ifs | annual report 2017 · 2018. 5. 9. · energy and utilities atucha ii - nucleoelectrica...

ANNUAL REPORT 2017

TABLE OF CONTENTS

Five-year summary 3

Significant events 4

Message from the president 7

About IFS 8

Sustainability 10

Table of contents of the annual report 16

Annual report 17

Board of directors 60

Executive management and auditors 61

Financial trend 2013–2017 62

Definitions and glossary 64

2

FIVE-YEAR SUMMARY

2013 2014 2015 2016 2017

Net revenue SKr, million 2,704 3,034 3,389 3,649 4,217

of which license revenue SKr, million 535 558 682 770 935

of which maintenance and support revenue SKr, million 902 1,037 1,174 1,242 1,429

of which consulting revenue SKr, million 1,256 1,427 1,524 1,589 1,705

Net revenue outside Sweden % 84% 85% 84% 85% 86%

EBIT SKr, million 261 275 314 389 425

EBIT margin % 7% 9% 9% 11% 10%

Profit/loss before tax SKr, million 243 258 306 370 406

Profit margin % 7% 9% 9% 10% 10%

License margin % 93% 91% 95% 91% 92%

Maintenance and support margin % 72% 75% 75% 77% 80%

Consulting margin % 19% 20% 21% 23% 21%

Product development expenditure/net revenue % 10% 10% 10% 11% 10%

Administration expenses/net revenue % 11% 10% 11% 11% 11%

Return on average operating capital % 19% 24% 29% 32% 16%

Equity/assets ratio, after full conversion % 46% 45% 45% 35% 20%

Net debt SKr, million -118 -191 -252 -289 3714

Interest coverage rate times 19.4 33.2 39.2 47.2 5.8

Cash flow after investment operations SKr, million 122 269 196 183 -3,750

Acc rec (avg 12 month)/net revenue (rolling 12 month) % 19% 18% 18% 18% 18%

Average number of employees 2,688 2,645 2,771 2,888 3,318

Number of employees at year-end 2,616 2,707 2,838 2,913 3,724

Net revenue License revenue EBIT

Cash flow after investments Net liquidity Average number of employees

1,000

2,000

3,000

4,000

5,000

'13 '14 '15 '16 '17

200

400

600

800

1,000

'13 '14 '15 '16 '17

100

200

300

400

500

'13 '14 '15 '16 '17

-4,000

-3,000

-2,000

-1,000

0

1,000

'13 '14 '15 '16 '17

-4,000

-3,000

-2,000

-1,000

0

1,000

'13 '14 '15 '16 '17

1,500

2,000

2,500

3,000

3,500

'13 '14 '15 '16 '17

3

SIGNIFICANT EVENTS

FEB. Culligan Middle East modernizes with IFS Applications

February 6. The Middle East division of Culligan, the global leader in water treatment, selected IFS Applications 9 to optimize its business

units and support its growth. IFS Applications will enhance mission-critical processes at its facilities in Dubai, Abu Dhabi, Sharjah, Qatar,

and Bahrain.

MAR. Heinz-Glas to deploy IFS Applications at 16 sites in 12 countries

March 13. Heinz-Glas, a global manufacturer of glass flacons and caps for the perfume and cosmetics industry, decided to implement

IFS Applications 9 as its future-proof platform. IFS Applications will support the company’s international growth and power its digital

transformation projects.

High-tech manufacturer Dibal enhances decision making with IFS

March 15. Dibal, a leading Spanish manufacturer of weighing and labelling solutions for the retail sector, chose IFS Applications 9 for

enhanced decision making and to power its international expansion. IFS will support manufacturing, project management, maintenance,

supply chain, analytics, and CRM.

IFS once again recognized as a Great Place to Work

March 29. At the annual gala on March 28, 2017 in Stockholm, the Great Place to Work Institute, for the eight consecutive year, recognized

IFS as one of Sweden’s best places to work in the large organization category. IFS was also recognized as one of Germany’s best employers

in two separate categories.

APR. IFS releases IoT-enabled Field Service Management

April 18. The new version of IFS Field Service Management offers embedded integration with IFS IoT Business Connector, a reimagined

user experience, enhanced functionality, as well as a new support model to deliver the most complete, connected field service.

PSA Airlines selects IFS Maintenix

April 19. PSA Airlines, a wholly owned subsidiary of American Airlines and one of the fastest growing regional operators in North America,

selected IFS Maintenix to support its enterprise-wide fleet maintenance management needs, including complete lifecycle MRO functionality

across several departments.

MAY Anticimex deploys IoT solution from IFS

May 2. IFS announced that global pest-control company Anticimex had implemented the IFS IoT Business Connector to turn IoT data

captured from digital traps into predictive service actions in its business software suite, IFS Applications. During an initial stage, nearly

3,000 digital traps have been connected across Finland.

Dole Fresh Cuts optimizes its supply chain with IFS

May 23. Following a competitive evaluation process, Dole Fresh Cuts chose IFS Applications 9 to streamline its procurement, planning,

distribution, and order and inventory handling, among others. The end-to-end solution delivered by IFS will also, in later stages, include

product development and quality management.

JUNE Stadium upgrades to IFS Applications 9

June 22. IFS announced that rapidly growing sports-retail chain Stadium had chosen to upgrade to IFS Applications 9 and extend its solution

with e-invoicing capabilities. The company will be leveraging new features, including the layered application architecture and the role-based

IFS Lobby interface.

JULY W.B. Chambers selects IFS Applications 9 to support rapid growth

July 5. W.B. Chambers, the grower, importer, and packer of quality fruits, announced that it had chosen IFS Applications 9 to automate and

monitor processes and support rapid growth across the business. The solution will enable W.B. Chambers to monitor and analyze all

business data from a centralized location, facilitating greater business intelligence as well as new processes and innovation efforts.

AUG. IFS extends leadership in Service Management with two acquisitions

August 1. IFS announced two acquisitions. mplsystems Ltd is a provider of omni-channel contact center and customer engagement

software that, together with IFS’s offering, provides a complete end-to-end customer engagement solution. Field Service Management Ltd,

an implementation specialist of FSM solutions in the UK and Ireland, will bolster IFS’s presence in the region.

IFS named as number one vendor in prioritized industries

August 3. IFS was identified as the number one vendor in enterprise asset management (EAM) software for the aerospace & defense and

oil & gas industries by ARC Advisory Group, the leading information technology research and advisory firm for industry and infrastructure.

4

Rema Tip Top manages global service processes with IFS

August 24. Rema Tip Top, a global provider of products and services in the field of conveying and treatment technology, surface protection,

as well as tire repair, announced that it would implement IFS Service Management. With this solution, Rema Tip Top will replace previously

customized software and create a new strategic service platform for all business areas.

SEPT. IFS extends leadership in Service Management with the acquisition of WorkWave

September 28. IFS announced the acquisition of WorkWave, a leading provider of highly scalable, cloud-based Software-as-a-Service (SaaS)

solutions for the Field Service and Last Mile Delivery and Logistics industries. WorkWave primarily serves small and medium sized (SMB)

service businesses, with specific vertical focus on pest control, lawn and landscape, cleaning and janitorial, heating/ventilation/AC,

plumbing and electrical, as well as transportation. From its headquarters in New Jersey, WorkWave’s 260 employees support more than

7,300 customers, primarily based in the United States.

OCT. Gartner 2017 Magic Quadrant for Field Service Management names IFS a leader

October 4. For the third consecutive time, Gartner named IFS a leader in its 2017 Magic Quadrant for Field Service Management. The

company received recognition as a leader for its “ability to execute,” for which it was positioned the highest, and its “completeness of

vision.” According to the report, “leaders demonstrate a market-defining vision of how technology can help service professionals achieve

business objectives.”

IFS to deliver global financial compliance solution to Saab

October 10. Swedish defense and security company Saab has chosen to deploy IFS Global Extension to streamline the process of complying

with local laws and regulations. The solution enables Saab to manage legal compliance centrally, within the enterprise software suite IFS

Applications, without local customizations. This will reduce time-consuming administrative tasks, costs, and risks.

Glas Trösch selects IFS Applications

October 24. Glas Trösch, a Europe-wide operating Swiss manufacturer and processer of glass, has decided to implement IFS Applications

at several production locations. The software will map central business processes of Glas Trösch and enable a continuous flow of

information, simplify processes, improve responsiveness, provide precise and up-to-date performance data, and increase transparency.

NOV. Gaia Herbs selects IFS to achieve 25 percent month-end efficiency savings

November 13. Gaia Herbs, a leading organic herbal supplement brand, will implement IFS Applications for enterprise resource planning

(ERP). IFS was selected for its expertise in the process manufacturing industry and ability to execute against key business efficiencies.

Gaia will replace two disparate ERP systems, driving improvements including a 25 percent reduction in time spent on month-end and year-

end financial reconciliation.

Furniture manufacturer Decodom empowers 500 employees with IFS Applications

November 21. Decodom, a Slovak furniture manufacturer, has decided to deploy IFS Applications. The solution will centralize production

planning and management functions from all its facilities, improve mobile stock flow management in its dispatch and logistics centers,

and connect all retail operations. The company needed a fully-integrated system that would support its key business processes and replace

several older solutions.

5

SIGNIFICANT AGREEMENTS SIGNED DURING THE YEAR

AVIATION AND DEFENSE

Air France - KLM

American Airlines

Directorate for Civil Protection (DSB)

General Dynamics

Saab

Southwest Airlines

ASSET INTENSIVE

Ahlstrom Munksjö

Hecla Mining Company

SSAB Europa

AUTOMOTIVE

Audi Motorsport

Gerhardi Kunststofftechnik

Radiadores Ordoñez

Volvo

CONSTRUCTION AND CONTRACTING

ACCO Engineered Systems

Barnhart Crane & Rigging Co.

Gk Gruppen

McLaren Construction

Skanska UK

Systra

TGL Group

ENERGY AND UTILITIES

Atucha II - Nucleoelectrica Argentina

Corix Utility Services (U.S.)

Energy Utility Corp. Ltd Rwanda

(EUCL)

Eniig Fiber

Globeleq (Guernsey)

Hafslund

Jämtkraft Elnät

National Grid Smart

Østfold Energi

Pori Energia

Teracom Group

Wolverine Power Supply Cooperative

HIGH-TECH MANUFACTURING

Airmar Technology Corporation

Axis Communications

Circuit Check

GS Sweden

Iftest

Kyocera Document Solutions Europe

Raven Industries

Restek Corporation

Teledyne Technologies

INDUSTRIAL MANUFACTURING

Bergene Holm

Brett Group

Decodom

Dibal

Emhart Glass

Ensign-Bickford Industries

Global Finishing Solutions

Heinz-Glas

Karl Marbach

Lee Warren Fabrication and Design

New Standard Corporation

Plastic 7A

ProfilGruppen Extrusions

Regal Ware

Rema Tip Top

Schuf Valve Technology

Schulthess Maschinen

Server Products

Skyjack (Linamar)

Style Crest

Tennant Company

Thetford

Tomra Sorting

OIL AND GAS

Archer Norge

BW Offshore Norway

FR Tri-Point

Odfjell Drilling

Yinson

PROCESS MANUFACTURING

AirBoss of America Corp.

Basic American

Bridgetown Natural Foods

Cott Beverages

Emil Frei

Gaia Herbs

Glas Trösch

LGC

McGean-Rohco

Preferred Compounding Corp.

Richardson International

Standard Process

WB Chambers

RETAIL AND WHOLESALE

CML Microsystems

FFX

Oriflame Cosmetics

Profoto Holding

Stadium

SERVICE PROVIDERS

Brady Trane Service

IP-Only

Lassila & Tikanoja

Levitt-Safety

Monarch Landscape Holdings

Oleter Group

Pinnacle Asset Integrity Services

Reliance Comfort

OTHER

BCA Expertise

Centric Nordic Holding

Ceramtec UK

Svenska Spel

VR Track

6

MESSAGE FROM THE PRESIDENT

A transformational year for IFS

IFS showed outstanding growth in 2017 with license revenue up 21

percent in constant currency. This was achieved organically and by

strategic acquisitions, and represents unquestionably an increase in our

market share given that the underlying ERP market grew only by 8

percent.

The first transformational development in 2017 was the completion

in January of the Mxi acquisition; this complement to our aviation and

defense solution has increased considerably our offering and skills

capability while gaining us strategic customers. In the summer, we

acquired mplsystems to add advanced customer-engagement capability

to our service-management offering, and also our local partner Field

Service Management to consolidate our capability in the United

Kingdom. We completed our largest acquisition ever in the fourth

quarter, again in the service-management sector; with WorkWave, we

can address the small and medium-sized businesses (SMB) market with

a multi-tenanted SaaS offering, thereby opening up a new market for IFS.

Our focus on service management continued with direct

investments in resources, marketing, and product development,

resulting in significant sales and the securing of high-profile customers;

in their latest magic quadrant, Gartner ranked IFS as the supplier in field-

service management with the highest ability to execute. Our push into

managed cloud accelerated and in line with increased demand we have

continued to invest in our offering based on Microsoft Azure.

Furthermore, the partner ecosystem in which we have invested over

recent years has evolved into a large and enthusiastic community that

is actively supporting IFS sales and implementations across the globe.

In 2017 IFS has been truly transformed through a high level of

organic and inorganic investment that has been enabled by our owners

EQT. We are now stronger than ever and able to attack our target

markets better equipped than ever before.

Alastair Sorbie PRESIDENT & CEO

Darren Roos appointed chief executive officer of IFS

On March 5, 2018, IFS announced that Darren Roos was appointed as new president and CEO of the company. He took up his new position on April 1,

which coincided with the retirement of Alastair Sorbie at the end of the first quarter of 2018.

7

ABOUT IFS

IFS, one of the world’s leading suppliers of business software, offers

applications that enable companies to respond quickly to market

changes and use resources in a more agile way to achieve better

business performance and competitive advantages.

IFS was founded in 1983 and has 3,700 employees worldwide. With

IFS Applications™, in its tenth generation in 2018, IFS has pioneered

component-based ERP software. The company now has some 35 years’

experience in the implementation

of ERP systems, with consultants

with deep industry expertise and

who understand the customer’s

business and needs. The

component architecture provides

solutions that are easier to

implement, run, and upgrade.

IFS is an organization with a

truly global reach and is today

represented in approximately

50 countries through wholly or

jointly-owned subsidiaries, and

partners. IFS has more than

10,000 customers and over one

million users and its solution is

installed in over 60 countries in

about 20 languages.

BUSINESS CONCEPT

With its own resources and in cooperation with partners, IFS develops

and delivers component-based software for enterprise resource

planning (ERP), enterprise asset management (EAM), and field service

management (FSM).

The company’s product development will focus on maintaining IFS’s

position as a technical leader in component-based business

software for a global market.

IFS will support the standards that are important for the customers

and supply integrated Internet-based solutions that enable

increased cooperation among customers, suppliers, and partners.

The product, methods, support system, and infrastructure will

support customers with global operations.

To meet the market’s increased demands for solutions with broad

functionality combined with in-depth industry knowledge, IFS will

focus on a limited number of industry segments.

The company will continue to develop global and local cooperation

with partners to enable continued development of IFS’s competence

and market presence with lower risk and capital requirements.

IFS will maintain its own supplier capacity for consultant services

related to the implementation and use of IFS’s solutions in

important markets and to support its partners.

The company’s ability to offer resources from IFS’s Sri Lankan unit

for customer projects and cooperation with partners will increase its

competitiveness.

IFS will stimulate increased mobility among all its employees to increase

competence and understanding of various international markets.

IFS APPLICATIONS

IFS Applications is a comprehensive business system for mid-sized and

large organizations, and is specialized in a number of business

processes. Experience from customers, user groups, industry analysts

and the company’s strong network of partners has been combined to

create leading industry solutions to meet specific customer needs.

Structural changes such as

globalization, market

transparency through the Internet,

consolidation, specialization, etc.

are making it harder to label

companies based purely on their

industrial belonging. As a matter

of fact, the landscape of

processes in which a company is

operating often offers a better

illustration of its actual business

and challenges than the industry

under which it is labeled.

IFS focuses on agile

businesses where any of four core

processes are strategic: service

and asset management,

manufacturing, supply chain, and

projects. This focus provides customers with competitive advantages in

their own markets and has made IFS the leader in several industries.

Within maintenance and logistics systems for aerospace and defense,

for example, IFS is the global market leader.

In addition to the processes supported by all business systems, such

as finances, inventories, customer management and traditional

manufacturing, IFS Applications is specialized in a number of specific

manufacturing processes and in support for the entire life cycle of

products, from construction to maintenance and aftermarket services.

This provides substantial advantages for customers, the information

created during construction and manufacturing being important when

the products are later maintained, possibly during several decades.

In recent years, IFS has seen increased demand for IT support for

project-oriented activities in several of its targeted industries. IFS has

worked quickly to provide enhanced software components to better

manage challenges such as cost, time, resources, liquidity, and risk in

project-driven activities. The optimization of these key areas results in

better control and is the key to enhanced efficiency and control. It also

provides increased opportunities to capitalize on new business

opportunities. The use of traditional organizational structures and

systems makes it difficult to handle operational situations in real time

and reduces flexibility, as it is necessary to balance resources in relation

to expected deliveries. It is expensive and difficult to assess whether new

business opportunities, but also ongoing operations, will be profitable.

SERVICE MANAGEMENT

IFS Service Management covers the entire, end-to-end service lifecycle.

Recent enhancements and embedded IoT capabilities make it a best-in-

class solution that offers the most complete, connected field service on

the market. IFS help organizations to maximize operational efficiency,

increase revenue, reduce costs, and improve customer satisfaction.

8

CREATIVITY AND INNOVATION

IFS has two distinct advantages over competitors: the integrated product

line and the fact that IFS Applications has been component-based for

two decades. This means that IFS is uniquely placed to supply business

components that take advantage of today’s service-oriented

architectures (SOA).

The Group’s product development is primarily conducted in IFS’s

R&D centers in Sri Lanka, Sweden, the United States, Canada, the

United Kingdom, Poland, and the Netherlands. During 2017 new

products that address business needs in IFS’s targeted industries have

been added to the product portfolio. IFS has significantly strengthened

its offering to the Aviation & Defense industry as well as the Field Service

Management market through the acquisitions of Mxi in Canada for

Aviation & Defense, and Workwave in the United States and MPL in the

United Kingdom for Field Service Management and Customer

Engagement.

For IFS Applications, product development focused on

IFS Applications 10, the next core release that will be officially

introduced in 2018. The IFS IoT Business Connector, IFS Product

Estimate Management, and IFS Global Extension were released during

the year as well as new versions of IFS Maintenix, IFS Field Service

Management, IFS Enterprise Operational Intelligence, and IFS Planning

& Scheduling Optimization, in addition to a number of important

improvements, aimed at increasing the business benefits of existing

versions.

PARTNERS

IFS continues to prioritize investment in the development of its global

partner ecosystem. An emphasis on developing opportunities with the

several hundred existing partners already in the IFS partner network,

rather than adding new partners, has resulted in a strengthened partner

sales pipeline and an increase in closed opportunities. IFS continued to

add new modules and content to the IFS Academy as part of a program

designed to maintain and improve the quality of service delivered by

partners. The IFS Academy training content is now available globally

through all regions in multiple languages with both on-line and

classroom delivery options available.

During 2018, the company will continue to develop its relationships

with its existing partner ecosystem and will develop several new

programs with both service and technology partners to accelerate

partner sales growth.

9

SUSTAINABILITY

The basis of IFS’s sustainability agenda is to create long-term

sustainable value and, through technology, transform and improve

entire industries as well as individual lives. One of the strongest driving

forces at IFS is to provide first-class products and services to customers

and users. As a rapidly growing organization, the company has a great

responsibility as an employer. IFS’s employees should have a fun,

stimulating, and sustainable work life, and every individual should act in

accordance with the company’s values and principles of business ethics.

Moreover, IFS should advocate good work conditions among its partners

and assume environmental responsibility in its operations.

In many significant aspects, the company’s sustainability agenda is

integrated in its operations, and has been for several years. IFS’s efforts

to exert an influence beyond the group mainly relate to partners. In

2017, IFS initiated a more structured sustainability program aimed at

mapping and highlighting material aspects and formulating clear targets

for the future. The ambition is to present a sustainability report every

year that details both positive and negative impacts and developments.

Sustainability organization and governance

The chief executive officer of IFS bears the overall responsibility for the

governance of the company’s business in the field of sustainability. The

main purpose of all governance at IFS is to guarantee the group’s

commitments to its stakeholders. The agenda is led by the group’s head

of sustainability via a number of cross-functional networks. The

sustainability agenda is based on IFS’s core values and regulated

through the group’s policies. The global sustainability targets are

formulated based on materiality analysis and on strategic priorities, and

are supplemented at local level with unit-specific targets. Risks linked to

the field of sustainability are included in the group’s total risk

management.

IFS’s sustainability team comprises representatives from several

departments such as Human Resources, Communications, Finance, and

Product Development. The team is responsible for coordinating the

group’s sustainability agenda, mapping significant aspects in the

operations, engaging in stakeholder dialogues, and measuring and

monitoring IFS’s key sustainability issues. The team also involves group

Management and other operational areas of the organization to develop

support for strategies and the implementation of practical initiatives.

IFS’s mission requires that operations be conducted in a manner

that promotes sustainable development. This means acting responsibly

and minimizing the risk of negative impact, as well as leveraging

business opportunities to promote global sustainability goals.

Stakeholder dialogue and materiality analysis

After identification of overall sustainability contexts and relevant

stakeholders, a preliminary three-step materiality analysis was

conducted in 2017 to ascertain the most important sustainability issues

and enable focus on the sustainability topics where IFS has the greatest

impact. The material topics reflect the topics given highest priority by

IFS’s stakeholders and those topics deemed most material for IFS from

sustainability and business strategy perspectives. These efforts are

controlled and followed up using sustainability targets in the strategy.

1. Identification of sustainability issues. The sustainability team

identified a large number of issues that concern IFS’s operations

and interviewed selected key stakeholders.

2. Prioritization. The issues were prioritized based on the results of the

stakeholder dialogues and the sustainability team’s assessment of

IFS’s actual environmental, social, and economic impact.

3. Validation. Group Management and the Board were involved in the

process, and group Management validated the sustainability plan

and prioritization of significant aspects.

It is important for IFS to listen to the company’s stakeholders to identify

the sustainability topics that are impacted by IFS’s operations or that the

stakeholders regard as material. IFS’s key stakeholders are those

groups that are most affected by or have the highest impact on

operations, namely: the owner, customers, and employees.

Dialogue occurs through, inter alia, meetings with clients and the

owner, as well as through discussions with representatives of non-

governmental organizations and civil society. IFS also arranges

employee and customer surveys, the aims of which include evaluating

how well IFS has fulfilled its public policy assignment. In 2017, IFS

completed a survey of a selection of the company’s stakeholders

regarding the principal sustainability issues. In addition to the interviews

performed by the sustainability team, feedback was gathered through

continuous dialogues in various parts of the operations. Partners were

also involved through dialogues and mutual policy compliance

requirements.

Each year, IFS’s management prioritizes which sustainability topics

are most material. This prioritization is agreed on the basis of what is

deemed reasonable based on IFS’s impact on the economy,

environment and society as well as IFS’s ability to act. The results of the

prioritization in 2017 are presented below.

HIG

H

Human rights

Partners’ responsibility

Transparency in reporting

Business ethics

Anti-corruption

Labor conditions

Ma

teri

ali

ty t

o s

tak

eh

old

ers

Environmental impact

Diversity

Work environment

Gender equality

LOW

LOW Materiality to IFS HIGH

IFS attaches great importance to the issues of sustainability and

corporate responsibility, such as the environment, health and safety,

equal opportunities, diversity, anti-corruption work and business ethics,

and the company’s and employees’ values. IFS’s Code of Conduct is

based on the United Nations Global Compact’s ten principles and both

the Code of Conduct and the Environmental Policy are set down formally

by the CEO. Interest in these documents has increased steadily and

questions about IFS’s policies and sustainability work are increasingly

common in enterprise software procurements, which is why IFS has

intensified its efforts to communicate its commitment and initiatives.

10

EMPLOYEES

IFS’s foremost success factors are its ambitious and passionate

employees combined with the open, innovative, and dedicated culture

that is reflected throughout the entire organization. All employees are

given a high degree of freedom and responsibility, empowering them to

work toward IFS’s long-term vision: to create a world where technology

works in harmony with natural human behavior. IFS employees are

driven by curiosity and a constant will to improve, renew, and surpass

themselves, making IFS one of the world’s leading suppliers of business

solutions. To continue to attract top talent and deliver on the group’s

ambitious goals, a central focus for IFS is to offer its employees a

sustainable and inspiring work life.

Building trust with customers and partners is central to IFS’s

business success. Earning that trust starts with a foundation of

principles to guide the company’s own operations and how it impacts the

rights of people around the globe.

Human rights. IFS implements international standards to ensure

that everyone’s rights are respected—from employees, to partners,

to communities worldwide.

Responsible practices. IFS sets high expectations for meeting

responsible business practices—for itself and the partners who work

with the company.

Work environment. IFS strives to create a respectful, rewarding,

diverse, and inclusive work environment—empowering its

employees to create products and services that help others achieve

more.

Growth puts leadership in focus

Inspiring, focused leadership is central to IFS’s continued growth and

success. As a result of the company’s rapidly growing organization in

2017, a high number of new managers were appointed: the number of

senior executives increased from 99 in 2016 to 118 in 2017. A key area

of focus was therefore the introduction of good leadership skills to these

individuals.

IFS’s ten principles of leadership

1. Clearly communicate where the company is going and why.

2. Set clear expectations.

3. Provide frequent and constructive feedback.

4. Openly praise and reward high performers and take action on

improvement needed.

