Techstep ASA — Interim / Quarterly Report 2018

Feb 15, 2019

Interim report Q4 2018

Highlights Q4 2018

• ● Revenue in Q4 2018 increased 13% year-over-year to NOK 317.4 million (NOK 281.2 million), with growth both in Norway and Sweden
• ● EBITDA amounted to NOK 14.3 million (NOK 1.8 million) and the EBITDA-margin was 4.5% (0.6%). The EBITDA includes one-off gains as well as one-off integration costs, with a combined positive effect of NOK 2.9 million (Q4 2017: one-off costs of NOK 9.0 million)
• ● Cash flow from operations amounted to NOK 20.8 million (NOK 8.0 million)
• ● Revenue for the full year 2018 was NOK 1,064 million (NOK 789 million) and EBITDA NOK 43 million (NOK -0.7 million)
• ● Techstep was awarded new contracts with a potential total value of NOK 226 million in the fourth quarter of 2018. For the full-year, the company signed contracts with a potential value of NOK 991 million

CEO comments

"Techstep aspires to become a leading Nordic provider of solutions making work mobile. We have high ambitions and work hard to deliver on them. In 2018, we signed contracts with a combined potential value of NOK 1 billion. During the fourth quarter, we signed up strategically important new contracts such as Sykehusinnkjøp HF in Norway and Recover Nordic Group, and made inroads with our 'Mobile-as-a-Service' offering with both existing and new clients.

Over the past couple of years, we have carried out a series of acquisitions to support our growth strategy, and the integration of these acquisitions into one Techstep has been a key priority throughout 2018. During the fourth quarter, we have completed the legal and organisational integration of the entities in Norway and Sweden. The next phase is to secure the foundation for more efficient operations. Moreover, we will complete a co-location project in Norway during 2019, where most of our employees in Norway will move into a new headquarter in Oslo.

In financial terms we are glad to report continued growth. In particular, we are pleased to see improving development in our Swedish operations, with rising sales and an increased improved pipeline. Demand for mobile digital solutions is increasing in both the private and public sector, and Techstep is well positioned to take a growing share of this market going forward", says Jens Haviken, CEO of Techstep.

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 221 employees based in Norway and Sweden, serving close to 6,000 customers and 662,000 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

		Restated*
(amounts in NOK 1 000)	Q4 2018	Q4 2017	FY 2018	FY 2017
Revenues	317 351	281 224	1 064 114	789 473
EBITDA	14 288	1 814	43 023	(735)
EBIT	9 213	(5 073)	22 362	(23 147)
EBITDA margin (%)	4.5%	0.6%	4.0%	-0.1%
EBIT margin (%)	2.9%	-1.8%	2.1%	-2.9%
Hardware, share of revenue	75%	71%	74%	72 %
Solutions, share of revenue	25%	29%	26%	28 %
Total Assets	787 954	765 477	787 954	765 477
Cash	53 996	35 278	53 996	35 278
Equity	513 780	450 110	513 780	450 110
Employees	221	219	221	219

Note: EBITDA was positively affected by a reversal of a contingent liability related to the acquisition of BKE Telecom AB of NOK 9.9 million in Q4 2018 and of NOK 20.0 million for FY 2018 (note 7). Q4 2018 EBITDA also includes a one-off provision of NOK 7.0 million relating to remaining rent obligation on regional offices as part of co-location of premises in Norway (note 9). Consequently, the net EBITDA effect of these two one-offs in Q4 2018, is NOK 2.9 million.

M&A costs and other one-offs amounted to NOK 9 million in Q4 2017 and NOK 26.3 million in 2017.

Hardware and solutions share of revenue were restated in Q3 2018 to include related commission and bonus. Previously, all commissions and bonus revenue was allocated to hardware. As such, the share of revenue reported in the Q4 2017 report does not reconcile with the table above.

*Refer to note 6.

Operational review

Main developments

Techstep's strategy is to become a leading enabler of the mobile digital workplace in the Nordic region.

M&A activities play an important role in this growth strategy, and Techstep has made several acquisitions in Norway and Sweden over the past two years. Integration of these acquisitions has been a key priority throughout 2018.

