Itera — Interim / Quarterly Report 2015

Oct 29, 2015

INTERIM REPORT

THIRD QUARTER 2015

CEO ARNE MJØS CFO BENT HAMMER

OSLO, 29 OCTOBER 2015

Highlights of the third quarter

• Revenue NOK 94 million
• Improved EBITDA of NOK 9.3 million, 9.9 % margin
• Improved EBIT of NOK 4.5 million, 4.8 % margin
• Positive growth in consultancy services in Norway and Denmark, while negative growth in consultancy services in Sweden.
• Solid growth and profitability in IT hosting activities in Norway
• Improved cash flow from operations of NOK 5.3 million
• Dividend of NOK 0.15 per share

FINANCIAL REVIEW

Key figures

	2015	2014*	Change*	2015	Change*	2014*
NOK Million	Q3	Q3		YTD		FY
Operating revenue	94	96	-2 %	322	0 %	434
Gross profit	80	80	0 %	270	1 %	360
EBITDA	9	8	21 %	27	22 %	25
EBITDA margin	9.9 %	8.0 %	23.9 %	8.3 %	22 %	5.8 %
EBIT before non-recurring items	4	3	70 %	12	92 %	4
EBIT margin before non-recurring	4.8 %	2.7 %	74 %	3.7 %	93 %	0.9 %
EBIT	6	3	146 %	10	64 %	0
EBIT margin	6.9 %	2.7 %	151.7 %	3.2 %	65 %	0.1 %
Net cash flow from operations	5	-3	268 %	-9	-879 %	46
Cash and cash equivalents	54	25	115 %	54	115 %	67
Equity ratio	32 %	36 %	-10 %	32 %	-10 %	26 %
Employees at end of period	401	429	-6 %	401	-6 %	417

* P&L figures are pro forma

• Norway grew by 3 % in Q3 and by 5 % in the first nine months.
• Growth and profitability of hosting activities at all time highs

Quarterly development

Operating revenue

NOK million

End of period

EBITDA

EBIT

*: Proforma and before non-recurring items

Statement of income

	2015	2014*	Change*	2015	2014*	Change*	2014*
NOK Million	Q3	Q3		YTD	YTD		FY
Operating revenue	94	96	-2 %	322	323	0 %	434
Cost of sales	14	16	-11 %	52	55	-6 %	74
Personnel expenses	59	61	-2 %	207	210	-1 %	285
Depreciation	5	5	-4 %	15	16	-6 %	21
Other operating expenses	11	12	-5 %	37	36	2 %	49
Total operating expenses	90	93	-4 %	310	317	-2 %	430
Operating profit before non-recurring	4	3	70 %	12	6	92 %	4
Non-recurring items	-2	0		2	0		4
Operating profit (EBIT)	6	3	146 %	10	6	64 %	0
Net financial income	0	0	-145 %	0	0	17 %	-2
Profit before tax	6	3	147 %	10	6	70 %	-1
Tax	2	1	166 %	3	2	75 %	3
Net profit for the period	5	2	140 %	7	4	68 %	-5

• Continued improvements in the profitability of Itera's consulting activities in Norway and Denmark as well as in the IT hosting activities in Norway.
• Non-recurring gain of NOK 2 million in Q3 in connection with the sale of Itera's IT hosting activities in Sweden

Statement of cash flow

	2015	2014	2015	2014	2014
NOK Million	Q3	Q3	YTD.	YTD	FY
Cash flow from operations (EBITDA)	9	8	27	22	25
Change in balance sheet items	-4	$-11$	$-36$	$-23$	21
Net cash flow from operating activities	5	$-3$	-9	-1	46
Net cash flow from investment activities	7	$-2$	$\overline{2}$	-7	$-12$
Purchase of own shares	$\bf{0}$	0	0	0	0
Borrowings repaid	$-2$	$-2$	-6	-6	-7
External dividend paid	$\bf{0}$	0	0	$-29$	$-29$
Net cash flow from financing activities	$-2$	$-2$	-6	$-35$	$-36$
Currency effect on cash	$\bf{0}$	0	0	0
Net change in bank deposits and cash	10	$-7$	$-13$	$-43$
Bank deposits at the end of the period	54	25	54	25	67
New borrowing related to leasing	$\bf{0}$	1	$\overline{2}$	7

12 month rolling cash flow from operations

• Solid improvement in cash flow from operations in Q3
• 12 month rolling cash flow from operations was NOK 37 million

Dividend of NOK 0.15 per share

Shareholder remuneration 2004-2015: NOK 297 million

• Following the authorization granted at the AGM on 21 May 2015, the Board has approved a dividend of NOK 0.15 per share.
• The shares will trade ex-dividend on 29 October 2015

BUSINESS REVIEW

Long-term profitable growth: Key enablers

50%+ of staff nearshore

Larger projects and revenue visibility

Communication AND Technology

The forces of disruptive technology are driving our service offerings and key focus areas

