Year-end report - Axis Communications

1 About axis Communications axis offers intelligent security solutions that enable a smarter, safer world. As the market leader in network video, axis is driving the industry by continually launching innovative network products based on an open platform - delivering high value to customers through a global partner network. axis has long-term relationships with partners and provides them with knowledge and groundbreaking network products in existing and new markets. axis has more than 2,600 dedicated employees in more than 50 countries around the world, supported by a network of over 90,000 partners across 179 countries. Founded in 1984, axis is a Sweden-based company listed on Nasdaq Stockholm under the ticker axis . For more information about axis , please visit our website growth during 2016 resulted in record sales for the fourth quarter and for the full-year. For the first time, we generated sales of more than SEK 2 billion in a quarter, while full-year sales were well over SEK 7 billion.

2 The weak Swedish krona had a significant positive effect on our growth during the fourth quarter. The full-year effect was not as investments in development of new products and solutions made a strong contribution to growth. In 2016 , we were able to release a number of such innovations, for example, network speakers and camera models featuring laser focus technology. During the fourth quarter, we also unveiled updates to two of our most important network camera series axis Q35 and axis P32. Another important factor was the three acquisitions carried out during 2016 . We can now see that they are making an increasing contribution to the company s development and to our market growth is being noted not least in terms of the number of employees. Acquisitions and new recruitments meant that the number of employees during the year increased by more than 20 percent and now exceeds 2,600 people. Continued market growth and a strong foundation will enable us to continue to drive developments as we enter 2017.

3 We will continue investing in innovation and employees, in boosting our market presence and in improving the efficiency of our expanding organization. President s commentsYear-end report2016 Ray Mauritsson, PresidentThe fourth quarter >Net sales increased by 17 percent during the fourth quarter to SEK 2,059 M (1,758). Net sales increased by 11 percent in local currencies. >Operating profit increased to SEK 253 M (231), which corresponds to an operating margin of percent ( ) >Profit after tax amounted to SEK 169 M (176) >Earnings per share amounted to SEK ( ) >The board proposes that no dividend should be declared for the 2016 fiscal year (SEK )January - December >Net sales increased by 11 percent during the period to SEK 7,386 M (6,635). Net sales increased by 10 percent in local currencies. >Operating profit increased to SEK 885 M (881), which corresponds to an operating margin of percent ( ) >Profit after tax amounted to SEK 639 M (652) >Earnings per share amounted to SEK ( ) 2 Events during the fourth quarter Continued growth and expansion during 2016 During the fourth quarter, axis released updated versions of a number of the company s network cameras.

4 For example, the axis Q35 series was enhanced with the latest image sensor technology and has become more vandal resistant with an extended temperature range. The axis P32 series can now offer even better image quality and improved light earthquake in Japan during the spring, which caused damage at a factory of one of axis suppliers for image sensor manufacturing, temporarily affected axis release rate of new products in the second and third quarter. Actions taken by axis resulted in almost unchanged availability of existing products during 2016 . The number of employees increased by 69 people during the fourth quarter. During the full-year 2016 , the number of employees increased by 507 people, an increase of 24 percent. The large increase in employees was partly due to the acquisitions carried out by axis during 2016 , but was also due to a continued high recruitment rate as there is still a strong need for skilled employees, particularly in research and development and the global sales organization.

5 A number of office expansions also contributed to growth on a global basis, such as in the UK, Latvia, Hong Kong, Thailand and in the US states of Texas and Florida. Satisfied employeesIn the middle of October, axis conducted an employee survey for all employees in collaboration with Great Place to Work. In previous surveys, axis received consistently high ratings, as was also the case this time. 91 percent of those who participated in the survey considered that axis is a very good workplace the same very good result as the last time axis conducted a similar survey. Several awardsDuring the fourth quarter, axis and its employees received several awards. In December, axis received the Sustainability Leadership Award for the company s sustainability leadership efforts from the international organization the Business Intelligence Group. In November, axis Vice President Operations was named as Supply Chain Professional of the Year 2016 by the training company Silf Competence, for his change efforts for increased efficiency and growth in the value chain.