During the fourth quarter, we have completed the legal and organisational integration of the entities in Norway and Sweden. Projects have been initiated to improve the IT and ERP systems. In addition, Techstep is in the process of streamlining operations through co-location of offices in Oslo, Vestfold and Østfold. Seven offices will be closed down by medio 2019, and support functions such as sales, procurement and logistics, and aftermarket services will be combined where possible. This is expected to increase efficiency.

Sales activity and main contracts

Fourth quarter was marked by good sales activity. The company was awarded contracts with a potential value at NOK 226 in the period, and the contract pipeline is improving. For the full-year, Techstep won contracts with a potential total value of NOK 991 million. These contracts include both pure hardware or solutions contracts, as well as combination contracts and MaaS ("Mobile as a Service").

The largest contracts awarded in the fourth quarter 2018 were Sykehusinnkjøp HF and Recover Nordic Group.

Sykehusinnkjøp HF is the national procurement agency for the Norwegian specialist healthcare service, representing 120,000 employees. The framework agreement with Sykehusinnkjøp covers delivery of mobile solutions over a twoyear period, with a potential contract value of NOK 60 million from 2019. The contract includes an option for an additional two years, with annual renewal.

The contract with Recover Nordic Group, the regional market leader in damage control services to insurance and private business, is a pan-Nordic IT agreement for providing and operating a complete mobile solution across Norway, Sweden, Denmark and Finland. The contract has a potential value of NOK 54 million over three years, plus an option for two years extension and additional upsell opportunities.

"Mobile as a Service" (MaaS)

Techstep is also gaining traction with its "Mobile as a Service" (MaaS) offering, which enables customers to let employees work across different locations and different mobile devices in a secure and stable operational environment.

MaaS has the potential to become a major value driver both for Techstep and its customers. During the fourth quarter, Techstep signed MaaS agreements with three customers for a potential total value of NOK 20 million.

Two of the MaaS agreements were signed with existing customers, the Norwegian financial services group Eika Gruppen and Apotek 1, Norway's leading chain of pharmacies. The contract with Eika Gruppen has a potential value of NOK 15 million over three years, plus an option for a three-year extension, as well as opportunities for extending the deliveries to the associated local banks of Eika Gruppen. The contract with Apotek 1 is an additional contract to an existing agreement, and has a potential value of NOK 3 million over two years. Both agreements are expected to generate revenue from 2019.

Techstep also signed its first MaaS agreement in Sweden, with the heating, ventilation and sanitation company Radiator VVS AB. The contract, which will serve at least 450 users, has a potential value of NOK 1.8 million over two years.

Overall, Techstep signed 18 MaaS contracts with a total contract value of NOK 141 million in 2018.

End-user base developments

Techstep's consolidated end-user base increased to ~662,000 at the end of the fourth quarter 2018, up from ~589,000 at the end of fourth quarter 2017, corresponding to a yearover-year growth of 12%.

Financial review

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

Profit and loss

Techstep generated total revenue of NOK 317.4 million in the fourth quarter 2018, up 13% from NOK 281.2 million in the corresponding quarter last year.

Hardware sales increased by 18% year-overyear, primarily in the Norwegian operations with an increase on public customers, in particular. Solutions revenue decreased by 1% year-overyear. A large sale was postponed until the first quarter 2019.

Gross margin dropped from 27% to 26% yearover-year due to the increase in the relative share of hardware revenue.

Salaries and personnel costs increased by 11% to NOK 53.7 million due to the acquisition of Wizor and recruiting in alignment with Techstep's growth strategy. Options costs for the quarter were NOK 1.2 million

Other operational costs amounted to NOK 24.8 million, up from NOK 15.8 million in the corresponding quarter last year. This includes a one-off provision of NOK 7.0 million for remaining rent on premises which will be vacated during 2019 as part of the company's co-location project in Norway. Moreover, there is an increase in marketing and branding expenses, to support Techstep's growth strategy.

EBITDA for the fourth quarter 2018 includes a reversal of the remaining contingent liability of NOK 9.9 million related to BKE Telecom AB, (Techstep Sweden), reported as other income (note 7).

EBITDA amounted to NOK 14.3 million in the fourth quarter, up from NOK 1.8 million in the corresponding quarter of 2017. The EBITDAmargin hence improved to 4.5% from 0.6% in the fourth quarter 2017.

