Sectra — Interim / Quarterly Report 2017

Dec 12, 2016

Interim report for the May-October 2016 period: Increased earnings, strong cash flow and expanded future focus

		The quarter			6 months			12 months
SEK million	Q2	Q2	Change	Q1-2	Q1-2	Change	Rolling	2015/2016	Change
	2016/2017	2015/2016	%	2016/2017	2015/2016	%			%
Order bookings	299.6	205.3	45.9	525.1	505.2	3.9	1,341.9	1,322.0	1.5
Net sales	275.4	264.7	4.0	505.9	489.5	3.4	1,089.9	1,073.6	1.5
Operating profit (EBIT)	46.4	32.1	44.5	78.5	63.5	23.6	180.5	165.5	9.1
Operating margin, %	16.8	12.1	-	15.5	13.0	-	16.6	15.4	-
Profit before tax (EBT)	44.3	34.6	28.0	75.5	69.1	9.3	161.2	154.8	4.1
Profit margin, %	16.1	13.1	-	14.9	14.1	-	14.8	14.4	-
Profit after tax	34.6	26.8	29.1	58.9	53.6	9.9	131.0	125.7	4.2
Earnings per share, SEK 1	0.92	0.72	27.8	1.56	1.43	9.1	3.49	3.35	4.2
Cash flow 2	52.6	52.0	1.2	70.2	58.6	19.8	197.5	185.9	6.2
Number of employees 3	630	603	4.5	630	603	4.5	630	625	0.8

¹ Prior to dilution. ² Ongoing operations after changes in working capital. ³ At the end of the period.

REPORT PRESENTATION

by telephone with President Torbjörn Kronander and CFO Simo Pykälistö. The presentation will be held in English.

Time: December 12, 2016 at 10:00 a.m. (CET)

To participate, call: SE: +46 8 56642690 UK: +44 2030089810 US: +1 8557532235 Follow online via: www.sectra.com/irwebcast

Sectra AB (publ)

Teknikringen 20 SE-583 30 Linköping Tel: +46 (0)13 23 52 00 info@sectra.se www.sectra.se VAT Reg. No. SE556064830401

CEO'S COMMENTS

With a vision of contributing to a healthier and safer society, Sectra delivers stable solutions with a high level of availability for some of society's most critical functions. Both internal and external customer satisfaction surveys confirm that our customers appreciate our efforts. In a recent survey of decision-makers in the North American healthcare market (see page 3), Sectra once again outranked its competitors. This high level of customer satisfaction and long-term future focus is helping to strengthen our position in Sectra's niche areas.

Quality is profitable. We delivered a strong financial performance in the second quarter, with continued positive trends with respect to the Group's sales, operating profit and cash flow – despite the fact that our results were adversely impacted by currency effects, particularly in the UK, and that earnings for the second quarter were charged with long-term investments in future growth areas such as digital pathology and IT security for critical infrastructure. Our investments in these areas are growing as the markets mature, which will have a dampening effect on our earnings trend for the current fiscal year.

Although order bookings for the quarter showed an adequate improvement, we will not be entirely satisfied until our annual growth rate increases further. We are seeing light at the end of the tunnel for the Secure Communications business area, both in terms of the existing crypto business and in the new area of critical infrastructure, where we are experiencing strong market interest.

During the quarter, we carried out a negative correction in our order stock in an amount of SEK 78.9 million as a result of the renegotiation of a major long-term contract. This renegotiation resulted in hardware being excluded from the contract, a decision that both we and the customer were pleased with since Sectra's margin on hardware is low and eliminating hardware from the contract would reduce the level of business risk. The renegotiation will only have a marginal impact on our future earnings since it concerns low-margin hardware products and the effect will be spread over a number of years. Our strategy is to continue streamlining our business toward software-based operations wherever possible, but sometimes customers require hardware to be included in the contract.

Outlook

Sectra has received a top ranking in numerous customer satisfaction surveys conducted by various survey institutions. Satisfied customers drive demand and create customer loyalty. Most of the surveys focused on the US and, combined with our low market share in the country, suggest that there is room for our medical IT offering to grow.

Taking into consideration Sectra's high-quality solutions and customer satisfaction, longstanding customer relationships, dedicated employees, innovative products and strong financial position, I believe we have the right prerequisites to continue performing well going forward.

Torbjörn Kronander, President and CEO

THE PERIOD IN BRIEF

Six-month period

• Order bookings increased 3.9% to SEK 525.1 million (505.2).
• Net sales totaled SEK 505.9 million (489.5), up 3.4%. Adjusted for currency fluctuations, sales increased 5.1%.
• Operating profit rose 23.6% to SEK 78.5 million (63.5), corresponding to an operating margin of 15.5% (13.0). Adjusted for currency fluctuations, operating profit increased 33.4%.
• Cash flow after changes in working capital increased to SEK 70.2 million (58.6).

Second quarter

• Order bookings increased 45.9% to SEK 299.6 million (205.3). The renegotiation of a multiyear customer contract had a nonrecurring negative effect of SEK 78.9 million on the Group's order stock and resulted in a retroactive adjustment to the order bookings for 2014/2015. The renegotiation will have only a marginal impact on future operating profit.
• Net sales totaled SEK 275.4 million (264.7), up 4.0%. Adjusted for currency fluctuations, sales increased 4.6%.
• Operating profit rose 44.5% to SEK 46.4 million (32.1), corresponding to an operating margin of 16.8% (12.1). Adjusted for currency fluctuations, operating profit increased 60.4%.
• Cash flow after changes in working capital increased to SEK 52.6 million (52.0).

Events during the second quarter

The Norwegian healthcare provider Helse Vest RHF ordered a region-wide radiology IT solution from Sectra for managing radiology images and patient information. The agreement extends for six years and the order over the agreement period is valued at NOK 57.0 million (corresponding to approximately SEK 62.0 million).

EVENTS AFTER THE END OF THE REPORTING PERIOD

• The US radiology clinic Women's Imaging Associates entered into a multiyear agreement with Sectra to deploy Sectra's IT solution for managing and storage of mammography images (PACS). The new customer analyzes medical images for more than 20 hospitals, radiology associations, out-patient care and obstetrics and gynecology clinics.
• The US healthcare provider ProMedica ordered Sectra's solution for managing cardiology images. The customer already uses Sectra's IT solution for other medical images (PACS and VNA).
• More hospitals in the UK went live with Sectra's Image Exchange Portal (IEP) service for rapid and secure sharing of medical images, including medical reports. General hospitals in Wales were among those that gained access to the service. The solution is used in hospitals across the UK and allows a unique collaboration between care providers across the country.
• The German hospital group Gesundheit Nordhessen ordered Sectra's IT solution (PACS and VNA) for managing medical images.
• Blekinge County Council in Sweden introduced a total solution for managing all medical images within the region by extending the functionality of its existing IT solution for radiology image management (Sectra PACS) to also include a multimedia archive (VNA) from Sectra.
• Sectra and Samsung's partnership concerning a secure smartphone resulted in Sectra Tiger/R being approved at the RESTRICTED level. The product was approved for communicating information at this high security level by the Dutch security authorities.
• Sectra entered the African healthcare market through the new distributor Tecmed Africa in South Africa.

OUTLOOK

The world needs more efficient healthcare and increased security in society's communication and IT systems. Sectra plays a key role in meeting the needs in both of these areas, which also offer significant scope for expansion.

