Semcon : INTERIM REPORT JANUARY–SEPTEMBER 2017

INTERIM REPORT

JANUARY-SEPTEMBER 2017

Third quarter

• Operating income amounted to SEK 367 million (383) and organic growth was -4 per cent
• Operating profit amounted to SEK 9 million (16), yielding an operating margin of 2.4 per cent (4.2)
• Profit after tax amounted to SEK 6 million (12)
• Earnings per share after dilution was SEK 0.35 (0.67)

  January-September

• Operating income amounted to SEK 1,289 million (1,289) and organic growth was 0 per cent
• Operating profit amounted to SEK 59 million (63), yielding an operating margin of 4.5 per cent (4.9)
• Profit after tax amounted to SEK 44 million (47)
• Earnings per share after dilution was SEK 2.45 (2.59)
• The equity/assets ratio was 61 per cent (51)

  Comment from CEO Markus Granlund:

  As previously communicated, the third quarter is weak in terms of earnings due to the vacation period and moreover one fewer working day compared with last year. During the quarter, we continued our move towards a more value-based offering and international deliveries, which provides Semcon with a favourable market position.

  Our offering providing digital strategies and developing the next generation of smart, connected products has generated strong interest. During the year, Semcon has been entrusted to deliver digi- tisation strategies to new and existing customers in various industries that will result in products that are more attractive and user-friendly. The combination of our strategic excellence and long experience in product development, which we have obtained through collaboration with thousands of customers in a number of industries and countries, makes us an attractive and strategic partner.

  Product information is essential for the user experience of a product and for our customers' aftermarket. During the quarter, we expanded collaboration with a customer in the telecom industry that clearly sees the benefit of enhancing the quality, increasing digital distribution and stream- lining the production of its product information. We are proud to see that we are a leading interna- tional player in respect of optimising our customers' aftermarket business.

  Our user-focused product development is continuing to win awards and in August Semcon won the NES Award 2017. The campaign film for smart, connected products was also voted Sweden's second best advertising film of 2017, won the Swedish Design Award and received international acclaim. In Sep- tember, we also hosted the Born to Drive research project, which shows how cars can be driverlessly transported through the logistics chain. The project is a collaboration between technology compa- nies, authorities, component manufacturers and Volvo Cars. Our customers also demonstrated their appreciation of Semcon as a supplier when Semcon was awarded the Stora Leverantörspriset in October.

  Our main aim is to further strengthen margins by becoming an even more attractive employer, by improving productivity and cost-efficiency irrespective of business model and by accelerating our strategic shift with increased sales of Semcon's concept offerings. Even though the fourth quarter also has one fewer working day, compared with last year, we expect a strong finish of 2017 in terms of earnings.

  Income and result

  Third quarter

  Operating income amounted to SEK 368 million (383). Adjusted for currency effects, acquisi- tions and divestments, income fell by 4 per cent. The quarter included one fewer working day compared with last year, accounting for around 2 per cent of the fall in income. Opera- ting profit amounted to SEK 9 million (16), yielding an operating margin of 2.4 per cent (4.2). The calendar effect had a negative impact on earnings of about SEK 6 million compared with last year.

  Net financial items amounted to SEK - million (-), yielding profit before tax of SEK 9 million (16). Tax expense for the quarter amounted to SEK -2 million (-4). Profit after tax amounted to SEK 6 million (12) and earnings per share after dilution totalled SEK 0.35 (0.67).

  January-September

  Operating income amounted to SEK 1,289 mil- lion (1,289) and organic growth was 0 per cent. The period included one fewer working day com- pared with last year. New business in Product Information, to sectors such as telecommunica- tions, has not been able to fully offset the reduced scope of the partnership with Jaguar Land Rover in the UK. Operating profit amounted to SEK 59 million (63), yielding an operating margin of 4.5 per cent (4.9). The calendar effect for the period had a negative impact on earnings of about SEK 6 million compared with last year. Engineering Services reported improved earnings while Product Information noted a deterioration. The preceding year included positive non-recurring items of SEK 7 million in Product Information's earnings.

  Net financial items amounted to SEK -1 mil- lion (-1), yielding profit before tax of SEK 58 million (62). The tax expense for the period amounted to SEK -14 million (-15). Profit after tax amounted to SEK 44 million (47) and earnings per share after dilution totalled SEK 2.45 (2.59).