Operating profit (EBIT) was NOK 9.2 million in the fourth quarter of 2018, compared to an operating loss (EBIT) of NOK 5.1 million for the fourth quarter of 2017.

Net financial items amounted to NOK 0.1 million in the fourth quarter 2018, compared with negative NOK 25.1 million in the fourth quarter 2017 which mostly related to a write-down of financial assets.

Net profit amounted to NOK 10.9 million in the fourth quarter of 2018, compared with a loss of NOK 29.2 million in the corresponding quarter last year.

Profit and loss full-year 2018

Full-year revenue amounted to NOK 1064.1 for 2018, an increase of 35% from NOK 789.5 million in 2017. This includes growth in hardware revenue of 39% and solutions revenue of 25%.

EBITDA for the full-year was NOK 43.0 million, compared to negative NOK 0.7 million in 2017. This includes a reversal of the contingent liability of BKE Telecom of NOK 20.0 million, partly offset by a provision of NOK 7.0 million for remaining rent on premises which will be vacated during 2019.

Cash flow

Net cash flow from operating activities was positive at NOK 20.8 million in the fourth quarter 2018 and NOK 23.4 million for the full year, reflecting earnings from the period and improvement in working capital.

Net cash flow used for investment activities was NOK 4.9 million and NOK 16.3 million for the full year, reflecting the acquisition of Wizor AS and IT related capital expenditure.

Net cash flow from financing activities was negative at NOK 5.7 million for the quarter, relating to a final repayment of the term loan in Techstep Norway. The full-year figure amounted to NOK 11.7 million.

Cash and cash equivalents at the end of the quarter was NOK 54.0, compared with NOK 43.2 at the end of the third quarter and NOK 35.3 million at the end of 2017.

Financial position

As at 31 December 2018, Techstep had total assets of NOK 788.0 million, compared with NOK 765.5 million at 31 December 2017. NOK 527.6 million were intangible assets. Accounts receivable decreased by NOK 10.1 million to NOK 146.6 million.

Total equity increased by NOK 22.2 million in the fourth quarter to NOK 513.8 million, corresponding to an equity ratio of 65% (66%).

Non-current interest-bearing debt of NOK 7.3 million relates to a long-term property loan for the premises in Karlstad, Sweden. Other noncurrent debt of NOK 8.1 million represents an earn-out obligation related to Wizor AS and the long-term portion of restructuring provisions.

Current interest-bearing liabilities amounted to NOK 66.0 million and includes factoring debt of NOK 35.8 million, a drawn credit facility of NOK 14.3 million, and a vendor note of NOK 15.3 million related to the acquisition of BKE TeleCom AB.

Outlook

Techstep is well positioned to benefit from positive market trends reflecting increasing digitization and higher demand for professional mobile solutions, and expects the market for B2B mobility services in Norway and Sweden to continue to grow in the years ahead.

Techstep is aspiring to become a leading enabler of the mobile digital workplace in the Nordic region, and is well on its way to execute on its strategic ambitions. The company has made several acquisitions over the past years and is nearing completion of many of the integration processes. These will result in unified and more efficient operations under the Techstep brand. At the same time, the company is rolling out its "Mobile as a Service" (MaaS) offering, tailored to meet the demands of the modern mobile digital workplace.

The main priorities for 2019 will be to finalise the ongoing integration processes, streamline operations, and continue to grow solution sales to secure profitable growth going forward.

Consolidated income statement

			Restated*
(amounts in NOK 1 000)	Note	Q4 2018	Q4 2017	FY 2018	FY 2017
Revenue	2, 3	317 351	279 508	1 061 637	786 242
Other income		-	1 716	2 477	3 231
Total revenues		317 351	281 224	1 064 114	789 473
Cost of goods sold		(234 419)	(206 123)	(769 695)	(559 656)
Salaries and personnel costs		(53 726)	(48 438)	(195 376)	(144 943)
Other operational costs	9	(24 825)	(15 770)	(76 101)	(59 451)
Share of profit (loss) in joint ventures		(19)	(66)	119	223
Depreciation		(528)	(470)	(1 743)	(1 390)
Amortisation		(4 547)	(6 417)	(18 918)	(21 022)
Other income and expenses	7	9 928	(9 013)	19 962	(26 381)
Operating profit (loss)		9 213	(5 073)	22 362	(23 147)
Remeasurement on equity interests		-	-	-	(5 356)
Financial income		622	1 610	1 108	6 211
Financial expense		(525)	(26 727)	(4 462)	(29 230)
Profit before taxes		9 311	(30 190)	19 009	(51 523)
Income taxes		1 550	945	2 230	3 846
Net profit (loss) for the period		10 861	(29 245)	21 329	(47 677)
Net income attributable to
Non-controlling interests		-	95	644	95
Shareholders of Techstep ASA		10 861	(29 340)	20 685	(47 773)
Earnings per share in NOK:
Basic		0.07	(0.20)	0.13	(0.35)
Diluted		0.07	(0.20)	0.13	(0.35)

