Q-Free ASA — Earnings Release 2019

Feb 13, 2020

FOURTH QUARTER AND PRELIMINARY FULL YEAR RESULTS 2019 4

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FOURTH QUARTER AND FULL YEAR RESULTS 2019 0

Highlights

Q4 2019

• 246 MNOK in revenues, up 2% YoY driven by parking and inter-urban segments
• 11 MNOK in EBITDA (4% margin) compared to 9 MNOK in Q4-18
• 236 MNOK in order intake including a 75 MNOK tolling contract in Thailand
• 46 MNOK in net cash flow from operations and 11 percent reduction in net interest-bearing debt
• 32 MNOK impairment of parking assets as Q-Free will seek to divest its parking and infomobility businesses

FY 2019

• 962 MNOK in revenues, up 8% YoY driven by tolling, parking and inter-urban segments
• 73 MNOK in EBITDA (8% margin) compared to 71 MNOK in 2018
• 950 MNOK in order intake (excluding frame agreements) compared to 972 MNOK in 2018
• 1 080 MNOK in order backlog (excluding frame agreements), versus 1 128 MNOK at the end of 2018

REVENUES LAST 5 QUARTERS

EBITDA LAST 5 QUARTERS MNOK

ORDER INTAKE LAST 5 QUARTERS MNOK

ORDER BACKLOG LAST 5 QUARTERS MNOK

Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019

Financial review

KEY FIGURES

NOK 1.000	Q4 2019	Q4 2018	Q/Q-%	FY 2019	FY 2018	Y/Y-%
Revenues	245 723	241 443	1.8%	962 317	888 647	8.3%
Gross contribution1)	137 261	151 142	-9.2%	542 389	569 196	-4.7%
Gross margin - %	55.9%	62.6%		56.4%	64.1%
Operating expenses2)	122 241	129 047	-5.2%	471 371	480 295	-1.8%
EBITDA excl non-recurring items	15 020	22 095	-32.0%	71 018	88 901	-20.1%
EBITDA margin excl non-recurring items	6.1%	9.2%		7.4%	10.0%
Non-recurring items 1) 2)	4 500	13 460		-1 625	17 810
EBITDA	10 520	8 635	21.8%	72 643	71 091	2.2%
EBITDA margin	4.3%	3.6%		7.6%	8.0%
Depreciation and amortisation	14 074	11 986	17.4%	68 692	47 123	45.8%
Impairment	31 883	0		31 883	278
Operating profit – EBIT	-35 437	-3 351		-27 932	23 690
EBIT margin	-14.4%	-1.4%		-2.9%	2.7%
Profit before tax	-33 861	-8 194		-23 601	-1 119
Profit margin	-13.8%	-3.4%		-2.5%	-0.1%
Profit after tax	-26 237	- 8 343		-23 532	-8 079
Profit for the period	-26 237	-8 343		-23 532	-8 079
EPS	-0.29	-0.09		-0.26	-0.09
Number of employees	396	385		396	385

1) Cost of goods sold in Q4 2019 and FY 2019 negatively impacted by 3 MNOK in write down of parking inventory

2) Operating expenses in Q4 2019 and FY 2019 negatively impacted by 1.5 MNOK and 4.5 MNOK respectively in fees related to structural processes. FY 2019 positively impacted by 9 MNOK from reduced pension obligations in Norway. Operating expenses in Q4 2018 and FY 2018 negatively impacted by 13 MNOK and 18 MNOK respectively in close-down costs of foreign subsidiaries.

Profit and loss fourth quarter 2019

Q-Free generated total revenues of 246 MNOK in the fourth quarter of 2019. This represented an increase of 2 percent from Q4-18. Tolling revenues ended at 125 MNOK, up 4 percent YoY due to higher project revenues in all regions. Revenues from non-tolling segments ended at 121 MNOK, in line with Q4-18.

Adjusted for restructuring costs of 3 MNOK, gross contribution in the quarter was 137 MNOK, down from 151 MNOK in Q4- 18. The gross margin decline of 7 percentage points YoY is explained by lower margins on certain tolling projects, low margins in Parking due to high share of pass-through revenues and lower SW revenues in Urban.

Adjusted for one-off costs related to structural processes of 1.5 MNOK, operating expenses in Q4-19 amounted to 122 MNOK compared to 129 MNOK in Q4-18.

Adjusted EBITDA in the quarter ended at 15 MNOK (6.1 percent margin). This represented a decrease of 7 MNOK from the adjusted EBITDA in Q4-18. Reported EBITDA in the quarter ended at 11 MNOK (4.3 percent margin), which was up 2 MNOK (3.6 percent margin) from reported EBITDA in Q4- 18.

QUARTERLY REVENUES AND EBITDA MARGIN MNOK & %

Depreciation and amortisation in Q4-19 ended at 14 MNOK compared to 12 MNOK in Q4-18. The increase is explained by increased depreciation of property, plant and equipment and increased amortization of intangibles.

Impairment of intangible assets amounted to 32 MNOK in the fourth quarter, compared to 0 MNOK in Q4-18. The impairment was triggered by a reduction in parking goodwill and intangibles given Q-Free's decision to focus on tolling and traffic management – see Outlook section for further details.

Operating profit (EBIT) in the fourth quarter ended at -35 MNOK compared to -3 MNOK in Q4-18. Adjusted for impairment, EBIT ended at -3.5 MNOK in the quarter.

Net financial items in the quarter were positive 2 MNOK compared to -5 MNOK in Q4-18. 8 MNOK of the net effect is explained by a reduction in the estimated share purchase liability for remaining shares in Intelight Inc. Net finance was negatively influenced by currency effects in the quarter.

Reported pre-tax profit ended at -34 MNOK, down from -8 MNOK in Q4-18.

Earnings per share was -0.29 NOK in the fourth quarter of 2019 versus -0.09 NOK in Q4-18.

Profit and loss FY 2019

Total revenues in 2019 amounted to 962 MNOK, up 8 percent from 889 MNOK in 2018. The tolling business had a YoY growth of 11 percent driven by strong product sales, higher project revenues and strong growth in ALPR/SW sales. The non-tolling businesses delivered a YoY growth of 4 percent driven by Parking and Inter-urban.

Gross contribution adjusted for restructuring costs ended at 542 MNOK, down 28 MNOK from 570 MNOK in 2018. The decline in gross margin is explained by lower margins on tags and certain tolling system project deliveries combined with reduced SW sales in the urban segment.

Adjusted for 9 MNOK in positive contribution from a reversal of pension obligations and a negative effect of 4.5 MNOK in fees for structural processes, operating expenses ended at

471 MNOK, down 9 MNOK compared to the corresponding period in 2018.

Reported EBITDA amounted to 73 MNOK, up from 71 MNOK in the corresponding period in 2018. The EBITDA margin was 8 percent, in line with 2018. EBITDA excluding non-recurring items as described above, was 71 MNOK compared to 89 MNOK in 2018.

Depreciation and amortisation in 2019 ended at 69 MNOK compared to 47 MNOK in 2018. The increase is explained by increased depreciation of property, plant and equipment as per IFRS 16 and increased amortization of intangibles. Impairment of intangible assets amounted to 32 MNOK in 2019, compared to 0 MNOK in 2018.

Operating profit (EBIT) ended at -28 MNOK in 2019 versus 24 MNOK in 2018. EBIT was negatively impacted by 32 MNOK in impairment. Adjusted for impairment, EBIT ended at 4 MNOK in 2019.

