ITERA Q3 2013
HIGHLIGHTS Q3/2013 JULY – SEPTEMBER 2013
Operating revenue NOK 102.5 million (93.8), corresponding to an organic growth of 9 % EBITDA NOK 10.0 million (2.2) and EBITDA margin 9.7 % (2.3 %) EBIT NOK 4.7 million (-2.6) and EBIT margin 4.6 % (-2.7 %) Cash flow from operations NOK 4.0 million (4.4) Equity share 43.0 % (45.0 %) Bank deposits NOK 38.1 million (14.8) Higher billable utilization through larger projects and strong demand Lower cost base through increasing share of nearshore staff Stable organization with low attrition rate
JANUARY – SEPTEMBER 2013
Operating revenue NOK 340.1 million (325.0), corresponding to an organic growth of 5 % EBITDA NOK 30.7 million (19.1) and EBITDA margin 9.0 % (5.9 %) EBIT NOK 14.9 million (5.6) and EBIT margin 4.4 % (1.7 %) Cash flow from operations NOK 21.9 million (5.2)
ACTIVITIES AND SIGNIFICANT EVENTS DURING THE PERIOD
Top 30 customer growth of 30 %. New or expanded agreements with customers such as Schibsted, Nets, Mesta, Handelsbanken, Lemminkäinen, the Norwegian Directorate of Health, The Norwegian Environment Agency, the Government Administration Services (G.A.S.), Gjensidige, Hjort, KLP, If, the Norwegian Public Service Pension Fund, Nordea, the Norwegian Defence Estates Agency (NDEA) and DNB. The communication environment in Itera Gazette has become a key differentiator, delivering best profit margin ever. Growing engagements onshore and nearshore in all Nordic countries. Simplification of the organization through merger of subsidiaries and establishment of Itera Norge AS.
KEY FIGURES 2013
2012
change
2013
2012
change
2012
7-9
7-9
%
1-9
1-9
%
1-12
102.5
93.8
9%
340.1
325.0
5%
438.2
Gross profit
85.1
77.3
10 %
272.5
267.7
2%
358.0
EBITDA
10.0
2.2
354 %
30.7
19.1
61 %
25.9
9.7 %
2.3 %
9.0 %
5.9 %
4.7
-2.6
14.9
5.6
4.6 %
-2.7 %
4.4 %
1.7 %
Profit before tax
3.7
-3.0
223 %
13.4
4.9
176 %
Profit for the period
2.6
-2.1
223 %
9.7
3.5
176 %
2.6 %
-2.3 %
2.8 %
1.1 %
Net cash flow from operating activities
4.0
4.4
-9 %
21.9
5.2
317 %
22.5
Number of employees at the end of the period
453
434
4%
453
434
4%
428
All figures in NOK million
Sales revenue
EBITDA margin EBIT EBIT margin
Profit margin
284 %
5.9 % 166 %
7 1.7 % 6.8 4.6 1.1 %
ITERA Q3 2013
THIRD QUARTER REPORT FINANCIAL PERFORMANCE Itera is now united as one integrated company. The company performance continues to improve in the third guarter, both in terms of growth, profitability and liquidity compared to the corresponding quarter in 2012. The Group's competitiveness is also strengthened through increasing use of nearshore resources with a lower cost base. Accounting principles The consolidated interim report includes Itera ASA and its subsidiaries. The interim financial statements were prepared in accordance with IAS 34, which covers interim financial reporting and the Securities Trading Act. The Interim report has not been audited and does not include all information required for a complete annual report. For further information about the accounting principles, please see Itera's annual report 2012. Figures given in brackets apply to the third quarter respectively the first three quarters in 2012. Operating revenue Operating revenue amounted to NOK 102.5 million (93.8) in the third quarter and NOK 340.1 million (325.0) year to date, corresponding to a growth of 9 respectively 5 percent. Gross margin 1 amounted to NOK 85.1 million (77.3) in the third quarter and NOK 272.5 million (267.5) year to date, corresponding to a growth of 10 percent in the third quarter and 2 percent year to date.