5. Address behavior that does not support the company’s strategic

direction.

6. Set a strong example by always having a commercial focus.

7. Actively support and drive change.

8. Focus on employee’s individual strengths and secure your own

successor.

9. Delegate responsibility and empower others.

10. Walk the talk!

A top-ranked employer

IFS strives to be a top-ranked employer in Sweden and internationally.

In 2017, for the ninth consecutive year, the company was named one of

the best workplaces in the Great Place To Work® survey. Great Place to

Work helps organizations in all

industries and sizes to evaluate

and develop their workplace

culture and has been researching

for more than 30 years in what makes a workplace truly good. Annual

studies and employee surveys of 10 million employees in 50 countries

and about 7,000 organizations form the basis of the two models around

which Great Place to Work has built its business.

IFS attributes its continued success in the audit to its inclusive

culture and its ongoing commitment to actively promote a positive and

collaborative work environment. The company endeavors for continuous

improvement and the survey allows the organization to identify key

improvement areas to prioritize. All the business units and teams review

the results to identify potential for further improvement, as well as to

highlight areas where IFS excels.

The employee survey 2017 was open to all IFS World Operations

employees in Sweden, of which 83 percent participated (2016:

86 percent), and showed a continued strong result for the company. The

survey consisted of over 60 statements and 89 percent of the

employees (2016: 86 percent) agreed with the statement “Taking

everything into account, I would say this is a great place to work.” The

question of employees’ trust in the company’s management was broken

down into three areas: Credibility got 78 percent positive responses

(2016: 78 percent), Respect obtained 81 percent (2016: 80 percent),

and Fairness received 81 percent (79 percent).

Learning culture and skills development

All IFS employees are encouraged to develop and learn new things, both

to improve their own skills and also to bring new knowledge to IFS.

Development can happen through as well we challenging work tasks, the

opportunity to transition between projects and roles, but also through in-

house and external training and conferences. Employees can rotate

among business units of the group to learn new industries, broaden the

exchange of knowledge, and enable further career development.

Regular dialogues between managers and employees coupled with

annual performance reviews ensure that employees receive the right

skills development.

IFS’s ten principles of employeeship*

1. Understand the company’s strategy and act accordingly.

2. Collaborate with and support colleagues across functions and

regions.

3. Be open to and provide frequent and constructive feedback.

4. Show trust in colleagues’ competencies.

5. Show a “can-do” attitude and present solutions rather than

problems.

6. Create value by always having a commercial focus.

7. Be open toward change.

8. Stay relevant: take responsibility for your own performance and

development.

9. Optimize the way you work and strive for simplicity.

10. Walk the talk!

* Employeeship (or “medarbetarskap” in Swedish) is an approach to developing

a culture of ownership and responsibility in an organization. The philosophy has

been adopted and researched most notably in Sweden. (Source: Wikipedia)

Diversity and inclusion

IFS is a highly international workplace characterized by diversity—

something the company considers to be a strength for both its

performance and work environment. A mix of individuals who have

different backgrounds, experience, and perspectives is key in both

attracting and retaining employees, and bringing new ideas and

viewpoints. At IFS, employees naturally treat each other with respect and

curiosity to make everyone in the diversified workplace contribute with

11

their full potential. The knowledge, skills, and abilities of every individual

is respected and valued, regardless of gender, gender identity, ethnicity,

religion, disability, sexual orientation, or age.

IFS has zero tolerance for bullying and harassment, and takes a very

serious stand should anyone be exposed to such treatment. The

company’s work-environment policy clearly stipulates how such

situations are to be handled. These guidelines are explained to all

employees through introductory lectures and courses regarding IFS’s

Code of Conduct.

Gender equality

IFS has high ambitions in terms of gender equality and diversity. A good

mix of men and women is important to create a workplace where

everyone feels comfortable and to attract new top talents to IFS. In the

group, women made up 26 percent of the employees by the end of 2017

(2016: 31 percent), but this varies greatly between the different

business units and teams. This is particularly evident in R&D, where

women are clearly underrepresented and only account for 14 percent of

the employees (2016: 32 percent). A series of initiatives were carried

out in 2017 to try and strengthen gender equality in the company as well

as boost interest in IFS and the engineering industry among women

engineers and job applicants.

Although sustainability is usually associated with the environment

and helping society’s weakest members, it is equally important to ensure

that it contributes to the positive development of the company’s

employees. IFS employees are ambassadors for the group and their

value system is the prerequisite for success in sustainability as well as

in the company’s daily operations. The group is working actively with

equality and wants to set a good example to inspire the entire IT industry

to improve equality and attract more women to enter the industry. The

basis of this is a gender-neutral view of the workplace, including

discussions in workshops and in conjunction with the annual salary

revision. IFS is sponsoring networks for women in IT, such as Oda in

Norway, and participates with many other global companies in the

Womentor initiative to support female managers in the IT industry with

the help of mentors. Additionally, IFS wants to increase interest in

technology among younger women and participates in NextUp, a

Swedish competition for eighth-graders to which IFS contributes both

financially and with a case study that the contestants work on.

Health and fitness

IFS strives to provide employees with a fun place to work and an

excellent physical and psychosocial work environment. The company

wants to make it easy for its employees to have time for exercise and

physical activity in their daily lives. The opportunities offered by IFS vary

from one country to another; in Sweden, all employees are offered, for

example, health and fitness benefits, subsidized gym memberships, and

free massage.

Facts about IFS’s employees

IFS is currently in a strong phase of growth. The average number of

employees in the group during 2017 was 3,318 (2016: 2,888), an

increase of 15 percent compared with the previous year. At year-end, IFS

had 3,724 employees (2016: 2,913), an increase of 28 percent

compared with the year before. Employee turnover within the group was

6.3 percent in 2017 (2016: 5.7 percent). This figure can be compared

with an industry standard in the IT sector of around 15 percent in

Sweden and some 30 percent in the United States.

HUMAN RIGHTS AND LABOR CONDITIONS

IFS complies with and is dedicated to putting into practice the UN

Guiding Principles on Business and Human Rights. The company’s risk

of being linked to human rights violations arises in connection with major

business deals and in projects with customers or partners in countries

that are at high risk of human rights violations.

Human rights, including the ILO Core Conventions pertaining to labor

conditions, must be respected in IFS’s operations, and the company will

work to ensure they are respected by its partners. IFS shall refrain from

any transaction where a risk exists that human rights will be neglected

and where the company assesses that the risks will not be managed in

line with the UN’s framework for business and human rights. Companies,

including IFS, should support freedom of association and the right to

collective bargaining. IFS does not accept any form of forced labor, child

labor, or discrimination in respect of employment and occupation.

ENVIRONMENTAL AND CLIMATE CONCERNS

IFS has a low environmental risk. The group’s most significant

environmental impact is energy consumption from its premises,

business travel, purchasing of office material and handling of used

hardware. In all these areas there are initiatives to reduce the company’s

environmental impact, for instance through technology that enables

remote work and meetings and thus minimizes travel, sensors that

regulate power supply in the offices, and smart solutions that minimize

paper waste. IFS is also centralizing servers and other computer

equipment in a few locations managed by suppliers that meet the

group’s environmental requirements, thus reducing the emissions from

cooling and power consumption. All employees are encouraged to

respect the environment and strive to work with sustainability issues

such as recycling and energy efficiency when possible. The company

fulfills its commitments by:

complying with environmental legislation,

conducting business in an environmentally sound manner,

increasing the extent of recycling, using recycling deposit systems

and reducing the consumption of resources when possible,

minimizing business travel by using online conferencing and

videoconferencing,

using an IT structure that allows employees to work from home to

minimize travel to work,

continuously pursuing efforts to reduce environmental impact.

12

Product development

Sustainability issues are becoming increasingly important in the global

marketplace—both in terms of mitigating risks associated with legal

compliance as well as enhancing business insight to boost profitability.

IFS’s unique business software includes a broad variety of solutions for

efficient reporting and enhanced control in the fields of sustainability

and non-financial reporting. The solutions are fully integrated with

IFS Applications to promote user productivity and reduce time spent on

non-value-adding administration, thereby cutting costs. Through its Eco-

Footprint Management component, IFS Applications can be used to

manage much of the information required for a company to monitor its

sustainability issues, report its environmental impact, and comply with

legislation and regulations governing environmental matters. IFS is

working actively on product development to further improve functionality

in these regards.

BUSINESS ETHICS

IFS operates in a distinctly low-risk industry in terms of the direct impact

of its activities on people and the environment. This applies to the entire

value chain, including software development, for which IFS’s largest unit

is located in Sri Lanka. In addition, the company distributes information

efficiently through its intranet, where all employees have access to

policies and guidelines pertaining to sustainability, including

environmental impact, gender equality, diversity, and work environment.

Responsible business practices

IFS’s responsibility focuses mainly on managing sustainability risks in its

day-to-day operations. The aim is that the company meet its

stakeholders’ expectations and the requirements for responsible

operations. International guidelines are used as guidance for IFS’s

assumption of responsibility. The company divides its work into the

areas of anti-corruption and business ethics, environmental and climate

concerns, and human rights and labor conditions.

IFS strives to be a transparent and responsible company that

cultivates confidence, collaboration, and commitment. High standards

in terms of business ethics are crucial in maintaining a good reputation

and repeat customers. Accordingly, IFS is steadfast in advocating good

work conditions for its employees and partners, and has zero tolerance

for corruption and violations of human rights.

IFS’s Code of Conduct

IFS’s Code of Conduct defines the principles and policies of business

ethics that the organization is to follow. This includes the Anti-Corruption

Policy, Export-Control Policy, Environmental Policy, and Information

Policy. The Code of Conduct is based on the Universal Declaration of

Human Rights adopted by the United Nations, the UN Global Compact,

the OECD Guidelines for Multinational Enterprises, the International

Labor Organization’s Conventions and Recommendations, and the

Swedish Corporate Governance Code. Training in the Code of Conduct is

compulsory for all IFS employees and is arranged through introductory

lectures for new employees as well as online information and training.

Anti-corruption and business ethics

IFS adheres to the OECD’s Anti-Bribery Convention together with other

international anti-corruption guidelines. The company takes a stand

against all forms of corrupt behavior, and adheres to Swedish anti-

bribery legislation as well as the recommendations and initiatives of the

International Chamber of Commerce and Transparency International.

IFS does not accept corruption in any form in its transactions, and

partners and customers are expected to comply with the company’s

requirements in this area. IFS’s Code of Conduct and Anti-Corruption

Policy guide employees in daily work. Each manager is responsible for

identifying, analyzing, rectifying, and documenting any conflict of interest

within that manager’s area of responsibility.

SUSTAINABILITY RISK

Sustainability risk is the risk that IFS’s operations directly or indirectly

impact their surroundings negatively in respect of business ethics,

corruption, climate and the environment, human rights and labor

conditions. Human rights include the child rights perspective, and labor

conditions encompass gender equality and diversity.

Risk management

Sustainability risks are managed according to a risk-based approach and

IFS only engages in transactions after know-your-customer activities.

IFS’s measures to manage those risks are subject to national and

international regulations and guidelines, along with the company’s

owner instruction, pertaining to anti-corruption, climate and

environmental consideration, human rights and labor conditions.

Risk measurement

In connection with a new business opportunity, the potential

sustainability risks are identified and assessed at country and

counterparty level.

Country. Countries are classified according to the risk of corruption,

human rights violations including labor conditions, as well as the risk

of money laundering, financing of terrorism, and tax non-

transparency.

Counterparty. Checks are conducted as part of know-your-

customer, including controls of ownership and checks against

international sanction lists.

An in-depth sustainability review is performed in cases of elevated

sustainability risk. The extent and form of the review depend on the

scope of the business opportunity, the level of the identified risks, and

IFS’s ability to influence the situation. Where necessary, sustainability-

related clauses are included in agreements. In the case of deviations

from international standards or other deficient management of risks, the

counterparty is required to take actions to rectify this.

13

IFS EDUCATION PROGRAM

Technology has an enormous impact on today’s society. Despite this,

interest in science and technology among the younger generations is

surprisingly low. With a waning interest in attending technical university

programs, global companies like IFS—indeed, the entire IT industry—run

the risk of a shortage of skilled employees. IFS Education Program aims

to counter this trend by attracting enthusiasm for technology among

students and young people. The program helps them learn new skills

and gives them an idea of what it is like to work in IT. Collaborating with

around 90 universities across the globe, IFS wants to inspire students

by providing the necessary resources. The group works globally to offer

scholarships, grants, IT equipment for classroom teaching, as well as

practical knowledge through internships and mentorships for graduate

students. The education program strengthens this commitment by

enabling direct collaboration with lecturers and professors to help them

design courses and programs that are founded on real-world experience

of what it means to work in IT.

The goal of IFS’s sustainability program moving forward is to take

the very best of all the local initiatives and roll them out as global best

practice across the organization. The company will also focus on

improving interest in and understanding of the IT industry as a whole

among the coming generation of IT workers, with the hope of increasing

the proportion of underrepresented groups in the IT sector. IFS believes

that a growing interest for IT within all social groups will benefit not only

the company but also its customers and partners, through a future larger

and broader pool of potential co-workers.

Sri Lanka

In many parts of the world, education is not a matter of course, and many

times it is economic conditions that determine whether a person can

receive training or not. IFS has therefore made significant investments

in helping financially vulnerable people get training that leads to work,

which in turn affects the wider community in a positive way. The

company’s efforts have mainly been concentrated to Sri Lanka, where

the group has a large number of its employees and where access to a

highly educated workforce with good expertise in IT and business

systems has previously not been a given.

IFS collaborates with the country’s largest universities through

various initiatives to offer more people the opportunity to study at

university level. Through one of the programs, the company covers

tuition fees and living costs during the time the student is studying for a

university degree. Students begin their education with a six-month study

period at IFS: four days a week at the company and two days at the

university. Following this, the student works as an intern four days a

week at IFS and continues to study two days at the university. There is

no obligation attached to the scholarship to continue working within IFS;

yet, as many as 90 percent choose to do so. To invest in scholarship

programs and support the universities benefit society in the long term.

IFS not only helps with scholarships to economically disadvantaged

students, but also sponsors a professorship at the University of

Moratuwa. Employees of IFS Sri Lanka regularly give guest lectures at

universities to offer students insight into how global IT companies work

and IFS donates equipment to the computer labs on campus. Guest

lectures and the donation of computer equipment are initiatives taken

in other parts of the group as well, for instance in Germany and Sweden.

14

AUDITOR’S REPORT ON

THE STATUTORY SUSTAINABILITY REPORT

To the annual meeting of the shareholders of

Industrial and Financial Systems, IFS AB (publ.)

Corporate identity number 556122-0996

Engagement and responsibility

It is the board of directors who is responsible for the statutory sustainability report for the year 2017 on

pages 10–14 and that it has been prepared in accordance with the Annual Accounts Act.

The scope of the audit

Our examination has been conducted in accordance with FARs auditing standard RevR 12 The auditors

opinion regarding the statutory sustainability report. This means that our examination of the statutory

sustainability report is substantially different and less in scope than an audit conducted in accordance

with International Standards on Auditing and generally accepted auditing standars in Sweden. We

believe that the examination has provided us with sufficient basis for our opinion.

Opinion

A statutory sustainability report has been prepared.

Stockholm, April 26, 2018

PricewaterhouseCoopers AB

Nicklas Kullberg AUTHORIZED PUBLIC ACCOUNTANT

15

TABLE OF CONTENTS OF THE ANNUAL REPORT

BOARD OF DIRECTORS’ REPORT 17

FINANCIAL STATEMENTS 22

Consolidated income statement 22

Consolidated statement of comprehensive income 22

Consolidated balance sheet—assets 23

Consolidated balance sheet—equity and liabilities 23

Consolidated capital account 24

Consolidated statement of cash flows 25

Income statement of the parent company 26

Statement of comprehensive income of the parent company 26

Balance sheet of the parent company—assets 27

Balance sheet of the parent company—equity and liabilities 28

Capital account of the parent company 28

Statement of cash flows of the parent company 29

NOTES TO THE FINANCIAL STATEMENTS 30

AUDITOR’S REPORT 58

Notes to the financial statements

Note 1 Accounting principles 30

Note 2 Segment reporting 37

Note 3 License revenue 39

Note 4 Maintenance and support revenue 39

Note 5 Other revenue 39

Note 6 Development expenditure 40

Note 7 Sales and marketing expenses 40

Note 8 Other operating income 40

Note 9 Other operating expenses 40

Note 10 Transactions between subsidiaries 40

Note 11 Operating expenses per type of cost 40

Note 12 Auditors’ fees 40

Note 13 Salaries, other remunerations, and social costs 40

Note 14 Remunerations paid to the board and executive management 40

Note 15 Transactions with related parties 41

Note 16 Average number of employees per country 42

Note 17 Results from participations in subsidiaries 42

Note 18 Results from participations in associated companies 42

Note 19 Other interest income and similar income 42

Note 20 Interest expenses and similar expenses 42

Note 21 Taxes 42

Note 22 Intangible fixed assets 43

Note 23 Tangible fixed assets 45

Note 24 Operating lease agreements 46

Note 25 Participations in subsidiaries 47

Note 26 Participations in associated companies and joint ventures 48

Note 27 Receivables in subsidiaries 48

Note 28 Deferred tax claims and tax liabilities 48

Note 29 Other long-term receivables 49

Note 30 Accounts receivable 49

Note 31 Other receivables 49

Note 32 Liquid assets 49

Note 33 Stockholders’ equity 49

Note 34 Liabilities to credit institutions and parent company 50

Note 35 Risk structure pertaining to interest and financing 50

Note 36 Pension commitments 51

Note 37 Other provisions and other liabilities 52

Note 38 Other liabilities 52

Note 39 Accrued expenses and prepaid income 53

Note 40 Pledged assets 53

Note 41 Contingent liabilities 53

Note 42 Adjustments for items not included in cash flow 53

Note 43 Business combinations 53

Note 44 Net acquisition of tangible fixed assets 54

Note 45 Reconciliation of net debt 54

Note 46 Financial risk management and derivatives 54

Note 47 Conversion rates 56

Note 48 Events occurring after the end of the period 56

Note 49 Proposed disposition of profits 57

Note 50 Information about the parent company 57

16

BOARD OF DIRECTORS’ REPORT

GENERAL

The board of directors and the chief executive officer of Industrial and

Financial Systems, IFS AB (publ.), corporate identity number

556122-0996, herewith submit the annual accounts and consolidated

accounts for the fiscal year 2017. Unless otherwise stated, all amounts

are in SKr million. Information in parentheses refers to the preceding

fiscal year. The terms “IFS,” “Group,” and “Company” all refer to the

Parent Company—Industrial and Financial Systems, IFS AB—and its

subsidiaries.

SUMMARY

The overall objective for 2017 was to achieve good growth in both

licenses and EBIT; both objectives were reached by far. IFS continued its

focus on project-oriented industry and markets with a strong need for

well-functioning processes within logistics, maintenance, and service

and the Company won highly-competitive contracts in its target sectors

during the year. In January 2017, Mxi in Ottawa, Canada, was acquired,

making IFS's offer in Aviation & Defense much broader. In order to

strengthen the Company within Services, WorkWave Inc. in New Jersey,

USA, was acquired in November 2017. The acquisitions also

strengthened the Company’s presence in North America and increased

its share of recurring revenue. Net revenue increased by 15 percent in

constant currency. Licenses grew by 21 percent in constant currency,

which underlines that IFS’s strategy of focusing on targeted sectors is

paying off. Maintenance revenue increased by 16 percent in constant

currency, resulting from license sales and strong customer loyalty, the

ongoing development of which remains a priority. Consulting revenue

grew by 6 percent in constant currency, with a steadily larger proportion

of services being delivered from a growing partner ecosystem. The

company's revenue from cloud-related services (Software as a Service)

increased by 231 percent and is expected to grow in the future as a

result of the acquisition of WorkWave. Net revenue amounted to

SKr 4,217 million ('16: SKr 3,649 million). EBIT increased to

SKr 425 million ('16: SKr 389 million).

OPERATIONS

IFS is a leading provider of component-based business software

developed using open standards and based on service-oriented

architecture (SOA). The solutions enable companies to respond quickly

to market changes and use resources in a more agile way to achieve

better business performance and competitive advantage.

Founded in 1983, IFS has more than 3,700 employees worldwide.

With IFS Applications™, in its tenth generation in 2018, IFS has

pioneered component-based ERP software. The component architecture

provides solutions that are easier to implement, run and upgrade.

IFS Applications is installed in more than 60 countries in about

20 languages.

IFS has some ten thousand customers and over one million users across

seven key vertical sectors: aerospace and defense; automotive;

manufacturing; process industries; construction, contracting, and

service management; retail and wholesale distribution; and utilities and

telecom. IFS Applications provide extended ERP functionality, including

customer relationship management (CRM), supply chain management

(SCM), product lifecycle management (PLM), corporate performance

management (CPM), enterprise asset management (EAM), as well as

maintenance, repair, and operations (MRO) capabilities.

IFS is today represented in approximately 50 countries through

wholly and jointly owned subsidiaries, joint ventures, and partners.

Operations are divided into six operating segments: Europe North;

Europe West; Europe Central; Europe East; Americas; and Africa, Asia,

and Pacific. These segments have the operational responsibility for sales

and delivery to customers. Product development and support are

included in corporate functions.

MARKET ANALYSIS

Globalization entails increased competition and more complex supply

chains. Companies are meeting these challenges by investing in new,

improved ERP solutions to streamline operations and simplify

collaboration with suppliers, customers, and partners. Moreover, an

increasing number of companies are doing business internationally, in

part with new business models. Legislation and regulations are

becoming more comprehensive, mergers and acquisitions are

increasing as the economy strengthens, and many companies are

moving from traditional manufacturing/distribution to more project-

based and service-oriented business models. These drivers led to a

successive recovery of the ERP market from the middle of the first

decade of this century to the end of 2008, when the trend was broken

and the market weakened in the wake of events in the global economy.

These drivers will, however, continue to be a force in the long term.

The enterprise resource planning (ERP) market grew by 8 percent in

2017. A large majority of companies still uses on-premises ERP software

but the demand for cloud-based deployments continues to significantly

outperform the demand for on-premises solutions, gradually accounting

for a larger proportion of all IT spending. Reflecting such strong growth

in the adoption of the cloud and the new IT-spending patterns that stem

from this technology, leading analysts such as Gartner and IDC forecast

the overall enterprise application market to show a compound annual

growth rate for the coming five years of around 8 percent. In particular,

they project the corresponding growth rate for the ERP market to be in

the 7 percent region.

The competitive position has not changed during 2017 and is not

expect to change over the coming years. After the consolidations of

recent years, SAP, Oracle, and Microsoft are the principal global

competitors in the industries and processes in which IFS operates. In

specific segments and geographic markets, IFS also competes with a

number of niche vendors.

17

SKr, million 2017

actual

Translation

effect

Structural

changes

2017

adjusted

2016

actual

Organic

change

Reported

change

NET REVENUE

License revenue 935 -2 -85 848 770 10% 21%

Maintenance and support revenue 1,429 -2 -106 1,321 1,242 6% 15%

Total product revenue 2,364 -4 -191 2,169 2,012 8% 17%

Consulting revenue 1,705 -13 -216 1,476 1,589 -7% 7%

Net revenue (including other revenue) 4,217 -16 -471 3,730 3,649 2% 16%

OPERATING EXPENSES

Operating expenses 3,792 -15 -460 3,317 3,260 2% 16%

Operating result 425 -1 -11 413 389 6% 9%

Other operating income/costs net -98 1 16 -81 -15

Capital gains/losses -1 - - -1 4

Exchange rate gains/losses -15 - 1 -14 -3

Restructuring costs/redundancy costs -40 1 4 -35 -40

Reversal of restructuring costs - - - 0 -

Amortization of capitalized product development -106 - - -106 -204

Amortization of acquired intangibles -117 - 37 -80 -35

Other amortization/depreciation -53 - 10 -43 -37

Capitalized product development 329 - - 329 216

Adjusted operating expenses 3,691 -13 -392 3,286 3,146 4% 17%

Adjusted EBITDA 526 -3 -79 444 503 -12% 5%

Adjusted EBITDA/net revenue 12% 12% 14%

NET REVENUE

License revenue for 2017 was 21 percent higher than in the previous

year in constant currency. During the year, the ten largest license deals

had a total value of SKr 173 million; the corresponding figure for 2016

was SKr 118 million. A total of 18 license agreements exceeding

US$ 0.5 million in value were sold during the year. Maintenance and

support revenue continued to grow and consulting revenue was also

higher than in the previous year in constant currency. Net revenue was

SKr 568 million higher than in 2016, an increase of 15 percent in

constant currency.

COSTS AND EXPENSES

Operating expenses were SKr 532 million higher than in 2016, which

represents an increase of 16 percent in constant currency. Variable

expenses such as costs related to third-party suppliers, partners, and

subcontracted consultants amounted to SKr 610 million (507), an

increase of 19 percent in constant currency. Other operating expenses

amounted to SKr 756 million (635), an increase of 18 percent in

constant currency. Payroll expenses amounted to SKr 2,337 million

(2,085), an increase of 12 percent in constant currency.

PRODUCT-DEVELOPMENT EXPENDITURE

Product development expenditure for the year amounted to

SKr 576 million (385). Capitalized product development totaled

SKr 329 million (216) and amortization of previously capitalized product

development amounted to SKr 106 million (204). The decrease is due

to the fact that the depreciation calculation is based on a changed

assumption of useful life, see Note 1.

