018 of 1 059. This represents a YoY increase of 239 employees /+22.6%. The Software business division had a total increase in average employees of 77 YoY, representing a 20% increase. The average number of employees in the Services business division increased YoY by 120 employees ² , whilst other employees increased by 42 YoY.

¹ On a LTM basis, excluding share based compensation and other income and expenses and non-controlling interest. Also, adjusted for restricted cash of NOK 19.1m.

2 Includes impact of organic growth and acquisitions.

Condensed Consolidated Statement of Income

		Quarter ended		Year to date ended	Year ended
	Note	30-Jun		30-Jun	31-Dec
		Un-audited	Un-audited	Un-audited	Un-audited	Audited
(In thousands of NOK)		2019	2018	2019	2018	2018
Operating revenue	4	4 235 733	2 966 946	6 909 879	4 762 028	9 047 526
Cost of sales		3 742 001	2 559 418	6 020 893	4 044 764	7 561 419
Gross profit		493 732	407 528	888 985	717 264	1 486 108
Payroll and related cost		330 285	269 508	637 071	525 881	1 105 772
Other operating expenses		39 174	46 247	91 861	86 282	192 194
Share based compensation		2 800	849	3 695	1 684	3 261
Other income and expenses		16 018	(231)	21 588	1 751	7 825
EBITDA		105 455	91 155	134 771	101 666	177 054
Depreciation and amortisation ¹	6	28 934	18 455	55 371	36 167	76 479
Operating profit/EBIT		76 521	72 700	79 400	65 499	100 575
Interest expense		14 411	10 848	28 670	21 843	44 077
Other financial expense, net	7	2 953	(2 891)	1 143	(2 896)	2 727
Net income before tax		59 158	64 744	49 587	46 552	53 773
Income tax expense on ordinary result		13 275	15 557	12 717	9 555	42 773
Net income		45 883	49 186	36 870	36 997	11 000
Allocation of net income
Non-controlling interests		3 039	3 207	1 726	2 186	(4 364)
Owners of Crayon Group Holding ASA Total net income allocated		42 844 45 883	45 979 49 186	35 144 36 870	34 811 36 997	15 364 11 000
Earnings per share (NOK per share)		0,57	0,61	0,47	0,46	0,20
Comprehensive income
Currency translation, net of tax		(10 857)	(814)	(10 072)	(9 752)	6 953
Total comprehensive income		35 026	48 372	26 798	27 245	17 953
Allocation of Total comprehensive income
Non-controlling interests		3 039	4 607	1 726	3 652	(6 832)
Owners of Crayon Group Holding ASA		31 987	43 765	25 072	23 593	24 785
Total comprehensive income allocated		35 026	48 372	26 798	27 245	17 953

For description of other income and expenses, see Alternative Performance Measures section

^¹ Impact of IFRS 16, see note 13

Condensed Consolidated Balance Sheet Statement

		30-Jun		31-Dec Audited 2018
		Un-audited	Un-audited
(In thousands of NOK)	Note	2019	2018
ASSETS
Non-current assets:
Development Costs	9	79 628	76 754	77 556
Technology and software	9	29 294	35 924	33 601
Contracts	9	78 442	73 293	66 109
Software licenses (IP)	9	1 000	1 000	1 000
Goodwill	10	876 920	827 743	840 301
Deferred tax asset		16 831	49 911	29 417
Total intangible assets		1 082 114	1 064 625	1 047 983
Tangible assets
Equipment		31 317	23 152	24 729
Right of use assets		118 619	-	-
Total tangible assets		149 935	23 152	24 729
Other long-term receivables		18 389	10 964	22 658
Total financial assets		18 389	10 964	22 658
Total non-current assets		1 250 439	1 098 741	1 095 370
Current assets:
Inventory		9 132	22 589	8 625
Total inventory		9 132	22 589	8 625
Accounts receivable		2 872 271	2 170 513	1 875 963
Other receivables	13	94 190	51 578	75 998
Total receivable		2 966 461	2 222 092	1 951 961
Cash & cash equivalents	13	707 765	165 512	379 282
Total current assets		3 683 357	2 410 193	2 339 867
Total assets		4 933 796	3 508 934	3 435 237

		30-Jun	31-Dec
		Un-audited	Un-audited	Audited
(In thousands of NOK)	Note	2019	2018	2018
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity:
Share capital		75 394	75 394	75 394
Own shares		(10)	(3)	(35)
Share premium		588 414	588 051	588 051
Sum paid-in equity		663 798	663 442	663 410
Retained Earnings
Other Equity		(73 275)	(82 039)	(72 521)
Total retained earnings		(73 275)	(82 039)	(72 521)
Total equity attributable to parent company shareholders		590 522	581 403	590 889
Non-controlling interests		(6 483)	11 060	(4 581)
Total shareholders' equity		584 039	592 463	586 309
Long-term liabilities:
Bond loan	11	-	445 280	446 558
Derivative financial liabilities		-	(3 020)	3 260
Deferred tax liabilities		31 588	32 925	30 336
Lease liabilities		108 512	-	-
Other long-term liabilities		46 011	14 415	24 982
Total long-term liabilities		186 111	489 600	505 136
Current liabilities:
Accounts payable		3 079 184	1 913 296	1 787 346
Income taxes payable		14 489	6 701	20 311
Public duties		311 159	254 206	209 594
Current lease liabilities		11 470	-	-
Other short-term interest bearing debt	13	12 475	-	39 992
Other current liabilities		288 671	252 668	286 549
Bond loan, current liabilities	11	447 882	-	-
Derivative financial liabilities		(1 683)	-	-
Total current liabilities		4 163 646	2 426 871	2 343 793
Total liabilities		4 349 757	2 916 470	2 848 929
Total equity and liabilities		4 933 796	3 508 934	3 435 237

