· table of contents financial targets 2 five-year summary 3 . significant events 4 . message from...

ANNUAL REPORT 2014

TABLE OF CONTENTS

Financial targets 2

Five-year summary 3

Significant events 4

Message from the president 6

IFS and IFS Applications 7

The IFS share 11

Table of contents of the annual report 12

Annual report 13

Board of directors 68

Executive management and auditors 69

Financial trend 2010–2014 70

Definitions and glossary 72

FINANCIAL TARGETS

Over the longer term, IFS aims to achieve an EBIT margin of 15 percent and maintain or exceed a return of 25 percent on average operating capital. Furthermore, IFS has set the long-term objectives of:

• Over time pay dividend equivalent to approximately 50 percent of earnings after tax.

• Using additional surplus capital, which is not required for investments, expansion, and other needs relating to the financial position of the group, to repurchase shares.

FINANCIAL REPORTS 2015

Interim report January–March April 22, 2015 Interim report January–June July 21, 2015 Interim report January–September October 22, 2015 Year-end report February 2016

ANNUAL GENERAL MEETING

The annual general meeting 2015 will be held on Wednesday, March 25, 2015 in Stockholm, Sweden.

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FIVE-YEAR SUMMARY

2010 2011 2012 2013 2014

Net revenue SKr, million 2,585 2,576 2,676 2,704 3,034 of which license revenue SKr, million 402 431 467 535 558 of which maintenance and support revenue SKr, million 811 823 909 902 1,037 of which consulting revenue SKr, million 1,357 1,311 1,283 1,256 1,427 Net revenue outside Sweden % 81% 80% 82% 84% 85%

EBIT SKr, million 221 233 200 202 275 EBIT margin % 9% 9% 7% 7% 9% Profit/loss before tax SKr, million 189 218 190 184 258 Profit margin % 7% 8% 7% 7% 9%

License margin % 90% 94% 94% 93% 91% Maintenance and support margin % 62% 67% 69% 72% 75% Consulting margin % 23% 22% 18% 19% 20% Product development expenditure/net revenue % 8% 9% 10% 10% 10% Administration expenses/net revenue % 10% 10% 10% 11% 10%

Return on average operating capital % 23% 26% 22% 19% 24% Equity/assets ratio, after full conversion % 51% 51% 44% 46% 45% Net debt SKr, million -328 -273 50 -118 -191 Interest coverage rate times 12.2 37.3 24.7 19.4 33.2

Cash flow after investment operations SKr, million 234 94 -41 122 269 Acc rec (avg 12 month)/net revenue (rolling 12 month) % 21% 20% 19% 19% 18%

Average number of employees 2,644 2,716 2,830 2,688 2,645 Number of employees at year-end 2,675 2,821 2,829 2,616 2,707

Net revenue Maintenance and support revenue EBIT

Cash flow after investments Net liquidity Average number of employees

2,100

2,300

2,500

2,700

2,900

3,100

'10 '11 '12 '13 '140

200

400

600

800

1,000

1,200

'10 '11 '12 '13 '140

50

100

150

200

250

300

'10 '11 '12 '13 '14

-50

0

50

100

150

200

250

300

'10 '11 '12 '13 '14 0

100

200

300

400

500

'10 '11 '12 '13 '142,400

2,500

2,600

2,700

2,800

2,900

'10 '11 '12 '13 '14

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SIGNIFICANT EVENTS

Leading bus manufacturer Wrights Group chose IFS Applications February 28. IFS announced that Wrights Group, one of Europe’s leading suppliers of public transport vehicles, had

chosen IFS Applications to assist in optimizing its expanding global operations. The agreement included licenses, maintenance, and services worth approximately £1.2 million.

Oil & Gas drilling contractor Songa Offshore selected IFS March 10. IFS announced that Songa Offshore, an International midwater drilling contractor active in the North

Atlantic basin, had chosen to deploy IFS Applications for Offshore Service to support its onshore and offshore operations. The contract included licenses and services worth approximately NKr 40 million.

Port of Dover chose IFS Applications to integrate business processes March 26. Port of Dover, operating Europe’s busiest international roll-on roll-off ferry port, chose IFS to integrate

and streamline key business processes such as asset and project management. When fully implemented, the solution will be used by over 300 employees throughout the organization to help improve efficiency and control.

IFS partners with Telvent Global Services During the first quarter, IFS signed a global partnership agreement with Telvent Global Services, part of Schneider

Electric. The partnership is aimed at delivering added value to new and existing IFS customers in the EMEA region and Latin America, primarily targeting industries such as energy and utilities and telecommunications.

