Zalaris

Investor Presentation • Oct 29, 2020

Presentation of interim financial results | Q3 2020

29 October 2020

Agenda

1. Highlights

• 1. Financial Review
• 1. Markets and Outlook
• 1. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

Third quarter 2020: Continued EBIT improvement

• teamZalaris continued weathering the Covid-19 storm delivering on all customer commitments and maintaining stable revenue levels

• Strong positive development in EBIT resulting in all time high Q3 EBIT since IPO in 2014
• Signed several new agreements including a BPO agreement with Danske Bank and our first platformbased deal with a UK based FTSE250 gaming company
• Continued strong operating cash flow almost tripling from last years level

Highlights

713

Positive margin development continuing during the quarter

Q2 -20 Q3 -20

European Payroll & HR Solutions that Value People

Zalaris – Local presence with one global platform

• Zalaris is a leading European provider of Payroll and Human Capital Management Solutions delivered through Software as a Service, Business Process as a Service, or Consulting delivery models
• Supporting fully digital processes for Payroll and Human Capital Management targeting 20-30% cost savings
• One common multi-country solution satisfying GDPR requirements combined with competent resources serving complex customers from with local competence and language

Diversified customer base with Germany largest market facing unit

Diversified across industries and sectors

Revenue per country Q3 2020 (NOKm)

Highlights Q3 Presentation 2020 Signed several new agreements and expansions

• Several new BPO contracts and extensions signed during recent weeks, which will generate recurring revenue from H1 2021
• Break-through in UK with multi-country payroll deal with leading software development and gaming operator
• Strengthened position as the leading supplier of payroll and HR solutions to finance sector in the Nordics
• All time high pipeline of BPO opportunities with time to close coming down resulting from Covid-19 original cost cutting and utilisation of video-based meetings

Agreement with Danske Bank for payroll and HR Services cementing our leadership in digitalization of Nordic Bank and Insurance

Five-year agreement for implementation and delivery of SuccessFactors for Stadwerke Krefeld in Germany

First multi-country payroll on Zalaris platform sold to leading UK FTSE250 software and gaming company

Five-year agreement for multi-country payroll, time and travel with one of the fastest growing IT companies in Scandinavia.

Revenue

NOK 127.4m (-2.3%)

Significant margin improvement in Managed Services

Q1 -20 Q4 -18 Q2 -19 Q3 -18 Q1 -19 Q4 -19 Q3 -19 Q2 -20 Q3 -20 127.4 131.5 130.4 Q3 -18 Q2 -20 Q1 -19 Q4 -18 Q2 -19 Q3 -19 Q4 -19 Q1 -20 Q3 -20 14.8 9.5 10.6

EBIT

NOK 14.8m (+39.6%)

• Only small reduction in revenue compared to Q3 last year despite Covid-19 effects
• ~NOK 3-4 reduction in revenue due to lower volume of travel expense processing and change orders due to Covid-19. Expect to recoup majority post-Covid 19
• Zero churn and > 90%+ recurring revenue
• Management focus on executing on defined Business Continuity Plan to secure customer deliveries and further digitalization of our customer facing processes

Revenue

Grew Professional Services during the quarter

EBIT

NOK 62.4m (+3.5%) NOK 6.8m (-25.3%) Q1 -19 Q1 -20 Q3 -18 44.7 Q2 -19 Q4 -18 60.3 Q3 -19 Q4 -19 Q2 -20 62.4 Q3 -20 Q3 -18 Q2 -20 0.3 Q4 -18 Q1 -19 Q2 -19 Q3 -19 Q4 -19 Q3 -20 Q1 -20 6.8 9.1

• Continued good revenue growth to new and existing customers in Poland and UK&I
• Reducing management layer and reorganization in German organization increased agility and opened opportunities for internal candidates
• Operational efficiency and capacity adjustments start to show effects
• Approx. 83% of Q3 revenue was with customers that were also customers 12 months prior

Highlights

More than 60% of Professional Services revenue is recurring and supports a continuous presence with customers

Distribution of Projects vs long term AMS based revenue

• ~60% of Professional Services revenue is recurring and based on long term agreements and relationships
• Proves valuable in Covid-19 times to protect utilization of consultants
• Covid-19 infused uncertainty drives customers buying behavior toward smaller projects with defined payback with known suppliers*

