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2016-10-26

Enea AB: 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 registered trademarks of Enea AB and its
subsidiaries. Enea OSE®ck, Enea OSE® 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
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