Condensed Consolidated Statement of Cash Flows

		Quarter ended		Year to date ended	Year ended
		30-Jun	30-Jun		31-Dec
	Un-audited	Un-audited	Un-audited	Un-audited	Audited
(In thousands of NOK)	2019	2018	2019	2018	2018
Cash flows from operating activities:
Net income before tax	59 158	64 744	49 587	46 552	53 773
Taxes paid	(2 554)	(6 407)	(10 872)	(13 002)	(23 625)
Depreciation and amortisation ¹	28 934	18 455	55 371	36 167	76 479
Net interest to credit institutions and interest on bond loan ¹	11 861	8 801	23 686	17 620	35 213
Changes in inventory, accounts receivable/payable	534 565	(127 350)	295 022	(312 649)	(130 084)
Changes in other current accounts	80 574	155 962	61 635	88 321	102 990
Net cash flow from operating activities	712 538	114 205	474 429	(136 991)	114 746
Cash flows from investing activities:
Acquisition of assets	(95 789)	(18 592)	(126 004)	(40 020)	(69 510)
Net cash flow from investing activities	(95 789)	(18 592)	(126 004)	(40 020)	(69 510)
Cash flow from financing activities:
Net interest paid to credit institutions and interest to bond loan	(8 422)	(9 982)	(16 697)	(19 752)	(40 709)
Repayment of interest bearing debt ¹	(9 652)	-	(16 406)	-	-
Other Financial items	24 809	7 105	21 889	7 105	616
Net cash flow from financing activities	6 735	(2 877)	(11 214)	(12 647)	(40 093)
Net increase (decrease) in cash and cash equivalents	623 484	92 737	337 211	(189 657)	5 143
Cash and cash equivalents at beginning of period	84 034	76 441	379 282	368 442	368 442
Currency translation	246	(3 665)	(8 729)	(13 273)	5 697
Cash and cash equivalents at end of period	707 764	165 512	707 764	165 512	379 282

¹ Impact of IFRS 16, see note 13

Earn- out in relations to acquisitions informed in note 16 are included in both investing and financing activities.

The bond loan is due in April 2020, and has been classified as short term debt in the balance sheet as of 30.06.20.19. This has no impact in the cash flow as of 30.06.2019.

Condensed Consolidated Statement of Changes in Shareholder's Equity

Year to date period ending

June 30, 2018	Attributable to equity holders of Crayon Group Holding ASA
(In thousands of NOK)	Share	Own	Share premium		Non-controlling interests	Total equity
	capital	shares		Other Equity
Balance at January 1, 2018	75 394	(3)	588 051	(105 597)	8 153	565 998
Opening balance adj.	-	-	-	1 324	-	1 324
Adjustment	-	-	-	(134)	(750)	(883)
Share based compensation	-	-	-	1 684	-	1 684
Net income	-	-	-	34 811	2 186	36 997
Acquisitions & divestments	-	-	-	(2 908)	4	(2 904)
Currency translation	-	-	-	(11 218)	1 466	(9 752)
Balance as of end of period	75 394	(3)	588 051	(82 039)	11 060	592 463

Year End 2018	Attributable to equity holders of Crayon Group Holding ASA
	Share	Own	Share		Non-controlling	Total
(In thousands of NOK)	capital	shares	premium	Other Equity	interests	equity
Balance at January 1, 2018	75 394	(3)	588 051	(105 597)	8 153	565 998
Adjustment	-	-	-	194	(750)	(556)
Share repurchase (net)	-	(32)	-	(520)	-	(552)
Share based compensation	-	-	-	3 261	-	3 261
Net income	-	-	-	15 364	(4 364)	11 000
Acquisitions & divestments	-	-	-	5 357	(5 152)	205
Currency translation	-	-	-	9 421	(2 468)	6 953
Balance as of end of period	75 394	(35)	588 051	(72 520)	(4 581)	586 309

June 30, 2019		Attributable to equity holders of Crayon Group Holding ASA
	Share	Own	Share		Non-controlling	Total
(In thousands of NOK)	capital	shares	premium	Other Equity	interests	equity
Balance at January 1, 2019	75 394	(35)	588 051	(72 520)	(4 581)	586 309
Adjustment ¹	-	-	-	(3 404)	0	(3 404)
Share repurchase (net)	-	25	363	-	-	388
Net income	-	-	-	35 144	1 726	36 870
Share based compensation				3 695		3 695
Acquisitions & divestments	-	-	-	(25 786)	(3 960)	(29 746)
Currency translation	-	-	-	(10 404)	332	(10 072)
Balance as of end of period	75 394	(10)	588 414	(73 275)	(6 483)	584 039

-22 427 -6875,886 634463,746

¹ Adjustment to opening balance

Notes

Note 1 Corporate information

The Board of Directors approved the condensed first quarter interim financial statements for the three months ended 30 June 2019 for publication on August 13, 2019. These Group financial statements have not been subject to audit or review.

