Transmode AB: Year-end Report 2014

Stockholm, Sweden - 5 February 2015

October-December 2014

• Sales were SEK 255.7 (223.3) m, an increase of 14.5%, or 7.2% adjusted for exchange rate fluctuations.
• Operating profit was SEK 25.6 (9.3) m, including restructuring expenses, corresponding to an operating margin of 10.0% (4.2). Excluding restructuring expenses of SEK 2.5m, operating profit was SEK 28.1 m, and the operating margin was 10.9%.
• Net profit was SEK 21.4 (10.9) m.
• Basic and diluted earnings per share were SEK 0.77 (0.39).
• Cash flow from operating activities was SEK 39.7 (71.7) m.

January-December 2014

• Sales were SEK 930.0 (1,029.1) m, corresponding to a decrease of 9.6%, or 14.9% adjusted for exchange rate fluctuations.
• Operating profit was SEK 70.6 (148.5) m, including restructuring expenses, corresponding to an operating margin of 7.6% (14.4). Excluding restructuring expenses of SEK 8.9 m, operating profit was SEK 79.5 m, and the operating margin was 8.5%.
• Net profit was SEK 61.5 (123.3) m.
• Basic and diluted earnings per share were SEK 2.22 (4.44).
• Cash flow from operating activities was SEK 127.5 (174.7) m.
• The Board of Directors has decided to propose a dividend of SEK 1.95 (1.80) per share to the AGM. Previous year we also paid an extra dividend of SEK 4.70 per share.

Strong Finish to 2014 - Back in Growth
Transmode brought 2014 to a strong finish with the company's highest ever quarterly order intake, and revenue gains of 14%. Sales in the quarter were SEK 256 m, and we grew on all markets, especially the Americas. Thanks to the combination of this growth and a sustained high gross margin of 52%, our operating margin recovered to 10%.

The stronger demand was primarily driven by our new 100G and 10G products. Their reception in the market was very positive, and some 20 customers, including several of our largest, have now placed orders for our 100G products.

Sales in the Americas grew to SEK 49 m in the quarter, or by 101% year on year. Much of this revenue increase is sourced from deliveries to several major existing accounts in the US and Mexico. We also reported new customers in this region such as Pangaea Networks, TekLinks and COMLINK, which was the first customer to deploy our new 100G products in the Americas.

Sales in EMEA were in line with the corresponding quarter of the previous year. Overall, revenues from our major accounts in this region saw some improvement in the quarter.

Progress in APAC was positive in the quarter, but remains dependent on projects. Our new 100G deal with Fiberail, via our new partner Nera Networks, was a great reference and contributed to the growth in the quarter.

Looking at the full year 2014, I am not satisfied with the decline in annual sales. However, I am pleased about the increase in our service and software sales, higher sales via partners, the high demand for our new products, positive progress in the Americas and our turnaround in the fourth quarter. Our customer base expanded by over 30 new accounts in the year, which is also positive. The previously announced rationalization program has reduced our cost base, and given us new scope to make selective investments in segments where we see growth potential.

In terms of the year-2014 results, then in the context of our three financial targets, I note that our sales were down for the full year 2014. Accordingly, we think that we will not meet our target to grow faster than the market, but will offer a definitive view in our Annual Report. Additionally, our operating margin for 2014 of 8%, is a good number from a sector perspective, even if it is somewhat below our profitability target of 12% over a business cycle. As a result of Transmode's good cash flow and continued strong financial position, the Board has decided to propose a dividend of SEK 1.95 per share to the AGM, which is above Transmode's long-term target of paying 25-50% of previous year earnings as dividends.

I am still very confident about 2015 and see great growth potential on all markets, especially in the Americas, where we are making very positive progress. Our new compact and energy-efficient 100G and 10G products have attracted a positive reception, and they are in high demand. I also note that the positive trend we have seen in partner and services sales will keep contributing to positive progress in 2015.

With our strong finish to 2014, and the highest quarterly order intake in Transmode's history, we are back in growth.

Karl Thedéen
Chief Executive Officer

The Interim Report is attached and available via the link at the end of this press release.

The information in this announcement is required to be disclosed by Transmode AB under the Swedish Securities Markets Act (Sw. lagen om värdepappersmarknaden). This information was released for publication at 8.00 a.m. on 5 February 2015.

This is a translation of the Swedish original. In case of any inconsistency between the Swedish and English version, the Swedish version shall prevail.

Invitation to press and analysts' conference call
Transmode AB will host a conference call (in English) for investors, analysts and the media on 5 February at 9.00 a.m. where Karl Thedéen, CEO, and Johan Wilsby, CFO, will present and comment on Transmode's Interim Report. To participate, call +44 (0)203 428 1406, or alternatively the Swedish number +46 (0)8 566 42690, a few minutes before the scheduled start. The conference call and the presentation will also be streamed live on Transmode's website: http://www.transmode.com/en/investors/reports/interim-reports. The presentation will also be available on the company's website after the conference concludes.

For more information please contact:

Ola Elmeland
Vice President Marketing & Communications
Transmode Systems AB
Telephone: +46 8 506 882 71
Email: ola.elmeland@transmode.com

About Transmode
Transmode is a global provider of packet-optical networking solutions that enable fixed line and mobile network operators to cost effectively address the capacity needs created by the rapid growth in video and data traffic. These solutions are important building blocks in next-generation high-speed optical networks that support services such as broadband backhaul, mobile data backhaul, video delivery services and cloud computing. Transmode's solutions are designed to increase the capacity, flexibility and functionality of metro and regional networks and are based on Wavelength Division Multiplexing (WDM) and transport technologies such as Ethernet. Transmode's Native Packet Optical 2.0 architecture gives customers key advantages such as cost efficient Ethernet services, ultra-low latency, low power consumption and future proof network design.

Transmode is headquartered in Stockholm, Sweden and is listed on the Nasdaq OMX Stockholm Exchange (TRMO). Since 2000 the company has installed more than 45,000 systems for over 550 fixed and mobile network operators, service providers, large enterprises and public institutions in over 50 countries across the globe.

For additional information about Transmode, please visit www.transmode.com.