Presentation of interim financial results | Q2 2020

18th of August 2020

Agenda

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

Hans-Petter Mellerud

Gunnar Manum

Founder and CEO

CFO

© zalaris 2020

Page 2

Highlights

Q2 Presentation 2020

Second quarter 2020: Continued EBIT improvement

  • Strong positive development in EBIT and Cash Flow
  • Signed several new agreements and expansions despite Covid-19 resulted in a slow-down in closing new contracts during the quarter.
  • Proactively and successfully servicing our customers in a challenging Covid-19environment.
  • Based on the current financial performance of the Company the Board will propose a dividend of minimum NOK 0.5 per share for 2020

© zalaris 2020

Page 3

HighlightsQ2 Presentation 2020

Positive margin development resulting from improvement efforts during the quarter

Revenue

NOK 198m (+6%)

198.4

188.8

187.5

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

Adj. EBIT

NOK 12.7m (+72%)

12.7

7.4

4.1

-2.8

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

Adj. EBIT margin

6.4%

6,4%

3,9%

2,2%

-1.4%

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

#FTEs

723 (-12.4%)

792

825

723

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

© zalaris 2020

Page 4

Highlights

Q2 Presentation 2020

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 Services 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

2019 Revenue:

> 300,000

EUR 78

800

employees served monthly

million

Zalaris employees

through payroll services

19

Local service centers in

> 1,500,000

12

years of experience and

countries with top-notch

employees served monthly

continuous growth

expertise in local laws and

across all HR solutions

regulations

Headquarter

Managed Services

Professional Services

© zalaris 2020

Page 5

Highlights

Q2 Presentation 2020

Diversified customer base with Germany as largest country

Diversified across industries and sectors

Health

Not for profit

Industry

Retail

organizations

and Public

Bank &

sector

Insurance

Services

Products &

Industrials

IT &

Offshore &

Technology Infrastructure &

Energy

Transportation

Revenue per country Q2 2020 (NOKm)

UK Other

Poland

9,0

12,5

5,6

Germany

Finland

63,9

13,2

Denmark 15,9

25,9

Sweden

52,5 Norway

© zalaris 2020

Page 6

Highlights

Q2 Presentation 2020

Signed several new agreements and expansions

  • Covid-19resulted in a slow- down in closing new contracts during the quarter
  • Pipeline remains strong and Covid-19 is expected to give a positive effect going forward
  • Positive results from new Oracle Payroll partnership

New 10 years Master Services Agreement with leading Nordic Bank with 19'000+ employees for payroll and HR Services

Numerous expansions of agreements with existing UK customers for Business Continuity Services

New contract for implementation of SuccessFactors for Stadwerke Krefeld in Germany

New contract for the implementation of Payroll for Trøndelag County Municipality's 5000+ employees in Norway in partnership with Oracle

© zalaris 2020

Page 7

HighlightsQ2 Presentation 2020

Maintained stable recurring revenue in Managed Services

Revenue

NOK 137.1m (+2.4%)

135.1

133.9

137.1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

© zalaris 2020

EBIT

NOK 16.0m (+1.3%)

17.3

15.8

16.0

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

Page 8

▪Revenue approx. in line with Q2 last year. Some reductions due to reduced volume of travel expense processing.

▪Zero churn and 90%+ recurring revenue

▪Management focus on executing on defined Business Continuity Plan to secure customer deliveries

  • Realized additional approx. NOK 1 mill monthly cost savings from Q4 through streamlining of organization

Highlights

Q2 Presentation 2020

Grew Professional Services revenue and margin developed positively

Revenue

NOK 61.3m (+14.2%)

61.3

53.8

53.7

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

EBIT

NOK 6.1m* (+74.3%)

6.1

3.5

-0.1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

  • Strong revenue growth to new and existing customers in Poland and UK&I
  • Reducing management layer in German organization increased agility
  • Operational efficiency and capacity adjustments start to show effects
  • Approx. 80% of Q2 revenue was with customers that were also customers 12 months prior

*Adjusted for one-off redundancy provision of NOK 2.0m

© zalaris 2020

Page 9

HighlightsQ2 Presentation 2020

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

45%

33%

38%

Projects

49%

46%

App. Maint. Services 51%

54%

55%

67%

62%

Q2-19

Q3-19

Q4-19

Q1-20

Q2-20

  • 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-19infused uncertainty drives customers buying behavior toward smaller projects with defined payback with known suppliers*

*) Gartner Group research

© zalaris 2020

Page 10

Agenda

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

Hans-Petter Mellerud

Gunnar Manum

Founder and CEO

CFO

© zalaris 2020

Page 11

Financial Review

Q2 Presentation 2020

Revenue growth of 6% y-o-y

Revenue

NOK 198m (+6%)

