Nýherji hf. - Financial Statement Release

- Nýherji's Performance in the First Half of 2009

H1 2009 highlights

• Final profit in H1 amounted to ISK 90 million

• Substantial drop in software development and consultancy projects in Iceland

• Operations of foreign subsidiaries generally in line with forecasts

• Revaluation of asset items affects final profit for the period


Thordur Sverrisson, CEO:

“Nýherji's performance fell short of expectations in the first half of 2009,
with the contraction in domestic demand greater than anticipated. Sales of
software development and consultancy services, in particular, have fallen
sharply. On the other hand, sales in certain product classes, such as technical
equipment for the consumer market and operating supplies, have exceeded
forecasts. 

Operations of Nýherji's foreign subsidiaries are generally in line with
forecasts Despite the economic recession in Denmark and Sweden, the project
pipeline of Applicon companies in these countries is good. They have renewed
contracts with leading customers as well as adding new projects. The activities
of these companies is important for Nýherji hf. due to the economic and
exchange rate situation in Iceland, since their income comprises around
one-third of total group revenue, a more significant contribution than often
before. 

Final profit of Nýherji hf. in the first half of this year amounted to ISK 90
million, as revaluation of asset items had a major impact on performance for
the period.” 


Operating results in H1 2009

6M results - Key Figures  (See attachment)

Sales of goods and services amounted to ISK 7,037 million (m) in H1 2009,
compared to ISK 7,255m in H1 of the previous year, or a YoY contraction in
turnover of 3%. Income from activities in Iceland amounted to ISK 4,775m and
income from foreign subsidiaries ISK 2,262m. 

Salaries and related expenses were ISK 3,164m, compared to ISK 2,919m for the
same period the previous year. Due to exchange rate movements, salaries of
foreign employees have risen by 48% in ISK terms over those of H1 2008, or by
ISK 444m. The average number of full-time equivalent positions in the first 6M
of 2009 was 662, compared to 755 during the same period of 2008. Operating
expense was ISK 1,300m, compared to ISK 954m in H1 2008. EBITDA in H1 2009 was
negative by ISK 117m, compared to a positive figure of ISK 268m in H1 2008. 

Net financial cost was ISK 333m, compared to ISK 669m in the first half of
2008. Loss on the period was ISK 793m compared to a loss of ISK 432m during the
first 6M of 2008. Final profit amounted to ISK 90m while total loss in H1 2008
was ISK 298m. 


Balance sheet as of 30 June 2009 - Key figures (See attachment)


At the end of the period total assets amounted to ISK 10,173m, compared to ISK
9,952m at year-end 2008. Non-current liabilities have increased from ISK 2,669m
to ISK 2,746 since year-end 2008. Current liabilities have increased from ISK
5,319m to ISK 5,377 since year-end 2008. Equity amounted to ISK 2,050m at the
end of June and the equity ratio was 20.2% compared to 19.7% at the end of last
year. 

In Q2 several asset items on the group's balance sheet were revalued. Real
estate and furnishings owned by the company are now recognised at ISK 1,717m.
Furthermore, goodwill arising from assets in subsidiaries was reduced by ISK
180m and a deferred tax credit written down by ISK 150m, for a total of ISK
330m, which explains the increase in write-offs and higher operating loss on
the quarter. 


Operating Results in Q2 2009

Quarterly results - Key Figures (See attachment)
Sales of goods and services amounted to ISK 3,479m in Q2 2009, compared to ISK
3,828m during the same quarter of the previous year, or a YoY drop of 9% for
the quarter. 

Salaries and related expenses were ISK 1,602m, compared to ISK 1,550m for the
same period the previous year. The total number of full-time equivalent
positions was 644 at the end of Q2 compared to 755 for the same period the
previous year. Due to exchange rate movements, salaries of foreign employees
have risen by 44% in ISK terms over those of Q2 2008, or by ISK 223m. 
Operating costs totalled ISK 769m in Q2 2009, compared to ISK 567m in the same
quarter of 2008. EBITDA was negative by ISK 109m during the quarter, compared
to a positive figure of ISK 123m in Q2 2008. 

Net financial cost was ISK 257m, compared to ISK 155m in the second quarter of
2008. Final profit for the quarter was ISK 88m, whereas in Q2 2008 the final
loss amounted to ISK 89m. 


Business overview

Sales of computers and technical equipment by Nýherji hf., the parent company,
are roughly in line with forecasts. Sales of operating supplies are above
expectations, while demand for communications and network equipment and office
equipment has been lower than anticipated. 

The income of Skyggnir ehf., the group's technical services and hosting
company, fell somewhat short of forecast. This can be attributed in part to
fewer projects involving installation of new technical equipment and
postponement of service projects by customers. During the period Skyggnir
signed several new specialist and managed service contracts to ensure more
cost-efficient operation of clients' IT systems. Regular contract income
therefore was in line with estimates and comprised around three-quarters of the
company's total revenue. 

Sense ehf. performed acceptably and above estimates at the end of the quarter,
primarily due to strong sales of cameras and technical equipment for the
consumer market. Larger projects in audio and visual solutions are fewer than
previously, but the project pipeline ahead is acceptable. 

The very extensive downturn and stagnation which has gripped the Icelandic
economy has resulted in especially difficult conditions for the operation of
software and consultancy companies. Although many customers were intending to
undertake various projects, the uncertain economic situation and limited access
to financing means decisions have been postponed, resulting in a sharp
contraction in projects for software specialists and consultants. 