*) Gartner research

Agenda

• 1. Highlights
• 2. Financial Review
• 1. Markets and Outlook
• 1. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

Q3 Presentation 2020

Stable revenue y-o-y

• Revenue for the quarter approx. in line with Q3 last year, with some lower volumes (e.g. travel expense processing and change orders) and less project revenue within Professional Services in Germany offset by appreciation of e.g. EUR against NOK
• Stable recurring revenue within Managed Services, except for lower travel expense processing, and no churn
• Efficiency improvements and cost reduction initiatives gradually impacting EBIT margin positively
• Adj. EBIT increased by 49% compared to last year

Q2 -20

Q3 -20

7,0%

EBIT margins gradually improving

Adj. EBIT (NOKm) and margin (%), quarterly Adj. EBIT (NOKm) and margin (%), LTM

• Adj. EBIT increased by 49.4% compared to last year
• Adj. EBIT margin (%) increased by 2.3 percentage points compared to last year
• Efficiency improvements and cost reduction initiatives gradually impacting EBIT margin positively
• Underlying cost base reduced by ~NOK 42m (-9%) year-to-date 2020 compared to last year

Q3 Presentation 2020

Condensed Profit and Loss

	2020	2019	2020	2019	2019
(NOK 1 000)	Jul-Sep	Jul-Sep	Jan-Sep	Jan-Sep	Jan-Dec
Revenue	189 748	190 672	588 804	570 571	776 792
License costs	18 337	15 238	51 572	44 070	67 981
Personnel expenses	99 439	106 765	324 149	321 245	438 543
Other operating expenses	41 672	40 053	122 613	122 469	166 887
Amortization implementation costs customer projects	8 772	10 747	26 314	27 758	36 606
Depreciation, amortization and impairments	12 355	13 094	38 166	39 359	52 684
EBIT	9 172	4 776	25 990	15 671	14 091
Adjustment items	4 110	4 094	13 373	9 573	16 149
Adjusted EBIT*	13 282	8 870	39 363	25 244	30 240
Adjusted EBIT margin %	7,0 %	4,7 %	6,7 %	4,4 %	3,9 %
Net financial income/(expense)	(12 287)	(14 100)	(64 498)	(21 672)	(24 051)
Profit/(loss) before tax	(3 115)	(9 324)	(38 508)	(6 001)	(9 960)
Income tax expense	1 363	2 682	10 625	2 299	2 950
Profit/(loss) for the period	(1 752)	(6 642)	(27 883)	(3 702)	(7 010)
Basic earnings per share (NOK)	(0,09)	(0,34)	(1,42)	(0,19)	(0,36)

• Significant improvement in adj. EBIT margin (%) compared to last year – 7.0% vs. 4.7%

• EBIT improvement program

has resulted in a ~10% lower cost base (NOK 15.1m) YoY, however this has been partly offset by less costs being capitalised to customer projects and currency movements

• Unrealised currency loss of NOK 5.2m, relating the EUR 35m bond loan and other foreign currency denominated items

* Items excluded from adjusted EBIT Q3 2020: restructuring costs (NOK 0.8m), share-based payments (NOK 0.6m) and amortization of excess values on acquisitions (NOK 2.7m). (see definition of adj. EBITDA under APMs in Q3 2020 Report)

Positive operating cash flow during the quarter

NOK million

• Operating cash flow for the quarter of NOK 21.3m, before a payment of deferred VAT (Covid-19 relief) of NOK 8.0m
• Repayment of interest-bearing debt in German subsidiary of NOK 16.5m
• Cash balance at 30 September 2020 is NOK 51.5m higher than last year, after repayment of debt (Q3'19: NOK 64.8m)

* Cash flow from operating activities per cash flow = NOK 13.3m (NOK 21.3m less NOK 8.0m in deferred VAT)

Q3 Presentation 2020

Condensed Balance Sheet

(NOK 1 000)	2020 30.Sep	2019 30.Sep	2019 31.Dec
Fixed and intangible assets	356 428	362 994	354 184
Trade accounts receivable	132 225	151 377	148 614
Customer projects assets	82 441	95 970	88 808
Cash and cash equivalents	116 251	64 812	82 448
Other assets	36 337	33 968	38 984
Total assets	723 683	709 122	713 038
Equity	108 100	101 552	92 166
Interest-bearing loans and borrowings	396 956	375 860	369 058
Lease liabilities	28 444	40 488	35 635
Customer projects liabilities	49 702	57 480	55 740
Other liabilities	140 481	133 743	160 440
Total equity and liabilities	723 683	709 122	713 038