Leading paint manufacturer Jotun expands globally with IFS Applications June 2. World-leading paint manufacturer Jotun has decided to expand its use of IFS Applications™ to additional sites

in Europe, Asia, and the Americas. To support its growth targets and to maximize process efficiency and transparency, Jotun has decided to extend its central IFS ERP solution to include an additional 2,000 users.

IFS signs partnership agreement with Capgemini in Spain June 20. IFS has signed an agreement with Capgemini Spain, making the consulting, technology, and outsourcing firm

its partner for the sale and implementation of IFS Applications in Spain. Through the agreement, IFS is expanding its partner network, thereby acquiring greater commercial reach and additional implementation resources.

IFS is the leading supplier of EAM software for the oil and gas industry August 26. IFS has been identified for the third year running as the number one vendor in market share in enterprise

asset management (EAM) and field service management (FSM) software for the oil and gas industry by ARC Advisory Group, the leading information technology research and advisory firm for industry and infrastructure.

Launch of IFS-in-a-Box September 29. Customers can implement Oracle Database Appliance into their existing rack of servers and configure

the set-up using one of the templates that are supplied ‘in-a-Box’. It is a compelling solution for companies wanting to scale up capacity and users of IFS Applications, whilst keeping total cost of ownership low.

IFS launches global cloud solution on Microsoft Azure September 29. The cloud-based offer enables customers to easily increase the breadth of their deployment and scale

the number of user seats in line with business growth, while avoiding many of the costs normally associated with on-premise solutions. Customers can leverage Azure as an Infrastructure as a Service (IaaS) and self-manage their solution, or have it hosted and managed as a service (SaaS).

IFS named a ‘Leader’ in two Gartner Magic Quadrants On November 26, Gartner released its Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies, in which IFS was named as a leader for the second consecutive year, improving its position on the ‘completeness of vision’ and ‘ability to execute’ axis. On December 22, IFS was again recognized as a leader, this time in the Gartner Magic Quadrant for Field Service Management.

IFS partners with Deloitte Consulting in South Korea December 3. IFS announced that it has signed an agreement with Deloitte Consulting, making the professional services firm its strategic partner for the deployment of IFS Applications in the oil & gas, construction, EPC and project-based manufacturing industries in South Korea.

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SIGNIFICANT AGREEMENTS SIGNED DURING THE YEAR

Aerospace and Defense

Advanced Integration

Babcock Marine Division

BAE Systems

BAE Systems – Saudi Arabia

Forsvaret / Norwegian Armed

General Dynamics IT

Lockheed Martin JSF

Saab

Sporveien Oslo

Asset Intensive

Forest-Papír

Kangra Coal

Klondex Mines

Unimin Corporation

Automotive

Agility Fuel Systems

CalsonicKansei North America

Dan T. Moore Company

FEV

Huf Hülsbeck & Fürst

Schlemmer

The Morgan Motor Company

Toyota Lanka

Toyota Material Handling Europe

Volvo Lastvagnar

Volvohandelns Utvecklings AB

Wright Bus

Construction and Contracting

Baltic Yachts

Eurofeu

Grandweld Shipyards

IHC Merwede Holding

IMI

K-Híd

Pindan Group

Serimax Holdings

Systra

VWS Westgarth

Energy and Utilities

Agder Energi

BaiYin Power

Brookfield Renewable Power

Central Nuclear Embalse

CYPC Jinsha River Hydropower

ENEA Wytwarzanie

GDF Suez Énergie Services

Hafslund

Jiangsu Ligang Power Station

Liberty Utilities (Canada) Corp.

Mørenett

Nanjing Metro

OKG Aktiebolag

Onesourcewater

PGNIG Termika

Renova

SDIC BaiYin Power Co.

SDIC Qinzhou Electric Power Co.

Teollisuuden Voima Oyj

TrønderEnergi Kraft

Warsaw Water and Sewerage

High Tech

Axis Communications

Fr. Sauter

Genesis Technology USA

Habia Cable

Integrated Microwave

Minco Products

Mitutoyo

NEC Corporation

Olympus KeyMed

Renco Electronics

SEAKR Engineering

Teledyne Oil & Gas

Trüb

Young Innovations

Industrial Manufacturing

ACS Industries

Advanced Integration

Allu Group

Aluminum Precision Products

Avanco

Baier + Köppel

Belvac Production Machinery

Dankotuwa Porcelain

Dipex

Eickhoff

Estudio Cerámico

Hymer-Leichtmetallbau

Hypnos

Jamestown Metal Marine Sales

Moelven Industrier

Molins Tobacco Machinery

Nidec Minster Corporation

Nova Werke

PIPE Sistemas Tubulares

Promag

Robertson Fuel System

ROL

Roxtec International

Samson AG Meß- und

Saueressig

Stolle Machinery Company

Survitec Group

Tatsuno Engineering & Service

V-Zug

WNA

Zeon Advanced Polymix Co.

