2019 INTERIM REPORT

• Edgeware secured new customer in Eastern Europe for combined IPTV and OTT CDN solution. • Edgeware launched Cloud Service for delivery of origin sol...

0 downloads 35 Views 2MB Size
2019

INTERIM REPORT

JANUARY–JUNE 2019

APRIL–JUNE 2019

SEK 30.8 MILLION NET SALES

-38.4% DECREASED NET SALES

SEK -21.3 MILLION EBIT -69.1% EBIT MARGIN

JANUARY–JUNE 2019

SEK 83.9 MILLION NET SALES

NETTOOMSÄTTNING

-14.8% DECREASED NET SALES

-26.3% EBIT MARGIN

NETTOOMSÄTTNING

1

SEK -22.0 MILLION EBIT

2019

INTERIM REPORT JANUARY-JUNE

“Our strategy was established in the knowledge that we must develop our business through new products and sales to new markets. Our focus is now on more rapid implementation of this strategy” Karl Thedéen, CEO Edgeware

• SECOND QUARTER OF 2019:

• Net sales totalled SEK 30.8 million (50.0), a decrease of 38.4 percent. • Net sales totalled SEK 27.6 million (50.0), excluding newly acquired Cavena Image Products AB, a decrease of 44.9 percent. • Gross profit amounted to SEK 18.0 million (32.3), corresponding to a gross margin of 58.5 percent (64,5). • Gross profit amounted to SEK 15.7 million (32.3), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 57.0 percent (64.5). • Operating income (EBIT) was negative SEK 21.3 million (neg:15.2 corresponding to an operating margin of negative 69.1 percent (neg:30.4). • Profit for the period amounted to a loss of SEK 16.4 million (loss:11.2). • Cash flow from operating activities totalled negative SEK 19.7 million (neg: 28.6)*. • Cash flow for the period of negative SEK 26.2 million (neg: 30.7). • Earnings per share for the period before and after dilution were negative SEK 0.5 per share (neg: 0.4).

• FIRST HALF OF 2019:

• Net sales totalled SEK 83.9 million (98.5), a decrease of 14.8 percent. • Net sales totalled SEK 77.4 million (98,5), excluding newly acquired Cavena Image Products AB, a decrease of 21.4 percent. • Gross profit amounted to SEK 56.7 million (64.6), corresponding to a gross margin of 67.7 percent (65,6). • Gross profit amounted to SEK 52.1 million (64.6), excluding newly acquired Cavena Image Products AB, corresponding to a gross margin of 67.3 percent (65.6). • Operating income (EBIT) was negative SEK 22.0 million (neg:26.7) corresponding to an operating margin of negative 26.3 percent (neg:25.7). • Profit for the period amounted to a loss of SEK 16.0 million (loss:20.5). • Cash flow from operating activities totalled SEK 0,1 million (neg: 21.8)*. • Cash flow for the period of negative SEK 20.7 million (neg: 28.6). This includes the cash-flow effect attributable to the acquisition of Cavena Image Products AB of SEK 9.1 million. • Earnings per share for the period before and after dilution were negative SEK 0.5 per share (neg: 0.7)

SIGNIFICANT EVENTS IN THE SECOND QUARTER • Edgeware won a strategic order from Chinese cable operator. • Edgeware secured new customer in Eastern Europe for combined IPTV and OTT CDN solution.

• Edgeware launched Cloud Service for delivery of origin solutions including subtitling. (SEK million unless otherwise indicated) Net sales Gross profit Gross margin (%) EBIT EBIT margin (%) Profit/loss for the period Cash flow from operating activities* Cash flow for the period** No. of employees at the end of the period*** Earnings per share before/after dilution Cash and bank equivalents Current investments

2019 Q2 30.8 18.0 58.5% -21.3 -69.1% -16.4 -19.7 -26.2 100 -0.5 72.4 75.2

2018 Q2 50.0 32.3 64.5% -15.2 -30.4% -11.2 -28.6 -30.7 112 -0.4 69.3 75.2

2019 H1 83.9 56.7 67.7% -22.0 -26.3% -16.0 0.1 -20.7 100 -0.5 72.4 75.2

2018 2018 H1 FULL-YEAR 98.5 231.9 64.6 160.2 65.6% 69.1% -26.7 -9.1 -25.7% -3.9% -20.5 -6.6 -21.8 11.6 -28.6 -4.9 112 99 -0.7 -0.2 69.3 93.1 75.2 74.9

* During the first half of July 2019, a late customer payment of SEK 19.1 million was received that had been expected to be paid during the second quarter. **In the cash flow for the period H1 2019 is included the cash flow effect attributable to the acquisition of, the during January 2019, acquired company Cavena Image Products AB. See also Note 8 for further information. ***Included in the number of employees at 30 June 2019 are 12 (16) consultants with employment-like agreements and seven persons in the newly acquired company, Cavena

2

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

COMMENTS BY THE CEO As we previously announced, we are currently experiencing a decline in our CDN (Content Delivery Network) business with telecom operators in Western Europe. This had a major impact on sales for the second quarter, which closed at SEK 31 million, in the middle of the anticipated range that was communicated. The gross margin was negatively impacted by this decline in sales since it is based on variable and fixed costs and thus amounted to 59 percent. Total EBIT amounted to a negative SEK 21 million. Naturally, I am not at all satisfied with this result and we are now fully focused on restoring profitability. If I look beyond our CDN business in Western Europe, there were two positive events in particular during the quarter that are worthy of note. We received a strategically important CDN order from a Chinese cable operator, which shows that we have a competitive CDN offering and that there are new opportunities outside Europe. Sales of the subtitling product from the acquired company Cavena are also growing and we received a major order from an existing Mexican customer during the quarter, which demonstrates the sales-related acquisition synergies that we can now achieve. It is also worth noting that our important support and service business grew during the quarter. Global investments in CDN networks are continuing to increase, but, unfortunately, I see no sign of an improved market situation for our CDN business in Western Europe in the short term. The need for investments is being fueled by a growing number of subscribers and increased traffic related to the use of new video-related functions such as time-shift. However, this trend has been in progress for a number of years in Western Europe and, as a result, the increase in these markets is currently more limited. Nonetheless, we are seeing more robust growth in emerging markets, such as Asia and Latin America, where we are also securing new business. We will continue to invest in Latam and APAC in terms of sales, but we will also invest in products in order to leverage the investments being made in CDN in pace with the build-out of broadband to reach increasing numbers of customers.

3

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

As well as focusing on developing our CDN business, we are investing in product and business development in order to increase our product sales, mainly to broadcasters and content owners. At the beginning of the second quarter, we launched our origin solution as a cloud-based service through Amazon Web Services, which marked a key milestone on our journey to creating a new type of software business. We will also launch new, innovative products at the IBC trade fair in September and will continue to assess suitable acquisition candidates. I am satisfied with the way in which Cavena has been integrated and how the business has developed in the short time it has been a part of Edgeware, which shows the importance of continuously assessing acquisition candidates to facilitate well-considered acquisitions. Although we cannot simply save our way back to profitability, we are continuously looking for ways to become more efficient and free up resources for the strategic activities we need to implement. During the second quarter, we implemented a number of such measures, which were also charged to earnings in the form of non-recurring expenses. Despite the weakened CDN market in Western Europe, the company has a relevant strategy, excellent customer relations, a strong product portfolio and a motivated team and is active in a market that is basically characterised by growth as a result of increased consumption of streamed video. The conditions for both growth and profitability are therefore favourable in the long term. Edgeware also has a strong financial position and my focus moving forward will be to accelerate the implementation of our strategy.

