EG Company Presentation Danske Bank Danish Bond Issuers Day March 26, 2015
Agenda Page 2014 Financials Business profile Bond Issue 2013 & Tap 2014 3 10 19 2
Financial overview EG has been able to grow both normalised EBITDA and normalised EBITA margin, and has showed resilience to the financial crisis Reported revenue growth Revenue split on type 1,032 924 1,017 +8.0% 1,330 1,502 1,611 1,636 2009 2014 30% 38% 62% 70% 2008 2009 1 2010 2011 2012 2013 4 2014 Reported revenue (DKKm) 100% = DKK 924m 100% = DKK 1,636m Recurring revenue 2 Non-recurring revenue EBITDA EBITDA, reported normalised (DKKm) 3 EBITDA margin, reported normalised 3 9.8% 6.2% 8.4% 11.3% 150 10.8% 163 12.1% 195 14.0% 229 65 91 87 2008 2009 2010 2011 2012 2013 4 2014 1) Decrease in revenue primarily due to phase-out of unprofitable hardware sales; 2) Recurring revenue include software release sales and subscription based revenue; 3) Management normalisation include restructuring costs, integration costs and transaction costs; 4) Pro forma for AX IV EG Holding III Aps 3
Reported Q4 and 2014 financials Analysing the financial performance of EG as reported Reported financials DKKm 2010 1 2011 1 2012 1 2013 2 2014 Q4 2013 1 Q4 2014 Revenue 1.017 1.330 1.502 1.611 1.636 432 476 Costs of sales 279 342 344 364 354 103 115 Gross profit 738 989 1.157 1.247 1.282 329 361 Staff costs 524 677 815 849 924 220 269 Other external costs 126 183 200 224 181 66 34 EBITDA 88 128 143 174 177 44 58 Operational depreciation and amortisation 14 19 22 21 29 3 8 EBITA 74 109 120 153 149 41 49 Normalisation: Acquisition / sale of activities 0 0 0 0 19 0 0 Restructuring expenses 4 11 10 10 26 1 19 Acquisition relared costs 0 11 10 12 7 6 2 Normalisations, total 4 22 20 22 52 7 21 Normalised EBITDA 93 150 163 195 229 51 79 Normalised EBITA 78 131 140 175 200 48 70 PRESENTATION OF FINANCIAL INFORMATION In this Company Description, the Group makes references to EBITDA and/or EBITA and EBITDA/EBITA margin, neither of which is defined under the Danish Financial Statements Act. The items excluded from EBITDA/EBITA and EBITDA/EBITA margin are significant in assessing the Group's operating results and liquidity. EBITDA/EBITA and EBITDA/EBITA margin have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, analysis of the Group's results as reported under the Danish Financial Statements Act. Other companies in the Group's industry and in other industries may calculate EBITDA/EBITA and EBITDA/EBITA margin differently from the way that the Group does, limiting their usefulness as comparative measures. Under accounting policies of the Group certain development costs are capitalized in the balance sheet and not expensed in the year they were incurred. This means that EBITDA is higher than had such development costs been expensed. The development cost capitalized in the balance sheet will be depreciated over 3-5 year. EBITA includes depreciations on capitalized development costs. 1) Reflects EDB Gruppen Holdings A/S; 2) Pro-forma for AX IV EG Holding III Aps 4
Q4 2014 Developments Increase in Revenue: The increase in revenue from DKK 432 million in Q4 2013 to DKK 476 million in Q4 2014 is primarily due to the acquisition of new companies. Revenue remains negatively affected by the loss of a major customer account, but Q4 has seen an increase in organic growth in the continuing part of the business. In addition, adverse currency movements of NOK had a negative impact of DKK 7 million on the Q4 2014 revenue. Increase in Q4 2014 EBITDA: The increase in reported EBITDA from DKK 44 million in Q4 2013 to DKK 58 million in Q4 2014 is partly due to contributions from the acquired companies and partly due to increased earnings from the rest of the business compared to Q4 2013. The realisation of the company's strategy plan for 2014-2017 has led to a simplification of the organisational structure with the number of operational divisions being reduced from six to four. Further organisational changes were made in connection with the integration of the acquired companies. The overall effect of these changes was restructuring costs of DKK 19 million in Q4 2014. Normalised EBITDA for Q4 2014 amounted to DKK 78 million compared to DKK 51 million in 2013. Increase in 2014 EBITDA Realised EBITDA for 2014 amounted to DKK 177 million compared to DKK 174 million in 2013. Normalised EBITDA for 2014 amounted to DKK 229 million compared to DKK 195 million in 2013. 2015 outlook: For 2015, the company expects growth in reported EBITDA and normalised EBITDA as a result of the companies acquired in 2014 and the restructurings carried out. 5