Net financial items were 4 MNOK in 2019 compared to -25 MNOK in 2018.

Profit before tax in 2019 was -23 MNOK compared to -1 MNOK in 2018.

Earnings per share ended at -0.26 NOK in 2019 versus -0.09 NOK in 2018.

Balance sheet

Total assets as of December 31, 2019 were 910 MNOK, down from 994 MNOK at the end of Q3-19 and 940 MNOK as of December 31, 2018. Implementation of IFRS 16 Leases increased the total balance sheet value as of 31.12.19 with 56 MNOK compared to 31.12.18. Property, plant and equipment was up 56 MNOK on the asset side whereas non-current financial liabilities were up 35 MNOK and current financial liabilities up 22 MNOK on the liability side.

Total equity ended at 384 MNOK, down from 409 MNOK at the end of Q3-19 and 402 at the end of Q4-18. The equity ratio was 42 percent, up from 41 percent at the end of Q3-19 and down from 43 percent at the end of Q4-18.

Non-current liabilities ended at 222 MNOK, down 13 MNOK from September 30, 2019 and down 18 MNOK from December 31, 2018.

The remaining liability to purchase shares in Intelight was at the end of Q4-19 estimated to be 33 MNOK, down from 42 MNOK at the end of Q3-19. The amount is classified as a current liability as the earn-out scheme ends in Q2 2020. See note 29 in the 2018 Annual report for more details on the share purchase obligation.

Current borrowings to financial institutions were 47 MNOK at the end of the fourth quarter 2019, down from 65 MNOK at the end of Q3-19. Granted, but unused, credit facilities were 64 MNOK at the end of Q4-19, compared to 46 MNOK at the end of Q3-19.

Net interest-bearing debt ended at 201 MNOK, down 25 MNOK from the previous quarter due to favourable working capital effects.

Current liabilities were 303 MNOK at the end of the period compared to 350 MNOK at the end of Q3-19 and 298 MNOK as of December 31, 2018. The decrease from Q3-19 is mainly explained by a decrease in current borrowings and contract liabilities.

Net working capital (defined as current assets excluding cash less current liabilities excluding short-term overdraft facilities and the Intelight share purchase liability amounted to 134 MNOK at the end of Q4-19. The corresponding figure at the end of Q3-19 was 172 MNOK and 138 MNOK at the end of 2018. The working capital ratio based on 12month trailing revenues ended at 14 percent as of Q4-19, down from 18 percent at the end of Q3-19 and 16 percent as of 31.12.18.

Cash flow

Net cash flow from operating activities was 46 MNOK in Q4- 19 compared to 36 MNOK in Q3-19 and 32 MNOK in Q4-18. The improvement is explained by working capital effects.

Net cash flow from investment activities was -15 MNOK in Q4- 19 compared to -8 MNOK in Q3-19 and -16 MNOK in Q4-18.

Net cash flow from financing activities was -31 MNOK in Q4- 19 versus -24 MNOK in Q3-19 and -18 MNOK in Q4-18. The difference is explained by repayment of debt.

QUARTERLY AVAILABLE CREDIT AND CASH AT HAND MNOK

The net change in available cash in the period was 6 MNOK explained by profit from operations and positive working capital effects. Q-Free had 84 MNOK in available funds at the end of Q4-19.

Q-Free complied with its loan covenants as of Q4-19. Q-Free will continue to explore structural solutions that can improve the financial capacity and further simplify and streamline the company's operations as described in the outlook section.

Order intake and backlog

Total reported order intake in the fourth quarter of 2019 was 236 MNOK compared to 262 MNOK in Q4-18. In October 2019 Q-Free signed a contract to deliver tolling infrastructure including roadside and payment solutions in Thailand. The contract has an expected value of 75 MNOK and will be delivered in 2020. The remaining order intake consisted of unannounced orders widely spread across all operating segments.

Book to bill in the quarter ended at 0.96.

The order backlog at the end of Q4-19 was 1 080 MNOK, which is down from 1 128 at the end Q4-18. The backlog was impacted negatively by 2 MNOK in currency effects and value assessments during the quarter.

198 MNOK of the backlog is scheduled for delivery in Q1 2020, 537 MNOK for 2020 as a whole and 543 MNOK for the period 2021 and onwards.

In terms of revenue mix, the order backlog is composed of 11 percent product deliveries, 47 percent service and maintenance contracts and 42 percent system projects.

ORDER BACKLOG AND ORDER INTAKE END OF Q4-19 MNOK

ORDER BACKLOG COMPOSITION Q4-19 MNOK

Segment overview

Q-Free structure per Q4 2019:

Segment review

SEGMENT REVIEW Q4-19 vs. Q4-18 and FY 2019 vs. FY 2018

(MNOK)
Revenues Q4-19	TOLLING	PARKING	INFOMOBILITY	URBAN	INTER-URBAN	Q4 2019
EUROPE	94	10	17	0	22	143
APMEA	18	0	1	0	0	20
AMERICAS	13	13	2	32	22	83
Revenues	125	23	21	32	44	246
Revenues Q4-18	TOLLING	PARKING	INFOMOBILITY	URBAN	INTER-URBAN	Q4 2018
EUROPE	99	8	22	0	5	135
APMEA	7	1	1	0	0	10
AMERICAS	14	4	2	49	28	97
Revenues	121	13	26	49	33	241

Revenues FY 2019	TOLLING	PARKING	INFOMOBILITY	URBAN	INTER-URBAN	FY 2019
EUROPE	401	25	67	0	44	537
APMEA	75	2	2	0	0	79
AMERICAS	60	44	9	143	90	346
Revenues	536	71	78	143	134	962
Revenues FY 2018	TOLLING	PARKING	INFOMOBILITY	URBAN	INTER-URBAN	FY 2018
EUROPE	376	26	69	1	21	493
APMEA	54	5	4	0	0	63
AMERICAS	51	20	5	156	99	332
Revenues	481	52	78	157	121	889

Quarterly tolling revenues amounted to 125 MNOK, up from 121 MNOK in Q4-18. Growth was driven by project revenues in Australia related to finalization of the Cross City Tunnel and the initiation of the Queensland MLFF project. For 2019 revenues came in at 536 MNOK, up 55 MNOK from 2018.

Q-Free had 37 MNOK in service and maintenance revenues, 62 MNOK in system project revenues, and 26 MNOK in product revenues in the quarter.

Tolling achieved an EBITDA of 8 MNOK in the fourth quarter of 2019, down from 18 MNOK in Q4-18. The reduced EBITDA is explained by lower margins on tags and certain system deliveries, partly offset by increased revenues compared to the corresponding period in 2018. Full year EBITDA in tolling adjusted for a positive effect from pension obligations in 2019 ended at 77 MNOK, down from 84 MNOK in 2018.

ORDER SITUATION

Q-Free booked tolling contracts worth 151 MNOK in the quarter. A key win was the 75 MNOK contract in Bangkok, Thailand. The remaining order intake consisted of various small and medium-sized orders. The order backlog ended at 895 MNOK, up from 866 MNOK in Q4-18.

13 percent of the tolling backlog is planned for delivery in Q1- 20, 28 percent in the remaining part of 2020 and 59 percent in 2021 and onwards. Tags and products account for 6 percent of the backlog value and are typically sold with short lead-times, while the remaining 94 percent is system projects and long-term service & maintenance contracts.