Karl Thedéen CEO Edgeware

SECOND QUARTER: 1 APRIL 2019 – 30 JUNE 2019 AND THE FIRST HALF OF 2019 1 JANUARY 2019 – 30 JUNE 2019 SEK 100 million

Net sales

Net Sales by Region

80

Second quarter: The Group’s net sales in the second quarter totalled SEK 30.8 million (50.0), down 38.4 percent compared with the same quarter in 2018. The decrease in comparable currencies was 40.6 percent. The net sales of the acquired company Cavena Image Products AB were SEK 3.3 million for the second quarter of 2019. Excluding the acquisition, the change between the years represented a decrease of 44.9 percent in comparable currencies. Net sales decreased to SEK 14.2 million (35.6) in EMEA (Europe, the Middle East and Africa), while they increased to SEK 8.2 million (4.8) in AMERICAS (North and South America) and declined to SEK 8.5 million (9.6) in APAC (Asia and the Pacific region). In EMEA region, there were no large investments during the quarter from the major customers in Western Europe, where the company has historically had its strongest CDN market. In the year-earlier period, one of the region’s largest customers made a significant hardware investment in its CDN to benefit from the company’s Ad Insertion product. There were no corresponding CDN investments during the second quarter of 2019. In the AMERICAS region, sales increased by 70.2 percent compared with the year-earlier period. The sales increase was driven by investment by the region’s largest customer, which invested in the subtitling product from the recently acquired company, Cavena. APAC declined by 11.6 percent compared with the corresponding period in 2018. Cavena contributed SEK 1.0 million to sales for the region in 2019. The company have received a strategically important CDN order from a Chinese cable operator. Edgeware had, and still has, a high customer concentration in all its regions. The investment level from a few major customers has historically significantly impacted an individual quarter and moving forward will continue to do so. Historically, Edgeware has had a large customer concentration in the EMEA region, which becomes apparent in sales when the growth in the Western European CDN market is limited.

4

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

60 40 20 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 EMEA

2017 APAC

2018 2019 AMERICAS

Of total net sales in the second quarter, the Products business stream (hardware, software and licenses) accounted for 43.9 percent (73.5), while the remaining 56.1 percent (26.5) was in Services (maintenance, support and other services). Recurring support revenue from existing customers amounted to SEK 14.4 million (11.6), corresponding to 83.5 percent (87.6) of net sales from services. The company acquired in 2019, Cavena, accounted for SEK 3.3 million of Group net sales for the second quarter. SEK million 100

Net Sales by Sales Category and gross margin% 80%

80

60%

60 40% 40 20%

20 0

0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 Services

2017 Products

2018

2019

Gross margin%

Six months The Group’s net sales in the first half of 2019 totalled SEK 83.9 million (98.5), down 14.8 percent compared with the first half of 2018. The decrease in comparable currencies was 18.9 percent. The net sales of the acquired company Cavena Image Products AB were SEK 6.5 million for the first half of 2019. Excluding the acquisition, the change between the years represented a decrease of 24.1 percent in comparable currencies. Net sales in EMEA amounted to SEK 35.8 million (66.0), down 45.8 percent year-on-year. In APAC, sales increased to SEK 17.3 million (15.3) and in AMERICAS, sales rose by 78.6 percent to SEK 30.7 (17.2) compared with the first half of 2018. The decline in EMEA is mainly attributable to a lower level of investment by the company’s large customers in the Western European market. The increased sales in the AMERICAS region is attributable to the region’s largest customer making

major investments in the first and second quarters, driven by a higher number of subscribers and increased use of such functions as “time-shift”, and by investment in the subtitling product from Cavena.

The year-on-year cost decrease was primarily due to fewer employees in the Group. However, seven employees were added as a result of the acquisition of Cavena.

Net sales from products amounted to SEK 50.1 million (71.8) and from services to SEK 33.7 million (26.8). The decline in products is primarily attributable to limited growth in the company’s historically largest CDN market, Western Europe, where there was an absence of investments by the company’s major customers in the first half of 2019. Underlying service sales attributable to support contracts amounted to SEK 26.5 million (23.3), corresponding to an increase of 13.7 percent yearon-year.

During the second quarter, development expenses were capitalized in an amount of SEK 4.4 million (3.3), corresponding to 22.5 percent (17.0) of the company’s total R&D expenses. At the same time, amortisation of previously capitalised development expenses rose to SEK 2.9 million (2.8). This amortisation is a component of the company’s cost of goods sold and thus impacts Edgeware’s gross profit. On the whole, the net of the period’s capitalised expenses after amortisation for the period had a positive impact of SEK 1.5 million (0.5) on EBIT.

Results Second quarter Gross profit in the second quarter amounted to SEK 18.0 million (32.3), corresponding to a year-on-year decline of SEK 14.3 million. The low level of product sales during the quarter reduced gross profit, while the service business’s sales were higher year-onyear. Cavena contributed SEK 2.3 million to gross profit. The gross margin was 58.3 percent (64.5). The gross margin was impacted by factors including the mix between software and licences, and the share of fixed costs such as amortisation of capitalised development expenses and personnel costs for service employees. On basis of the low net sales of SEK 30.8 million during the quarter, the fixed costs had a significant impact on the gross margin. Amortisation of capitalised development expenses impacted the quarter’s gross margin by 9.4 percent, while personnel costs for service employees had an impact of 20.8 percent. The proportion of software, hardware and capacity licenses in relation to total product sales was higher than in the year-earlier quarter. At the same time, the margin on the company’s service business was better than in the preceding year, which is explained by both higher service revenue and fewer employees in the service function. Amortization of capitalised development expenses in 2019 increased from SEK 2.8 million to SEK 2.9 million, which instead reduced the gross margin. Overall, the gross margin decreased, driven by the low level of sales in the product business. Operating expenses amounted to SEK 39.3 million (47.5), corresponding to a decrease of SEK 8.2 million year-on-year. The underlying costs declined in all functions compared with the preceding year. Excluding Cavena’s operating expenses, costs declined by SEK 10.6 million in the second quarter of 2019 year-on-year, corresponding to a reduction of 22.3 percent. During the quarter, nonrecurring restructuring expenses of SEK 2.9 million (3.3) to make it possible for extended focus on our software business.

5

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

R&D, MSEK

Q2 2019 Q2 2018

Total R&D expenses

-19.7

-19.5

Capitalised development expenses

4.4

3.3

Amortisation of capitalised development expenses

-2.9

-2.8

Net effect P/L

1.5

0.5

R&D expenses according to income statement % activated of tot gross Development

-15.3

-16.2

-22.5%

-17.0%

Operating income before depreciation and amortisation (EBITDA) amounted to negative SEK 16.3 million (neg: 11.7), of which negative SEK 1.3 million (0) pertains to depreciation and write-downs according to the new rules regarding IFRS 16. Operating loss (EBIT) for the quarter amounted to SEK 21.3 million (loss: 15.2), corresponding to a year-on-year decline of SEK 6.1 million. The operating loss corresponds to an operating margin of negative 69.1 percent (neg: 30.4). Net financial items for the period amounted to SEK 0.0 million (0.9) and mainly comprised FX effects on cash and cash equivalents, a change in value of current investments and a revaluation of intercompany transactions. The net loss for the quarter was SEK 16.4 million (loss: 11.2), a year-on-year decline of SEK 5.2 million.

