Itera — Interim / Quarterly Report 2018

Feb 15, 2019

INTERIM REPORT

ITERA FOURTH QUARTER 2018

1

CEO ARNE MJØS CFO BENT HAMMER

OSLO, 15 FEBRUARY 2019

HIGHLIGHTS OF THE FOURTH QUARTER

• Core digital business
• Revenue growth of 9% (full-year 18%)
• EBIT margin of 15.0% (full-year 11.7%)
• Total business
• Revenue NOK 141 (135) million, up by 5% y-o-y
• EBIT of NOK 16.5 (13.9) million, 12.0% (10.3%) margin
• Cloud transformation of Itera data centres according to plan
• New Managed Cloud Services unit is running
• Partnership agreement with Arrow on cloud provisioning
• Expansion in Bergen with hybrid setup
• Board proposes ordinary dividend of NOK 0.25 per share

FINANCIAL REVIEW

KEY FIGURES

	2018	2017	Change	2018	2017	Change
NOK Million	Q4	Q4	%	FY	FY	%
Operating revenue	141.3	135.0	5 %	531.3	475.0	12 %
Gross profit	117.9	110.4	7 %	444.0	401.7	11 %
Personnel expenses	83.7	79.8	5 %	327.8	294.3	11 %
Other opex	11.9	11.5	4 %	52.3	47.7	10 %
EBITDA	22.3	19.1	17 %	64.0	59.7	7 %
EBITDA margin	15.8 %	14.1 %	1.7 pts	12.0 %	12.6 %	-0.5 pts
EBIT	16.9	13.9	22 %	42.8	39.3	9 %
EBIT margin	12.0 %	10.3 %	1.7 pts	8.1 %	8.3 %	-0.2 pts
Net cash flow from operations	42.0	33.0	27 %	56.8	49.7	14 %
Cash and cash equivalents	55.3	59.9	(8 %)	55.3	59.9	(8 %)
Equity ratio	24.5 %	25.6 %	-1.1 pts	24.5 %	25.6 %	-1.1 pts
Employees at end of period	486	491	(1 %)	486	491	(1 %)
Employees in average	489	485	1 %	488	443	10 %

• Solid revenue growth and strong profitability in core digital business
• Revenue growth of 9% (full-year 18%)
• EBIT margin of 15.0% (full-year 11.7%)
• Overall growth negatively impacted by cloud transformation of data centre operations
• Strong cash conversion for Q4 and full year

CLOUD TRANSFORMATION

Total 2018

• Revenue growth 12%
• EBIT margin 8.1%

Core digital business Specialists in creating digital business

• Revenue growth 18%
• EBIT margin 11.7%

CLOUD TRANSFORMATION

• High growth and strong profitability in core digital business
• Traditional data centre operations diluting growth and profitability
• - Invest in new Managed Cloud Services unit and migrate existing data centre customers
• - Optimise and sunset residual business

Operating revenue

NOK million

Employees End of period

QUARTERLY DEVELOPMENT

EBIT NOK million Margin

EBITDA NOK million

REVENUE SPLIT

Revenue increased by 5% y-o-y

• Service revenues from own consultants decreased by 2% to NOK 88 million
• Subscription revenue increased by 6% to NOK 35 million
• 3 rd party service revenue increased by 97% to NOK 12 million
• Other revenue, incl. HW/SW sales, increased by 6% to NOK 7 million

Revenue split (quarterly figures) NOK Million

Revenue percentage split (rolling 12 months)

STATEMENT OF CASH FLOW

	2018	2017	2018	2017
NOK Million	Q4	Q4	FY	FY
Cash flow from operations (EBITDA)	22.3	19.1	64.0	59.7
Change in balance sheet items	19.7	13.9	(7.1)	(10.0)
Net cash flow from operating activities	42.0	33.0	56.8	49.7
Net cash flow from investment activities	(4.9)	(9.3)	(20.7)	(19.5)
Purchase of own shares	-	-	(22.6)	(1.6)
Sale of shares	1.1	(0.3)	11.1	3.3
Borrowings repaid	(2.5)	(2.1)	(8.7)	(8.1)
External dividend paid	-	(20.5)	(20.5)	(35.1)
Net cash flow from financing activities	(1.4)	(23.0)	(40.7)	(41.5)
Net change in bank deposits and cash	35.7	0.8	(4.6)	(11.2)
Bank deposits at the end of the period	55.3	59.9	55.3	59.9
New borrowing related to leasing	0.6	0.6	3.7	1.6