*Refer to note 6

Consolidated statement of comprehensive income

			Restated*
(amounts in NOK 1 000)	Note	Q4 2018	Q4 2017	FY 2018	FY 2017
Net profit (loss) for the period		10 861	(29 245)	21 329	(47 677)
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations		9 959	487	414	487
Income tax related to these items		(806)	-	396
Total comprehensive income for the period		20 014	(28 758)	22 138	(47 189)
Total comprehensive income for the period attributable to
Non-controlling interests		-	95	644	95
Shareholders of Techstep ASA		20 014	(28 853)	21 495	(47 285)

*Refer to note 6

Consolidated statement of financial position

ASSETS	Note	2018	2017
Non-current assets
Deferred tax asset		2 439	-
Goodwill	8	457 388	436 515
Customer relations and technology		67 733	77 385
Total intangible assets		527 560	513 900
Property, plant and equipment		9 377	9 115
Total tangible assets		9 377	9 115
Joint ventures		735	616
Shares and investments		8 117	8 877
Other non-current assets		2 568	1 547
Total financial assets		11 420	20 155
Total non-current assets		548 357	534 056
Inventories		16 155	20 715
Accounts receivable		146 565	156 663
Other receivables		22 881	18 766
Total inventories and receivables		185 601	196 143
Cash and cash equivalents		53 996	35 278
Total current assets		239 597	231 421
Total assets		787 954	765 477
EQUITY AND LIABILITIES	Note	2018	2017
Share capital		159 057	146 252
Other equity		354 722	303 488
Total equity attributable to the owners of Techstep ASA	4	513 780	449 740
Non-controlling interests		-	370
Total equity		513 780	450 110
Deferred tax		3 608	10 428
Non-current interest-bearing debt
		7 341	23 551
Other non-current debt	7	8 081	22 277
Total non-current debt		19 030	56 256
Current interest-bearing liabilities		66 009	67 604
Accounts payable		116 694	116 765
Tax payable		3 470	4 586
Public taxes, provisions		21 842	19 657
Other current liabilities		47 131	50 498
Total current debt		255 145	259 110
Total liabilities		274 175	315 367

Consolidated statement of changes in equity

(amounts in NOK 1 000)	Share capital	Other paid-in capital	Other equity	Sum	Minority interest	Total equity capital
Equity as of 1 January 2017	102 476	283 702	(151 072)	235 107	25 187	260 294
Profit for the period			(47 773)	(47 773)	95	(47 677)
Other comprehensive income			487	487	-	487
Total comprehensive income for the period	-	-	(47 286)	(47 286)	95	(47 190)
Transactions with owners in their capacity as owners: Contributions of equity net of	17 544	78 656		96 200		96 200
transaction costs
Share based payments Issue of ordinary shares as			3 365	3 365		3 365
consideration for a business combination, net of transaction costs and tax	26 232	110 934	25 187	162 354	(25 187)	137 166
Non-controlling interests on acquisition of subsidiary				-	274	274
Equity as of 31 December 2017	146 252	473 292	(169 806)	449 740	370	450 110
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 the period	-	-	21 495	21 495	644	22 138
Transactions with owners in their capacity as owners: Contributions of equity net of transaction costs Issue of ordinary shares as	7 937	16 062		23 999		23 999
consideration for a business combination net of transaction costs and tax Purchase of minority interest in	4 869	7 741	1 013	12 610 1 013	(1 013)	12 610 -
subsidiary
Share-based payments			4 924	4 924		4 924
Equity as 31 December 2018	159 057	497 096	(142 374)	513 780	-	513 780

