Itera — Interim / Quarterly Report 2019

Oct 23, 2019

INTERIM REPORT

ITERA THIRD QUARTER 2019

CEO ARNE MJØS CFO BENT HAMMER

OSLO, 23 OCTOBER 2019

PRESENTERS AND AGENDA

Highlights of the quarter

Business review

Financial review

Outlook

HIGHLIGHTS OF THE THIRD QUARTER

• High growth and profitability in core digital business
• Revenue growth of 10%
• EBIT margin of 9.9%
• Total business
• Revenue NOK 128 (121) million, up by 6% y-o-y
• Gross profit NOK 111.1 (102.1) million, up by 9% y-o-y
• EBIT of NOK 9.9 (6.4) million, 7.7% (5.3%) margin
• Increasing revenue from strategic customers in new industries
• Order intake high in digital business with book-to-bill ratio of 1.4
• Itera named one of Top 25 innovative companies in Norway fourth year running
• Additional dividend of NOK 0.30 per share payable on 1 Nov resolved by the Board

3

BUSINESS REVIEW

OUR STRATEGIC POSITION:

SPECIALISTS IN CREATING DIGITAL BUSINESS

PLATFORM FIRST

NEW USE CASES

WE ENGAGE THE USER

WE FOCUS ON THE BUSINESS

DATA CENTRIC

WE UNDERSTAND THE TECHNOLOGY

ARTIFICIAL INTELLIGENCE

SHIFT FROM THE RISE OF PLATFORMS

OUR STEPS INTO THE FUTURE

• 1. We are working with first movers on creating digital business
• 1. New engagements are organised as DevSecOps on platforms as first choice
• 1. We are moving existing projects to platforms
• 1. We are transforming workload from traditional data centers to cloud platforms

CONTINUOUS INNOVATION DevSecOps

Selected projects

SERVICE DESIGN TO INCREASE RECYCLING

• The renovation agency in the City of Oslo handles waste and recycling
• When business customers need to get rid of smaller amounts of food waste, plastic, paper and residual waste, the agency wants to provide a good and holistic user experience.
• The agency wants to use service design as a method in developing the services and has chosen Itera to deliver the expertise.
• Some of the goals
• increase the proportion of industrial waste for recycling in line with government and EU requirements
• identify needs and areas where digitisation can benefit the citizens of Oslo

ENTERING NEW INDUSTRIES

• New frame agreement with Instech Solutions in Bergen, a world leader in marine insurance software, jointly owned by Norwegian Hull Club
• Providing services in development and management of Instech's insurance solution used by insurance companies and brokers worldwide
• The collaboration is in line with Itera's growth plans in Western Norway, as well as the focus on new industries

COGNITE REALISATION PARTNER

Itera is a strategic partner to Cognite in the transformation of heavy industries through our end-to-end services in creating digital business

• Several key engagements with large enterprises in the Oil & Gas and Utility industries
• Smart Maintenance
• Production optimisation
• Digital worker
• Using Cognite Data Fusion Platform
• Digital Twins, IoT and AI
• Itera is engaged as ONE Itera and hybrid delivery with high scalability of digital talents

Order intake from new and existing customers

New customers

Existing customers

Book-to-bill ratio*) of 1.4 in Q3 for Digital Business and 1.5 YTD

*) The book-to-bill ratio is the ratio of orders received to the amount of revenue for a specific period for Itera units ¹²

Itera is awarded amongst Top 25 most innovative companies across industries in Norway the last 4 years

CUSTOMER DEVELOPMENT

• New business
• Existing customers accounted for 86.7% (95.2%) of revenues in Q3 2019
• New customers won over the past year generated revenues of NOK 17.0 (5.8) million in Q3 2019
• Increasing visibility

14

• Share of revenue from top 30 customers down by 5 points y-o-y to 77%
• High customer concentration signifies
• Strategic relationships
• Full range of services
• Hybrid delivery across borders

** New customers defined as customers won since end of corresponding quarter last year

15

Nearshore ratio % of all staff located nearshore

• Our hybrid teams of onshore and nearshore consultants are increasing our price flexibility as well as providing access to a very large resource pool