Five acquisitions completed in 2014 Pro forma sales and EBITDA of 2014 acquisitions DKKm Sales EBITDA 74 33 34 21 5 10 15 2 12 0 Tacticus EMAR IT Minds Team Online CGI Textile solution 6
Selected Click to edit balance Master sheet text items styles 2013-2014 DKKm 31-12-2014 31-12-2013 Intangible fixed assets 1.683 1.454 Tangible fixed assets 44 39 Financial fixed assets 0 0 Non-current assets 1.727 1.493 Inventory 11 11 Trade receivables 278 221 Contract work in progress 0 10 Prepaid rent and deposits 12 11 Other receivables 43 11 Prepayments 32 28 Trade payables -103-74 Other payables -324-270 Accruals -60-70 Reported NWC -111-122 Cash 48 230 - dividend 0-120 Securities 0 1 Bank loan -36-37 Bond debt -1.100-900 Employee bonds -7-13 Tax payable -20-13 Interest-bearing net debt -1.115-853 The company's non-current assets amount to DKK 1,727 million, primarily in the form of goodwill related to acquisitions. The company reported a negative working capital of DKK 111 million. The change from 31 December 2013 is due to seasonal fluctuations. The company's net interest-bearing debt at the end of Q4 2014 was DKK -1,115 million. In 2014, agreements regarding the acquisition of five companies were made, and all transactions had been completed at the end of Q4. Further information on the individual businesses is available on the company's website. 7
Selected Click to edit items Master from the text cash styles flow statement 2013-2014 DKKm 31-12-2014 31-12-2013 *) Cash flows from operating activities: Cash flows from operating activities before financial items 156-231 Cash flows from ordinary activities 75-263 Cash flow from operating activities 62-279 Cash flows from investing activities -321-925 Cash flows from financing activities 78 1.396 Change in liquidity for the year -181 193 Cash 1 January 193 0 Cash 31 December, net 12 193 Cash 31 December, net Cash in accordance with the balance sheet 48 229 Amount owed to banks in accordance with the balance sheet 36 37 Cash 31 December, net 12 193 *) 2013 covers the period from June 20 to December 31 The company's cash flows from operating activities before financial items amount to DKK 156 million. After payment of interest, cash flows from ordinary activities amount to DKK 75 million. Cash flows from operating activities amount to DKK 62 million. Cash flows from investing activities amount to DKK -321 million, primarily covering acquisitions (DKK 242 million) and investments in products and software development. Cash flows from financing activities amount to DKK 78 million, comprising a bond loan of DKK 202 million, dividends of DKK 120 million and repayment of employee bonds of DKK 4 million. Change in liquidity for the year amounts to DKK -181 million. The company's net cash amounted to DKK 12 million at 31 December. 8
Agenda Agenda 2014 Financials Business profile Bond Issue 2013 & Tap 2014 Page 3 10 19 9
Business in a box Busine ss in a box Packaged solutions Packag ed solutio ns Industry insight Tailored solutions Tailore d solutio ns Click to edit Master text styles EG at a glance EG is a leading Scandinavian IT software & service provider In brief EG is among Scandinavia's leading IT software & service companies with a strong market position within the SME segment Position based on close relationships with customers, deep sector knowledge and value adding IT solutions Group structure with four market facing divisions organized according to vertical focus 21 acquisitions in selected verticals since 2009 Approx. 12,000 customers and more than 1,500 employees 2014 revenue of DKK 1,636m and normalized EBITDA of DKK 229m Recurring revenue of 38% of group revenue Sale of own developed software account for 55% of software revenue Mission Adding value to business through industry leadership Understanding industry is our DNA Differentiated approach based on same strategy Logistic & Production Building & Construction Retail Utility Public Professional Services Product leadership Cost leadership Customer intimacy 10