PERSONNEL NUMBERS AND EFFICIENCY

The average number of employees increased, amounting to 3,318

(2,888). The headcount for product development at the end of the year

was 1,008 (673), of whom 504 (401) worked at the development center

in Sri Lanka. Net revenue per employee increased with 0 percent in

constant currency, and with 1 percent non-adjusted for currency to

SKr 1,273 thousand (1,264). Personnel-related expenses per employee

amounted to SKr 704 thousand (722), a decrease of 0 percent in

constant currency. The number of employees at year end was 3,724

(2,913).

EBIT

EBIT amounted to SKr 425 million (389), an increase of 9 percent

compared with 2016. EBIT before amortization and depreciation but

after reversal of capitalized development expenditure and adjusted for

nonrecurring items consisting of severance costs and capital gains and

losses, i.e. adjusted EBITDA, amounted to SKr 526 million (503),

corresponding to a margin of 5 percent.

PROFIT FOR THE YEAR

Net financial items were SKr -19 million (-19). Adjusted for exchange rate

effects, the net financial items, including bank costs, were

SKr -17 million (-21). Net interest income was SKr -92 million (-4). Profit

before tax increased to SKr 406 million (370) while profit for the year

increased to SKr 512 million (280).

18

OPERATING AREAS

Europe North

SKr, million 2017 2016 Δ

License revenue 200 190 5%

Maintenance and support revenue 455 419 9%

Consulting revenue 556 619 -10%

Net revenue 1,263 1,259 0%

EBIT, undistributed* 434 415 5%

Number of employees at the end of the period 360 443 -19%

* EBIT before allocation of corporate revenue and expenses

Europe North’s net revenue decreased by 1 percent in constant

currency. Licenses grew by 3 percent in constant currency. Maintenance

revenue increased by 7 percent in constant currency as a result of the

improved license sales. Consulting revenue decreased by 7 percent in

constant currency. The usage of partners in implementation projects

continued to increase. Operating expenses were 5 percent lower than

the previous year in constant currency. EBIT thereby improved by

5 percent.

Europe West





Net revenue 831 760 9%

EBIT, undistributed* 187 210 -11%

Number of employees at the end of the period 475 371 28%


Net revenue increased by 14 percent in constant currency. License

revenue grew by 27 percent in constant currency, and maintenance

revenue grew by 7 percent in constant currency. Consulting revenue

decreased by 5 percent in constant currency. Operating expenses were

21 percent higher in constant currency. EBIT thereby decreased by

7 percent.

Europe Central




Consulting revenue 242 235 3%


EBIT, undistributed* 79 96 -18%



Net revenue for Europe Central was 7 percent better than in 2016 in

constant currency. License revenue increased by 10 percent in constant

currency and maintenance revenues grew by 3 percent in constant

currency. Consulting revenue was unchanged in constant currency. EBIT

improved by 16 percent in constant currency.

Europe East









Net revenue increased by 11 percent in constant currency, mainly from

an increase in license revenue, which grew by 16 percent in constant

currency. Maintenance revenue increased by 6 percent in constant

currency. Consulting revenue grew by 9 percent in constant currency.

Operating expenses increased by 9 percent in constant currency. EBIT

thereby improved by 15 percent in constant currency.

Americas





Net revenue 1,449 811 79%




Americas increased its net revenue by 78 percent in constant currency.

License revenue increased by 52 percent in constant currency.

Operating expenses increased by 81 percent in constant currency. EBIT

was 16 percent higher than the previous year. Change over the years is

largely due to the acquisitions in the year, see Note 43.

Africa, Asia, and Pacific









Net revenue increased by 3 percent in constant currency. Operating

expenses were 2 percent higher than in 2016 in constant currency. EBIT

thereby decreased by SKr 1 million.

19

PRODUCT DEVELOPMENT

The Group’s product development is primarily conducted in IFS’s R&D

centers in Sri Lanka, Sweden, the United States, Canada, the United

Kingdom, Poland, and the Netherlands. During 2017 new products that

address business needs in IFS’s targeted industries have been added to

the product portfolio. IFS has significantly strengthened its offering to

the Aviation & Defense industry as well as the Field Service Management

market through the acquisitions of Mxi in Canada for Aviation & Defense,

and Workwave in the United States and MPL in the United Kingdom for

Field Service Management and Customer Engagement.

For IFS Applications, product development focused on

IFS Applications 10, the next core release that will be officially

introduced in 2018. The IFS IoT Business Connector, IFS Product

Estimate Management, and IFS Global Extension were released during

the year as well as new versions of IFS Maintenix, IFS Field Service

Management, IFS Enterprise Operational Intelligence, and IFS Planning

& Scheduling Optimization, in addition to a number of important

improvements, aimed at increasing the business benefits of existing

versions.

PARTNERS

IFS continues to prioritize investment in the development of its global

partner ecosystem. An emphasis on developing opportunities with the

several hundred existing partners already in the IFS partner network,

rather than adding new partners, has resulted in a strengthened partner

sales pipeline and an increase in closed opportunities. IFS continued to

add new modules and content to the IFS Academy as part of a program

designed to maintain and improve the quality of service delivered by

partners. The IFS Academy training content is available globally

throughout all regions in multiple languages with both on-line and

classroom delivery options available.

During 2018, the company will continue to develop its relationships

with its existing partner ecosystem and will develop several new

programs with both service and technology partners to accelerate

partner sales growth.

CASH FLOW, LIQUIDITY, AND FINANCIAL POSITION

Cash flow from current operations before change in working capital

amounted to SKr 890 million (595). Change in tied working capital

amounted to SKr -217 million (-64). Days of sales outstanding (DSO) at

year-end was 76 days (74). DSO calculated on the monthly receivables’

positions during the year was 55 days (54).

Investments totaled SKr 4,424 (348) million. Product development

expenditure was capitalized in an amount of SKr 445 million (216). Cash

flow after investments totaled SKr -3,750 million (183). Cash flow from

financing operations was SKr 2,551 million (933). Loans from parent

company increased by SKr 2,526 million (1,182) during the year.

Cash and cash equivalents on December 31, 2017 totaled

SKr 451 million (1,661). The Group’s net liquidity position at year end,

excluding pension liabilities, amounted to SKr -3,551 million (479). Cash

and unutilized credit totaled SKr 451 million (1,661). External financing

amounted to SKr 0 million (0).

During the year, the Company distributed a dividend of

SKr 336 million (78).

FINANCIAL-RISK MANAGEMENT

In the course of its business, the Group is exposed to risk related to

currency, financing and interest rates. Such risks and their management

are described in note 45 and in the section covering risks and

uncertainties below.

ACCOUNTING PRINCIPLES

The Group applies the IFRS accounting principles approved by the

European Commission. The new standards, recommendations, and

interpretations that are adjudged to affect the Group were applied when

preparing the financial statements for 2017.

SOCIAL RESPONSIBILITY

IFS operates in a distinctly low-risk industry in terms of the direct impact

of its activities on people and the environment. This applies to the entire

value chain, including product development, for which IFS’s largest unit

is located in Sri Lanka. Group management has adopted and published

the IFS Code of Conduct, which is based on the ten principles of the U.N.

Global Compact embracing human rights, labor rights, the environment

and anti-corruption.

A number of Group-wide processes, tools, and guidelines related to

personnel were implemented during the year. For Group-wide processes,

targets are established and the outcome is monitored on a regular basis.

Continuous actions are taken to improve the Company’s psychosocial

environment. Absence related to illness was 4.6 days annually per Group

employee and personnel turnover was 6.3 percent in 2017.

In 2017, the percentage of female employees was 30 percent. The

percentage of female members on the Company’s boards was

17 percent, and the percentage of female senior managers was

19 percent. The share of female members on the Parent Company’s

board of directors was 0 percent. The lower percentage of women in the

Company is a frequent phenomenon in the software industry as a whole.

Diversity is encouraged through exchange programs that contribute

to exposure to other cultures. The Company believes that an

understanding of other cultures is necessary to conduct business

effectively, because both IFS and the majority of its customers are active

throughout the world.

IFS has a low environmental risk. The Group’s most extensive

environmental impact is energy consumption from its companies’

premises, business travel, purchasing of office material and handling of

used hardware. IFS’s goal is to conduct business in an environmentally

responsible manner. All employees are encouraged to respect the

environment and strive to work with sustainability issues such as

recycling and energy efficiency when possible.

Corporate Sustainability is becoming increasingly important in the

global marketplace—both in terms of mitigating risks associated with

legal compliance as well as enhancing business insight to boost

profitability. IFS’s unique offering includes a broad variety of solutions

for efficient reporting and enhanced control in the field of corporate

sustainability and non-financial reporting.

RISKS AND UNCERTAINTIES

In its operations, IFS is confronted with certain risk elements that can to

a greater or lesser extent have an impact on operational outcome. One

such risk is the rapid technological development in the industry, which

could create the need for substantial technology changes. A further

cause of uncertainty is the ability to attract and retain critical personnel

resources, especially in a labor market in which the demand for and cost

of attractive personnel are increasing. In addition to the above risks, IFS

in its business is exposed to other operational and legal risks and

uncertainties, including in customer projects, dependence on certain

suppliers and partners, the outcome of actual and possible disputes,

and currency exposure.

IFS, through its use of component technology and by establishing

internal processes and procedures, believes that it has addressed such

risks and taken measures to reduce and control them as far as possible.

As the Parent Company does not engage in operational activities, its risk

is limited above all to financing, foreign currency, liquidity, guarantees,

and possible disputes.

20

OUTLOOK

A large majority of companies still uses on-premises ERP software but

the demand for cloud-based deployments continues to significantly

outperform the demand for on-premises solutions, gradually accounting

for a larger proportion of all IT spending. Reflecting such strong growth

in the adoption of the cloud and the new IT-spending patterns that stem

from this technology, leading analysts such as Gartner and IDC forecast

the overall enterprise application market to show a compound annual

growth rate for the coming five years of around 8 percent. In particular,

they project the corresponding growth rate for the ERP market to be in

the 7 percent region. During the year, IFS will continue to build on its

successes and strengthen its recognition as the intelligent choice for

global businesses. The Company will continue to work on strengthening

its brand, develop its partner ecosystem, and grow its pipeline. For 2018,

IFS expects to see continued positive development and further

improvements to its strengths.

ADDITIONAL INFORMATION

IFS is involved in a minor number of disputes and claims, which can be

considered normal given the nature of its operation. The Company

assesses that no provisions are necessary, but its result and liquidity

may be affected by the outcome of such disputes.

As reported previously, IFS has in addition been involved in a legal

dispute that was instituted in Sri Lankan courts in 2002 by the other

major shareholder of the partly-owned company IFS Sri Lanka. Following

dismissal of the case by the local court in 2008 and ensuing arbitration

proceedings in Singapore, the dispute was finally decided in a Final

Award issued in June 2014, by which IFS’s position was confirmed and

the counterparty’s claims completely rejected. The Final Award has

gained full legal force.

During 2015, the counterparty instigated new proceedings by

requesting a leave for a legal action in Sri Lankan courts that entailed a

re-examination of the merits of the case. In 2017 the court finally

resolved not to grant any leave and dismissed the case. The dispute is

thereby finally settled.

PARENT COMPANY

Parent Company, Industrial and Financial Systems, IFS AB, operations

include certain corporate management and finance functions as well as

the management of stockholdings for subsidiaries. In 2017, net revenue

amounted to SKr 33 million (38), with earnings before tax of


The Parent Company did not make any investments in equipment

during the year. On December 31, 2017, liquidity, including unutilized

credit, amounted to SKr 102 million (159), and Company debt was

SKr 3,953 million (1,182), of which SKr 0 million (0) was from credit

institutions and SKr 3,953 million (1,182) was related to intra-Group

borrowing.

In 2017, stockholders’ equity in the Parent Company decreased by

SKr 3 million to SKr 1,504 million, of which unrestricted stockholders’

equity accounted for SKr 432 million (435). The change is mainly

attributable to a distributed dividend of SKr 336 million and the net

earnings. At year-end, the Parent Company had 3 (3) employees.

PROPOSED DISPOSITION OF PROFITS

The board of directors and the president propose that the earnings of

the parent company available for disposition, SKr 432 million, be

allocated as follows:

Carried forward SKr 432,427 thousand

Total SKr 432,427 thousand

21

CONSOLIDATED INCOME STATEMENT

SKr, million Note 2017 2016

License revenue 3 935 770

Maintenance and support revenue 4 1,429 1,242

Consulting revenue 1,705 1,589

Other net revenue 5 148 48

Net revenue 2 4,217 3,649

License expenses -78 -72

Maintenance and support expenses -292 -281

Consulting expenses -1,354 -1,226

Other net expenses -91 -37

Cost of revenue -1,815 -1,616

Gross earnings 2,402 2,033

Development expenditure 6 -410 -395

Sales and marketing expenses 7 -983 -807

Administration expenses -464 -394

Other revenue 8 4 8

Other expenses 9 -125 -56

Result from associated companies and joint venture 18 1 0

Other operating expenses, net -1,977 -1,644

EBIT 11, 12, 13, 14, 15, 16 425 389

Other interest income and similar income 19 79 6

Interest costs and similar costs 20 -98 -25

Financial net -19 -19

Profit/loss before tax 406 370

Taxes 21 106 -90

Profit/loss for the year 512 280

Profit/loss for the year is allocated as follows:

Parent Company stockholders (SKr million) 512 280

Non-controlling interests (SKr million) 0 0

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

SKr, million Not 2017 2016

Earnings for the year 512 280

Other comprehensive income

Items that will not be reclassified to profit or loss

Revaluation of defined-benefit pension plans -39 -76

Items that may be subsequently reclassified to profit or loss

Exchange rate differences -76 52

Other comprehensive income for the year, net of tax -115 -24

Total comprehensive income for the year 397 256

Total comprehensive income allocated as follows:

Parent Company shareholders 397 256

Non-controlling interests 0 0

22

CONSOLIDATED BALANCE SHEET—ASSETS

SKr, million Note Dec 31, 2017 Dec 31, 2016

Capitalized expenditure for product development 866 642

Goodwill 2,974 574

Other intangible fixed assets 1,825 110

Intangible fixed assets 22 5,665 1,326

Tangible fixed assets 23, 24 205 136

Participations in associated companies and joint venture 26 2 2

Deferred tax receivables 28 198 175

Other long-term receivables 29 55 29

Financial fixed assets 255 206

Fixed assets 6,125 1,668

Inventories 8 -

Accounts receivable 30 1,104 931

Current tax receivable 86 68

Other receivables 31 392 285

Liquid assets 32 451 1,661

Current assets 2,041 2,945

Assets 8,166 4,613

CONSOLIDATED BALANCE SHEET—EQUITY AND LIABILITIES


Capital stock 499 499

Other capital contributed 694 694

Reserves -24 52

Accumulated earnings, including profit/loss for the year 494 357

Stockholders' equity pertaining to Parent Company stockholders 1,663 1,602

Non-controlling interests 1 1

Stockholders' equity 33 1,664 1,603

Liabilities to credit institutions 34, 35 48 0

Liabilities to parent company 34, 35 3,607 1,110

Pension obligations 36 211 190

Deferred tax liabilities 28 314 66

Other provisions 37 12 5

Long-term liabilities 4,192 1,371

Accounts payable 107 97

Current tax liabilities 125 116

Liabilities to credit institutions 34, 35 1 -

Liabilities to parent company 34, 35 346 72

Other provisions 37 13 5

Other liabilities 38 1,718 1,349

Current liabilities 2,310 1,639

Liabilities 6,502 3,010

Stockholders' equity and liabilities 8,166 4,613

23

CONSOLIDATED CAPITAL ACCOUNT

SKr, million Note 33

Capital

stock

Other

contributed

capital

Reserves

Accumulated

earnings, incl.

profit/loss for

the year

Equity

pertaining to

shareholders

of the parent

company

Non-controlling

interests

Total

stockholders'

equity

Amount on January 1, 2016 499 692 0 221 1,412 1 1,413

Revaluation of defined-benefit pension plans - - - -76 -76 - -76

Change in translation difference - - 52 - 52 - 52

Total changes in net wealth recognized in other

comprehensive income, excl. transactions with the

company's owners - - 52 -76 -24 - -24

Profit/loss for the year - - - 280 280 - 280

Total changes in net wealth, excl. transactions with the

company's owners - - 52 204 256 0 256

Share-based payments - 2 - 10 12 - 12

Dividend - - - -78 -78 - -78

Amount on December 31, 2016 499 694 52 357 1,602 1 1,603

Revaluation of defined-benefit pension plans - - - -39 -39 - -39

Change in translation difference - - -76 - -76 - -76

Total changes in net wealth recognized in other

comprehensive income, excl. transactions with the

company's owners 0 0 -76 -39 -115 0 -115

Profit/loss for the year - - - 512 512 - 512

Total changes in net wealth, excl. transactions with the

company's owners 0 0 -76 473 397 0 397

Group contribution paid - - - -336 -336 - -336

Amount on December 31, 2017 499 694 -24 494 1,663 1 1,664

24

CONSOLIDATED STATEMENT OF CASH FLOWS


CURRENT OPERATIONS

Profit/loss after net financial items 406 370

Adjustments for items not included in the cash flow, etc. 42 245 326

Interest paid -93 -25

Interest received 4 4

Income tax paid 328 -80

Cash flow from operations before change in working capital 890 595

CHANGE IN WORKING CAPITAL

Change in inventory -9 0

Change in current receivables -160 -135

Change in current non-interest-bearing liabilities -48 71

Change in working capital -217 -64

Cash flow from current operations 673 531

INVESTMENT OPERATIONS

Acquisition of subsidiaries/operations 43 -3,950 -69

Sale of subsidiaries 2 -

Acquisition of intangible fixed assets 6, 22 -378 -216

Sale of intangible fixed assets 6, 22 - -

Acquisition of tangible fixed assets 23, 44 -64 -59

Sale of tangible fixed assets 23, 44 - -

Change in long-term receivables -33 -4

Cash flow from investment operations -4,423 -348

Cash flow after investment operations -3,750 183

FINANCING OPERATIONS

Raising of loans from credit institutions 34 47 74

Raising of loans from parent company 34 3,267 1,182

Amortization of liability to credit institutions 34 - -246

Amortization of liability to parent company 34 -427 -

Dividend distributed - -78

Group contribution paid -336 -

Received premium fee for warrants - 1

Cash flow from financing operations 2,551 933

Cash flow for the year -1,199 1,116

LIQUID FUNDS

Liquid funds on January 1 1,661 533

Exchange rate differences in liquid funds -11 12

Liquid funds on December 31 32 451 1,661

25

INCOME STATEMENT OF THE PARENT COMPANY


Net revenue 5 33 38

Administration expenses -38 -56

Other costs - -2

EBIT 10, 12, 13, 14, 15, 16 -5 -20

Result from participation in subsidiaries 17 227 23

Other interest income and similar income 19 188 31

Interest costs and similar costs 20 -77 -19

Profit/loss before tax 333 15

Tax on profit/loss for the year 21 - 1


STATEMENT OF COMPREHENSIVE INCOME OF THE PARENT COMPANY

SKr, million 2017 2016

Earnings for the year 333 16

Other comprehensive income - -

Other comprehensive income for the year - -

Total comprehensive income for the year 333 16

26

BALANCE SHEET OF THE PARENT COMPANY—ASSETS


FIXED ASSETS

Tangible fixed assets 23 0 0

Participations in subsidiaries 25 2,542 1,197

Receivables in subsidiaries 27 2,643 766

Deferred tax receivables 28 4 4

Other long-term receivables 29 2 2

Financial fixed assets 5,191 1,969

Fixed assets 5,191 1,969

CURRENT ASSETS

CURRENT RECEIVABLES

Receivables in subsidiaries 1,497 1,079

Other receivables 12 7

Prepaid expenses and accrued revenue 0 0

Current receivables 1,509 1,086

Cash and bank balances 32 102 159

Current assets 1,611 1,245

Assets 6,802 3,214

27

BALANCE SHEET OF THE PARENT COMPANY—EQUITY AND LIABILITIES


STOCKHOLDERS' EQUITY

RESTRICTED STOCKHOLDERS' EQUITY

Capital stock 499 499

Restricted reserves 573 573

Restricted stockholders' equity 1,072 1,072

UNRESTRICTED STOCKHOLDERS' EQUITY

Share premium reserve 116 116

Retained earnings -17 303


Unrestricted stockholders' equity 432 435

Stockholders' equity 33 1,504 1,507

PROVISIONS

Provisions for pensions and similar commitments 36 14 15

Provisions 14 15

LONG-TERM LIABILITIES

Liabilities to credit institutions 34, 35 25 -

Liabilities to parent company 34, 35 3,607 1,110

Long-term liabilities 3,632 1,110

CURRENT LIABILITIES

Liabilities to parent company 34, 35 346 72

Accounts payable 1 5

Liabilities to subsidiaries 1,292 486

Other current liabilities 10 9

Accrued expenses and prepaid revenue 39 3 10

Current liabilities 1,652 582

Stockholders' equity, provisions, and liabilities 6,802 3,214

CAPITAL ACCOUNT OF THE PARENT COMPANY

RESTRICTED EQUITY UNRESTRICTED EQUITY Total

stockholders'

equity

SKr, million Note 33 Capital

stock

Reserve

fund

Total

Premium

fund

Earnings carried

forward

Total

Amount on January 1, 2016 499 573 1,072 115 376 491 1,563

Share-based payments - - - 1 5 6 6

Dividend - - - - -78 -78 -78

Profit/loss for the year - - - - 16 16 16

Amount on December 31, 2016 499 573 1,072 116 319 435 1,507

Group contribution paid - - 0 - -336 -336 -336

Profit/loss for the year - - 0 - 333 333 333

Amount on December 31, 2017 499 573 1,072 116 316 432 1,504

28

STATEMENT OF CASH FLOWS OF THE PARENT COMPANY


CURRENT OPERATIONS

Profit/loss after net financial items 333 15

Adjustments for items not included in the cash flow, etc. 42 -112 -2

Interest paid -76 -17

Interest received 105 0

Revenue tax paid -7 -10

Cash flow from operations before change in working capital 243 -14

CHANGES IN WORKING CAPITAL

Change in current receivables - 10

Change in current non-interest-bearing liabilities -346 -36

Change in working capital -346 -26

Cash flow from current operations -103 -40

INVESTMENT OPERATIONS

Change in receivables in subsidiaries -1,345 -266

Change in liabilities to subsidiaries - 68

Increase in other long-term receivables -1,138 -760

Decrease in other long-term receivables - -

Cash flow from investment operations -2,483 -958

Cash flow after investment operations -2,586 -998

FINANCING OPERATIONS

Raising of loans from credit institutions 34 25 74

Raising of loans from parent company 34 3,267 1,182

Amortization of liability to credit institutions 34 - -246

Amortization of liability to parent company 34 -427 -

Dividend distributed - -78

Group contribution paid -336 -

Cash flow from financing operations 2,529 932

Cash flow for the year -57 -66

LIQUID FUNDS

Liquid funds on January 1 159 225

Liquid funds on December 31 32 102 159

29

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING PRINCIPLES

GROUP ACCOUNTING PRINCIPLES

Registered office, etc.

Industrial and Financial Systems, IFS AB (publ.), corporate identity

number 556122-0996, has its registered office in Linköping, Sweden,

which is also corporate headquarters. The company’s address is

Teknikringen 5, SE-583 30 Linköping, Sweden.

IFS is a leading supplier of component-based enterprise

applications developed using open standards and service-oriented

architecture (SOA). By offering agile business solutions IFS improves its

customers’ ability to make correct decisions and more efficiently

manage their business.

Conformity with norms and legislation

The consolidated accounts have been prepared in accordance with the

International Financial Reporting Standards (IFRS) issued by the

International Accounting Standards Board (IASB), and the

interpretations issued by the International Financial Reporting

Interpretations Committee (IFRIC) as approved by the European

Commission for application within the European Union. Moreover, the

Swedish Annual Accounts Act and the Swedish Financial Accounting

Standards Council recommendation RFR 1, Supplemental Accounting

Regulations for Groups, have been applied.

The Parent Company has prepared its annual report in accordance

with the Swedish Annual Accounts Act and the Swedish Financial

Accounting Standards Council recommendation RFR 2, Reporting for

Legal Entities. The consolidated accounts have been prepared in

accordance with the acquisition cost method with the exception of

financial assets and liabilities valued at fair value.

The Parent Company applies the same accounting principles as the

Group, except in the cases detailed below in the section entitled “Parent

Company Accounting Principles.” The variations existing between Parent

Company and Group accounting principles are due to the limitations to

applying IFRS in the Parent Company as a result of the Swedish Annual

Accounts Act and the Swedish Act on Safeguarding of Pension

Commitments, and in certain cases for tax reasons.

The annual report and the consolidated accounts were approved for

release by the Board of Directors on April 26, 2018. The consolidated

income statement and balance sheet and the Parent Company income

statement and balance sheet will be presented for adoption by the

annual general meeting of stockholders 2018. Unless otherwise stated

below, the Group accounting principles detailed below have been

consistently applied throughout the periods presented in the Group’s

financial statements. Group accounting principles have been

consistently applied to the financial statements and consolidation of the

Parent Company, subsidiaries, associated companies, and joint venture

companies.

Functional currency and presentation currency

The functional currency is the currency in the primary financial

environments in which companies that are part of the Group conduct

their business. The companies included in the Group are the Parent

Company, subsidiaries, associated companies, and joint ventures.

The Parent Company’s functional currency is the Swedish krona

(SKr), which is also the presentation currency for the Parent Company

and the Group. Therefore the financial reports are presented in Swedish

krona. All amounts, unless otherwise stated, are rounded off to the

nearest million.

Estimates and critical assumptions in the financial reports

To present the financial reports in accordance with the IFRS, the

management and board of IFS must make certain estimates and

assumptions that affect the application of the accounting principles and

the reported amounts pertaining to assets and liabilities, revenue and

expenses. Actuals may differ from the estimates.