• Cash flow from operations NOK 42.0 (33.0) million in Q4

• Treasury shares valued at NOK 10.4 million at 31 Dec

• Total return of +21% incl. dividends

• Share price was NOK 8.40 at the end of 2018, an increase by 18% from NOK 7.14 at the end of 2017
• Board proposes an ordinary dividend of NOK 0.25 per share and possibility of deciding additional dividend later
• Current holding of own shares is 1,242,165 shares, unchanged in the quarter
• In 2018, 120 employees bought a total of 1,172,010 with a lock-in period

STATEMENT OF FINANCIAL POSITION

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• Advance billing of MNOK 17 (MNOK 16) has been netted against receivables in line with auditor's recommendation
• Equity ratio of 25% (26%) per 31 December
• Cash balance of MNOK 55 (MNOK 60)
• Proposed ordinary dividend of NOK 0.25 per share for FY 2018, for approval by AGM

IMPACT OF IFRS 15 IMPLEMENTATION 1 JAN 2018 EQUITY REDUCED BY MNOK 3.0 FROM CHANGE IN ACCOUNTING PRINCIPLES

IFRS 15 implementation effects 2018:

NOK Million	Adjusted (IAS 18 ) $10 - 12$ 2018	Impact	Reported (IFRS 15) IFRS 15 10-12 2018	Adjusted (IAS 18 ) 2018	Impact IFRS 15	Reported (IFRS 15) 2018
Revenue	140.2	1.1	141.3	528.7	27	531.3
EBIT	16.9	0.0	16.9	41.5	1.3	42.8
Net profit	13.3	0.0	13.3	30.8	0.8	31.6

Affected areas for timing of revenue recognition:

• Customised development based where Itera retains the IP will change from a point in time (at delivery) to over time (over the licence contract period)
• Transition projects will be recognised when the customer can use and benefit from the services rendered

Q4 2018 effects:

• Positive impact on sales revenue of MNOK 1.1 (deferred income recognition)
• No EBIT impact
• Book equity on 31 December reduced by MNOK 2.2

BUSINESS REVIEW

OUR STRATEGIC POSITION:

#1 IN CREATING DIGITAL BUSINESS

PLATFORM FIRST

STRATEGIC POSITION
	#1 in creating
	digital
	business

2014	2015	2016	2017	2018	2019
Customer centricity	ONE Itera	Customer's customer	Top 5 in innovation	Hybrid scalability	Platform first

TWO TYPES OF PLATFORMS

Business platforms Technology platforms

NEW GENERATION EXPERIENCE

New use cases

Voice as preferred UI

New visualization tools

DATA-DRIVEN INTELLIGENCE SOLUTIONS

Knowledge

Artificial Intelligence

Ubiquitous Computing

SMART ENERGY SOLUTIONS

SMART ENERGY → SMART BUILDINGS

CROSS INDUSTRY COLLABORATION

Digital Samhandling Offentlig - Privat (DSOP)

• BITS engaged Itera to create a gateway to simplify the data exchange between the financial and the public sector
• DSOP Gateway is based on DevOps and built, tested and deployed in Microsoft Azure
• High scalability, security and robustness for all kind of data exchange
• Itera provides end-to-end solution including design, development, testing, maintenance and management
• First phase will be in production in February 2019.

Order intake from existing and new customers

• Book-to-bill ratio*) of 1.2 in Q4 and 1.1 full year for Digital Business and 1.0 overall for both Q4 and full year

*) The book-to-bill ratio is the ratio of orders received to the amount of revenue for a specific period for Itera units ²⁵

CUSTOMER DEVELOPMENT

• New business
• Existing customers accounted for 94.8% of revenues in Q4 2018
• New customers won over the past year generated revenues of NOK 7.3 million in Q4 2018
• Increasing visibility

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• Share of revenue from top 30 customers up by 1 points y-o-y to 79%
• Increasing number of large projects and services managed by Itera
• Strategic relationships
• Full range of services
• Hybrid delivery across borders

* Existing customers defined as customers that were invoiced in the corresponding quarter last year

** New customers (Rolling Twelve Months) defined as customers won since end of corresponding quarter last year

Revenue customers split

Share of revenue

Nearshore ratio % of all staff located nearshore

• Target > 50%

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

• 1. Continue solid profitable growth in our core digital business
• 1. Invest in Managed Cloud Services unit
• 1. Lift and shift Itera data centre customers into cloud and reduce own operation
• 1. Transform into ONE Itera management team with fewer business units and reduced overhead

OUTLOOK

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• Attractive market with high demand for digitalisation in all Nordic markets
• Profitable growth and cash flow are key focus areas
• Invest 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