Crayon Group Holding ASA ("Crayon") is a public limited company registered in Norway. The Company is a leading IT advisory firm in software and digital transformation services. Crayon optimises its clients' return on investment ("ROI") from complex software technology investments by combining extensive experience within volume software licensing optimization, digital engineering, and predictive analytics. Headquartered in Oslo, Norway, the company has approximately 1,300 employees in 45 offices worldwide.

Note 2 Basis of preparation and estimates

The consolidated condensed interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS), IAS 34 "Interim Financial Reporting". The condensed interim financial statements do not include all information and disclosures required in the annual financial statement, and should be read in accordance with the Group's Annual Report for 2018, which has been prepared according to IFRS as adopted by EU.

The preparation of interim financial statements requires the Group to make certain estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated by the company based on historical experience and other factors, including expectations of future events that are deemed to be reasonable under the circumstances. Actual results may differ from these estimates. The most significant judgments used in preparing these interim financial statements and the key areas of estimation uncertainty are the same as those applied in the consolidated annual report for 2018.

Assessment of effects of implementation of IFRS 16, Leases(note 13), which was implemented in the Group with effect from 1 January 2019 are described in Note 2 – Summary of significant accounting principles – in the Annual report for 2018.

Note 3 Significant accounting principles

The accounting policies applied in the preparation of the consolidated interim financial statement are consistent with those applied in the preparation of the annual IFRS financial statement for the year ended 31 December 2018.

New standards, amendments to standards, and interpretations that have been published, but not effective as of June 30, 2019, have not been applied in preparing these condensed financial statements. The Group intends to adopt these standards, if applicable, when they become effective.

The Group adopted IFRS 16 1 January 2019 using the modified retrospective approach and has not restated comparative amounts for the year prior to first adoption, see note 13.

The main leases recognized in the balance sheet are the different office leases. The Group has elected to use the exemptions proposed by the standard on lease contracts for which the lease terms end within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. The Group has leases of certain office equipment (i.e., copy machines, coffee machines etc.) that are considered of low value.

The present value of future lease payments is recognized as a financial liability. Lease payments are split into principal and interest portions, using the effective interest method.

The right-of-use asset is recognized within fixed assets and is set equal to the financial liability at the date of implementation. The right-ofuse asset is depreciated on a straight line basis over the lease term or, if it is shorter, over the useful life of the leased asset.

If the expected lease payments change as a result of index-linked consideration, the liability is remeasured. The weighted-average incremental borrowing rate for lease liabilities initially recognized as of January 1, 2019 was 7.00 % p.a.

Note 4 Segment information

The Group regularly reports revenue, gross profit and adjusted EBITDA in functional operating segments and geographical market clusters to the Board of Directors (the Group's chief operating decision makers). While Crayon uses all three measures to analyse performance, the Group's strategy of profitable growth means that adjusted EBITDA is the prevailing measure of performance.

The operating units that form a natural reporting segment are Software (Software Direct and Software Indirect), Services (SAM and Consulting) and Admin/Eliminations (Admin & Shared services and Eliminations). (Further information is found in note 2 in the Annual report for 2018).

See note 14 regarding impact of Operating revenue, and Gross profit due to adjustments related to reported quarterly financial information.

• Software Direct is Crayon's licence offering from software vendors (e.g Microsoft, Adobe, Symantec, Citrix, Vmware, Oracle, IBM and others). The emphasis is towards standard software, which customers consistently use year after year, and which plays a key role in their technological platforms and critical commercial processes.
• Software Indirect is Crayon's offering towards hosters, system integrators and ISVs, which includes licence advisory/optimization, software licence sales and access to Crayons proprietary tools and IP.
• Software Asset Management (SAM) services include processes and tools for enabling clients to build in house SAM capabilities, licence spend optimisation and support for clients in vendor audits.
• Consulting consists of Cloud Consulting and Solution Consulting services related to infrastructure consulting, cloud migration and deployment, bespoke software deployment and follow-up of applications.
• Admin & Shared services includes administrative income and costs, corporate administrative costs (excluding other income and expenses), unallocated global shared costs and eliminations.
• The market clusters are composed of operating countries with similar maturity. The Nordics is composed of Norway, Sweden, Denmark, Finland and Iceland (excluding Ice Distribution). Growth Markets is composed of Germany, Middle East, France and UK. Start-Ups is composed of markets with an inception point during 2014-2015 timeframe (i.e. India, Singapore, Malaysia, Philippines, Austria, Netherlands, Spain, Portugal, Switzerland and Ice Distribution). USA represents the post-closing financial contributions from the Anglepoint and SWI acquisitions, as well as Crayon US. HQ & Eliminations includes corporate admin costs (excluding other income and expenses), unallocated global shared cost and eliminations.