Operating expences The operating expenses amounted to NOK 97.8 million (96.3) in the third quarter and NOK 325.2 million (319.4) year to date. This represents an increase of 1 respectively 2 percent. Cost of sold goods amounted to NOK 17.3 million (16.4) in the third quarter and NOK 67.7 million (57.3) year to date. Cost of sold goods consists mainly of the purchase of services from sub consultants, hosting related expenses and SW-licenses in large projects. These expenses could vary greatly from quarter to quarter. Cost of sold goods increased by 6 percent in the third quarter and 18 percent year to date. The personnel expenses amounted to NOK 61.9 million (61.9) in the third quarter and NOK 204.6 (210.4) year to date. This corresponds to an increase of 0 percent in the third quarter and a decrease of -3 percent year to date. A growing proportion of employees are located at the Group's nearshore development centers (NDCs) in Ukraine, where the cost base is lower. Average personel cost pr man year is 1 percent lower in the third quarter and 2 percent lower compared to the same periode last year.
Other operating expenses are at the same level in the third quarter as in the same period in 2012 and amounted to NOK 13.3 million (13.3). This correspond to an decrease of -3 percent to NOK 37.2 millins (38.2) year to date. Result Operating profit before depreciation (EBITDA) increased by NOK 7.8 millions to NOK 10.0 million (2.2) in the third quarter, corresponding to a margin of 9.7 (2.3) percent. EBITDA year to date increased by 61 percent to NOK 30.7 million (19.1) corresponding to a margin of 9.0 (5.9) percent. Depreciation amounted to NOK 5.2 million (4.8) in the third quarter and NOK 15.8 million (13.5) year to date. The increase is related to Itera’s hosting operation. Operating profit (EBIT) increased by NOK 7.3 million to NOK 4.7 million (-2.6) in the third quarter, corresponding to a margin of 4.7 (-2.6) percent. EBIT year to date increased by 166 percent to NOK 14.9 million (5.6), corresponding to a margin of 4.4 (1.7) percent. Net financial items amounted to NOK -1.0 million (-0.4) in the third quarter and NOK -1.4 million (-0.7) year to date. Profit after tax increased by 223 percent to NOK 2.6 million (2.1) in the third quarter and by 176 percent to NOK 9.7 million (3.5) year to date. Estimated income tax amounted to NOK 1.0 million (0.8) in the third quarter and NOK 3.8 million (1.4) year to date. Payable tax in the third quarter and year to date amounted to NOK 0 million (0). At the end of the third quarter deferred tax assets amounted to NOK 10.9 million (16.0), of which NOK 9.7 million (12.9) was recognized in the statement of financial position. The deferred tax assets will ensure that the Group will not pay tax in the near future. Cash flow and equity The cash flow from operations amounted to NOK 4.0 million (4.4) in the third quarter and NOK 21.9 million (5.2) year to date. This confirms the solid improvement of the operational performance compared to last year. The decrease in work in progress from Q2 2013 with NOK 1.1 million in the third quarter is related to increasing revenue that is invoiced according to payment milestones. Customer receivables, supplier debts and other accruals must be considered together. The change of NOK -3.7 million in the third quarter was related to a decrease in other short-term liabilities. At the end of the third quarter bank deposits amounted to NOK 38.1 million (14.8). The Group has a credit facility of NOK 25 million. The Group has interest-bearing debts of NOK 15.6 million (11.5) in leasing arrangements for investments in the hosting operation.
The equity at the end of the third quarter was NOK 79.5 million (71.9). This corresponds to an equity ratio of 43 (45) percent.
The availability of highly qualified resources in Ukraine is good, and it is relatively easy to increase staffing quickly when resource needs occur. Itera’s nearshore capability has previously been named the best IT employer in Ukraine. Although the Ukrainian labor market is somewhat tighter than previously, Itera experiences that the Group is an attractive employer in competition with other international firms.
Investments
Market and customer development
The total investments amounted to NOK 1.4 million (7.0) in the third quarter and NOK 11.8 million (13.4) year to date.
The Norwegian and Danish markets for IT services remained strong in the third quarter. The Swedish market still seems to be somewhat uncertain.
