Interim report Q3 2019

Highlights Q3 2019

● Q3 2019 revenue was NOK 243 million, compared to NOK 262 million in the same quarter of 2018
● Gross profit for the quarter was NOK 59.8 million, compared to NOK 71.9 million in Q3 2018
● EBITDA was NOK 5.8 million, compared to NOK 10.9 million in the same quarter of 2018
● Cash flow from operations amounted to NOK 0.5 million, compared to negative NOK 0.9 million in Q3 2018
● Techstep was awarded new contracts with a potential total value of NOK 300 million in the quarter, bringing the YTD 2019 at NOK 817 million
● Impairment of NOK 70 million on goodwill in Techstep Norway AS for transactions mainly made in 2012 related to the hardware business. The impairment does not have any cash effect and does not reflect Management's belief in the business model going forward

CEO comment

"While we have higher financial ambitions than our Q3 results show, we have continued to progress on our Nordic growth strategy in the second half of 2019.

Since 2016, we have been on a journey to become the leading Nordic enabler of the mobile workplace. Today, this ambition is more relevant than ever before. A wave of digital transformation is sweeping across society and work is going mobile. Techstep is purpose-built to service the needs of enterprises in this new world and to help people do a better job.

We have spent three years establishing leading positions in the Norwegian and Swedish marketplace, acquiring and integrating relevant companies and aligning the organization behind a unified offering and one brand. We are also maturing our mobility-as-a-service offering which have led Techstep into a fundamental transformation, from a mobile reseller, towards a full-service software driven mobility provider. During this journey, we have constantly been experiencing reduced operator commissions and margin pressure on hardware, explaining the Q3 impairment of Techstep Norway. Going forward, we recognize that it is our software and IP based solutions that truly differentiate us and enables our customers to take full advantage of mobile technologies.

Moving into 2020, all our activities are aligned to bring our own software and services to enterprise customers in Norway and Sweden. To further strengthen our software platform and capabilities we will continue pursuing M&A opportunities. We have a great customer base, a great team and a great offering that is very relevant in today's world. The years ahead will be exciting" says Techstep CEO Jens Haviken.

About Techstep

Techstep is positioning itself as a leading Nordic enabler of the digital workplace. Techstep supplies hardware, software, connectivity and mobile device management bundled as a managed service. This enables enterprises and their employees to do their work across mobile devices and locations, with a high degree of security and operational stability. Techstep has 212 employees based in Norway and Sweden, serving close to 4,000 customers and 192,000 recurring revenue end-users across various industries in the private and public sectors. The company is listed on the Oslo Stock Exchange. For more information, see www.techstepasa.no.

Key Figures

(amounts in NOK 1 000)	Q3 2019	Q3 2018	YTD 2019	YTD 2018	2018

Revenues	243 189	261 596	797 335	746 763	1 064 114

Gross profit	59 803	71 893	204 111	211 487	294 419

EBITDA	5 826	10 946	21 473	28 734	43 023
EBITA	(67 375)	10 575	(59 123)	27 520	41 280
EBIT	(72 689)	5 583	(75 422)	13 149	22 362
Net profit (loss) for the period	(73 185)	3 751	(75 739)	10 468	21 329

EBITDA margin (%)	2.4%	4.2 %	2.7%	3.8 %	4.0%
EBITA margin (%)	-27.7%	4.0 %	-7.4%	3.7 %	3.9%
EBIT margin (%)	-29.9%	2.1 %	-9.5%	1.8 %	2.1%
Net profit (loss) for the period (%)	-30.1%	1.4 %	-9.5%	1.4 %	2.0%

Hardware, share of revenue	76%	73 %	72%	73 %	74%
Solutions, share of revenue	24%	27 %	28%	27 %	26%

Cash and cash equivalents	26 692	23 782	26 692	23 782	39 741
Net interest-bearing debt	19 564	44 611	19 564	44 611	19 354
Capex	4 478	1 510	13 766	6 793	11 689

Hardware share of revenue includes other revenue (comprising 0.5% in Q3 2019). Solutions revenue comprises own software, advisory and services, and third-party software.

The FY 2018 EBITDA includes two one-off items with positive net effect of NOK 13 million, comprising a reversal of an earn-out obligation of NOK 20 million for an acquisition in Sweden, offset by a restructuring provision of NOK 7 million for remaining rent obligations on vacated premises in Norway.

The effect of IFRS 16 Leases is a reduction of operational costs of NOK 3.0 million in Q3 2019. See note 5 for further details.

Operational review

Main developments

Techstep's ambition is to become the leading Nordic enabler of the mobile digital workplace. The company is currently amidst a transition from a hardware and distribution focus towards providing comprehensive mobility solutions with a special focus on enterprises.

One important step in this direction was taken during the second quarter, when Techstep decided to partner with Mobit to allocate its resources and capabilities towards larger customers. Techstep terminated 2,000 customer contracts in Norway, representing 16,000 end-users. In parallel, the company signed an agreement with Mobit Norge AS to offer Techstep software solutions towards the SMB market. This decision has allowed Techstep to streamline its operation and focus on core customers in the third quarter.

At the same time, Techstep is developing its value-added mobility offering by investing in its own intellectual property (IP) and software solutions though the wholly-owned company Mytos. The goal is to build a platform for growth through organic software innovation, alongside acquisitions and partnerships. M&A activities play an important role in the growth strategy, and the company has acted as a market consolidator through a series of acquisitions in Norway and Sweden over the past years.

Sales activity

Through the third quarter of 2019, Techstep was awarded contracts with a potential value of NOK 300 million. Thus, total awarded contracts so far this year are NOK 817 million. The new contracts comprise a mix of both pure hardware and a combination of hardware and solutions.