Consolidated statement of cash flow

		Restated*
(amounts in NOK 1 000)	Q4 2018	Q4 2017	FY 2018	FY 2017
Profit before tax	9 311	(30 190)	19 009	(51 523)
Profit from joint venture	19	173	(119)	(223)
Depreciation and amortisation	5 071	6 888	20 657	22 413
Share-based payments	1 191	1 514	4 924	3 365
Unrealised changes in fair value of shares and investments	-	25 647	-	25 647
Remeasurement of contingent liability	(9 928)	-	(19 962)	-
Remeasurement of equity interest	-	-	-	5 356
Net exchange differences	(1 887)	-	(2 133)	-
Taxes paid	3 874	-	(1 518)	(5 835)
Changes in net operating working capital	13 137	3 920	2 556	(33 871)
Net cash flow from operational activities	20 788	7 952	23 413	(34 671)
Payment for acquisition of subsidiaries net of cash acquired	-	2 001	(5 335)	(83 581)
Payment for acquisition of equity in joint ventures	-	(500)	-	(500)
Payment for other financial assets	-	-	-	(89)
Payment for property, plant and equipment	(4 896)	(2 132)	(11 689)	(2 896)
Proceeds from sale of equity instruments	-	-	760	-
Net cash used on investment activities	(4 896)	(631)	(16 264)	(87 066)
Proceeds from issuance of shares	-	-	23 700	95 000
Repayment of borrowings	(5 683)	-	(12 008)	(20 000)
Net cash flow from financing activities	(5 683)	-	11 692	75 000
		-
Net change in cash and cash equivalents	10 210	7 321	18 841	(46 738)
			-
Cash and cash equivalents at beginning of period	43 200	27 659	35 524	81 692
Effects of exchange rate changes on cash and cash equivalents	586	298	(370)	324
Cash and cash equivalents at end of period	53 996	35 278	53 996	35 278

*Refer to note 6

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 venture. 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 2017. 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 2017, with the exceptions stated below. The report has not been audited.

Segment reporting

The division into operating segments corresponds to the management structure and the internal reporting to the Group's chief operating decision maker (CODM), defined as the CEO.

Companies are allocated to a segment based on the geographical location of the company. Previously, the companies were allocated based on the main type of operations in the company. Following the change in the composition of the reportable segments, all corresponding items of segment information for earlier periods have been restated.

IFRS 9 Financial Instruments

The Group has adopted IFRS 9 in its entirety as of 1 January 2018. The new rules have been applied retrospectively from 1 January 2018, with the practical expedients permitted under the standard. Comparatives for 2017 has not been restated. Management has performed an IFRS 9 implementation assessment related to the effect of IFRS 9 on the first quarter 2018 financial position and the other financial statements.

Classification and measurement of financial assets

Financial assets comprise the following current assets: accounts receivable, other receivables and cash and cash equivalents. All of these current assets are in the IAS 39 category of loans and receivables and are measured at amortized cost. Upon adoption of IFRS 9, these financial assets have been determined to be within a business model of hold to collect and meet the solely payments of principal and interest (SPPI) criteria. Classification and measurement will continue to be at amortised cost under IFRS 9. There is no implementation impact on the financial statements related to the classification and measurement of the Group's financial assets.

Impairment

Upon implementation of IFRS 9 the Group has adopted the new impairment requirements for financial assets and made the accounting policy choice of measuring the loss allowance at the lifetime expected credit loss for accounts receivables. Management has not recognised any initial adjustment to the opening 1 January 2018 equity as financial assets taken, as a whole, are in stage 1 and have a low estimated probability of default.

Hedge accounting

The Group does not apply hedge accounting and is thus not affected by the changes related to the new rules under IFRS 9.

Overall implementation effect

No implementation effects related to the IFRS 9 classification, impairment and hedge accounting rule changes have affected the 1 January 2018 opening balance.

IFRS 15 Revenue from Contracts with Customers

The Group has adopted IFRS 15 in its entirety as of 1 January 2018. The new rules have been applied retrospectively from 1 January 2018, with the practical expedients permitted under the standard. Comparatives for 2017 has not been restated.