Offering for more efficient care

Due to the demographic trend of a population that is living longer while birth rates are declining, there is a growing need for greater healthcare efficiency in order to provide care for more patients. Sectra develops and sells IT solutions and services for medical diagnostic imaging and medical education that help to develop the healthcare sector while also making it more efficient. Society also needs to improve how it takes care of age-related diseases. Sectra offers several products and solutions that enhance the efficiency of care pathways for some of the most costly diseases primarily affecting older people. For example, the company's offering facilitates cancer diagnostics and planning and monitoring of orthopaedic surgery. Sectra's work enables hospitals across the world to become more efficient, and thus take care of more patients and save more lives.

Offering for a safer society

Growing use of IT, global mobility and the connection of IT systems to the Internet are contributing to efficiency enhancements in society and simplifying everyday life. These developments also entail an increased risk of eavesdropping and unauthorized data access and mean that disruptions to critical IT systems could result in serious negative consequences for society and the individual. Sectra expanded its market during the preceding fiscal year through the launch of products and monitoring services for society's critical functions, such as electricity and water distribution. Sectra has developed IT solutions and services for secure voice and data communications for many years. Sectra has been entrusted to deliver products that protect classified information at the very highest levels. Several of its products have been approved by the EU, NATO and national security authorities. By helping customers to provide increased security for society's most critical communication and control systems, Sectra contributes to a more stable and safer society.

Unique customer satisfaction according to new report highlighting various IT strategies

According to a new report entitled "Ideal imaging configuration: The tug-of-war between enterprise imaging and best of breed" from the US analyst company peer60, Sectra has the highest customer satisfaction in the industry regardless of the customer's IT strategy for medical imaging management. The report, which was presented in November 2016, was based on feedback from 276 decision-makers in the North American healthcare market. The survey compared the strategy of introducing a solution built using the best subcomponents (PACS, VNA and image display) from various suppliers with selecting all components from a single supplier. Sectra had the most satisfied customers in both categories.

"Sectra has impressed once again with a very high Net Promoter Score among its PACS customers. No one else seems to be engendering this much loyalty. The fact that Sectra can maintain high scores with both IT approaches is unique," says Chris Jensen, Executive Vice President of peer60.

For three consecutive years in the US and two consecutive years globally, Sectra PACS has also been awarded "Best in KLAS" for highest customer satisfaction according to "Best in KLAS: Software & Services Report" for 2015/2016, 2014 and 2013.

Read more about the report

GROUP

Order bookings, sales and earnings

Six-month period

The Group's order bookings for the period rose 3.9% to SEK 525.1 million. The highest order bookings were reported by Sectra's North American operations.

Net sales rose 3.4% to SEK 505.9 million. This increase was attributable to Sectra Customer Financing, which finances managed-services agreements with healthcare customers, and the Business Innovation business segment. Currency fluctuations had an adverse impact on sales. Adjusted for currency fluctuations, sales increased 5.1%. The British pound (GBP) had the largest impact and sales in the UK were lower than in the comparative period. However, Sectra reported sales growth in its largest markets of Sweden and the US.

Group eliminations related to sales amounted to negative SEK 94.4 million (neg: 113.6). These eliminations mainly pertained to Group-financed managed-services agreements with customers in the Imaging IT Solutions business area. Within Imaging IT Solutions, most of the revenue and earnings from managed-services agreements are recognized in conjunction with installation and deployment at the customer's site. At the same time, these agreements are eliminated at the Group level, with external revenue and earnings instead recognized over the duration of the managed-services agreements, which is normally five to ten years. As projects move to the operational phase, they are taken over by Sectra Customer Financing and contribute to a stable long-term trend.

All business areas reported increased operating profit. The Group's operating profit rose 23.6% to SEK 78.5 million. Adjusted for currency fluctuations, operating profit increased 33.4%. The operating margin was 15.5% (13.0).

The Group's net financial items amounted to an expense of SEK 3.0 million (income: 5.6). Currency fluctuations had a negative impact of SEK 2.8 million (pos: 5.4) on the Group's financial items. Changes in the GBP accounted for the largest currency effects. Profit before tax amounted to SEK 75.5 million, corresponding to a profit margin of 14.9% (14.1).

Second quarter

The Group's order bookings for the quarter rose 45.9% to SEK 299.6 million. Sectra's operations in the Netherlands and Norway accounted for the largest increase. The renegotiation of a multiyear customer contract had a nonrecurring negative effect of SEK 78.9 million on the Group's order stock during the quarter and resulted in a retroactive adjustment to the order bookings for 2014/2015. Although the order will generate lower sales than under the original contract, the change will not have a significant impact on the Group's earnings since it is mainly third-party products with low margins that have been excluded from the contract.

Net sales rose 4.0% to SEK 275.4 million. Adjusted for currency fluctuations, sales increased 4.6%. Imaging IT Solutions and Business Innovation contributed to this increase. Most of Sectra's geographic segments reported sales growth during the quarter. The UK, which was significantly impacted by currency effects, and Rest of world reported lower sales than in the comparative quarter. Group eliminations related to sales amounted to negative SEK 40.3 million (neg: 40.2).

The Group's operating profit rose 44.5% to SEK 46.4 million. Adjusted for currency fluctuations, operating profit increased 60.4%. The operating margin was 16.8% (12.1).

The Group's net financial items amounted to an expense of SEK 2.0 million (income: 2.5). Currency fluctuations had a negative impact of SEK 2.1 million (pos: 2.4) on the Group's financial items. Changes in the GBP accounted for the largest currency effects. Profit before tax amounted to SEK 44.3 million, corresponding to a profit margin of 16.1% (13.1).

Sectra's financial goals

The purpose of Sectra's Group-wide goals and strategies is to build financially sound operations that provide the company with opportunities to create customer value and thereby contribute to long-term growth in shareholder value. Sectra's financial focus is to increase its operating profit per share, while maintaining its operating margin.

All of the financial goals had been achieved as of the balance-sheet date. The financial goals are (in order of priority):

• 1. Stability: The equity/assets ratio is to be at least 30%.
• 1. Profitability: The operating margin (EBIT) is to be at least 15%.
• 1. Growth: Operating profit (EBIT) per share is to grow by at least 50% over a five-year period.

Equity/assets ratio

Operating margin (EBIT), rolling 12-month basis

Growth in operating profit per share over a five-year period

Office opened in France

During the first quarter, Sectra opened a direct sales office in France. Sectra has been active in the French market via a partner since 2006 and already has a large number of minor installations of IT systems for mammography throughout the country. The establishment of the office will allow Sectra to extend its sales of medical IT solutions in the French market to include the company's entire portfolio of medical products and services.

In the preceding fiscal year, Sectra also acquired RxEye AB, which sells cloud-based IT services for remote viewing of medical images and has an established network in France. This gives Sectra a solid foundation for further expansion into the French healthcare market.

Financial position

Sectra has a strong cash balance and balance sheet. After adjustment for exchange-rate differences, the Group's cash and cash equivalents at the end of the reporting period amounted to SEK 111.6 million (133.1). During the second quarter, Sectra distributed SEK 169.6 million (168.8) to shareholders through a share redemption program. The Group's interestbearing liabilities totaled SEK 66.1 million (46.9) and pertained to convertible loans held by employees and Board members. The equity/assets ratio was 45.4% (54.1).

The Group's cash flow from operations after changes in working capital amounted to SEK 70.2 million (58.6). This change is mainly attributable to increased invoicing pertaining to Group-financed customer projects as a result of more projects entering the operational phase. Cash flow per share increased to SEK 1.86 (1.56) for the period.