In the quarter, Techstep signed a framework agreement to improve workplace mobility at Norwegian Air Shuttle. Under the agreement, Techstep will deliver a full-service mobility package with solution products like Enterprise Mobility Management, aftermarket handling, telecom expense management, integrated selfservice portal and financing, in addition to devices. These solutions will enable Norwegian to supply its workforce with mobility solutions for their employees on mobile devices.

Recurring revenue base

Techstep's annual recurring revenue base (ARR*) was NOK 35 million per Q3 2019 from a total end-user base of ~192,000. Techstep's recurring revenue relates to the sale of our own software with 100% gross margin; telecom expense management. This is sold either as a white label service through operators or directly by Techstep.

*Refer to alternative performance measures

Financial review

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

Techstep has implemented the new IFRS 16 Leases standard with effect from 1 January 2019. The figures from last year have not been adjusted and are therefore not fully comparable with those presented for 2019. Operating expenses, depreciation and interest expenses are the items affected in the profit and loss statement. See note 5 for further details.

Profit and loss

Techstep generated total revenue of NOK 243.2 million in the third quarter of 2019, down by 7% from NOK 261.6 million in the corresponding quarter of 2018.

Revenue was negatively affected by lower volume in both the hardware and solutions segment, including continued reductions in operator commissions. The year-on-year comparison also reflects that revenue in the third quarter last year was boosted by a large hardware bulk delivery to Posten Norge and a large third-party software delivery to Equinor.

Total Solution revenue amounted to NOK 57.3 million in the quarter, with Advisory and services accounting for NOK 48.9 million and own software for NOK 8.4 million. Hardware sales amounted to NOK 184.6 million in the quarter.

Consequently, Hardware accounted for 77% of revenue, Own software for 3%, and Advisory, services and third-party software for the remaining 20%.

Gross profit was NOK 59.8 million in the third quarter (NOK 71.9 million), a 17% year-on-year decline. The decline reflects the lower revenue and lower hardware margin, as well as reduced operator commissions.

The gross margin thus decreased from 27% in the third quarter of 2018 to 25% in the third quarter of 2019.

Hardware accounted for 43% of gross profit, own software for 14%, and Advisory, Services and third-party software for the remaining 43%.

Salaries and personnel costs declined by 2% to NOK 41.9 million in the third quarter of 2019, reflecting a lower headcount and efficiency

improvement initiatives in Norway (8% cost reduction year on year). This effect is partly offset by increased recruiting in our software company Mytos and the inclusion of Wizor, our most recent acquisition closed at the end of third quarter last year.

Option costs were NOK 0.5 million in the third quarter of 2019, compared to NOK 1.4 million in the corresponding quarter of last year.

Other operational costs declined by 34% to NOK 12.3 million, down from NOK 18.7 in the same quarter of 2018. The reduction year-overyear includes an estimated effect of NOK 3.0 million from changed accounting of leasing agreements (IFRS 16) in addition to reduced marketing spend.

Capitalised costs relating to the development of own software were NOK 1.8 million (NOK 0.4 million last year), of which NOK 1.0 million were personnel costs and NOK 0.8 million were external development costs.

As a result, EBITDA was NOK 5.8 million in the third quarter of 2019, compared to NOK 10.9 million reported last year.

In the quarter, an impairment of NOK 70 million was booked on goodwill of Techstep Norway AS on transactions mainly made in 2012, related to the hardware business. See note 6 for further details.

As a result, operating loss (EBIT) was NOK 72.7 million in the third quarter of 2019, down from an operating profit (EBIT) of NOK 5.6 million for the third quarter of 2018.

Net financial expenses amounted to NOK 1.1 million in the third quarter of 2019, compared to NOK 1.0 million in the corresponding quarter of last year.

Net loss for the third quarter of 2019 amounted to NOK 73.2 million, compared to a profit of NOK 3.8 million in the third quarter of 2018.

Cash flow

Net cash flow from operating activities was NOK 0.5 million in the third quarter of 2019. This includes a negative effect of NOK 3.2 million from increased net working capital.

Net cash flow used for investment activities was NOK 4.5 million and relates to IT investments and development of own intellectual property (IP) and software.

Net cash flow from financing activities was negative at NOK 0.2 million in the third quarter 2019, relating to positive exchange differences on finances offset by lease payments (IFRS 16).

Cash and cash equivalents decreased by NOK 4.1 million in the third quarter to NOK 26.7 million.

Financial position

As at 30 September 2019, total assets were NOK 696.0 million, compared with NOK 773.7 million at 31 December 2018.

Intangible assets account for NOK 447.1 million. Goodwill was reduced by NOK 70 million in the third quarter, as a result of an impairment of goodwill related to Techstep Norway AS. This relates to transactions made in 2012 and 2015. See note 6 for further details.

Total tangible assets were NOK 44.5 million at 30 September 2019, of which NOK 36.2 million relates to IFRS 16.

Total inventories and receivables were NOK 173.3 million as at 30 September 2019, with the reduction of NOK 12.3 million from year-end 2018 mainly due to reduced receivables.

At the end of September 2019, total equity was NOK 430.7 million, corresponding to an equity ratio of 62%.

Non-current interest-bearing debt of NOK 7.0 million relates to a long-term property loan for the premises in Karlstad, Sweden. Other noncurrent debt of NOK 37.4 million includes an earn-out obligation related to Wizor AS of NOK 4.9 million, leasing commitments of NOK 28.3 million and the long-term portion of restructuring provisions of NOK 3.0 million.

Current interest-bearing liabilities amount to NOK 39.3 million and include factoring debt of NOK 38.9 million.

Other current liabilities of NOK 50.7 million per 30 September 2019 mainly include vacation pay, short term leasing debt and restructuring provisions.

Net interest-bearing debt was NOK 19.6 million at the end of September 2019, compared to NOK 19.4 million per year-end 2018.