IFRS 15 establishes a new set of principles that shall be applied to reported information related to the nature, amount, timing and uncertainty of revenue arising from contracts with customers. In order to operationalise these principles, the standard introduces a five-step model;

• 1. Identify customer contracts
• 1. Identify performance obligations in the contracts
• 1. Determine the transaction price
• 1. Allocate the transaction price
• 1. Recognise revenue when (or as) a performance obligation is satisfied

Under IFRS 15 an entity recognises revenue when (or as) the "control" of the goods or services underlying the particular performance obligation is transferred to the customer.

Techstep has performed an impact assessment of the aspects of IFRS 15 and has not identified any significant impact to the Group's consolidated financial statements. Techstep has applied the modified retrospective approach, which allows for any adjustments to the opening balance of equity at the date of initial application 1 January 2018. No prior year comparatives are restated when using the modified retrospective approach. Areas of specific importance for Techstep when assessing the impact of applying IFRS 15 are as follows:

Revenue from sale of hardware

A major part of the Group's revenue arises from the sale of hardware to its customers. Each sale is defined as a customer contract, where the delivery of the hardware in question is identified as the performance obligation. The customers obtain control of the hardware when the item is shipped to the customers. Recognition of revenue is done at the time of shipment as the performance obligations have then been satisfied.

Revenue from sale of licences

The group provides various software licenses to its customers. Management has assessed the customer contracts related to software license and have found the sale of software licenses to be distinct performance obligations as software licenses customer can benefit from the license on its own and can be a stand-alone delivery with no other goods or services.

The performance obligation is satisfied when the customer gets access to the software license, and revenue from sale of licenses is thus recognised at the point in time when the software is transferred to the customer.

Revenue from sale of services

Techstep offers support and maintenance services to its customers. These services are organised as subscription program where the customers have access to support and maintenance for a monthly fee. The performance obligations related to support and maintenance is satisfied on an ongoing basis, and revenue related to sales of services are thus recognised on a linear basis over time.

Commissions and bonus

Sale of certain items of hardware and licenses triggers a right to a commission or bonus from suppliers and partners. Commission or bonus is recognised as revenue when the performance obligations for the sale of hardware or license is satisfied.

Overall implementation effect

No implementation effects related to IFRS 15 have been recognized to the 1 January 2018 opening balance. For all other accounting principles, please refer to note 1 in the Group's Annual financial statements 2017.

New standards and interpretations not yet adopted:

The group has elected not to early adopt IFRS 16 Leases which have an adoption date after the balance sheet date. The estimated effect on Q4 2018 would be an increase in total assets of NOK 20.4 million and reduced operational costs of NOK 2.3 million, if IFRS 16 had been adopted in Q4 2018.

Note 2. Business segments

Techstep has two business segments, which are represented by the geographic locations where the Group's entitites 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, service, support and mobility consultancy services. The company is located in Oslo and Sandefjord and comprise 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 userfriendly 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 solution, 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 (formerly Teki Solutions AS), Netconnect AS, Mytos IPR AS and Techstep Holding AB.

			Head quarter
Q4 2018	Norway	Sweden	and other	Elim inations	Total
Operating revenues from external customers	244 662	72 689	-	-	317 351
Operating revenues from other segments	(1 509)	(463)	(315)	2 287	-
Operating revenues	242 152	72 226	(315)	2 287	317 351
Cost of goods sold	(182 346)	(54 631)	-	2 558	(234 419)
Salaries and personnel costs	(35 729)	(11 541)	(9 166)	2 710	(53 726)
Other operational costs	(9 219)	(2 217)	(5 834)	(7 556)	(24 825)
Share of profit (loss) of joint venture	-	-	(19)	-	(19)
Depreciation	(271)	(237)	(21)	-	(528)
Amortisation	(2 596)	(1 680)	(271)	-	(4 547)
Other income and expenses	-	-	9 928	-	9 928
Operating profit (loss)	12 992	1 920	(5 698)	-	9 213
Employees 31 December 2018	142	61	18		221

			Head quarter
Q4 2017	Norway	Sweden	and other	Elim inations	Total
Operating revenues from external customers	212 034	68 932	258	-	281 224
Operating revenues from other segments	3 585	-	2 718	(6 303)	-
Operating revenues	215 620	68 932	2 976	(6 303)	281 224
Cost of goods sold	(155 617)	(54 086)	-	3 580	(206 123)
Salaries and personnel costs	(34 547)	(8 660)	(5 231)	-	(48 438)
Other operational costs	(13 056)	(2 998)	(2 440)	2 724	(15 770)
Share of profit (loss) of joint venture	107	-	(173)	-	(66)
Depreciation	(261)	(153)	(57)	-	(470)
Amortisation	(4 507)	(1 910)	-	-	(6 417)
Other income and expenses	-	-	(9 013)	-	(9 013)
Operating profit (loss)	7 739	1 126	(13 938)	-	(5 072)
Employees 31 December 2017	150	60	9		219