Itera has not re-purchased own shares during the three first quarter.
Investments in the hosting operation amounted to NOK 0.2 million (5.4) in the third quarter, of which NOK 0.2 (1.7) in leasing. Year to date investments in the hosting operation amounted to NOK 7.8 (8.6) million, of which NOK 7.8 million (4.0) in leasing. Investments in intangible assets, such as own developed software with subscription income agreements, amounted to NOK 0.7 million (1.6) in the third quarter and NOK 2.0 million (4.8) year to date.
BUSINESS REVIEW The positive development from the second quarter continues in the third quarter. The Group delivers good, profitable growth. The income-related predictability continues due to stronger customer relationships and growth in both size and duration of the customer engagements. The development provides higher billable utilization and lower attrition rate in the organization.
The Group is experiencing high demand, especially among its larger clients. It is challenging to hire sufficient resources in a generally tight labor market, but the Group's nearshore activities provide flexibility and are to some extent mitigating the effect of unmet capacity needs. Itera has taken a clear position as a specialist in communication and technology, and is experiencing that both existing and potential customers find this combination attractive and value added. During the quarter, Itera has signed new or expanded agreements with new and existing customers, including Schibsted, Nets, Mesta, Handelsbanken, Lemminkäinen, the Norwegian Directorate of Health, The Norwegian Environment Agency, Gjensidige, Hjort, KLP, If, the Norwegian Public Service Pension Fund, Nordea, the Norwegian Defence Estates Agency (NDEA) and DNB.
One Itera
During the quarter, Itera has worked on several larger projects, among them a business critical e-commerce implementation for a large, Nordic retail business with 150 stores. In addition, the Group has worked on a project for a large bank, developing a call-center solution that includes an app enabling the bank’s customers on video conversations with the bank advisers.
Itera is an integrated company within communication and technology. The customers demand cross-discipline deliveries, and there is high activity of projects that employees perceive as attractive and stimulating. The employee satisfaction is perceived as good, supported by good financial development.
To illustrate the range of the Group’s capabilities within communication and technology, it is adequate to mention a frame agreement of advertising services for The Norwegian Defence Estates Agency (NDEA). The agreement has a duration of two years with an extension option of another two years.
The organization structure was simplified with effect from 13.9.2013 through the merger of the Norwegian subsidiaries Itera Gazette AS, Itera Consulting AS and Itera Networks AS into Itera Norge AS. The simplification has provided immediate positive effects in terms of higher efficiency and focus. The Itera brand stands out more distinct than ever, with a common visual identity and a common market message. The simplified organizational structure supports the business processes across the value chain, from sales to delivery, where the work is conducted in diverse teams across disciplines as well as geographical and organizational borders.
Larger, long-term customer relations Itera has a strong Nordic customer portfolio, where many of the customers already buy or has the potential to apply the full range of Itera’s service offerings. The 10 largest customers accounted for 35 percent of the Group's revenue in the third quarter, up from 26 percent in the corresponding quarter last year. The growth of the 30 largest customers amounted to 30 percent compared to the corresponding period last year. Nearshoring
Organization By the end of the third quarter the number of employees was 453, compared to 434 in the third quarter last year, corresponding to an increase of 4 percent. The number of employees increased by 18 (-8) in the third quarter. The share of resources located nearshore was 29 (21) percent at the end of the third quarter. A growning number of projects are carried out in joint teams where both local resources and nearshore-based resources participate.