Year to date ended June 30, 2019		Operating Revenue per Market Cluster and Operating Segment
(In thousands of NOK)	Software	Services	Admin/ Eliminations	Total Operating Revenue
- Nordics	2 791 206	359 492	1 260	3 151 958
- Growth	1 953 846	53 927	1 127	2 008 900
- Start-Ups	1 103 830	29 885	2 360	1 136 075
- USA	803 842	74 375	756	878 973
- HQ	2 480	290	34 856	37 626
- Eliminations	0	0	-130 080	-130 080
- Adjustments ¹	0	0	-173 573	-173 573
Total Operating Revenue	6 655 204	517 969	-263 294	6 909 879

Operating Revenue per Market Cluster and Operating Segment

June 30, 2018
(In thousands of NOK)	Software	Services	Admin/ Eliminations	Total Operating Revenue
- Nordics	2 261 900	297 093	3 834	2 562 827
- Growth	1 234 936	42 435	1 785	1 279 156
- Start-Ups	737 754	17 771	1 228	756 753
- USA	292 212	60 434	3 6	352 682
- HQ	-1 183	0	42 478	41 294
- Eliminations	0	0	-127 585	-127 585
- Adjustments ¹	0	0	-103 099	-103 099
Total Operating Revenue	4 525 619	417 732	-181 324	4 762 028

Year to date ended June 30, 2019	Gross Profit per Market Cluster and Operating Segment
(In thousands of NOK)	Software	Services	Admin/ Eliminations	Total Gross Profit
- Nordics	251 313	275 080	888	527 281
- Growth	105 469	48 633	1 101	155 203
- Start-Ups	76 703	24 212	1 514	102 429
- USA	33 246	66 137	756	100 139
- HQ	-751	-12	33 391	32 628
- Eliminations	0	0	-28 695	-28 695
Total Gross Profit	465 980	414 050	8 955	888 985

Year to date ended June 30, 2018		Gross Profit per Market Cluster and Operating Segment
(In thousands of NOK)	Software	Services	Admin/ Eliminations	Total Gross Profit
- Nordics	217 491	225 213	3 058	445 762
- Growth	89 067	37 936	1 787	128 790
- Start-Ups	47 911	16 168	620	64 699
- USA	17 760	55 526	3 6	73 322
- HQ	-1 537	-9	32 249	30 702
- Eliminations	0	0	-26 012	-26 012
Total Gross Profit	370 692	334 834	11 738	717 264

See Alternative Performance Measures section in the note disclosure for definitions.

¹ Impact of IFRS 15, ref. note 14

Year to date ended

Quarter ended			Year to date ended 30. jun.
(In thousands of NOK)	30. jun.
Operating Revenue per Operating Segment	2019	2018	2019	2018
- Software Direct	3 273 310	2 238 017	5 028 468	3 380 448
- Software Indirect	884 042	619 444	1 626 736	1 145 171
Total Revenue - Software	4 157 352	2 857 460	6 655 204	4 525 619
- SAM	104 255	83 508	197 775	162 102
- Consulting	157 987	133 710	320 194	255 630
Total Revenue - Services	262 242	217 217	517 969	417 732
Admin & shared services	13 371	27 570	40 359	49 361
Eliminations	-79 297	-69 830	-130 080	-127 585
Adjustments ¹	-117 935	-65 471	-173 573	-103 099
Total Operating Revenue	4 235 733	2 966 947	6 909 879	4 762 028

	Quarter ended 30. jun.		Year to date ended 30. jun.
(In thousands of NOK)
Gross Profit per Operating Segment	2019	2018	2019	2018
- Software Direct	231 456	187 875	361 727	295 422
- Software Indirect	54 986	39 906	104 253	75 270
Total Gross profit - Software	286 441	227 781	465 980	370 692
- SAM	88 381	75 902	169 322	148 605
- Consulting	122 093	96 428	244 728	186 230
Total Gross profit - Services	210 475	172 330	414 050	334 834
Admin & shared services	12 365	20 144	37 650	37 749
Eliminations	-15 550	-12 728	-28 695	-26 012
Total Gross Profit	493 732	407 528	888 985	717 264

	Quarter ended 30. jun.		Year to date ended 30. jun.
(In thousands of NOK)
Adjusted EBITDA per Operating Segment	2019	2018	2019	2018
- Software Direct	138 689	106 968	186 655	137 785
- Software Indirect	21 113	16 308	41 811	27 760
Total EBITDA - Software	159 802	123 276	228 466	165 544
- SAM	3 877	6 368	5 586	13 430
- Consulting	19 867	13 572	42 059	23 044
Total EBITDA - Services	23 744	19 939	47 645	36 474
Admin & shared services ²	-59 274	-51 443	-116 056	-96 918
Eliminations	0	0	0	0
Total Adjusted EBITDA	124 273	91 773	160 055	105 101

See Alternative Performance Measures section in the note disclosure for definitions.