Cash flow from investing activities was a negative SEK 33.5 million (neg: 59.8) for the period. These investments mainly pertained to assets in long-term Group-financed customer projects and development projects. The change was primarily attributable to lower investments in Group-financed customer projects compared with the preceding year, when Sectra deployed a larger number of customer projects. The Group's total cash flow was a negative SEK 132.8 million (neg: 171.2), of which negative SEK 138.4 million (neg: 166.7) pertained to the second quarter, and the figures included Sectra's share redemption program for shareholders. The Group's higher operating profit and lower investments in customerfinanced projects contributed to this improvement.

Investments, depreciation and amortization

Group investments during the period amounted to SEK 33.5 million (59.8), of which SEK 21.5 million (48.7) was attributable to the second quarter. Investments primarily pertained to customer projects in the Group's financing activities and capitalized development costs. Depreciation/amortization for the period amounted to SEK 28.8 million (23.1), of which the second quarter accounted for SEK 14.4 million (13.3).

Hardware-related investments in Group-financed customer projects during the period amounted to SEK 7.1 million (45.9), of which a negative SEK 6.2 million (pos: 0.7) was attributable to currency fluctuations. At the end of the period, the net carrying amount for Group-financed customer projects totaled SEK 133.2 million (143.2). This decline was mainly attributable to currency fluctuations.

Capitalization of development costs during the period amounted to SEK 15.1 million (10.2), of which SEK 9.4 million (5.5) was attributable to the second quarter. Amortization of capitalized development projects during the period amounted to SEK 8.5 million (6.4), of which SEK 4.3 million (3.6) pertained to the second quarter. At the end of the period, capitalized development costs totaled SEK 92.2 million (69.0).

Seasonal variations

Sectra's seasonal variations entail that most of the company's invoicing and earnings are traditionally generated at the end of the fiscal year. However, these seasonal variations have diminished somewhat in recent years since a major portion of sales is derived from pay-peruse or pay-by-month agreements with long durations. The equalization effect resulting from long-term managed-services agreements that are financed internally within the Group does not impact the business areas; instead it is essentially managed through the Parent Company's financing activities.

The variations in order volumes in individual quarters can be substantial when customers sign extensive, multiyear agreements with the company, for example, for medical IT projects or for the development of encryption systems.

IMAGING IT SOLUTIONS

	Q2 Aug-Oct 2016	Q2 Aug-Oct 2015	Q1-2 May-Oct 2016	Q1-2 May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Sales, SEK million	236.9	220.5	447.7	461.1	944.4	957.8
Operating profit, SEK
million	53.9	27.0	76.6	71.0	191.0	185.4
Operating margin, %	22.8	12.2	17.1	15.4	20.2	19.4
Number of employees at end of period	470	453	470	453	470	470

Sales and earnings

Imaging IT Solutions' sales amounted to SEK 447.7 million, down 2.9% compared with the year-earlier period. This change was partly attributable to negative currency effects. Sales of third-party products were lower than in the year-earlier period, which is in line with the business area's strategy to prioritize areas with the highest margins, such as sales of software licenses, and areas where the company can contribute the greatest customer value.

Operating profit doubled compared with the preceding quarter, while operating profit for the period increased 7.9% to SEK 76.6 million. The change compared with the year-earlier period was mainly due to the fact that sales of software licenses account for a larger share of the product mix.

Market

Sales Operating profit Results in SEK million Rolling 12 months

The market for medical IT systems and services is continuing to grow as a result of the population trend and the increased use of medical diagnostic imaging. To enable healthcare providers to provide better, faster and more patient-centered care, Sectra offers systems and services for the management and archiving of all types of medical images. Medical imaging management in cancer diagnosis is a key part of the business area's strategy for the future. Most users are currently active in the fields of radiology and mammography, areas that make extensive use of medical images. The use of medical images in other areas, such as pathology, is growing, partly as a result of more customers implementing systems for consolidated imaging management for integrated diagnostics.

More than 1,700 healthcare providers worldwide use Sectra's systems and services, and the company is one of the world's leading suppliers of IT systems for managing medical images (PACS) and patient information (RIS). Sectra commands a market-leading position in these product segments in Sweden, Norway, the Netherlands and Portugal, and is growing rapidly in the UK and the US. Sectra is also the market leader in a number of other countries in the niche of mammography imaging management.

During the second quarter, Sectra signed a multiyear agreement with the Norwegian healthcare provider Helse Vest RHF, which decided to use Sectra's IT solution for managing radiology images and patient information. Helse Vest already uses Sectra's medical media archive (VNA), where all of the region's medical images and film sequences are managed. Helse Vest now has a comprehensive solution that provides physicians with simple, secure access to all patient information and image materials—including non-radiological images—concerning a specific patient. Quick and easy access to all patient data particularly improves multidisciplinary rounds, which are an important component of cancer care.

The way forward

The business area is focusing on offering customers stable, efficient and future-proof solutions for managing and communicating all types of medical images. Examples of focus activities:

• Grow within radiology and other areas of medical imaging management by adding new customers in regions where Sectra already has an established presence. This includes an increased focus on the US and Germany, where Sectra has a very high level of customer satisfaction, but a relatively small market share.

• Assess individual new markets for direct sales, such as France, where Sectra initiated direct sales during the first quarter.

• Develop partnerships with existing customers through which Sectra's existing products and services can contribute to further efficiency enhancements. For example, sales of the solution for digital pathology.

• Continued product development and broadening of the product portfolio. Special focus on medical imaging management in cancer diagnosis, an area that is a key part of the business area's strategy for the future.
• Greater internal efficiency. Partly by establishing a service-oriented organization that can support the sale of cloud solutions and increased centralization to ensure optimal utilization of specialist expertise.
• Increased customer satisfaction by continuously measuring and monitoring customer opinions about Sectra's support and products.

Sales Operating profit Results in SEK million Rolling 12 months

SECURE COMMUNICATIONS

	Q2 Aug-Oct 2016	Q2 Aug-Oct 2015	Q1-2 May-Oct 2016	Q1-2 May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Sales, SEK million	22.3	24.3	40.3	43.4	84.1	87.2
Operating profit/loss,
SEK million	1.0	0.3	2.9	-0.1	-0.7	-3.7
Operating margin, %	4.5	1.2	7.2	-0.2	-0.8	-4.2
Number of employees at end of period	66	63	66	63	66	64

Sales and earnings

Secure Communications' sales for the period amounted to SEK 40.3 million, down 7.7% compared with the year-earlier period. At the same time, operating profit rose to SEK 2.9 million from a loss in the comparative period. A higher percentage of product sales contributed to this increase in earnings. The results were charged with ongoing growth initiatives to broaden the business area's offering to include new customer segments and expand into additional geographic markets.

Market

The ability to safely and efficiently transmit sensitive information is central to the stability and security of society, particularly when it comes to critical social functions and infrastructure, government contacts or national security. Sectra has extensive experience of protecting society's most critical communication and is a strong brand in the area of encryption and secure mobile communication. In the preceding fiscal year, the business area entered the fastgrowing market for IT security for customers in the area of critical infrastructure. Sectra's critical infrastructure operations are still in the establishment phase but show considerable potential.

Customers include government authorities, companies in critical social sectors and defense organizations. Sweden and the Netherlands comprise the business area's largest markets. As a result of the business area's close, long-lasting partnerships with customers as well as national security authorities in many countries, its products for secure mobile communication are used in most European countries, and by the EU and NATO. Being trusted to protect a nation's most sensitive information requires that the customer have a high degree of confidence in Sectra as a provider.

