2010 featured high demand on Transmode's markets, with the global Metro WDM market growing by an estimated 12%.

The combination of underlying market growth, our investments in sales resources and product development, resulted in our revenues growing to SEK 699 m (570), or by 23%. This growth consisted of continued investments from existing customers, as well as us starting deliveries to new customers. Accordingly, from sales of SEK 378 m in 2006, we have almost doubled turnover in four years, and this growth is completely organic.

We assess that we expanded our market shares in all three regions in the year, although the Americas, where sales more than doubled, was a special highlight. This was the result of our increased focus on this market in 2007. The North American market is a very good fit with Transmode because there is a wide array of small and midsized fiber-owning operators, primarily CableTV operators and alternative operators.

We now have employees on-site in ten countries, including our team in Malaysia, where we started up in 2010. Through a combination of direct sales and channel partner sales we sold to customers in 38 countries in 2010.

Our operating profit for 2010 was SEK 107.5 (57.4) m, and our gross margin expanded further to 51.3 (49.4)%. Our profitability and margin performance benefited from our diversified and large customer base, combined with cost-efficiency and products integrating high functionality with low cost.

Accordingly, in 2010, we continued to deliver profitable growth. Obviously, one explanation lies in us operating on a market whose underlying demand is growing. Data traffic in telecom networks is still in robust growth, largely driven by greater and more widespread usage of mobile and fixed Internet, video and IP TV by businesses and consumers. This is resulting in a pressing need for investment by operators that need to expand the capacity of existing networks.

This is precisely what WDM technology in combination with optical packet transport offers. With WDM technology, the transmission capacity of a fiber can be increased 80 times over. The technology solutions we deliver are thus an ideal foundation for addressing the needs of operators and businesses.

But over and above this, I'd like to highlight a number of Transmode's strengths that enable us to succeed in achieving profitable growth.

• Offering customers cost efficient capacity expansion by delivering products with attractive price performance characteristics
• Consistent and clear focus on metro networks and core customer segments delivering clear differentiation
• High customer satisfaction resulting in strong repeat business and expanding customer base
• Proven success in launching new products and solutions, and entering new geographies
• Cost efficiency and organizational smartness
• Impressive history of cash-generative profitable growth and gross margins

Overall, these factors don't just mean growth and profitability, but also a strong cash flow. In 2010, cash flow was SEK 133.6 m.

Looking forward, I'm seeing a continued need to expand network capacity, driving investment for operators to utilize fiber more effectively. I'm convinced that Transmode is well-equipped to capitalize on this underlying growth.

Karl Thedéen

Stockholm, Sweden, March 2011