Itera delivers projects with a blended sourcing model. The nearshore model is fully integrated in the Group’s service spectrum, and provides the customer with high flexibility regarding cost efficiency and ensures stable access of resources. Local and nearshore resources work closely together in integrated and interdisciplinary teams, supported by a common corporate culture and delivery methodology across geographical borders. More and more of Itera’s range of services can be performed both onshore and nearshore, depending on which model is appropriate for the particular project and client needs. The
ITERA Q3 2013
Group's employees are used to working effectively across borders, and the customer demand for Itera's delivery model is growing. Half of Iteras largest customers are utilizing Itera’s nearshore services, like If, Bluegarden and Santander. The trend is that more and more customers are buying more services from the Group where nearshoring is included than not included. Significant risks and uncertainties Itera’s business is affected by a number of different factors, some of which are within the company’s control while others are beyond our control. As a consulting firm, the business is affected by business-related risks such as competition and price pressure, project overruns, recruitment, loss of key personnel and our customer’s development and bad debts. Market risks include risks related to the business cycle. Financial risks include exchange risks, mainly related to Swedish (SEK) and Danish kroner (DKK), and US dollar (USD) against Norwegian kroner (NOK). Further, the group is exposed to interest risks related to return on the bank deposits and financial expenses related to the external financing by changes in the interest rate. Itera’s nearshore operations in Ukraine exposes the Group to new risks, included country risk, data security and corruption. Itera has zero tolerance for corruption and does not deliver services to public and private sector in Ukraine. For more information about risks and uncertainties please read the 2012 annual report. Outlook The Group keeps its focus on the main strategy, creating large, long term customer relationships, increasing share of project deliveries involving the full range of services, increasing use of nearshore resources and improving efficency within the organization. Itera is experiencing good activity in all the markets where the Group is represented, and is monitoring the development in market trends closely. The Group is properly positioned for profitable growth. Interim Report Q4 The Interim Report for the fourth quarter of 2013 will be presented on the 26 February 2014.
STATEMENT OF COMPREHENSIVE INCOME 2013
2012
change
2013
2012
change
2012
7-9
7-9
%
1-9
1-9
%
1-12
102 477
93 756
9%
340 133
324 983
5%
438 207
Cost of sales
17 343
16 428
6%
67 682
57 297
18 %
80 221
Personell expenses
61 867
61 865
0%
204 562
210 376
-3 %
281 924
5 244
4 761
10 %
15 766
13 494
17 %
18 596
Other operating expenses
13 307
13 267
0%
37 224
38 208
-3 %
50 211
Total operating expenses
97 761
96 321
1%
325 233
319 376
2%
430 952
4 716
-2 565
284 %
14 900
5 608
166 %
7 255
270
159
70 %
740
566
31 %
758
All figures in NOK 1000
Sales revenue
Operating expenses
Depreciation
Operating profit
Financial item s Other financial income Other financial expenses
1 317
567
132 %
2 203
1 296
70 %
1 167
Net financial item s
-1 047
-408
-156 %
-1 463
-730
-100 %
-409
Profit before taxes
3 669
-2 973
223 %
13 437
4 877
176 %
6 846
Income tax
1 027
-833
223 %
3 762
1 366
176 %
2 228
Profit for the period
2 642
-2 141
223 %
9 675
3 512
176 %
4 618
Earnings per share
0.03
-0.03
223 %
0.12
0.04
176 %
0.06
Fully diluted earnings per share
0.03
0.03
20 %
0.12
0.07
71 %
0.06
130
-98
233 %
1 207
-255
573 %
-899
Unrealized net effect on investments in foreign subsidaries359
-101
455 %
480
-246
295 %
-194
Statem ent of other incom e and costs Currency translation differences Profit for the period
2 642
-2 141
223 %
9 675
3 512
176 %