¹ Impact of IFRS 15, ref. note 14/ ² IFRS 16 impact included i these numbers, ref. note 13

Quarter ended			Year to date ended 30. jun.
(In thousands of NOK)	30. jun.
Operating Revenue per Market Cluster:	2019	2018	2019	2018
- Nordics	1 598 405	1 434 914	3 151 958	2 562 827
- Growth Markets	1 462 084	935 548	2 008 900	1 279 156
- Start-Ups	733 682	483 639	1 136 075	756 753
- USA	627 230	225 550	878 973	352 682
- HQ	11 564	22 598	37 626	41 294
- Eliminations	-79 297	-69 830	-130 080	-127 585
- Adjustments ¹	-117 935	-65 471	-173 573	-103 099
Total Operating Revenue	4 235 733	2 966 947	6 909 879	4 762 028

Quarter ended			Year to date ended 30. jun.
(In thousands of NOK)	30. jun.
Gross Profit per Market Cluster	2019	2018	2019	2018
- Nordics	286 509	248 806	527 281	445 762
- Growth Markets	96 731	77 434	155 203	128 790
- Start-Ups	57 392	38 513	102 429	64 699
- USA	58 461	39 572	100 139	73 322
- HQ	10 189	15 931	32 628	30 702
- Eliminations	-15 550	-12 728	-28 695	-26 012
Total Gross Profit	493 732	407 528	888 985	717 264

	Quarter ended 30. jun.		Year to date ended 30. jun.
(In thousands of NOK)
Adjusted EBITDA per Market Cluster	2019	2018	2019	2018
- Nordics	102 049	93 316	160 361	134 815
- Growth Markets	28 280	13 554	23 109	8 023
- Start-Ups	4 888	3 056	726	-2 445
- USA	2 960	770	-7 452	-3 698
- HQ ²	-13 904	-18 924	-16 689	-31 594
- Eliminations	0	0	0	0
Total Adjusted EBITDA	124 273	91 773	160 055	105 101

See Alternative Performance Measures section in the note disclosure for definitions.

¹ Impact of IFRS 15, ref. note 14/ ² IFRS 16 impact included i these numbers, ref. note 13

Note 5 Share options

Share incentive scheme:

2.05 million share options have been allotted to management and selected key employees. Each share option allows for the subscription of one share in Crayon Group Holding ASA. The fair value of the options is calculated when they are allotted and expensed over the vesting period. A cost of NOK 2.8 m (including accrued social security tax) has been charged as an expense in the profit and loss statement in Q2 2019. The fair value at grant date is determined using an adjusted form of the Black Scholes Model, which considers the exercise price (NOK 15.50), the term of the option (5 years), the impact of dilution (where material), the share price at the grant date (NOK 15.50), expected price volatility of the underlying share and risk-free interest. The expected volatility is based on historical volatility for a selection of comparable listed companies. Risk free interest is based on treasury bond with same maturity as the option program. For further details, see stock exchange notifications regarding IPO, see www.newsweb.no. In total, the board of directors and management were allotted 0.4 million and 0.5 million share options, respectively.

Note 6 Depreciation and amortisation

Depreciation and amortisation consists of the following:

	Quarter ended		Year to date ended		Year ended
	30-Jun		30-Jun		31-Dec
(In thousands of NOK)	2019	2018	2019	2018	2018
Depreciation	10 851	2 560	20 005	5 104	11 581
Amortisation of intangibles (incl. impairment)	18 083	15 896	35 366	31 063	64 897
Total	28 934	18 456	55 371	36 167	76 479

See note 9 for breakdown of intangible assets. See note 13 regarding impact of IFRS 16.

Note 7 Other financial income and expenses

Other financial income and expenses, consists of the following:

		Quarter ended		Year to date ended
	30-Jun		30-Jun		31-Dec
(In thousands of NOK)	2019	2018	2019	2018	2018
Interest income	2 550	2 047	4 984	4 223	8 864
Other financial income	17 936	25 602	37 392	48 697	104 525
Other financial expenses	-23 438	-24 758	-43 519	-50 024	-116 116
Other total financial income / (Expense)	-2 953	2 891	-1 143	2 896	-2 727

Foreign currency gain/loss is presented in the note on a gross basis. In the Consolidated Statement of Income 1.1-30.6 foreign currency is presented net.

Note 8 Seasonality of operations

The groups result of operations and cash flows have varied, and are expected to continue to vary, from quarter to quarter and period to period. These fluctuations have resulted from a variety of factors including contractual renewals being skewed towards Q2 and Q4, yearend campaigns by key vendors (Microsoft's fiscal year ends 30 June, Oracle fiscal year ends 31 May) and the number of working days in a quarter resulting in shorter production periods for consultants.