Outlook

"Techstep's ambition is to become a leading enabler of the mobile digital workplace in the Nordic region. The company expects the market for B2B mobility services in Norway and Sweden to continue to grow in the years ahead and has continued to develop its offering in the second half of 2019 to meet expected market demand.

Responding to market developments, Techstep has been maturing its mobility-as-a-service offering which have led the company into a fundamental transformation, from a mobile reseller, towards a full-service software driven mobility provider.

While the transition from a hardware supplier to a software and solutions provider is

materializing gradually, the company has experienced lower revenues and profits due to reduced hardware related operator commissions, provisions and bonuses from the Norwegian SMB segment that Techstep discontinued in the second quarter this year. The company does not expect that software and solutions will be able to compensate for reduced revenue and profit contribution from commissions and hardware margins short term.

Moving into 2020, all Techstep activities are aligned to bring the company's own software and services to enterprise customers in Norway and Sweden. To further strengthen the company's software platform and capabilities, Techstep will also continue pursuing M&A opportunities."

Consolidated income statement

(amounts in NOK 1 000)	Note	Q3 2019	Q3 2018	YTD 2019	YTD 2018	2018

Revenue	2, 3	241 903	261 596	792 865	744 286	1 059 596
Other income		1 286	-	4 470	2 477	4 518
Total revenues		243 189	261 596	797 335	746 763	1 064 114

Cost of goods sold		(183 386)	(189 704)	(593 224)	(535 276)	(769 695)
Salaries and personnel costs		(41 904)	(42 602)	(139 663)	(141 649)	(195 376)
Other operational costs		(12 348)	(18 694)	(44 195)	(51 275)	(76 101)
Share of profit (loss) in joint ventures		276	349	1 221	138	119
Depreciation	5	(3 201)	(371)	(10 596)	(1 214)	(1 743)
Amortisation		(5 314)	(4 992)	(16 300)	(14 371)	(18 918)
Impairment	6	(70 000)	-	(70 000)	-	-
Other income		-	-	-	10 034	19 962
Operating profit (loss)		(72 689)	5 583	(75 422)	13 149	22 362

Financial income		521	163	3 821	486	1 108
Financial expense		(1 642)	(1 133)	(3 998)	(3 937)	(4 462)
Profit before taxes		(73 811)	4 612	(75 599)	9 698	19 009
Income taxes		626	(861)	(139)	770	2 320
Net profit (loss) for the period		(73 185)	3 751	(75 739)	10 468	21 329

Net income attributable to
Non-controlling interests		-	64	-	644	644
Shareholders of Techstep ASA		(73 185)	3 687	(75 739)	9 824	20 685

Earnings per share in NOK:
Basic		(0.46)	0.02	(0.48)	0.07	0.13
Dilluted		(0.46)	0.02	(0.48)	0.07	0.13

Consolidated statement of comprehensive income

			YTD	YTD
(amounts in NOK 1 000) Note	Q3 2019	Q3 2018	2019	2018	2018
Net profit (loss) for the period	(73 185)	3 751	(75 739)	10 468	21 329

Items that may be reclassified to profit and loss
Exchange differences on translating foreign operations	1 724	720	(10 694)	(9 545)	414
Income tax related to these items	(144)	(150)	1 339	1 201	396
Total comprehensive income	(71 606)	4 321	(85 094)	2 124	22 138

Total comprehensive income attributable to
Non-controlling interests	-	64	-	644	644
Shareholders of Techstep ASA	(71 606)	4 257	(85 094)	1 481	21 495

Consolidated statement of financial position

			Restated*
ASSETS	Note	Q3 2019	2018
Non-current assets
Deferred tax asset		-	2 439
Goodwill	6	384 114	457 388
Customer relations and technology		62 944	67 733
Total intangible assets		447 057	527 560
Property, plant and equipment	5	44 523	9 377
Total tangible assets		44 523	9 377
Joint ventures		1 956	735
Shares and investments		44	8 117
Other non-current assets		2 482	2 568
Total financial assets		4 482	11 420
Total non-current assets		496 061	548 357
Inventories		18 126	16 155
Accounts receivable		137 982	146 565
Other receivables		17 150	22 881
Total inventories and receivables		173 258	185 601
Cash and cash equivalents		26 692	39 741
Total current assets		199 951	225 342

Total assets		696 012	773 699

EQUITY AND LIABILITIES	Note	Q3 2019	2018
Share capital		159 057	159 057
Other equity		271 690	354 722
Total equity attributable to the owners of Techstep ASA	4	430 747	513 780
Non-controlling interests		-	-
Total equity		430 747	513 780
Deferred tax		4 143	3 608
Non-current interest-bearing debt		6 997	7 341
Other non-current debt	5	37 434	8 081
Total non-current debt		48 574	19 030
Current interest-bearing liabilities		39 259	51 754
Accounts payable		104 643	116 694
Tax payable		1 556	3 470
Public taxes, provisions		20 467	21 842
Other current liabilities	5	50 767	47 131
Total current debt		216 692	240 890
Total liabilities		265 265	259 920

*Refer to note 7

Consolidated statement of changes in equity

	Share	Other paid-in	Other		Minority	Total equity
(amounts in NOK 1 000)	capital	capital	equity	Sum	interest	capital
Equity as of 1 January 2018	146 252	473 292	(169 805)	449 739	369	450 110

Profit for the period	-	-	20 685	20 685	644	21 329
Other comprehensive income	-	-	809	809	-	809
Total comprehensive income for	-	-	21 495	21 495	644	22 138
the period
Transactions with owners in their
capacity as owners:
Contributions of equity net of	7 937	16 062	-	23 999	-	23 999
transaction costs
Issue of ordinary shares as
consideration for a business	4 869	7 741	-	12 610	-	12 610
combination, net of transaction costs and tax
Purchase of minority interest in
subsidiary	-	-	1 013	1 013	(1 013)	-
Share-based payments	-	-	4 924	4 924	-	4 924
Equity as of 31 December 2018	159 057	497 096	(142 374)	513 780	-	513 781

