Itera — Interim / Quarterly Report 2014

Aug 22, 2014

INTERIM REPORT

SECOND QUARTER 2014

CEO ARNE MJØSCFO TORUNN HAVRE

OSLO, 22 AUGUST 2014

Highlights in the second quarter

• • Revenue
• MNOK 115, down -7 % due to Easter seasonality
• • EBITDA
• MNOK 6.6; margin 5.7 %
• • EBIT
• MNOK 1.2; margin 1.0 %
• • Operating cash flow
• MNOK 13.0
• • New Nearshore Development Center inside EU opened successfully
• Balanced risks to Ukraine tensions
• • Strong order intake in Q2
• Focus on public sector

RevenuesNOK million

Revenue and profit are affected by geopolitical tensions in Ukraine

• • Customers are managing their risks and this has had some negative impact on 2014 forecasts.
• No physical impact on business, it is business as usual, but the market perception is high country risk
• Some potential and existing clients are waiting, postponing decisions
• • New Nearshore Development Center is successfully opened in Bratislava in Slovakia inside EU and NATO to balance risks to Ukraine tensions.

FINANCIAL REVIEW

Key figures

		2014	2013	Change	2014	2013	Change
		Q 2	Q2		YTD	YTD
Operating revenue	MNOK	114.8	124.0	$-7\%$	227.2	237.7	$-4\%$
Gross profit	MNOK	92.9	96.0	$-3\%$	187.5	187.3	$0\%$
EBITDA	MNOK	6.6	13.3	$-50%$	14.4	20.7	$-30%$
EBITDA margin		5.7%	10.7 %		6.4%	8.7%
Operating profit (EBIT)	MNOK	1.2	8.0	$-85%$	3.6	10.2	$-65%$
EBIT margin		1.0%	6.4%		1.6%	4.3 %
Profit before taxes	MNOK	1.0	7.7	$-87%$	3.3	9.8	$-66%$
Profit for the period	MNOK	0.7	5.6	$-87%$	2.4	7.0	$-66%$
Net cash flow from operations	MNOK	13.0	13.5	$-4\%$	2.2	18.4	$-88%$
Cash and cash equivalents	MNOK	32	37	$-13%$	32	68	$-52%$
Equity ratio		33 %	37 %		33%	39 %
Employees at end of period		465	435	7%	465	435	7%

First half year was affected by the geopolitical tensions in Ukraine. The new development center inside EU provides new opportunities for the second half year.

Quarterly development

Employees

End of period

EBITDA

NOK million

EBITNOK million

Statement of income

	2014	2013	Change	2014	2013	Change
NOK Million	Q2	Q2	$\%$	YTD	YTD	$\%$
Operating revenue	114.8	124.0	$-7\%$	227.2	237.7	$-4\%$
Cost of sales	21.9	28.1	$-22%$	39.7	50.3	$-21\%$
Personnel expenses	74.0	71.3	$4\%$	149.0	142.7	4 %
Depreciation	5.4	5.3	2%	10.8	10.5	$3\%$
Other operating expenses	12.3	11.4	8 %	24.1	23.9	$1\%$
Total operating expenses	113.6	116.1	$-2\%$	223.6	227.5	$-2\%$
Operating profit (EBIT)	1.2	8.0	$-85%$	3.6	10.2	$-65%$
Net financial income	$-0.2$	$-0.2$		$-0.3$	$-0.4$
Profit before taxes	1.0	7.7	$-87%$	3.3	9.8	$-66%$
Income taxes	0.3	$2.2\phantom{0}$	$-88%$	0.9	2.7	$-67%$
Net profit for the period	0.7	5.6	$-87%$	2.4	7.0	$-66%$

Q2 2014 is impacted by Easter seasonality. For 1H 2014, the half of the revenue decrease is related to termination of a MNOK 10 deal, where a subcontractor does all the work with less than 1% margin to Itera.