The estimates and assumptions are regularly reviewed. Changes in

estimates are reported in the period in which the change is made if the

change affects only that period, or in the period in which the change is

made and future periods if the change affects both the current and

future periods.

Assessments made by the management related to the application

of the IFRS that have a significant impact on the financial reports and

estimates that may entail significant adjustments in the financial reports

of subsequent years pertain to the following areas:

Revenue recognition. The Group uses the percentage of completion

method of accounting for fixed-price contracts for consulting

projects. The percentage of completion method requires the group

to estimate how much of the services already performed to date as

a proportion of the total services to be performed.

Valuation of bad debts. The Group applies a common model for the

valuation of bad debts. The model entails a write-down of debt

following a matrix in which the percentage write-down is higher the

older the debt is. If a debt is so bad that it is deemed unlikely that it

will ever be paid, the debt is written down by 100 percent regardless

of its age, on the basis of an individual assessment.

Valuation of goodwill and capitalized expenditure for product development.

Each year the Group conducts an impairment test to examine the

need to write-down goodwill, capitalized product development

expenditure and other intangible assets in accordance with Note 22.

The residual value for cash-generating entities has been established

by estimating value in use. To make such estimations, certain

assumptions must be made, see Note 22.

Income tax. Management makes assessments to determine current

tax liabilities and tax receivables, as well as provisions for deferred

tax liabilities and deferred tax receivables. This applies in particular

to the valuation of deferred tax receivables. This process requires

that an assessment be made of the tax outcome in each of the

countries in which the Group does business. The process includes

an assessment of exposure related to current tax and to determine

the temporary differences that arise because certain assets and

liabilities are valued differently in the accounts and in the income

tax returns. Management is also required to assess the probability

that deferred tax receivables can be realized via future taxable

revenue. For further information on deferred tax receivables and tax

liabilities, see Note 28.

Restructuring measures. When major reorganization programs are

launched, provisions are made for restructuring. For such provisions

to be made, a number of criteria must be fulfilled. Among other

things, a detailed formal plan of action must be made. When

provisions are made, the size of the cost of the program must be

assessed. Provisions for restructuring cover only the direct costs

arising from restructuring. The largest and most common item is

30

personnel-related expenses. For information on changes in the

restructuring reserve, see Note 37.

Provisions for pensions. The current value of pension obligations is

dependent on a number of factors that are established on an

actuarial basis with the help of a number of assumptions. Each

change in such assumptions will affect the reported value of the

pension obligations. See Note 36 for further information and a

sensitivity analysis.

Legal disputes. The Group continuously monitors substantial

outstanding disputes top determine the need to make provisions.

Disputes can vary in character, involving customers, suppliers etc.

the estimates made, however, do not necessarily reflect the

outcome of legal disputes, and the difference in outcomes and

estimates can substantially affect the company’s financial position.

For information on the disputes that IFS is involved in, see the Board

of director’s report and the section “Additional information”.

Business combinations. In connection with business combinations,

senior management makes certain assessments and estimates.

Estimates include, among other things, an assessment of the fair

value of the acquired assets and liabilities, and future cash flows.

Uncertainty implies for instance that actual cash flows may differ

from estimated future cash flows, which can lead to impairment

testing in later periods. After initial recognition, the need for

impairment is tested at least annually, or whenever there are

indications that the asset’s value has decreased. For further

information on acquisitions during the fiscal year, see Note 43.

Changes in accounting principles

None of the standards applied by the Group for the first time for the fiscal

year beginning on January 1, 2017 have had any material impact on the

Group’s earnings or position.

IFRS 9 Financial Instruments treats the classification, evaluation and

reporting of financial liabilities and assets. According to IFRS 9

financial assets are classified in three categories: accrued

acquisition value, fair value through other total earnings or fair value

through comprehensive income. The classification is determined

when the asset is first reported based on the company’s business

model and characteristic properties in the contractual cash flows.

Investments in own capital instruments shall be recognized at fair

value through comprehensive income. It is, however, possible to

recognize the instrument at fair value through other total earnings

the first time it is recognized. The instrument will not be reclassified

to comprehensive income when it is divested. IFSR 9 also introduces

a new model for estimating credit loss reserves based on expected

credit losses. For financial liabilities, there is no change in

classification and valuation except when a liability is recognized at

fair value through comprehensive income based on the fair value

alternative. Changes in valuation pertaining to changes in own credit

risk shall in such case be recognized in other total earnings. IFRS 9

lowers the restrictions to applying hedge accounting by replacing the

80-125 criterion with a requirement that there be a financial

relationship between the hedging instrument and the item being

hedged, and that the hedge ratio be the same as that used in the

economic hedge. Moreover, hedging documentation is changed

somewhat compared with that required under IAS 39. The standard

has been adopted by the EU. The standard shall be applied for the

fiscal year beginning on January 1, 2018. The Group has evaluated

the effects of the introduction of the standard to have no significant

impact on earnings or position. The group will start applying the

standard from January 1, 2018.

IFRS 15 Revenue from Contracts with Customers specifies how revenue

shall be recognized. The principles on which IFRS is based aim to

provide users of financial reports more informative disclosures on a

company’s revenue. The expanded disclosure requirements entail

that information shall be provided about the nature, timing, and

uncertainties related to revenue recognition and cash flow

pertaining to a company’s customer contracts. According to IFRS 15,

revenue shall be recognized when the customer takes control of a

sold good or service and is able to use or benefit from the good or

service. IFRS 15 enters into force on January 1, 2018. The standard

has been adopted by the EU. The Group has evaluated the effects

of the introduction of the standard on all major contracts, and the

assessment is that it has no significant impact on earnings or

position. Therefore, in accordance with IAS 1, paragraph 31, no

recalculation is made for inbound values 2018. The group will start

applying the standard from January 1, 2018.

New IFRS and interpretations not yet applied

Among the standards and interpretations that have been published but

have not yet come into force, the following have been deemed to affect

the Group for the fiscal years beginning after January 1, 2017 and have

not been pre-adopted by the Group.

IFRS 16 Leases, In January 2016, the IASB issued a new leasing

standard to replace IAS 17 Leases, and related interpretations,

IFRIC 4, SIC-15 and SIC-27. The standard required that assets and

liabilities pertaining to all leasing agreements, with a few

exemptions, be recognized in the balance sheet. Such recognition is

based on the view that the lessee obtains the right to use an asset

for a specific period of time and is liable to pay for this right. For the

lessor, recognition will remain essentially unchanged. The standard

is to be implemented for the fiscal year beginning on January 1,

2019 or later. Earlier implementation is permitted. The EU has not

yet adopted the standard. The Group has not yet assessed the

effects of implementing IFRS 16.

Segment reporting

The Group applies segment reporting that concurs with internal reporting

and which is presented to the chief operational decision-maker. The

chief operational decision-maker is the function responsible for

allocating resources and assessing the earnings of the operational

segments. . The chief operational decision-maker in the Group is senior

management. The primary basis for division is geographical region and

the following-up of their earnings.

Classifications, etc.

Tangible assets and long-term liabilities in the Parent Company and

Group consist in essence of sums that are expected to be recovered or

paid later than 12 months after the balance sheet date. Current assets

and current liabilities in the Parent Company and Group consist in

essence of sums that are expected to be recovered or paid within

12 months of the balance sheet date.

Consolidated accounting principles

Subsidiaries

Subsidiaries are all companies (including structured entities) in which

the Group has a controlling interest. The Group controls a company when

it is exposed to or is entitled to a variable dividend from its holding in the

company and can affect the dividend through its influence in the

company.

The purchase method is used to report on Group subsidiaries. The

consideration paid for acquiring a subsidiary consists of the fair value of

the transferred assets, liabilities and shares issued by the Group. The

consideration also includes the fair value of all assets or liabilities that

result from an agreement in respect of a contingent consideration.

Acquisition-related costs are expensed as they occur. Identifiable

acquired assets and assumed liabilities in a business combination are

initially valued at fair value on the acquisition date. For each acquisition

the Group determines whether the non-controlling interest in an

31

acquired company is valued at fair value or at the non-controlling

interest’s proportional share of the acquired company’s net assets.

The amount by which the consideration, non-controlling interests,

and fair value on acquisition date of previous holdings exceed the fair

value of the Group’s proportion of identifiable acquired assets is to be

reported as goodwill. If the amount is less than the fair value of the

acquired subsidiary’s assets, the difference is reported directly in the

comprehensive income.

The financial reports of subsidiaries are included in the consolidated

accounts as of the day the controlling interest is transferred to the

Group, i.e. on acquisition. They are excluded from the consolidated

accounts as of the day the controlling interest no longer exists.

Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as

transaction with stockholders. In acquisitions from non-controlling

interests, the difference between the consideration paid and the actual

acquired share of the reported value of the subsidiary’s net assets is

reported under stockholders’ equity. Profit and loss on divestments to

non-controlling interests is also reported under stockholders’ equity.

When the Group no longer has a controlling interest, each residual

holding is revalued at fair value and the change in reported value is

shown in the income statement. Fair value is used as the first reported

value and constitutes the basis for the continued reporting of the

residual holding as an associates company, joint venture or financial

asset. All amounts pertaining to the divested entity that were previously

reported under other comprehensive income are reported as if the

Group had directly divested the respective assets or liabilities. As a

result, amounts previously reported in other comprehensive income may

be reclassified as earnings.

If the interest in an associated company is reduced, but a significant

influence remains, only a proportional share of the amount previously

reported in other comprehensive income is reclassified, where relevant,

to earnings.

Associated companies

Associated companies are those in which the Group has a significant,

but not controlling, interest in the operational and financial

management, generally through a holding of 20–50 percent of the

voting rights. From the point in time at which the significant interest is

acquired, the interest in the associated company is reported in the

consolidated accounts pursuant to the equity method. In the Group

income statement, the Group’s share in the associated companies’ net

earnings after tax, and adjusted for depreciation, write-downs and

resolution of acquired fair value adjustments, is reported under

‘Participations in associated companies’. Dividends obtained from the

associated company reduce the reported value of the investment.

The Group’s reported valuation of its holding in associated

companies includes goodwill that is identified on acquisition, net after

write-downs that may be required.

When the Group’s share of reported losses in the associated

company exceeds the reported value of the shares in the Group, the

value of the shares is reduced to zero. The equity method is applied until

the significant interest ceases to exist.

Joint ventures

For accounting purposes, joint ventures are companies in which the

Group has entered into collaboration agreements with one or several

parties to share a controlling interest in their operational and financial

management. Holdings in joint ventures are recognized using the equity

method.

Transactions to be eliminated on consolidation

Intra-Group receivables and payables, revenue or expenses, and

unrealized profits or losses arising from intra-Group transactions

between subsidiaries are eliminated in their entirety when the

consolidated accounts are prepared.

Unrealized profits arising from transactions with associated companies

and jointly controlled companies are eliminated to an extent

corresponding to the Group’s share of the ownership of the company.

Unrealized losses are eliminated in a similar fashion to unrealized

profits, but only if there is no indication that a write-down is required.

Foreign currency

Transactions in foreign currencies

Foreign currency transactions are translated to the functional currency

at the exchange rate applying on the transaction day. Monetary assets

and liabilities in foreign currency are translated to the functional

currency at the rate prevailing on the balance sheet day. Exchange rate

differences resulting from translations are reported in the income

statement. Exchange rate gains/losses on current assets/liabilities are

reported under other revenue/expenses, and exchange rate

gains/losses on financial assets and liabilities are reported under

financial revenue/expenses. Non-monetary assets and liabilities

reported at their historical acquisition value are translated at the

exchange rate applying on the transaction day.

Financial reports in foreign entities

Assets and liabilities in foreign entities, including goodwill and other

corporate fair value adjustments, are translated to Swedish currency at

the rate applying on the balance sheet day. Revenue and expenses in

foreign entities are translated to Swedish currency at the average rate

that constitutes an approximation of the rates applying when the

transaction occurred. Differences that arise when translating currency in

foreign entities are reported immediately against other comprehensive

income. On disposal of a foreign entity, the cumulative translation

difference relating to the entity, after deductions for currency hedges,

where applicable, is realized in the Group’s income statement.

Revenue accounting

All Group revenue is reported at fair value after deductions for discounts,

value-added tax (VAT), etc. License agreements for standard IFS

software and third-party licenses are recognized as revenue when all of

the following requirements are fulfilled:

The license agreement, without termination clauses, has been

signed and delivery has been made.

Price and payment terms are established, and there are no other

commitments apart from the license delivery.

Payment is likely and is due within six months.

License agreements that include undelivered components that are

required for the functionality of the software are recognized in their

entirety when the components have been delivered.

IFS software licenses sold via partners and distributors are

recognized as income when sold to the final customer. The exception is

sales to partners where IFS Applications is included as part of the

partner’s total product offering and where IFS can be considered a

supplier.

Maintenance revenue is the fees IFS customers pay for the right to

upgrade software to new versions of IFS Applications and fees for

customer support. These fees do not include consulting expenses for

installation of updated software. Maintenance revenue is reported

straight-line over the lifetime of the contract.

Consulting services and training related to implementation are

reported separately from license revenue and are recognized as income

as the services are supplied. The stage of completion of such services is

determined by calculating time consumed. If services, such as extensive

32

customization, are a requirement for the functionality of the software,

and if the services are part of the total delivery, license revenue and

revenue from services are recognized as income successively as delivery

is made.

Consulting services are mainly carried out on account, whereby

income is reported as the work is performed. Non-invoiced work is

reported as a current asset under ‘Other receivables’ in the balance

sheet. Work at fixed price is also reported as the work is performed, after

reservation for loss risks.

Revenue from hardware sales is reported on delivery.

Transfer pricing

Fees due from sales companies to the product development company

are based on a transfer pricing model applied for most subsidiaries in

the Group based on the principle that the sales companies achieve a

predetermined profit margin that is normal for comparable companies

in the market. The method, called the Transactional Net Margin Method

(TNMM), is a generally accepted model for transfer pricing. For 2017, a

profit margin spanning 2–5 percent has been set for all subsidiaries.

This principle is based on the fact that the product development

company is the entrepreneur and has the highest risk exposure in the

company.

In addition to the product development company in Sweden, there

are several smaller permanent product development centers in Poland,

Sri Lanka, Canada, the Netherlands, the United Kingdom, the United

States, Finland, and Norway, among others. The product development

company covers their actual expenses plus a general supplement of 5–

10 percent. In certain projects, subsidiaries exchange consulting

services with each other. These services are usually priced at a level

slightly below the ordinary price a customer would pay the sales

company. In addition to the transfer pricing described, cost of capital

and treasury expenses are invoiced on intra-Group transactions. Each

subsidiary receives or pays interest based on the respective country’s

interest rate, with a supplement of 3.66 percent. Group costs related to

treasury are distributed by adding a supplement of 0.13 percent to the

interest expenses and by invoicing a fee of 0.07 percent of the

subsidiaries revenue.

Operating expenses, and financial revenue and expenses

Fees pertaining to operating leases

Fees pertaining to operating leases are reported in the income

statement on a straight-line basis over the period of the lease. Benefits

obtained on signing a lease are reported in the income statement as a

reduction of the leasing fees on a straight-line basis over the term of the

leasing agreement.

Fees pertaining to finance leases

Minimum lease payments are allocated to interest expenses and

amortization of the outstanding liability. Interest expenses are

distributed over the period of the lease so that each accounting period

is charged with an amount corresponding to a fixed rate of interest for

the liability reported in the respective period.

Financial revenue and expenses

Financial revenue and expenses include interest revenue from bank

assets, receivables and interest-bearing securities, interest expenses

related to loans, expenses related to borrowing requirements, exchange

rate gains and losses on financial assets and liabilities, unrealized and

realized gains on financial investments, and derivative instruments used

in financial operations.

Interest revenue from receivables and interest expenses related to

liabilities are estimated using the effective interest method. The

effective interest is the rate that ensures that the present value of all

future receipts or payments during the fixed rate term is the same as the

reported value of the receivable or payable. The interest element of

financial leasing payments is reported in the income statement by using

the effective interest method. Interest revenue includes annualized

amounts of transaction expenses and discounts, where applicable,

premiums and other variations between the original value of the

receivable and the amount received on maturity.

Issue expenses and similar direct transaction expenses related to

borrowing are annualized over the term of the loan. If loans include an

options element, transaction expenses are reported against

stockholders’ equity.

Taxes

Taxes consist of current tax and deferred tax. Taxes are reported in the

income statement except when the underlying transaction is reported in

other comprehensive income or directly against stockholders’ equity, in

which case the related tax effect is reported against other

comprehensive income or directly against stockholders’ equity.

Current tax is tax that is to be paid or received for the current year

by applying the tax rates that are determined, or in practice determined,

on the balance sheet day. This also includes adjustment of current tax

pertaining to previous periods.

Deferred tax is calculated according to the balance sheet method

based on temporary differences between reported and taxable values of

assets and liabilities. The following temporary differences are not taken

into account:

Temporary differences arising when goodwill is first reported.

Temporary differences pertaining to shares in subsidiaries and

associated companies that are not expected to be reversed in the

foreseeable future and where the time at which the temporary

difference is reversed can be controlled by the board.

The valuation of deferred tax is based on how reported values of assets

and liabilities are expected to be realized or paid. Deferred tax is

calculated by applying the tax rates and tax legislation that has been

determined, or in practice determined, on the balance sheet day.

Deferred tax is reported with current tax in the Group’s income

statement. Deferred tax receivables are reported as financial fixed

assets, whereas deferred tax liabilities are reported as long-term

liabilities.

Deferred tax receivables that pertain to deficit deduction are

reported as an asset if it is likely that the deficit deductions can be set

off in coming years.

The value of the deferred tax receivables is based on assessments

of future taxable gains and the related expectations concerning future

use of loss carry-forward.

A current tax rate of 22 percent has been applied on the Swedish

companies. The current tax rate in each country is applied for the

Group’s foreign entities.

Financial instruments

Financial instruments reported as assets in the balance sheet include

the following balance sheet items: shares in other companies, other

long-term receivables, accounts receivable, other receivables, and liquid

assets (including current investments). Liabilities include the following

balance sheet items: liabilities to credit institutions, accounts payable,

and other liabilities.

Recognition and derecognition in the balance sheet

A financial asset or liability is recognized in the balance sheet when the

Company becomes a party to it in accordance with the contractual terms

of the instrument. Accounts receivable are recognized in the balance

sheet when an invoice is issued. Liabilities are recognized when a

counterpart has delivered and a contractual obligation to pay exists,

even if no invoice has been received. Accounts payable are recognized

when an invoice has been received.

33

A financial asset is derecognized when the entitlements in the contract

are realized, mature, or fall outside the control of the Company. A

financial liability is derecognized when the obligations in the contract are

complied with or are extinguished in another manner.

Financial assets and liabilities are set off and recognized as the net

amount in the balance sheet only when the legal right exists to set off

the amounts and if it is intended to settle the items with the net amount

or simultaneously realize the asset and settle the liability.

The acquisition and divestment of financial assets are reported on the

trade date, which is the date on which the company commits itself to

acquiring or divesting the asset.

Classification and valuation

Financial instruments that are not derivatives are recognized initially at

the fair value of the instrument plus transaction expenses for all

financial instruments except those categorized as financial assets

recognized at fair value through the income statement, which are

recognized at fair value excluding transaction expenses.

On initial recognition, a financial instrument is classified according

to the purpose for which the instrument was acquired. The classification

determines how the financial instruments are valued after initial

recognition as described below.

Financial assets valued at fair value through the income statement

This category has two subgroups: financial assets held for trading and

other financial assets that the Company initially chose to include in this

category. A financial asset is classified as being held for trading if it was

acquired for the purpose of being sold in the short term. Stand-alone

derivatives, such as embedded derivatives, are classified as being held

for trading except when used for hedge accounting. Assets in this

category are valued continuously at fair value, with changes in value

being reported in the income statement.

Financial investments are either financial fixed assets or current

investments depending on why they are held. If the term or the expected

period for which they are held is longer than one year, they are financial

fixed assets; if they are to be held for less than one year, they are current

investments.

Financial investments consisting of shares belong either to the

category of financial assets valued at fair value through the income

statement. The change in value is reported in net financial items.

Loans and receivables

Loans and receivable are non-derivative financial assets with fixed

payments or determinable payments, which are not quoted on an active

market. Receivables occur when companies provide money, goods or

services directly to the borrower without intent to trade in receivables.

The category also includes acquired receivables. Assets in this category

are initially valued at fair value and subsequently at the accrued

acquisition value, which is determined based on the effective rate of

interest calculated on acquisition. Hence, fair value adjustments and

direct transaction costs are annualized over the term of the instrument.

Long-term receivables and other receivables are valued at the

accrued acquisition value. If they are expected to be held for longer than

one year, they are deemed long-term receivables.

Accounts receivable are reported when the commitment has been

completed, whereby the benefit has been transferred to the customer,

and an invoice has been sent. Accounts receivable are reported initially

at fair value and subsequently at the accrued acquisition value using the

effective interest method. As the anticipated term of customer

receivables is short, their value is reported at the nominal amount

without discount as the discount is not significant. Write-downs of

accounts receivable are conducted after individual testing of each

customer and are reported in operating expenses.

Other financial liabilities

Loans (liabilities to credit institutions), accounts payable, and other

liabilities are included in this category. Accounts payable have a short

expected term and are valued without discount at nominal value. Other

liabilities are classified as other financial liabilities, which means that

they are initially reported at fair value and subsequently at the accrued

acquisition value using the effective interest method.

Liquid assets

Liquid assets are cash, immediately available credit in banks and similar

institutions, and current liquid investments with a term of less than three

months from the time of acquisition and which are subject to a low risk

of fluctuations in value.

Derivative instruments and hedging measures

Derivative instruments are reported in the balance sheet as of the

contract day and are valued at their fair value, both initially and on

subsequent revaluation. The method of recognizing profit or loss arising

from revaluation is dependent on whether the derivative instrument was

identified as a hedging instrument an, if so, the nature of the hedged

item.

Fair value hedging

To hedge the fair value of a recognized asset or liability, or a binding

commitment, currency futures and currency options are used. Derivative

instruments are recognized in the balance sheet as of the contract day

and valued at fair value, both initially and on subsequent revaluation.

Derivative instruments held by the Group do not fulfill the criteria for

hedge reporting. Changes in their fair value, therefore, are reported in

the income statement.

All derivative instruments held by the Group are included in the

respective balance sheet items Other receivables and Other liabilities. In

the income statement, derivative instruments are included in Other

revenue, Other expenses, and Financial items.

Hedge accounting

The group designates certain external funding in foreign currency as

hedges of a net investment in a foreign operation (net investment

hedge). The group documents at the inception of the transaction the

relationship between hedging instruments and hedged items, as well as

its risk management objectives and strategy for undertaking various

hedging transactions. The group also documents its assessment, both

at hedge inception and on an ongoing basis, of whether the derivatives

that are used in hedging transactions are highly effective in offsetting

changes in fair values or cash flows of hedged items.

Net investment hedge

Any gain or loss on hedging instrument relating to the effective portion

of the hedge is recognized in other comprehensive income. The gain or

loss relating to the ineffective portion is recognized in the income

statement. Gains and losses accumulated in equity are included in the

income statement when the foreign operation is partially disposed of or

sold.

Tangible fixed assets

Owned assets

Tangible fixed assets are reported as assets in the balance sheet if it is

likely that future financial benefits shall accrue to the Company and the

acquisition value of the asset can be calculated in a reliable manner.

Properties in the Group are business premises used for its own

operations and are amortized over their period of use. The acquisition

value includes the purchase price and expenses directly pertaining to

the asset, such as the cost of delivery and handling, installation, title

deeds, consulting services, and legal services.

34

Leased assets

Most of the lease agreements are considered to be operating leasing as

risks and benefits remain with the lessor, which means that leasing fees

are expensed straight-line during the leasing period. When leasing

contracts are considered to be finance leases, they are reported as

acquisition of tangible fixed assets and as liabilities. Depreciation is

applied in the same manner as if the company owned the assets. In

finance leases, current leasing fees are divided into an interest portion,

which is expensed, and an amortization portion.

Principles for depreciation

Tangible fixed assets are reported at acquisition value after deductions

for accumulated depreciation and write-downs. Assets are depreciated

straight-line across the estimated utilization period of the assets and

based on the acquisition value of the fixed assets. Leased assets are

also depreciated across the estimated utilization period or, if shorter,

across the leasing period.

The Group applies component depreciation, whereby the estimated

utilization period of the individual components forms the basis for

depreciation. The residual value of the assets and the utilization are

tested on each balance sheet day, and assets are written down, when

required, to their recovery value. The estimated periods of depreciation

are:

Buildings 50 years

Certain components for buildings 5–10 years

Equipment 5 years

Servers 5 years

Computers 3 years

Intangible fixed assets

Goodwill

Goodwill corresponds to that part of the cost related to an acquisition

that exceeds the fair value of the Group’s share of identifiable net assets

in the acquired subsidiary on acquisition. Goodwill is valued at the

acquisition value less any accumulated write-downs.

Goodwill arising from acquiring associated companies is included in

the reported value of participations in associated companies. In respect

of business acquisitions in which the acquisition expenses are less than

the net value of the acquired assets, assumed liabilities and contingent

liabilities, the difference is reported directly in the income statement.

Goodwill is reassessed annually and is amortized if the recoverable

value is less than the book value. Goodwill is distributed across cash-

generating entities when the need to amortize is tested. Distribution is

done across the cash-generating entities or groups of cash-generating

entities that can be expected to benefit from the business combination

in which goodwill arose, identified as a business segment.

Research and development

The Group expenses research expenditure. IFS capitalizes product

development expenditure when the following criteria are fulfilled:

It shall be technically feasible to turn the development project into a

marketable or internally usable product.

The resources required to complete the project are available.

The project is likely to entail financial benefits for IFS, either in the

market where the product is to be sold or via internal savings.