TOLLING ORDER BACKLOG DISTRIBUTION MNOK

TOLLING REVENUES AND EBITDA MNOK

Q4-19	Q4-18	FY-19	FY-18
94	99	401	376
18	7	75	54
13	14	60	51
125	121	536	481
8	18	77	84

LAST 5 QUARTERS TOLLING REVENUES MNOK

TOLLING ORDER BACKLOG & ORDER INTAKE MNOK

Parking revenues were up by 10 MNOK from Q4-18 and ended at 23 MNOK in Q4-19. The increase is explained by delivery of parts of the 3 MUSD parking order received in Q1- 19. On a full year basis, revenues in 2019 came in at 71 MNOK, up by 19 MNOK from FY2018.

Parking adjusted EBITDA ended at 5 MNOK in the quarter compared to 0 MNOK in Q4-18. The full year adjusted EBITDA in 2019 was -5 MNOK, an improvement of 8 MNOK from 2018. The reported EBITDA of 2 MNOK was negatively impacted by restructuring costs of 3 MNOK.

ORDER SITUATION

The order intake in the quarter was 19 MNOK compared to 22 MNOK in Q4-18. The order intake was comprised of several small and medium-sized orders in the US and France. Order backlog ended at 23 MNOK, up by 10 MNOK compared to the end of 2018.

Most of the parking backlog is due for delivery in the coming 2 to 6 months.

PARKING ORDER BACKLOG DISTRIBUTION MNOK

PARKING REVENUES AND EBITDA

MNOK Q4-19 Q4-18 FY-19 FY-18 EUROPE 10 8 25 26 APMEA 0 1 2 5 AMERICAS 13 4 44 20 REVENUES 23 13 71 52 EBITDA 5 0 -5 -13

LAST 5 QUARTERS PARKING REVENUES MNOK

PARKING ORDER BACKLOG & ORDER INTAKE MNOK

Q4-19 revenues came in at 21 MNOK, down from 26 MNOK in Q4-18. The decline is mainly explained by fewer call-offs on frame agreements in Europe. For the year in total, revenues remained flat at 78 MNOK.

Reported EBITDA was 0 MNOK in Q4-19 compared to 4 MNOK in Q4-18. The decline is explained by lower revenues, in particular related to ALPR.

ORDER SITUATION

Q-Free booked 10 MNOK in new orders, down from 30 MNOK in Q4-18. The order intake in the fourth quarter was primarily from Europe.

The business normally consists of small and medium sized orders with a typical delivery time of 4-8 weeks. 10 MNOK of the order backlog is scheduled to be delivered during Q1 2020.

INFOMOBILITY ORDER BACKLOG DISTRIBUTION MNOK

INFOMOBILITY REVENUES AND EBITDA MNOK

	Q4-19	Q4-18	FY-19	FY-18
EUROPE	17	22	67	69
APMEA	1	1	2	4
AMERICAS	2	2	9	5
REVENUES	21	26	78	78
EBITDA	0	4	5	10

LAST 5 QUARTERS INFOMOBILITY REVENUES MNOK

INFOMOBILITY ORDER BACKLOG & ORDER INTAKE MNOK

Revenues in the fourth quarter were 32 MNOK, down from 49 MNOK in Q4-18. The main reason for the reduction is postponed deliveries of traffic controllers and SW contracts. Q-Free expects to see a rebound in Urban in 2020.

Urban reported an EBITDA of 0 MNOK compared to 11 MNOK in the corresponding quarter in 2018. The decline is explained by delayed deliveries of high-margin SW contracts.

ORDER SITUATION

Order intake in the quarter was 31 MNOK compared to 42 MNOK in Q4-18. The order backlog at the end of 2019 was 60 MNOK, down from 76 MNOK at the end of Q4-18. 30 MNOK of the backlog is scheduled for delivery in Q1-20 and the remaining 30 MNOK for the rest of 2020. In early February 2020 Q-Free signed the first of the postponed contracts, a 2 MUSD contract for controllers.

URBAN REVENUES AND EBITDA MNOK

	Q4-19	Q4-18	FY-19	FY-18
EUROPE	0	0	0	1
APMEA	0	0	0	0
AMERICAS	32	49	143	156
REVENUES	32	49	143	157
EBITDA	0	11	4	30

LAST 5 QUARTERS URBAN REVENUES MNOK

URBAN ORDER BACKLOG & ORDER INTAKE MNOK

Inter-urban revenues in the fourth quarter came in at 44 MNOK, up from 33 MNOK in Q4-18. Full-year revenues ended at 134 MNOK compared to 121 MNOK in 2018. Deliveries in Slovenia and call-offs on the frame agreement with Norwegian Customs were the main contributors to this growth.

EBITDA in Q4-19 was 8 MNOK compared to 2 MNOK in Q4-18. EBITDA for the full year came in at 24 MNOK versus 16 MNOK in 2018. The improvement is explained by revenue growth combined with lower costs in the U.S. operations.

ORDER SITUATION

The order intake in the quarter of 25 MNOK was mainly composed of small and medium orders in Slovenia, Norway and the US.

The order backlog mainly consists of scheduled deliveries to VDOT, Iowa and Slovenia plus small projects for numerous other US states. 34 percent (27 MNOK) is scheduled for delivery in Q1-20, whereas 66 percent (53 MNOK) is scheduled for the rest of 2020 and onwards.

INTER URBAN ORDER BACKLOG DISTRIBUTION MNOK

INTER-URBAN REVENUES AND EBITDA MNOK

	Q4-19	Q4-18	FY-19	FY-18
EUROPE	22	5	44	21
APMEA	0	0	0	0
AMERICAS	22	28	90	99
REVENUES	44	33	134	121
EBITDA	8	2	24	16

LAST 5 QUARTERS INTER-URBAN REVENUES MNOK

INTER-URBAN ORDER BACKLOG & ORDER INTAKE MNOK

Outlook

In 2016 Q-Free started to execute on a new strategic plan to create sustainable profitable growth. After completing the initial restructuring in the second half of 2016, Q-Free has in the 2017-2019 period delivered 16 percent higher average annual revenues than in the 2014-2016 period. EBITDA has also been positive in three consecutive years for the first time since 2007-2009.

The growing traffic technology market presents Q-Free with numerous attractive opportunities. However, capital and resources must be channeled towards segments where Q-Free has distinct competitive advantages and can achieve the highest returns. Despite divestments of 3 businesses (Prometheus, Traffiko and Elcom) and exit from 6 markets (Brazil, South Africa, Malta, Serbia, Indonesia and Malaysia) during the past 3 years, Q-Free's business scope remains broad.

To fully benefit from the positive market momentum Q-Free therefore aims to further simplify its portfolio. The company will seek to divest its parking and infomobility assets and focus on tolling and traffic management. The latter will be a combined urban and inter-urban business driven by the growing demand from customers for integrated ATMS and signal processing solutions. An exit from parking and infomobility does not mean that these market segments are

unattractive, but rather that Q-Free has stronger market positions and can deliver higher shareholder returns in tolling and traffic management.

In 2020 only, tolling and traffic management contracts with a combined value of more than 1.7 billion NOK will be awarded. Hence, the growth potential in Q-Free's two target segments is significant. A more focused approach will enable Q-Free to capture its fair share of these contracts and profitably scale its leading solutions in existing and to new markets. Reduced portfolio complexity also means that internal processes, systems and resources can be streamlined. This will increase productivity and enable further cost savings.