• Cash and cash equivalents of NOK 116.3m

• Lease liabilities relate to right-of-use assets, and primarily rental contracts for premises (IFRS 16)

• Net interest-bearing debt of NOK 280.7m, marginally higher than last quarter due to currency movements
• As communicated in Q2, based on the current financial performance of the Company the Board will propose a dividend of minimum NOK 0.5 per share for 2020

Agenda

• 1. Highlights
• 1. Financial Review
• 3. Markets and Outlook
• 1. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

Productizing existing solutions to better scale value of investments in own HR Technology IP as customers increasingly are moving solutions to the cloud

Solution	Included in BPO services	Sold on a standalone basis
EasyHR – digital forms and workflows	√	Opportunity
Workforce Management – Time, Attendance and Work schedule	√	Opportunity
Travel and Business Expense processing	√	Opportunity
Compensation visualization and pay slip	√	Opportunity
eFile digital personnel archive	√	√

Organizing solution offering into unit to better visualize potential and develop scalable distribution channels independent of our existing offerings

Target market: SAP customers

• SuccessFactors Employee Central users: 4'000 and growing fast
• SAP Payroll users: 10'000 and still growing paying more than 100 mill people on a global basis

Distribution channels

• Zalaris Professional Services
• SAP App store
• SAP Partners

Revenue potential

• EUR 0,5 – 7 per employee per month depending on volume functionality chosen

• "The global human capital management market (HCM) market size stood at USD 15,04 Billion in 2018 and is projected to reach USD 30,55 Billion by 2026, exhibiting a CAGR of 9,4% during the forecast period" according to Fortune Insights

Selling our first platform multi-country deal in the UK leads the way of realizing the potential of having access to a market 7x that of the Nordics

First multi-country payroll on Zalaris platform sold to leading UK FTSE250 software and gaming company

• Strengthened Central Sales Function to more effectively support payroll and HR outsourcing sales to large accounts in UKI, Germany and Poland
• Reorganization of German organization including clarifying responsibility for sales and strengthening sales function
• Continue focus on converting existing customers to recurring revenue streams
• Continue focus on customer satisfaction increasing the Net Promoting Customers

Landmark deal with Stadtwerke Krefeld visualizes the potential in the German market cooperating with SAP

• City of Krefeld is one of the first wins together with SAP in the sector
• Stadtwerke Krefeldt GmbH employees approximately 3'000 employees serving the city with energy and water services
• Approx. 400 similar entities in Germany employing more
• The German municipality sector employs more than 2,5 million employees of which more than 850K are employed in entities organized as companies like Stadtwerke Krefeld

Five-year agreement for implementation and delivery of SuccessFactors for Stadwerke Krefeld in Germany

Q3 exemplifying #BestingOurselves

• Continue improving margins towards our communicated 10% target through organizational simplification, increased productivity, automation and utilization of our near- and offshore assets
• Deliver our 20th year of uninterrupted growth through expanding relationships with existing customers, explore new verticals, commercialization of existing IP, and focus on core products and services combined with improved efficiency of marketing and sales
• Grow Managed Services through scaling existing solutions into Central Europe, UKI and Ireland and see increased demand and faster sales cycles as a result of the Covid-19 and openness to use digital communication channels
• Explore non-organic growth options
• Creating more Net Promoting Customers - and Employees

Support #teamZalarisNorseman raising funds to combat cancer in support of #AktivMotKreft and #5KYourWay

The sponsorship of #teamZalaris for Norseman supports key Zalaris' values – Aiming High and Team Spirit!

Q3 Presentation 2020

Together, our four-member team will help to raise funds for Aktiv mot Kreft and 5K Your Way and participate in the race for Norseman 2021

Agenda

1. Highlights

• 1. Financials
• 1. Markets and Outlook

4. Q&A

Hans-Petter Mellerud Founder and CEO

Gunnar Manum CFO

"

We simplify HR and payroll administration, and empower you with useful information so that you can invest more in people.

Thank you!

Gunnar.Manum@zalaris.com Hans-Petter.Mellerud@zalaris.com