  Financial position January-September

  Operating cash flow from current activities was SEK 42 million (8). Investments in hardware, licenses, office supplies and equipment amounted to SEK 7 million (30). The Group's cash and cash equivalents amounted to SEK 88 million (56), In addition, the Group had non-utilised credit of SEK 369 million (257) as of 30 September. Share- holders' equity amounted to SEK 528 million (638) and the equity/assets ratio was 61 per cent (51). During the second quarter, a dividend of SEK 40 million (22) was paid to shareholders. The Group's net cash (net debt) amounted to SEK

  84 million (-133).

  Change in operating income
  Jan-Sept 2017	Jan-Dec 2016
  Acquisition	-	3%
  Currency effects	-	-2%
  Organic growth	-	5%
  Total	-	6%

  Important events during the year

• Semcon divested its German engineering busi- ness, which formed the Business Area Enginee- ring Services Germany, to Valmet Automotive on

  28 February. The business had 775 employees and income in 2016 amounted to SEK 863 million (901) with an operating loss of SEK -51 million (-49). Operations are recognised in this report as divested operations. For further information, see Note 1.

• From April 1, the engineering services busi- ness areas, Engineering Services Nordic and Engineering Services International, were merged into one business area, Engineering Services.

• Semcon's proprietary innovation, PAW (Proac- tive Wipers) a software that identifies at an early stage when windscreen wipers need to be activated, was launched in February. PAW is patent pending and there is also a significant potential in solutions for use in autonomous vehicles.

• In April, Semcon launched a mentoring pro- gramme in some 30 upper secondary schools across Sweden to encourage women to choose technology programmes at university. The programme inclu- des seminars and mentoring between women engi- neers at Semcon and students in the classes.

• Olof Christensson, Business Area President of Engineering Services, chose to leave Semcon in April to take up a position in another indu- stry. Semcon's President Markus Granlund will be acting business area president until further notice.

• In May, Karin Russberg was appointed new Director HR and Sustainability of Semcon Group tasked with leading the company's strategic HR and sustainability work. Karin assume her new position on 14 August and reports to the Presi- dent and is also a member of Semcon's Group management team.

• In the third quarter, several contracts were extended for the Product Information business area, including a three-year contract with one of the largest customers in the business area.

• Several new contracts in the field of connec- ted products were awarded to the Engineering Services business area during the third quarter.

Parent company

Operating income for the Parent Company amoun- ted to SEK 16 million (19) and pertains to pay- ment for intra-Group services. Profit before tax totalled SEK 103 million (-38).

Employees

The head count on 30 September was 2,082 (2,036) and the number of employees in active service was 2,017 (1,914) In the respective business areas, the head count is as follows: Enginee- ring Services 1,451 (1,455) and Product Infor- mation 631 (581).

Ownership structure

On 30 September, JCE Group owned 25.8 per cent (25.8) of shares in Semcon, Nordea Investment Funds 7.9 per cent (5.2), Ålandsbanken 4.9 per

cent (5.0), BNYM RE Regents 3.6 per cent (3.4) and DnB Carlson Fonder 3.4 per cent (3.4). Semcon had 4,513 (4,211) shareholders, of whom 35.3 per cent (26.9) were registered abroad. The number of ordinary shares at the end of the year was 18,112,534 (18,112,534), all with the quotient value of SEK 1 and equal voting rights.

Semcon's holding of own shares on 30 Septem- ber amounted to 241,675 (242,718). Semcon is listed on the Nasdaq Stockholm Small Cap list under the SEMC ticker. A summary of the largest shareholders and price trend is available at www.semcon.se.

Incentive scheme

A decision was made at the Annual General Mee- ting on 26 April 2017 to introduce a long-term performance-based share savings scheme for around 40 senior executives and key personnel in the Semcon Group. This scheme runs for four years starting in July 2017 and covering a max- imum of 200,000 shares. The current holding of own ordinary shares held by Semcon is considered to fulfil obligations under the Performance- based Share Savings Schemes 2015 and 2017.

Group income per market

Jan-Sept, 2017

Acquisitions and divestments

Semcon divested its German engineering busi- ness, which formed the Business Area Enginee- ring Services Germany, on 28 February. For further information, see Note 1.