Oil and Gas

Apply Group

Archer Management

British Engines

BW Offshore Norway

Ceona Services

Mermaid Marine Australia

Odfjell Drilling

PGS Geophysical

Rosenberg WorleyParsons

Shawcor

Songa Offshore

Teledyne ODI

Thalassa Holdings

Trelleborg Offshore Norway

Wood Group Mustang Norway

Process Manufacturing

Al Rabie

American Iron & Metal Company

Benders Paper Cup Company

Bronco Wine Company

Cisbio Bioassays

EP Minerals

Fundação Butantan

Grecian Delight Foods

Guangzhou Grain Group

Guangzhou Taiqi Food Co.

Jotun

Legacy Pharmaceuticals

Marabu

Nature's Path Foods

Omega Protein

Omni Industries

Prince Minerals

Probiotics International

Rovese

Silvermill Holdings

Sumi Agro Europe

Teknos Group

Vitacress

Whitworths

William Grant & Sons

Retail

Assist Trend

BYGGmax

D Samson & Sons

Gina Tricot

Midcounties Co-operative

Oriflame Cosmetics

Shanghai Garnor Sealing

Swedish Orphan Biovitrum

Service Providers

Advanced Technology Services

Dataprev

Dover Harbour Board

DSL

Eltel Networks Infranet

Landmark Information Group

Loomis Sverige

PHS Group

Polygon International

SSI Services

Swarco Nordic

Tatsuno Engineering & Service

Tibah Airport Operations Co.

United Subcontractors

Veolia Water Solutions & Tech.

Wilhelmsen Ships Service

Miscellaneous

ADP Ingénierie

Beijing Mass Transit Railway

CD Projekt

City of Uppsala

Établissements Darty et Fils

Evry

SEFI Transmission

Shantou Zhongyeda

Toronto Transit Commission

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MESSAGE FROM THE PRESIDENT Significant improvement in earnings Net revenue for the year increased by 9 percent, currency adjusted, with license revenue being affected in the last quarter by the timing of deals that moved into 2015. Even though it meant we did not achieve the license-growth target for the year, it points to the fact that we are targeting increasingly larger deals, by their nature the timing of which is harder to predict. To a limited degree there has also been an impact resulting from the drop in oil price. This may reduce future investment in a number of oil and gas related industries but the overall impact is expected to be limited due to our broad and strong presence in other sectors—infrastructure, transportation, project-based industries, manufacturing, and service management—most of which are likely to benefit from a lower oil price. In particular, our execution in service management has improved considerably, with Gartner now rating us as a leader in its Magic Quadrant for Field Service Management.

Maintenance revenue for the year increased by 11 percent, currency adjusted, resulting from license sales and strong customer loyalty, the ongoing development of which remains a priority. Customers extending their use of IFS Applications within their global organizations will continue to contribute to our future growth. The maintenance margin increased to 75 percent ('13: 72 percent) resulting from investments in improving efficiency within our global support operation.

Consulting revenue for the year increased by 11 percent, currency adjusted, with a steadily larger proportion of services being delivered from our growing partner ecosystem. We continue to invest in our ecosystem to offer customer choice, create go-to-market alliances, and increase scalability within our business. We added a number of new strategic partners in 2014 that have contributed to our global implementation capability. Despite the higher proportion of services being delivered by partners, the consulting margin increased to 20 percent ('13: 19 percent).

We continue to see a steady increase of interest in cloud-deployed systems, especially where IFS Applications is offered in partnership with Microsoft on their Azure Cloud. We cater for all interests, whether off or on premise, and in the latter choice we launched ‘IFS in a Box’ in co-operation with Oracle to allow a simplified and even easier option to deploy our solution.

During the year, companies in need of consolidating their business solution or expanding its functionality moved

forward with their investments and the gradual improvement of the buying environment seen over the last couple of years continued. However, based on preliminary figures, the ERP market as a whole did not perform in 2014 as well as originally projected and grew by around 4 percent. Industry analyst firms such as Gartner expect this trend of rather slight overall growth to persist in 2015.