HIGH ATTENTION IN THE FINANCE SECTOR

• In September, the much-hyped PSD2 directive (Payment Services Directive 2) fully entered into force
• PSD2 might lead to disruptive changes. FinTech companies might challenge established players' product and service portfolios
• Subsidiary and finance specialist Cicero together with Itera hosted an open market seminar, fully booked with several hundred participants
• The seminar was followed by a launch of a new podcast series with focus on the finance sector

FINANCIAL REVIEW

KEY

18

	2019	2018	Change	2019	2018	Change	2018
NOK Million	Q3	Q3	%	YTD	YTD	%	FY
Sales revenue	128 3	121 3	6 %	414 3	390 0	6 %	531 3
Gross profit	111 1	102 1	9 %	355 8	326 2	9 %	444 0
Personnel expenses	82 3	8 75	8 %	260 5	244 1	% 7	327 8
Other opex	9 7	14 5	(33 %)	31 4	40 4	(22 %)	52 3
EBITDA	19 1	11 8	63 %	64 0	41 7	54 %	64 0
EBITDA margin	14 9 %	9 7 %	5 2 pts	15 4 %	10 7 %	4 8 pts	12 0 %
Depreciation	9 2	3 5	73 %	26 3	15 8	67 %	21 1
EBIT	9 9	6 4	54 %	37 6	25 9	45 %	42 8
EBIT margin	7 7 %	3 % 5	2 4 pts	9 1 %	6 6 %	2 4 pts	8 1 %
flow from Net cash operations	15	1	913 %	37	15	149 %	56 8
Cash and cash equivalents	46	20	133 %	46	20	133 %	55 3
Equity ratio	23 6 %	18 1 %	5 5 pts	23 6 %	18 1 %	5 5 pts	24 3 %
Employees end of period at	505	493	3 %	505	493	3 %	486
Employees in average	502	488	3 %	494	488	1 %	488

• FIGURES Revenue growth driven by core digital business with less use of subcontractors
• Significant profitability growth from operational effectiveness and nearshore growth
• Strong cash flow from operations

CLOUD TRANSFORMATION

Total Q3 2019

• Revenue growth 6% (YTD: 6%)
• EBIT margin 7.7% (YTD: 9.1%)

Core digital business Specialists in creating digital business

• Revenue growth 10% (YTD: 9%) • EBIT margin 9.9% (YTD: 10.3%)

High growth and profitability

77%

23%

Data centre transition Lift and shift data centre customers

into the cloud

• Revenue decrease -4% (YTD: -2%)
• EBIT margin 1.7% (YTD: 2.7%)

Invest in new cloud offering*

Sunset

QUARTERLY DEVELOPMENT

Operating revenue

NOK million

121

Q3-18 Q4-18 Q1-19 Q2-19 Q3-19

141 143 143

Q3-18 Q4-18 Q1-19 Q2-19 Q3-19

128

0%

5%

10%

15%

20%

EBIT NOK million Margin 6.4 16.9 13.8 13.9 9.9 10% 15% 20%

20

REVENUE SPLIT

Revenue increased by 6% y-o-y

• Service revenues from own consultants increased by 11% to NOK 83 million
• Subscription revenue increased by 6% to NOK 36 million
• 3 rd party service revenue decreased by 35% to NOK 5 million
• Other revenue, incl. HW/SW sales, decreased by 14% to NOK 3 million as Itera closed its web shop towards end of Q1 2019

Revenue split (quarterly figures) NOK Million

Revenue percentage split (rolling 12 months)

STATEMENT OF CASH FLOW

	2019	2018	2019	2018	2018
NOK Million	Q3	Q3	YTD	YTD	FY
Cash flow from operations (EBITDA)	19 1	11 8	64 0	41 7	64 0
Change in balance sheet items	(4 2)	(10 3)	(27 1)	(26 8)	(7 1)
flow from Net cash operating activities	15 0	1 5	36 9	14 8	56 8
Net cash flow from investment activities	(7 7)	(2 3)	(13 1)	(15 8)	(20 7)
Purchase of shares own	(0 1)	-	(0 1)	(22 6)	(22 6)
Sale of shares	-	7 1	2 1	10 0	11 1
Instalment of lease liabilities	(5 7)	(2 1)	(15 3)	(6 2)	(8 7)
External dividend paid	-	-	(20 2)	(20 5)	(20 5)
Net cash flow from financing activities	(5 8)	5 0	(33 5)	(39 3)	(40 7)
in deposits Net change bank and cash	1 6	4 2	(9 6)	(40 3)	(4 6)
Bank deposits the end of the period at	45 7	19 6	45 7	19 6	55 3
New borrowing related leasing to	4 7	1 4	8 1	3 0	3 7