			Head
			quarter and	Elim
2018	Norway	Sweden	other	inations	Total
Operating revenues from external customers	805 508	258 606	-	-	1 064 114
Operating revenues from other segments	19 455	432	16 010	(35 898)	-
Operating revenues	824 963	259 038	16 010	(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)
Other income and expenses	-	-	19 962	-	19 962
Operating profit (loss)	43 077	(5 444)	(15 270)	-	22 362

			Head quarter
			and	Elim
2017 Operating revenues from external customers	Norway 683 618	Sweden 104 535	other 1 320	inations -	Total 789 473
Operating revenues from other segments	10 395	-	10 926	(21 321)	-
Operating revenues	694 013	104 535	12 246	(21 321)	789 473
Cost of goods sold	(490 082)	(79 963)	-	10 389	(559 656)
Salaries and personnel costs	(109 952)	(14 368)	(20 623)	-	(144 943)
Other operational costs	(51 325)	(5 219)	(13 833)	10 926	(59 451)
Share of profit (loss) of joint venture	107	-	116	-	223
Depreciation	(1 052)	(218)	(121)	-	(1 390)
Amortisation	(17 892)	(3 130)	-	-	(21 022)
Other income and expenses	-	-	(26 381)	-	(26 381)
Operating profit (loss)	23 817	1 637	(48 596)	(0)	(23 147)

Note 3: Disagregation 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
Q4 2018	Norway	Sweden	and other	Eliminations	Group
Total revenues	243 152	72 226	(315)	2 287	317 351
Hardware
Hardware revenues	179 425	56 437	-	(2 556)	233 306
Bonus	4 146	82	-	-	4 128
Provisions	-	-	-	-	-
Total	183 571	56 420	-	(2 556)	237 434
Solutions
Solutions revenues	38 650	13 336	-	4 528	56 514
Bonus	6 554	-	-	-	6 554
Provisions	14 378	2 470	-	-	16 848
Total	59 581	15 806	-	4 528	79 916
Other revenues
Other	-	-	(315)	315	-
Total	-	-	(315)	315	-

			Headquarter
2018	Norway	Sweden	and other	Eliminations	Group
Total revenues	824 963	259 038	16 010	(35 898)	1 064 114
Hardware
Hardware revenues	586 252	194 065	-	(19 412)	760 905
Bonus	23 487	307	-	-	23 794
Provisions	-	-			-
Total	609 739	194 263	-	(19 412)	784 700
Solutions
Solutions revenues	161 651	55 027	-	(475)	216 203
Bonus	21 543	-	-	-	21 543
Provisions	32 029	9 639	-	-	41 668
Total	215 223	64 666	-	(475)	279 414
Other revenues
Other	-	-	16 010	(16 010)	-
Total	-	-	16 010	(16 010)	-

Note 4: Share capital and shareholders

The company's share capital as at 31 December 2018 was NOK 159,057,020 divided on 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 general meeting. At the date of this report, Techstep holds 1,914 treasury shares.

				Techstep's 20 largest shareholders as at 31 December 2018, are as follows:
--	--	--	--	----------------------------------------------------------------------------