It is possible to calculate development expenditure in a reliable

manner.

It must also have been decided that the development project is to be

part of an IFS Applications release or will be used to streamline internal

processes. This means that expenses related to research and support

are not capitalized.

The Group works continuously with a number of product

development projects, most of which focus on standard versions of

IFS Applications. The acquisition value of product development

expenditure mainly consists of personnel-related expenses. In addition,

there are expenses for premises, travel, and office overheads. Borrowing

expenses directly related to product development are included in the

asset’s acquisition value as the Group deems that the asset requires a

substantial amount of time to complete.

Capitalized development expenditure is amortized after the

estimated lifetime of each product. This may not exceed seven years.

Continuous assessments are made to determine whether previous

expenditure was validly capitalized and if required, a corresponding

depreciation will be applied.

Other intangible fixed assets

Other intangible fixed assets mainly include customer relations, and

acquired product rights and software licenses. These assets are

reported at acquisition value less accumulated depreciation.

Principles for depreciation

Intangible fixed assets are reported at acquisition value after deductions

for accumulated depreciation and write-downs. Depreciation is reported

in the income statement on a straight-line basis across the estimated

utilization period and is based on the acquisition value of the fixed asset.

Depreciable intangible assets are depreciated as of the date on

which they become available for use on the market. The estimated

utilization periods are:

Capitalized development expenditure 7 years

Acquired product rights 5–14 years

Software 5 years

Customer relations and other intangible fixed assets 2–16 years

Write-downs

Impairment test for tangible and intangible assets

Assets such as goodwill and assets not yet in use, whose utilization

periods cannot be determined, are not written off. Instead they

subjected annually to an impairment test to assess write-down

requirements. The Group also applies an annual impairment test to

capitalized development expenditure and other intangible fixed assets,

despite the fact that their period of use is determinable, as these items

are deemed to have considerable significance for the financial position

of the Group. The test is based on expected future growth and margins

and is mandatory even if there is no indication that a write-down is

indicated. If there is an indication at the end of the fiscal year that a

tangible or intangible fixed asset has decreased in value, the residual

value of the asset is estimated, i.e. the higher of the net realizable value

of the asset and its value in use. When estimating value in use, future

cash flows are discounted using a discount factor that considers the risk-

free interest and the risk associated with the specific asset. If the

estimated residual value is less than the reported value, the asset is

written down to its residual value.

Where goodwill pertains to a group of assets for which a write-down

is required, the amount to be written down is first allocated to goodwill

and subsequently to other assets in proportion to their reported value.

Depending on the asset that is to be written down, the relevant item in

the income statement is charged.

A write-down of an asset is reversed when there is a change in the

assumptions used to establish the residual value of the asset. The

reversed amount increases the reported value of the asset to a

maximum of the value the asset would have had (after deductions for

normal write-downs) if no write-downs had been made.

Write-down of goodwill, however, is never reversed.

On assessing the need to write down an asset, the calculation is

based on the affected cash-generating unit. A cash-generating unit is the

smallest group of assets for which it is possible to establish regular

payments that are largely independent of other assets or groups of

assets.

35

The primary purpose of Group assets and investments is to provide and

implement IFS enterprise applications, which:

are developed by a central product development organization;

are sold on the global market, through sales companies in various

countries that collaborate in sales to customers with multinational

operations;

are supported by a central support organization.

Cash-generating entities in the Group consist of the business segments

as their payment flows are deemed to be essentially independent of

other assets. In the impairment test, consolidated assets and expenses,

apart from capitalized product development expenditure, are distributed

to the segments in proportion to their share of revenue. Capitalized

product development expenditure is not distributed as it occurs in a

central product development organization and is not directly related to

sales of the product in the segments. Capitalized product development

expenditure is tested at Group level.

Impairment testing of financial assets

On each reporting date, the Group evaluates whether there is objective

evidence of impairment for a financial asset. Objective evidence consists

of observable events that have occurred and that have a negative impact

on the ability to recover the acquisition value.

Provisions

Group provisions consist primarily of pension obligations and provisions

for restructuring. Defined-benefits pension plans are reported in the

consolidated accounts according to common principles and calculation

methods. Provisions are reported when the following criteria are fulfilled:

The Group has a legal or constructive obligation as a result of a past

event.

It is more likely than not that an outflow of resources will be required

to settle an obligation.

A reliable estimate can be made of the amount.

Provisions for restructuring are made when a detailed formal plan for

these exists and a valid expectation has been created on the part of

those affected. Provisions are not made for future losses. Residual

provisions for restructuring pertain primarily to rental costs. All

provisions are valued at present value.

Stockholders’ equity

Transaction expenses directly pertaining to the issuance of new shares

or options are reported net after tax in stockholders’ equity as a

deduction from the proceeds of the issue. Share repurchase is reported

against stockholders’ equity.

Stock-related benefits

The programs are so constructed that executives purchase warrants on

market terms and receive a maximum of three warrants free of charge,

‘free warrants’, per warrant purchased. The number of free warrants

received is dependent of the company’s earnings per share. Free

warrants must be retained for a determined period of time—up to three

years—before they may be exercised. If the holder ceases to be employed

by IFS, the company retains the preferential right to purchase any

warrants that have been acquired. Such warrants are repurchased at

market price. In addition, the company will repurchase free warrants

received by the executive for the market price. The total cost, including

the fair value of free warrants that have been distributed, is reported

distributed over the vesting period in such where there is a vesting

period. For programs that do not run with a vesting period the total cost

is reported, including the fair value of the free warrants, distributed over

the period until one of the following occur: the warrants are exercised or

the warrants mature.

When the warrants are exercised, the company issues new shares.

Payments received, after deductions for directly related transaction

costs, are credited to the capital stock (quota value) and Other capital

contributed.

Employee benefits—pension obligations

Defined-contribution plans

Defined-contribution plans are those to which the Company’s obligations

are limited to the contributions the Company has committed itself to pay.

In such cases, the size of an employee’s pension is determined by the

contributions made by the Company to the plan and the return on capital

produced by the contributions. Consequently, the employee carries the

actuarial and investment risks. Group earnings are charged with

expenses as the benefits accrue.

Defined-benefit plans

Defined-contribution and defined-benefit pension plans exist within the

Group. In Sweden, Norway, and France, there are both defined-benefit

and defined-contribution pension plans. In other countries, the

employees are covered by defined-contribution pension plans only.

In defined-benefits plans, employees and former employees receive

benefits based on their salary on retirement and years of service. The

Group undertakes to ensure that benefits are paid. The Group’s

obligation in respect of defined-benefit plans is calculated separately for

each plan by estimating the future payment accrued by employees

though their employment in both current and previous periods.

The defined-benefit pension plans are both funded and unfunded.

Where the plans are funded, the assets have been placed primarily in

pension funds. In the balance sheet, the net sum of the estimated

present value of the obligations and the fair value of the plan assets,

adjusted for possible unreported actuarial profit/loss, is reported as a

pension liability.

Concerning defined-benefit plans, pension expenses and pension

obligations are estimated according to the Projected Unit Credit Method.

The method distributes the pension expenses at the rate employees

perform services for the company that increase their entitlement to

future benefits. The estimates are made annually by independent

actuaries. The Company’s obligations are valued as the present value of

expected future payments using a discount rate corresponding to the

interest rate for first-class corporate bonds or government bonds with a

term corresponding to the obligations in question. The most important

actuarial assumptions are given in Note 36.

When determining the present value of the obligations and the fair

value of the plan assets, actuarial profits and losses may arise, either

because the real outcome deviates from the assumptions made

(experience-based profits or losses) or because the obligation changes.

Actuarial profits and losses are reported in Other comprehensive income

over the employee’s average in the period in which they occur. Expenses

pertaining to employment during previous periods are reported directly

in the income statement.

Interest expense less interest income from plan assets is classified

as a financial expense. Other expense items in pension expenses are

charged to operating earnings.

Cash flow analysis

Cash flow is analyzed according to the indirect method. Reported cash

flow comprises only transactions that entail payments and receipts.

36

PARENT COMPANY ACCOUNTING PRINCIPLES

The Parent Company accounting principles below have been consistently

applied in all periods presented in the Parent Company’s financial

reports.

Conformity with norms and legislation

The Parent Company has prepared its annual report in accordance with

the Swedish Annual Accounts Act and the Swedish Financial Accounting

Standards Council recommendation RFR 2, Reporting for legal entities.

The Parent Company also applies Swedish Financial Accounting

Standards Council statements pertaining to listed companies. RFR 2

entails that, in the annual accounts for the legal entity, the Parent

Company applies all IFRS and statements approved by the EU as far as

possible within the framework of the Swedish Annual Accounts Act and

taking into account the relationship between reporting and taxation. The

recommendation states the exceptions and supplements that shall be

made with respect to the IFRS.

Differences between Group and Parent Company accounting principles

The differences between Group and Parent Company accounting

principles are outlined below. The Parent Company accounting principles

below have been consistently applied in all periods presented in the

Parent Company’s financial reports.

Segment reporting

The Parent Company does not apply segment reporting as the Parent

Company is not part of any of the operational business segments. The

Parent Company is reported as part of the corporate activities in the

Group’s segment reporting.

Participations in subsidiaries

Participations in subsidiaries are reported in the Parent Company

according to the acquisition value method after deduction for any write-

downs. The acquisition value includes acquisition-related expenses and

any additional considerations.

Financial instruments, derivatives, and hedge accounting

Financial assets are classified using a different method in the Parent

Company’s balance sheet than in the Group balance sheet. The notes

on financial assets describe how items in the balance sheet are related

to the classification used in the Group’s balance sheet and in the

Group’s accounting principles. IFS applies valuation at fair value in

accordance with sections 4:14 a-d of the Swedish Annual Accounts Act.

Accordingly, the description of accounting principles for the Group is also

applicable for the Parent Company, except pertaining to the reporting of

impact on profit or loss.

Anticipated dividends

Anticipated dividends from subsidiaries are reported in cases in which

the Parent Company alone is entitled to determine the size of the

dividend and the Parent Company has determined the size of the

dividend before the Parent Company publishes its financial reports.

Tangible fixed assets

Owned assets

The Parent Company reports tangible fixed assets at acquisition value,

less deductions for accumulated depreciation and impairments, where

applicable, in the same manner as in the Group, but with the addition of

revaluation, where applicable.

Leased assets

The Parent Company reports all lease agreements as operating lease

agreements.

Borrowing expenses

Borrowing expenses are charged to earnings for the period to which they

pertain in the Parent Company.

Dividends from subsidiaries

The Parent Company reports dividends from subsidiaries as financial

revenue, regardless of whether they were earned before or after

acquisition.

Employee benefits—pension obligations

The Swedish Act on Safeguarding of Pension Commitments includes

provisions that result in different reporting than that stated in IAS 19,

and the application of the Act is required for eligibility to make tax

deductions. The Parent Company complies with the Act, and its

simplification rules, in RFR 2 IAS 19. The most significant differences in

IAS 19 compared with the provisions of the Act are the way in which the

discount interest rate is determined, that according to IAS 19, the

defined-benefit obligation is estimated based on current salary levels

with assumptions of future salary increases, inflation and personnel

turnover to forecast the Company’s final pension costs, and that

actuarial gains and losses of the plan assets’ fair value or the

obligations’ present value are reported in the income statement under

other comprehensive income.

Group contributions and stockholder contribution

Group contributions made by the Parent Company to subsidiaries are

reported as an increase in Participations in subsidiaries.

Group contributions received by the Parent Company from

subsidiaries are reported according to the same principles as customary

dividends from subsidiaries. Therefore, the group contribution is

reported as financial income.

Stockholder contributions in the Parent Company are reported as an

increase in Participations in subsidiaries in the balance sheet. To the

extent that stockholder contributions pertain to loss coverage, an

assessment is made concerning whether or not the value of the stock

should be impaired.

NOTE 2. SEGMENT REPORTING

Group operations are divided into business segments that coincide with

reportable segments. The segments are identified according to the way

in which the Group’s internal reporting is organized and presented to

Group management. The primary basis for division is geographical areas

and the following up of results from these. Currently, six geographical

segments are reported. The Group operates in various countries either

directly via its own sales companies or indirectly via partners as follows:

Europe North: Denmark, Estonia, Finland, Latvia, Norway, and Sweden

Europe West: France, Spain, Portugal, and the United Kingdom

Europe Central: Germany, Italy, the Netherlands, and Switzerland

Europe East: Cyprus, Czech Republic, Hungary, Kazakhstan, Georgia,

Poland, Romania, Russia, Slovakia, Turkey, and Ukraine

Americas: Argentina, Brazil, Ecuador, Canada, Mexico, and the USA

Africa, Asia, and Pacific: Ethiopia, Kenya, Nigeria, South Africa, Tanzania,

Bangladesh, Botswana, Cameroon, Namibia, Uganda, China, Hong

Kong, India, Indonesia, Japan, Malaysia, Pakistan, Singapore, Sri Lanka,

Taiwan, Thailand, the United Arab Emirates, Australia, and New Zealand

Segment performance is assessed by the management based their EBIT.

This consists of the segment’s operating profit/loss, which includes

among other things operational revenue, direct and indirect expenses,

and sales, marketing and administration expenses. Restructuring

expenses and expenses related to writing down receivables are also

charged directly to the respective segment.

37

The segments receive most of their revenue from external customers

and refer to services related to IFS Applications software. Revenue is

reported as license revenue, maintenance and support revenue, and

consulting revenue.

Sales and other transactions take place between the segments.

Transfer pricing for services between the various Group segments is

market-based. Fees for most of the sales companies are determined by

applying a generally accepted model for transfer pricing—the

Transactional Net Margin Method—which is based on the principle that

the sales companies achieve a predetermined profit margin. For further

information on transfer pricing, see Note 1, Accounting Principles.

Undistributed corporate revenue, expenses, assets and liabilities

include the Group’s product development organization, and the

corporate management, financial, and marketing functions. Product

development is carried out at permanent development centers in Sri

Lanka, Poland, the United Kingdom, the United States, Canada, the

Netherlands, and Sweden. Corporate management, financial, and

marketing functions are mainly located in Sweden.

Undistributed revenue and expenses include all the corporate functions

above, interest and dividend revenue, gains from divesting financial

investments, interest expenses, losses on divesting financial

investments, the Group’s portion of earnings in associated companies

and joint ventures consolidated according to the equity method, and tax

liabilities.

Undistributed assets and liabilities include activated product

development expenditure, deferred tax receivables and liabilities,

corporate liquidity, corporate financing and all corporate functions.

Income statement 2017

SKr, million Europe

North

Europe

West

Europe

Central

Europe

East

Americas

Africa, Asia,

and Pacific

Total

segments

Group

items

GROUP

2017

License revenue 200 206 108 53 268 100 935 - 935

Maintenance and support revenue 455 272 133 78 378 113 1,429 - 1,429

Consulting revenue 556 222 242 81 484 120 1,705 - 1,705

Other net revenue 7 14 11 2 102 12 148 - 148

Total external revenue 1,218 714 494 214 1,232 345 4,217 0 4,217

Internal revenue 45 117 43 32 217 20 474 -474 -

Total revenue 1,263 831 537 246 1,449 365 4,691 -474 4,217

External operating expenses -694 -571 -398 -198 -1,032 -300 -3,193 -479 -3,672

Internal operating expenses -99 -68 -54 -7 -39 -12 -279 279 -

Other operating items, net -36 -5 -6 -3 -124 -3 -177 57 -120

Operating expenses -829 -644 -458 -208 -1,195 -315 -3,649 -143 -3,792

EBIT 434 187 79 38 254 50 1,042 -617 425

Other interest income and similar income 79

Interest expenses and similar expenses -98

Profit/loss before tax 406

Tax on profit/loss for the year 106

Profit/loss for the year 512

Other information 2017

SKr, million Europe

North

Europe

West

Europe

Central

Europe

East

Americas

Africa, Asia,

and Pacific

Total

segments

Group

items

GROUP

2017

External assets 563 549 222 90 4,039 162 5,625 2,537 8,162

Participations in associated companies - - - - - - 0 4 4

Total assets 563 549 222 90 4,039 162 5,625 2,541 8,166

Liabilities 576 321 105 40 750 113 1,905 4,597 6,502

Investments in fixed assets 1 68 1 4 3,959 2 4,035 754 4,789

Depreciation and write-downs 11 13 7 2 59 4 96 180 276

Average number of employees 401 409 273 215 580 290 2,168 1,150 3,318

Number of employees at year end 360 475 284 224 843 292 2,478 1,246 3,724

38

Income statement 2016

SKr, million Europe

North

Europe

West

Europe

Central

Europe

East

Americas

Africa, Asia,

and Pacific

Total

segments

Group

items

GROUP

2016

License revenue 190 161 96 47 177 99 770 - 770

Maintenance and support revenue 419 262 127 71 259 104 1,242 - 1,242

Consulting revenue 619 246 235 72 294 123 1,589 - 1,589

Other net revenue 4 8 1 1 28 6 48 0 48

Total external revenue 1,232 677 459 191 758 332 3,649 0 3,649

Internal revenue 27 83 37 21 53 20 241 -241 -

Total revenue 1,259 760 496 212 811 352 3,890 -241 3,649

External operating expenses -707 -491 -344 -172 -558 -280 -2,552 -660 -3,212

Internal operating expenses -113 -57 -51 -8 -31 -22 -282 282 -

Other operating items, net -24 -2 -5 0 -6 0 -37 -11 -48

Operating expenses -844 -550 -400 -180 -595 -302 -2,871 -389 -3,260

EBIT 415 210 96 32 216 50 1,019 -630 389

Other interest income and similar income 6

Interest expenses and similar expenses -25

Profit/loss before tax 370

Tax on profit/loss for the year -90

Profit/loss for the year 280

Other information 2016

SKr, million Europe

North

Europe

West

Europe

Central

Europe

East

Americas

Africa, Asia,

and Pacific

Total

segments

Group

items

GROUP

2016

External assets 555 376 215 80 518 182 1,926 2,685 4,611

Participations in associated companies - - - - - - - 2 2

Total assets 555 376 215 80 518 182 1,926 2,687 4,613

Liabilities 581 255 99 38 268 142 1,383 1,627 3,010

Investments in fixed assets 89 15 4 1 4 5 118 243 361

Depreciation and write-downs 1 11 6 2 12 3 35 241 276

Average number of employees 452 352 256 205 291 281 1,837 1,051 2,888

Number of employees at year end 443 371 264 205 283 284 1,850 1,063 2,913

External net sales

GROUP


Sweden 578 549

Rest of the World 3,639 3,100

Total 4,217 3,649

Fixed assets

GROUP


Sweden 1,330 815

Rest of the World 4,795 853

Total 6,125 1,668

NOTE 3. LICENSE REVENUE

GROUP


License revenue, IFS 846 699

Third-party license revenue 89 71

Total 935 770

Third-party license revenue includes revenue that accrues when IFS sells

software licenses from third-party suppliers such as Oracle.

NOTE 4. MAINTENANCE AND SUPPORT REVENUE

GROUP


Maintenance and support revenue 1,359 1,183

Third-party maintenance and support revenue 70 59

Total 1,429 1,242

Third-party maintenance and support revenue includes revenue that

accrues when IFS sells software licenses from third-party suppliers such

as Oracle.

NOTE 5. OTHER REVENUE

GROUP PARENT COMPANY

SKr, million 2017 2016 2017 2016

Hardware 6 3 - -

Cloud and software as a service (SaaS) 127 38 - -

Parent Company services - - 33 38

Miscellaneous 15 7 - -

Total 148 48 33 38

39

NOTE 6. DEVELOPMENT EXPENDITURE

GROUP


Product development expenditure -576 -385

Amortization of capitalized product development -106 -204

Other amortization -57 -22

Capitalized expenditure for product development 329 216

Total -410 -395

NOTE 7. SALES AND MARKETING EXPENSES

GROUP


Corporate sales and marketing expenses -181 -172

Local sales and marketing expenses -802 -635

Total -983 -807

NOTE 8. OTHER OPERATING INCOME

GROUP


Reversal of unused restructuring reserve 0 0

Capital gains on the disposal of a business 0 4

Rental income 1 1

Miscellaneous 3 3

Total 4 8

NOTE 9. OTHER OPERATING EXPENSES

GROUP


Exchange rate losses, net -15 -3

Restructuring costs -37 -34

Loss on divestment of operations -1 -

Miscellaneous -72 -19

Total -125 -56

NOTE 10. TRANSACTIONS BETWEEN SUBSIDIARIES

In the Parent Company, SKr 33 million (38), or 100 percent (100) of the

sales for the year, and SKr 20 million (1), or 53 percent (1) of the

purchases for the year, pertain to subsidiaries in IFS Group.

NOTE 11. OPERATING EXPENSES PER TYPE OF COST

GROUP


Direct costs of goods and services sold -513 -432

Capitalized development cost 329 216

Personnel costs -2,438 -2,085

Travel expenses -181 -153

Costs for rented premises and other property costs -128 -113

External services -177 -142

Marketing and selling expenses -122 -116

Amortization, depreciation, and write-downs -276 -276

Other indirect expenses -166 -111

Total -3,672 -3,212

NOTE 12. AUDITORS’ FEES


SKr, million 2017 2016 2017 2016

PricewaterhouseCoopers

Audit engagement -5 -5 -2 -2

Audit business in addition to the audit

engagement - - - -

Tax consultancy -2 -4 - 0

Other services -2 -2 - 0

Total -9 -11 -2 -2

Other auditors

Audit engagement -2 -3 - -2

Audit business in addition to the audit

engagement - - - -

Tax consultancy -1 -1 - -

Other services - - - -

Total -3 -4 0 -2

Total fees -12 -15 -2 -4

“Audit engagement” refers to the examination of the annual accounts,

the accounting records, and the administration by the Board of Directors

and the President. It also includes other duties that are incumbent on

the company’s auditors, as well as advisory services and other types of

support as a result of observations made through such an examination.

Everything else is considered to be audit business beyond the audit

engagement.

NOTE 13. SALARIES, OTHER REMUNERATIONS, AND SOCIAL COSTS


SKr, million 2017 2016 2017 2016

Salaries and other remunerations -1,895 -1,581 -12 -17

Social costs -327 -306 -3 -11

Pension costs, defined benefit plans

(see Note 36) -3 -8 - -4

Pension costs, defined contribution

plans (see Note 36) -103 -86 -1 -1

Other personnel costs -110 -104 - -5

Total -2,438 -2,085 -16 -38

Pension expenses reported as financial

expenses -4 -3 - -

Total -2,442 -2,088 -16 -38

Of the Parent Company’s pension expenses, SKr 0 (0) pertained to the

board of directors and CEO. The corresponding amount for the Group

was SKr 0 (3) million.

NOTE 14. REMUNERATIONS PAID TO THE BOARD AND EXECUTIVE

MANAGEMENT

Definitions

Since the AGM held on June 2, 2017, the board has consisted of Lars

Wollung (chairman), Craig Conway, Per Franzén, Måns Hultman, Neil

Masom, Jonas Persson, Johannes Reichel, and Markus Rothmeier. In

addition to the president and CEO Alastair Sorbie, executive

management comprises the Company’s CFO Paul Smith, the senior vice

president of business development Fredrik vom Hofe, and the general

counsel Jesper Alwall.

Remuneration principles

According to the resolution adopted by the AGM, board members

received SKr 2,600,000 in fees during 2017/2018, of which

SKr 1,000,000 was paid to the chairman of the board and SKr 300,000

40

to each member not employed by EQT Partners AB or its subsidiaries.

Audit committee work was remunerated with SKr 100,000 to the

chairman. The board has resolved not to appoint a separate

compensation committee. The president’s salary is determined by the

board. Remuneration of corporate management and senior executives

who report to the president is determined in consultation with the

chairman of the board. The board is continuously informed about salary

levels. Remuneration consists of a basic salary, variable remuneration,

other benefits, and pension contributions.

The relationship between basic salary and variable salary is

proportionate to the executive’s responsibility and powers. For 2017,

variable remuneration shall not exceed 50 percent of the basic salary.

The basis for the variable salary of the CEO and executive management

is established by the board and is based on profitability goals set by the

board for each year.

Pension contributions and other benefits paid to the CEO and

executive management are part of their total remuneration.

Remuneration has not been made in the form of financial instruments.

However, the company’s incentive program does include financial

instruments; see Note 33 for more information.

Remuneration and other benefits during the year

Remuneration of the president and executive management

2017

SKr, thousand

Basic

salary

Variable

remun.

Other

benefits

Pension

benefits

Total

President and CEO 6,254 7,984 166 - 14,404

Other group management 7,486 4,462 153 760 12,861

Total 13,740 12,446 319 760 27,265

2016

SKr, thousand

Basic

salary

Variable

remun.

Other

benefits

Pension

benefits

Total

President and CEO 5,407 25,514 165 - 31,086

Other group management 6,406 18,987 581 1,029 27,003

Total 11,813 44,501 746 1,029 58,089

Comments on the table:

Executive management consisted of four persons during the year.

Other benefits refer primarily to company cars.

In 2017, remuneration to the CEO and others in executive

management originated largely from IGT IV AB but was fully invoiced

to IFS AB as management fee. All costs in this note are treated as

personnel costs regardless of origin.

Holdings in stock and financial instruments

The board of directors and executive management do not hold any

shares or financial instruments.

Period of notice and severance pay

If the company terminates the employment, the CEO is to receive twelve

months’ notice; if the CEO terminates the employment, the company is

to receive twelve months’ notice. In addition, the CEO shall receive up to

twelve months’ severance pay if the company terminates the

employment. For executive management, the notification period is

between six to twelve months from the company and three to six months

from the executive.