198.4

188.8

187.5

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

Adj. EBIT

NOK 12.7m (+72%)

12.7

7.4

4.1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

-18

-18

-18

-19

-19

-19

-19

-20

-20

Adj. EBIT margin

6.4%

• Revenue for the quarter approx. in line with Q2

6,4%

last year when adjusted for positive one-off

revenue effects last year and currency

movements

• Stable recurring revenue within Managed

Services and good revenue generation from

existing customers within Professional Services

3,9%

• Covid-19 resulted in a slow-down in closing

contracts with new customers during the quarter

2,2%

• Adj. EBIT increased by 71.6% compared to last

year

• Efficiency improvements and cost reduction

initiatives gradually impacting EBIT margin

positively

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

• Underlying cost base reduced by ~NOK 27m (-

-18

-18

-18

-19

-19

-19

-19

-20

-20

9%) year-to-date 2020 compared to last year

© zalaris 2020

Page 12

Financial Review

EBIT margins gradually improving

Q2 Presentation 2020

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

6,7%

6,4%

4,6%

3,9%

13,4

12,7

2,4%

7,4

8,9

5,0

Q2-19

Q3-19

Q4-19

Q1-20

Q2-20

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

5,0%

5,0%

4,4%

3,9%

3,5%

38,2

39,9

34,6

30,5

26,6

Q2-19

Q3-19

Q4-19

Q1-20

Q2-20

  • Adj. EBIT increased by 71.6% compared to last year
  • Adj. EBIT LTM has increased by 50.0% compared to last year
  • Efficiency improvements and cost reduction initiatives gradually impacting EBIT margin positively
  • Underlying cost base reduced by ~NOK 27m (-9%)year-to-date 2020 compared to last year

© zalaris 2020

Page 13

Financial Review

Condensed Profit and Loss

Q2 Presentation 2020

(NOK 1 000)

Revenue License costs Personnel expenses Other operating expenses Amortization implementation costs customer projects Depreciation, amortization and impairments EBIT Adjustment items Adjusted EBIT* Adjusted EBIT margin

Net financial income/(expense)

Profit/(loss) before tax

Income tax expense

Profit/(loss) for the period

Basic earnings per share (NOK)

2020

2019

2020

2019

2019

Apr-Jun

Apr-Jun

Jan-Jun

Jan-Jun

Jan-Dec

198 445

187 548

399 056

379 899

776 792

16 237

13 904

33 235

28 832

67 981

113 131

106 911

224 710

214 480

438 543

39 759

40 381

80 940

82 416

166 887

8 939

8 714

17 541

17 011

36 606

13 012

13 226

25 811

26 265

52 684

7 367

4 412

16 818

10 895

14 091

5 323

2 965

9 263

5 534

16 149

12 690

7 377

26 081

16 429

30 240

6,4 %

3,9 %

6,5 %

4,3 %

3,9 %

19 785

(8 710)

(52 211)

(7 572)

(24 051)

27 152

(4 298)

(35 393)

3 323

(9 960)

(4 733)

974

9 261

(383)

2 950

22 420

(3 324)

(26 132)

2 940

(7 010)

1,14

(0,17)

(1,33)

0,15

(0,36)

  • Significant improvement in adj. EBIT margin (%) compared to last year - 6.4% vs. 3.9%
  • EBIT improvement program has resulted in a ~10% lower cost base (NOK 15.2m) YoY, however this has been offset by less costs being capitalised to customer projects and currency movements
  • Unrealised currency gain of NOK 25.6m, relating the EUR 35m bond loan and other foreign currency denominated items
  • Items excluded from adjusted EBIT Q2 2020: restructuring costs (NOK 2.0m), share-based payments (NOK 0.5m) and amortization of excess values on acquisitions (NOK 2.8m). (see definition of adj. EBITDA under APMs in Q2 2020 Report)

© zalaris 2020

Page 14

Financial Review

Q2 Presentation 2020

Significant positive cash flow during the quarter

NOK million

-3,6

129,0

-4,1

3,8

45,4

+41,5

87,5

Cash Q1 2020

Cash flow

Capex

Lease payments

Other

Cash Q2 2020

operating activities

  • Cash balance increased by NOK 41.5m during the quarter
  • Cash balance at 30 June 2020 is
    NOK 69.4m higher than last year
    (Q2'19: NOK 59.6m)
  • Operating cash flow for the quarter of NOK 45.4m, includes a reduction in trade receivables of NOK 23.8m and deferred VAT payments (Covid-19relief) of NOK 8 - 10m