Management and the Board have a proactive and positive dialogue with its main bank to ensure appropriate financing of the new plan. In addition, proceeds from potential divestments will strengthen Q-Free's cash balance and investment capacity. After the purchase of the remaining shares in Intelight in Q2-20, Q-Free has no significant obligations left related to past investments. Furthermore, the impairment of parking assets in the fourth quarter of 2019 means that Q-Free can start with clean sheets in 2020.

Consolidated financial statements

STATEMENT OF PROFIT OR LOSS STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CASH FLOWS STATEMENT OF CHANGES IN EQUITY

INDEX OF NOTES

• 1 General information & Accounting policies
• 2 Operating Segments
• 3 Revenue
• 4 Borrowings
• 5 Net financial items
• 6 Share based compensation
• 7 Employee benefit expenses

ALTERNATIVE PERFORMANCE MEASURES

Interim condensed consolidated statement of profit or loss

31 DECEMBER 2019

The comments below are related to Q-Free Group's development in 2019 compared to 2018. The comments made are based on accounting principles including IFRS 16 Leases for 2019 and accounting principles excluding IFRS 16 Leases for 2018.

Amounts in TNOK	Note	Q4 2019	Q4 2018	FY 2019	FY 2018
Revenue from customers	3	245 723	241 443	962 317	888 647
Total operating revenue		245 723	241 443	962 317	888 647
Cost of goods sold		69 811	64 198	304 556	227 191
Project contractor expenses		41 651	26 103	118 372	92 260
Employee benefit expenses	6, 7	85 379	92 935	328 788	332 484
Other operating expenses		38 362	49 572	137 958	165 621
Total operating expenses		235 203	232 808	889 674	817 556
Earnings before interest, taxes, depreciation and
amortisation (EBITDA)		10 520	8 635	72 643	71 091
Depreciation of property, plant and equipment		7 613	3 258	29 128	10 168
Amortisation of intangible assets		6 461	8 728	39 564	36 955
Impairment of intangible assets and PP&E		31 883	-	31 883	278
Total depreciation, amortisation and impairment		45 957	11 986	100 575	47 401
Earnings before interest and taxes (EBIT)		-35 437	-3 351	-27 932	23 690
Financial income	5	9 972	-394	35 914	24 970
Financial expenses	5	-8 396	-4 449	-31 583	-49 779
Net financial items	5	1 576	-4 843	4 331	-24 809
Profit before tax		-33 861	-8 194	-23 601	-1 119
Tax expense		7 624	-149	69	-6 960
Profit / (-) loss for the period		-26 237	-8 343	-23 532	-8 079
Earnings per share		-0,29	-0,09	-0,26	-0,09
Diluted earnings per share		-0,29	-0,09	-0,26	-0,09

The interim financial information has not been subject to audit or review.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

Interim condensed consolidated statement of comprehensive income

31 DECEMBER 2019

Amounts in TNOK	Note	Q4 2019	Q4 2018	FY 2019	FY 2018
Profit / (-) loss for the period		-26 237	-8 343	-23 532	-8 079
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Currency translation differences, net of tax		1 340	16 539	4 852	-4 148
Net loss on available-for-sale (IAS 39) FVOPL (IFRS 9) investments		-	263	-	71
Net other comprehensive income to be reclassified to profit or loss in subsequent periods		1 340	16 802	4 852	-4 077
Other comprehensive income for the period. net of tax		1 340	16 802	4 852	-4 077
Total comprehensive income for the period, net of tax		-24 897	8 459	-18 680	-12 156

The interim financial information has not been subject to audit or review.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

Interim condensed consolidated statement of financial position

31 DECEMBER 2019

Amounts in TNOK	Note	31.12.2019	30.09.2019	30.06.2019	31.03.2019	31.12.2018
ASSETS
Deferred tax assets		15 564	12 412	12 568	13 524	14 795
Intangible assets		114 245	129 635	132 421	140 248	145 136
Goodwill		311 719	326 595	310 219	314 636	317 282
Property, plant and equipment	1	78 785	75 619	78 359	84 202	25 420
Investments in other companies		-	-	-	-	-
Non-current receivables		382	2 916	3 574	3 610	627
TOTAL NON-CURRENT ASSETS		520 695	547 177	537 141	556 220	503 260
Inventories		76 143	73 431	66 566	63 756	71 996
Contract assets		103 957	128 724	111 797	92 664	82 320
Accounts receivable		140 265	169 933	170 737	123 617	160 819
Other current assets		37 506	42 643	35 703	40 039	32 051
Cash and cash equivalents		31 051	31 873	24 852	102 164	89 700
TOTAL CURRENT ASSETS		388 922	446 604	409 655	422 240	436 886
TOTAL ASSETS		909 617	993 781	946 796	978 460	940 146

Interim condensed consolidated statement of financial position

31 DECEMBER 2019

Amounts in TNOK	Note	31.12.2019	30.09.2019	30.06.2019	31.03.2019	31.12.2018
EQUITY AND LIABILITIES
Subscribed share capital		33 905	33 905	33 905	33 905	33 905
Share premium		578 307	578 307	578 307	578 307	578 307
Other paid-in capital		21 183	21 142	21 136	21 038	20 950
Retained earnings		-249 444	-224 548	-264 396	-254 967	-230 765
TOTAL EQUITY		383 951	408 806	368 952	378 283	402 397
Non-current borrowings	4	185 000	192 500	188 500	196 000	196 000
Non-current financial liabilities	1, 7	37 197	33 343	44 775	73 600	39 658
Deferred tax liabilities		-	9 348	6 220	3 134	4 261
Total non-current liabilities		222 197	235 191	239 495	272 734	239 919
Current borrowings	4	47 022	65 306	88 554	59 285	19 521
Advance payments from customers		4 253	38 560	26 742	15 290	14 339
Accounts payable		117 609	101 374	76 877	80 154	95 992
Taxes payable		3 531	2 152	2 317	1 086	2 758
Public duties payable		20 167	21 284	16 767	12 768	19 584
Current financial liabilities	1, 7	54 414	61 332	69 762	90 786	71 995
Other current liabilities		56 473	59 776	57 330	68 074	73 641
Total current liabilities		303 469	349 784	338 349	327 443	297 830
TOTAL LIABILITIES		525 666	584 975	577 844	600 177	537 749
TOTAL EQUITY AND LIABILITIES		909 617	993 781	946 796	978 460	940 146

The interim financial information has not been subject to audit or review.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