Statement of cash flow

2014	2013	2014	2013	2013
Q 2	Q2	YTD	YTD	FY			42
6.6	13.3	14.4	20.7	43.9
6.4	0.3	$-12.2$	$-2.3$	13.8
13.0	13.5	2.2	18.4	57.7
$-2.9$	$-1.2$	$-5.2$	$-2.8$	$-8.8$
0.0	0.0	0.0	0.0	0.0
$-2.0$	$-1.1$	$-3.9$	$-2.4$	$-6.1$
$-28.8$	$-4.9$	$-28.8$	$-4.9$	$-4.9$
$-30.8$	$-6.0$	$-32.7$	$-7.3$	$-11.1$
0.0	0.0	0.0	0.0	1.3
$-20.8$	6.3	$-35.7$	8.3	39.1
32.3	37.1	32.3	68.0	68.0	$Q2-12$		$Q2 - 14$
						7	- - - - - - - - - - - - - - - - - - - 40 $Q2-13$

12 month rolling operating cash

Cash flow from operating activities amounted to MNOK 13.0 in Q2.

Statement of financial position

	2 0 1 4	2 0 1 3	C h a n g e	2 0 1 3
O N K M i l l i o n	3 0 J u n	3 0 J u n	%	3 1 D e c
D f d t t e e r r e a a s s e s x	9	1 1	1 9 % -	9
O h i i b l t t t e r n a n g e a s s e s	1 6	1 8	1 4 % -	1 7
F i d t x e a s s e s	3 0	3 0	1 %	2 8
T l t t t o a n o n- c r r e n a s s e s u	5 5	5 9	7 % -	5 4
W k i o r n p r o g r e s s	8	1 2	3 7 % -	1 6
A i b l t c c o u n s r e c e v a e	6 7	8 5	2 1 % -	7 0
O h i b l t e r r e c e v a e s	2 0	1 2	6 1 %	1 3
B k d i t a n e p o s s	3 2	3 7	1 3 % -	6 8
T l t t t o a c u r r e n a s s e s	2 1 7	1 4 6	1 3 % -	1 6 6
T l t t o a a s s e s	8 1 1	2 0 5	1 2 % -	2 2 0
T l i t t o a e q u y	9 5	7 6	2 1 % -	8 7
N l i b i l i i t t o n- c u r r e n a e s	1 9	1 7	9 %	1 6
A b l t c c o u n s p a y a e	2 2	2 2	1 %	2 7
P b l i d i d b l t t u c u e s a n a x p a y a e s	2 5	2 3	5 %	2 5
O h h l i b i l i i t t- t t e r s o r e r m a e s	5 6	6 7	1 6 % -	6 5
T l l i b i l i i t t t o a c u r r e n a e s	0 3 1	1 1 2	8 % -	1 1 7
T l i d l i b i l i i t t t o a e q u y a n a e s	8 1 1	2 0 5	1 2 % -	2 2 0
E i i t t q u y r a o	3 3 %	3 7 %		3 9 %

Shareholder remuneration

Shareholder remuneration 2004-2013: MNOK 283

A i t c c o n n g e a r u y	2 0 0 4	2 0 0 5	2 0 0 6	2 0 0 7	2 0 0 8	2 0 0 9	2 0 1 0	2 0 1 1	2 0 1 2	2 0 1 3	S m u
D i i d d h e n p e r s a r e v	0 0. 2	-	0 0. 3	0 0. 5	0 0. 2	0 0. 2	0 0. 1	-	6 0. 0	5 0. 3	1. 9 1
S h i l b k h t a r e c a p a p a y a c p e r s a r e	-	-	0 0. 3	0 0. 2	-	-	-	-	-	-	0. 5 0
S m u	0 0. 2	-	0 0. 6	0 0. 7	0 0. 2	0 0. 2	0 0. 1	-	6 0. 0	0. 3 5	2. 4 1

A dividend of NOK 0.35 per share was paid in Q2 2014, MNOK 28.8 in total.

