[May 13, 2016]

Nyherji Announces Q1 EBITDA of ISK 180 Million

Nyherji announces its results for the first quarter of 2016.

Highlights

• Goods and services sold in Q1 stood at ISK 3.33 billion, a 2.1% year-on-year increase in revenue [Q1 2015: ISK 3.26 billion]
• Gross profit for the first quarter amounted to ISK 885 million or 26.6% [Q1 2015: ISK 808 million (24.7%)]
• Net profit in Q1 amounted to ISK 38 million [Q1 2015: ISK 41 million]
• EBITDA for Q1 amounted to ISK 180 million (5.4%) [Q1 2015: ISK 225 million (6.9%)]
• Equity ratio of 29.5% at the end of Q1 2016, as compared with 28.0% at the end of 2015
• Current ratio 1.46 at the end of Q1 2016, as compared with 1.52 at the end of 2015
• More than 70% of employees granted options in accordance with the AGM resolution

"Our first quarter net profit of ISK 38 million fell below anticipated levels for the group driven mainly by the outcome of wage negotiations at the start of the year, as well as temporary supply chain difficulties with PC equipment, which have impacted sales," commented Finnur Oddsson, Group CEO, "Wage agreements have had a significant negative effect on Nýherj's results and have weighed down the Group's overall performance. However despite our results being slightly below forecast, demand remains buoyant for our services, in particular tourism-related solutions from TM Software, and Tempo's sales have continued to rise with corresponding growth in its customer base.

Clearly additional costs associated with wage rises present a challenge ahead and these may need to be adjusted. Similarly, we will continue to examine opportunities to strengthen the capital position of the company, as long-term improvement is needed. While results for the quarter are below expectations, the outlook is good and project status generally strong, for Nyherji Group as a whole as well as its subsidiaries. It is indicative of our belief in Nyherji and the future that we have seen 70% take up of employee stock options that have been offered in accordance with the AGM's decision."

Operating Results for Q1 2016

• Sales of goods and services amounted to ISK 3.33 billion for the first quarter of 2016, compared with ISK 3.26 billion for the same period in 2015, an increase of 2.1% year on year.
• Gross profit amounted to ISK 885 million (26.6%) for the first quarter of 2016, compared with ISK 808 million (24.7%) during the same period in 2015.
• Operating expenses were ISK 818 million in the first quarter of 2016 (24.5% of revenues), compared to ISK 661 million (20.3% of revenues) in the first quarter 2015.
• Salaries and related expenses as a percentage of revenue was 40.7% in the quarter, compared with 35.5% in the first quarter of 2015.
• EBITDA amounted to ISK 180 million (5.4%) in the first quarter, compared with ISK 225 million (6.9%) for the same period in 2015.
• Net profit in the first quarter of 2016 amounted to ISK 38 million compared to ISK 41 million for Q1 2015.

Balance Sheet 31.03.2016

• Current assets decreased by ISK 381 million from the end of 2015, from ISK 3.72 billion to ISK 3.34 billion. Trade and other receivables reduced by 242 million for the period. In addition, cash was reduced by 216 million for the period.
• The equity ratio stands at 29.5% at the end of the first quarter of 2016, compared with 28.0% at the end of 2015.
• Current ratio is 1.46 at the end of the first quarter of 2016, compared with 1.52 at the end of 2015.
• Interest-bearing liabilities were ISK 2.71 billion, a decrease of ISK 104 million from the end of 2015.

Cash Flow 31.03.2016

• Cash flow from operations was ISK 135 million for the end of the first quarter 2016, compared with ISK 91 million at the end of the first quarter 2015.
• Investments of ISK 283 million were made in the first quarter of 2016, compared with ISK 119 million for the same period last year. Differences can largely be attributed to significantly higher investment in operating funds in the first quarter 2016 - ISK 193 million compared with ISK 45 million for the same period during the previous year.
• Financing activities are negative by ISK 62 million during the period compared to positive movement on ISK 159 million last year. The difference lies in the increase in interest-bearing liabilities of ISK 217 million, however no change occurred in the first quarter of 2016.
• Cash at the end of the period amounted to ISK 593 million compared with ISK 211 million at the end of the first quarter 2015.

Outcome of wage negotiations affects overall performance

Income of Nyherji Group for the first quarter was similar to the previous year however overall results were somewhat below forecast on account of considerably higher wage costs compared with the same period last year. Labour costs rose following contractual increases that became effective retroactively as of January, with a negative impact on the operating period. This will be one of the main focus areas where management will seek improved cost efficiencies as required.