The business area's growth strategy includes activities to broaden its offering to additional customer segments, mainly in the area of critical infrastructure, and expand into new geographic markets. One such market is Finland, where Sectra opened subsidiaries and acquired the security consulting company EXP Analytics Oy in the preceding fiscal year.

The way forward

The business area is focusing on offering customers stable, accessible and easy-to-use IT security solutions for control systems and communication systems for sensitive information. Examples of the business area's focus activities:

Increase sales of security-approved communication solutions in the Netherlands, Finland and the rest of Europe. This is facilitated by the company's offering of a complete system

concept with solutions for various security levels able to handle multiple security domains (groups of users with a regulatory right to access classified information) in a single unit, which simplifies user management.

• Partnership with Samsung to further develop the Sectra Tiger/R secure mobile telephony solution and enable the company's operations to be expanded into new customer segments for government authorities and private businesses.
• Grow in the area of critical infrastructure by offering security analyses and system monitoring services for operating and control systems. Primarily focusing on the energy sector in the Nordic region and other areas of Northern Europe.

BUSINESS INNOVATION

	Q2 Aug-Oct 2016	Q2 Aug-Oct 2015	Q1-2 May-Oct 2016	Q1-2 May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Sales, SEK million	16.9	15.9	31.4	23.1	59.6	51.3
Operating profit/loss, SEK million	2.4	3.8	3.8	2.4	1.1	-0.3
Operating margin, %	14.2	23.9	12.1	10.4	1.9	-0.6
Number of employees at end of period	35	28	35	28	35	29

The Business Innovation segment comprises the Medical Education and Orthopaedics business units as well as Sectra's research department. Sectra's patent portfolio is managed and developed within Business Innovation.

Sales and earnings

The Orthopaedics and Medical Education business units are growing. Business Innovation's sales for the period rose 35.9% to SEK 31.4 million. Operating profit increased to SEK 3.8 million.

Reorganization

On May 1, 2016, a reorganization was carried out within Business Innovation, incorporating the Osteoporosis business unit into the Orthopaedics business unit. Accordingly, a single business unit was formed for products and services related to skeletal diseases and injuries, which is expected to generate certain synergy effects.

Market

Business Innovation is Sectra's incubator for early-stage business units, projects and ideas that are not yet large enough to become independent business areas. This is where Sectra evaluates and utilizes opportunities to commercialize new technologies and new segments in the Group's main and related areas. Through Business Innovation, Sectra participates in research that can lead to a better quality of life for the individual, increased customer value and cost savings for healthcare and society.

The way forward

Examples of focus activities in Business Innovation:

• Medical education grow in key markets, such as the US and China, and expand into new markets. Essentially all sales outside Sweden are conducted through distributors.
• Orthopaedics grow in the countries where the business unit has its own sales organization, increase sales of cloud-based services for planning joint replacement surgeries through collaboration with implant suppliers, and grow in the trauma segment through sales of new solutions for 3D image planning of acute surgical procedures. An increasing proportion of deliveries take place through cloud-based solutions.
• Research responsible for research projects in product areas and technology with the potential to generate sales within three to five years. The team is also responsible for key research partnerships with universities and colleges.

Swedish innovation agency supports research projects in the field of orthopaedics

The need for implant surgery is on the rise, but in 15% of the cases, treatment results in healthcare injuries, giving rise to extra healthcare costs of more than SEK 1 billion annually. The "Groundbreaking Precision for Orthopaedic Surgeons" project operated in cooperation between Sectra and 13 other organizations—aims to tackle this challenge and has received funding from Vinnova through the "Challenge-Driven Innovation" program.

SECTRA CUSTOMER FINANCING

	Q2 Aug-Oct 2016	Q2 Aug-Oct 2015	Q1-2 May-Oct 2016	Q1-2 May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Sales, SEK million	28.4	32.0	59.1	52.8	125.5	119.2
Operating profit, SEK
million	1.0	1.4	2.8	2.3	4.8	4.3
Operating margin, %	3.5	4.4	4.7	4.4	3.8	3.6
Number of employees at end of period	0	0	0	0	0	0

Sectra Customer Financing is Sectra's unit for the financing of major managed-services agreements with healthcare customers and asset management.

Sales and earnings

Despite negative currency effects, the unit's sales for the period increased 11.9% to SEK 59.1 million. Operating profit rose 21.7% to SEK 2.8 million. Sales and earnings in the second quarter were lower than in the comparative quarter. Measured in local currency, however, the unit reported growth for quarter.

The growth in the unit was linked to Imaging IT Solutions' successful sales of multiyear managed-services agreements for medical IT systems in recent years. The financing of extensive managed-services agreement is usually handled by Sectra Customer Financing, which takes over projects after deployment and thereafter recognizes revenue and earnings over the duration of the managed-services agreement. Within Imaging IT Solutions, most of the revenue and expenses for managed-services agreements are recognized in conjunction with installation and deployment at the customer's site, which are then eliminated at the Group level.

Operating profit Results in SEK million Rolling 12 months

OTHER OPERATIONS

	Q2 Aug-Oct 2016	Q2 Aug-Oct 2015	Q1-2 May-Oct 2016	Q1-2 May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Sales, SEK million	11.2	12.2	21.8	22.7	44.3	45.2
Operating profit/loss,
SEK million	-4.3	0.7	-7.0	-1.6	-14.4	-9.0
Operating margin, %	-38.4	5.7	-32.1	-7.1	-32.5	-20.0
Number of employees at	59	59	59	59	59	62
end of period

Other Operations pertain to Sectra's joint functions for administration, Group finances, IT, regulatory affairs, marketing communication and investor relations activities.

Sales and earnings

Sales from Other Operations were essentially on par with the comparative period. The earnings trend was impacted by an increase in international Group-wide initiatives and investments in IT security.

PARENT COMPANY

The Parent Company, Sectra AB, includes the operating segments Business Innovation and Sectra Customer Financing as well as the head office's functions for Group finances, IT, regulatory affairs, marketing communication and investor relations activities. The Parent Company's income statement and balance sheet are reported on page 19.

During the period, sales in the Parent Company amounted to SEK 53.5 million (46.1), of which SEK 28.4 million (28.5) was attributable to the second quarter. The Parent Company posted an operating loss of SEK 0.5 million (profit: 3.1), of which negative SEK 0.7 million (5.9) pertained to the second quarter. Profit after net financial items amounted to SEK 2.4 million (13.5), of which negative SEK 1.1 million (pos: 3.3) pertained to the second quarter. Currency fluctuations had an adverse impact of SEK 0.3 million (pos: 7.1) on financial items for the period, of which negative SEK 2.0 million (neg: 4.5) pertained to the second quarter.

THE SHARE

Sectra's share redemption program 2016

During October 2016, Sectra carried out a share redemption program, whereby SEK 4.50 per share, a total of SEK 169.6 million, was distributed to shareholders through a 2:1 share split, combined with a mandatory redemption process and a bonus issue to restore the share capital. Payment was made on October 24, 2016.

In the Swedish tax assessment, the redemption of Sectra's redemption shares (designated SECT IL A and SECT IL B) is to be declared as a sale of shares on Form K4. An application for general recommendations regarding the distribution of cost between common shares and redemption shares has been submitted to the Swedish Tax Agency. Once the decision has been announced, Sectra will publish corresponding information on its website: www.sectra.com/redemption

Due to Sectra's share redemption program for 2016, the Board decided to recalculate conversion prices for outstanding convertibles and employee stock option programs. The recalculation means that the financial compensation to the holders of convertibles in relation to the shareholders is reasonable. For dilution effects and current conversion prices after the recalculation, refer to the information on Sectra's website: www.sectra.com/shareprograms.