Risk and instability factors

The Group and Parent Company's significant risks and uncertainties include business risks in the form of high exposure towards a single industry or customer. An economic downturn or disruptions to financial markets can have a negative effect on the Group's services. In general terms, acquisitions and divestments incur increased risks. This also includes financial risks, mainly concerning interest rate and currency risks.

Semcon's Annual Report 2016, pages 38-40 and 57-58, include a detailed description of the Group and Parent Company's risk exposure and risk management.

Accounting principles

Semcon follows the IFRS standards adopted by the EU and its interpretations of these (IFRIC). Starting in the third quarter 2016, Semcon also complies with guidelines published by the European Securities and Markets Autho- rity (ESMA) regarding Alternative Performance Measures. This Interim report has been drawn up in accordance with IAS 34. A number of new standards and IFRIC statements were introduced on 1 January 2017. None of these have had any effect on the Group's accounts over the period. In general, the same accounting policies and methods of calculation have been used in this report as in the latest Annual Report. The new standards IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers, which come into effect on 1 January 2018, are not expected to have any significant effects on the financial statements.

Events after the end of the period

No significant events occurred after the end of the period.

Group income per industry

Jan-Sept, 2017

Sweden, 77% (75)

The UK, 9% (13)

Norway, 5% (4)

Brazil, 5% (4)

Others, 4% (4)

Automotive, 48% (51)

Industry, 27% (23)

Energy, 7% (9)

Life Science, 7% (7)

Telecom, 8% (7)

Other, 3% (3)

BUSINESS AREAS

Engineering Services

The business area's income amounted to SEK 956 million (949) and organic growth was 0 per cent. A skills shortage in product develop- ment, mainly in the Swedish market, impeded growth. Sales to the automotive industry remained good, while demand from energy custo- mers in particular was at a lower level. During the quarter, several new contracts in the field of connected products were received. Operating

profit amounted to SEK 38 million (36), yiel- ding an operating margin of 4.0 per cent (3.8). Operations in primarily Norway and Brazil reported earnings improvements.

The business area is continuing its efforts to develop a more value-based offering and inter- national deliveries. This shift and associated measures are expected to lead to improved growth and profitability moving forward.

Share of Semcon's total income

Jan-Sept, 2017

74%

(72)

The business area's around 1,500 employees provide services in areas such as product development, plant engineering and produc- tion development services. The offer is aimed at requirement and concept studies, design, calculations, construction, embedded systems, testing, simulation, quality control, project management, production and process development and expertise in lean pro- duction. Engineering Services has offices in Sweden, Norway, the UK, India and Brazil. Business activities mainly focus on the automotive, industry, energy and life science sectors. Customers include ABB, AB Volvo, Alstom, Aston Martin, AstraZeneca, Auto- liv, Bombardier, CEVT, Geely, Fortum, General Electric, Getinge, Husqvarna, Jaguar Land Rover, MAN, McLaren, Metso, Rolls-Royce Marine, Saab, Scania, Siemens, Vattenfall and Volvo Cars.

Product Information

The business area's income amounted to SEK

338 million (369) and organic growth was -8 per cent. New business, to sectors such as telecom- munications, has not been able to fully offset the reduced scope of the partnership with Jaguar Land Rover in the UK. Several contracts were extended in the quarter, including a three-year contract with one of the largest customers in the business area.

Operating profit amounted to SEK 32 million (37), yielding an operating margin of 9.5 per

cent (10.0). The preceding year included posi- tive non-recurring items of SEK 7 million in the business area's earnings, of which SEK 5 million in the first quarter and SEK 2 million in the second quarter.

Part of the business area's strategy is focused on a high proportion of Managed Ser- vice contracts and a high level of resource efficiency through deliveries involving net- working teams from several countries.

Share of Semcon's total income

Jan-Sept, 2017

26%

(28)

The business area's around 600 employees provide complete information solutions with the primary focus on customers' aftermar- ket business. The business area's offering supports products and systems throughout the product life cycle: from sales and mar- keting to installation, maintenance, diagnostics, repairs as well as training service staff. The business area has offices in Sweden, the UK, Hungary, Germany, China and Norway. Customers are mainly in the automotive, telecom and IT, engineering, med-tech and energy sectors. These include ABB, AB Volvo, Baxter, Bombardier, CEVT/Lynk & Co, ESAB, Jaguar Land Rover, Saab, Siemens, Lon- don Electric Vehicle Company, UniCarriers and Volvo Cars.