We expect 2015 will be a year when we will see further benefit from our investment in sales and marketing, which is continuing to gain us recognition as being the intelligent alternative to the global giants for internationally-deployed solutions delivered in our target markets. Also in 2015 we will have our release to market of our latest version of IFS Applications; in this release we have a number of exciting new features and an enhanced architecture designed to better enable our partners to work with our product. On the back of our strong cash flow and finances we are actively searching the market for acquisitions we believe will strengthen our portfolio and create value. We expect to see good growth in both license revenue and EBIT in 2015. Alastair Sorbie PRESIDENT & CEO

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IFS AND IFS APPLICATIONS 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 2,700 employees worldwide. With IFS Applications™, now in its eighth generation, IFS has pioneered component-based ERP software. The company now has nearly 30 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 Applications business software provides increased ERP functionality, including CRM, SCM, PLM, CPM, enterprise asset management, and MRO capabilities.

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 2,400 customers and over 900,000 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, sells and implements the component-based ERP software IFS Applications. 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. CREATIVITY AND INNOVATION

IFS has two distinct advantages over competitors: the single integrated product line in IFS Applications and the fact that it has been component-based for more than a decade. 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 at IFS’s R&D centers in Sri Lanka, Poland, and Sweden. During the year, product development focused on IFS Applications 9, which is the next core release of IFS Applications and will be officially released in 2015.

A beta version of IFS Applications 9 was delivered to selected customers during 2014. The upcoming version offers new and existing customers major enhancements in terms of agility and usability, as well as powerful capabilities tailored to support customers in IFS’s target industries.

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In addition, new versions of IFS Field Service Management and IFS Mobile Workforce Management have been released, as well as a number of important improvements, aimed at increasing the business benefits of existing versions. STRATEGIES IN BRIEF

• IFS will strengthen its profit, cash flow, and financial position by focusing on increasing sales, reducing costs, and increasing its market share in selected industries.

• 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 Applications, will support the standards that are important for the customers. IFS will 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 Applications 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.

PARTNERS

The development of the IFS’s partner ecosystem continues to be a priority and remains a key part of the company’s global strategy to expand its footprint in key markets and to give its customers greater choice when choosing their service or technology partner. During 2014 many new modules were added to the IFS Academy content catalogue and IFS also continued to develop and expand the IFS Partner Program to extend its joint sales and marketing activities and improve access to IFS resources. All regions were actively engaged with their local partner ecosystem to identify and develop sales opportunities, with strong incremental pipeline development as a result.

In addition to the network of system integrator partners (SIs), IFS also continued the development of its ecosystem of technology partners. During 2014, the company successfully launched the IFS on Microsoft Azure Cloud solution and gained its first customers with this new offering. The company also launched “IFS-in-a-Box,” which is a fully-integrated, on premise, pre-configured, tested and optimized, complete hardware and software solution developed in partnership with Oracle. Both these solutions offer major advantages to customers in IFS’s key markets wishing to speed up deployment time and reduce project risk.

During 2015, the company will continue to develop its relationships with its existing partner ecosystem and will also enter into new partnerships with both service and technology partners around the world.

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SOCIAL RESPONSIBILITY AND ENVIRONMENT

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.

Corporate social responsibility (CSR) 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 ERP offering includes a broad variety of solutions for efficient reporting and enhanced control in the field of CSR 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 and thereby cut 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 issues. IFS is working actively on product development to further improve functionality in this regard.

Implementation and monitoring of the Code of Conduct and Environmental Policy 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 UN 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 from both the stock market and customers and prospects. Questions about IFS’s various policies and CSR work are increasingly common in enterprise software procurements, which is why IFS has intensified its efforts to communicate its commitment and concrete initiatives. Sustainability, education, and company employees In 2014 and 2015, a project is underway to more clearly visualize IFS’s commitment to the outside world. Within the framework of this project, three areas have been identified in which the Group is actively working and all major commitments can be divided into. These three areas are the local/global environment and society (sustainability), training and support for future generations of workers (education), and good treatment and job satisfaction among IFS’s staff (company employees).

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

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handling of used hardware. In all these areas there are initiatives to reduce the company’s environmental impact, e.g. through technology that enables remote work and meetings (thus minimizing travel), sensors that regulate power supply in the offices, and smart solutions that minimize paper waste from printers, for instance. 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.

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. The company 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. IFS’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, IFS covers tuition fees and living costs during the time the student is studying for a university degree. Stundents begin their education with a six-month study period at IFS: four days a week at IFS 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 in Sri Lanka 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. IFS Sri Lanka employees 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 IFS Group as well, for instance in Germany and Sweden.