SEK million SEK million Net sales by Sales Category per quarter and rolling 12 month 80 220 170

60

120 40 70 20

20

0

-30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016

2017

Products Products rolling 12M

2018

2019

Services Services rolling 12M

Six months

Financial position

Gross profit for the first half of the year amounted to SEK 56.7 million (64.6), a year-on-year decline of SEK 7.9 million. The gross margin was 67.7 percent (65.6). The gross margin for the first half of the year was higher than the corresponding period last year. The high product margin during first quarter and the higher margin on the service business during 2019 pushed up the gross margin year over year. The higher service margin is driven by higher service revenue and reduced costs for service personnel. Operating expenses amounted to SEK 78.8 million (91.2), down SEK 12.4 million year-on-year. The decrease in operating expenses is mainly attributable to a reduction in the number of employees in the Group, but also the review that is in progress of the company’s total costs. The acquisition of the company Cavena added operating expenses of SEK 5.3 million (0). The period’s costs include restructuring expenses, for extended focus on our software business, incurred during the second quarter. These costs affecting comparability amounted to SEK 2.9 million (4.7) for the first half of the year. During the first half of the year, development expenses of SEK 7.2 million (6.0) were capitalized, accounting for 18.2 percent (16.0) of the company’s total R&D expenses. At the same time, amortisation of previously capitalised development expenses rose to SEK 5.9 million (5.5). This amortisation is a component of the company’s cost of goods sold and thus impacts Edgeware’s gross profit. On the whole, the net of the period’s capitalised expenses after amortisation for the period had a positive impact of SEK 1.3 million (0.5) on EBIT. R&D, MSEK Total R&D expenses

H1 2019 H1 2018 -39.4

-37.6

Capitalised development expenses Amortisation of capitalised development expenses

7.2

6.0

-5.9

-5.5

Net effect P/L

1.3

0.5

R&D expenses according to income statement % activated of tot gross Development

-32.2

-31.6

-18.2%

-16.0%

Operating loss (EBIT) for the first half of the year amounted to SEK 22.0 million (loss: 26.7), corresponding to a year-on-year improvement of SEK 4.7 million. Adjusted for non-recurring restructuring expenses, EBIT was a loss of SEK 19.1 million (loss: 22.0). Net financial items amounted to income of SEK 0.4 million (1.4) and mainly comprised FX effects on cash and cash equivalents and a revaluation of intercompany transactions. The net loss for the period was SEK 16.0 million (loss: 20.5), a year-on-year improvement of SEK 4.5 million.

6

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

The comparison figures under financial position pertain to December 2018. The equity/assets ratio was 73.2 percent (74.4) on 30 June 2019 and equity amounted to SEK 221.8 million (238.1). Total assets on 30 June 2019 amounted to SEK 303.0 million (319.9). At the end of the period, inventories totalled SEK 16.0 million (12.2) and capitalised development expenses amounted to SEK 24.0 million (22.7). Total assets increased by SEK 10.9 million due to IFRS 16 adjustments for right-ofuse assets and lease liabilities. At the end of the period the Group’s cash and cash equivalents amounted to SEK 72.4 million (93.1). Current investments are short-term interest fund investments and amounted to SEK 75.2 million (74.9). The asset is measured according to level 1 of the fair value hierarchy. In total, cash and cash equivalents, including current investments, amounted to SEK 147.6 million (168.0) at 30 June 2019.

Liquidity and cash flows Cash flow from operating activities in the second quarter was negative in an amount of SEK 19.7 million (neg: 28.6). The negative cash flow was mainly generated by the negative EBIT and a negative change in operating capital, primarily related to trade accounts receivable. During the first half of July 2019, a late customer payment of SEK 19.1 million was received that had been expected to be paid during the second quarter. Cash flow from investing activities amounted to negative SEK 5.1 million (neg: 3.7) during the second quarter and was primarily attributable to direct costs for capitalised development work as well as investments in tangible and intangible non-current assets. Total cash flow for the second quarter amounted to negative SEK 26.2 million (neg: 30.7). The negative cash flow is due to lower sales in combination with lower gross margins, which created a loss at an operating level and increased trade accounts receivable, as a result of some large invoices not paid according to plan and a resulting higher tied-up working capital. Cash flow for the sixmonth period amounted to negative SEK 20.7 million (neg: 28.6).

Parent company The parent company’s net sales in the second quarter amounted to SEK 28.5 million (49.7) and the loss for the period amounted to SEK 18.3 million (loss: 12.6). During the quarter, the parent company expensed commissions from the subsidiary in the US and for the subsidiary Cavena for business in Latin America. This is a part of the company’s

transfer pricing setup, and the transaction will be eliminated in the Group. Since the Group’s business and net sales are predominantly generated in the parent company, reference is made to the Group for additional comments in the interim report.

Employees The number of employees in the Group at the end of the period was 100 (112). Among these 100 employees, seven are employees of the newly acquired company Cavena. Excluding Cavena, the reduction between the years was 20 persons. Also included in the number of employees at 30 June are consultants with employment-like agreements 12 (16). Added to this are two outsourced development teams in Vietnam, a total of about 16 (20) persons.

Risks and uncertainties Edgeware’s operations, sales and results are affected by a number of internal and external risk factors. The company has a continuous process to identify and assess how each risk should be managed. The main risks facing the company are delivery risk, technical development risk and financial risk. Edgeware had, and still has, a high customer concentration in all its regions. The investment level from a few major customers has historically significantly impacted an individual quarter and moving forward will continue to do so. No material risks and uncertainties beyond those described in the 2018 annual report arose in 2019.

Edgeware’s share During the second quarter, Edgeware’s share price varied between SEK 7.1 and SEK 13.5. The closing price on the last day of trading in June 2019 was SEK 7.6. Edgeware’s market capitalisation on 30 June 2019 was SEK 228 million. The number of Edgeware shareholders on 30 June 2019 was 3,205. Foreign shareholders accounted for some 34 percent of the voting rights. As per 30 June 2019, Edgeware’s share capital amounted to SEK 1,502,150.40, represented by 30,043,008 shares, of which Class C shares accounted for 100 percent. Refer also to Note 4. For information on ownership and invested capital in the company by management and board, visit Edgeware´s website.

Significant events during and after the second quarter • Edgeware won a strategic order from Chinese cable operator. • Edgeware secured new customer in Eastern Europe for combined IPTV and OTT CDN solution. • Edgeware launched Cloud Service for delivery of origin solutions including subtitling.

Seasonal variations and outlook Edgeware’s sales are impacted by the underlying market to transform traditional television distribution into interactive television delivered over the Internet to a large number of different clients, such as mobiles, iPads and Smart TVs. Therefore, there is still a great need for investment and equipment that contributes to this transformation and there is currently no indication that this development in macro trends is slowing down. However, the distribution of revenue over quarters and the year is mainly driven by the larger customers' purchasing patterns that can vary considerably between the periods. Edgeware experiences some seasonal variations of revenue over the quarters. Like many other companies in our industry, revenue tends to be strongest in the fourth quarter. In addition, operating expenses are seasonally lower during the third quarter in connection with holiday withdrawal effects. The policy of not issuing a forecast stands firm. However, in the Press Release dated June 3 Edgeware stated the following: “The reason for the decreasing revenue level in the second quarter is that Edgeware currently experiences a weakening of the Company´s Content Delivery Network (CDN) product business with Telecommunication Operators in Western Europe. The CDN-business with these customers has represented a large part of the Company’s revenues and although business in other markets still are progressing according to plan, total revenues are negatively affected. Edgeware assesses that this decrease in demand will continue to affect the Company in the near term, at least including second and third quarter of 2019.” SEK million 100

Net Sales by quarter

80 60 40 20 0 Q1 2016

7

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

Q2 2017

2018

Q3 2019

Q4

Financial objectives Edgeware has the following long-term financial objectives: • Edgeware’s target is to achieve long-term organic annual sales growth of more than 10 percent. • Edgeware’s target is to achieve a long-term EBIT margin of more than 15 percent. • Edgeware’s capital structure is to enable a high degree of financial flexibility and allow for

8

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017



acquisitions. The objective is for net indebtedness to amount to a maximum of two times EBITDA for the most recent 12-month period. Since Edgeware’s cash flow in coming years should finance the continued development, expansion and opportunities to acquire, no dividend will be paid. For more information, please visit https://corporate.edgeware.tv/

CONSOLIDATED INCOME STATEMENT

(AMOUNTS IN SEK MILLION)