Share-based incentive programs

On the balance-sheet date, Sectra's share capital totaled SEK 37,686,105 distributed among 37,686,105 shares. Of these shares, 2,620,692 are Class A shares and 35,065,413 are Class B shares. On full exercise of outstanding convertibles, the number of Class B shares will increase by 655,641, corresponding to 1.7% of the share capital and 1.1% of the voting rights in the company. These figures include the redemption of convertibles (2011/2016 and 2012/2016 programs) during the first quarter totaling SEK 9.0 million, corresponding to 182,770 Class B shares. After the balance-sheet date, holders of convertibles redeemed convertibles (2013/2016 program) totaling SEK 13.5 million, corresponding to 203,980 Class B shares. After the new share issue is registered, Sectra's share capital will amount to SEK 37,890,085, distributed between 37,890,085 shares. Of these shares, 2,620,692 are Class A shares and 35,269,393 are Class B shares.

The AGM, held on September 6, 2016, resolved to issue additional convertibles to the Group's employees and external Board members. The convertibles could be subscribed during the period from November 7–11, 2016. Employees were subsequently allocated 118,419 convertibles and external Board members were allocated 18,181 convertibles, corresponding to a total of 136,600 Class B shares at a combined nominal amount of SEK 25.0 million. The dilution effect of the two convertible programs is 0.4% of the share capital and 0.2% of the voting rights. The conversion price for convertibles to employees is SEK 181.80, and the duration is from December 1, 2016 to December 31, 2019. Conversion is possible from December 9–13, 2019. The conversion price for convertibles to external Board members is SEK 192.50, and the duration is from December 1, 2016 to December 31, 2020. Conversion is possible from December 10–16, 2020.

Authorization

The 2016 AGM authorized the Board, for the period until the next AGM, to decide on the new issue of not more than 3,700,000 Class B shares for consideration in the form of cash payment, offsetting of debt or contribution in kind whereby offsetting of debt and contribution in kind may deviate from shareholders' preferential rights. If the authorization is fully exercised, the dilution effect will be approximately 10% of the share capital and approximately 6% of the voting rights.

The AGM also resolved to authorize the Board, on one or more occasions, during the period until the next AGM, to make decisions on the acquisition and transfer of Class B treasury shares. A condition for the authorization is that the company's holding of treasury shares at no time exceeds 10% of all shares in the company.

At the time of publication of this interim report, the Board had not utilized this authorization.

NOMINATION COMMITTEE AND 2017 AGM

The 2016 AGM resolved to appoint a Nomination Committee comprising four members, one of whom is the Chairman of the Board and three of whom represent the largest shareholders in the company based on the number of votes. The Nomination Committee was formed based on known shareholdings in the company on October 31, 2016. In accordance with the resolution of the AGM, the following Nomination Committee was appointed:

• Carl-Erik Ridderstråle (Chairman of the Board)
• Torbjörn Kronander (largest shareholder and CEO)
• Jan-Olof Brüer (second-largest shareholder and Board member)
• Jan Särlvik (representing Nordea, the fourth-largest shareholder)

Jan-Olof Brüer, who is the company's second-largest shareholder in terms of votes, has been appointed Chairman of the Nomination Committee. Torbjörn Kronander, the company's largest shareholder in terms of votes, decided to abstain from the chairmanship due to his role as CEO of Sectra AB.

The AGM is scheduled for September 13, 2017 in Linköping, Sweden. The Nomination Committee's proposals will be presented in the notice of the AGM and be available on the company's website not earlier than six days and not more than four weeks prior to the Meeting date. The Nomination Committee will prepare and submit proposals regarding:

• election of and fees to the Chairman of the Board and other Board members
• election of and fees to the auditors and deputy auditors
• resolution on principles governing the composition of the Nomination Committee
• Chairman of the AGM

Shareholders who wish to submit proposals to the Nomination Committee may do so in writing by e-mail: info.investor@sectra.com, or by mail: Sectra AB, Attn. Nomination Committee, Teknikringen 20, SE-583 30 Linköping, Sweden.

FINANCIAL STATEMENTS

Accounting policies

This interim report has been prepared in accordance with IAS 34, Interim Financial Reporting, the Swedish Annual Accounts Act and the Swedish Securities Markets Act. The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) and statements from the International Financial Reporting Interpretations Committee (IFRIC) as approved by the EU Commission for application within the EU.

The Parent Company applies the Swedish Annual Accounts Act and RFR 2 Accounting for Legal Entities. The Swedish Financial Reporting Board has amended RFR 2 in respect of the application of IAS 21. This amendment entails that exchange-rate differences arising on monetary items comprising part of a net investment in a foreign operation are to recognized in profit and loss and not in other comprehensive income as they were in the past. The amendment applies to fiscal years starting January 1, 2016 or later. The amendment impacts financial income and expenses in the Parent Company. The 2015/2016 comparative year has been restated due to this amendment. As in the past, exchange-rate differences in the consolidated financial statements are recognized in the translation reserve under equity.

The new rule in the Swedish Annual Accounts Act concerning the capitalization of development costs will impact the Parent Company and other Swedish legal entities in the Group as of the fiscal year starting May 1, 2016. The rule entails that when development costs are capitalized, the corresponding amount must be transferred from unrestricted equity to restricted equity under the item "Development expenses fund," and is to be recognized separately in the balance sheet. In all other respects, the accounting policies and calculation methods remain unchanged compared with those applied in the 2015/2016 Annual Report. Any other new policies and amendments that have come into effect as of the 2016/2017 fiscal year have not had any material impact on the financial statements.

Risks and uncertainties

Through its operations, Sectra is exposed to such business risks as dependence on major customers and partners, the effect of exchange rates on pricing in the markets in which the Group is active, and property and liability risks. Sectra is also exposed to various types of financial risks such as currency, interest-rate, credit and liquidity risks. A detailed description of the risks and uncertainties as well as Sectra's strategies and tactics for minimizing risk exposure and limiting adverse effects are provided in the Administration Report in the Group's Annual Report for the 2015/2016 fiscal year and in Note 30 on page 67. No significant events have occurred that would alter the conditions reported therein.

ASSURANCE

The Board of Directors and the President of Sectra AB (publ) hereby assure that the interim report for the period May to October 2016 provides a true and fair view of the Parent Company's and Group's operations, financial position and earnings and describes the significant risks and uncertainties facing the Parent Company and other companies in the Group.

This interim report has not been reviewed by the company's auditors.

Linköping, Sweden, December 12, 2016

Torbjörn Kronander Carl-Erik Ridderstråle Erika Söderberg Johnson President, CEO Chairman Board member and Board member Anders Persson Christer Nilsson Jakob Svärdström Board member Board member Board member Jan-Olof Brüer Deborah Capello Fredrik Häll Board member Board member, Board member, employee representative employee representative

FOR FURTHER INFORMATION

Contact Sectra's CEO Torbjörn Kronander, telephone +46 (0)13 23 52 27 or e-mail info.investor@sectra.se.

Presentation of the interim report

A teleconference will be held by Torbjörn Kronander, President and CEO of Sectra AB, and Simo Pykälistö, President of Secure Communications and CFO and Executive Vice President of Sectra AB. The presentation will be held in English.