Equity as of 1 January 2019	159 057	497 096	(142 374)	513 780	-	513 781

Profit for the period	-	-	(75 739)	(75 739)	-	(75 739)
Other comprehensive income	-	-	(9 356)	(9 356)	-	(9 356)
Total comprehensive income for	-	-	(85 094)	(85 094)	-	(85 094)
the period

Transactions with owners in their
capacity as owners:
Share-based payments	-	-	2 062	2 062	-	2 062
Equity as of end September 2019	159 057	497 096	(225 406)	430 747	-	430 747

Consolidated statement of cash flow

		Restated*		Restated*	Restated*
(amounts in NOK 1 000) Note	Q3 2019	Q3 2018	YTD 2019	YTD 2018	2018

Profit before tax	(73 811)	4 612	(75 599)	9 698	19 009
Profit from joint venture	(276)	(349)	(1 221)	(138)	(119)
Depreciation, amortisation	8 516	5 362	26 896	15 585	20 657
Share-based payments	535	1 355	2 062	3 733	4 924
Dividend reclassified to investment activities	-	-	(2 094)	-	-
Impairment	70 000	-	70 000	-	-
Remeasurement of contingent liability	-	-	-	(10 035)	(19 962)
Net exchange differences	379	-	379	-	(2 133)
Taxes paid	(1 578)	-	(1 707)	(5 392)	(1 518)
Changes in net operating working capital	(3 202)	(11 834)	(977)	(13 865)	6 489
Net cash flow from operational activities	564	(853)	17 739	(412)	27 347

Payment for acquisition of subsidiaries net of cash acquired	-	(5 335)	-	(5 335)	(5 335)
Payment for property, plant and equipment	(4 478)	(1 510)	(13 766)	(6 793)	(11 689)
Repayment of invested capital	-	-	8 073	-	-
Proceeds from dividends received	-	-	2 093	-	-
Proceeds from sale of equity instruments	-	-	-	760	760
Net cash used on investment activities	(4 478)	(6 845)	(3 599)	(11 369)	(16 264)

Proceeds from issuance of shares	-	23 700	-	23 700	23 700
Repayment of borrowings	(186)	(819)	(15 266)	(6 326)	(12 008)
Lease repayments 5	(2 650)	-	(8 151)	-	-
Net exchange differences finance	2 661	-	(2 990)	-	-
Net cash flow from financing activities	(175)	22 881	(26 407)	17 374	11 692

Net change in cash and cash equivalents	(4 088)	15 183	(12 266)	5 594	22 774
Cash and cash equivalents at beginning of	30 648	3 434	39 739	14 125	17 336
period
Effects of exchange rate changes on cash and cash equivalents	134	(151)	(781)	(1 253)	(370)
Cash and cash equivalents at end of period	26 692	18 466	26 692	18 466	39 741

*Refer to note 7

Notes to the consolidated financial statements

1. Accounting principles

Techstep (the Group) consists of Techstep ASA (the Company) and its subsidiaries. Techstep ASA is a limited liability company, incorporated in Norway. The consolidated interim financial statements consist of the Group and the Group's interests in a joint arrangement. As a result of rounding differences, numbers or percentages may not add up to the total.

1. ACCOUNTING PRINCIPLES

The interim consolidated financial statements are prepared under International Financial Reporting Standards (IFRS), for the periods presented. The interim financial report is presented in accordance with IAS 34 Interim Financial Reporting. The interim consolidated financial statements do not include all the information and disclosures required in the Annual Financial Statements and should be read in conjunction with the Group's Annual Financial Statements 2018. The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's Annual Financial Statements for the year ended 31 December 2018, with the exceptions stated below. The report has not been audited.

From Q1 2019, Techstep has adopted the new accounting standard IFRS 16 Leases.

The group applies the modified retrospective approach where right-to-use assets are measured at an amount equal to the lease liability at 1 January 2019. The lease liability is calculated as the present value of future lease payments. The future lease payments are discounted by the incremental borrowing rate ate the time of transition.

The modified retrospective approach does not have any effect on equity. Using this approach, the 2018 comparable numbers are not restated as if IFRS 16 was applied in 2018. The presented amounts are calculated based on judgements and interpretations at the time of adopting the new standard.

The Group has elected to apply the recognition exemption to leases for which underlying assets are of low value. Lease of intangible assets that are within the scope of the standard are accounted for in accordance with IFRS 16.

The right-to-use assets are depreciated over the lifespan of the lease using a linear approach. The assets are presented on the line item.

The corresponding lease liability is reduced when down payments are made.

The interest element of the lease is calculated using the incremental borrowing rate. For the group the rate varies between 3-5 % depending on the company holding the lease and the underlying asset.

The transition effect adopting the standard are shown in note 5 Leases.

Note 2. Business segments

Techstep has two business segments, which are represented by the geographic locations where the Group's entities are incorporated. The entities are controlled and owned by the Techstep Group. Other companies are included in the segment Headquarters and other.

Operating segments are changed from 1 October 2018 and restated retrospectively to give comparable information.

Eliminations comprise intersegment sales. Transactions between operating segments are conducted on normal commercial terms.

1) Norway

Techstep Norway AS: The offerings of the company are mobile hardware, servicing, support and mobility consultancy services. The company is located in Oslo and Sandefjord and consists of the hardware suppliers formerly known as Nordialog Oslo AS and Apro Tele og Data AS, as well as the service and solutions company formerly known as Techstep Nordic AS.
Mytos AS: A Norwegian based software as a services company with mainly recurring revenue. Mytos offers a full range of telecom expense management (TEM) modules, all with proprietary software and highly user-friendly implementation and operation. The company is located in Oslo.
Wizor AS: A Norwegian based company specialising in high security mobile communication solutions. The company is located in Oslo.
Techstep Denmark ApS: Established to invoice Danish customers. The company is fully supported from Norway and does not have any employees.