Interim condensed consolidated statement of cash flows

31 DECEMBER 2019

Amounts in TNOK	Q4 2019	Q4 2018	FY 2019	FY 2018
Cash flow from operations
Profit before tax	-33 861	-8 194	-23 601	-1 119
Paid taxes	-2 278	- 2 487	-8 034	-9 082
Depreciation and impairment of property, plant and equipment	7 613	3 258	29 128	10 446
Amortization and impairment of intangible assets	38 344	8 728	71 447	36 955
Accrued interest expense	51	-171	-173	548
Net loss on available-for-sale (IAS 39) FVOPL (IFRS 9)
investments	-	650	-	458
Share-based payment expense	81	88	348	322
Working capital adjustments:
Changes in inventory	-2 712	-3 369	- 4 147	-6 543
Changes in contract assets	19 666	-1 074	-26 738	144 834
Changes in accounts receivable	29 668	-10 036	20 554	-30 332
Changes in advance payments from customers	-34 307	-11 401	-10 086	2 646
Changes in accounts payable	16 235	31 009	21 617	6 720
Changes in other items	7 251	25 893	-45 653	2 430
Net cash flow from operations	45 751	32 895	24 662	158 283
Cash flow from investing activities
Investments in PP&E and intangible assets	-14 797	-15 730	-35 454	-43 480
Acquisition of a subsidiary, net of cash acquired	-	-	-44 765	-23 210
Cash flow from investing activities	-14 797	-15 730	-80 219	-66 690
Cash flow from financing activities
Cash proceeds from borrowings	-	175 108	73 033	221 354
Repayment of borrowings	-25 785	-193 601	-56 533	-338 601
Other financial items	-5 031	-	-19 801	-
Cash flow from financing activities	-30 816	-18 493	-3 301	-117 247
Effect on cash and cash equivalents of changes in foreign exchange rates	-960	5 140	209	1 721
Net change in cash and cash equivalents for the period	-822	3 812	-58 649	-23 933
Cash and cash equivalents beginning of period	31 873	85 888	89 700	113 633
Cash and cash equivalents end of period	31 051	89 700	31 051	89 700

The interim financial information has not been subject to audit or review.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

Interim condensed consolidated statement of changes in equity

31 DECEMBER 2019

Amounts in TNOK

	Subscribed share capital	Share premium	Other paid-in capital	Retained earnings	Available- for-sale reserve (IAS 39)/ FVOPL (IFRS 9)	Currency translation differences, net of tax	Total
Total equity 31.12.2018	33 905	578 307	20 950	-310 984	-	80 219	402 397
Profit / (-) loss for the period	-	-	-	-23 532	-	-	-29 098
Other comprehensive income	-	-	-	-	-	4 852	4 852
Total comprehensive income for the period	33 905	578 307	20 950	-334 516	-	85 071	383 717
Share-based payment expense	-	-	233	-	-	-	233
Total equity 31.12.2019	33 905	578 307	21 183	-334 516	-	85 071	383 951
Total equity 31.12.2017	33 905	578 307	20 628	-302 905	-71	84 367	414 231
Profit / (-) loss for the period	-	-	-	-8 079	-	-	-8 079
Other comprehensive income	-	-	-	-	71	-4 148	-4 077
Total comprehensive income for the period	33 905	578 307	20 628	-310 984	-	80 219	402 075
Share-based payment expense	-	-	322	-	-	-	322
Total equity 31.12.2018	33 905	578 307	20 950	-310 984	-	80 219	402 397

The interim financial information has not been subject to audit or review.

Notes to the condensed interim financial statements Q4 2019

NOTE 1 – GENERAL INFORMATION & ACCOUNTING POLICIES

The Q-Free Group provides leading technology solutions to the global ITS market. Q-Free has 396 employees, is headquartered in Trondheim Norway, and has local offices in 16 countries around the world. Q-Free ASA is a Norwegian public limited liability company, and has been listed on the Oslo Stock Exchange under the ticker QFR since 2002.

Basis of preparation

These consolidated interim financial statements for 2019, combined with other relevant financial information in this report, have been prepared in accordance with the regulations of the Oslo Stock Exchange and the requirements in IAS 34. These condensed consolidated interim financial statements for the quarter have not been audited or been subject to review by the Group's auditor. The financial statements do not include all the information required for the full annual financial statements of the Group and should be read in conjunction with the consolidated financial statements for 2018. The consolidated financial statements for 2018 are available upon request from the company's registered office in Trondheim or at our website, www.qfree.com. The consolidated condensed interim financial statements were approved by the Board of Directors at its meeting on 6 May 2019.

The preparation of the Q-Free Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates can result in outcomes that require a material adjustment to the carrying amount of the assets or liability affected in future periods.

No significant events, which are not mentioned in this report, have occurred since the balance sheet date.

As a result of rounding differences, numbers or percentages may not add up to the total.

Accounting policies

The interim condensed consolidated financial statements of the Q-Free Group for Q4 2019 were prepared in accordance with International Financial Reporting Standards (IFRS) in accordance with IAS 34 Interim Financial Reporting. The Group has used the same accounting policies and standards as in the

consolidated financial statements as of 31 December 2018, with the exception of IFRS 16 Leases, as described below.

Implementation of IFRS 16 Leases

The Group has adopted IFRS 16 Leases from 1 January 2019 retrospectively using the simplified transition approach in accordance with IFRS 16.C5(b) and has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard.

The leases recognized upon adoption of IFRS 16 consist of office building contracts and car rental agreements. All other leases relating to IT and other office equipment are of low value or short-term leases. The average term for the office leases is 2-9 years and the average term for the car rentals is 1-3 years as of 1 January 2019. Office leases in several group locations include CPI and/or step-rent adjustments to the lease payments on an annual basis and have extension options for additional multiple rental periods of 1-5 years in duration.

For leases which had previously been classified as operating leases under the principles of IAS 17 Leases, the lease liability upon adoption of IFRS 16 is measured as the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019.

The associated right-of use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet at 31 December 2018.

In applying IFRS 16 for the first time, the Group has used the following practical expedients as permitted by IFRS 16:

• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases, and
• the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment

made when applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.

The reclassifications and adjustments arising from the new leasing rules are recognized in the 1 January 2019 opening balance sheet.

Total lease liability amounted to TNOK 56,916 as of 31 December 2019 (TNOK 64,143 as of 1 January 2019). Current lease liabilities are presented within Current financial liabilities, and amounted to TNOK 21,763 as of 31 December 2019 (TNOK 22,442 as of 1 January 2019). Non-current lease liabilities are presented within Non-current financial liabilities, and amounted to TNOK 35,152 as of 31 December 2019 (TNOK 41,701 as of 1 January 2019).

Right-of-use assets are presented within Property, plant and equipment and amounted to TNOK 56,184 as of 31 December 2019 (TNOK 64,143 as of 1 January 2019).

The recognized right-of-use assets relate to the following types of assets as of 31 December (and as of 1 January 2019):

Office buildings TNOK 53,687 (TNOK 61,103)

Motor vehicles TNOK 2,496 (TNOK 3,040)

EBIT and EBITDA in 2019 increased with TNOK 1,264 and TNOK 21,993, respectively, as a result of the change in accounting policy. Interest expenses increased with TNOK 2,191 as a result of implementing IFRS 16. The net effect on profit for the period is TNOK -927. Earnings per share were unchanged for the twelve months to 31 December 2019 as a result of the adoption of IFRS 16.

Changes in accounting policies as of 1 January 2019 due to the implementation of IFRS 16 Leases

In connection with the adoption of IFRS 16 as of 1 January 2019 the accounting policy for leases has been updated. The new policy is given below, and replaces the lease accounting policy given in the 2018 Annual Report:

In accordance with the implementation of IFRS 16, leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group (the commencement date). Each lease payment is

allocated between the liability and finance cost. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straightline basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the lessee's incremental borrowing rate. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable
• variable lease payment that are based on an index or a rate
• amounts expected to be payable by the lessee under residual value guarantees
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

Right-of-use assets are measured initially at cost comprising the following:

• the amount of the initial measurement of lease liability,
• any lease payments made at or before the commencement date less any lease incentives received,
• any initial direct costs, and
• restoration costs.

Right-of-use assets are subsequently measured at cost less any accumulated depreciation and any accumulated impairment losses, as well as any required adjustments due to a remeasurement of the lease liability.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an operating expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less at the commencement date of the lease. Low-value assets are relating to IT and other office equipment.