Net sales Cost of goods sold Gross profit

Selling expenses Administrative expenses Research and development expenses Other operating income/expenses EBIT

2019 APR-JUN

2018 APR-JUN

2019 JAN-JUN

Q2

Q2

H1

2018 JAN-JUN

2018 JAN-DEC

H1 FULL YEAR

30.8

50.0

83.9

98.5

-12.8

-17.7

-27.2

-33.9

231.9 -71.7

18.0

32.3

56.7

64.6

160.2

-13.6

-16.5

-25.4

-35.4

-68.7

-8.1

-11.5

-19.4

-22.8

-44.1

-15.3

-16.0

-32.2

-31.6

-53.4

-2.3

-3.5

-1.7

-1.5

-3.1

-21.3

-15.2

-22.0

-26.7

-9.1

0.5 -0.5

1.1 -0.1

1.3 -1.0

2.3 -0.9

3.2 -2.4

-21.3

-14.2

-21.7

-25.3

-8.3

Financial items Financial income Financial expenses Pre-tax profit

Tax Profit/loss for the period

4.9

3.0

5.7

4.8

1.7

-16.4

-11.2

-16.0

-20.5

-6.6

-16.4

-11.2

-16.0

-20.5

-6.6

-0.5

-0.4

-0.5

-0.7

-0.2

-0.5

-0.4

-0.5

-0.7

-0.2

Attributable to: Owners of the parent Earnings per share before dilution. SEK Note 7 Earnings per share after dilution. SEK Note 7

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

PROFIT/LOSS FOR THE PERIOD

9

-16.4

-11.2

-16.0

-20.5

-6.6

Other comprehensive income Items that can be reversed to profit or loss: Exchange-rate differences when translating foreign operations

0.0

-0.7

-0.3

-1.0

-1.1

Other comprehensive income. net after tax

0.0

-0.7

-0.3

-1.0

-1.1

Comprehensive income for the period

-16.4

-11.9

-16.3

-21.5

-7.7

Attributable to: Owners of the parent

-16.4

-11.9

-16.3

-21.5

-7.7

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

CONSOLIDATED BALANCE SHEET RESULTA

30 June 2019

30 June 2018

31 December 2018

Intangible assets Goodwill Capitalised expenditure on development work Trademarks Other intangible assets

7.0 24.0 0.8 0.9

20.5 0.8 0.6

22.7 0.8 0.8

Property. plant and equipment Equipment Right-to-use assets

2.7 10.8

3.3 -

2.9 -

2.3

6.3

1.9

Deferred tax assets

19.1

15.6

12.6

Total non-current assets

67.6

47.1

41.7

Current assets Inventories Trade accounts receivable Other receivables Prepaid expenses and accrued income Current investments Cash and bank equivalents

16.0 57.0 3.7 11.1 75.2 72.4

17.2 64.6 1.7 11.2 75.2 69.3

12.2 83.3 0.2 14.5 74.9 93.1

Total current assets

235.4

239.2

278.2

TOTAL ASSETS

303.0

286.3

319.9

Share capital Other paid-in capital Translation reserve Retained earnings including profit for the period

1.5 235.9 -3.9 -11.7

1.5 235.8 -3.4 -9.6

1.5 235.9 -3.6 4.3

Equity attributable to owners of the parent

221.8

224.3

238.1

Total equity

(AMOUNTS IN SEK MILLION)

ASSETS Non-current assets

Financial non-current assets Other non-current assets

EQUITY AND LIABILITIES Equity

221.8

224.3

238.1

Lease liabilities

8.1

-

-

Total non-current liabilities

8.1

-

-

Trade accounts payable Lease liabilities Current tax liabilities Other liabilities Accrued expenses and deferred income Other provisions

16.5 2.8 0.6 2.8 50.2 0.2

17.2 0.5 1.9 42.1 0.3

19.4 0.6 4.3 57.1 0.4

TOTAL EQUITY AND LIABILITIES

73.1

62.0

81.8

TOTAL EQUITY AND LIABILITIES

303.0

286.3

319.9

Current liabilities

10

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(AMOUNTS IN SEK MILLION)

Opening balance. equity 1 Jan 2019 (1 Jan 2018) Profit/Loss for the year Other comprehensive income Effect of amended impairment model upon transition to IFRS 9 at 1 Jan 2019.

30 June 2019

30 June 2018

238.1

244.7

-16.0

-20.5

-0.3

-1.0

0.0

-0.5

-16.3

-22.0

Paid-in premium. warrants

-

1.6

Tax on issuance costs

-

-

-

1.6

221.8

224.3

Total comprehensive income Transactions with owners:

Total transactions with owners Closing balance. equity

In the first quarter of 2018. a nonrecurring effect of SEK 0.5 million was recognised in equity due to a change of calculation model for anticipated bad debts on trade accounts receivable as a result of future losses being taken into consideration in line with IFRS 9.

11

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

2019

2018

2019

2018

2018

APR-JUN

APR-JUN

JAN-JUN

JAN-JUN

Q2

Q2

H1

H1

JAN-DEC FULLYEAR

-21.3

-15.2

-22.0

-26.7

-9.1

Depreciation of intangible non-current assets

2.9

2.8

5.9

5.5

11.1

Depreciation of property, plant and equipment

0.7

0.7

1.2

1.4

2.7

(AMOUNTS IN SEK MILLION)

Operating activities EBIT Adjustments for non-cash items:

Depreciation IFRS 16

1.3

Other non-cash items

-0.3

0.2

0.1

0.2

1.3

-16.7

-11.5

-11.9

-19.6

6.0

Cash flow from operating activities before changes in operating capital

Cash flow from changes in operating capital Decrease/Increase in inventories

-5.0

-1.0

-3.7

-4.7

0.7

Decrease/Increase in trade accounts receivable

-10.3

-29.3

28.1

8.2

-11.0

1.7

7.0

0.8

-0.6

1.7

10.4

6.0

-2.9

-1.7

0.5

0.2

0.2

-10.3

-3.4

13.7

-3.0

-17.1

12.0

-2.2

5.6

-19.7

-28.6

0.1

-21.8

11.6

Investing activities Acquisition of intangible non-current assets

-4.5

-3.5

-7.8

-6.4

-14.5

Acquisition of property, plant and equipment

-0.6

-0.2

-0.6

-0.6

-1.4

-

-

-

-

-

Decrease/Increase in other current receivables Decrease/Increase in trade accounts payable Decrease/Increase in other current liabilities Cash flow from operating capital

Cash flow from operating activities

Investments in other financial non-current assets Acquisitions of subsidiaries after deduction of acquired cash and cash equivalents Cash flow from investing activities

-

-

-9.1

-

-

-5.1

-3.7

-17.5

-7.0

-15.9

Financing activities

-

Paid deposit. Business Sweden

-

Paid-in premium. warrants

-

-

-1.4

-2.2

1.6

-0.3

1.6

1.6

Amortization IFRS 16

-1.4

Cash flow from financing activities

-1.4

1.6

-3.3

0.2

-0.6

-26.2

-30.7

-20.7

-28.6

-4.9

98.7

99.9

93.1

97.7

97.7

-0.2

0.1

-0.1

0.2

0.3

72.3

69.3

72.3

69.3

93.1

30 JUN-19

30 JUN-18

30 JUN-19

30 JUN-18

31 DEC-18

75.2

75.1

75.2

75.1

74.9

Cash flow for the period Cash and cash equivalents at the beginning of the period Exchange-rate differences in cash and cash equivalents Cash and cash equivalents at the end of the period

(AMOUNTS IN SEK MILLION)

