Interim Report July – September2016

High growth continues in software sales outside Enea’s Key Accounts
Enea’s revenue, operating profit and operating margin improved on the
corresponding period of the previous year. Earnings per share were up by 11
percent compared to the corresponding period of the previous year.


  ·  Revenue in the third quarter was SEK 120.1 (117.7) million, equivalent to a
3 percent increase. In the first nine months of the year, revenue increased to
SEK 365.6 (355.3) million.
  ·  Operating profit for the third quarter was up to SEK 29.6 (27.9) million,
corresponding to an operating margin of 24.5 (23.7) percent. Operating profit
for the first nine months of the year rose to SEK 85.3 (77.7) million,
corresponding to an operating margin of 23.3 (21.9) percent.
  ·  Earnings per share were up to SEK 1.42 (1.29) for the third quarter, and
SEK 4.28 (3.77) for the first nine months of the year.
  ·  Cash flow from operating activities was SEK 20.7 (17.5) million for the
quarter and SEK 100.7 (85.8) million for the first nine months of the year. Cash
and cash equivalents and financial investments amounted to SEK 215.8 (193.4)
million at the end of the quarter.
  ·  At the end of October, Enea signed an agreement to acquire Qosmos, a French
Network Intelligence software specialist. For more information see page 16.

July to September 2016
(third quarter previous year in brackets)

  · Revenue, SEK 120.7 (117.7) million
  · Revenue growth, 3 (12) %
  · Revenue rowth, currency adjusted, 1 (6) %
  · Operating profit, SEK 29.6 (27.9) million
  · Operating margin, 24.5 (23.7) %
  · Net profit after tax, SEK 22.6 (20.6) million
  · Earnings per share, SEK 1.42 (1.29)
  · Change in earnings per share, 11 (11) %
  · Cash flow (from operating activities), SEK 20.7 (17.5) million
  · Cash and cash equivalents and financial investments, SEK 215.8 (193.4)
million

Anders Lidbeck, President and CEO comments:

“Results of operations
Enea made positive progress in the first nine months of the year. Going into
2016, our target was to keep our operating margin stable at levels above 20
percent, with the ambition to keep increasing our earnings in absolute terms,
and per share, on 2015. Looking back at the third quarter, we achieved an
operating margin of 24.5 (23.7) percent, and an 11 percent increase in earnings
per share to SEK 1.42 (1.29). Operating profit for the quarter was SEK 29.6
million, a 6 percent increase compared to the corresponding period of the
previous year. This means that for the nine-month period, we increased operating
margin to 23.3 (21.9) percent and operating profit by 10 percent to SEK 85.3
(77.7) million in the quarter compared to the corresponding period of 2015. In
the same period, earnings per share rose by just over 13 percent.

Growth still strong in Worldwide Sales
Revenue increased by 3 percent on the corresponding quarter of the previous
year. Revenue from our services business progressed well, representing 33
percent of revenue in the quarter. This is the same share as in the
corresponding period of the previous year. In the second quarter, we secured a
major new deal in the US within our services business, which we continued to
deliver in the third quarter. Our service business is becoming more important to
us strategically. Expertise and the capacity to deliver integrated projects
effectively and with high quality are, and will remain, key factors in a world
where open source is becoming ever more significant.

But once again, it’s our software business outside Key Accounts that is in the
highest growth. We are growing fastest in Asia, where we reported high double
-digit growth figures for the quarter compared to the corresponding period of
the previous year. Revenue from Key Accounts are continuing to reduce as a share
of total, and in absolute terms. This means that for the quarter, Worldwide
Software Sales represent 20 percent of revenue compared to 15 percent two years
ago. This is a major change for Enea, and we’re really satisfied to have
achieved this with increasing profit margins.

The migration to open source will impact on us
We’re undoubtedly in the midst of major change. The trend of proprietary
software being increasingly replaced by open source remains strong, not least in
the telecom industry. In my statement in the first quarter 2015, I wrote about
how many solutions where open source comprised an increasing component of
software content were demoed at the Mobile World Congress in Barcelona in 2015.
This picture became still clearer at the MWC Barcelona 2016, and is also evident
on our Key Accounts. On several occasions, we communicated that in time, this
may have a negative impact on our royalty revenues, and we now think this will
be evident in the coming years. We are noting how on some of our largest
accounts, our preparatory operating systems are heading for phase-out in favor
of open source. In the third quarter, one of our Key Accounts also saw its
business perform negatively. Accordingly, it is reasonable to assume that
revenue on Enea’s Key Accounts will also reduce in absolute terms going forward.
The migration to open source is nothing new in the software industry, and we
commenced realignment towards creating a product portfolio with more offerings
based on open source, combined with continued development of our proprietary
software, some time ago. We’ve
also been an active participant in several open source projects for several
years now, and a lot of our business is already based on solutions wholly or
partly consisting of open source. The equally clear telecom industry trend of
virtualizing network function, based on increasingly decoupling software from
hardware, is also largely based on open source and standard hardware. Even if
this greater open source content does mean the share of royalty-based revenues
reducing, this same technology paradigm shift creates business opportunities for
us and our ambition to be a leader of this process.