6 A further example was axis Vice President Americas who in November received the Lippert Award from the American trade association SIA (the Security Industry Association), for his contribution to the security of employees Q1 Q2 Q3 Q4 01 02 03 Q4 2015 2016100010501100115012001250130013501400 1450150015501600165017001750180018501900 1950200020502100215022002250230023502400 2450250025502600265027002019206121092139 2192249325772646 3010020030040050060070080090010001100120 0130014001500160017001800190020002100010 203040506070 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 Comments on the income statement and balance sheetNet salesThe fourth quarterNet sales in the fourth quarter amounted to SEK 2,059 M (1,758), which was an increase of17 percent. Growth was 11 percent in local currencies.

7 Foreign currency effects impacted sales positively by SEK 101 in the EMEA region amounted to SEK 824 M (740) during the fourth quarter, corresponding to growth of 11 percent. Growth was 7 percent in local currency. As earlier in the year, the region displayed a stable performance, with the exception of the Middle East, which was negatively impacted by investment in the Americas region amounted to SEK 993 M (832) during the fourth quarter, corresponding to growth of 19 percent. Growth was 14 percent in local currency. After a slightly weaker third quarter, the growth curve turned upwards again in the American market during the fourth quarter. Sales in the Asia region amounted to SEK 242 M (187) during the fourth quarter, corresponding to growth of 30 percent. Growth was 17 percent in local currency. Asia was the region that showed the strongest growth during the fourth quarter. The region has huge potential and axis is continuing to strengthen its local presence there.

8 Full-year 2016 Net sales in 2016 amounted to SEK 7,386 M (6,635), which was an increase of 11 percentin Swedish kronor and 10 percent in local currency. Foreign currency effects positively impacted sales during the period by SEK 86 M. Invoiced sales per product group (SEK M) Q4 2016 Q4 2015 Full-year 2016 Full-year 2015 Video 1, , , , 2, , , , sales per region (SEK M)Q4 2016 Q4 2015 Full-year 2016 Full-year 2015 EMEA , , , , 2, , , , SEK MTotal growth %Sales per region,Q4 2016 SEK M%Sales per region, SEK MEMEAAsia0501001502002503003504004505005 50600650700750800850900950100010501100 Q1 Q2 Q3 Q4 Q1 02 03 Q4 2015 2016 AmericasAmericasEMEAAsia40%48%12%4 EarningsThe fourth quarter Operating profit during the fourth quarter amounted to SEK 253 M (231), which corresponds to an operating margin of percent ( ).

9 Gross margin during the quarter amounted to percent ( ). Profit before tax was SEK 253 M (231). Profit after tax amounted to SEK 169 M (176). Exchange rate fluctuations impacted operating profit positively by SEK 65 M, compared to the year-earlier period. Full-year 2016 The group s operating profit during the period amounted to SEK 885 M (881), which correspondsto an operating margin of percent ( ) Gross margin amounted to percent ( ). Profit before tax was SEK 884 M (881) and profit after tax was SEK 639 M (652). Exchange rate fluctuations impacted operating profit positively by SEK 105 M, compared to the previous year. Condensed income statement (SEK M)Q4 2016 Q4 2015 Full-year2016 Full-year 2015 Net sales2, , , , profit 1, , , margin, % margin, % before flow, investments and financial positionCash flow from operating activities amounted to SEK 721 M (803) for the full-year 2016 . Net investments totaled SEK 832 M (181), of which acquisitions amounted to SEK 600 M (0) andcapitalized development costs amounted to SEK 77 M (69).

10 axis had SEK 858 M (1,016) in cash and cash equivalents at the end of the period, as well as unutilized credit facilities of SEK 50 M (50). Accordingly, the company had a total of SEK 908 M (1,066) at its disposal at December 31, equity amounted to SEK 2,352 M (1,742). The total number of shares at Year-end was69,461,250 (69,461,250). axis has no outstanding stock option programs. The group s equity/assets ratio was percent ( ) at December 31, 2016 .(Mkr) Share capital Other contributed capitalOther reserves Retained earnings Total equityOpening balance at Jan 1, , comprehensive income for the balance at Dec 31, , , balance at Jan 1, , , comprehensive income for the balance Dec 31, , , companyThe parent company s operations are primarily focused on company-wide administration. The parent company has no employees.