BUSINESS REVIEW

Long term profitable growth: Key enablers

Itera is a communication and technologycompany that provides innovative solutions

Our multi site strategy provides agility, scalabilityand access to top notch resources

• • A Nordic full service provider with seamless nearshoring
• Serving leading customers in fast growing industries
• • Flexibility of a hybrid model
• Sourcing for value before volume by maximizing efficiency instead of capacity only

•A multi-site strategy

Nearshore development centers(NDC) are located inside and outside EU

• EU Data Protection Law compliance

Binding corporate rules (BCR) ensures data protection for all flows of data across borders

Transfers of personal data across borders in compliance with EU Data Protection Law

• • Binding Corporate Rules (BCR) at Itera make it possible to...
• be in compliance with the principles set out by European Data Protection Law for all flows of data within Itera
• harmonize practices relating to the protection of personal data within Itera
• prevent the risks resulting from data transfers to third countries
• avoid the need for a contract for each single transfer
• make data protection integral to the way Itera carries out its business

Disruptive IT forces drive our service offerings and key focus areas

Key drivers cause increased demand for digital strategies

Itera delivered digital strategy projects to several large customers in O2, which opt to turn into large implementation projects going forward.

From traditional hosting to hybrid cloud and service integration and management

A majority of organizations in the Nordics have planned to adopt cloud solutions, a new paradigm shift in IT-outsourcing. Itera is transforming its customers into hybrid cloud in NOR and SWE.

Development of larger projects and larger revenue per customer

• •Top 1 customer up by 59 % YTD
• •Top 3 customers up by 35 % YTD
• •Top 5 customers up by 26 % YTD
• •Top 10 customers up by 11 % YTD
• •Top 30 customers up by -2% YTD.
• • Benefits:
• Increasing revenue visibility
• Improving operational efficiency
• Declining sales and overhead cost

We are approaching our target: several customers should buy services from Itera for more than MNOK 50 per year. Top 1 customer is estimated to MNOK 40 in 2014.

Solid order intake in Q2 where focus on publicsector started to pay off

Order intake in Itera Norway was MNOK 79 in Q2 2014, whilebook-to-bill ratio was 1.24 in 1H 2014.

Nearshore ratio development

• • Nearshore ratio 34 % in Q2, showing a temporary flat development
• • Nearshore ratio target is more than 50 %
• • Mixed teams are increasing our price flexibility in addition to unlimited access to resources

Nearshore ratio

% nearshore of all staff

FTE: Full time employee

OUTLOOK

• •Customer demand remains strong in all Nordic markets
• •Profitable growth and cash flow are key focus areas
• • Opening a new Nearshore Development Center inside EU will balance the risks to Ukraine tensions
• • Larger projects and customers should gradually increase revenue visibility, efficiency and scalability

•Itera makes no forecasts

Top 20 shareholders

Holding $\sim$	Percentage $\hat{=}$	Name $\hat{=}$	Account type $\hat{=}$	Citizenship $\widehat{\div}$
15,018,298	18.27	ARNE MJØS INVEST AS		NOR
5,728,150	6.97	STOREBRAND VEKST JPMORGAN EUROPE LTD,		NOR
5,242,206	6.38	MIDELFART INVEST AS		NOR.
3,687,529	4.49	OP CAPITAL AS		NOR
3,275,250	3.99	VERDIPAPIRFONDET DNB		NOR.
3,000,000	3.65	EIKESTAD A/S C/O PARTNER REVISJON		NOR
2,200,000	2.68	JØSYRA INVEST AS		NOR.
2,080,698	2.53	BOINVESTERING AS		NOR
2,031,588	2.47	MARXPIST INVEST AS		NOR
1,950,000	2.37	SEPTIM CONSTULTING A		NOR
1,798,587	2.19	GAMST INVEST AS		NOR
1,761,808	2.14	STOREBRAND NORGE I JPMORGAN EUROPE LTD,		NOR.
1,302,100	1.58	GIP AS		NOR
1,000,000	1.22	FRAMAR INVEST AS C/O FRANK MARTINSEN		NOR.
988,338	1.20	JOHS. HAUGERUDSVEI A		NOR
900,000	1.10	AANESTAD PANAGRI AS		NOR
617,400	0.75	DnB NOR MARKETS, AKS		NOR
600,000	0.73	MORTEN JOHNSEN HOLDI MORTEN JOHNSEN		NOR.
597,398	0.73	STOREBRAND LIVSFORSI P980, AKSJEFONDET		NOR.
535,247	0.65	DANSKE BANK A/S 3887 OPERATIONS SEC.	NOM	DNK