2) Sweden:

Techstep Sweden AB: The company offers mobile hardware, industry leading cloud-based (UCaaS) PBX solutions, Mobility consultancy services and Enterprise Mobility Management (EMM) services, including Mobile Security, system design, implementation, mobile device management. The company is located in Karlstad and Stockholm.
Mowizor AB: A Swedish based security software company, providing the same products and services as Wizor AS, located in Stockholm.

3) Headquarters and other:

• Techstep ASA, Techstep Nordic AS, Netconnect AS, Mytos IPR AS and Techstep Holding AB.

			HQ and	Elim
Q3 2019	Norway	Sweden	other	inations	Total
Operating revenues from external customers	185 474	58 037	(322)	-	243 189
Operating revenues from other segments	154	1 062	6 521	(7 738)	-
Operating revenues	185 628	59 099	6 199	(7 738)	243 189
Cost of goods sold	(139 600)	(45 196)	(4)	1 413	(183 386)
Salaries and personnel costs	(26 213)	(8 931)	(6 999)	239	(41 904)
Other operational costs	(11 841)	(2 605)	(4 017)	6 115	(12 348)
Share of profit (loss) of joint venture	-	-	276	-	276
Depreciation	(927)	(644)	(1 631)	-	(3 201)
Amortisation	(2 591)	(1 755)	(969)	-	(5 314)
Impairment	(70 000)	-	-	-	(70 000)
Other income	-	-	-	-	-
Operating profit (loss)	(65 543)	(32)	(7 144)	30	(72 689)

Employees 30 September 2019	134	60	18		212

			HQ and	Elim
Q3 2018	Norway	Sweden	other	inations	Total
Operating revenues from external customers	211 641	49 675	281	-	261 596
Operating revenues from other segments	4 145	213	5 174	(9 532)	-
Operating revenues	215 786	49 888	5 455	(9 532)	261 596
Cost of goods sold	(136 908)	(48 689)	-	(4 106)	(189 704)
Salaries and personnel costs	(27 222)	(8 716)	(5 795)	(870)	(42 602)
Other operational costs	(14 671)	(4 290)	(5 573)	5 841	(18 694)
Share of profit (loss) of joint venture	-	-	349	-	349
Depreciation	(139)	(218)	(14)	-	(371)
Amortisation	(2 511)	(1 671)	(810)	-	(4 992)
Impairment	-	-	-	-	-
Other income	-	-	-	-	-
Operating profit (loss)	34 335	(13 696)	(6 386)	(8 667)	5 583

Employees 30 September 2018	135	81	9		225

			HQ and	Elim
YTD 2019	Norway	Sweden	other	inations	Total
Operating revenues from external customers	577 454	219 881	-	-	797 335
Operating revenues from other segments	4 336	2 574	15 383	(22 293)	-
Operating revenues	581 790	222 455	15 383	(22 293)	797 335
Cost of goods sold	(428 010)	(171 383)	(10)	6 180	(593 224)
Salaries and personnel costs	(85 616)	(30 893)	(23 916)	762	(139 663)
Other operational costs	(39 217)	(8 507)	(12 936)	16 466	(44 195)
Share of profit (loss) of joint venture	-	-	1 221	-	1 221
Depreciation	(5 098)	(1 947)	(3 551)	-	(10 596)
Amortisation	(8 316)	(5 268)	(2 716)	-	(16 300)
Impairment	(70 000)	-	-	-	(70 000)
Other income	-	-	-	-	-
Operating profit (loss)	(54 467)	4 457	(26 527)	1 115	(75 422)

			HQ and	Elim
YTD 2018	Norway	Sweden	other	inations	Total
Operating revenues from external customers	560 483	185 917	364	-	746 763
Operating revenues from other segments	21 230	795	16 160	(38 185)	-
Operating revenues	581 713	186 712	16 524	(38 185)	746 763
Cost of goods sold	(409 752)	(144 360)	(51)	18 886	(535 276)
Salaries and personnel costs	(92 180)	(30 631)	(18 839)	-	(141 649)
Other operational costs	(41 887)	(13 423)	(15 264)	19 299	(51 275)
Share of profit (loss) of joint venture	-	-	138	-	138
Depreciation	(501)	(656)	(57)	-	(1 214)
Amortisation	(7 405)	(5 106)	(1 860)	-	(14 371)
Impairment	-	-	-	-	-
Other income	-	-	10 034	-	10 034
Operating profit (loss)	29 988	(7 464)	(9 372)	-	13 149

			Head quarter
			and	Elim
2018 Operating revenues from external customers	Norway 805 318	Sweden 258 606	other 190	inations -	Total 1 064 114
Operating revenues from other segments	19 455	432	16 010	(35 898)	-
Operating revenues	824 773	259 038	16 201	(35 898)	1 064 114
Cost of goods sold	(592 098)	(198 991)	(51)	21 445	(769 695)
Salaries and personnel costs	(127 909)	(42 172)	(28 004)	2 710	(195 376)
Other operational costs	(51 106)	(15 640)	(21 098)	11 744	(76 101)
Share of profit (loss) of joint venture	-	-	119	-	119
Depreciation	(772)	(893)	(78)	-	(1 743)
Amortisation	(10 001)	(6 786)	(2 131)	-	(18 918)
Impairment	-	-	-	-	-
Other income	-	-	19 962	-	19 962
Operating profit (loss)	42 887	(5 444)	(15 080)	-	22 362

Employees 31 December 2018	142	61	18		221

Note 3: Disaggregation of revenues

In the following tables, Total revenue is disaggregated by major revenue streams divided into the reportable segments as shown in note 2:

			Headquarter
Q3 2019	Norway	Sweden	and other	Eliminations	Group
Total revenues	185 628	59 099	6 199	(7 738)	243 189

Hardware
Hardware revenues	132 392	45 036	-	(331)	177 097
Bonus	6 370	1 165	-	-	7 535
Commission	-	-	-	-	-
Total	138 763	46 201	-	(331)	184 632

Solutions
Solutions revenues	37 455	11 477	-	(886)	48 046
Bonus	-	-	-	-	-
Commission	7 793	1 432	-	-	9 225
Total	45 247	12 909	-	(886)	57 271

Other revenues
Other	1 618	(11)	6 199	(6 521)	1 286
Total	1 618	(11)	6 199	(6 521)	1 286

			Headquarter
Q3 2018 Restated	Norway	Sweden	and other	Eliminations	Group
Total revenues	215 786	49 888	5 455	(9 532)	261 596

Hardware
Hardware revenues	146 456	41 596	-	(5 032)	183 019
Bonus	7 251	111	-	-	7 362
Commission	-	-	-	-	-
Total	153 707	41 707	-	(3 698 865)	190 382

Solutions
Solutions revenues	50 192	6 599	-	(910)	57 701
Bonus	-	-	-	-	-
Commission	10 798	2 717	-	-	13 514
Total	60 990	9 315	-	(910)	71 215

Other revenues
Other	1 089	(1 134)	5 455	(5 411)	-
Total	1 089	(1 134)	5 455	(5 411)	-

In Q3 2018 NOK 5.2 million were reported as Solution bonus. The amount has been reclassified to Solutions provisions.

			Headquarter
YTD 2019	Norway	Sweden	and other	Eliminations	Group
Total revenues	581 790	222 455	15 383	(22 293)	797 335

Hardware
Hardware revenues	411 310	139 356	-	(4 374)	546 292
Bonus	19 017	2 738	-	-	21 755
Commission	-	-	-	-	-
Total	430 328	142 094	-	(4 374)	568 047

Solutions
Solutions revenues	119 410	73 655	-	(2 536)	190 529
Bonus	-	-	-	-	-
Commission	27 612	6 677	-	-	34 289
Total	147 022	80 332	-	(2 536)	224 818

Other revenues
Other	4 441	29	15 383	(15 383)	4 470
Total	4 441	29	15 383	(15 383)	4 470

			Headquarter
YTD 2018 Restated	Norway	Sweden	and other	Eliminations	Group
Total revenues	581 713	186 712	16 524	(38 185)	746 763

Hardware
Hardware revenues	403 958	137 242	-	(15 678)	525 521
Bonus	19 341	225	-	-	19 566
Commission	-	-	-	-	-
Total	423 299	137 467	-	(15 678)	545 087

Solutions
Solutions revenues	122 901	41 691	-	(5 004)	159 589
Bonus	-	-	-	-	-
Commission	32 442	7 168	-	-	39 610
Total	155 343	48 860	-	(5 004)	199 199

Other revenues
Other	3 072	386	16 524	(17 504)	2 477
Total	3 072	386	16 524	(17 504)	2 477

In YTD 2018 NOK 1.4 million were reported as Solution bonus. The amount has been reclassified to Solutions provisions.

			Headquarter
2018 Restated	Norway	Sweden	and other	Eliminations	Group
Total revenues	824 773	259 038	16 201	(35 898)	1 064 114

Hardware
Hardware revenues	581 825	193 956	-	(19 412)	756 369
Bonus	23 463	323	-	-	23 786
Provisions	-	-	-	-	-
Total	605 289	194 279	-	(19 412)	780 155

Solutions
Solutions revenues	161 651	55 027	-	(475)	216 203
Bonus	-	-	-	-	-
Provisions	53 596	9 623	-	-	63 219
Total	215 247	64 650	-	(475)	279 422

Other revenues
Other	4 237	109	16 201	(16 010)	4 536
Total	4 237	109	16 201	(16 010)	4 536

In 2018 NOK 21.5 million were reported as Solutions bonus. The amount has been reclassified to Solutions Provisions.

Note 4: Share capital and shareholders

The company's share capital as at 30 June 2019 was NOK 159,057,020 consisting of 159,057,020 ordinary shares with a par value of NOK 1.00.

Each share gives the right to one vote at the company's annual general meeting. At the time of this report, Techstep holds 1 914 treasury shares.

Shareholder	# of shares	Ownership %
Datum AS1	31 817 975	20.00 %
Middelborg Invest AS	30 517 764	19.19 %
Karbon Invest AS2	15 900 874	10.00 %
Cipriano AS3	4 968 835	3.12 %
Verdipapirfondet DNB SMB	4 588 937	2.89 %
Tigerstaden AS	4 000 000	2.51 %
Palos Norge AS	3 966 667	2.49 %
Skandinaviska Enskilda Banken AS	3 745 967	2.36 %
Tinde Industrier AS	3 063 372	1.93 %
Zono Holding AS4	3 000 007	1.89 %
Så&Høste AS	2 925 936	1.84 %
Torstein Ingvald Tvenge	2 920 000	1.84 %
UBS Switzerland AG	2 301 906	1.45 %
Adrian AS	2 038 851	1.28 %
Nomo Holding AS	1 946 253	1.22 %
Nordial og Ensjø AS	1 946 253	1.22 %
Skarestrand Invest AS	1 912 315	1.20 %
Dovran Invest AS	1 863 372	1.17 %
Unified AS	1 849 457	1.16 %
Raknes Holding AS	1 649 348	1.04 %
Total number owned by top 20	126 924 089	79.80%
Total number of shares	159 057 020	100%

1) Datum AS is controlled by deputy board member Jan Haudemann-Andersen

2) Karbon Invest AS is owned by chairman of the board Jens Rugseth

3) Cipriano AS, owned by vice chairman of the Board of Directors Einar J. Greve

4) Zono Holding AS owned by Middelborg Invest AS 50.44%, Cipriano AS 4.65%, Duo Jag AS 0.93%

Idekapital AS, which is controlled by board member Anders Brandt, owns 1,287,245 shares in Techstep ASA.