Our work on developing new technology segments and new business models is
continuously ongoing, and the third quarter was no exception. We are continuing
to advance our positioning—not least on NFV as a technology segment, and ARM as
a hardware platform and ecosystem. From this perspective, the third quarter was
eventful, not least considering Softbank’s acquisition of ARM Holdings. Big
mergers usually consume time and energy, with repercussions for all parties
involved and the surrounding ecosystems. So the fact that this merger went ahead
quickly and smoothly in the quarter was good news for the whole ARM ecosystem,
which Enea is part of. It sharpens our focus on investing in ARM as a hardware
platform and partner. We also saw further corroboration of this at ARM’s partner
meeting in the quarter, where Enea was a key participant on the infrastructure
side. Several of the projects Enea is directly involved were in focus during
keynotes and presentations, including the OPNFV project, where we’re a leader in
the ARM ecosystem. The release in the third quarter isn’t just a key milestone
for our ongoing collaboration with ARM, but also a key component of the NFV
solutions that we’re now discussing with a number of operators in different
global regions.

Future prospects
Despite our expectation of lower royalty revenues going forward, we are
retaining our objective of continuing to grow the company with good
profitability. We are continuing our endeavor to build a bigger and stronger
company, which delivers increasing value to customers, employees and
shareholders.

We are addressing the expected lower revenues on key accounts by enhancing,
expanding and integrating the various products and solutions we offer, and by
continuing to actively pursue acquisitions that complement our current portfolio
and advance our market positioning. At the beginning of the year, we acquired
the operations of a small US product enterprise, and in October, Enea signed an
agreement to acquire Qosmos, a French leader in IP traffic classification and
network intelligence.

We are continuously exploring new ways to make our organization more efficient
and competitive with a retained focus on specialist competence, quality and
customers. With strong finances, good cash flows and a strengthened market
position, we view the future with confidence. Our objective for the full year
2016 to achieve revenue growth and our assessment that earnings per share will
improve compared to 2015 are unchanged.”

Press and analyst meeting
Press and financial analysts are invited to a press and analyst meeting where
Anders Lidbeck, President and CEO, will present and comment on the report.

Time: Wednesday October 26 at 08:30 am CEST.
Link: https://wonderland.videosync.fi/2016-10-26-enea-q3-report
Phone number: SE: +46 856642669, UK: +44 2030089804

The full report is published at www.enea.com/investors

This information is information that Enea AB (publ) is obliged to make public
pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets
Act. The information was submitted for publication, through the agency of the
contact person set below, on October 26, 2016 at 7.20 CEST.

For more information visit www.enea.com/investors or contact:
Anders Lidbeck, President & CEO
E-mail: anders.lidbeck@enea.com

Julia Steffensen, Executive Assistant
Phone: +46 70 971 03 33
E-mail: julia.steffensen@enea.com

About Enea
Enea is a global supplier of network software platforms and world class
services, with a vision of helping customers develop amazing functions in a
connected society. We are committed to working together with customers and
leading hardware vendors as a key contributor in the open source community,
developing and hardening optimal software solutions. Every day, more than three
billion people around the globe rely on our technologies in a wide range of
applications in multiple verticals – from Telecom and Automotive, to Medical and
Avionics. We have offices in Europe, North America and Asia, and are listed on
Nasdaq Stockholm. Discover more at www.enea.com and start a conversation at
info@enea.com.

Enea®, Enea OSE®, Netbricks®, Polyhedra®, Zealcore®, Enea® Element, Enea®
Optima, Enea® LINX, Enea® Accelerator,  Enea® dSPEED Platform and COSNOS® are
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Epsilon, Enea® Optima Log Analyzer, Enea® Black Box Recorder, Polyhedra® Lite,
Enea® System Manager, Enea® ElementCenter NMS, Enea® On-device Management and
Embedded for LeadersTM are unregistered trademarks of Enea AB or its
subsidiaries. Any other company, product or service names mentioned above are
the registered or unregistered trademarks of their respective owner. © Enea AB
2016.