Note 9 Intangible assets

	Software	Development		Technology and
2019	licenses (IP)	costs	Contracts	software	Total
Aquisition cost 01.01	7 421	207 847	362 511	66 549	644 328
Additions	-	23 699	22 335	-	46 034
FX translation	-	432	-564	-436	-568
Aquisitition cost at the end of the period	7 421	231 978	384 282	66 113	689 794
Amortisation and impairment 01.01	6 421	130 292	296 402	32 948	466 063
Amortisation	-	22 057	9 439	3 870	35 366
Impairment	-		-	-	0
Accumulated amortisation and impairment	6 421	152 349	305 841	36 818	501 429
Net value at the end of the period	1 000	79 628	78 441	29 295	188 364
Amortisation period	None	3-10 years	5-10 years	3-10 years
Amortisation method	None	Linear	Linear	Linear

The company recognises intangible assets in the balance sheet if it is likely that the expected future economic benefits attributable to the asset will accrue to the company and the assets acquisition cost can be measured reliably.

Intangible assets with a limited useful life are measured at their acquisition cost, minus accumulated amortization and impairments. Amortization is recognised linearly over the estimated useful life. Amortization period and method are reviewed annually. Intangible assets with an indefinite useful economic life are not amortized, but are tested annually for impairment. The company divides its Intangible Assets into the following categories in the balance sheet:

Technology and software:

Per IFRS 3, the Group has assessed if there are any identifiable intangible assets separable from Goodwill arising on business combinations. The Group has determined that intangible assets arising from the business combinations of Anglepoint and FAST meet the recognition requirements under IAS 38 as separately identifiable intangible assets. In the case of FAST, a set of technology and software primarily used in a subscription service to customers who need both software asset management (SAM) and IT compliance services was capitalized. This technology and software is expected to generate future economic benefits to the Group. In the case of the business combination with Anglepoint, the Group capitalized software and technology developed internally by Anglepoint. All qualifying intangible assets acquired during business combinations are recognized in the balance sheet at fair value at the time of acquisition. Technology, Software and R&D arising from business combinations are amortised linearly over the estimated useful life.

In addition to intangible assets recognized as part of business combinations, the Group also capitalizes expenses related to development activities if the product or process is technically feasible and the Group has adequate resources to complete the development. Expenses capitalized include material cost, direct wage costs and a share of directly attributable overhead costs. Capitalized development costs are depreciated linearly over the estimated useful life.

Software licences (IP):

Software Licences (IP) relates to intangible assets recognised in relation to Genova. Genova is part of Esito's developed software used as an internal tool to serve its customer base, and is expected to generate future economic benefits for the Group. The intangible assets have an indefinite life and therefore, are not amortized. The assets are tested annually for impairment.

Contracts:

Per IFRS 3, the Group has assessed if there are any identifiable intangible assets separable from Goodwill arising from business combinations.

The Group has determined that the contractual customer relationships identified in the business combinations of Anglepoint, Inmeta, FAST, Again and Sequint meet the recognition requirements under IAS38 as separately identifiable intangible assets. These contractual relationships are all expected to generate future economic benefits to the Group.

Contractual customer relationships acquired in business combinations are recognized in the balance sheet at fair value at the time of acquisition. The contractual customer relationships have limited useful life and are stated at acquisition cost minus accumulated amortization. Linear amortization is carried over expected useful life.

Note 10 Goodwill

Goodwill arising on business combinations is initially measured at cost, being the excess of the cost of an acquisition over the net identifiable assets and liabilities assumed at the date of acquisition and relates to the future economic benefits arising from assets which are not capable of being identified and separately recognised. Following initial recognition, Goodwill is measured at cost less accumulated impairment losses. Reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period is presented below:

(In thousands of NOK)	Goodwill
Aquisition cost at 01.01	890 440
Additions	41 080
Currency translation	-4 461
Aquisition cost at the end of the period	927 059
Impairment at 01.01	50 139
Impirment during the period
Accumulated Impairment at the end of the period	50 139
Net book value at the end of the period	876 920

The Group performs an impairment test for goodwill on an annual basis or when there are circumstances which would indicate that the carrying value of goodwill may be impaired. When assessing impairment, assets are grouped into cash generating units (CGU's), the lowest levels at which it is possible to distinguish between cash flows.

Impairment of goodwill is tested by comparing the carrying value of Goodwill for each CGU to the recoverable amount. The recoverable amount is the higher of fair value less cost to sell and value in use.

The impairment assessment is built on a discounted cashflow model (DCF), with the model assumptions relating to WACCC and CAGR.

Additions of Goodwill are related to the acquisitions described in note 16.

Note 11 Debt

In March 2017, the company successfully completed the issuance of a NOK 600m senior secured bond in the Nordic market, which has since been deleveraged to NOK 450m with proceeds from the IPO. Net proceeds from the bond issues were used to refinance the outstanding NOK 650m bond issued in July 2014.

In light of the refinancing mentioned above, the group also increased its revolving credit facility to NOK 200m in Q3 2017.