Digitisation is expanding exponentially

• Massive growth in data volumes driven by:
• Cloud technologies
• Big Data
• The internet of things

1

35x

Our multi-site strategy provides agility, scalability and access to top notch resources

• A Nordic full-service provider
• Serving leading customers in fast-growing industries
• Flexibility of a hybrid model
• Delivery across borders in the Nordics and nearshore locations
• Sourcing for value over volume

• EU Data Protection Law compliance

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

Developing larger projects and higher revenue per customer

• Revenue from top 30 customers up by 2 % in Q3
• Top 10: 46 % of total revenue
• Top 20: 62 % of total revenue
• Top 30: 70 % of total revenue
• Benefits:
• Increased revenue visibility
• Improved operational efficiency
• Lower sales and overhead costs

We are approaching our target: several customers are likely to spend more than NOK 50 million per year on services from Itera.

Customers say that Itera is particularly strong when:

Bringing new services to market faster on all devices

Case: New digital sales channels, concepts and campaigns based on lean service design

Case: Framework agreement with the Norwegian Labour and Welfare Administration (NAV)

• Itera and IBM have been awarded a framework agreement for consulting services in relation to hosting IT systems and platforms
• Itera is the sole subcontractor to IBM
• The agreement has a duration of 2+1+1 years and a total value of NOK 110 million.
• Examples of delivery areas:
• Virtualisation technology
• Hosting, production and troubleshooting
• Operation manuals and expertise transfer
• Expertise in IP telephony and mobile solutions

The next strategic opportunity is here:

Nearshore ratio development

• Nearshore ratio of 31 % in Q3, representing a temporary decrease
• Target is for the nearshore ratio to be in excess of 50 %
• Mixed teams are increasing our price flexibility as well as providing access to a very large resource pool

Nearshore ratio

% of all staff located nearshore

OUTLOOK

• Customer demand remains strong in all Nordic markets
• Profitable growth and cash flow are key focus areas
• Larger projects and customers expected to continue to increase revenue visibility, efficiency and scalability

• Itera does not provide guidance to the market on future prospects

BACKUP

Statement of financial position

	2015	2014	Change	2014
NOK Million	30 Sep	30 Sep	%	31 Dec
Deferred tax assets	3	8	$-60%$	6
Other intangible assets	15	15	$-2\%$	16
Fixed assets	20	28	$-30%$	27
Total non-current assets	38	52	$-26\%$	49
Work in progress	9	7	34 %	12
Accounts receivable	60	68	$-12%$	60
Other receivables	30	18	70 %	17
Bank deposits	54	25	115 %	67
Total current assets	153	118	30%	156
Total assets	191	169	13 %	205
Total equity	62	61	2%	54
Non-current liabilities	12	18	$-30%$	16
Accounts payable	18	14	28 %	27
Public duties and taxes payable	26	26	$-1\%$	31
Other short-term liabilities	74	51	44 %	77
Total current liabilities	117	91	29 %	135
Total equity and liabilities	191	169	13 %	205
Equity ratio	32%	36 %		26 %

Good financial position with bank deposits of NOK 54 million and equity ratio of 32 %.

Top 20 shareholders

Holding $\sim$	Percentage $\hat{=}$	Name ≑	Account type $\hat{=}$	Citizenship $\hat{=}$
15,018,298	18.27	ARNE MJØS INVEST AS		NOR.
6,218,575	7.57	STOREBRAND VEKST JPMORGAN EUROPE LTD,		NOR
5,242,206	6.38	MIDELFART INVEST AS		NOR
4,329,031	5.27	OP CAPITAL AS		NOR
3.000.000	3.65	EIKESTAD A/S		NOR.
2,988,606	3.64	VERDIPAPIRFONDET DNB		NOR.
2.400.000	2.92	SEPTIM CONSTULTING A		NOR.
2,282,698	2.78	BOINVESTERING AS		NOR.
2,200,000	2.68	JØSYRA INVEST AS		NOR.
2,031,588	2.47	MARXPIST INVEST AS		NOR
2,023,587	2.46	GAMST INVEST AS		NOR
1,920,028	2.34	STOREBRAND NORGE I JPMORGAN EUROPE LTD.		NOR
1,745,172	2.12	GIP AS		NOR
1.000.000	1.22	FRAMAR INVEST AS C/O FRANK MARTINSEN		NOR
900,000	1.10	AANESTAD PANAGRI AS		NOR
818,349	1.00	JOHS. HAUGERUDSVEI A		NOR
600,000	0.73	MORTEN JOHNSEN HOLDI C/O MORTEN JOHNSEN		NOR.
579,596	0.71	ALTEA PROPERTY DEVEL		NOR.
510.000	0.62	SOBER KAPITAL AS		NOR
505.000	0.61	NYVANG JETMUND GUNNAR		NOR