Current investments at the end of the period

12

2.9

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

-3.0

NOTES TO THE FINANCIAL STATEMENTS

1. Accounting policies The Group applies the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the EU. The Group also applies the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s recommendation RFR 1 Supplementary Accounting Rules for Groups. This report has been prepared in accordance with IAS 34 Interim Financial Reporting and in compliance with the applicable provisions in the Swedish Annual Accounts Act. Disclosures according to IAS 34 Interim Financial Reporting are provided in the notes and elsewhere in this interim report. The parent company applies RFR 2 Accounting for Legal Entities as well as the Swedish Annual Accounts Act. The Group and the parent company have applied the same accounting policies and measurement methods as used in the preparation of the most recent annual report apart from what is described below regarding IFRS 16. IFRS 16 Leases The Group assesses the extent to which a contract contains or is a lease when a contract is signed. The Group recognises a right-to-use asset and a corresponding lease liability in all leases in which the Group is lessee. except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases. the Group recognises lease payments as an operating expense straight-line over the lease term. if no other systematic method better reflects how the economic benefits of the underlying asset are consumed by the lessee. The lease liability is initially measured at the present value of the lease payments not paid by the starting date. discounted by the interest rate implicit in the lease. If this interest rate cannot be easily established. the Group will apply the incremental borrowing rate. Lease payments that are included in the measurement of the lease liability comprise: • Fixed lease payments (including fixed deposits). after deduction of any lease incentives. • Variable lease payments that are subject to index or a price. which are initially measured using the index or price on the starting date. • The amount expected to be paid by the lessee under residual value guarantees. • Penalties arising from the termination of the lease. if the lease term reflects that the lessee will exercise a possibility to terminate the lease. The lease liability is presented on a separate line in the consolidated statement of financial position. After initial recognition. the lease liability is measured by increasing the carrying amount to reflect the interest on the lease liability (by applying the effective

13

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-touse) when: Lease payments are changed as a result of amendments to an index or price or a change to the amounts expected to be paid out in accordance with a residual value guarantee. In these cases. the lease liability is remeasured by discounting the changed lease payments by the initial discount rate of interest (unless the changes in lease payments are attributable to changed variable rates of interest. when a changed discount rate of interest is instead applied). A lease is amended and the lease amendment is not recognised as a separate lease. In these cases. the lease payment is remeasured by discounting the changed lease payments by the changed discount rate of interest. The Group has not made any such adjustments for the periods presented. If the Group incurs obligations for the dismantling and removal of the leased asset. restoration of the site where it is located or restoration of the underlying asset to the state prescribed in the terms of lease. a provision is recognised in accordance with IAS 37. Such provisions are recognised as part of the cost of the right to use. unless these fees arise in conjunction with the production of goods. If a lease transfers the ownership rights to the underlying asset at the end of the lease term or if the cost of the right of use reflects the Group’s expectation to exercise a call option. amortisation is conducted over the useful life of the underlying asset. Divested assets are amortised during the shorter lease term and the useful life of the underlying asset. If a lease transfers the ownership rights to the underlying asset at the end of the lease term or if the cost of the right to use reflects the Group’s expectation to exercise a call option. amortisation is conducted over the useful life of the underlying asset. Amortisation begins on the start date of the lease. The right-to-use assets are presented on a separate line in the consolidated statement of financial position. The Group applies IAS 36 Impairment of Assets to determine the extent to which right-to-use assets are to be impaired and recognises any identified impairment in the same manner as described in the policies for property. plant and equipment. As a practical relief rule. IFRS 16 permits a lessee to not separate non-leasing components from leasing components and. instead. recognise each leasing component and associated non-leasing component as a single leasing component.

This new standard is applied as of 1 January 2019. IFRS 16 Leases replaces the former IAS 17 standard and entails that all right-to-use agreements. except those with a short duration or of a low value. are to be capitalised in the balance sheet as a noncurrent asset or a financial liability. The new standard only impacts Edgeware with respect to leases for premises which. according to the new standard. are to be recognised as an asset in the form of the right to utilise the premises and a liability in the form of an obligation to make rent payments. As part of this process carried out by the finance and IT departments. all of the company’s agreements of a lease nature were reviewed. When IFRS 16 was applied for the first time. the Group used the following practical solutions that are permitted under the standard: • •

No adjustment was made for operational leases with a remaining lease duration of less than 12 months at 1 January 2019. No adjustment was made for leases for which the underlying asset has a low value.

Edgeware has three leases for office premises. The leases are usually signed for fixed terms. The currently applicable leases have terms extending between 2018 and 2021. There is an option of extension. The terms and conditions are negotiated separately for each lease and these contain a number of different lease conditions. There is no intention to extend any of the three current leases. Notice has already been given on one of the leases for termination on the end date of the lease. The average lease term for outstanding leases was estimated at 2.5 years. The weighted average incremental borrowing rate applied to the Group’s lease liabilities at 1 January 2019 was 2 percent. The transition effects of IFRS 16 in the consolidated balance sheet at 1 January 2019 are described in the table below. The transition has no impact on the equity.

and regularly available and these prices represent actual and regularly occurring market transactions at arm’s length. Level 2 – Financial instruments for which fair value is established using measurement models that are based on observable data for the assets or liabilities other than quoted prices included in level 1. either directly (i.e. as prices) or indirectly (i.e. derived from prices). Examples of observable data within level 2 are: • Quoted prices for similar assets or liabilities. • Data that can provide a basis for price assessment. e.g. market interest rates and yield curves. Level 3 - Financial instruments for which fair value is established using measurement models in which input data is based on non-observable data. For cash and cash equivalents. trade accounts receivable. other current receivables. trade accounts payable and other current liabilities. the carrying amount is a good approximation of the fair value when the duration is short. Current investments amounted to SEK 75.0 million (75.2) and measured at fair value in accordance with level 1. Edgeware is able to hedge orders invoiced in EUR or MXN with an order value exceeding SEK 2 million and with payment terms of 60 days or more in order to reduce the currency risk. Currency future contracts are measured at fair value through profit or loss. Hedge accounting is not applied. At the end of June 2019. the outstanding currency future contracts in MXN were measured at SEK 0.3 million (0) and in EUR at SEK 0.0 million (0). Derivatives are measured according to level 2 of the fair value hierarchy with discounting of cash flows using exchange rates and interest rates prevailing on the balance-sheet date.

3. Estimates and judgments

2. Measurement of financial instruments at fair value Financial assets and financial liabilities that are measured at fair value in the balance sheet. or for which fair value disclosures are made. are classified at one of three levels based on the information used to establish fair value. Level 1 – Financial instruments for which fair value is established based on observable quoted prices (unadjusted) on active markets for identical assets or liabilities. A market is regarded as active if quoted prices from a stock market. broker. industry group. pricing service or supervisory authority are readily

14

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

Preparation of the report requires management to make judgments and estimates. and to make assumptions that affect the application of the accounting policies and the recognised amounts for assets. liabilities. revenue and expenses. Actual outcomes may deviate from these estimates and judgments. For further information. refer to Edgeware’s annual report 2018.

4. Share capital At the end of the period. there were 30.043.008 shares (30.043.008) with a quota value of SEK 0.05 (0.05). The share capital at period-end was SEK 1.502.150.40 (1.502.150.40).

5. Transactions with related parties Outstanding incentive programs exist. For detailed information. see the annual report 2018.

6. Segment information Operating segments are reported in compliance with the internal reports submitted to the chief operating decision-maker. The Group’s regions and the business areas utilise the same sales. development and administrative resources. so the company’s expenses are distributed by allocating them proportionately. The same applies to assets and liabilities. Group management does not feel that an allocation of income statement and balance sheet items would provide a fairer view of operations and therefore follows results for the Group as a whole. Accordingly. the Group has not identified any business streams. The Group’s net sales are monitored by region – EMEA. APAC and AMERICAS – based on two operating sectors: Products and Services. The outcomes by region and operating sector consist of the sum of invoices for products and services sold by various parts of the Group. These are not. however. reflected in separate income statements and balance sheets.