This contraction has hurt the operations of TM Software ehf., reducing hours of
invoiced labour time by several dozen percent and resulting in an operating
loss. To meet this contraction, TM's management and experts have managed to
acquire further software projects abroad, which now comprise over 20% of the
company's income. Operations in H1 2009 were acceptable at EMR ehf., TM
Software's subsidiary specialising in healthcare-related IT. EMR's project
pipeline is good and it has engaged additional employees in response to
increased demand for the company's services. 

Applicon ehf. operated at a loss in Q2, like TM Software, due to a large scale
drop in its projects in Iceland. Major changes were made to the activities of
Applicon ehf. during the quarter, including cost-cutting measures and
increasing emphasis on sales of projects abroad. Icelandic experts of Applicon
ehf. currently work in the Netherlands, the UK and Nordic countries and income
from services abroad has grown steadily. 

The operations of Vigor ehf., Applicon's subsidiary handling the operations and
service of business software used by most of the country's major energy
companies, are in balance. 

Following the banks' collapse, business consulting companies have grown in
number, increasing competition in the field while at the same time specialist
projects have declined in number. These developments have meant an operating
loss at ParX ehf. which has responded to the altered situation by reducing its
operating expenses, which should deliver better results in the latter half of
this year. 

Activities at Applicon A/S in Denmark are on target, although the Danish
economic situation is more difficult than often before. Applicon A/S has
concluded new contracts for coming quarters with several of its largest
clients, such as Dong Energy A/S, a leading Danish energy company. The company
has a good project pipeline for the latter half of this year and the outlook is
for a very credible performance, as in preceding years. 

Operations at Applicon AB in Sweden were in profit in Q2 and in line with
expectations. The company has continued to build up its activities, for
instance, by concluding a contract with Ålandsbanken, which recently took over
Kaupthing's banking operations in Sweden, to operate the bank's SAP computer
system. At the same time, Applicon hired six of the bank's IT department
employees. Applicon works closely with Sweden's largest banks, including
Nordea, Swedbank and Handelsbanken, in setting up and servicing software
systems. Despite some downturn in the Swedish economy, Applicon's prospects are
good. 

The net result of Dansupport A/S in Denmark was negative reflecting the
difficult situation of Danish IT companies in the recession. It has taken
longer than planned to get Dansupport's operations back into balance, but it is
hoped that this will be accomplished in the latter half of 2009. 


Operating Environment

At present, some ten months after the economic collapse in Iceland, contraction
continues in the domestic market and high uncertainty prevails as to when and
under what conditions companies will regain their footing and a more normal
operating environment develop. The lengthy delay in recapitalising the banks
and returning them to normal operations, as well as in reaching settlements
with neighbouring countries and foreign creditors on major issues of
contention, is causing continuing damage to business and industry. This
situation delays still further the return of business operations and company
performance to better balance. At Nýherji and many other companies, these
difficulties are reflected, for instance in the following: 

• A sudden and pronounced drop in projects, for instance, in the field of
  software development and consultancy, has meant a lack of work for specialists
  for which, due to the uncertainty, no end is in sight. 

• If a turnaround is not effected soon, there is a real danger that the
  investment in innovation and development undertaken in past quarters in
  software and technology will dissipate and could even be lost in Iceland. 

• Well educated and knowledgeable employees have begun transferring to jobs
  abroad; around 3% of employees in the Nýherji group have already moved or are
  moving to work at IT technology companies abroad, including Nýherji's
  subsidiaries. 

• Due to the banks' uncertain situation and their weak capital position,
  companies have difficulty in financing investment in operational restructuring
  which delays possibilities to improve their performance. 

• In various sectors, such as IT, the state banks and creditors have taken over
  companies' operations and provide stiff competition with other private sector
  companies which have not become insolvent.
• State owned companies and institutions have slashed their purchasing of
  expert services in various areas and now have in-house employees look after
  these tasks, with the result that layoffs are avoided in these companies but
  appear at private sector companies. 


Iceland has plenty of opportunities for projects abroad, as well as the
potential to attract investment from foreign parties in the country. It is
urgent that the key tasks of reviving the banks and achieving a settlement with
our neighbours be concluded, so that companies can regain their footing and a
turnaround take place in business and industry. 


Outlook

The operating environment for Icelandic companies will continue to be
challenging and both Denmark and Sweden are feeling the effects of economic
recession. This means continuing uncertainty regarding Nýherji's domestic
activities, while the prospects for performance of its foreign subsidiaries are
acceptable. 


2009 financial calendar

Scheduled presentation of quarterly results in 2009

3rd quarter:	23 October 
4th quarter:	29January


Approval of quarterly results

Nýherji's results for Q2 2009 were adopted at a meeting of the company's Board
of Directors on  24 July 2009. The quarterly financial statements of Nýherji
hf. are prepared in accordance with International Financial Reporting Standards
(IFRS). Translation from foreign subsidiaries has been recognised separately in
the summary of overall performance of the quarterly results, in accordance with
IFRS provisions. 


Further information 

For further information contact:
Thordur Sverrisson, CEO of Nýherji, tel. +354 893 3630.


Nýherji hf.

Nýherji hf. creates added value for its customers by applying the expertise of
its employees in IT, corporate operations and client needs. The company offers
leading-edge consultancy and professional IT services, together with high
quality computer, office and software solutions and dependable technical and
operating services. The Nýherji Group includes 20 companies with operations in
Iceland and abroad, with a total of 644 full-time equivalent employee
positions. Shares in Nýherji hf. are listed on the OMX Nordic Exchange in
Iceland. 

Nýherji's Board of Directors: Benedikt Jóhannesson (Chairman of the Board),
Árni Vilhjálmsson and Guðmundur Jóh. Jónsson. Nýherji's CEO is Thordur
Sverrisson.

Attachments:

nyherji hf. - press release.pdf