Settlement for the initial loan amount was 6 April 2017, with final maturity 6 April 2020. The initial loan amount has a coupon of 3 months NIBOR +550bps. p.a. Any outstanding bonds is to be repaid in full at maturity date. The bonds are listed on the Oslo Stock Exchange. For further information about the Bond, we refer to the Bond terms.

The outstanding bond principal (NOK) has been hedged against the relevant currencies comprising the 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. In accordance with IFRS 9, the transactional costs (NOK ~ 10 million) related to the bond issue which was settled on April 6th 2017 are accretion expensed (i.e. added back) over the lifetime of the bond, thus reaching NOK 450m nominal value at maturity in Q2 2020.

Net interest-bearing debt means senior debt to credit institutions and other interest-bearing debt less freely available cash. Net interestbearing debt is not adjusted for normalized working capital.

	Year to date ended		Year ended
	30-Jun		31-Dec
(In thousands of NOK)	2019	2018	2018
Long Term Interest bearing Debt	1 399	454 197	452 798
Bond loan, current liabilities	450 000	-	-
Other short-term interest bearing debt	12 475	-	39 992
Cash & cash equivalents	-707 765	-165 512	-379 282
Restricted cash	19 055	15 825	17 358
Net interest bearing debt	-224 835	304 510	130 866

Note 12 Financial Risk

Crayon Group is exposed to a number of risks, including currency risk, Interest rate risk, liquidity risk and credit risk. For a detailed description of these risks and how the group manages these risks, please see the annual report for 2018.

Note 13 Right-of-use assets and lease liabilities

IFRS 16 was implemented for the Group with effect as of 1 January 2019.

On transition to IFRS 16, the Group recognized NOK 118.6m in right-of-use assets and NOK 120.0m as lease liabilities. Profit for the period is not affected significantly. The change to IFRS 16 will have no significant effect on the estimated tax expense.

Accounting principles applied are described in the annual IFRS financial statements for the year ended 31 December 2018.

The Group leases several assets such as buildings, equipment and vehicles. In the annual IFRS financial statements for the year ended 31 December 2018 the discounted effect of IFRS 16 was estimated to NOK 129,1 million on implementation. The deviation from this projection is mainly related to renewed assessment and classification of the different leases due to practical expedients, i.e. leases below 12 months.

The Group leases several assets such as buildings, equipment and vehicles. The movements of the Group's right-of-use assets and lease liabilities are presented below:

Right of use asset 01.01.2019	108 323
Additions	23 639
Depreciation	-13 343
Right of use asset 30.6.2019	118 619
Lower of remaning lease term or economic life	0-12 years
Depreciation method	Linear
Total lease liabilities:
Current lease liabilities <1 year	11 470
Non-current lease liability >1 year	108 512
Total lease liabilities 30.6.2019	119 982

IFRS 16 effects on the income statement 2019	Quarter ended	Year to date ended
	30-Jun	30-Jun
	2019	2019
Operating expenses	9 652	16 406
Depreciation	-7 766	-13 343
Net interest to credit institutions	-2 591	-4 427
Effect on profit before income tax in the period	-705	-1 363

Note 14 Adjustment and reclassification

Adjustment to reported quarterly financial information:

Reclassifications:

1). Reclassification of loan from cash & cash equivalents to other interest-bearing short-term liabilities, see Alternative Performance section.

Credit facilty in India was in Q2 2018 reported as net Cash & cash equivalents. From Q4 2018 this is reported as short-term interest bearing debt. Due to immateriality Q2 2018 (NOK 32m) figures are not restated.

2). Amount previous classified as operating revenue, does not meet requirement in IFRS 15, and has been reclassified to cost of sales. See note 4.

3). Adjustment related to revised assessment of control over an entity within the group. Crayon has reassessed the ability to control a certain entity within the group and has concluded that control does not exist as at 31 December 2018. An adjustment has been made to the consolidated financial information to reflect the revised assessment impacting revenues, cost of sales and accounts receivable and payable.

	As reported Q2
	2018	Q2 2018	Change
Equipment	23 193	23 152	-41
Accounts receivable	2 263 783	2 170 513	-93 270
Other receivables	54 550	51 578	-2 972
Accounts payable	2 008 046	1 913 296	-94 750
Other current liabilities	254 189	252 668	-1 521

	As reported Q2
	2018	Q2 2018	Change
Operating revenue	3 125 307	2 966 946	-158 361
Cost of sales	2 716 853	2 559 418	-157 435
Gross profit	408 454	407 528	-926
Opex	317 299	316 373	-926
EBITDA	91 155	91 155	-

Note 15 Events after the balance sheet

There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers spread across several countries and industries. Accounts receivables increased from last quarter related to the cyclability of the business and some regions with higher days outstanding. Particularly India, Middle-East and France. As a consequence the provision for bad debt according to IFRS 9 is increased. However, we do not see any material change in the overall risk related to accounts receivables that diverge from previous quarters.

There were no other significant events that have occurred subsequent to the balance sheet date that would have an impact on the interim financial statements.