Pensions

The president is entitled to a premium-based pension, with a premium

corresponding to 20 percent of the basic salary. The retirement age for

the president is 65. Senior executives are included in IFS’s premium-

based special pension plan. The retirement age for other senior

executives is 65. Since the pension contribution for the president has

reached its maximum allowed value in the UK, his pension payments are

treated for payroll purposes as salary.

NOTE 15. TRANSACTIONS WITH RELATED PARTIES

Separate notes contain information about:

Remuneration of the board, CEO, and management Note 14

Shares in subsidiaries Note 25

Participations in associated companies and joint ventures Note 26

Receivables from subsidiaries Note 27

Stockholders’ equity Note 33

Other liabilities Note 38

Pledged assets Note 40

Contingent liabilities Note 41

Information about the parent company Note 47

On December 31, IFS AB had loans from IGT Holding IV AB totaling

SKr 3,607 million (1,184), accrued interest included. The loans are long-

term and carry an interest rate corresponding to IGT Holding IV AB’s

external borrowing terms.

In addition to what is stated above and in the referenced notes,

there are no significant transactions with related parties.

41

NOTE 16. AVERAGE NUMBER OF EMPLOYEES PER COUNTRY


2017 2016 2017 2016

Sweden 426 431 3 3

of whom, women 139 135 - -

Australia 47 41 - -

Brazil 41 51 - -

Canada 270 10 - -

China 38 37 - -

Czech Republic 22 21 - -

Denmark 41 46 - -

Finland 97 92 - -

France 88 80 - -

Germany 182 168 - -

Hungary 22 20 - -

India 54 55 - -

Italy 5 4 - -

Japan 13 13 - -

Kazakhstan 2 2 - -

Malaysia 12 12 - -

Netherlands 71 69 - -

Norway 117 137 - -

Poland 135 131 - -

Portugal 2 1 - -

Russia 24 23 - -

Singapore 10 10 - -

Slovakia 9 8 - -

South Africa 18 18 - -

Spain 48 41 - -

Sri Lanka 930 854 - -

Switzerland 17 15 - -

Thailand 17 15 - -

United Arab Emirates 21 22 - -

United Kingdom 271 230 - -

United States 268 231 - -

Total, subsidiaries abroad 2,892 2,457 - -

of whom, women 870 760 - -

Total 3,318 2,888 3 3

of whom, women 1,009 895 - -


On December 31 2017 2016 2017 2016

Board members 69 68 8 7

of whom, women 12 10 0 0

President and other senior executives 118 99 1 3

of whom, women 23 19 0 0

Other senior executives are those who report to the president and local

managing directors.

NOTE 17. RESULTS FROM PARTICIPATIONS IN SUBSIDIARIES

PARENT COMPANY


Group contribution received from subsidiaries 227 23

Reversal of previous write-down of participation in

subsidiaries - -

Write-down of receivables in subsidiaries - -

Total 227 23

NOTE 18. RESULTS FROM PARTICIPATIONS IN ASSOCIATED COMPANIES

GROUP


Share in profit, Application Software IFS South Africa (Pty)

Ltd 1 0

Share in profit, Unitec Kurumsal Bilgi Sistemleri Yazlim Ve

Danismanlika A.S 0 0

Total 1 0

NOTE 19. OTHER INTEREST INCOME AND SIMILAR INCOME


SKr, million 2017 2016 2017 2016

External interest 5 4 0 0

Interest from subsidiaries - - 105 25

Exchange rate gains, net 74 2 83 6

Other financial income 0 0 - -

Total 79 6 188 31

NOTE 20. INTEREST EXPENSES AND SIMILAR EXPENSES


SKr, million 2017 2016 2017 2016

External interest costs -2 -8 - -8

Interest costs to parent company -77 - -77 -

Interest costs to subsidiaries - - - -3

Capitalized interest costs for

development production 1 0 - -

Write-down of financial assets -4 - - -

Interest costs for defined-benefit

pension plans -4 -3 - -

Other financial costs -12 -14 - -8

Total -98 -25 -77 -19

NOTE 21. TAXES


SKr, million 2017 2016 2017 2016

Current tax

Current tax -56 -87 0 -1

Current tax relating to previous years - 3 - -

-56 -84 0 -1

Deferred tax

Deferred tax relating to

loss carry forward -20 -6 - -

Deferred tax relating to

temporary differences 182 0 - 2

162 -6 0 2

Total tax income/expense 106 -90 0 1

42


SKr, million 2017 2016 2017 2016

DIFFERENCES BETWEEN REPORTED TAX

EXPENSES AND TAX EXPENSES BASED ON

PREVAILING TAX RATES

Profit/loss before tax 406 370 334 15

Tax according to prevailing rate (22

percent) -89 -81 -73 -3

Non-taxable reversal of write-down of

shares in subsidiaries - - - -

Other non-deductible expenses -21 -9 - -2

Deductible costs of equity 73 - 73 -

Not taxable income 1 1 - 0

Effect of foreign tax rates 148 -3 - -

Tax relating to previous years 0 3 - 6

Reversal of previously capitalized loss

carry forward - -2 - -

Utilized loss carry forward, not

previously accounted for 2 4 - -

Losses for which deferred tax has not

been considered -8 -3 - -

Total 106 -90 0 1

NOTE 22. INTANGIBLE FIXED ASSETS

GROUP INTERNAL DEVELOPMENT PURCHASED

SKr, million

Capitalized

expenditure

for R&D

Capitalized

interest costs

Total

capitalized

expenditure

for R&D

Goodwill

Other

intangible

fixed assets

Total

ACCUMULATED ACQUISITION VALUE

Opening balance Jan 1, 2016 2,330 10 2,340 516 266 3,122

Acquisition of operations - - - 39 46 85

Purchases 216 - 216 - - 216

Exchange differences during the year 0 - 0 23 1 24

Closing balance Dec 31, 2016 2,546 10 2,556 578 313 3,447

ACCUMULATED DEPRECIATION

Opening balance Jan 1, 2016 -1,701 -8 -1,709 0 -162 -1,871

Depreciation during the year -204 - -204 - -35 -239

Exchange differences during the year 0 - 0 0 -2 -2

Closing balance Dec 31, 2016 -1,905 -8 -1,913 - -199 -2,112

Book value Dec 31, 2016 641 2 643 578 114 1,335

ACCUMULATED WRITE-DOWNS

Opening balance Jan 1, 2016 -1 0 -1 -4 -5 -10

Sale/disposals - - - - 1 1

Closing balance Dec 31, 2016 -1 0 -1 -4 -4 -9

Book value Dec 31, 2016 640 2 642 574 110 1,326

43

GROUP INTERNAL DEVELOPMENT PURCHASED

SKr, million

Capitalized

expenditure

for R&D

Capitalized

interest costs

Total

capitalized

expenditure

for R&D

Goodwill

Other

intangible

fixed assets

Total


Opening balance Jan 1, 2017 2,546 10 2,556 578 313 3,447

Acquisition of operations - - 0 2,369 1,492 3,861

Purchases 329 1 330 73 401 804

Sale/disposals - - 0 59 -20 39

Re-classification - - 0 - - 0

Exchange differences during the year -4 - -4 -101 -54 -159

Closing balance Dec 31, 2017 2,871 11 2,882 2,978 2,132 7,992


Opening balance Jan 1, 2017 -1,905 -8 -1,913 - -199 -2,112

Sale/disposals - - 0 -5 1 -4

Re-classification - - 0 - - 0

Depreciation during the year -106 1 -105 - -119 -224


Closing balance Dec 31, 2017 -2,008 -7 -2,015 0 -303 -2,318

Book value Dec 31, 2017 863 4 867 2,978 1,829 5,674


Opening balance Jan 1, 2017 -1 0 -1 -4 -4 -9

Sale/disposals - - 0 - - 0

Closing balance Dec 31, 2017 -1 0 -1 -4 -4 -9

Book value Dec 31, 2017 862 4 866 2,974 1,825 5,665

The reported value of goodwill, other intangible fixed assets and

capitalized development costs is tested annually via an impairment

test based on expected future growth and margins. Other intangible

fixed assets consist of product rights, software and customer

relations. Amortization requirements are tested at Group level and

for each cash-generating entity. The cash-generating entities are the

same as the business segments and are identified based on the

structure of the Group’s internal reporting. The basis for division is

primarily by geographic area (see Note 2 for further information).

Goodwill and other intangible assets are allocated to the Group’s

cash-generating entities (business segments). The recovery value of

the cash-generating entities has been estimated by discounting

future cash flows up until the time of estimation. Capitalized

development costs are considered a common asset and are

therefore tested at Group level by estimating the sum of the recovery

value of all cash-generating entities.

The cash flows that are forecast are based on budgets and future

prognoses per business segment. Cash flow beyond the coming five-

year period has been extrapolated by adjusting revenue and

expenses upward by 2 percent per annum. Management has

determined the budgeted gross margin based on previous earnings

and its expectations for market growth. The weighted average rate

of growth that is used concurs with the growth-related expectations

of external parties.

On testing the reported values, the discount rate was set at

10.4 percent (11.1) before tax, corresponding to 8 percent (8) after

tax.

Revenue growth in the forecast period has been presumed to be

7.9–8.0 percent (2.5–6.1) and the EBIT margin has been presumed

to be 1.3–22.3 percent (2.8–18.8).

Sensitivity analysis

A reasonable change in any of the assumptions pertaining to the test

would not result in a need to write down goodwill, other intangible

fixed assets, or capitalized development costs.

For the impairment test the discount rate (after tax) has been

increased by 1.5 percent points as an endurance test for each

operating segment. Such an increase would not result in any

impairment requirement in any of the operating segments.

Goodwill per operating segment

SKr, million

Europe

North

Europe

West

Europe

Central

Europe

East

Americas

Africa, Asia,

and Pacific

Group

items

GROUP

Booked value December 31, 2016 83 111 58 0 300 9 13 574

Booked value December 31, 2017 82 190 58 0 2,622 9 13 2,974

44

Depreciation included in the income statement, per function

GROUP


License costs -55 -12

Maintenance and support costs 0 0

Consulting costs 0 0

Research and development expenditure -159 -223

Administration costs -8 -4

Other costs -2 -

Total -224 -239

NOTE 23. TANGIBLE FIXED ASSETS

GROUP

SKr, million Buildings

and land

Leasing,

inventories

Computers

Office

equipment

Other

inventories

Total


Opening balance Jan 1, 2016 82 6 187 138 8 421

Acquisition of subsidiary - - - 1 - 1

Purchases 5 - 32 12 - 49

Sales/disposals - - -10 -15 - -25

Reclassifications - - -1 0 - -1


Closing balance Dec 31, 2016 90 6 215 141 9 461


Opening balance Jan 1, 2016 -40 -5 -138 -113 -6 -302

Depreciation during the year -5 - -22 -9 -1 -37

Sales/disposals - - 11 15 - 26

Reclassifications - - 1 0 - 1

Exchange differences during the year -2 -1 -6 -4 - -13

Closing balance Dec 31, 2016 -47 -6 -154 -111 -7 -325

Book value Dec 31, 2016 43 0 61 30 2 136

GROUP


and land

Leasing,

inventories

Computers

Office

equipment

Other

inventories

Total


Opening balance Jan 1, 2017 90 6 215 141 9 461

Acquisition of subsidiary 54 5 7 10 - 76

Purchases 3 1 33 8 3 48

Sales/disposals -2 - -19 -2 -1 -24

Reclassifications -11 -5 -2 - - -18

Exchange differences during the year -5 - -7 -4 - -16

Closing balance Dec 31, 2017 129 7 227 153 11 527


Opening balance Jan 1, 2017 -47 -6 -154 -111 -7 -325

Depreciation during the year -8 -3 -29 -11 -1 -52

Sales/disposals 2 - 21 1 - 24

Reclassifications 15 5 2 - - 22

Exchange differences during the year 1 - 5 3 - 9

Closing balance Dec 31, 2017 -37 -4 -155 -118 -8 -322

Book value Dec 31, 2017 92 3 72 35 3 205

45

PARENT COMPANY


and land

Leasing,

inventories

Computers

Office

equipment

Other

inventories

Total


Opening balance Jan 1, 2016 - - 1 1 - 2

Closing balance Dec 31, 2016 - - 1 1 - 2


Opening balance Jan 1, 2016 - - -1 -1 - -2

Closing balance Dec 31, 2016 - - -1 -1 - -2

Book value Dec 31, 2016 - - 0 0 - 0


Opening balance Jan 1, 2017 - - 1 1 - 2

Closing balance Dec 31, 2017 - - 1 1 - 2


Opening balance Jan 1, 2017 - - -1 -1 - -2

Closing balance Dec 31, 2017 - - -1 -1 - -2

Book value Dec 31, 2017 - - 0 0 - 0

Category Computers includes computers with a depreciation period of 3 years and servers with a depreciation period of 5 years.

Depreciation in the income statement, per function

GROUP


License costs -3 -2

Maintenance and support costs -3 -3

Consulting costs -7 -6

Development expenditure -4 -3

Administration costs -35 -23

Total -52 -37

Tangible fixed assets do not include any capitalized interest.

Financial-leasing agreements

The Group’s tangible assets include leased items held under the terms

of financial leasing agreements, but they are not of significant value.

NOTE 24. OPERATING LEASE AGREEMENTS

The Group’s operating lease agreements primarily include rented

premises as well as computers, office equipment, and vehicles. No

objects are subleased. The nominal value of future minimum leasing

agreements with respect to non-terminable leasing agreements is

distributed as follows.

GROUP

SKr million 2017 2016

Due for payment within one year 95 68

Due for payment later than one year but within five years 139 240

Due for payment later than five years 18 23

Total 252 331

46

NOTE 25. PARTICIPATIONS IN SUBSIDIARIES

Organization no.

Registered office

Share of

capital/votes

Number of

shares

Book value,

SKr million,

2017

Book value,

SKr million,

2016

IFS Americas, Inc. USA 100% 100 1,252 305

IFS North America, Inc. USA 100% - -

IFS Industrial & Financial Systems Canada Inc. Canada 100% - -

Metrix LLC USA 100% - -

Mxi Technologies (US) Inc USA 100% - -

Marathon Acq. Inc USA 100% - -

Workwave LLC USA 100% - -

Workwave Italy S.r.l. Italy 100% - -

IFS Europe AB 556139-5541 Sweden 100% 7,500 146 144

IFS Applications Iberica, S.A.U. Spain 100% - -

IFS Benelux B.V. Netherlands 100% - -

IFS Belgium BVBA (in liquidation) Belgium 100% - -

IFS Netherlands B.V. ((in liquidation) Netherlands 100% - -

VisionWaves B.V. Netherlands 100% - -

VisionWaves Inc. USA 100% - -

Industrial and Financial Systems Central and Eastern Europe Sp. z o.o Poland 100% - -

IFS Region RU Russia 100% - -

Industrial and Financial Systems KZ Kazakhstan 100% - -

IFS Czech s.r.o. Czech Republic 100% - -

IFS Hungary Számítástechnikai Kft. Hungary 100% - -

IFS Industrial and Financial Systems Poland Sp. z o.o Poland 100% - -

IFS Slovakia, spol. s r.o Slovakia 100% - -

IFS France France 100% - -

IFS Italia S.r.l. Italy 100% - -

Industrial and Financial Systems IFS Verwaltungsgesellschaft mbh Germany 100% - -

Industrial and Financial Systems IFS Beteiligungsgesellschaft mbh Germany 100% - -

Industrial and Financial Systems IFS Deutschland GmbH & Co., KG Germany 100% - -

Industrial and Financial Systems, IFS UK Ltd United Kingdom 100% - -

360 Scheduling Ltd United Kingdom 100% - -

360 Scheduling Inc USA 100% - -

Application Software IFS South Africa (Pty) Ltd South Africa 100% - -

IFS Aerospace & Defence Ltd United Kingdom 100% - -

mplsystems Ltd United Kingdom 100% - -

MMGS Ltd United Kingdom 100% - -

MPL Warwick Ltd United Kingdom 100% - -

People on Demand Ltd United Kingdom 100% - -

FSM Ltd United Kingdom 100% - -

MXI Technologies UK United Kingdom 100% - -

Infiseruo, Serviços Informáticos, Lda. (in liquidation) Portugal 100% - -

IFS Japan, Inc Japan 100% 16,200 0 0

IFS Middle East FZ-LLC United Arab Emirates 100% 100 1 0

IFS Nordic AB 556248-4856 Sweden 100% 1,000 144 144

IFS Danmark A/S Denmark 100% - -

IFS Norge AS Norway 100% - -

IFS Sverige AB 556211-7720 Sweden 100% - -

IFS Finland Oy AB Finland 100% - -

Mainiot Software Oy Finland 100% - -

IFS R&D Asia Pacific Sdn. Bhd. Malaysia 100% 2 0 0

Industrial & Financial Systems R&D Ltd Sri Lanka 100% 300,000 0 0

IFS Research and Development (Private) Ltd Sri Lanka 100% - -

IFS Solutions (Singapore) Pte Ltd Singapore 100% 1 1 0

IFS Solutions (Shanghai) Co. Ltd. China 100% - -

IFS Solutions Malaysia Sdn. Bhd. Malaysia 100% - -

IFS Solutions Thai Ltd Thailand 100% - -

IFS Solutions Asia Pacific Pte Ltd Singapore 100% 15,753,417 0 0

IFS Solution Beijing Co. Ltd. China 100% - -

IFS Australia Pty Ltd Australia 100% - -

IFS New Zealand Pty Ltd New Zealand 100% - -

Industrial & Financial Systems Philippines, Inc (in liquidation) Philippines 100% - -

IFS Solution India Private Ltd India 100% - -

IFS Solutions (Thailand) Ltd Thailand 100% - -

Industrial & Financial Systems Sri Lanka Ltd Sri Lanka 50% 149,998 0 0

IFS World Operations AB 556040-6042 Sweden 100% 2,400 983 589

IFS R & D International (Private) Ltd Sri Lanka 100% - -

IFS Retail AB Sweden 100% - -

Torron System AB 556457-8960 Sweden 100% 20 0 0

Vendimo Business Solutions AB 556400-2946 Sweden 100% 1,754,383 15 15

IFS Schweiz AG Switzerland 100% - -

LatinIFS Tecnologia da Informação Ltda Brazil 100% - -

MXI Technologies Ltd Canada 100% - -

Total book value in the Parent Company 2,542 1,197

47

PARENT COMPANY



Opening balance 2,263 2,263

Shareholder contributions 1,345 -

Incentive program for key personnel - -

Closing balance 3,608 2,263


Opening balance -1,066 -1,066

Reversal - -

Closing balance -1,066 -1,066

Book value 2,542 1,197

NOTE 26. PARTICIPATIONS IN ASSOCIATED COMPANIES AND JOINT

VENTURES

GROUP


Opening balance 2 2

Share in earnings of associated companies 1 -

Exchange differences -1 -

Closing balance 2 2

Registered office

Net revenue

Earnings

before tax

Assets

Liabilities

Equity

Share of

capital/votes

2017

INDIRECTLY OWNED

IFS Applications Africa (Pty) Ltd South Africa 10 1 5 6 -1 49.00%

Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S Turkey 16 0 7 4 3 25.00%

2016

INDIRECTLY OWNED

Application Software IFS South Africa (Pty) Ltd South Africa 5 0 4 6 -2 49.00%

Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S Turkey 20 0 8 5 3 25.00%

The values in the table are the Group’s share of net sales, earnings before taxes, assets, liabilities, and equity.

NOTE 27. RECEIVABLES IN SUBSIDIARIES

PARENT COMPANY

SKr million 2017 2016

Subordinated receivables 2 1

Other long-term receivables in subsidiaries 2,641 765

Total 2,643 766

NOTE 28. DEFERRED TAX ASSETS AND TAX LIABILITIES


SKr, million 2017 2016 2017 2016

DEFERRED TAX CLAIMS CONCERNING

Temporary differences 179 136 4 4

Deficit deduction 19 39 - -

Total 198 175 4 4

DEFERRED TAX LIABILITIES CONCERNING

Temporary differences 314 66 - -

Total 314 66 - -

Deferred tax receipts and tax liabilities are set off when this is legally

possible for particular tax receivables and tax liabilities, and when

deferred taxes refer to the same tax authority. The amounts above have

resulted after such set-offs and are reported in the balance sheet. The

figures in the table below are in gross amounts.

Temporary differences

Temporary differences arise when the reported value and tax value of

assets and liabilities differ. Temporary differences with respect to the

following items resulted in deferred tax liabilities and deferred tax

claims.


SKr, million 2017 2016 2017 2016

DEFERRED TAX LIABILITIES

Fixed assets 262 15 - -

Provisions 0 0 - -

Current claims and liabilities 4 3 - -

Total deferred tax liabilities 266 18 - -

DEFERRED TAX CLAIMS

Fixed assets 46 4 - -

Current claims and liabilities 55 43 0 0

Provisions 30 41 4 4

Fiscal deficit deduction 107 116 - -

Total deferred tax claims 238 204 4 4

Unreported deferred tax claims

concerning deficit deductions and

temporary differences -88 -77 - -

Total unreported deferred tax

claims -88 -77 - -

Total deferred tax claims, net 150 127 4 4

Deferred tax claims, net -116 109 4 4

48

Deficit deduction

The total value of the deficit deductions on the balance sheet day can

be utilized no later than during the following years:


SKr, million 2017 2016 2017 2016

2018 (2017) 9 3 - -

2019 (2018) 15 2 - -

2020 (2019) 8 10 - -

2021 (2020) 9 13 - -

2022 (2021) 20 2 - -

Later 32 69 - -

No time limit 14 17 - -

Total 107 116 - -

NOTE 29. OTHER LONG-TERM RECEIVABLES

SKr, million

Deposits

Other

financial

assets

Total

GROUP

Opening balance, Jan 1, 2016 23 2 25

Changes during the year 4 - 4

Closing balance, Dec 31, 2016 27 2 29

Changes during the year 22 4 26


PARENT COMPANY

Opening balance, Jan 1, 2016 0 2 2

Changes during the year - - -


Changes during the year - - -


NOTE 30. ACCOUNTS RECEIVABLE

GROUP


Accounts receivable, gross 1,148 975

Provision for doubtful receivables -44 -44

Accounts receivable, net 1,104 931

AGE ANALYSIS

Accounts receivable, not due 742 592

Due 1–30 days 259 239

Due 31–90 days 56 58

Due >90 days 47 42

Total 1,104 931

GROUP


On January 1 44 45

Provision for doubtful receivables 13 18

Receivables written off during the year -7 -7

Reversed unused amounts -6 -12

On December 31 44 44

NOTE 31. OTHER RECEIVABLES

GROUP


Receivables, associated companies 26 25

Ongoing assignments 64 58

Accrued license revenue 17 33

Other prepaid expenses 186 91

Other accrued income 62 46

Other receivables 37 32

Total 392 285

NOTE 32. LIQUID ASSETS

The effective interest rate for current investments during 2017 was

7 percent. The current investments, located in an overseas territory, had

an average duration of 30 days. Investments have been classified as

liquid assets based on the assumption that:

the risk of value fluctuation is negligible,

they can easily be converted to cash,

they have a duration of not more than three months from the time

of acquisition.


SKr, million 2017 2016 2017 2016

Cash and bank 445 1,655 102 159

Current investment 6 6 - -

Total 451 1,661 102 159

NOTE 33. STOCKHOLDERS’ EQUITY

Definition of items in the Group equity statement

GROUP

Capital stock. Refers to the Parent Company’s capital stock.

Other directly contributed capital. Refers to stockholders’ equity that is

contributed by the owners. Provisions made to the share premium

reserve from January 1, 2006 and in the future are reported as directly

contributed capital.

Reserves. This item consists solely of all exchange rate differences arising

on translating financial reports from foreign entities that have prepared

their financial reports in a currency other than that used by the Group

for its financial reports. The Parent Company and Group present their

financial reports in Swedish krona.

Accumulated earnings including earnings for the year. The accumulated

earnings includes earnings for the year and profits carried

forward/accumulated losses in the Parent Company and its subsidiaries,

associated companies, and joint ventures. Previous provisions made to

statutory reserves, excluding share premium reserve carried forward,

are included in this equity item.

PARENT COMPANY

Restricted stockholders’ equity

Capital stock. Refers to the Parent Company’s capital stock.

Reserve fund. Consists solely of amounts transferred to the premium fund

before January 1, 2006.

Unrestricted stockholders’ equity

Premium fund. When shares are issued at a premium, i.e. when the price

paid for shares exceeds their listed price, an amount corresponding to

the amount paid in excess of the listed price shall be transferred to the

49

premium fund. Amounts transferred to the premium fund as of January

1, 2006, are included in unrestricted capital.

Retained earnings. Consist of the previous year’s unrestricted

stockholders’ equity after dividends, if any, have been paid. With

earnings for the year and the premium fund, they constitute the total

amount of unrestricted stockholders’ equity, i.e. the amount available

for dividends to stockholders.

Change in number of shares

Number Series A shares Series B shares Total

Shares on Jan 1, 2016 1,029,341 23,942,489 24,971,830

Shares on Dec 31, 2016 1,029,341 23,942,489 24,971,830

Shares on Dec 31, 2017 1,029,341 23,942,489 24,971,830

Quota value per share, SKr 20.00

Stockholders' equity at end of period, SKr 499,436,600

At year-end, the company had 426,600 shares in own custody. The

shares were transferred during the year to IGT Holding IV AB.

Number of shares minus treasury shares held by the company

Thousands 2017 2016

At end of period 24,972 24,545

At end of period, after full dilution 24,972 24,545

Average during the period 24,867 24,545

Average during the period, after full dilution 24,867 24,697

Share options

The company established in the past years incentive programs whereby

senior executives and key personnel were invited to acquire, on market

terms, warrants in the company. The latest incentive program was

offered and subscribed to by senior executives and key personnel in

20165.

In 2016, IGT IV Holding AB repurchased all outstanding warrants.