© zalaris 2020

Page 15

Financial Review

Condensed Balance Sheet

(NOK 1 000)

Fixed and intangible assets

Trade accounts receivable

Customer projects assets

Cash and cash equivalents

Other assets

Total assets

Equity

Interest-bearing loans and borrowings

Lease liabilities

Customer projects liabilities

Other liabilities

Total equity and liabilities

2020

2019

2019

30. Jun

30. Jun

31.Dec

360 477

364 051

354 184

138 118

162 531

148 614

84 763

99 665

88 808

128 953

59 570

82 448

38 119

38 965

38 984

750 430

724 783

713 038

101 522

100 094

92 166

406 892

368 293

369 058

30 961

44 476

35 635

52 255

60 645

55 740

158 799

151 276

160 440

750 430

724 783

713 038

Q2 Presentation 2020

  • Cash and cash equivalents of NOK 129.0 million, up by NOK 41.5 million from previous quarter
  • Lease liabilities relate to right- of-use assets, and primarily rental contracts for premises (IFRS 16)
  • Net interest-bearing debt of NOK 277.9 million, decreased by NOK 66.6 million from previous quarter
  • Based on the current financial performance of the Company the Board will propose a dividend of minimum NOK 0.5 per share for 2020

© zalaris 2020

Page 16

Agenda

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

Hans-Petter Mellerud

Gunnar Manum

Founder and CEO

CFO

© zalaris 2020

Page 17

Market and Outlook

Q2 Presentation 2020

A complete Payroll and HR partner to mid- and large size organizations

MANAGED SERVICES (MS)

PROFESSIONAL SERVICES (PS)

Comprehensive Outsourcing of HR, Payroll

and Travel Expenses (BPaaS)

Managed payroll Services and travel expense (BPaaS)

Zalaris is

Payroll processing (BPaaS)

responsible for

end-to-end

payroll

processes, sick

Zalaris runs

leave refunds

payroll and

and employee

Cloud (SaaS)

distributes output

help desk

Zalaris is responsible for all end-to-end transactional HR processes including employee master data, payroll, travel and attendance, benefits processes and employee help desk

Customer interacts via Zalaris service management

SAP Cloud Services

•

SuccessFactors

•

Fieldglass

•

Employee Central

•

Concur

•

Employee Central Payroll

•

Integration

•

Analytics Cloud

ServicesImplementation

Services Advisory

SAP HCM & Payroll

Application Maintenance Services (AMS)

Analytics and Business Intelligence

Zalaris provides

Customer has

SaaS solution

own HR, payroll,

with

accounting and

comprehensive

support staff that

Payroll and

handle all

HCM

aspects of

functionality

payroll and

transactional HR

Customer is

Customer is

responsible for

responsible for

maintenance of

input and own

employee data

reporting

and HR

Integrations to global HR solutions as:

and focus on strategic HR. No retained staff performing transactional HR

Robotics - Intelligent Automation

SAP S4/Hana - Back Office Automation

Degree of Outsourcing - utilizing Zalaris BPaaS

Low

High

Professional Services is responsible for the delivery of traditional consulting projects as well as outsourcing- and cloud implementation projects

© zalaris 2020

*BPaaS - Business Process as a Service

Page 18

Attractive market opportunities

  • Growing Market

Q2 Presentation 2020

    • "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
    • Everest Research projects the Multi Country Payroll market to grow with 18-21% per year
  • Recognized by customers and industry analyst as one of the leaders in Multi Process HR Outsourcing, Multi Country Payroll and Cloud based HR Transformation powered by SuccessFactors.
  • Expected increased demand resulting from organizations implementing digital HR processes or looking to reduce costs driven from Covid-19
  • Increasing M&A activity in the opening up for consolidation and non-organic growth

© zalaris 2020

Page 19

Summary

Q2 Presentation 2020

We continue work on #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 as the municipality market in Norway 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 benefit from expected increased demand as a result of the Covid-19
  • Operate Professional Services as a global business unit and further develop the potential of our solid partnership with SAP
  • Explore non-organic growth options
  • Creating more Net Promoting Customers - and Employees

© zalaris 2020

Page 20

Agenda

  1. Highlights
  2. Financials
  3. Markets and Outlook
  4. Q&A

Hans-Petter Mellerud

Gunnar Manum

Founder and CEO

CFO

© zalaris 2020

Page 21

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

Hans-Petter Mellerud, CEO & Founder

Thank you!

Gunnar.Manum@zalaris.com

Hans-Petter.Mellerud@zalaris.com

Zalaris ASA | +47 4000 3300 | www.zalaris.com

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Disclaimer

Zalaris ASA published this content on 17 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 August 2020 09:55:02 UTC