Time: December 12, 2016 at 10:00 a.m. (CET)

To participate, call: SE: +46 8 56642690 UK: +44 2030089810 US: +1 8557532235

The report presentation can also be followed live online: www.sectra.com/irwebcast. You can also click on this link to listen to a recorded version after the conference.

Financial calendar

Nine-month interim report March 7, 2017 at 8:00 a.m. (CET) Year-end report May 30, 2017 at 8:00 a.m. (CET) AGM 2017 September 13, 2017 in Linköping, Sweden

This information constitutes information that Sectra AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and/or the Swedish Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 8:00 a.m. (CET) on December 12, 2016.

Download the report by clicking on the following link:

www.sectra.com/annual\_report

Fill in your name and e-mail address at the following link to subscribe to news from Sectra: www.sectra.com/subscribe

GROUP FINANCIAL SUMMARY

Consolidated income statements

SEK thousand	3 months	3 months	6 months	6 months	12 months	Full-year
	Aug-Oct	Aug-Oct	May-Oct	May-Oct	Nov 2015-	May-Apr
	2016	2015	2016	2015	Oct 2016	2015/2016
Net sales	275,391	264,656	505,873	489,522	1,089,911	1,073,560
Capitalized work for own use	9,364	5,457	15,104	10,226	38,714	33,836
Other operating income	137	448	505	1,474	2,483	3,452
Goods for resale	-43,033	-48,483	-73,473	-68,548	-158,723	-153,798
Personnel costs	-137,585	-129,278	-257,675	-252,641	-526,889	-521,855
Other external costs	-43,475	-47,327	-83,018	-93,401	-207,802	-218,185
Depreciation/amortization and	-14,446	-13,349	-28,824	-23,106	-57,211	-51,493
impairment
Operating profit	46,353	32,124	78,492	63,526	180,483	165,517
Net financial items	-2,010	2,501	-2,975	5,576	-19,300	-10,749
Profit after net financial items	44,343	34,625	75,517	69,102	161,183	154,768
Taxes	-9,755	-7,790	-16,614	-15,548	-30,137	-29,071
Profit for the period	34,588	26,835	58,903	53,554	131,046	125,697
Profit for the period attributable to:
Parent Company owners	34,588	26,835	58,903	53,554	131,046	125,697
Non-controlling interest	0	0	0	0	0	0
Earnings per share
Before dilution, SEK	0.92	0.72	1.56	1.43	3.49	3.35
After dilution, SEK	0.90	0.70	1.54	1.40	3.42	3.29
No. of shares
Before dilution	37,686,105	37,503,335	37,686,105	37,503,335	37,686,105	37,503,335
After dilution 1	38,341,746	38,202,927	38,341,746	38,202,927	38,341,746	38,341,746
Average, before dilution	37,686,105	37,503,335	37,655,643	37,464,615	37,579,489	37,483,975
Average, after dilution	38,341,746	38,202,927	38,341,746	38,202,929	38,318,610	38,249,201

1. Dilution of the number of shares is based on the convertible programs issued in 2012/2013 (43,495), 2013/2014 (245,798), 2014/2015 (153,329) and 2015/2016 (213,012). On full exercise of convertibles, the number of shares will increase by 655,641.

Consolidated statement of comprehensive income

SEK thousand	3 months Aug-Oct 2016	3 months Aug-Oct 2015	6 months May-Oct 2016	6 months May-Oct 2015	12 months Nov 2015- Oct 2016	Full-year May-Apr 2015/2016
Profit for the period	34,588	26,835	58,903	53,554	131,046	125,697
Items that may be reclassified to profit and loss Change in translation differences for the period from translating foreign subsidiaries	-2,037	-10,754	-1,875	4,759	-33,371	-26,736
Total other comprehensive income for the period	-2,037	-10,754	-1,875	4,759	-33,371	-26,736
Total comprehensive income for the period	32,551	16,081	57,028	58,313	97,675	98,961

Consolidated balance sheets

SEK thousand	Oct 31,	Oct 31,	Apr 30,
	2016	2015	2016
Assets
Intangible assets	188,880	163,143	187,439
Tangible assets	107,159	111,747	112,565
Financial assets	1,800	1,798	1,798
Deferred tax assets	37,207	28,633	36,489
Total fixed assets	335,046	305,321	338,291
Other current assets	527,917	504,586	524,789
Cash and cash equivalents	111,621	133,091	239,768
Total current assets	639,538	637,677	764,557
Total assets	974,584	942,998	1,102,848
Equity and liabilities
Equity (incl. profit for the period)	442,016	510,410	545,603
Provisions	36,733	18,345	49,140
Deferred tax liabilities	45,616	39,749	45,906
Long-term liabilities	50,095	37,968	52,565
Current liabilities	400,124	336,526	409,634
Total equity and liabilities	974,584	942,998	1,102,848

No changes have occurred in pledged assets and contingent liabilities since the 2015/2016 Annual Report.

Consolidated statement of changes in equity

SEK thousand	6 months	6 months	Full-year
	May-Oct	May-Oct	May-Apr
	2016	2015	2015/2016
Equity at start of period	545,603	611,775	611,775
Comprehensive income for the period	57,028	58,313	98,961
Share-related payments	0	119	140
Dividend/redemption of shares	-169,588	-168,765	-168,765
Settlement of share-related payments	8,973	8,968	3,492
Equity at end of period	442,016	510,410	545,603

Consolidated cash-flow statements

SEK thousand	6 months	6 months	Full-year
	May-Oct	May-Oct	May-Apr
	2016	2015	2015/2016
Cash flow from operations before changes in working capital	87,067	84,762	163,838
Cash flow from operations after changes in working capital	70,243	58,559	185,853
Investing activities	-33,469	-59,824	-108,668
Financing activities	-169,588	-169,957	-146,626
Total cash flow for the period	-132,814	-171,222	-69,441
Change in cash and cash equivalents
Cash and cash equivalents, opening balance	239,768	307,076	307,076
Exchange-rate difference in cash and cash equivalents	4,668	-2,763	2,133
Cash and cash equivalents, closing balance	111,622	133,091	239,768
Unutilized credit facilities	15,000	15,000	15,000

Key figures for the period and full-year

	6 months	6 months	12 months	Full-year
	Oct 31,	Oct 31,	Oct 31,	Apr 30,
	2016	2015	2016	2016
Order bookings, SEK million	525.1	505.2	1,341.9	1,322.0
Operating margin, %	15.5	13.0	16.6	15.4
Profit margin, %	14.9	14.1	14.8	14.4
Average number of employees	611	574	606	587
Cash flow per share, SEK	1.86	1.56	5.24	4.96
Cash flow per share after full dilution, SEK	1.83	1.53	5.15	4.85
Value added, SEK million	336.2	316.2	707.4	687.4
P/E ratio, multiple	n/a	n/a	40.0	33.0
Share price at end of period, SEK	139.5	105.0	139.5	110.75
Return on equity, %	11.9	9.5	26.5	21.7
Return on capital employed, %	13.5	11.4	28.8	24.2
Return on total capital, %	7.3	6.9	15.7	14.2
Equity/assets ratio, %	45.4	54.1	45.4	49.5
Liquidity, multiple	1.6	1.9	1.6	1.9
Equity per share, SEK	11.73	13.61	11.73	14.55
Equity per share after full dilution, SEK	11.53	13.36	11.53	14.23