4 618
Total profit
3 131
-2 340
234 %
11 362
3 011
277 %
3 525
3 131
-2 340
234 %
11 362
3 011
277 %
3 525
Attributable to: Shareholders in parent company
ITERA Q3 2013
STATEMENT OF FINANCIAL POSITION All figures in NOK 1000
2013
2012
change
2013
2012
30 Sep
30 Sep
%
30 Jun
31 Dec
ASSETS Non-current assets Deferred tax asset
9 711
12 910
-25 %
10 718
12 903
Other intangible assets
17 435
21 553
-19 %
18 251
20 423
Fixed assets
27 200
26 363
3%
29 841
26 603
Total non-current assets
54 346
60 826
-11 %
58 810
59 929
Work in progress
13 254
2 764
380 %
12 137
5 892
Accounts receivable
66 242
67 970
-3 %
84 623
74 176
Other receivables
11 649
14 553
-20 %
12 180
8 537
Bank deposits
38 146
14 783
158 %
37 120
28 824
Total current assets
129 292
100 069
29 %
146 060
117 430
Total assets
183 638
160 895
14 %
204 869
177 359
Share capital
24 656
24 882
-1 %
24 656
24 656
Ow n shares
0
-226
100 %
0
0
Other equity
44 543
43 763
2%
44 056
47 787
9 675
3 512
176 %
7 033
0
78 874
71 930
10 %
75 745
72 443
Non-current interest bearing liabilities
15 649
11 503
36 %
17 087
11 889
Total non-current liabilities
15 649
11 503
36 %
17 087
11 889
Accounts payable
18 414
13 792
34 %
21 652
17 714
Public duties payable
19 738
22 013
-10 %
23 442
25 978
Other short-term liabilites
50 963
41 657
22 %
66 944
49 335
Total current liabilities
89 115
77 461
15 %
112 038
93 027
Total liabilities
104 764
88 965
18 %
129 124
104 916
Total equity and liabilites
183 638
160 895
14 %
204 870
177 359
Current assets
EQUITY AND LIABILITIES Equity
Net profit for the period Total equity
Non-current liabilities
Current liabilities
STATEMENT OF CASH FLOW All figures in NOK 1000
2013
2012
change
2013
2012
change
2012
7-9
7-9
%
1-9
1-9
%
1-12
3 669
-2 973
223 %
13 437
4 877
176 %
6 846
Cash flow from operating activities Profit before taxes Income tax Depreciation
0
-389
5 244
4 761
10 %
15 766
13 494
17 %
18 596
Change in w ork in progress
-1 118
4 049
-128 %
-7 362
-1 088
-577 %
-4 425
Change in account receivables
18 381
4 876
277 %
7 934
3 909
103 %
-2 207
Change in account payables Change in other accruals Net cash flow from operating activities
-3 238
4 311
-175 %
700
-1 620
143 %
2 619
-18 936
-10 621
-78 %
-8 591
-14 324
40 %
1 461
4 002
4 402
-9 %
21 884
5 249
317 %
22 500
-509
-613
17 %
-1 989
-3 869
49 %
-5 491
Cash flow from investm ents activities Investment in fixed assets Investment in intangible assets
-713
-1 615
56 %
-2 000
-4 768
58 %
-6 066
-1 222
-2 228
45 %
-3 989
-8 637
54 %
-11 557
-1 633
-1 615
-1 %
-4 022
-2 762
-46 %
-3 089
0
0
-4 931
0
-1 633
-1 615
-1 %
-8 953
-2 762
-224 %
-3 089
-121
-60
-102 %
379
-73
619 %
-36
1 026
499
106 %
9 321
-6 223
250 %
7 818
Bank deposits at the beginning of the period
37 120
14 284
160 %
28 824
21 006
37 %
21 006
Bank deposits at the end of the period
38 146
14 783
158 %
38 146
14 783
158 %
28 824
Net cash flow from investm ents activities
Cash flow from financing activities Borrow ings repaid Dividend Net cash flow from financing activities Currency effect on cash Net cash flow
0
ITERA Q3 2013
STATEMENT OF CHANGES IN EQUITY Share
Ow n
Translation
Other
Total
All figures in NOK 1000
capital
shares
differences
equity
equity
Shareholders' equity as of 31 Dec 2011
24 882
-225
-3 532
47 796
68 920
Comprehensive income for the year
0
0
-1 094
4 618
3 524
Purchase of ow n shares
0
0
0
0
0
Sale of ow n shares Reduction of the share premium reserve Dividend
0
225
0
0
225
-226
0
0
0
-226
0
0
0
0
0
24 656
0
-4 626
52 414
72 443
Comprehensive income for the year
0
0
1 687
9 675
11 362
Share based payments
0
0
0
0
0
Sale of ow n shares
0
0
0
0
0
Purchase of ow n shares
0
0
0
0
0
Reduction of the share premium reserve
0
0
0
0
0
Dividend
0
0
0
-4 931
-4 931
24 656
0
-2 939
57 158
78 874
Shareholders' equity as of 31 Dec 2012
Shareholders' equity as of 30 Sep 2013
NOTES
NOTE 1: TRANSACTION WITH RELATED PARTIES st
th
There have been no material transactions with related parties during the reporting period 1 of April to 30 of September 2013.