• Cash flow from operations NOK 15.0 (1.5) million in Q3
• Shift of NOK 3.5 million from cash flow from operations to financing activities due to IFRS 16

• 12 month rolling cash flow from operations was NOK 69 million, excluding the effect of IFRS 16

• The Board announced an additional dividend of NOK 0.30 per share to be paid on 1 November 2019

• Share price was NOK 8.00 on 30 September 2019, NOK 11.40 on 28 September 2018
• Current holding of own shares is 769,891 shares, up from 752,118 as at end of Q2 2019
• Consistent high distribution of earnings

STATEMENT OF FINANCIAL POSITION

• Right-of-use assets of MNOK 45 introduced following adoption of IFRS 16 Leases with corresponding lease liability
• Equity ratio of 24% (18%) per 30 September
• -5.4 points impact from IFRS 16
• Cash balance of MNOK 46 (MNOK 20)

OUTLOOK

26

• Attractive market with high demand for digitalisation in all Nordic markets
• Profitable growth and cash flow are key focus areas
• Investment in new Managed Cloud Services unit and transform own data centre into the cloud
• 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.

cops like			н
ot an	7
	12
CITY OF

TOP 20 SHARE-HOLDERS

No	Name	%	Nat	Shareholding
1	MJØS INVEST AS* ARNE	26 85	Norway	22 065 172
2	OP CAPITAL AS	5 38	Norway	4 420 534
3	EIKESTAD AS	4 90	Norway	4 030 000
4	GIP AS	4 48	Norway	3 680 000
5	NOR ASA DnB Bank	4 08	Norway	3 350 000
6	SEPTIM CONSTULTING AS	3 43	Norway	2 818 000
7	BOINVESTERING AS	3 20	Norway	2 630 000
8	STOREBRAND VEKST VERDIPAPIRFOND	2 79	Norway	2 296 213
9	GAMST INVEST AS	2 68	Norway	2 200 000
10	JØSYRA INVEST AS	2 68	Norway	2 200 000
11	MARXPIST INVEST AS	2 47	Norway	2 031 588
12	INVEST AS FRAMAR	1 22	Norway	1 000 000
13	AANESTAD PANAGRI AS	1 10	Norway	900 000
14	ITERA ASA	0 94	Norway	769 891
15	SÆTRANG	0 80	Norway	662 586
16	PROPERTY DEVELOPMENT AS ALTEA	0 80	Norway	660 377
17	NYVANG	0 80	Norway	655 000
18	HØGBERG	0 78	Norway	640 166
19	JENSEN	0 76	Norway	621 100
20	SOBER AS KAPITAL	0 75	Norway	620 000
	TOP 20	70 87		58 250 627

*Arne Mjøs Invest AS holds a future contract expiring 20 December 2019 on 3,350,000 shares at an average price of NOK 9.3044 per share. The total controlling interest of Arne Mjøs is thus 25,415,172 shares (30.9%).

COPYRIGHT AND DISCLAIMER

Copyright

Copyright of all published material including photographs, drawings and images in this document remains vested in Itera and third party contributors as appropriate. Accordingly, neither the whole nor any part of this document shall be reproduced in any form nor used in any manner without express prior permission and applicable acknowledgements. No trademark, copyright or other notice shall be altered or removed from any reproduction.

Disclaimer

This Presentation includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. These statements and this Presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for Itera ASA and Itera ASA's (including subsidiaries and affiliates) lines of business. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for Itera ASA. Although Itera ASA believes that its expectations and the Presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the Presentation. Itera ASA is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the Presentation, and neither Itera ASA nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.