Quarterly consolidated income statement and key figures

SEK million		2016/2017				2015/2016				2014/2015
	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Net sales	275.4	230.5	315.1	268.9	264.7	224.9	268.3	241.6	239.0	212.4
Capitalized work for own use	9.4	5.7	10.8	12.8	5.4	4.8	9.0	12.0	7.4	3.8
Other operating income	0.1	0.4	1.5	0.4	0.4	1.0	0	0	0	0
Operating expenses	-224.1	-190.1	-254.7	-224.4	-225.1	-189.5	-225.5	-211.8	-200.0	-163.5
Depreciation/amortization and impairment	-14.4	-14.4	-14.7	-13.7	-13.3	-9.8	-9.4	-9.9	-10.9	-12.2
Operating profit	46.4	32.1	58.0	44.0	32.1	31.4	42.4	31.9	35.5	40.5
Net financial items	-2.0	-0.9	-9.3	-7.1	2.5	3.1	-2.8	11.6	1.8	3.5
Profit after net financial items	44.4	31.2	48.7	36.9	34.6	34.5	39.6	43.5	37.3	44.0
Tax on earnings for the period	-9.8	-6.9	-5.4	-8.1	-7.8	-7.8	-5.0	-15.2	-8.3	-9.9
Profit for the period	34.6	24.3	43.3	28.8	26.8	26.7	34.6	28.3	29.0	34.1
Order bookings, SEK million	299.6	225.5	447.8	369.0	205.3	299.9	289.7	549.4	244.3	388.1
Operating margin, %	16.8	13.9	18.4	16.4	12.1	14.0	15.8	13.2	14.9	19.0
Cash flow per share, SEK	1.40	0.47	1.65	1.74	1.39	0.18	1.42	-0.63	0.75	0.75
Cash flow per share after full
dilution, SEK	1.37	0.46	1.62	1.70	1.36	0.17	1.39	-0.62	0.73	0.74
Earnings per share, SEK	0.92	0.65	1.15	0.77	0.72	0.71	0.93	0.76	0.78	0.92
Return on equity, %	7.0	4.1	7.5	5.1	4.8	4.2	5.7	4.8	5.1	5.3
Return on capital employed, %	7.9	4.8	7.7	5.9	5.7	5.1	6.0	6.8	6.1	6.5
Equity/assets ratio, %	45.4	52.7	49.5	49.5	54.1	60.8	56.1	56.7	57.0	65.8
Equity per share, SEK	11.73	15.37	14.55	13.74	13.61	17.68	16.44	15.28	14.27	17.86

Five-year summary

	2015/2016	2014/2015	2013/2014	2012/2013	2011/2012
Order bookings, SEK million	1,322.0	1,471.5	925.7	916.0	701.1
Net sales, SEK million	1,073.6	961.4	853.8	817.0	823.1
Operating profit, SEK million	165.5	150.3	128.1	85.9	103.5
Profit after net financial items, SEK million	154.8	164.4	141.5	86.6	127.9
Profit for the period after tax from remaining operations, SEK million	125.7	126.1	103.9	62.2	92.8
Operating margin, %	15.4	15.6	15.0	10.5	12.6
Profit margin, %	14.4	17.1	16.6	10.6	15.5
Earnings per share before dilution, SEK	3.35	3.38	2.80	1.68	2.52
Earnings per share after dilution, SEK	3.29	3.31	2.73	1.64	2.46
Dividend/redemption program per share, SEK	4.50	4.50	4.50	4.50	5.00
Share price at end of year, SEK	110.75	119.5	77.75	53.0	43.0
P/E ratio, multiple	33.0	35.3	27.8	31.5	17.1
Including discontinued operations
Profit for the period after tax, SEK million	125.7	126.1	103.9	62.2	385.8
Return on equity, %	21.7	20.6	16.3	8.6	58.0
Return on capital employed, %	24.2	25.1	21.1	11.6	59.7
Return on total capital, %	14.2	15.8	13.7	7.9	40.8
Equity per share before dilution, SEK	14.55	16.44	16.49	17.94	21.37
Equity per share after dilution, SEK	14.23	16.01	16.05	17.53	20.77
Equity/assets ratio, %	49.5	56.1	60.7	61.4	69.4

OPERATING SEGMENTS

Sales by business segment

SEK million	3 months Aug-Oct 2016	3 months Aug-Oct 2015	6 months May-Oct 2016	6 months May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Imaging IT Solutions	236.9	220.5	447.7	461.1	944.4	957.8
Sectra Customer Financing	28.4	32.0	59.1	52.8	125.5	119.2
Secure Communications	22.3	24.3	40.3	43.4	84.1	87.2
Business Innovation	16.9	15.9	31.4	23.1	59.6	51.3
Other Operations	11.2	12.2	21.8	22.7	44.3	45.2
Group eliminations	-40.3	-40.2	-94.4	-113.6	-168.0	-187.1
Total	275.4	264.7	505.9	489.5	1,089.9	1,073.6

Operating profit by business segment

SEK million	3 months	3 months	6 months	6 months	Rolling	Full-year
	Aug-Oct	Aug-Oct	May-Oct	May-Oct	12 months	May-Apr
	2016	2015	2016	2015		2015/2016
Imaging IT Solutions	53.9	27.0	76.6	71.0	191.0	185.4
Sectra Customer Financing	1.0	1.4	2.8	2.3	4.8	4.3
Secure Communications	1.0	0.3	2.9	-0.1	-0.7	-3.7
Business Innovation	2.4	3.8	3.8	2.4	1.1	-0.3
Other Operations	-4.3	0.7	-7.0	-1.6	-14.4	-9.0
Group eliminations	-7.6	-1.1	-0.6	-10.5	-1.3	-11.2
Total	46.4	32.1	78.5	63.5	180.5	165.5

Sales by geographic market

SEK million	3 months Aug-Oct 2016	3 months Aug-Oct 2015	6 months May-Oct 2016	6 months May-Oct 2015	Rolling 12 months	Full-year May-Apr 2015/2016
Sweden	69.5	62.5	126.5	115.9	269.4	258.9
US	65.4	59.8	118.6	110.2	259.1	250.7
UK	40.5	56.7	79.0	93.3	184.9	199.2
Netherlands	20.8	18.1	36.3	33.0	72.5	69.2
Rest of Europe	67.4	51.6	119.4	110.2	244.2	235.0
Rest of world	11.8	16.0	26.1	26.9	59.8	60.6
Total	275.4	264.7	505.9	489.5	1,089.9	1,073.6

PARENT COMPANY

Parent Company income statements

SEK thousand	3 months Aug-Oct	3 months Aug-Oct	6 months May-Oct	6 months May-Oct	Rolling Nov 2015-	Full-year May-Apr
	2016	2015	2016	2015	Oct 2016	2015/2016
Net sales	28,384	28,466	53,464	46,076	103,002	95,614
Capitalized work for own use	1,121	1,030	1,874	1,577	3,921	3,624
Other operating income	136	278	501	479	1,057	1,035
Personnel costs	-12,067	-10,126	-21,751	-14,117	-46,518	-38,884
Other external costs	-17,106	-13,158	-32,511	-30,217	-68,561	-66,267
Depreciation/amortization	-1,167	-600	-2,046	-699	-3,354	-2,007
Operating profit/loss	-699	5,890	-469	3,099	-10,453	-6,885
Net financial items 1	-430	-2,554	2,916	10,354	44,689	52,127
Profit/loss after net financial items	-1,129	3,336	2,447	13,453	34,236	45,242
Appropriations	0	0	0	0	88,097	88,097
Profit/loss before tax	-1,129	3,336	2,447	13,453	122,333	133,339
Tax on earnings for the period	-300	-2,016	-538	-2,026	-17,942	-19,430
Profit/loss for the period	-1,429	1,320	1,909	11,427	104,391	113,909
Comprehensive income for the period	-1,429	1,320	1,909	11,427	104,391	113,909

¹Comparative figures have been restated due to an amendment of the accounting policies in RFR 2 with respect to IAS 21. This amendment had a positive impact of SEK 4,446 thousand on net financial items and profit for the period for May to October 2015, of which negative SEK 5,623 thousand pertained to the August to October quarter, and a negative effect of SEK 15,577 thousand for full-year May-April 2015/2016. Refer to "Accounting policies" on page 12.

