Nyherji Group Achieves 14% Revenue Growth and Profit of ISK 93 Million in the Third Quarter

Nyherji Group (NYHR.IC), Iceland’s leading IT services provider, announces its results for the third quarter of 2016.

Financial Highlights:

• Revenue from goods and services grew to ISK 3.429 billion for the third quarter (13.6% revenue growth from Q3 2015) and ISK 10.555 billion for the first nine months (9.2% revenue growth compared with the same period in 2015) [Q3 2015: ISK 3.01 billion, 9M 2015: ISK 9.669 billion]
• Gross profit for the third quarter increased to ISK 860 million (25.1%) and ISK 2.676 billion (25.4%) for the first nine months of 2016 [Q3 2015: ISK 828 million (27.4%), 9M 2015: ISK 2.465 billion (25.5%)]
• EBITDA in the third quarter was ISK 247 million (7.2%) and ISK 686 million (6.5%) for the first nine months of the year [Q3 2015: ISK 240 million (8.0%), 9M 2015: ISK 693 million (7.2% )]
• Net profit in the third quarter was ISK 93 million and ISK 204 million for the first nine months of the year [Q3 2015: ISK 82 million, 9M 2015: ISK 193 million]
• Equity ratio stood at 32.5% at the end of the third quarter, as compared with 30.8% at the end of the second quarter
• Applicon AB announced the sale and implementation of core banking systems to SBAB Bank AB in Sweden

"Nyherji Group’s operations this quarter were solidly on track and we continue to see improved revenue growth,” commented Finnur Oddsson, Group CEO, "Our year to date results are satisfactory, as they were last year, and we have additionally made significant progress in reducing interest-bearing debt while the company's capital position continues to strengthen.

Generally, Nyherji and its subsidiaries are progressing well, particularly in software where income growth has been significant. Tempo generated quarterly revenues of USD $3.2m and USD $9.4m for the year to date, a 43% increase in the third quarter over the previous year. Nyherji Group also saw a considerable increase in income from Applicon AB, TM Software and Nyherji’s software activities. Demand for our solutions has been strong and one of our principle challenges is to meet it while maintaining an appropropriate cost of operations.

This quarter saw the announcement of the award of a substantial contract to Applicon in Sweden for the sale and implementation of SAP core banking solutions for SBAB Bank, the fifth largest bank in Sweden. We are delighted to achieve this milestone which has been "in the works” and is a testament to the expertise and solutions that have been developed within our banking solutions team in recent years. After the implementation Applicon will operate and maintain banking systems for two of the ten largest banks in Sweden. All Group companies have positive results and operating prospects are good."

OPERATING RESULTS

• Sales of goods and services amounted to ISK 10.555 billion for the first nine months of 2016 compared with ISK 9.669 billion for the same period last year, an increase of 9.2% year-on-year
• Gross profit amounted to ISK 2.676 billion (25.4%) in the first nine months of the year compared with ISK 2.465 billion (25.5%) for the same period last year
• Operating costs totaled ISK 2.364 billion for the first nine months of 2016 (22.4% of revenues), compared with ISK 2.024 billion (20.9% of revenues) for the same period in 2015
• Salaries and related expenses as a percentage of revenue was 36.9% in the first nine months of the year compared with 35.8% for the first nine months of 2015
• Net financial expenses decreased by ISK 86 million between years, primarily attributable to exchange rate fluctuations of ISK 42 million – comprised of exchange losses of about ISK 19 million last year, with gains of ISK 23 million a year. Interest expenses were reduced by ISK 26 million year-on-year
• EBITDA totaled ISK 686 million (6.5%) for the first nine months of the year, compared with ISK 693 million (7.2%) for the same period in 2015
• Net profit in the first nine months of 2016 amounted to ISK 204 million, compared with ISK 193 million for the same period in 2015

BALANCE SHEET

• Current assets were lower by ISK 481 million from the end of 2015 at ISK 3.719 billion. Cash flow was reduced by ISK 309 million in the period, mainly due to the repayment of interest-bearing loans and for investments funded from operations. Trade and other receivables were reduced by ISK 137 million for the period
• Capital ratio increased to 32.5% in the third quarter, as compared with 28% at the end of 2015
• Current ratio stood at 1.39 in the third quarter in 2016, decreased from 1.52 at the end of 2015
• Interest-bearing long-term liabilities decreased to ISK 2.126 billion, a reduction of ISK 395 million from the end of 2015

CASH FLOW

• Cash flow from operations stood at ISK 765 million at end of the third quarter, compared with ISK 470 million for same period in 2015
• Investments were ISK 696 million to the end of Q3 2016, compared with ISK 417 million for the same period last year. Differences can largely be attributed to significantly higher investment in operating funds and an increase in the capitalization of intangible assets in 2016
• Financing activities were negative by ISK 364 million for the period compared with ISK 25 million last year on account of payment of interest-bearing loans in the first half of 2016 and increase in short-term financing last year
• Cash at the close of the period totalled ISK 500 million compared with ISK 102 million in the third quarter 2015