NOTE 2: EVENTS AFTER BALANCE SHEET DATE th
There have been no material events after 30 of September 2013 of significance for this quarterly report.
ITERA Q3 2013
KEY FIGURES Profit & Loss Sales revenue
102 477
93 756
9%
340 133
324 983
5%
438 207
Gross profit 1
85 134
77 328
10 %
272 451
267 686
2%
357 986
354 %
30 665
19 102
61 %
25 851
9.0 %
5.9 %
284 %
14 900
5 608
EBITDA
9 960
2 196
EBITDA-margin
9.7 %
2.3 %
Operating profit (EBIT)
4 716
-2 565
EBIT-margin
4.6 %
-2.7 %
4.4 %
1.7 %
Profit before taxes
3 669
-2 973
223 %
13 437
4 877
176 %
6 846
Profit for the period
2 642
-2 141
223 %
9 675
3 512
176 %
4 618
54 346
60 826
54 346
60 826
5.9 % 166 %
7 255 1.7 %
Balance sheet Non-current assets
59 929
Bank deposits
38 146
14 783
38 146
14 783
28 824
Current assets
129 292
100 069
129 292
100 069
117 430
Total assets
183 638
160 895
183 638
160 895
177 359
Equity
78 874
71 930
78 874
71 930
72 443
Total current liabilities
89 115
77 461
89 115
77 461
93 027
Equity ratio
43.0 %
44.7 %
43.0 %
44.7 %
40.8 %
1.45
1.29
1.45
1.29
1.26
Net cash flow from operating activities
4 002
4 402
21 884
5 249
22 500
Net cash flow
1 026
499
9 321
-6 223
7 818
Number of shares
82 186 624
82 940 346
82 186 624
82 940 346
82 186 624
Weighted average basic shares outstanding
82 186 624
82 186 624
82 186 624
82 186 624
82 458 801
Weighted average diluted shares outstanding
Liquidity factor Cash flow
Share inform ation
82 186 624
82 186 624
82 186 624
82 186 624
EBIT per share
0.03
-0.03
223 %
0.12
0.04
176 %
82 458 801 0.06
Diluted EBIT per share
0.03
-0.03
223 %
0.12
0.04
176 %
0.06
EBITDA per share
0.12
0.03
354 %
0.37
0.23
61 %
0.31
Equity per share
0.96
0.88
10 %
0.96
0.88
10 %
0.88
Dividend per share
0.06
0.00
0.06
0.00
Number of employees at the end of the period
453
434
4%
453
434
4%
428
Average number of employees
442
437
1%
437
442
-1 %
445
Operating revenue per employee
232
215
8%
778
735
6%
985
Gross profit 1 per employee
193
177
9%
623
605
3%
804
Personell expenses per employee
0.00
Em ployees
140
142
-1 %
468
476
-2 %
634
Other operating expenses per employee
30
30
-1 %
85
86
-1 %
113
EBITDA per employee
23
5
348 %
70
43
62 %
58
EBIT per employee
11
-6
282 %
34
13
169 %
16
QUARTERLY DEVELOPMENT 2011-2013 Revenues
Employees
NOK million
End of period
2011
130
2012
2013
120
500
2011
2012
2013
2011
2012
2013
450
110
400
100 90
350
80
300
70 250
60
50
200
EBITDA
EBITDA margin
NOK million
2011
2012
2013
%
14
12%
12
10%
10
8%
8
6%
6
4%
4 2
2%
0
0%
-2
Q1
Q2
Q3
Q4
EBIT
-2%
Q2
Q3
Q4
EBIT margin
NOK million
%
2011
10
2012
2013
6%
6
4%
4
2011
8%
8
2012
2013
2%
2
0%
0 -2
Q1
Q1
Q2
Q3
Q4
-2%
-4
-4%
-6
-6%
Q1
Q2
Q3
Q4
ITERA Q3 2013