15

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

NOTE 7 EARNINGS PER SHARE The following amounts for profits and weighted average number of ordinary shares have been used in calculating earnings per share before dilution: 2019 2018 2019 2018 2018 APR-JUN APR-JUN JAN-JUN JAN-JUN JAN-DEC EARNINGS PER SHARE BEFORE DILUTION Profit/Loss for the period attributable to owners of the parent. SEK Average number of outstanding ordinary shares. before dilution Earnings per share before dilution. SEK

Q2

Q2

H1

H1

FULL-YEAR

-16 361 156

-11 235 928

-15 986 662

-20 505 334

-6 611 650

30 043 008

30 043 008

30 043 008

30 043 008

30 043 008

-0.5

-0.4

-0.5

-0.7

-0.2

The following amounts for profits and weighted average number of ordinary shares have been used in calculating earnings per share after dilution:

EARNINGS PER SHARE AFTER DILUTION Profit/Loss for the period attributable to owners of the parent. SEK Average number of outstanding ordinary shares. before dilution Warrants Weighted average number of ordinary shares outstanding. after dilution Earnings per share after dilution. SEK

16

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

2019 APR-JUN

2018 APR-JUN

2019 JAN-JUN

2018 JAN-JUN

2018 JAN-DEC

Q2

Q2

H1

H1

FULL YEAR

-16 361 156

-11 235 928

-15 986 662

-20 505 334

-6 611 650

30 043 008

30 043 008

30 043 008

30 043 008

30 043 008

-

-

-

-

-

30 043 008

30 043 008

30 043 008

30 043 008

30 043 008

-0.5

-0.4

-0.5

-0.7

-0.2

NOTE 8 PRELIMINARY ACQUISITION ANALYSIS - CAVENA Preliminary acquisition analysis - Cavena On 1 January 2019. the parent company. Edgeware AB. acquired 100 percent of the share capital in Cavena Image Products AB. a specialist in subtitling products. systems and services. The acquisition broadens the Group’s product portfolio and customer base. There are also synergy effects in sales and support. Purchase consideration (SEK) Cash and cash equivalents Total purchase consideration

10.900.867 10.900.867

Goodwill that arises in conjunction with the acquisition of Cavena is attributable to anticipated sales and profitability growth. synergy effects between acquired and existing operations and the human capital in the workforce. The areas specified above that comprise the goodwill item cannot be recognised as separate intangible assets since they do not meet the criteria for separate recognition. The goodwill that arises is not expected to be tax deductible. Acquired assets and liabilities Acquired assets and liabilities are shown in the table below.

The right-of-use assets

1 010 327

Deferred tax assets

636 521

Inventories Trade accounts receivables

221 131

Other receivables Prepaid expenses and accrued income Cash and cash equivalents

1 853 957 407 725 770 061 1 826 480

Total assets

6 726 202

Lease liabilities

1 010 327

Trade accounts payable Other liabilities Accrued expenses and deferred income

517 308 191 307 1 143 805

Total liabilities

2 862 747

Goodwill

7 037 412

The deferred tax amounts to SEK 637.000. Historically. the acquired company has recognised healthy profitability. with positive net earnings. That said. in 2018. Cavena Image Products AB reported a loss of SEK 2.977.000 as a result of a few major orders that did not materialise. However. since the company has had healthy profitability historically and 2018 is regarded more as a temporary decline in sales. the company is expected. with great probability. to recognise positive results in coming years. Accordingly. it is expected that it will be possible to utilise the deferred tax in the near future. Fair value of acquired trade accounts receivable amounts to SEK 1.854.000. The contractual gross amount for trade accounts receivable is SEK 1.854.000. None of the remaining receivables is assessed to be a doubtful receivable. Revenue and results in the acquired business The acquisition was completed with the transfer date of 1 January 2019 and was consolidated in the Edgeware Group at 1 January 2019. During the first half of 2019. revenue of SEK 6.5 million and loss after tax of SEK 0.5 million for the acquired company are included in the consolidated income statement.

17

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

Purchase consideration – cash outflow Cash flow to acquire subsidiary Acquired Cash and cash equivalents Net outflow of cash and cash equivalents - investing activities

10 900 867 1 826 480 9.074.387

Acquisition-related expenses Acquisition-related expenses of SEK 600.000 are included in the administration expenses in the consolidated income statement. of which SEK 300.000 was expensed in 2018 and SEK 300.000 was expensed in the first quarter of 2019. This fee is recognised in the parent company as part of the cost of shares in the subsidiary. The expense impacts the operating activities in the cash-flow statement.

18

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

NOTE 9 REVENUE FROM CONTRACTS WITH CUSTOMERS In the table below. net sales are broken down by regions. categories of sales and timing of revenue recognition.

Revenue split MS EK

Q 2 2 0 19

Q 2 2 0 18

H1 2 0 19

H1 2 0 18

Products

13.5

36.8

50.1

71.8

Services

17.3

13.3

33.7

26.8

14.4

11.6

26.5

23.3

2.9

1.7

7.2

3.5

30.8

50.0

83.8

98.5

14.2

35.6

35.8

66.0

AMERICAS

8.2

4.8

30.8

17.2

APAC

8.5

9.6

17.3

15.3

30.8

50.0

83.8

98.5

At a point in time

16.4

38.4

57.4

75.2

Over time

14.4

11.6

26.4

23.3

30.8

50.0

83.8

98.5

Ne t sa le s by sa le s c a te gory

Of which support Of which professional services S um ne t sa le s

Ne t sa le s by re gion EMEA

S um ne t sa le s

Ne t sa le s by time

S um ne t sa le s

19

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

CONDENSED PARENT COMPANY INCOME STATEMENT

(AMOUNTS IN SEK MILLION)

Net sales Cost of goods sold Gross profit

Selling expenses Administrative expenses Research and development expenses Other operating income/expenses EBIT

2019

2018

2019

2018

2018

APR-JUN

APR-JUN

JAN-JUN

JAN-JUN

JAN-DEC

Q2

Q2

H1

H1

FULL-YEAR

28.5 -10.3

49.7 -17.2

77.8 -21.7

97.4 -32.8

230.0 -69.0

18.2

32.5

56.1

64.6

161.0

-18.4

-19.1

-37.7

-36.1

-77.5

-7.0

-10.9

-15.8

-21.7

-41.9

-13.5

-15.7

-28.5

-30.9

-52.0

-2.6

-3.5

-2.1

-1.5

-2.9

-23.3

-16.7

-28.0

-25.6

-13.3

Financial income and expenses Financial income

0.3

1.0

1.0

2.3

3.2

-0.4

-0.0

-0.8

-0.8

-2.0

Loss after financial items

-23.4

-15.7

-27.8

-24.1

-12.1

Tax on profit for the period

5.1

3.1

5.7

4.8

1.7

-18.3

-12.6

-22.1

-19.3

-10.4

Financial expenses

Loss for the period

CONDENSED PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME

2019 APR-JUN

(AMOUNTS IN SEK MILLION) Loss for the period

Other comprehensive income: Comprehensive income for the period

20

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

2018 APR-JUN

2019 JAN-JUN

2018 JAN-JUN

2018

Q2

Q2

H1

H1

JAN-DEC FULL-YEAR

-18.3

-12.6

-22.1

-19.3

-10.4

-

-

-

-

-

-18.3

-12.6

-22.1

-19.3

-10.4

PARENT COMPANY BALANCE SHEET (AMOUNTS IN SEK MILLION)

30 June 2019

30 June 2018

31 DECEMBER 2018

ASSETS Non-current assets Intangible assets Capitalised expenditure on development work