OPERATING RESULTS FOR Q3 2016

• Sales of goods and services rose to ISK 3.429 billion in the third quarter compared with ISK 3.019 over the same period in 2015, an increase of 13.6% year on year
• Gross profit increased to ISK 860 million (25.1%) for the third quarter compared with ISK 828 million (27.4%) for the third quarter 2015
• Operating expenses were also higher, at ISK 746 million for the third quarter (21.8% of revenues) compared with ISK 678 million (22.5% of revenues) in the same period in 2015
• Net financial expenses were lower, at ISK 16 million in the third quarter compared with ISK 72 million for the same period last year
• EBITDA amounted to ISK 247 million (7.2%) in the third quarter compared with ISK 240 million (8.0%) for the same period last year
• Net profit in the third quarter improved to ISK 93 million (2.7% of revenues) compared with ISK 82 million (2.7% of revenues) in the same period in 2015

Growth in sales of software solutions Nyherji

Revenues and earnings for Nyherji parent company were in line with forecasts for the third quarter, with strong sales of PC equipment and audio-visual solutions to businesses and individuals. Nyherji has invested heavily in knowledge acquisition in a number of specialized software areas, including in the fields of computer security, marketing and quality control. This investment is now paying off as sees through significant revenue growth year on year. The outlook for the fourth quarter is good.

Facebook Workplace has been introduced to enhance team work at Nyherji

Nyherji Group and its subsidiaries have implemented Workplace from Facebook for all employees, which has a similar feature-set to Facebook, but is tailored to a business environment. Nyherji companies were the first companies in Iceland to adopt this means of communication. Its introduction provides the company with additional internal channels to further strengthen cooperation within and between companies in the group.

Continued growth at Tempo

Tempo, which develops time tracking and project management solutions, achieved revenues of USD $3.2 million in the third quarter, a 43% increase over the previous year. Cloud solutions saw the largest increase in sales, contributing to strong growth this year. Tempo has also continued to build out reseller channels with as many as 120 firms now specializing in resale, consulting, and implementation of a combined solution from Atlassian and Tempo. Tempo continues to build its capabilities with almost 100 staff across three sites: Iceland, Montreal and San Francisco, and its outlook remains positive.

Applicon Iceland reaps the rewards of application development

Applicon in Iceland delivered on track in the third quarter, with improved performance over the same period last year, although slightly below expectations so far this year. Sales of software licenses from SAP and related implementation projects are progressing well, as are sales of other applications: Kjarni, wage and human resource systems. Notable deals this quarter, via Applicon AB, included the sale to Sweden’s SBAB Bank of solutions developed by Applicon in Iceland which will then be implemented on site by a team from Iceland. Applicon continues to move ahead with substantial investment in developing in house solutions. The order book is solid and the outlook accordingly promising.

Applicon Sweden wins significant contract with SBAB Bank AB

Revenues and earnings at Applicon AB in Sweden increased significantly in the third quarter compared with the same period last year. This period saw the company close a contract for the sale and implementation of core banking systems for SBAB Bank AB. The Bank will implement solutions from SAP along with additional solutions from Applicon in Iceland. Applicon will oversee the introduction of the systems at the bank and integration with other systems, including Swedish payment and settlement systems. The implementation process is estimated to take up to 3 years and the agreement will strengthen the foundations that Applicon has built as a result of implementation, consulting and operation of international core banking solutions. After installation Applicon AB will provide support for these systems for SBAB, with responsibility now for the operation of core banking systems for two of the ten largest banks in Sweden, SBAB Bank and Landshypotek Bank. The outlook remains positive.

Overall Outlook

Nyherji’s order book, both at a Group and subsidiary level remains strong and profitable, with revenue growth and profitability looking set to continue.

Shareholders

The market value of the company at the end of the third quarter of 2016 was ISK 7.493 billion. The closing price of shares at the end of the quarter was ISK 16.65 per share. There were 450 million issued shares on September 30, 2016 with 374 employees as shareholders.

Analyst and Investor Presentation on October 27, 2016

A presentation for investors and analysts will be held on Thursday, October 27, 2016 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 2016

Scheduled publication dates for the financial year 2016:

• 31/01/2017 Fourth quarter and full-year 2016
• 03/03/2017 Annual General Meeting 2016

Approval of Financial Results

This interim statement was approved by Nyherji hf. on the 26th October 2016, in accordance with International Financial Reporting Standards (IFRS). The interim financial report has neither been audited nor reviewed by the Company's auditors.

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, ?nancial services, logistics and aviation.

The board comprises of Benedikt Johannesson, Chairman, Hildur Dungal, Emilia Thordardottir and Emil Kristjansson, with Gudmundur Jonsson as an alternate member; 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.

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