-- Net sales in the period amounted to MSEK 128 (83) and Net sales for the
quarter were MSEK 83 (40).
-- The Gross margin for the period was 34% (53%) and Gross margin for the
quarter was 31% (46%). Gross profit for the period was MSEK 44 (43) and
Gross profit for the quarter was MSEK 26 (18).
-- Earnings before depreciations and amortizations (EBITDA) for the period
were MSEK -90 (-35) and EBITDA for the quarter was MSEK -35 (-23).
-- The Result after tax for the period was MSEK -102 (-35) and the Result
after tax for the quarter was MSEK -40 (-29).
-- Earnings per share before and after dilution for the period were SEK -0,08
(-0,05) and for the quarter SEK -0,03 (-0,04).
-- Cash flow during the period was MSEK 30 (3) and Cash flow for the quarter
was MSEK 32 (-27). Cash flow from operating activities before changes in
working capital during the period was MSEK -83 (-32) and for the quarter
MSEK -29 (-28). Cash flow from financing activities during the period was
MSEK 199 (36) and for the quarter MSEK 169(16).
-- Acquisition of Pen Generation Inc. was completed on May 31. The acquisition
was another step in consolidating the Anoto ecosystem to realize synergies
in hardware and software development, supply chain and operations, as well
as to give Anoto access to additional market channels for online sales and
retail distribution. Pen Generation financials and revenues of 3.6 MSEK was
included in Q2 from June 1st.


Comments from the CEO

SUMMARY

Q2 revenue was MSEK 83, an 84% increase over Q1 2016 and a 108% growth YOY
compared to Q2 2015. Several factors contributed to this sharp increase in
revenue. Anoto now has a stable revenue flow from recent acquisitions such as
Livescribe and Pen Generation which combined contributed MSEK 23 for the
quarter. Also the successful delivery of pens in the Japanese insurance
company project account for MSEK 30.

Gross profit increased from MSEK 18 in Q1 to MSEK 26 in Q2. Diversification of
product portfolio and reduced dependency on higher margin Enterprise Forms
business is continuing to put pressure on the Gross Margin. Gross Margin
remained at 31%, a 9 percentage point drop over Q1. The decline in gross
margin is somewhat expected as a result of the addition of increased revenue
base with higher volume and lower margin businesses.

In terms of operating losses, Anoto reduced operating losses from MSEK 62 in Q1
to MSEK 42 in Q2. Operating expenses still remain high due to the fact that
the restructuring efforts in Q2 does not take full effect until Q3 and Q4 of
this year. For example, due to restructuring charges, total compensation and
consultant expense remained virtually unchanged at MSEK 52 in Q2 vs MSEK 53 in
Q1. However, we expect this number to go down in Q3 and further employee count
reduction measures in Q2 and Q3 will take effect in Q4 of this year. To date,
we have achieved more than 15 MSEK savings per quarter in labor costs.

Another reason for high operating expenses is attributable to the development
costs for the HP pen. A significant part of Anoto’s resources and headcounts
are dedicated to the development of HP pen. In addition, we are incurring
costs related to the external consultants in preparation for the mass
production which adds to the cost base. We expect a substantial portion of the
work and expenses will be done by Q3, thereby allowing us to reduce costs in Q4
of this year.


OUTLOOK

Anoto is expanding its business lines from hardware centered business (digital
pen) to software and pattern technology based businesses. It is also reducing
its dependence on the Enterprise Forms business which typically has long sales
lead time and long development time in coordination with SI partners.

Anoto’s dot pattern technology enables multi-surface collaboration work
including paper. Anoto currently has interactive walls (We Inspire), Desktop
solutions and screens (LFDs) which can be combined with paper based solutions
to create a multi-user, multi-surface collaboration software. This is going to
be an important line of business in 2017.

The addition of Livescribe and Pen Generation provides much needed pen
portfolio diversification. More importantly, it opens up the possibility of
working with large corporations to a multi-million dollar, high volume
businesses. For example, a Pen Generation’s customer, a large education
company in Korea, buys more than 200,000 pens per year. Anoto is in the final
stages of discussions with Tstudy China for a minimum purchase of 100,000 pens
in one year in the Chinese education markets. Chinese government, the Ministry
of Education, recently passed a decree mandating all primary schools to
purchase digital writing instrument in order to teach writing and calligraphy
of Chinese characters to its students. The Chinese government is concerned
about children not learning how to write as they are becoming more and more
dependent on typing on mobile devices.

In Japan, we are in the final stages of negotiation for additional order of
4,000 pens and 6,000 cradles which is a follow-on order for our Boxer Jr. pens.
We expect to deliver this order in Q4 of 2016.

Lastly but most importantly, our recent transaction with Digiwork provides an
ability to use mobile phones to read patterns rather than using digital pens.
On July 15, 2016 Anoto entered into a Strategic Cooperation and Investment
Agreement with Digiwork, a specialist in pattern based image encoding
technology using mobile phones and tablets as a device for pattern recognition.
In addition, Digiwork has a proprietary technology to print such patterns on
all surfaces including, but not limited to, metal, plastic, glass and fabrics.

This alliance includes a co-marketing agreement of each other’s’ products.
Digiwork produces a near-invisible pattern which can be read with mobile
devices for the authentication and security. Digiwork has extensive clients in
Asia, including Indonesia, Thailand and Korea. Through Digiwork’s client base,
Anoto is expected to increase its exposure in rapidly growing Asian economies.
Digiwork also has an ability to encode 16K data into its pattern which enables
mobile connectivity and data gathering in its Apps. Anoto’s global sales force
is already engaged to sell this product worldwide and are working on multiple
sales leads.

Anoto and Digiwork are collaborating to migrate Anoto’s unique pattern
generating ability to Digiwork’s mobile solutions to create a new business line
called the “Product DNA” Anoto’s unique pattern becomes a product ID which can
be linked to consumer’s mobile phones and tablets which could gather
information on the digital connectivity, ecommerce activities and use of
various mobile apps. This technology enables product registration and bridges
physical objects to digital space.

Anoto is entering into a new phase of evolution. Anoto is no longer just a pen
hardware manufacturer. Our focus on collaboration software and alternate use
of patterns will expand our business lines beyond paper and screens. Although
we only started this process, Q2 2016 was a critical time where we laid a
foundation for this future.




Joonhee Won
CEO, Anoto Group AB (publ)




This information is information that Anoto Group AB (publ) is obliged to make
public pursuant to the EU Market Abuse Regulation and the Securities Markets
Act. The information was submitted for publication, through the agency of the
contact person set out above, at 29 July 2016, 08:45 CET.


Calendar 2016

Q3 report 18th of November

Q4 report February 2017


For more information

Please contact:

Joonhee Won, CEO
Email: [email protected]


Anoto Group AB (publ.), Corp. Id. No. 556532-3929
Mobilvägen 10
SE-223 62 Lund, Sweden
Phone: +46 46 540 12 00
www.anoto.com

Anoto Quarterly Report EN Q2_2016_FINAL_07-29-2016.pdf