EG 360 Low risc Value to EG High risc Click to edit Master text styles EG at a glance EG 360 and customer lifetime value perspective EG 360 Customer lifetime value perspective Dynaway Management consultancy Business intelligenc e EG CrossWork New projects ASPECT4 ERP Collaboration EG CrossPad Mobility Infrastructure EG Private Cloud IT operations Service and support Upgrade Factory EG Licence check EG 24/7 support Continuous improvements (Tasks) Application Management (AMS) Infrastructure Management (IMS) EG = Industry knowledge + EG 360 Industry expert with a 360 offering Industry/application knowledge 11
EG in practice Your magazine subscription is most likely handled by an EG solution The truck you passed this morning was most likely controlled by EG solutions Comprehensive endto-end retail offering supports your daily shopping The royal family have benefitted from an EG solution Your housing administrator most likely benefit from EG products..and you electricity bill is most likely delivered with assistance from EG EG is a trusted partner to the construction industry benefitting craftsmen, as well as DIY people 30% chance your lawyer is supported by EG Your draft might have found its way to you with the help from EG 1,300 practitioners benefit from EG products on a daily basis More than 90% of cemeteries and churches use a system from EG 12
EG s focus in the market EG focuses on selected industries in the Scandinavian IT market where EG has in-depth industry insight and knowledge of the value chain Market position EG is one of the leading IT and software providers in Scandinavia Strong presence in Denmark with revenue of more than DKK 1.2bn in 2014 Critical mass in Norway accounting for DKK 269m of revenue in 2014 Significant presence in Sweden accounting for DKK 147m in 2014l Strong position in selected verticals where EG has deep industry knowledge Main industries in focus include logistics & manufacturing, retail, construction, utility, local government and business services 1 Deep knowledge of industry value chain and business best practice provides for a good dialog with both business and IT decision makers Within its focus industries, EG is present across all market size segments, from small and medium businesses with 1-99 employees to large enterprises with +1000 employees #1 Scandinavian and strong global Dynamics AX partner with more than 300 AX consultants EG s country focus Share of revenue 2013 (100% = DKK 1,611m) 75% 16% 9% Industry focus of EG EG s segment focus Primarily projects Primarily volume business Not in focus of EG Logistics/ wholesale Local gov. Communications / telecom Banking Focus of EG Not EG Large enterprises (+1000 employees) Discrete manufacturing Process manufacturing Transport Retail Utility Construction Business services Health 2 ( ) Central gov. Education Other services Agriculture & mining Insurance Other finance Segment focus (size) varies across verticals Mid-sized enterprises (500-999 employees) Small enterprises (100-499 employees) Small and medium businesses (1-99 employees) Projects Volume Note: Scandinavian defined as: Denmark, Norway and Sweden; IT market comprise Software, Service and Hardware. 1) In the businesses services segment EG has a strong position within several niche segments including among others lawyers and housing association administration 2) Strong presence within practitioners 13
Product offering Share of revenue from software and subscription based revenue accounts for up to 50% of revenue EG s solutions are based on some or all of the offered products: consultancy & programming, subscription based revenue, own software, external software and hardware EG s products Consultancy & programming Management consultancy and design of IT solutions Implementation of solutions Programming and configurations of customer customised solutions Around 50% of consultancy and programming relates to own software sales Share of total revenue 1 (%) 46% Recurring revenue 2 (%) 0% Focus is on increasing the share of revenue from software and subscription based revenue Subscription based revenue Operation of the customer s IT solution, either hosted from EG s own data centre or at the customers premises Service agreements (Technical, Hotline & Support, BPO) 17% 100% Allows EG to take further ownership of the customers and is attractive due to the recurring revenue nature from release license fees or subscription fees Own software External software An increasing part of EG s software revenue is based on EG s proprietary software (own IP) comprising a range of standard software products, EG s own ERP platform ASPECT4, own IP modules and value adding configurations to standard software from external providers Primarily related to EG s implementation of the ERP platforms Microsoft Dynamics AX and NAV, as well as other external software 16% 14% 78% 62% Hardware Sale of infrastructure hardware (e.g. servers) and industry specific hardware (e.g. POS and hand terminals) from external providers Only sold in relation to other software sales 7% 0% 1) Share of revenue 2014, 100% = DKK 1,636m. 2) On aggregate recurring revenue accounted for 38% of total 2013R revenue (=DKK 1,611m) 14
