Nyherji Group : Announces Strong Income Growth and Positive First Quarter Performance

Nyherji Group (NYHR.IC), Iceland’s leading IT services provider, announces its results for the first quarter 2017.

Financial Highlights:

• Sales of goods and services up 20% to ISK 3.996 billion in Q1 [Q1 2016: ISK 3.332 billion]
• Gross margin of ISK 976 million (24.4%) in Q1 [Q1 2016: ISK 885 million (26.6%)]
• EBITDA of ISK 242 million (6%) in Q1 [Q1 2016: ISK 180 million (5.4%)]
• Total profit for the first quarter amounted to ISK 71 million (1.8%) [Q1 2016: ISK 38 million (1.1%)]
• Equity ratio was 39.7% at the end of the first quarter, compared with 33.7% at the end of 2016
• Interest-bearing long-term debt was reduced by ISK 300 million in the first quarter
• Employees exercised share options at a total purchase price of ISK 149 million in Q1 in early April

"Nyherji’s operations have progressed well over the quarter and are on track,” commented Finnur Oddsson, Group CEO, “We are pleased with the earnings and continued revenue growth, which has improved 20% year-on-year. Our positive performance has contributed to lower debt and strengthening of our equity ratio, which is now at its strongest level for many years.

Sales of computers and audiovisual solutions remain, as ever, a major part of our operations, however revenues from hosting and operating services are rising proportionately, with new projects such as the outsourcing of IT operations from Arion Bank contributing from the start of the year.

The growth of software-related operations have been driving the Company's income growth over the recent quarters, and increased emphasis on product development is now starting to be visible in sales of our own solutions. We see substantial gains in subscription income from Kjarni, payroll and human resource application from our Applicon subsidiary, up almost a third year-on-year, and ongoing work on innovation and development projects holds promise for the future. Implementation of core banking systems for SBAB in Sweden is off to a good start and represents a substantial engagement for our professional consulting teams, both is Sweden and in Iceland.

TM Software is continuing to deliver robust revenue growth, show strong performance and exciting product development projects. Tempo also continues to perform very well with revenue for the quarter at USD $4.4 million, a 46% increase. Customer numbers grew to 10,000, a major milestone reflecting the strength of Tempo offerings. There are now more than 100 Tempo partners and distributors worldwide, and approximately fifteen employees working at our offices in Canada and the United States, with further growth planned.

Overall I am pleased to report a positive outlook and solid demand across most areas of the Group, in particular hosting, operating services and our various software solutions."

OPERATING RESULTS

• Sales of goods and services increased by 20% year-on-year to ISK 3.996 billion in the first quarter of 2017, compared with ISK 3,332 million in the same period in 2016.
• Gross margin stood at ISK 976 million (24.4%) in the first quarter of 2017, compared with ISK 885 million (26.6%) in the same period in 2016.
• Operating expenses amounted to ISK 879 million in the first quarter of 2017 (22% of income), compared with ISK 818 million (24.5% of income) in the first quarter of 2016.
• EBITDA was ISK 242 million (6%) in the first quarter, compared to ISK 180 million (5.4%) for the same period in 2016.
• Total profit for the first quarter of 2017 amounted to ISK 71 million, compared to ISK 38 million year-on-year.

BALANCE SHEET

• Current assets decreased by ISK 540 million during the period. Cash and cash equivalents decreased by ISK 211 million, while long-term debt was reduced ISK 300 million during the period. Stock options were exercised by employees between the 1^st and 5^th of April with a total value of ISK 149 million. Trade receivables and other short-term claims decreased by ISK 466 million during the period.
• Equity ratio has improved considerably and now stands at 39.7% at the end of the first quarter, compared to 33.7% at the end of 2016.
• Current ratio remained unchanged at 1.42 at the end of the first quarter of 2017.
• Interest-bearing long-term debt decreased by ISK 319 million and at the end of the first quarter stood at ISK 1.710 billion.
• Current liabilities and other liabilities decreased by ISK 377 million over the period.

CASH FLOW

• Cash from operations grew to ISK 329 million at the end of the first quarter of 2017, compared with ISK 135 million at the end of the first quarter of 2016.
• Investments were reduced to ISK 220 million in the first quarter of 2017, compared to ISK 283 million in the same period last year.
• The quarter saw funding changes of ISK 323 million in the first quarter of 2017, compared with ISK 62 million for the same period last year, attributable to the paying down of ISK 300 million of long-term debt.
• Cash at the end of the period rose was up slightly to ISK 661 million, as compared with ISK 593 million at the end of the first quarter of 2016.

Strong income growth and robust performance in Q1

Group employees exercise option

A large share of Nyherji's employees exercised their call option to purchase Company stock in 2016 at the price of ISK 17.095; a total of 8,739,986 shares. The stock option plan is valid for another two years. In addition to those who took out stock option agreements last year, more than 90 employees of the Nyherji Group joined and subscribed to stock option agreements for the purchase of 3,663,396 shares at the price of ISK 29.89. The stock option plan applies to all permanent employees of the group, whereby each employee can buy shares for up to ISK 600,000 per year, with a minimum purchase of ISK 10,000 per year.

Increased demand for Nyherji’s hosting and operating services

Nyherji saw revenue growth across most divisions of the parent company in the first quarter, an increase of 12% compared with the same period last year, with the most significant growth (+20%) coming from hosting and operating services. Nyherji took over the outsourced operation of Arion Bank's IT Systems at the beginning of 2017, consisting of core systems, technology platform and services for employees. Over 20 employees, previously employed by Arion Bank's technical services, began work at Nyherji at the start of the year.