There was strong demand for solutions for systems management, audiovisual and software solutions. Fee income increased compared with the same period last year, on account of increased demand for services and consulting, as well as increases in contract service revenue.

During the quarter the University of Iceland purchased a Lenovo (News - Alert) High Performance Computing supercomputer solution for fundamental research. Sales of Lenovo notebooks and PCs were lower than expected, primarily on account of delays in delivery of equipment from the manufacturer. Sales of computer equipment are anticipated to return to forecasted levels in the next quarter. There is solid demand for Nyherji's services as the domestic economy continues to rebound, and project performance is excellent.

Excellent participation in the stock option plan

Nýherji and its subsidiaries have implemented a stock option plan during the period in accordance with that agreed at the AGM. More than 70% of the Group's stock options were subscribed, in total 38,327,016 shares at a price of ISK 17.095. Each employee can purchase shares up to an amount of ISK 600,000 per year with a minimum level of ISK 10,000 per year during 2017-2019.

Revenues and earnings exceeded projections TM Software

Revenue for TM Software, which specializes in proprietary software products and custom software applications, totalled ISK 288 million, an increase of 21% from the same period in 2015. Performance during the quarter was good.

TM Software introduced a new organisation structure at the start of the year to improve synergies between its industry sector groups and better support product development and innovation in key areas of the company, which are healthcare solutions, travel solutions and services websites. The operating outlook for TM Software remains positive.

Continued growth in revenue from Tempo

Tempo develops time-tracking and project management solutions for Atlassian JIRA environment, which is now used by customers in more than 100 countries. Tempo's revenues for the quarter were ISK 393 million (approximately USD 3 million), a 40% increase in dollar terms compared with the previous year. March was the highest grossing month in history with revenues amounting to more than USD 1 million. March was also a record month in the number of trial with 560 new licenses sold to customers in the first quarter. Customers are now believed to be about 8,600 separate organisations worldwide with new customers including Toshiba, Starbucks, NBC Universal (News - Alert), BAE Systems and British Telecommunications.

In the first quarter 10 new employees joined the company, in both Reykavik and Montreal, with a total workforce now numbering 80 people. Continued rapid growth of income and increase in new customers in the second quarter is anticipated.

Applicon Iceland underpeforms budget

Performance of Applicon in Iceland, which specializes in consulting, service and development of business software, was below expectations. Total revenue Applicon amounted to ISK 259 million, which is somewhat lower than anticipated, primarily on account of the implementation of large projects and investments remaining in development. Successful sales of the Kjarni human resources and payroll solution are under implementation with a number of new customers. Activities have also been ongoing to implement joint sales activities in the field of banking solutions with Applicon in Sweden.

Service revenues and net results are expected to improve in the next quarter.

Applicon Sweden shows revenue growth

Applicon Sweden's revenue increased 16% in SEK terms year-on-year and stood at about ISK 360 million (about SEK 19 million). The unit experienced strong demand for consultancy services for new projects from existing customers, such as Landshypotek. While it is clear that no further work for Aman bank is expected in the autumn of 2015, work has continued with larger sales projects in the field of banking solutions, in collaboration with CGI (News - Alert) and SAP. The order book is firm and the outlook good.

Outlook

Overall outlook for Nýherji Group remains positive with anticipated moderate growth of revenues at group and subsidiary level.

Shareholders

The market value of the company at the end of the first quarter of 2016 was stood at ISK 7.72 billion. The closing price of shares for the quarter was ISK 17.15 per share. There were 450 million shares outstanding on March 31, 2016 and 373 employees were shareholders.

Presentation on April 28, 2016

A presentation for investors and analysts will be held at 8.30pm on Thursday 28 April 2016 at the company's headquarters in Reykjavik at Borgartun 37. Finnur Oddsson, Group CEO, will present the results. You can access a live stream from the meeting on the company's website. The presentation from the meeting will be available afterwards on the company's website, www.nyherji.is

Financial Calendar 2016

Scheduled events and publication dates for the financial year 2016/2017:

• 24.08.2016 Second quarter 2016 results
• 26.10.2016 Third quarter 2016 results
• 31.01.2017 Fourth quarter and full-year 2016 results
• 03.03.2017 Annual General Meeting, 2016

Approval of Financial Results

Statements were approved at a meeting of the Board of Nyherji hf on 27 April 2016 in accordance with International Financial Reporting Standards (IFRS International Financial Reporting Standards).

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 Benedikt Johannesson, Chairman, Hildur Dungal, Emilia Thordardottir, Ivar Kristjansson and Loftur Gislason, with Gudmundur Jonsson as an alternate member; Finnur Oddsson is the Group CEO of Nyherji.

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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