Scandinavian IT market EG has exposure towards segments with above market growth rates and has increased exposure towards higher growth in Norway and Sweden Scandinavian IT market Scandinavian IT market growth 1 Country growth 1 The Scandinavian IT market is expected to grow with a CAGR of 3.2% from 2013 to 2016, 1.2% higher than the historical growth from 2010 to 2013 which was affected by the financial crises EURbn 26.8 27.2 +2.0% 27.8 28.4 29.5 +3.2% 30.4 31.3 EURbn 8.0 +1.5% 8.4 +2.7% 9.1 Above market growth in sectors such as Utility and Retail, while IT spending in sectors such as Government, Discrete manufacturing and Wholesale are lower 2010 2013 2016 Higher growth is expected in small and mid-sized enterprises which is of particular focus of EG Growth rates in Denmark has been lower than in the other Scandinavian countries due to more severe impact of the financial crisis 2010 Segment size 2 2011 Segment share of total market 2012 2012 2013 2014 Segment growth 2 Total IT market CAGR 2013-2016 2015 2016 EG relevant IT market 3 CAGR 2013-2016 6.8 +2.0% 7.3 +3.1% 8.0 53% Large enterprises (+1000 employees) 3.4% 3.7% 2010 2013 2016 13% Mid-sized enterprises (500-999 employees) 5.0% 5.6% 12.0 +2.2% 12.8 +3.7% 14.2 19% Small enterprises (100-499 employees) 3.8% 4.5% 15% Small and medium businesses (1-99 employees) 2.7% 3.1% 2012 (100% = USD 37,978m) 2010 2013 2016 CAGR Note: Scandinavian defined as: Denmark, Norway and Sweden; IT market comprise Software, Service and Hardware 1) Source: Nordic IT spending Forecast update, 1Q 2013 (excl. tables, smartphones and feature phones). 2) Source: IDC Black Book Q2 2012 (excluding Smartphones, Feature Phones, Tablets&eReaders). 3) Total market excluding Banking, Communications, Education, Insurance, Government, Other Finance and other 15
Market drivers in the Scandinavian IT market Five primary market drivers expected to impact IT spending Market drivers Perception of IT investments on productivity and profitability 1 2 Productivity Cloud Tangible efficiency improvements from process optimization and IT is an important factor in undertaking IT investments Perception of IT as productivity enhancer drives decision making upwards in the organisation with stronger inclusion of business decision makers Cloud computing has been taking market shares in many other software applications and will impact ERP market within the next 3-5 years Drives the opportunity for IT provided as a service IT decisions moves from IT to line of business Does IT investments contribute to improved productivity? 12% 88% Do you expect improved profitability from IT supported process optimisation? 23% 3% 74% We obtain an annual saving of 9 million euros and it is vital for the survival of our entire business Peter Maarssø, IT manager, Orifarm Group 3 Big data The demand for analyzing large data amounts require strong and well integrated systems to collect and store this information Big data drive demand for Business Intelligence solutions and provides for new types of IT services Yes Don t know No Scandinavian Cloud spending 2010-2016 USDm 2,780 4 5 CRM and customer experience Mobility According to a recent Gartner survey, CRM is the top software investment priority for 2013 (ERP is second) due to a stronger business focus on enhancing the customer experience, which has a positive impact on ERP spend Mobile internet expected larger than wired in 2016, and will drive cloud-based business and revenue opportunities due to need for mobile applications Large untapped productivity potential from mobility in most sectors drive extended usage of ERP on other devices 967 736 538 367 2013 2012 2011 2010 Source: IDC Black Book Q1 2013, May 2013 +30% 1,630 1,253 2015 2014 2,113 2016 2017 CAGR Source: YouGov, EG and Quartz+Co analysis based on Gartner, Constellation Research, IDC and industry observers 16