Duo Jag AS, which is partly owned by board member Ingrid Leisner, owns 554,834 shares in Techstep ASA.

Share option grant

As of 30 September2019, the total number of outstanding share options was 12 million, which is equivalent to 7% of the number of shares (including 1,914 treasury shares) in Techstep ASA.

Overview of shares and share options held by members of the management group as at 30 September 2019:

Name	Position	Shares	Share options
Jens Haviken	CEO	100,000	5,000,000
Marius Drefvelin	CFO	40,000	1,500,000
Mads Vårdal	CIO	5,019	1,500,000
Erik Haugen	CCO	-	1,000,000
Inge Paulsen	Managing Director Norway	150,000	1,000,000
Bartek Regerqvist	Managing Director Sweden	-	200,000

Note 5: Leases

Effects on the consolidated statement of financial position.

The equity effect of the adoption of IFRS 16 was zero. The table below presents the effects in assets and liabilities presented in the fourth quarter report and financial statements of 2018 before and after the adoption of IFRS 16.

	31 December 2018	IFRS 16 implementation effect	1 January 2019
Total tangible assets	9 377	21 563	30 940
Other non-current debt	(8 081)	(10 315)	(18 396)
Other current liabilities	(47 131)	(11 248)	(58 378)
Total	(45 835)	-	(45 835)

Effects on income statement Q3

	Excluding IFRS 16 Q3 2019	IFRS 16 effects	Total effect Q3 2019
Other operational costs	3 037	-	(3 037)
Depreciation	-	2 923	2 923
Finance expenses	-	511	511
Total	3 037	3 435	398

Effects on income statement

	Excluding IFRS 16 YTD 2019	IFRS 16 effects	Total effect YTD 2019
Other operational costs	8 587	-	(8 587)
Depreciation	-	8 157	8 157
Finance expenses	-	753	753
Total	8 587	8 911	324

Note 6: Impairment

For impairment testing goodwill and customer relationships acquired through business combinations are allocated to the CGUs as shown in the table below.

Carrying amount of goodwill and customer relationships allocated to each of the CGUs:

	Goodwill		Customer relationships
	Q3 2019	2018	Q3 2019	2018
Techstep Norway AS	210 833	280 833	4 766	8 412
Techstep Sweden AB	79 711	82 982	19 196	25 467
Mytos AS	93 570	93 570	9 192	12 147
Total	384 114	457 388	33 154	46 027

In the 2018 Group financial statement Wizor AS was a separate CGU. Wizor AS is in the process of being merged into Techstep Norway AS in 2019 and is considered as one CGU for management reporting purposes.

Goodwill (and customer relationships) are monitored by management at the level defined in the table above. These CGUs represent the lowest level within the Group at which the goodwill and other intangible assets are monitored for internal management purposes.

The Group considers the relationship between cash flows from budgets versus actual performance and forecasts for future performance when reviewing for indicators for impairment.

The estimate of the recoverable amount of the CGU is largely based on management's assumption pertaining to future cash flow projections.

As at 30 September 2019 there was indication of impairment in Techstep Norway and an impairment was performed. There was no indication of impairment in the other CGUs.

Techstep Norway AS:

The recoverable amount of the CGU was as at 30 September 2019 as follows:

	Local accounts	Group values	Total
Goodwill	93 184	117 649	210 833
Customer relationships	-	4 114	4 114
Deferred taxes	-	(905)	(905)
Net other assets	(9 396)	-	(9 396)
Equity value	83 788	120 857	204 646

The recoverable amount has been determined based on value in use calculation using cash flow projections from financial forecasts covering a period of 5 years.

For the reporting period, the recoverable amount of the cash generating unit (CGUs) was determined based on value-in-use calculations which require the use of several key assumptions. The calculations use cash flow projections based on financial budgets covering a five-year period. Cash flows beyond the five-year period are calculated using the estimated growth rates stated below.

Techstep Norway business includes the business areas own software, advisory, security and "as-is" business per Q3 2019. All businesses are dependent on each other and therefore considered as one CGU. Own software constitutes being a reseller of the Mytos software product portfolio mainly related to the products Origo business cloud and telecom expense management. The telecom expense management product is a part of the product portfolio as per Q3 2019.

Advisory is related to the strengthening of the company's consulting department. Security is related to the product Secusmart. The "as-is" business is the offering as per today, hereunder the hardware business.

The market for the hardware business is competitive with declining and low margins. Techstep Norway has also experienced a decline in operator commissions as the company has made strategic decisions to exit some low margin SMB business.

For the reporting period, the recoverable amount of the cash generating unit (CGUs) was determined based on value-in-use calculations which require the use of several key assumptions. The starting point of the projected cash flows is the strategy plan for the Group translated into the CGU. The free cash flows have been updated to reflect the transition the CGU and the entire Group are undertaking. The transition establishes new cash flows from software and advisory services and diminishes the free cash flows from the legacy hardware business. The calculations use cash flow projections covering a five-year period. Cash flows beyond the five-year period are calculated using the estimated growth rates stated below.

Key assumptions

2019	2018
Equity ratio 62 %	65 %
Growth in terminal value 0.5 %	0.5 %
WACC 11.9 %	11.9 %

Discount rates

The pre-tax discount rate applied for the impairment testing is set at 11.9 %. This rate of return is calculated based on the weighted average of required rates of return on the Group's equity and debt (WACC) using the capital asset pricing model (CAPM).