Note 16 Acquisitions of business

Complit

On 12 March 2019 Crayon Group announced the acquisition of 100% of the shares in Complit AS, a leading Norwegian IT service desk company. Crayon acquired Complit at an equity value of approximately NOK 8.3m, out of which NOK 3.3m is related to an earn-out model based on the financial performance of the company during the next 12 months. For the FY 2018, Complit posted revenues of approximately NOK 10m and an EBITDA of NOK 2m, implying a EV/EBITDA multiple of x4 as the company was acquired on a cash-free and debt-free basis. Complit AS is a related party acquisition, and the acquisition is according to The Company Act 3-8. The goodwill in the transaction was assessed to NOK 3.8m.

Sequint

On 8 may 2019 Crayon Group announced the acquisition of 100% of the outstanding shares of Sequint, a leading Dutch IT channel software service provider. According to the SPA, Crayon Group acquired Sequint on an equity value of approximately NOK 62.0m, out of which NOK 38m relates to an earn-out model based on the financial performance of the company during the next 24 months. The earn-out are contingent consideration estimated to NOK 16.0m for 2019 performance and NOK 21.5 m for 2020 performance, and are classified as short and long-term liabilities, accordingly. The Goodwill in the transaction was assessed at EUR 3,8m which corresponds to NOK 37.5m.

Alternative Performance Measures

The financial information in this report is prepared under International Financial Reporting Standards (IFRS), as adopted by the EU. In order to enhance the understanding of Crayon's performance, the company has presented a number of alternative performance measures (APMs). An APM is defined as by ESMA guidelines as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the relevant accounting rules (IFRS).

Crayon uses the following APM's:

• Gross profit: Operating Revenue less materials and supplies
• EBIT: Earnings before interest expense, other financial items and income taxes
• EBITDA: Earnings before interest expense, other financial items, income taxes, depreciation and amortization
• Adjusted EBITDA: EBITDA adjusted for share based compensation and other income and expenses.

		Year to date ended
	30-Jun		31-Dec
(In thousands of NOK)	2019	2018	2018
EBITDA	134 771	101 666	177 054
Other Income and Expenses	25 283	3 434	11 086
Adjusted EBITDA	160 054	105 101	188 140

Other Income and expenses: Speciafications of items defined as adjustments. See table below.

	Year to date ended 30-Jun		Year ended 31-Dec
(In thousands of NOK)	2019	2018	2018
Business development expenses and legal structuring	21 222	191	961
IPO Cost 2017 (Project Elevate)	366	137	310
Share based compensation	3 695	1 684	3 261
Extraordinary personell costs	-	1 423	6 554
Other income and expenses	25 283	3 434	11 086

Net Working Capital: Non- interest bearing current assets less non- interest bearing current liabilities. Net Working Capital gives a measure of the funding required by the operations of the business.

	Year to date ended 30-Jun		Year ended 31-Dec
(In thousands of NOK)	2019	2018	2018
Inventory	9 132	22 589	8 625
Accounts receivable	2 872 271	2 170 513	1 875 963
Other receivables	94 190	51 578	75 998
Income taxes payable	-14 489	-6 701	-20 311
Accounts payable	-3 079 184	-1 913 296	-1 787 346
Public duties	-311 159	-254 206	-209 594
Other current liabilities	-288 671	-252 668	-286 549
Net working capital	-717 910	-182 190	-343 216

Cash & cash equivalents: Cash & cash equivalents is presented net in Q2 2018. The credit facility in India has been reclassified as other interest bearing short-term liabilities in Q4 2018. Figures are not restated due to immateriality for Q2 2018.

Free available cash: Cash and cash equivalents less restricted cash.

Liquidity reserve: Freely available cash and credit facilities. Q2 2018 figures are changed compared to previously reported figures as they include an unused credit reserve in India.

	Year to date ended 30-Jun		Year ended
			31-Dec
(In thousands of NOK)	2019	2018	2018
Cash & cash equivalents	707 765	165 512	379 282
Restricted cash	-19 055	-15 825	-17 358
Free available cash	688 709	149 687	361 923
Available credit facility	153 030	169 721	153 785
Liquidity reserve	841 739	319 408	515 708

Responsibility statement by the Board and CEO

The Board and CEO have considered and approved the condensed set of financial statements for the period 1 January to 30 June 2019. We confirm to the best of our knowledge that the condensed set of financial statements for the above-mentioned period:

• Has been prepared in accordance with IAS 34 (Interim Financial Reporting)
• Gives a true and fair view of the Group's assets, liabilities, financial position, and overall result for the period viewed in in their entirety
• That the interim management report includes a fair review of any significant events that arose during the above-mentioned period and their effect on the financial report
• Gives a true picture of any significant related parties' transactions, principal risks and uncertainties faced by the Group

Oslo, August 12, 2019

Grethe Viksaas Jens Rugseth

Chairman

Dagfinn Ringås

Eivind Roald Camilla Magnus Bjørn Rosvoll

Jan Henrik Emanuelsen Torgrim Takle

CEO

Brit Smestad