The price of the buyback was based on the price per share that IGT IV

Holding AB offered to all shareholders in IFS in December 2015.

NOTE 34. LIABILITIES TO CREDIT INSTITUTIONS AND PARENT COMPANY


SKr, million 2017 2016 2017 2016

LONG-TERM LIABILITIES

Loan from parent company 3,607 1,110 3,607 1,110

Loan from credit institution 47 - 25 -

Financial leasing liabilities 1 0 - -

CURRENT LIABILITIES

Loan from credit institution - - - -

Loan from parent company 346 72 346 72

Financial leasing liabilities 1 - - -

Total 4,002 1,182 3,978 1,182

Granted overdraft facility and line of

credit - - - -

Unused overdraft facility and line of

credit - - - -

Used overdraft facility and line of credit - - - -

During the year, the average rate of interest on liabilities to credit

institutions was 4.5 percent. For external funding, agreements exist for

loan facilities through the parent company’s loan facility with a syndicate

of banks and investors. For said loan facility, agreements exist with

financial covenants regarding net debt in relation to EBITDA.

NOTE 35. RISK STRUCTURE PERTAINING TO INTEREST AND FINANCING

Change of interest in the interval

0–6 MONTHS 7–12 MONTHS 13–60 MONTHS MORE THAN

60 MONTHS TOTAL

Nominal amount 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016

Loan from credit institution 47 - - - - - - - 47 -

Loan from parent company 3,607 1,182 - - - - - - 3,607 1,182

Financial leasing liabilities 2 0 - - - - - - 2 0

Total 3,656 1,182 0 - 0 - 0 - 3,656 1,182

Loan and credit maturity in the interval

0–6 MONTHS 7–12 MONTHS 13–60 MONTHS MORE THAN

60 MONTHS TOTAL

Nominal amount 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016

Loan from credit institution - - - - - - 47 - 47 -

Loan from parent company 173 36 173 36 - 653 3,607 457 3,953 1,182

Financial leasing liabilities - 0 1 - 1 - - - 2 0

Derivatives 2 3 - - - - - - 2 3

Accounts payable and other loans 107 97 - - - - - - 107 97

Total 282 136 174 36 1 653 3,654 457 4,111 1,282

50

NOTE 36. PENSION COMMITMENTS

Commitments in the balance sheet

GROUP


Defined-benefit pension plans 205 186

Other pension commitments 6 4

Total 211 190

Provisions for defined-benefit pension plans

The Group has a small number of defined-benefit pension plans,

according to which employees covered by the pension plan are entitled

to benefits in the form of a guaranteed level of pension payments during

their lifetime. The level of the benefit is based on the employees’ final

salary and years of service. The largest plans are in Sweden and Norway.

Most pension plans held by the Group are premium-based.

GROUP


Sweden 187 172

Norway 8 6

Other countries 10 8

Total provisions for pensions 205 186

Defined-benefit pension plans, 2017

The amounts reported in the consolidated balance sheet have been

calculated according to the following:

SKr, million

Sweden

Norway

Other

countries

Total

Present value of funded obligations 630 78 - 708

Fair value of plan assets -443 -70 - -513

Total 187 8 0 195

Present value of unfunded obligations - - 10 10

Total 187 8 10 205

Change in the defined-benefit commitment during the year is as follows:

GROUP


Defined Benefit Obligation (DBO), beginning of the year 673 551

Current Service Cost 8 8

Interest Cost 19 20

Expected benefit paid (pensions payment) -14 -10

Special employer's contribution -8 5


Experience gains / losses -8 -1

Actuarial gain / loss due to change in demographic

assumptions 0 0

Actuarial gain / loss due to change in financial assumptions 52 92

Defined Benefit Obligation (DBO), end of the year 718 673

Change in fair value of plan assets during the year is as follows:

GROUP


Fair value of plan assets, beginning of the year 487 445

Interest income 15 17

Employer contributions 24 27

Benefits paid (pensions payment) -8 -7


Actuarial gain / loss during the period -1 -2

Fair value of plan assets, end of the year 513 487

Defined-benefit pension plans, 2017

Specification of the changes in net liabilities recognized in the Group’s

balance sheet:

SKr, million

Sweden

Norway

Other

countries

Total

Net liability at beginning of year 172 6 8 186

Net cost reported in income statement 7 4 3 14

Employer's contributions to funded plans -18 -6 - -24

Pension payments reduced with

compensation -4 -2 -1 -7

Special employer's contribution -8 - - -8

Exchange rate differences in

international plans - - - 0

Experience gains / losses -5 -4 - -9

Actuarial gain / loss due to change in

financial assumptions 43 10 - 53

Net liability at end of year 187 8 10 205

Key actuarial assumptions

Sweden Norway

2017 2016 2017 2016

Discount rate 2.9% 3.1% 2.3% 2.5%

Future annual salary increases 3.0% 3.0% 2.5% 2.3%

Future annual pension increases 2.0% 2.0% 0.4% 0.0%

For 2017 and 2016, the discount rate is used as the basis for

establishing the total expected dividends from the plan assets in

accordance with the amended IAS 19. Payment of fees/provisions to

plans for remuneration after terminated employment is expected to

amount to SKr 18 million for fiscal year 2018.

Sensitivity analysis

The current value of the commitment for the Swedish defined-benefits

pension plans amounts to SKr 640 million excluding special payroll tax.

If the discount rate had been one percentage point higher, the liability

would have decreased by SKr 136 million; if it had been one percentage

point lower, the liability would have increased by SKr 179 million. If the

average life expectancy increases by 1 year, the liability will increase by

SKr 19 million; if it decreases by 1 year, the liability would decrease by

SKr 19 million.

The corresponding figures for Norway amount to a present value of

SKr 75 million for the commitment. If the discount rate had been one

percentage point higher, the liability would have decreased by

SKr 12 million; if it had been one percentage point lower, the liability

would have increased by SKr 14 million.

Plan assets

Through its defined-benefit pension plans and healthcare plans when

employment is terminated, the Group is exposed to a number of risks,

the most essential of which are described below.

Asset volatility. The plan’s liabilities are calculated using a discount rate

based on mortgage bonds. If the plan assets fail to return a

corresponding yield, a deficit is incurred. The plan includes investment

that over time are expected to exceed the interest rate on mortgage

bonds, but entail risk and volatility in the short term.

Changes in bond yields. A reduction in yields from mortgage bonds will

entail an increase in plan liabilities, even if such will be outweighed in

part by an increase in the value of the bond holding.

Risk of inflation. Most of the plan’s commitments are related to inflation;

higher inflation leads to higher liabilities.

Life expectancy assumptions. Most of the pension commitments assume

that employees covered by the plan will receive payments as long as they

51

live, which means that higher longevity results in higher pension

liabilities.

Funding policy

The pension liability is secured via IFS Pensionsstiftelse (IFS Pension

Fund), in which assets are managed according to the Fund’s investment

policy. The policy governs the strategic allocation of assets that are to be

managed in such a way as to provide a buffer for the company’s pension

expenses and ensure an overall matching strategy in relation to pension

commitments. The long-term goals of the asset management are

intrinsic annual dividends of 2 percent over rolling five-year periods.

To avoid major negative results in asset management during

particular periods of time, the strategic allocation at each given time

shall be such that risk is limited to a maximum of 10 percent of the

opening value of the portfolio for each year. If the assets in the portfolio

develop negatively such that risk has increased, the proportion of risky

assets shall, insofar as it is possible, be reduced so as not to jeopardize

the lowest safety level. If the assets develop positively such that the

Fund obtains a larger margin to the lowest safety level, the proportion of

risky assets can be increased within the overall limitations of this policy.

When plans are refunded, the Group ensures that the investments

are also managed according to a strategy, whereby assets and liabilities

are matched, which has been developed to achieve long-term

investments that are in line with the commitments of the pension plans.

Within this framework, the Group aims to match assets with the

character of the pension payments. This means that the Fund’s fixed

income portfolio with a high proportion of assets with expected hedges

that follow the Swedish CPI in the long-term to shield the company from

some of the risk that has arisen related to inflation and interest rates. At

the end of the year, 4 percent of the total fixed income portfolio

consisted of real interest bonds of long-term duration.

The weighted average term for pension commitments is 25 years.

The asset plans consist of the following:

2017 2016

Quoted Unquoted Total Quoted Unquoted Total

Share-based investments 31% - 31% 30% - 30%

Structured products - 6% 6% - 6% 6%

Real-interest based

investments - 4% 4% - 4% 4%

Long-term interest-bearing

investments 34% - 34% 28% - 28%

Short-term investments,

cash, and cash equivalents 22% - 22% 23% 6% 29%

Other assets - 3% 3% - 3% 3%

Total 87% 13% 100% 81% 19% 100%

Defined-contribution pension plans 2017

According to such plans, payments made to employees after terminated

employment, such as pensions, healthcare benefits and other

disbursements, are made principally through payments to insurance

companies or institutions, who thereby assume the liability for the

employee. The defined-contribution plans in Sweden are administered

by SPP and Collectum.

In 2017, costs pertaining to defined-contribution plans amounted to


Provisions for defined-benefit pension plans

PARENT COMPANY


Provisions according to the Swedish Act on Income Security 0 -4

NOTE 37. OTHER PROVISIONS AND OTHER LIABILITIES

GROUP


Restructuring reserve 5 4

Other provisions 7 1

Total 12 5

Restructuring reserve

SKr, million Group

Opening balance Jan 1, 2016 3

Reversal, restructuring reserve 0

Provision, restructuring reserve 34

Use of restructuring reserve -24

Effects of exchange rate fluctuations -4

Closing balance Dec. 31, 2016 9

Less current portion -5

Restructuring reserve, long term 2016 4

Reversal, restructuring reserve 0

Provision, restructuring reserve 37

Use of restructuring reserve -27

Effects of exchange rate fluctuations -1

Closing balance Dec. 31, 2017 18

Less current portion -13

Restructuring reserve, long term 2017 5

NOTE 38. OTHER LIABILITIES

GROUP


Deferred maintenance revenue 663 566

Deferred license- and consulting revenue 68 41

Accrued consulting expenses 16 12

Advances from customers 4 4

VAT liabilities 117 109

Accrued payroll expenses 352 281

Accrued pension cost, defined contribution plans 32 31

Accrued social security contributions 85 90

Retained preliminary tax for employees 38 35

Liabilities to employees 7 6

Accrued expenses, third-party suppliers 44 44

Accrued interest expenses 0 0

Liabilities to associated companies 4 1

Derivatives held for trading 3 2

Miscellaneous other liabilities 40 12

Other accrued expenses 223 108

Other prepaid revenue 22 7

Total 1,718 1,349

52

NOTE 39. ACCRUED EXPENSES AND PREPAID INCOME

PARENT COMPANY


Accrued interest expenses 0 0

Accrued social security contributions 1 1

Accrued payroll expenses 1 2

Supplier invoices not yet received - 6

Other accrued expenses 1 1

Total 3 10

NOTE 40. PLEDGED ASSETS


SKr, million 2017 2016 2017 2016

Chattel mortgages 143 - 4 -

Blocked bank accounts 7 8 - -

Shares in subsidiaries 1,574 - 1,711 -

Other 43 20 - -

Total 1,767 28 1,715 -

NOTE 41. CONTINGENT LIABILITIES


SKr, million 2017 2016 2017 2016

Sureties, external 36 33 30 31

General surety for subsidiaries - - 11 13

Parent Company guarantees - - 1 1

Total 36 33 42 45

NOTE 42. ADJUSTMENTS FOR ITEMS NOT INCLUDED IN CASH FLOW


SKr, million 2017 2016 2017 2016

Depreciation 276 276 - -

Restructuring costs, net 9 6 - -

Provisions for pensions 15 13 - 4

Bad debts 14 7 - -

Exchange rate gains/losses, net -126 1 -84 -6

Write-down of financial assets 3 0 - -

Group contributions received - - - -23

Share-based compensation - - - 6

Reversal of write-down in participations

in subsidiaries - - - -

Interest costs for the year 93 25 77 16

Interest income for the year -4 -4 -105 0

Deferred tax 0 - - -

Other adjustments -35 2 - 1

Total 245 326 -112 -2

NOTE 43. BUSINESS COMBINATIONS

On January 17, IFS acquired 100 percent of the share capital of

Mxi Technologies Ltd (Canada, reg. no. 1968721) for a total purchase

consideration of SKr 1,139 million. Transferred compensation was paid

in full in cash. The fair value of identified net assets and liabilities in

Mxi Technologies Ltd. amounted to SKr 596 million, including

SKr 344 million in software, SKr 190 million in customer relations,

SKr 15 million in competition clauses, and SKr 13 million in trademarks.

The remaining SKr 542 million constituted Group goodwill. The goodwill

reported is matched by the company's market position and technical

skills in Aviation and Defense, as well as IFS's expanded market position

in North America. The purpose of the acquisition is to strengthen IFS

within the Aviation and Defense segment, and to expand IFS's position

on the U.S. market. The acquired company is included in the Group's

sales with SKr 501 million and operating profit with SKr 64 million. No

acquisition-related expenses attributable to the acquisition of

Mxi Technology Ltd are included in the profit for the period.

On November 7, IFS acquired 100 percent of the share capital of

Marathon Acquisition Inc. (USA, reg. no. 5195332) for a total purchase

consideration of SKr 2,442 million. Transferred compensation has been

paid in full in cash. The fair value of identified net assets and liabilities

in Marathon Acquisition Inc. amounted to SKr 857 million, including

SKr 957 million in software, SKr 184 million in customer relationships,

SKr 90 million in trademarks, SKr 271 million in goodwill, and

SKr 411 million in deferred tax liabilities. The remaining

SKr 1,584 million constituted Group goodwill. The goodwill reported for

the acquisition corresponds to the company’s market position in Field

Service Management (FSM). The purpose of the acquisition is also to

strengthen IFS within the FSM growth segment and to expand IFS's

position on the U.S. market. The acquired company is included in the

Group's sales with SKr 77 million and operating income with

SKr 13 million. Acquisition-related expenses amounted to SKr 54 million

for the period and are reported as other operating expenses in the

Group's profit for the period.

During the year, two smaller companies were also acquired. On

July 19, Field Service Management Ltd (UK) was acquired for a total

purchase consideration of SKr 6 million and on July 31, MPL Systems

Ltd (UK) was acquired for a purchase consideration of SKr 149 million.

Acquisition analysis

Company

SKr, million

Fair value reported in

Group value

2017 2016

Intangible fixed assets 2,125 45

Tangible fixed assets 78 0

Accounts receivable 132 15

Liquid assets, net 108 12

Accounts payable and other liabilities -492 -20

Deferred tax liabilities -419 -9

Fair value of net assets 1,532 43

Group goodwill 2,203 38

Total purchase consideration 3,735 81

Transferred compensation: fair value

of share in subsidiaries -3,735 -81

Liquid assets in the acquired companies 82 12

53

NOTE 44. NET ACQUISITION OF TANGIBLE FIXED ASSETS

GROUP


Investments for the year, net -64 -51

Total -64 -51

NOTE 45. RECONCILIATION OF NET DEBT

GROUP


Liquid funds 445 1,655

Short-term investments 6 6

Loans, due within one year -1 0

Loans, due after one year -3,656 -1,182

Net debt -3,206 479

Liquid funds and short-term investments 451 1,661

Gross debt, fixed interest rate -1,290 0

Gross debt, floating rate -2,367 -1,182

Net debt -3,206 479

NOTE 46. FINANCIAL RISK MANAGEMENT AND DERIVATIVES

Via its business operations, the Group is exposed to a number of

financial risks, including fluctuations in earnings, balance sheet, and

cash flow resulting from changes in exchange rates, rates of interest,

and risks related to refinancing and credit. Group financial policy for risk

management, determined by the board, is a framework of guidelines and

regulations in the form of risk mandates and limits for financial

operations.

The board of directors has the overall responsibility for the

management of financial risks, which is delegated to the chief executive

officer, the chief financial officer and a board director.

The IFS Group has centralized financial management, which means

that the chief responsibility for financial management resides with the

Parent Company. The overall objective for the finance department is to

minimize the negative effects of market fluctuations on Group earnings

and stockholders’ equity and to provide cost-effective financing.

Risk is managed by a central finance department (Group Finances)

according to principles approved by the board. Group Finances shall

identify, evaluate, and hedge against financial risks in close

collaboration with operational units within the Group. The board

establishes a financial policy for overall risk management and for

specific areas that include risks related to exchange rates, interest rates,

credit on investment in financial instruments, financing, and liquidity.

Exchange rate risks

Exposure to exchange rate fluctuation arises when the Group carries out

a large number of business transactions in foreign currency in

connection with its business operations. Such exposure derives among

others from business transactions between operational units within the

Group that have different currencies as their functional currency as well

as from sales in currencies other than the individual companies’

functional currency. Most of the costs are in the functional currency of

the business units. The most significant exposures refer to the U.S. dollar

($), the euro (€), the pound sterling (£), and Norwegian kroner (NOK), a

reflection of the fact that a considerable amount of Group revenue and

payments are carried out in these currencies. The Group hedges these

exchange rate risks, where possible by trading in currency futures and

currency options in a number of currencies.

The Parent Company trades in currency futures and currency option

contracts to match expected cash flows that derive from the Group’s

international business units. On December 31, 2017, the Group had

outstanding foreign exchange contracts in the following currencies

(nominal values):

Currency futures contracts, nominal values in SKr million


AED - -

AUD 3 17

BRL 7 7

CAD 17 8

CHF 0 5

CZK - 3

DKK 38 45

EUR 134 83

GBP 133 38

JPY 17 16

NOK 130 95

PLN 15 23

SGD 7 42

USD 202 106

ZAR 10 3

Total 713 491

Currency exposure has also arisen as a consequence of intra-group

loans from the parent company IGT Holding IV AB taken in connection

with acquisitions made during the fiscal year. To reduce currency

exposure, IFS has financed as much as possible the acquisitions with

loans from the parent company in the same currency as the purchase

price. As of December 31, 2017, the company had the following

outstanding loans from the parent company IGT Holding IV AB:

Loans to the parent company

2017 2016

SKr, million Amount

currency

Amount

Sw. krona

Amount

currency

Amount

Sw. krona

United States dollar (USD) 423 3,482 130 1,182

Pound sterling (GBP) 11 125 - -

Total 3,607 1,182

All profits and losses on foreign exchange contracts constitute financial

hedging and have been reported in the income statement. The Group

has a number of investments in foreign operations, whose net assets

are exposed to foreign currency translation risk. In isolated cases

funding in matching currency is identified as hedging instruments in

formal hedge relations. The effective portion of gains and losses on

these currency exposures are recognized in other comprehensive

income.

Foreign currency sensitivity analysis

A sensitivity analysis, considering the unhedged foreign currency

exposure on December 31, 2016, shows the effect on earnings after tax

of a 10 percent change in the exchange rate between the U.S. dollar and

the Swedish krona, the euro and the Swedish krona, the Pound Sterling

and the Swedish krona, and the Norwegian krone and the Swedish krona

according to the table below. It presumes that all other variables,

including interest rates and other foreign currencies, remain constant.

54

Currency exposure sensitivity analysis

Increase/decrease

of rate on balance

sheet day

Profit/loss


USD 10% -1.0 -0.2

-10% 1.0 0.2

EUR 10% -1.3 3.3

-10% 1.3 -3.8

GBP 10% 4.7 0.1

-10% -4.7 -0.1

NOK 10% 7.5 -3.3

-10% -7.5 3.0

In addition to the currency exposure in the table above, the company

also had a net exposure from U.S. dollar loans of US$ 205 million on the

balance sheet date. No regard to this has been taken in the sensitivity

analysis above.

Interest rate risks

The Group is exposed to interest rate risks in respect of liquid assets on

deposit and bank loans with floating interest rates. The Group’s liquid

assets are held in interest-bearing accounts and in deposits of short

duration. The Groups borrows at floating interest rates that are normally

set for periods to three or six months. The interest rate risk is managed

by using interest rate instruments for interest rate hedging, such as

swaps, to replace floating interest rates with fixed rates, which offers

protection against large interest rate increases. Interest rate risk has

been limited because the parent company IGT Holding IV AB has interest

rate hedges. The terms of the loans between the companies and also

the effects of interest rate hedges are indirectly governed by the

conditions that apply to the Company's parent company. A sensitivity

analysis shows that if the floating interest rate had increased/decreased

by 1 percentage point, earnings would have been SKr 19 million lower

and SKr 17 million higher, respectively.

Credit risk

The Group’s principal financial assets are liquid assets, accounts

receivable, and other receivables. Counterparties for liquid assets are

governed by the finance policy, which limits the size of the credit

exposure in respect of financial institutions. The Group deals only with

recognized creditworthy customers and offers normal credit terms and

conditions in its ordinary operations after preliminary credit checks have

been performed. The Group has no substantial concentration of credit

risks. Rather, exposure is distributed over a number of counterparties

and a large number of customers in several different geographical

regions. For the valuation of doubtful receivables, the Group applies a

model where the provision of the trade receivables is calculated

according to a matrix, where the percentage used to calculate the

provision is higher the older the receivables are. If a receivable is

uncertain and the assessment is made that payment is not going to

occur it is written down by 100 percent regardless of age. Accounts

receivable are reported net of provisions in the consolidated balance

sheet. See Note 30 for additional information pertaining to accounts

receivable and related regulations for bad debts.

Financing risks

The Group shall avoid having too much credit due for payment in the

same 12-month period. The Group shall strive to ensure that a maximum

of 25 percent of contracted loans and credit limits falls due in the same

12-month period. The financing agreement that the company had

through the parent company at the beginning of the year was

renegotiated in July with increased borrowing and more favorable terms.

In connection with the acquisition of Workwave PLC, loans were further

extended. In 2016, a financing agreement with an external party was

repaid and canceled. A new loan was taken through the parent company.

Under the terms of the parent company’s loan agreement, the company

shall not take new local operating capital facilities in its subsidiaries. At

year-end, the average term of contracted loans and credit facilities was

79 months (60 months). 100 percent of the loan portfolio matures

beyond 30 months.

Liquidity risk

The Group manages liquidity risks by retaining sufficient liquidity to

provide for the needs of the business. The process is monitored via the

Group’s short-term, 0–3 months, and medium-term, up to 12 months,

cash flow forecasts. Moreover, the Group ensures that it always has

access to sufficient agreed credit facilities. See Note 35 for a maturity

analysis of the loan portfolio.

Fair value estimation

Accounts receivable, other receivables, accounts payable and other

liabilities

For receivables and payables with a remaining term of less than one

year, the reported value constitutes the fair value. Other receivables and

payables are estimated at present value with a discount rate

corresponding to that used to estimate interest-bearing liabilities. There

are no significant differences between fair value and reported value.

Currency forward contracts

The fair value of financial instruments not traded on an active market is

established with the help of a fair value hierarchy. The fair value

hierarchy consists of the following levels:

Level 1: Quoted prices (not adjusted) on an active market for similar

instruments.

Level 2: Directly (e.g. prices) or indirectly (e.g. derived from prices)

observable market inputs for the instrument other than the quoted price.

Level 3: Inputs for financial instrument for which the asset or liability is

not based on observable market data.

To this end, market information is used to the greatest possible extent

when this is available. The currency forward contracts held by the Group

are valued according to the Level 2 classification by using the market

prices that apply on the balance sheet day.

55

Financial assets and liabilities 2017

Dec. 31, 2017

SKr, million

Fair value

hierarchy

Financial

assets valued

at fair value

on balance-

sheet day

Accounts- and

other

receivables

Of which

current

Of which

non-current

Financial assets 2017

Investments Level 3 2 - - 2

Other long-term

receivables and

other interests - 49 - 49

Accounts receivable - 1,104 1,104 -

Other receivables - 490 490 -

Derivatives Level 2 1 - 1 -

Cash and cash equivalents - 451 451 -

Total 3 2,094 2,046 51

Dec. 31, 2017

SKr, million

Fair value

hierarchy

Financial

liabilities

valued at fair

value on

balance-sheet

day

Other

financial

liabilities

Of which

current

Of which

non-current

Financial liabilities 2017

Liabilities to parent company - 3,657 1 3,656

Accounts payable - 106 106 -


Total 3 3,763 110 3,656

Financial assets and liabilities 2016

Dec. 31, 2016

SKr, million

Fair value

hierarchy

Financial

assets valued

at fair value

on balance-

sheet day

Accounts- and

other

receivables

Of which

current

Of which

non-current

Financial assets 2016

Investments Level 3 2 - - 2

Other long-term

receivables and

other interests - 27 - 27

Accounts receivable - 931 931 -

Other receivables - 351 351 -


Cash and cash equivalents - 1,661 1,661 -

Total 3 2,970 2,944 29

Dec. 31, 2016

SKr, million

Fair value

hierarchy

Financial

liabilities

valued at fair

value on

balance-sheet

day

Other

financial

liabilities

Of which

current

Of which

non-current

Financial liabilities 2016 Liabilities to credit

institutions - 1,182 - 1,110

Accounts payable - 97 97 -


Total 2 1,279 99 1,110

Liabilities to credit institutions

The fair value is based on discounted future cash flows in respect of the

principal and interest. There are no significant differences between fair

value and reported value. See Note 35 for maturity analysis.

Capital structure

IFS defines capital as stockholders’ equity including non-controlling

interests in accordance with the information presented in the balance

sheet and the capital accounts. Capital on December 31, 2017,

amounted to SKr 1,440 million (1,603). IFS aims to have a capital

structure that leads to an efficient, weighted cost of capital and a credit

score that takes into account the needs of the business and enables

future acquisitions.