The required rate of return on debt is estimated based on a long-term risk-free interest rate, to which a premium is added to reflect the creditors' risk when lending funds to the Group. The discount rate includes a small business premium (operational risk) and the expected future levels of inflation. For impairment reviews performed at yearend 2018, these assumptions have been applied consistently across the Group.

Investments

Capital expenditure is assumed to be equal to depreciation in the terminal year.

Budget assumptions

The budget for the company is built bottom up with expected growth rates in all business areas. The Group's strategy is the core of where growth is expected. Most of the expected future cash flows are not defined by binding contracts and are dependent on multiple factors such as: market penetration for own software, the ability to build and maintain a professional service organisation and the ability to increase the efficiency in the current operations. Average growth rate in EBITDA for the 5-year period covered by the discounted cash flow analysis is 5 %. The growth rate is based both on historic performance and the expected growth rate for the strategic direction.

Sensitivities

The estimation of recoverable amount is based on assumptions regarding the future development of several factors. These include price development for products, sales volumes and growth rates. Inherently there are uncertainties in these calculations. In relation to the assumptions made in the calculation of the present value of future cash flows, recoverable amount is sensitive to:

Sensitivity	Impairment indication
2 % increase in WACC	- NOK 33 million
1 % decrease in growth rate in terminal value	- NOK 12 million

Impairment charge

The Group recognises an impairment charge in Q3 2019 amounting to NOK 70 million. The impairment is related to the reduction in hardware margins and operator commissions. Moreover, it is a consequence of the Group's

strategic direction and the ongoing transformation of the business. Management's assessment is that the impairment is an effect of replacing legacy cash flows with the inherent uncertainties in future cash flows from new products. This does not constitute that management does not believe in the business model going forward.

Note 7: Reclassification

Restatement: impact on statement of financial position

		Current
	Cash and cash	interest
	equivalents	bearing debt
2018 Restated	39 741	51 754
2018 Reported	53 996	66 009
Change	(14 255)	(14 255)

Reclassification impact in consolidated statement of cash flows

	Changes in net operation working capital	Cash and cash equivalents at beginning of period	Cash and cash equivalents at end of period
Q3 2018 Restated	(11 834)	3 434	18 466
Q3 2018 Reported	(7 745)	23 782	43 201
Change	(4 089)	(20 348)	(24 735)

	Changes in net	Cash and cash	Cash and cash
	operation working	equivalents at	equivalents at
	capital	beginning of period	end of period
YTD 2018 Restated	(13 865)	14 125	18 466
YTD 2018 Reported	(10 581)	35 332	43 201
Change	(3 284)	(21 207)	(24 735)

	Changes in net operation working capital	Cash and cash equivalents at beginning of period	Cash and cash equivalents at end of period
2018 Restated	6 489	17 336	39 741
2018 Reported	2 556	35 524	53 996
Change	3 933	(18 188)	(14 255)

Note 8: Subsequent events

No material events have occurred after the balance sheet date until the publication of the financial statements that have had material impact on the Group's financial position and that should have been reflected in the published financial statements.

Alternative Performance Measures

"Alternative Performance Measures

Techstep Group's financial information is prepared in accordance with international financial reporting standards (IFRS). In addition, it is management's intention to provide alternative performance measures that are regularly reviewed by management to enhance the understanding of Techstep's performance, but not instead of the financial statements prepared in accordance with IFRS. The alternative performance measures presented may be determined or calculated differently by other companies. The principles for measuring the alternative performance measures are in accordance with the principles used both for segment reporting in Note 2 and internal reporting to Group Executive Management (chief operating decision makers) and are consistent with financial information used for assessing performance and allocating resources."

Gross profit

Gross profit is defined as Total revenue less Cost of goods sold.

Gross margin

Gross margin is defined as Total revenue less Cost of goods sold divided by Total revenue.

"EBITDA

Earnings before interest, tax, depreciation and amortisation (EBITDA) is a key financial parameter for Techstep. This measure is useful to users of Techstep's financial information in evaluating operating profitability on a more variable cost basis as it excludes depreciation and amortisation expense related primarily to leases, capital expenditures and acquisitions that occurred in the past. The EBITDA margin presented is defined as EBITDA divided by total revenues."

"EBITA

Earnings before interest, tax and amortisation (EBITA) is a key financial parameter for Techstep. This measure is useful to users of Techstep's financial information in evaluating operating profitability on a more variable cost basis as it excludes depreciation related primarily to leases and capital expenditures and acquisitions that occurred in the past. The EBITA margin presented is defined as EBITA divided by total revenue."

"EBIT

Earnings before interest and tax (EBIT) is useful to users with regard to Techstep's financial information in evaluating operating profitability on the cost basis as well as the historic cost related to past business combinations and capex. The EBIT margin presented is defined as EBIT divided by total revenue."

"Hardware revenue

Hardware revenue is defined as revenue from sales of tangible goods and related discounts from suppliers and partners.

Hardware share of revenue is the hardware revenue divided by total revenues"

"Solutions revenue

Solutions revenue is defined as revenue from sales of licenses, support and other non-tangible items to customers. Also included are discounts from suppliers and partners. Solutions share of revenue is the solutions revenue divided by total revenue."

Net interest-bearing debt (NIBD)

Net interest-bearing debt is non-current interest-bearing debt plus current interest-bearing liabilities less cash and cash equivalents.

Capital Expenditure (Capex)

Capital expenditure is the same as payment for property, plant and equipment and intangible assets.

*ARR

ARR is calculated as the monthly revenue in the last month of the quarter, multiplied by twelve months.

ARPU

Average Revenue Per User is calculated as total revenue from own software in the period divided by the number of users at the end of the period.

TECHSTEP ASA

Brynsalléen 4 0667 Oslo, Norway +47 915 233 37