Applicon increases recurring license income in Iceland

Applicon's performance in Iceland, where it specializes in consulting, services and business software development, exceeded expectations this quarter. Total revenue from Applicon amounted to ISK 319 million, an increase of 23% over the same period last year, despite the fact that almost 40% of income is in foreign currency. Successful sales of the Kjarni human resource and payroll system increased recurring license revenue by 170% over the period. Applicon's professional experts in Iceland are making great efforts to implement core SAP systems in Sweden, which will deliver steady income over the coming months. Benefits from a new version of Applicon's online bank, which includes an automatic credit application system, have also started to flow through. The outlook is generally positive and the firm will continue to invest in developing future solutions for the Icelandic market.

Major projects have a positive impact on Applicon Sweden

Applicon's revenues in Sweden increased by almost a third compared to the previous year, with major projects for the Swedish banks SBAB and Landshypotek Bank the principle drivers. The implementation of core banking solutions from SAP got off to a good start with SBAB and Applicon has also introduced a new mortgage solution for Landshypotek Bank during the period.

Software company SAP chose Applicon in Sweden as partner for the year 2016 and Applicon also received recognition as SAP Innovation Partner of the Year for expertise in banking software solutions, for its understanding of the challenges faced in the development of digital solutions for finance and for attracting new customers into this area. The outlook for operations is good.

Increased revenue and good performance at TM Software

TM Software, which specializes in the development of own software products and specialized software solutions, increased revenues by 14% compared with the same period last year. There was a solid demand for services and solutions in all three areas of health solutions, travel solutions and custom solutions. Significant emphasis has been placed on development efforts recently, both to strengthen existing products and create new ones. The project pipeline for the next months is robust and the outlook for operations is good.

Continued revenue growth and building of Tempo’s international presence

Tempo's revenue, which develops time tracking and management solutions, increased by 46% compared with the same quarter last year. The Company's income has increased continuously since its foundation, and last month, achieved its 10,000^th customer, manufacturer Mercedes Benz, which purchase the entire Tempo suite for their operations in the United States. Mercedes Benz joins a growing group of automakers using Tempo solutions: BMW, Volkswagen, Mazda, Audi, Scania, Volvo and Skoda.

Tempo has been expanding rapidly in recent months, looking to double the number of employees outside of Iceland by year-end. Tempo currently operates in Montreal and San Francisco, and is intending to open a new location in Europe in the coming months. The Company has more than 100 partners and distributors worldwide.

Last year, Tempo undertook its largest development project, investing in infrastructure to make it possible to offer services via its own private cloud. Having completed this, more than 2000 customers have already signed up to Tempo’s cloud service and being able to offer cloud services increases the company's potential for increased revenue and a wider product range, including connection of Tempo products to other popular cloud solutions.

Prospects are good, with expectations for continued similar revenue growth and ongoing development of Tempo's international operations.

Overall Outlook

Operating prospects for Nyherji Group remain good, with anticipated continuing moderate growth of Nyherji revenues, both at a group and subsidiary level.

Shareholders

The market value of the Company at the close of the first quarter 2017 was ISK 13.533 billion and closing share price at the end of the quarter was ISK 29.5 per share. There were 459 million issued shares on March 31, 2016 with 441 shareholders.

Analyst and Investor Presentation on April 28th, 2017

A presentation for investors and analysts will be held on Friday, April 28th, 2017 at the Company's headquarters at Borgartun 37 in Reykjavik, commencing at 08:30 local time. Finnur Oddsson, Group CEO, will present the results, which will be streamed live via the company's website. The presentation of the meeting will be accessible at the company's website, www.nyherji.is, after the meeting.

Financial Calendar 2017

Scheduled publication dates for the financial year 2017:

• 18.08.17 Q2 and H2 2017 Quarterly Results
• 25.10.17 Q3 2017 Quarterly Results
• 31.01.18 Q4 and FY 2017 Results
• 02.03.18 Annual General Meeting, 2017

Approval of Financial Results

This interim statement was approved by Nyherji hf. on April 27th, 2017, in accordance with International Financial Reporting Standards (IFRS).

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About Nyherji hf.

Nyherji hf. (NASDAQ OMX: NYHR.IC) is an established listed Nordic IT services provider with offices in Iceland and Sweden. For over two decades the company has been a world-class technology supplier, application developer, systems integrator, facilities manager and expert business process consultancy, with corporate roots that can be traced back to 1899 and the inception of “office machines”. Nyherji aims to be the technology partner of choice for businesses, from the smallest to the largest enterprises. With expertise in understanding and linking the needs of enterprise customers to competitive technology solutions, Nyherji uses its deep knowledge of mission-critical processes, hardware and application requirements, to focus on government and industries sectors with high support needs such as healthcare, financial services, logistics and aviation.

The board comprises of Ivar Kristjansson, Chairman, Hildur Dungal, Emilia Thordardottir and Loftur Gislason, with Gudmundur Jonsson and Hjalti Thorarinsson as an alternate members; Finnur Oddsson is the Group CEO of Nyherji.

For more information, please visit www.nyherji.is/english/investor-relations/.

Forward Looking Statements

Statements in this press release that are not based on historical facts are forward-looking statements. Although such statements are based on management’s current estimates and expectations, forward-looking statements are inherently uncertain. We therefore caution the reader that there are a variety of factors that could cause business conditions and results to differ materially from what is contained in our forward-looking statements, and that we do not undertake to update any forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement.

EN VERSION   |   ICELANDIC LANGUAGE ORIGINAL RELEASED: THURSDAY, APRIL 27, 2017
http://www.nyherji.is/english/investor-relations/

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