Parent Company balance sheets

SEK thousand	Oct 31,	Oct 31,	Apr 30,
	2016	2015	2016
Assets
Intangible assets	8,949	6,123	7,692
Tangible assets	14,589	6,552	9,627
Financial assets	289,683	305,421	285,591
Total fixed assets	313,221	318,096	302,910
Other current assets	342,028	323,344	474,223
Cash and cash equivalents	68,409	94,613	202,177
Total current assets	410,437	417,957	676,400
Total assets	723,658	736,053	979,310
Equity and liabilities
Equity (incl. profit for the period)	277,316	338,940	436,021
Untaxed reserves	168,351	149,505	168,351
Long-term liabilities	50,095	37,968	52,565
Current liabilities	227,896	209,640	322,373
Total equity and liabilities	723,658	736,053	979,310

Pledged assets and contingent liabilities

SEK thousand	Oct 31, 2016	Oct 31, 2015	Apr 30, 2016
Chattel mortgages	11,000	11,000	11,000
Total pledged assets	11,000	11,000	11,000
Guarantees on behalf of Group companies	210,526	319,547	321,544
Total contingent liabilities	210,526	319,547	321,544

DEFINITION OF KEY FIGURES

Adjusted equity	Reported shareholders' equity plus 78% of untaxed reserves.
Capital employed	Total assets reduced by non-interest-bearing liabilities.
Cash flow per share	Cash flow from operations after changes in working capital divided by the number of shares at
	the end of the period.
Earnings per share	Profit/loss after tax divided by the average number of shares.
Equity per share	Adjusted equity divided by the number of shares at the end of the period.
Equity/assets ratio	Adjusted equity as a percentage of total assets.
Liquidity	Current assets divided by current liabilities.
Operating margin	Operating profit after depreciation as a percentage of net sales.
P/E ratio	Share price at the end of the period in relation to the latest 12-month period's earnings per share.
Profit margin	Profit after net financial items as a percentage of net sales.
	Return on capital employed (ROCE) Profit before tax plus financial expenses as a percentage of average capital employed.
Return on equity	Profit after tax as a percentage of average adjusted equity.
Return on total capital	Profit after net financial items plus financial expenses as a percentage of average total assets.
Value added	Operating profit plus labor costs.

GLOSSARY

Cloud

From the term cloud computing, meaning that computer power is distributed over the Internet or company-specific intranets and not on individual computers.

Critical infrastructure

Basic infrastructure that is essential for the functioning of society, such as roads, bridges and electricity and water supply.

Crypto

Equipment that uses mathematical manipulations (algorithms and keys) to encrypt information, so that it can be interpreted or read only by the intended recipient. In order to read encrypted information, the recipient must have the correct key and algorithm.

Integrated diagnostics

Diagnostic collaboration between different medical specialties, for example, between pathologists and radiologists for diagnosing, treating and monitoring cancer patients.

Mammography

Mammography is an examination procedure used to detect breast cancer at an early stage in asymptomatic women.

Orthopaedics

A surgical specialty for disorders affecting the musculoskeletal system.

Osteoarthritis

Also referred to as arthrosis. A disease resulting from the breakdown (degeneration) of joint cartilage, primarily affecting older and overweight individuals. Strain and movement causes pain. Most commonly affects the wrist, hip, knee and toe joints. Common cause of joint replacement surgery.

Osteoporosis

Commonly referred to as "brittle bone disease," a skeletal disease that causes increased brittleness of the bones and a risk for fractures.

PACS (Picture Archiving and Communication System)

A system for managing medical images, primarily digital radiology images.

Pathology/histopathology/microscopy

A specialized medical area that uses tissues and body fluids for diagnostic purposes.

Radiology

A health science discipline and medical specialty that uses technologies for imaging the human body, such as X-ray, magnetic resonance imaging (MRI) and ultrasound.

RIS (Radiology Information System)

An IT system for managing radiology patient data, such as appointment bookings and patient information at radiology clinics.

VNA (Vendor-Neutral Archive)

IT solution for managing and archiving files such as medical images, audio files and film sequences in a shared multimedia archive.

ABOUT SECTRA

Mission statement

To increase the effectiveness of healthcare, while maintaining or increasing the quality of care.

To strengthen the stability and efficiency of society's most important functions through solutions for critical IT security.

Niche areas

Imaging IT Solutions helps healthcare providers care for more patients, while retaining the same, or higher, level of quality though efficient image management. Increased use of medical images and aging populations that are living longer pose huge challenges to healthcare. Sectra's IT solutions and services enable greater efficiency throughout the entire care chain and contribute to healthcare advancements. Sectra has more than 1,700 installations of medical IT systems, and customers include some of the largest healthcare providers in the world.

Secure Communications helps society's critical functions safely and efficiently transmit sensitive information. Sectra's solutions and services protect the most sensitive and confidential information handled by its customers. Several of the products are approved by the EU, NATO and national security authorities.

Business Innovation gathers smaller activities that could eventually lead to major growth in Sectra's main areas or related niches. This area includes methods and products that contribute to more efficient and effective care for osteoporosis and the effects of osteoarthritis, which are some of society's most costly diseases, and medical education.

Your feedback is important to us! We would like to thank you for taking the time to answer eight questions in Sectra's shareholder survey at: www.sectra.com/shareholder2016.

Group-wide strategies

• Customers and customer satisfaction are always assigned top priority in order to enable long-term growth.
• International expansion mainly in areas and regions where Sectra holds an established position. This will primarily be achieved through organic growth, supplemented by acquisitions that also strengthen the Group's organic growth.
• Expansion into new geographic markets following thorough analysis and at controlled pace as Sectra achieves a strong position in existing markets.
• Close relationships with demanding customers to ensure that Sectra's solutions meet market demands for quality, functionality and usability.
• A strong, innovative corporate culture to attract and retain talented employees with the ability to solve our customers' problems and meet—in many cases, to exceed—their expectations.
• Close collaboration with universities and research institutions to capture ideas and new product areas that

Ten good reasons to invest in Sectra Sectra's customers may find useful.

• Growth potential in the healthcare, secure communications and critical infrastructure sectors.
• Established brand in niche areas, where customer confidence is a critical success factor.
• Stable, profitable company, with more than 50% of sales comprising recurring revenue from long-term customer contracts.
• Multinational reach and thousands of customers worldwide.
• High level of customer satisfaction and the aim to make customers even more satisfied.
• Products and services that contribute to improved quality of life and a safer society.
• Self-financed portfolio of exciting innovation projects with reported and controlled costs. While some of these projects are unlikely to succeed, a single success story would be sufficient to add significant value.
• Members of management are shareholders.
• Principal owner dedicated to the long-term development of the company.
• A very strong corporate culture based on the employees' expertise and attitudes and their drive to solve customer problems.