NOTE 2 OPERATING SEGMENTS

The Group discloses operating segment information under IFRS 8 Operating Segments, which requires the entity to identify segments according to the organisation and reporting structure used by management. Operating segments are components of a business that are evaluated regularly by the chief operating decision maker for the purpose of assessing performance and allocating resources. The Group's chief operating decision maker is the members of the corporate management team.

The operating segments are determined based on how resources and investments are allocated within the Group, as well as on differences in the nature of the operations, solutions, products and services. The Group manages its operations in five segments:

Segment	Products offered within the segment
Tolling	DSRC tags and readers, ALPR and image-based solutions, Electronic toll collection systems (multilane free-flow, truck tolling and congestion charging)
Parking	Parking guidance systems and Parking access control software (ALPR)
Infomobility	Traffic, bicycle & pedestrian detection and counting, Weigh-in-motion, Journey time monitoring, Weather & air-quality monitoring
Urban	Local intersection/traffic controllers, Centralized traffic controller software, Cooperative ITS solutions
Inter-Urban	Advanced traffic management systems, Traffic information systems, Ramp metering, Truck parking

Global Functions do not represent a separate segment but are expenses that are not relevant to allocate to one or more of the five segments. Group functions include corporate services, such as management and Group finance services at the Q-Free headquarters. These expenses are reported in a separate column as shown in the following table.

See Note 9 in the 2018 Annual Report for additional segment information.

NOTE 2 OPERATING SEGMENTS

SEGMENTS Q4 2019 & 2018	T O L L I N G		P A R K I N G		I N F O M O B I L I T Y		U R B A N		I N T E R - U R B A N			Global functions	T O T A L S Q4-19 & -18
NOK 1.000	Q4-19	Q4-18	Q4-19	Q4-18	Q4-19	Q4-18	Q4-19	Q4-18	Q4-19	Q4-18	Q4-19	Q4-18	Q4-19	Q4-18
EUROPE	94 300	99 394	9 752	7 745	17 019 22 488		43	43	21 991	5 231	-	-	143 104	134 902
APMEA	18 298	7 198	53	1 219	1 213	1 267	-	-	-	-	-	-	19 564	9 683
AMERICAS	12 794	13 932	13 063	3 766	2 481	2 132	32 435	49 434	22 283	27 594	-	-	83 056	96 858
Revenues	125 391	120 523	22 867	12 730	20 713	25 887	32 477	49 477	44 274	32 826	0	0	245 723	241 443
COGS	37 927	24 077	2 223	5 230	5 881	9 503	12 564	22 276	8 217	2 190	0	0	66 811	63 276
Contractors	23 436	18 433	11 460	877	382	338	2 354	1 737	4 019	4 715	0	0	41 651	26 100
Gross Contr.	64 028	78 013	9 184	6 623	14 450	16 046	17 560	25 464	32 039	25 920	0	0	137 261	152 066
Gross margin - %	51,1%	64,7%	40,2%	52,0 %	69,8 %	62,0 %	54,1 %	51,5 %	72,4 %	79,0 %			55,9 %	63,0 %
Total OPEX	56 290	60 375	3 751	6 617	14 054	12 410	17 080	14 610	23 648	24 212	7 418	11 748	122 241	129 971
EBITDA	7 738	17 639	5 433	6	396	3 636	480	10 854	8 391	1 709	-7 418	-11 748	15 020	22 095
EBITDA margin	6,2 %	14,6 %	23,8 %	0,0 %	1,9 %	14,0 %	1,5 %	21,9 %	19,0 % %	5,2 %			6,1 %	9,2 %
Depreciation Impairment	5 154	2 775	1 685 31 883	1 320	2 364	1 697	3 795	3 237	1 076	2 957	0	0	14 074 31 883	11 986
EBIT	2 585	14 864	-28 135	-1 314	-1 968	1 939	-3 315	7 617	7 315	-1 249	-7 418	-11 748	-30 937	10 109
EBIT margin	2,1% %	12,3 %	-123,0 %	-10,3 %	-9,5 %	7,5 %	-10,2 % %	15,4 %	16,5 % %	-3,8 %			-12,6 %	4,2 %

SEGMENTS 12M 2019 & 2018		T O L L I N G		P A R K I N G		I N F O M O B I L I T Y		U R B A N	I N T E R - U R B A N		Global functions		T O T A L S 31.12
NOK 1.000	31.12.19	31.12.18	31.12.19	31.12.18	31.12.19	31.12.18	31.12.19	31.12.18	31.12.19	31.12.18	31.12.19	31.12.18	31.12.19	31.12.18
EUROPE	401 360	376 160	25 065	26 266	67 059	68 506	439	1 164	43 564	21 255	0	-	537 486	493 350
APMEA	74 884	54 186	2 102	5 191	2 114	3 871	-	-	-	-	-	-	79 100	63 248
AMERICAS	60 213	51 103	43 630	20 252	8 904	5 323	142 710	155 932	90 274	99 439	-	-	345 731	332 049
Revenues	536 457	481 448	70 797	51 709	78 078	77 700	143 148	157 096	133 838	120 694	0	0	962 317	888 647
COGS	169 321	113 671	20 875	18 015	23 962	25 684	69 660	65 286	17 732	3 612	0	0	301 556	226 269
Contractors	77 551	59 876	22 144	6 908	1 374	1 529	5 600	6 745	11 703	17 200	0	0	118 371	92 257
Gross Contr.	289 585	307 902	27 778	26 786	52 742	50 487	67 889	85 064	104 403	99 881	0	0	542 389	570 121
Gross margin - %	54,0 %	64,0 %	39,2 %	51,8 %	67,6 %	65,0 %	47,4 %	54,1 %	78,0 %	82,8 %			56,4 %	64,2 %
Total OPEX	212 322	224 081	32 670	39 965	47 792	40 425	64 165	54 938	80 807	83 402	33 623	38 409	471 371	481 220
EBITDA	77 263	83 820	-4 892	-13 179	4 950	10 063	3 724	30 126	23 596	16 480	-33 623	-38 409	71 018	88 901
EBITDA margin	14,4 %	17,4 %	-6,9 %	-25,5 %	6,3 %	13,0 %	2,6 % %	19,2 %	17,6 %	13,7 %			7,4 %	10,0 %
Depreciation Impairment	20 779	9 088	7 920 31 883	5 597	10 896	9 089	16 516	13 361	12 582	10 267	0	0	68 692 31 883	47 401
EBIT	56 484	74 733	-44 695	-18 775	-5 945	974	-12 792	16 765	11 014	6 213	-33 623	-38 409	-29 557	41 500
EBIT margin	10,5 %	15,5 %	-63,1 %	-36,3 %	-7,6 %	1,3 %	-8,9 % %	10,7 %	8,2 %	5,1 %			-3,1%	4,7 %

NOTE 3 REVENUES

Revenue from customers is disaggregated in the table below by geographical location, by type of product or project category, by the timing of the reception of revenue, and by segment.

For additional information please refer to Note 10 in the 2018 Annual Report.