23.8

20.4

22.7

Trademarks Other intangible assets

0.8 0.9

0.8 0.6

0.8 0.8

Property. plant and equipment Equipment

2.6

3.4

2.9

Financial non-current assets Shares in subsidiaries

11.5

Deferred tax assets Other long-term receivables

18.3 1.7

15.6 6.3

12.6 1.4

-

Total non-current assets

59.6

47.1

41.2

Inventories

15.2

16.5

11.5

Trade accounts receivable Current receivables

54.1 13.4

63.7 12.3

83.2 14.8

Receivables from Group companies Total current assets

5.3 88.0

12.9 105.4

4.4 113.9

Current investments

75.0

75.2

75.0

Cash and bank balances

67.1

68.6

91.2

Total current assets

230.1

249.2

280.1

TOTAL ASSETS

289.7

296.3

321.3

Current assets

Equity Restricted equity Share capital

1.5

1.5

1.5

Reserve for development expenses

21.1

18.9

22.4

Total restricted equity

22.6

20.4

23.9

Unrestricted equity Share premium reserve

235.9

235.8

235.9

Retained earnings

-17.2

-5.1

-8.1

Profit/loss for the period

-22.1 196.6

-19.2 211.5

-10.4 217.4

Total equity

219.2

231.9

241.3

0.2

0.3

0.3

0.2

0.3

0.3

16.0

17.2

19.2

0.5 5.1

0.4 3.3

0.6 -

Provisions Other provisions Total provisions Current liabilities Trade accounts payable Current tax liabilities Liabilities to Group companies Other current liabilities Accrued expenses and deferred income Total current liabilities TOTAL EQUITY AND LIABILITIES

21

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

2.5

1.8

4.0

46.2 70.3

41.4 64.4

55.9 79.7

289.7

296.3

321.3

KEY FINANCIAL FIGURES 2019

2019

2018

2018

2018

2018

Q1

Q2

Q1

Q2

Q3

Q4

EMEA

21.6

14.2

30.3

35.6

24.0

71.5

AMERICAS

Net sales by region

22.6

8.1

12.4

4.8

27.4

3.8

APAC

8.8

8.5

5.7

9.6

3.1

3.7

Net sales

53.0

30.8

48.4

50.0

54.5

79.0

Products

36.6

13.5

35.0

36.7

41.7

62.6

Services

16.4

17.3

13.4

13.3

12.8

16.4

12.1

14.4

11.7

11.6

11.8

13.3

4.3

2.9

1.7

1.7

1.0

3.1

Net sales

53.0

30.8

48.4

50.0

54.5

79.0

Gross profit

38.7

18.0

32.3

32.3

39.0

56.6

73.0%

58.5%

66.7%

64.5%

71.7%

71.7%

-39.5

-39.3

-43.8

-47.5

-36.1

-42.1

-74.5%

-128.2%

-90.4%

-94.9%

-66.3%

-53.2%

-0.7

-21.3

-11.5

-15.2

3.0

14.6

-1.4%

-69.1%

-23.7%

-30.4%

5.5%

18.4%

4.7

-16.3

-8.1

-11.7

6.4

18.1

8.9%

-53.0%

-16.7%

-23.4%

11.7%

22.9%

0.4

-16.4

-9.3

-11.2

3.3

10.6

Net margin. profit/loss for the period after tax. %

0.1%

-53.2%

-19.1%

-22.5%

6.0%

13.4%

Total assets Equity assignable to the parent company’s shareholders

310.4

303.0

290.4

286.3

291.9 319.9

319.9

238.2

221.8

234.6

224.3

228.0

238.1

76.7%

73.2%

80.8%

78.4%

78.1%

74.4%

0.2%

-7.1%

-3.9%

-4.9%

1.5%

4.6%

Equity per share. before dilution

7.9

7.4

7.8

7.5

7.6

7.9

Equity per share. after dilution

7.9

7.4

7.8

7.5

7.6

7.9

Earnings per share before dilution (Note 7)

0.0

-0.5

-0.3

-0.4

0.1

0.4

Earnings per share after dilution (Note 7)

0.0

-0.5

-0.3

-0.4

0.1

0.4

Return on operating capital (ROOC) **)

0.0%

-8.9%

-5.2%

-7.7%

1.9%

8.0%

Return on capital employed (ROCE) **)

0.0%

-7.0%

-4.3%

-6.2%

1.5%

6.4%

16.7

-19.7

6.7

-28.6

13.0

20.7

Cash flow for the period

4.0

-26.2

2.1

-30.7

7.0

16.6

No. of employees at the end of the period*

106

100

115

112

101

99

14

14

14

14

13

13

Net sales by sales category

Of which: Support Of which: Professional services

Gross margin. % Operating expenses **) Operating expenses/Net sales. % EBIT **) EBIT margin. % **) EBITDA **) EBITDA margin (%) **) Profit/loss for the period after tax

Equity/assets ratio. % **) Return on equity (ROE) **)

Cash flow from operating activities

Of whom. women

*) Employees: Included in the number of employees at 30 June 2019 are 21 (9) consultants with employment-like agreements. **) Financial measures not defined according to IFRS. Definitions of these measurements are presented on pages 23-24.

22

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

ALTERNATIVE PERFORMANCE Definitions EMEA Europe. Middle Europe and Africa. APAC Asia and Pacific region. AMERICAS North and South America. Gross profit Net sales less cost of goods and services sold. Gross margin Gross profit as a percentage of net sales. EBIT Operating profit before financial items and tax. EBIT margin % EBIT in relation to net sales. EBITDA Operating profit before depreciation/amortisation and impairment losses. EBITDA margin EBITDA as a percentage of net sales. Return on equity (ROE) Profit for the period as a percentage of average adjusted equity (equity plus the equity portion of untaxed reserves). Adjusted equity Equity plus the equity portion of untaxed reserves. Equity/assets ratio Adjusted equity in relation to total assets. Number of shares after dilution has been restated to account for new share issues and the historical effect of warrants. Earnings per share Profit for the period in relation to number of shares. Equity per share Equity in relation to number of shares. Operating expenses The company’s costs that are not directly related to the company’s goods or services. Operating expenses/Net sales % Operating expenses in relation to net sales whereby operating expenses correspond to the company’s costs that are not directly related to the company’s goods or services. Net margin The company’s net profit in relation to net sales. Operating capital All the company’s current assets minus current liabilities. Return on operating capital (ROOC) EBIT in relation to average operating capital. Capital employed The company’s total assets. Return on capital employed (ROCE) EBIT plus financial income in relation to average capital employed. Financial measures not defined according to IFRS The company presents certain financial measures in the interim report that are not defined according to IFRS. The company is of the opinion that these measures provide valuable additional information for investors and the company’s management. since they facilitate an evaluation of the company’s presentation. Since not all companies calculate financial measures in the same way. these measures are not always comparable to those used by other companies. Consequently. they should not be regarded as a substitute for the measures defined according to IFRS. The tables below present a reconciliation of certain financial measures not defined according to IFRS. The company has chosen to no longer present performance measures adjusted for items affecting comparability in the company’s financial statements since these are no longer considered relevant given that expenses related to IPO preparations are no longer included in the comparative year. Any material income and expenses of a non-recurring nature will be disclosed in the company’s comments on the outcome for the period. EBIT margin. % The company has chosen to report the key performance measure EBIT margin. since it shows the company’s profit in relation to net sales unaffected by financing costs.

(AMOUNTS IN SEK MILLION)

Net sales EBIT EBIT margin. %

2019 Q1 53,0 -0,7 -1,4%

2019 Q2 30.8 -21.3 -69.1%

2018 Q1 48.4 -11.5 -23.7%

2018 Q2 50.0 -15.2 -30.4%

2018 Q3 54.5 3.0 5.5%

2018 Q4 79.0 14.6 18.4%

Net margin. % The company has chosen to report the key performance measure Net margin. since it shows how much net profit the company generates in relation to net sales.