Competitive landscape EG has leading market positions across all four divisions Market position and competitors in EG s verticals Divisions Revenue 1 Market position Larger main competitors Smaller competitors EG Industry Solutions DKK 840m (51%) One of the strongest Microsoft Dynamics AX partner s in Europe Scandinavia s largest end-to-end supplier of IT solutions for production, logistics and retail companies EG Citizen Solutions DKK 259m (16%) Solutions for the utility sector in Denmark and Sweden and the public sector in Denmark EG Business Ready Solutions DKK 229m (14%) Leading provider of SaaS based software solutions in a number of small attractive niches EG Business Application Services DKK 350m (21%) Leading provider of Infrastructure-, Cloud Solutions and Managed Services, cross business application solutions (BA, CRM, etc.) and 3 rd party software Note: 1) % do not add to 100%, due to group eliminations 17
Agenda Page 2014 Financials Business profile Bond Issue 2013 & Tap 2014 3 10 19 18
Key credit highlights Leading Scandinavian IT service and software provider Diversified customer base High cash conversion Customised proprietary software solutions Large share of recurring business Experienced management team and lean organisation 19
Offering Summary Terms & Conditions of the Notes Issuer AX IV EG Holding III ApS guaranteed by companies in EG Group Issue Senior Secured Notes Amount DKK 900 million in December 2013 & DKK 200 million in June 2014 Use of proceeds Refinancing of equity bridge facility, refinancing of existing senior debt and general corporate purpose. 200m tap in June 2014 for acquisitions Maturity 7 years Optional redemption Non-call 3 years. Thereafter optional redemption by Issuer at 103 per cent of principal falling in line with high yield convention to 100 per cent on the date falling six years after the issuance. Optional redemption prior to the first call date via make-whole and optional 10% per annum at 103 per cent. Ranking Senior secured, ranking at least pari passu with all other senior unsubordinated creditors except for super senior Revolving Credit Facility and certain hedging liabilities. Interest 6.5% + Floating rate at 3-month CIBOR, payable quarterly in arrears Security Security interests over shares of the Issuer and all material subsidiaries Guarantees Upstream guarantees from material subsidiaries generating no less than 85 per cent of revenues, EBITDA or assets in EG Group.
Offering Summary Terms & Conditions of the Notes (continued) Governing law and documentation Financial covenants (on consolidated full year results) Norwegian (Notes); Danish (Intercreditor) Stand-alone documentation, including Intercreditor Agreement and company description as required by First North Nordic (Bond Market) - Rulebook Leverage: From signing until 12 months after the closing date: NIBD/EBITDA < 5.25; thereafter until 24 months after the closing date: NIBD/EBITDA < 5.00; thereafter until 36 months after the signing date NIBD/EBITDA < 4.75; thereafter NIBD/EBITDA 4.25 Interest Cover: EBITDA / net interest expense > 2.25 on LTM results Both structured as incurrence covenants restricting new Financial Indebtedness, Dividends, Acquisitions, Mergers, and Disposals General covenants Negative Pledge, Limitation on Acquisitions and Disposals Restrictions on Mergers, De-Mergers, Preservation of Intellectual Property ( IP ) Rights Events of Default Non-Payment or other material breach Cross-default Insolvency, Insolvency Proceedings and general creditors process Change of Control Axcel ceases to own, directly or indirectly, more than 50 per cent of the outstanding shares of the Issuer (reducing to 30% following a listing of the Group). Noteholder Put Option at 101 per cent Trustee Norsk Tillitsmann Listing NASDAQ OMX First North Bond Market, Copenhagen Clearing VP Securities Bookrunners Danske Bank and SEB
Experiences / Lessons Learned Higher leverage versus Bank senior debt High requirements for documentation in connection with the issue No repayments -> more cash flow for acquisitions Less stringent financial covernants Lower establishment costs versus bank loans Limited flexibility (ex post experience) RCF / Guarantees Reporting requirements of the Nasdaq / OMX provides constraints on internal and market communications 22