Disaggregation of revenue from customers

Amounts in TNOK		T O L L I N G	P A R K I N G		I N F O M O B I L I T Y		U R B A N		I N T E R -U R B A N		TOTAL
	Q4 2019	Q4 2018	Q4 2019	Q4 2018	Q4 2019	Q4 2018	Q4 2019	Q4 2018	Q4 2019		Q4 2018 Q4 2019	Q4 2018
EUROPE	94 300	99 394	9 752	7 745	17 019	22 488	43	43	21 991	5 231	143 104	134 902
APMEA	18 298	7 198	53	1 219	1 213	1 267	0	0	0	0	19 564	9 683
AMERICAS	12 794	13 932	13 063	3 766	2 481	2 132	32 435	49 434	22 283	27 594	83 056	96 858
Revenue from customers	125 391	120 523	22 867	12 730	20 713	25 887	32 477	49 477	44 274	32 826	245 723	241 443
At a point in time revenue recognition
Product deliveries (not related to projects)	26 471	35 630	1 065	3 853	12 694	8 832	14 583	36 364	2 142	1 965	56 955	86 645
Total at a point in time revenue recognition	26 471	35 630	1 065	3 853	12 694	8 832	14 583	36 364	2 142	1 965	56 955	86 645
Over time revenue recognition
Service & Maintenance	37 305	25 932	2 543	1 312	399	2 680	-1 314	39	2 574	1 739	41 507	31 701
System Projects (includes over-time product deliveries related to projects)	61 614	58 961	19 259	7 565	7 621	14 375	19 209	13 074	39 559	29 121	147 262	123 097
Total over time revenue recognition	98 919	84 893	21 802	8 877	8 019	17 055	17 895	13 113	42 133	30 860	188 768	154 798

Amounts in TNOK	T O L L I N G			P A R K I N G I N F O M O B I L I T Y		U R B A N			I N T E R -U R B A N TOTAL
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
EUROPE	401 360	376 160	25 065	26 266	67 059	68 088	439	1 164	43 564	21 255	537 486	492 932
APMEA	74 884	54 186	2 102	5 191	2 114	3 871	0	0	0	0	79 100	63 248
AMERICAS	60 213	51 103	43 630	20 252	8 904	5 741	142 710	155 932	90 274	99 439	345 731	332 467
Revenue from customers	536 457	481 448	70 797	51 709	78 078	77 700	143 148	157 096	133 838	120 694	962 317	888 647
At a point in time revenue recognition
Product deliveries (not related to projects)	183 402	176 546	4 837	14 193	47 846	32 574	86 814	138 300	4 539	4 847	327 438	366 461
Total at a point in time revenue recognition	183 402	176 546	4 837	14 193	47 846	32 574	86 814	138 300	4 539	4 847	327 438	366 461
Over time revenue recognition
Service & Maintenance	143 622	139 406	7 478	6 034	1 532	5 487	33 020	974	5 686	9 229	191 338	161 130
System Projects (includes over-time product deliveries related to projects)	209 432	165 496	58 482	31 481	28 699	39 639	23 314	17 822	123 612	106 617	443 542	361 056
Total over time revenue recognition	353 054	304 902	65 959	37 516	30 232	45 126	56 335	18 796	129 299	115 846	634 879	522 186

NOTE 4 BORROWINGS

	Effective interest
Type	rate %	Maturity	31.12.2019	31.12.2018
Non-current
Nordea - Term loan	5,02 %	06.12.2021	85 000	100 000
Nordea - Term loan	5,07%	06.12.2021	44 730	-
Nordea - Revolving Credit Facility
(RCF) *	4,97 %	06.12.2021	55 269	96 000
Total non-current borrowings			185 000	196 000
Current
Nordea - Credit line **	3,62 %	06.12.2021	47 021	19 521
Total current borrowings			47 021	19 521
Total borrowings			232 021	215 521

* Share of RCF will be converted to 5-year term loan if RCF is used to fund acquisition of shares in Intelight Inc. with an annual amortisation of 20%.

** Credit line is renewed annually.

Debt covenants

Q-Free has a NIBD/EBITDA and Equity Ratio covenant on it's bank arrangements.

Net Interest Bearing Debt to EBITDA ratio ("Leverage Ratio") shall at no time be more than 3.00:1, and total Equity to Total Assets ("Equity Ratio") shall at no time be less than 35.00 percent. Q-Free was in compliance with its loan covenants as of Q4-19

The effective interest rate of total borrowings is dependent on whether Q-Free is compliant with its loan covenants, and if any waivers apply. The effective interest rate of total borrowings will be reset and reduced in Q1-20.

Q-Free continues to explore certain structural solutions that can improve the financial capacity and further simplify and streamline the company's operations. However, no assurance can be given that the company will be successful in this respect.

See Alternative Performance Measures section for "NIBD" and "EBITDA" definitions.

NOTE 5 NET FINANCIAL ITEMS

Amounts in TNOK

Financial items	Q4 2019	Q4 2018	FY 2019	FY 2018
Interest income	-99	235	134	1 106
Interest on loans and receivables	-	-	-	-
Realised exchange rate differences	232	7 515	9 462	21 594
Unrealised exchange rate differences	1 845	-8 144	8 723	2 270
Fair value change in contingent consideration and other liabilities *	7 995	-	17 596	-
Financial income	9 972	-394	35 914	24 970
Interest expense	-1 326	2 746	-5 394	-2 730
Interest on borrowings	-2 475	-1 531	-7 763	-7 542
Realised exchange rate differences	-1 992	-2 917	-10 186	-18 236
Unrealised exchange rate differences	-1 724	11 614	-3 786	4 965
Fair value change in contingent consideration and other liabilities *	927	-11 967	644	-22 407
Other financial expense **	-1 806	- 2 394	-5 098	-3 829
Financial expense	-8 396	-4 449	-31 583	-49 779
NET FINANCIAL ITEMS	1 576	-4 843	4 331	-24 809

* Change in contingent consideration and other liabilities in 2019 is explained by a revised estimate on the liability for the purchase of the remaining shares of Intelight Inc. of TNOK 7,995. The estimated liability to acquire the remaining shares in Intelight Inc as at 31.12.19 is TNOK 32,651.

** Other financial expenses increased with TNOK 2,191 as a result of implementing IFRS 16.

NOTE 6 SHARE BASED COMPENSATION

Share based option program for leading executives – established May 2017

There is a change in the share-based option program for leading executives. If a shareholder, company, business or a group (as per definition in the Norwegian Securities Trading Act § 2-5) acquires control of more than two thirds of the stocks and/or votes in the Company, and the Company is consequently delisted from Oslo Børs, each and all of outstanding options mature. This entails that the leading executives can exercise each and all of his options in a period of 30 days from the date final decision of delisting is made. If the options are not exercised within this period, the options expire without any form of compensation.

Furthermore, it is specified a right to adjustments of the Strike if the Company sells parts of the business (sale of shares owned by Q-Free ASA or defined assets), and all or part of the received sales proceeds are paid out as dividends. This right applies for both share based option program for leading executives and CEO.

Per 1 April 2019 the Parent company has granted a total of 402,438 share options to Jan-Erik Sandberg, CTO, in accordance with the incentive program for leading executives established in May 2017.

The market value of granted share options is TNOK 908, and the cumulative expense recognized per 31 December 2019 is TNOK 695 (31 December 2018: TNOK 370). The weighted average share price included in the calculation of market value is NOK 8.0 - 8.5 and the volatility is 8.8 % - 17.6 %.