NOTE 47. CONVERSION RATES

Rate at year end Average rate

2017 2016 2017 2016

EUR 9.85 9.57 9.63 9.47

GBP 11.10 11.18 10.99 11.57

NOK 1.00 1.05 1.03 1.02

PLN 2.36 2.17 2.26 2.17

USD 8.23 9.10 8.54 8.56

NOTE 48. EVENTS OCCURRING AFTER THE END OF THE PERIOD

A customer in the Europe West region has had a claim on the company

for several years. In the first quarter of 2018, the court of first instance

ruled to the customer’s advantage. IFS will appeal the verdict and has a

positive expectation that the outcome will be changed in the next

instance. The maximum risk does not exceed € 2 million and is not

material in relation to the company's assets.

On March 5, 2018, IFS announced that Darren Roos was appointed

as new president and CEO of the company. He took up his new position

on April 1, which coincided with the retirement of Alastair Sorbie at the

end of the first quarter of 2018. Darren Roos is an experienced business

leader in software industry. Most recently, Roos was the head of SAP's

Cloud ERP operations and before that he developed Software AG's

international business.

56

NOTE 49. PROPOSED DISPOSITION OF PROFITS

The board of directors and the president propose that the earnings of

the parent company available for disposition, SKr 432 million, be

allocated as follows:

Carried forward SKr 432,427 thousand

Total SKr 432,427 thousand

NOTE 50. INFORMATION ABOUT THE PARENT COMPANY

Industrial and Financial Systems, IFS AB, is a Swedish registered

company headquartered in Linköping, Sweden. The visiting address of

the head office is Teknikringen 5, Linköping, Sweden; its postal address

is Box 1545, SE-581 15 Linköping, Sweden. IFS AB is owned at

100 percent by IGT IV Holding AB, corporate identity number 559033-

9635; the remainder is owned by a larger number of shareholders.

The consolidated accounts for 2017 are reported for the Parent

Company and its subsidiaries, which together comprise the Group. The

Group also includes shares owned in associated companies and a joint

venture company.

With reference to the Annual Accounts Act Chapter 1, Section 3,

Paragraph 6, no consolidated financial statements were set up by IGT IV

Holding AB.

The consolidated accounts and the annual report have been prepared in accordance with the international accounting standards referred to in

Regulation (EC) No. 1606/2002 of the European Parliament and Council of July 19, 2002, on the application of international accounting standards

and generally accepted accounting principles. They give a true and fair view of the financial position and results of the Group and Parent Company. The

board of directors’ report for the Group and Parent Company gives a true and fair view of Group and Parent Company operations and financial position,

and describes the essential risks and uncertainties to which the Group and Parent Company are exposed.

Linköping, April 26, 2018

Lars Wollung Craig Conway Per Franzén Måns Hultman CHAIRMAN OF THE BOARD BOARD MEMBER BOARD MEMBER BOARD MEMBER

Neil Masom Jonas Persson Johannes Reichel Markus Rothmeier BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER

As indicated above, the annual report and the consolidated accounts were approved for publication by the board of directors on April 26, 2018. The

consolidated income statement and balance sheet and the income statement and balance sheet for the Parent Company will be the subject of adoption

at the Annual General Meeting 2018.

Our audit report was submitted on April 26, 2018.



57

AUDITOR’S REPORT

To the annual meeting of the shareholders of

Industrial and Financial Systems, IFS AB (publ.)

Corporate identity number 556122-0996

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS

Opinions

We have audited the annual accounts and consolidated accounts of

Industrial and Financial Systems, IFS AB for the year 2017. The

company’s annual accounts and consolidated accounts are included on

pages 17–57 in this document.

In our opinion, the annual accounts have been prepared in

accordance with the Annual Accounts Act and present fairly, in all

material respects, the financial position of parent company as of

31 December 2017 and its financial performance and cash flow for the

year then ended in accordance with the Annual Accounts Act. The

consolidated accounts have been prepared in accordance with the

Annual Accounts Act and present fairly, in all material respects, the

financial position of the group as of 31 December 2017 and their

financial performance and cash flow for the year then ended in

accordance with International Financial Reporting Standards (IFRS), as

adopted by the EU, and the Annual Accounts Act. The statutory

administration report is consistent with the other parts of the annual

accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders

adopts the income statement and balance sheet for the parent company

and the group.

Basis for opinions

We conducted our audit in accordance with International Standards on

Auditing (ISA) and generally accepted auditing standards in Sweden. Our

responsibilities under those standards are further described in the

Auditor’s Responsibilities section. We are independent of the parent

company and the group in accordance with professional ethics for

accountants in Sweden and have otherwise fulfilled our ethical

responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our opinions.

Other Information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts

and consolidated accounts and is found on pages 3–14. The Board of

Directors and the Managing Director are responsible for this other

information.

Our opinion on the annual accounts and consolidated accounts

does not cover this other information and we do not express any form of

assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and

consolidated accounts, our responsibility is to read the information

identified above and consider whether the information is materially

inconsistent with the annual accounts and consolidated accounts. In this

procedure we also take into account our knowledge otherwise obtained

in the audit and assess whether the information otherwise appears to

be materially misstated.

If we, based on the work performed concerning this information,

conclude that there is a material misstatement of this other information,

we are required to report that fact. We have nothing to report in this

regard.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for

the preparation of the annual accounts and consolidated accounts and

that they give a fair presentation in accordance with the Annual Accounts

Act and, concerning the consolidated accounts, in accordance with IFRS

as adopted by the EU. The Board of Directors and the Managing Director

are also responsible for such internal control as they determine is

necessary to enable the preparation of annual accounts and

consolidated accounts that are free from material misstatement,

whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The

Board of Directors and the Managing Director are responsible for the

assessment of the company's and the group's ability to continue as a

going concern. They disclose, as applicable, matters related to going

concern and using the going concern basis of accounting. The going

concern basis of accounting is however not applied if the Board of

Directors and the Managing Director intend to liquidate the company, to

cease operations, or has no realistic alternative but to do so.

Auditor’s responsibility

Our objectives are to obtain reasonable assurance about whether the

annual accounts and consolidated accounts as a whole are free from

material misstatement, whether due to fraud or error, and to issue an

auditor’s report that includes our opinions. Reasonable assurance is a

high level of assurance, but is not a guarantee that an audit conducted

in accordance with ISAs and generally accepted auditing standards in

Sweden will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material

if, individually or in the aggregate, they could reasonably be expected to

influence the economic decisions of users taken on the basis of these

annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional

judgment and maintain professional skepticism throughout the audit.

We also:

Identify and assess the risks of material misstatement of the annual

accounts and consolidated accounts, whether due to fraud or error,

design and perform audit procedures responsive to those risks, and

obtain audit evidence that is sufficient and appropriate to provide a

basis for our opinions. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting

from error, as fraud may involve collusion, forgery, intentional

omissions, misrepresentations, or the override of internal control.

Obtain an understanding of the company’s internal control relevant

to our audit in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the company’s internal control.

Evaluate the appropriateness of accounting policies used and the

reasonableness of accounting estimates and related disclosures

made by the Board of Directors and the Managing Director.

Conclude on the appropriateness of the Board of Director's and the

Managing Director's use of the going concern basis of accounting in

preparing the annual accounts and consolidated accounts. We also

draw a conclusion, based on the audit evidence obtained, as to

whether any material uncertainty exists related to events or

conditions that may cast significant doubt on the company's and the

group's ability to continue as a going concern. If we conclude that a

material uncertainty exists, we are required to draw attention in our

auditor’s report to the related disclosures in the annual accounts

and consolidated accounts or, if such disclosures are inadequate,

to modify our opinion about the annual accounts and consolidated

accounts. Our conclusions are based on the audit evidence obtained

up to the date of our auditor’s report. However, future events or

conditions may cause a company and a group to cease to continue

as a going concern.

Evaluate the overall presentation, structure and content of the

annual accounts and consolidated accounts, including the

disclosures, and whether the annual accounts and consolidated

accounts represent the underlying transactions and events in a

manner that achieves fair presentation.

58

Obtain sufficient and appropriate audit evidence regarding the

financial information of the entities or business activities within the

group to express an opinion on the consolidated accounts. We are

responsible for the direction, supervision and performance of the

group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the

planned scope and timing of the audit. We must also inform of significant

audit findings during our audit, including any significant deficiencies in

internal control that we identified.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Opinions

In addition to our audit of the annual accounts and consolidated

accounts, we have also audited the administration of the Board of

Directors and the Managing Director of Industrial and Financial Systems,

IFS AB for the year 2017 and the proposed appropriations of the

company’s profit or loss.

We recommend to the general meeting of shareholders that the

profit be appropriated in accordance with the proposal in the statutory

administration report and that the members of the Board of Directors

and the Managing Director be discharged from liability for the financial

year.

Basis for opinions

We conducted the audit in accordance with generally accepted auditing

standards in Sweden. Our responsibilities under those standards are

further described in the Auditor’s Responsibilities section. We are

independent of the parent company and the group in accordance with

professional ethics for accountants in Sweden and have otherwise

fulfilled our ethical responsibilities in accordance with these

requirements.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations

of the company’s profit or loss. At the proposal of a dividend, this

includes an assessment of whether the dividend is justifiable

considering the requirements which the company's and the group's type

of operations, size and risks place on the size of the parent company's

and the group’ equity, consolidation requirements, liquidity and position

in general.

The Board of Directors is responsible for the company’s organization

and the administration of the company’s affairs. This includes among

other things continuous assessment of the company's and the group's

financial situation and ensuring that the company´s organization is

designed so that the accounting, management of assets and the

company’s financial affairs otherwise are controlled in a reassuring

manner. The Managing Director shall manage the ongoing

administration according to the Board of Directors’ guidelines and

instructions and among other matters take measures that are necessary

to fulfill the company’s accounting in accordance with law and handle

the management of assets in a reassuring manner.

Auditor’s responsibility

Our objective concerning the audit of the administration, and thereby our

opinion about discharge from liability, is to obtain audit evidence to

assess with a reasonable degree of assurance whether any member of

the Board of Directors or the Managing Director in any material respect:

has undertaken any action or been guilty of any omission which can

give rise to liability to the company, or

in any other way has acted in contravention of the Companies Act,

the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the

company’s profit or loss, and thereby our opinion about this, is to assess

with reasonable degree of assurance whether the proposal is in

accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a

guarantee that an audit conducted in accordance with generally

accepted auditing standards in Sweden will always detect actions or

omissions that can give rise to liability to the company, or that the

proposed appropriations of the company’s profit or loss are not in

accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing

standards in Sweden, we exercise professional judgment and maintain

professional skepticism throughout the audit. The examination of the

administration and the proposed appropriations of the company’s profit

or loss is based primarily on the audit of the accounts. Additional audit

procedures performed are based on our professional judgment with

starting point in risk and materiality. This means that we focus the

examination on such actions, areas and relationships that are material

for the operations and where deviations and violations would have

particular importance for the company’s situation. We examine and test

decisions undertaken, support for decisions, actions taken and other

circumstances that are relevant to our opinion concerning discharge

from liability. As a basis for our opinion on the Board of Directors’

proposed appropriations of the company’s profit or loss we examined

whether the proposal is in accordance with the Companies Act.

Stockholm, April 26, 2018



59

BOARD OF DIRECTORS

LARS WOLLUNG

Chairman of the board

Principal occupation: Directorships

Other assignments: Chairman of MySafety Försäkringar and The Northern

Alliance; board director of Nordea.

Previous assignments and work experience: CEO for 15 years; management

consultant for 15 years; co-founder, president and CEO of the IT

company Acando 2001–2008; president and CEO of the credit

management company Intrum Justitia 2009–2015; management

consultant at McKinsey; board director of Bambora, Dlaboratory,

TF Bank, and Tieto.

Education: MSc Computer Science, Royal Institute of Technology; BA

Economics and Business Administration, Stockholm School of

Economics.

Born 1961. Elected 2016.

PER FRANZÉN

Vice chairman

Principal occupation: Partner at EQT Partners

Other assignments: Board director of Anticimex, Eton, and IVC.

Previous assignments and work experience: Board director of AcadeMedia,

Automic Software, Duni, Evidensia, Securitas Direct, and SSP; board

observer of Piab.

Education: M.Sc. in Economics and Business Administration from the

Stockholm School of Economics with exchange studies at the University

of St Gallen in Switzerland.


CRAIG CONWAY

Board director


Other assignments: Board director of Guidewire, Nutanix, and

Salesforce.com.

Previous assignments and work experience: Chairman of Achievers; board

director of AMD, eMeter, Kazeon, Pegasystems, Success Factors, and

Unisys; CEO of One Touch Systems, PeopleSoft, and TGV Software;

executive at Oracle.


MÅNS HULTMAN

Board director

Principal occupation: Investments and directorships

Other assignments: Board director of Ikano Group, itslearning, iZettle,

MotorK, and Zobito.

Previous assignments and work experience: Chairman and CEO of Qlik

Technologies; partner in Sundet Investment; board director of Apptus,

Automic Holding, Digital Route, Hybris, Mamut, NetAdmin, StormGeo,

and Terranet.


NEIL MASOM OBE

Board director


Other assignments: Board director of CQC Holdings, High Speed Two

(HS2), and WYG Group.

Previous assignments and work experience: Chairman of the board of

IFS Defence and UK Foreign & Commonwealth Office Services Agency;

board director of the UK Information Commissioner’s Office and

Solutions SK; CEO for Logistics and Information Systems in

BAE Systems.

Education: B.Sc. (Eng) Hons Imperial College, London.


JONAS PERSSON

Board director

Principal occupation: Directorships and advisor in software development

Other assignments: Chairman of Peltarion, Sitecore, and StormGeo;

board director of Skandia and Tia Technologies.

Previous assignments and work experience: Former CEO of Microsoft

Sweden and has held a number of senior positions within Microsoft,

including as COO of cloud services and software development

engagements. Has also worked as a sales leader for consumer mobility

solutions and vertical industry solutions in Europe. Board director of

Automic Software.


JOHANNES REICHEL

Board director

Principal occupation: Partner at EQT Partners

Other assignments: –

Previous assignments and work experience: Deutsche Bank. Deputy board

director of Automic Software, CBR Fashion Group, and Lima Corporate.

Education: B.Sc in Business Administration and Economics and MBA

from the University of St Gallen, Switzerland.


MARKUS ROITHMEIER

Board director

Principal occupation: Co-founder and partner of Zobito

Other assignments: Board director of TIS and Zobito; board observer of

EcoVadis.

Previous assignments and work experience: Investor Panopticon; board

director DataVirtuality; VP Sales QlikTech; VP Sales & Marketing Jedox;

managing consultant PA Consulting Group.

Education: MBA, University of Düsseldorf, Germany.


60

EXECUTIVE MANAGEMENT

ALASTAIR SORBIE *

President and CEO

Born 1953

Employed by IFS since 1997

PAUL SMITH

Chief financial officer

Born 1963


FREDRIK VOM HOFE

Senior vice president, Business Development

Born 1966


JESPER ALWALL

General counsel

Born 1969


AUDITORS


Auditors since 2001

NICKLAS KULLBERG

Authorized public accountant and Auditor in charge

Born 1970

* On March 5, 2018, IFS announced that Darren Roos was appointed as new president and CEO of the company. He took up his new position on

April 1, which coincided with the retirement of Alastair Sorbie at the end of the first quarter of 2018.

61

FINANCIAL TREND

FROM THE INCOME STATEMENTS SKr, million 2013 2014 2015 2016 2017

License revenue 535 558 682 770 935

Maintenance & support revenue 902 1,037 1,174 1,242 1,429

Consulting revenue 1,256 1,427 1,524 1,589 1,705

Other net revenue 11 12 9 48 148

Net revenue 2,704 3,034 3,389 3,649 4,217

Capitalized work for own use 188 190 210 216 329

Operating expenses -2,373 -2,676 -2,967 -3,152 -3,725

EBITDA before other operating items 519 548 632 713 821

Other revenue 16 4 3 8 4

Other expenses -121 -35 -60 -56 -125

Result from associated companies and joint venture 59 - -2 0 1

EBITDA 473 517 573 665 701

Depreciation, amortization, and write-downs -212 -242 -259 -276 -276

EBIT 261 275 314 389 425

Financial revenue 3 4 6 6 79

Financial expenses -21 -21 -14 -25 -98

Profit/loss before tax 243 258 306 370 406

Taxes -41 -47 -92 -90 106

Profit/loss for the year 202 211 214 280 512

FROM THE BALANCE SHEETS SKr, million Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 Dec 31, 2016 Dec 31, 2017

Intangible fixed assets 1,103 1,144 1,241 1,326 5,665

Other fixed assets 254 293 276 342 460

Accounts receivable 740 790 777 931 1,104

Other current assets 238 312 306 353 486

Liquid assets 354 489 533 1,661 451

Total assets 2,689 3,028 3,133 4,613 8,166

Stockholders' equity including non-controlling interests 1,237 1,360 1,413 1,603 1,664

Long-term liabilities 91 182 145 1,371 4,192

Accounts payable 111 127 104 97 107

Current interest-bearing liabilities 197 130 172 - 1

Other current liabilities 1,053 1,229 1,299 1,542 2,202

Total stockholders' equity and liabilities 2,689 3,028 3,133 4,613 8,166

FROM THE CASH FLOW STATEMENTS SKr, million 2013 2014 2015 2016 2017

Cash flow from operations before change in working capital 336 450 544 595 890

Change in working capital 70 51 2 -64 -217

Cash flow from current operations 406 501 546 531 673

Cash flow from investment operations -284 -232 -350 -348 -4,423

Cash flow after investment operations 122 269 196 183 -3,750

Cash flow from financing operations -13 -164 -151 933 2,551

Cash flow for the year 109 105 45 1,116 -1,199

Liquid funds on January 1 253 354 489 533 1,661

Exchange rate differences in liquid funds -8 30 -1 12 -11

Liquid funds at end of period 354 489 533 1,661 451

62

KEY FIGURES1 2013 2014 2015 2016 2017

Revenue indicator

Net revenue growth % 1% 12% 12% 8% 16%

Net revenue outside Sweden % 84% 85% 84% 85% 86%

Net revenue per employee SKr, '000 1,006 1,147 1,223 1,264 1,271

Expense and expenditure indicator

Total product development SKr, million 295 318 338 385 410

of which, capitalized SKr, million 188 190 210 216 329

Development expenditure/net revenue % 11% 10% 10% 11% 10%

Development expenditure/license revenue % 55% 57% 50% 50% 44%

Product development expenses/net revenue % 10% 10% 10% 11% 10%

Administration expenses/net revenue % 11% 10% 11% 11% 11%

Personnel expenses per employee SKr, '000 605 670 737 722 735

Margin indicators

Gross margin % 51% 51% 54% 56% 57%

License margin % 93% 91% 95% 91% 92%

Maintenance & support margin % 72% 75% 75% 77% 80%

Consulting margin % 19% 20% 21% 23% 21%

Operating margin % 7% 9% 9% 11% 10%

Profit margin % 7% 9% 9% 10% 10%

Return on average operating capital % 19% 24% 29% 32% 16%

Capital indicators

Return on capital employed % 15% 17% 13% 17% 10%

Return on stockholders' equity % 12% 16% 15% 19% 31%

Equity ratio % 46% 45% 45% 35% 20%

Interest coverage ratio times 19.4 33.2 39.2 47.2 5.8

Working capital SKr, million -186 -254 -320 -355 -612

Accounts receivable (avg 12 mth)/Net revenue (rolling 12 mth) % 19% 18% 18% 18% 18%

Liquidity indicators

Net liquidity SKr, million 157 359 361 479 -3,551

Debt/equity ratio times 0.2 0.2 0.2 0.9 2.3

Net debt SKr, million -118 -191 -252 -289 3,714

Employees

Average number of employees 2,688 2,645 2,771 2,888 3,318

Number of employees at the end of the period 2,616 2,707 2,838 2,913 3,724

Stock

Average number of shares million 24,772 24,772 24,706 24,545 24,867

Number of shares at the end of the period million 24,772 24,772 24,545 24,545 24,972

Key data per share2

Profit/loss, before dilution SKr 5.81 8.60 8.54 11.41 20.50

Stockholders' equity SKr 49.94 54.90 57.55 65.31 66.61

Cash flow after investment operations SKr 4.84 10.86 7.93 7.46 -150.17

Market price at end of accounting period SKr 154.00 239.09 364.50 0.00 0.00

Market price/stockholders' equity times 3.1 4.4 6.3 0.0 0.0

Net turnover SKr 110.61 122.48 137.17 148.66 168.87

Market price/net turnover times 1.4 2.0 2.7 0.0 0.0

Dividend3 SKr 3.50 4.50 3.18 - -

1 For definitions of key ratios see page 64.

2 In accordance with IAS 33, dilution is not estimated when it improves earnings.

3 Dividend for 2017 refers to proposal from the Board.

63

DEFINITIONS

adjusted EBITDA. EBIT before depreciation, net of capitalized product

development and adjusted for non-recurring items.

average number of shares. Average of the number of shares outstanding

during the year.

capital employed. Total assets less non-interest-bearing liabilities and

deferred tax liabilities.

cash flow per share. Cash flow after investment operations in relation to

the average number of shares.

consulting margin. Consulting revenue minus consulting expenses in

relation to consulting revenue.

days of Sales Outstanding (DSO). Accounts receivables, adjusted for value

added tax, in relation to net revenue.

debt/equity ratio. Interest-bearing provisions and liabilities at year-end in

relation to stockholders’ equity.

earnings per share. Net profit/loss for the year in relation to the average

number of shares.

equity/assets ratio. Stockholders’ equity and minority interest at year-end

in relation to total assets.

gross margin. Gross earnings in relation to net revenue.

interest coverage ratio. Profit/loss before tax adjusted for interest expense

in relation to interest expense.

license margin. License revenue minus license expenses, in relation to

license revenue.

maintenance and support margin. Maintenance and support revenue minus

maintenance and support expenses in relation to maintenance and

support revenue.

market price. The market price of the shares has been established in

relation to the number of outstanding Series A and Series B shares,

respectively, and the share price of these shares at year-end.

market price/net revenue per share. The market price in relation to net

revenue per share.

market price/stockholders’ equity per share. The market price in relation to

stockholders’ equity per share.

net debt. Interest-bearing provisions and liabilities at year-end, less liquid

assets.

net liquidity. Liquid assets less liabilities to credit institutions at year-end.

net revenue growth. Net revenue for the year minus net revenue for the

previous year in relation to net revenue for the previous year.

net revenue outside of Sweden. Net revenue minus net revenue in Sweden,

in relation to net revenue.

net revenue per share. Net revenue in relation to the average number of

shares.

net revenue per employee. Net revenue in relation to the average number

of employees.

operating margin. EBIT in relation to net revenue.

profit margin. Profit/loss before tax in relation to net revenue.

return on average operating capital. EBIT in relation to average operating

capital.

return on capital employed. Profit before tax plus financial expenses in

relation to average capital employed. Capital employed refers to total

assets less non-interest-bearing liabilities and deferred tax liability.

return on stockholders’ equity. Profit/loss for the year in relation to average

stockholders’ equity.

stockholders’ equity per share. Stockholders’ equity, including minority

interest, in relation to the number of outstanding shares at year-end.

working capital. Accounts receivable and other current receivables,

excluding liquid assets, less accounts payable and other short-term, non-

interest-bearing liabilities.

GLOSSARY

application. A program that helps a user deal with a specific task, e.g.

purchasing, employee development or accounting.

architecture. Describes the manner in which the hardware, system

software, and applications software integrate to achieve a desired result.

business applications. A set of applications that covers all internal as well

as external business processes a company is involved in.

component-based architecture. Refers to the design of any system

composed of separate components that can be connected together. The

benefit of component-based architecture is that you can replace or add

any one component without affecting the rest of the system. The

opposite of a component-based architecture is an integrated

architecture, in which no clear divisions exist between components.

enterprise asset management (EAM). A concept in the software industry to

describe one or several applications designed to improve/optimize how

a company utilizes its business processes and facilities. The designation

is common in the asset-intensive industry.

enterprise resource planning (ERP). A method of planning that originally

comprised all internal business processes, such as financials,

manufacturing and distribution, but which has been extended to cover a

range of other functions from contact with suppliers to maintenance of

delivered products.

maintenance, repair, and overhaul (MRO). A concept used in the software

industry to describe software used in the maintenance of a company’s

equipment and facilities so as to maximize availability and efficiency.

outsourcing. The procuring of services or products from an outside

supplier or manufacturer.

platform. Component-based products or services require a platform that

defines valid interfaces and common services to ensure maximum

flexibility and configurability for the product/service without sacrificing

economies of scale or recycling capabilities. This is necessary for

managing internal dependencies and complexity in the product

development of component-based products/services.

utility. An organization of company that provides some form of

infrastructure in a society, such as heating, electricity, or water.

64

ABOUT IFS

IFS™ develops and delivers enterprise software for customers around the world who

manufacture and distribute goods, maintain assets, and manage service-focused

operations. The industry expertise of the company’s people and solutions, together

with commitment to its customers, has made IFS a recognized leader and the most

recommended supplier in its sector. Its team of employees supports more than ten

thousand customers worldwide from a network of local offices and through its

growing ecosystem of partners.

ifsworld.com

THIS DOCUMENT MAY CONTAIN STATEMENTS OF POSSIBLE FUTURE FUNCTIONALITY FOR IFS’S SOFTWARE

PRODUCTS AND TECHNOLOGY. SUCH STATEMENTS OF FUTURE FUNCTIONALITY ARE FOR INFORMATION

PURPOSES ONLY AND SHOULD NOT BE INTERPRETED AS ANY COMMITMENT OR REPRESENTATION. IFS

AND ALL IFS PRODUCT NAMES ARE TRADEMARKS OF IFS. THE NAMES OF ACTUAL COMPANIES AND

PRODUCTS MENTIONED HEREIN MAY BE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

©2018 IFS AB

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