Shareholder	# of shares	Ownership %
DATUM AS	31 817 975	20.00%
MIDDELBORG INVEST AS 1	30 517 764	19.19%
DnB NOR MARKETS, AKSJEHAND/ANALYSE	14 159 714	8.90%
CIPRIANO AS 2	4 968 835	3.12%
Skandinaviska Enskilda Banken AB	4 244 108	2.67%
TIGERSTADEN AS	4 000 000	2.51%
PALOS NORGE AS	3 966 667	2.49%
RUGZ AS 3	3 299 470	2.07%
Tinde industrier as	3 063 372	1.93%
ZONO HOLDING AS 4	3 000 007	1.89%
SÅ&HØSTE AS	2 925 936	1.84%
TVENGE	2 700 000	1.70%
SKARESTRAND INVEST AS	2 563 097	1.61%
J.P. Morgan Bank Luxembourg S.A.	2 301 706	1.45%
NOMO HOLDING AS	1 946 253	1.22%
NORDIALOG ENSJØ AS	1 946 253	1.22%
DOVRAN INVEST AS	1 863 372	1.17%
UNIFIED AS	1 849 457	1.16%
RAKNES HOLDING AS	1 649 348	1.04%
VERDIPAPIRFONDET DNB SMB	1 616 290	1.02%
Total number owned by top 20	124 399 624	78.21%
Total number of shares	159 057 020	100%

1) Middelborg invest controlled by board member Kristian Lundkvist. Mr. Lundkvist resigned as board member on 11 February 2019

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

3) Rugz AS is owned by board member Jens Rugseth

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

On 26 April 2018 the General assembly approved of the Board of Directors proposal to grant CEO Jens Haviken 5 million share options in three tranches, vesting annually. the strike price is set to NOK 4.50, NOK 5.00 and NOK 5.50 to the respecive tranches. Existing outstanding share options already granted are alligned to the same strike prices.

As per 31 December 2018, the total number of outstanding share options was 13.2 million, equivalent to 7.7 % of the number of shares fully diluted (including 1,914 treasury shares) in Techstep ASA.

Overview of shares and share options held by members of the management group at 31 December 2018:

Name	Position	Shares	Share options
Jens Haviken	CEO	100,000	5,000,000
Marius Drefvelin	CFO	40,000	1,500,000
Inge Paulsen	COO	150,000	1,000,000
Erik Haugen	CCO	-	1,000,000
Mads Vårdal	CIO	5,019	1,500,000

Note 5: Related party transactions

Techstep ASA has entered into an agreement with Gture AS, a company controlled by Stein Erik Moe, who is also a member of the board of directors of Techstep. Gture will render certain consultancy services to Techstep in connection with development of a new ecommerce solution for Techstep. The estimated value of the contract is NOK 5 million.

Note 6: Restatement 2017

Share options

27 April 2017 the Board of Directors granted share options to the executive management. The related cost was not accounted for in Q4 2017. The restatement applies to the consolidated income statement Q4 2017. The amount restated to the line item Salaries and personnel costs is NOK 1.5 million for the consolidated income statement for Q4 2017.

Note 7: Contingent liability

In relation with the purchase of BKE Telecom AB (now Techstep Sweden AB), a contingent liability was recognised. The contingent liability was dependent on the company reaching an accumulated EBITDA target ending June 2019. Based on current forecast it is management's assessment that it is unlikely that the EBITDA target will be reached. The contingent liability was partly derecognised in Q2 2018 and the remaining liability is derecognised in Q4 2018. The amount of NOK 9.9 million is presented as income in the financial line item Other income and expenses in the consolidated income statement for Q4 2018. The total derecognition accounted for 2018 is NOK 20.0 million presented in the financial line item Other income and expenses in the consolidated income statement for FY 2018.

The comparative figures the line item are transactions costs.

Note 8: Impairment testing

Management has assessed that the derecognition of the contingent liability is an impairment indicator, and a full impairment test of group values related to the Swedish operations has been performed. The test shows that there is no need to book an impairment charge related to the Swedish operations as per Q4 2018.

All remaing group values have also been tested through annual impairment testing, and no impairment charges are considered necessary.

Note 9: Restructuring cost

The Group have several offices in the greater Oslo area. In Q4 2018, the group decided to move into new headquarters during summer 2019, in which most of the employees in Norway will be located. Several of the current locations in the Oslo area will be vacated during 2019. Consequently, a one-off provision of NOK 7.0 million relating to remaining rent and shutdown costs has been charged to the line item other operational cost in the consolidated income statements for Q4 2018 and FY 2018.

Note 10: Subsequent events

No other material events have occurred from 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 intent 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 measurement of 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 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 capital expenditures and acquisitions that occurred in the past. The EBITDA margin presented is defined as EBITDA divided by total revenues."

"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 sale 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 revenues divided by total revenues."

TECHSTEP ASA

Brynsveien 3 0667 Oslo, Norway +47 915 233 37

www.techstepasa.no