Specification of share option activity:	2019	2018
Granted share options 01.01	1 392 053	1 392 053
Share options granted	402 438	-
Share options exercised	-	-
Share options expired/terminated	-	-
Granted share options 31.12.	1 794 491	1 392 053
Vested share options 31.12.	-	-

The change in share options split for leading Executives as per 31.12.2019:

Name	Position	Tranche	Number of options	Strike price	Agreement in force	Expires
Jan-Erik Sandberg	CTO	Tranche 1		174 781 NOK 8.01	01.04.2019	31.03.2025
		Tranche 2		124 844 NOK 11.21	01.04.2019	31.03.2025
		Tranche 3		102 813 NOK 13.62	01.04.2019	31.03.2025

For more information on the share option program for leading executives, please see Note 13 Share based compensation in the Annual Report for 2018.

NOTE 7 EMPLOYEE BENEFIT EXPENSES

In October 2019, some changes were made in the management bonus scheme. The changes have not resulted in increased cost in 2019, and have as of today not resulted in increased liabilities for Q-Free Group.

Employee benefit expenses is reduced with TNOK 9,125 in 2019 relating to the termination of wage compensation for lost pension benefits.

For more information, please see Note 11 Employee benefit expenses in the Annual Report for 2018.

ALTERNATIVE PERFORMANCE MEASURES

The Group presents some financial performance measures in its annual report which are not defined according to IFRS. The Group is of the opinion that these measures provide valuable complementary information to investors and the Group's management since they facilitate the evaluation of the Group's performance. As every Group does not calculate financial performance measures in the same manner, these are not always comparable with measures used by other companies. These financial performance measures should therefore not be regarded as a replacement for measures as defined according to IFRS.

Gross contribution:

Defined as Revenue from customers reduced with Cost of goods sold and Project contractor expenses. Project contractor expenses are included in Gross Contribution since they are heavily correlated with project and service revenues.

Project contractor expenses:

Project contractor expenses include costs for external consultants and / or services that are consumed under project executions and service and maintenance work.

Gross margin:

Defined as Revenue from customers reduced with Cost of goods sold and Project contractor expenses in percentage of revenues.

Gross contribution and gross margin	Q4 2019	Q4 2018	2019	2018
Revenue from customers	245 723	241 443	962 317	888 647
Cost of goods sold	-69 811	-64 198	-304 556	-227 191
Project contractor expenses	-41 651	-26 103	-118 372	-92 260
Gross contribution	134 261	151 142	539 389	569 196
Gross margin	54,6 %	62,6%	56,1 %	64,1 %

EBITDA / EBIT:

The Group considers EBITDA / EBIT to be normal accounting terms, but they are not included in the IFRS accounting standards. EBITDA is an abbreviation for Earnings Before Interest, Taxes, Depreciation and Amortisation. The Group uses EBITDA in the income statement as a summation line for other accounting lines. These accounting lines are defined in our accounting principles, which are part of the financial statements for 2018. The same applies for EBIT.

EBITDA margin:

Defined as Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) in percentage of revenues.

EBITDA margin	Q4 2019	Q4 2018	2019	2018
Revenue from customers	245 723	241 443	962 317	888 647
EBITDA	10 520	8 635	72 643	71 091
EBITDA margin	4,3 %	3,6 %	7,6 %	8,0 %

EBIT margin:

Defined as Earnings Before Interest and Taxes (EBIT) in percentage of revenues.

EBIT margin	Q4 2019	Q4 2018	2019	2018
Revenue from customers	245 723	241 443	962 317	888 647
EBIT	-35 437	-3 351	-27 932	23 690
EBIT margin	-14,4 %	-1,4 %	-2,9 %	2,7 %

ALTERNATIVE PERFORMANCE MEASURES

Non-recurring items:

The Group defines non-recurring items as one-time costs, not related to the actual reporting period. Restructuring costs and settlement of disputes are classified as non-recurring items.

Non-recurring items	Q4 2019	Q4 2018	2019	2018
Termination of wage compensation for lost pension benefits	-	-	-9 125	-
Restructuring costs	4 500	13 460	7 500	17 810
Non-recurring items in EBITDA	4 500	13 460	-1 625	17 810
Impairment losses	31 883		31 883
Non-recurring items in EBIT	36 383	13 460	30 258	17 810

Net Interest Bearing Debt (NIBD):

Long term borrowings plus short term borrowings less cash and cash equivalents.

Net Interest Bearing Debt	31.12.2019	30.09.2019	30.06.2019	31.03.2019	31.12.2018
Non-current borrowings from financial institutions	185 500	192 500	188 500	196 000	196 000
Current borrowings from financial institutions	47 021	65 306	88 554	59 285	19 521
Gross Interest Bearing Debt	232 021	257 806	227 054	255 285	215 521
Cash and cash equivalents	31 051	31 873	24 852	102 164	89 700
Net Interest Bearing Debt	200 970	225 933	252 202	153 121	125 821

Net working capital:

Defined as Current assets excluding Cash less Current liabilities, and excluding Current borrowings and the Intelight share purchase liability classified as Current financial liabilities.

Net Working Capital	31.12.2019	30.09.2019	30.06.2019	31.03.2019	31.12.2018
Inventories	76 143	73 431	65 566	63 756	71 996
Contract assets	103 957	128 724	111 797	92 664	82 320
Accounts receivable	140 265	169 933	170 737	123 617	160 819
Other current assets	37 506	42 643	35 703	40 039	32 051
Current Assets (excl Cash and cash equivalents)	360 871	414 731	384 803	320 076	347 186
Advance payments from customers	4 253	38 560	26 742	15 290	14 339
Accounts payable	117 609	101 374	76 877	80 154	95 992
Taxes payable	3 531	2 152	2 317	1 086	2 758
Public duties payable	20 167	21 284	16 767	12 768	19 584
Current financial liabilities	54 414	61 332	69 762	90 786	71 995
Other current liabilities	56 473	59 776	57 330	68 075	73 641
Intelight share purchase liability	-32 651	-41 828	-48 280	-68 540	-69 267
Current liabilities (excl Currrent borrowings from financial institutions)	223 796	242 650	201 515	174 028	209 042
Net Working Capital	134 075	172 081	183 288	199 619	138 144

ALTERNATIVE PERFORMANCE MEASURES

Working capital ratio:

Defined as Current assets excluding Cash less Current liabilities, and excluding Current borrowings and the Intelight share purchase liability classified as Current financial liabilities in percentages of last 12 months Revenue from customers.

Working Capital ratio	31.12.2019	30.09.2019	30.06.2019	31.03.2019	31.12.2018
12 months Revenue from
customers	962 317	958 037	932 882	907 681	888 647
Net Working Capital	134 075	172 081	183 288	120 457	138 144
Working Capital ratio	13,9 %	18,0%	19,6%	13,3 %	15,5 %

Equity ratio:

Equity ratio is defined as equity proportion of total assets and shows financial leverage.

Equity ratio	31.12.2019	30.09.2019	30.06.2019	31.03.2019	31.12.2018
Total equity	383 951	408 806	368 952	378 283	402 397
Total assets	909 617	993 781	946 796	978 460	940 146
Equity ratio	42,2 %	41,4%	39,0%	38,7 %	42,8%

Order intake:

Order intake is defined as total amount of all signed new contracts received in a defined period.

Order backlog:

Order backlog is defined as total amount of signed contracts to be delivered in future periods.

The order backlog is calculated as shown below:

Prior period's backlog

• • Received new orders
• ÷ This periods revenues
• • / ÷ Currency adjustments
• = End backlog reporting period