(AMOUNTS IN SEK MILLION)

Net sales Profit/loss for the period after tax Net sales. %

2019 Q1 53.0 0.4 0.1%

2019 Q2 30.8 -16.4 -53.2%

2018 Q1 48.4 -9.3 -19.1%

2018 Q2 50.0 -11.2 -22.5%

2018 Q3 54.5 3.3 6.0%

2018 Q4 79.0 10.3 13.4%

EBITDA The company has chosen to report the key performance measure EBITDA. since it shows the underlying result adjusted for the effect of depreciation/amortisation. which provides a more comparable profit measure over time. since depreciation/amortisation refers to historical investments.

(AMOUNTS IN SEK MILLION)

EBIT Amortisation of capitalised Development expenses IFRS 16 depreciation Other depreciation/amortisation EBITDA EBITDA margin (%) Equity/assets ratio

23

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

2019 Q1 -0.7

2019 Q2 -21.3

2018 Q1 -11.5

2018 Q2 -15.2

2018 Q3 3.0

2018 Q4 14.6

-3.0 -1.7 -0.7 4.7

-2.9 -1.3 -0.8 -16.3

-2.7 -0.7 -8.1

-2.8 -0.7 -11.7

-2.7 -0.7 6.4

-2.9 -0.6 18.1

8.9%

-53.0%

-16.7%

-23.4%

11.7%

22.9%

The company has chosen to report the key performance measure Equity/assets ratio. since it reflects the company’s long-term solvency.

(AMOUNTS IN SEK MILLION)

2019 Q1

2019 Q2

2018 Q1

2018 Q2

2018 Q3

2018 Q4

Total assets

310.4

303.0

290.4

286.3

291.9

319.9

Equity

238.2

221.8

234.6

224.3

228.0

238.1

76.7%

73.2%

80.8%

78.4%

78.1%

74.4%

Equity/assets ratio (%) Return on equity (ROE) (%)

The company has chosen to report the key performance measure Return on equity (ROE). since it shows how effectively the company uses its assets to generate profits.

(AMOUNTS IN SEK MILLION)

Equity Average adjusted equity Profit/loss for the period Return on equity (ROE) (%)

2019 Q1 238.2 238.1 0.4 0.2%

2019 Q2 221.8 230.0 -16.4 -7.1%

2018 Q1 234.6 239.7 -9.2 -3.9%

2018 Q2 224.3 229.4 -11.2 -4.9%

2018 Q3 228.0 226.2 3.3 1.5%

2018 Q4 238.1 233.0 10.6 4.6%

Return on operating capital (ROOC). % The company has chosen to report the key performance measure Return on operating capital (ROOC). since it shows how much operating capital is tied up in operation and how efficiently the tied-up operating capital is being used

(AMOUNTS IN SEK MILLION)

Current receivables Cash and cash equivalents Current liabilities Operating capital Average operating capital EBIT Return on operating capital (ROOC). %

2019 Q1 149.6 98.6 -65.5 182.7 240.4 -0.7

2018 Q2 163.0 72.4 -73.1 162.3 238.2 -21.3

2018 Q1 146.5 99.9 -55.5 191.1 197.5 -11.5

2018 Q2 169.8 69.3 -61.6 177.5 184.2 -15.2

2018 Q3 166.4 76.6 -63.9 179.1 178.0 3.0

2018 Q4 185.1 93.1 -81.5 196.7 188.0 14.6

0.0%

-8.9%

-5.2%

-7.7%

1.9%

8.0%

Return on capital employed (ROCE). % The company has chosen to report the key performance measure Return on capital employed (ROCE). since it shows the return on the total capital tied up in the operations.

(AMOUNTS IN SEK MILLION)

EBIT Financial income EBIT plus financial income Total assets Average total assets Return on capital employed (ROCE). %

2019 Q1 -0,7 0,4 -0,1 310,4

2019 Q2 -21.3 0.0 -21.3 303.0

2018 Q1 -11.5 1.2 -10.3 290.4

2018 Q2 -15.2 1.1 -14.1 286.3

2018 Q3 3.0 0.5 3.5 291.9

2018 Q4 14.6 0.4 15.0 319.9

315,3

306.5

239.7

229.5

289.1

305.9

0,0%

-7.0%

-4.3%

-6.2%

1.5%

6.4%

Operating expenses and operating expenses in relation to net sales. % The company has chosen to report the key performance measure Operating expenses. since it shows the expenses that are not directly related to the company’s goods or services. The company has chosen to report Operating expenses in relation to net sales in order to show how large a share of the costs is not directly related to goods or services.

(AMOUNTS IN SEK MILLION)

Selling expenses Administrative expenses Research and development expenses

Other operating income/expenses Operating expenses Net sales

Operating expenses/net sales. %

24

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

2019 Q1 -11.8 -11.3 -16.0

2019 Q2 -13.6 -8.1 -15.3

2018 Q1 -18.9 -11.4 -15.5

2018 Q2 -16.5 -11.5 -16.0

2018 Q3 -16.8 -9.5 -9.3

2018 Q4 -16.6 -11.7 -12.5

0.6

-2.3

2.0

-3.5

-0.4

-1.2

-38.5 53.0

-39.3 30.8

-43.8 48.4

-47.5 50.0

-36.1 54.5

-42.1 79.0

-74.5%

-128.2%

-90.4%

-94.9%

-66.3%

-53.2%

The Board of Directors and the Chief Executive Officer hereby confirm that this report provides a true and fair overview of the operations. financial position and results of the parent company and the Group and describes material risks and factors of uncertainties faced by the parent company and the companies in the Group.

Stockholm. 18 July 2019

Michael Ruffolo Chairman of the Board

Karl Thedéen CEO

Sigrun Hjelmquist Board member

Kent Sander Board member

Arnd Benninghoff Board member

Jonas Hasselberg Board member

Tuija Soanjärvi Board member

This report has not been reviewed by Edgeware’s auditor.

25

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

FINANCIAL CALENDAR • • • •

Interim report July-September 2019, Q3 2019, 24 October 2019. Year-end Report, January-December 2019, 24 January 2020. Annual Report 2019, 27 March 2020. Annual General Meeting, 28 April 2020.

ABOUT EDGEWARE Edgeware offers operators and content providers the tools to deliver modern TV services over the Internet on a large scale and a low cost. Edgeware’s unique technology provides an outstanding viewing experience and gives customers control over their content. Edgeware has its head office in Stockholm. Sweden. and has employees and more than 200 customers across Europe. Asia and North and Latin America.

For more information. visit https://corporate.edgeware.tv

Edgeware – Let’s make TV amazing again!

26

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017

CONTACT INFORMATION For further information. please contact: Annika Norin. CFO/IR Telephone: +46 70 885 67 74. E-mail: [email protected]

This information is inside information that Edgeware AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and information that Edgeware AB (publ) is obliged to make public pursuant to the Swedish Securities Market Act. The information was submitted for publicatio, through the agency of the contact person set out above, at 7:30 a.m. on 19 July 2019. At 10:00 a.m. on 19 July 2019. the company will hold a web-broadcast teleconference. during which CEO Karl Thedéen will present the report together with CFO Annika Norin. Anyone wishing to participate in the teleconference in conjunction with the presentation should call one of the numbers below: SE: +46856642706 UK: +443333009264 US: +18335268380 It is also possible to follow and listen to the presentation on the following web link: https://tv.streamfabriken.com/edgeware-q2-2019

Information about Edgeware. press releases. press photos. etc.. are available in Edgeware’s newsroom at Cision and on https://corporate.edgeware.tv/ This is a translated copy of the Swedish version. In the event of inconsistency or discrepancy between the English version and the Swedish version of this publication, the Swedish language version shall prevail.

Edgeware AB Corporate ID number 556691-7554

27

EDGEWARE EDGEWAREABABQ2/2019 Q4/2017