Although CSR 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 CSR as well as in the company’s daily operations. IFS 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 of 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 this year’s NextUp, a Swedish competition for eighth-graders to which IFS contributes both financially and with a case that the contestants work on.

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IFS SHARE IFS B share is listed since April 28, 1998 on the Stockholm stock exchange and is traded on the Nasdaq OMX Stockholm Mid-Cap list (sector: information technology). The company’s A share has been on the same list since June 18, 1998.

As of December 31, 2014, IFS’s capital stock amounted to SKr 499,436,600, represented by 24,971,830 shares, before dilution, with a nominal value of SKr 20 per share. These comprised 1,084,103 A shares and 23,887,727 B shares. On December 31, 2014, the Company held 200,000 B shares in its own custody.

Each A share carries the right to one vote and each B share carries the right to one tenth of a vote. All shares carry equal rights to dividends.

During the year, a total of 0.0 million A shares and 5.3 million B shares were traded, corresponding to 21 percent of the average total number of listed shares. The principal owner is Gustaf Douglas with associated companies, who controlled 21.5 percent of the capital and 21.2 percent of the voting rights on December 31, 2014.

PRICE DEVELOPMENT AND TRADE VOLUME 2014

SHARE CATEGORIES Number of

shares Number of

voting rights Share of capital

Share of votes

A shares 1,084,103 1,084,103 4.3% 31.2%

B shares 23,887,727 2,388,773 95.7% 68.8%

Total 24,971,830 3,472,876 100.0% 100.0% Source: SIS Ägarservice, Dec. 30, 2014

DISTRIBUTION OF SHAREHOLDERS

Share of capital

Share of votes

Swedish individuals 30.1% 46.5%

Swedish mutual funds 41.2% 29.8% Swedish institutional owners 12.5% 8.4%

Swedish owners 83.8% 84.7%

International owners 16.2% 15.3%

Total 100.0% 100.0% Source: SIS Ägarservice, Dec. 30, 2014

SHAREHOLDER STATISTICS

Shareholders Ownership Number of shares held Number Proportion Number of

shares Capital Voting rights

1–1 000 5,409 93.6% 673,470 2.7% 2.2%

1 001–2 000 147 2.5% 218,897 0.9% 0.7%

2 001–5 000 85 1.6% 294,089 1.2% 1.1%

5 001–10 000 39 0.7% 283,092 1.1% 1.4% 10 001–50 000 49 0.8% 1,290,392 5.2% 5.6%

50 001–100 000 13 0.2% 976,856 3.9% 4.9%

100 001– 36 0.6% 21,235,034 85.0% 84.1%

Total 5,778 100.0% 24,971,830 100.0% 100.0% Source: SIS Ägarservice, Dec. 30, 2014

MAJOR SHAREHOLDERS

Shareholder

Number of A shares

Number of B shares

Share of capital

Share of votes

Gustaf Douglas* 217,201 5,161,000 21.5% 21.2% Anders Böös* 427,010 0 1.7% 12.4%

Lannebo funds - 2,966,580 11.9% 8.6%

Catella funds - 2,362,356 9.5% 6.8%

NEC Corporation 110,000 679,000 3.2% 5.2% Bengt Nilsson* 150,000 0 0.6% 4.4%

Swedbank Robur funds - 1,466,698 5.9% 4.3%

SEB funds - 1,220,652 4.9% 3.5%

Skandia Liv - 858,648 3.4% 2.5% Unionen - 807,196 3.2% 2.3%

Heinz Kopfinger 78,932 12,500 0.4% 2.3%

Handelsbanken funds - 801,402 3.2% 2.3%

Fourth Sw. Nat'l Pension Fund - 734,238 2.9% 2.1% Other shareholders 100,960 6,617,457 26.9% 22.1%

External shareholders 1,084,103 23,687,727 99.2% 100.0%

IFS's own custody - 200,000 0.8% -

Total 1,084,103 23,887,727 100.0% 100.0% *and associated companies Source: SIS Ägarservice, Dec. 30, 2014

0

50,000

100,000

150,000

200,000

250,000

300,000

140

160

180

200

220

240

260

Q1

Q2

Q3

Q4

Volume IFS B All-share index

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TABLE OF CONTENTS OF THE ANNUAL REPORT BOARD OF DIRECTORS’ REPORT 13

Corporate governance report 20

FINANCIAL STATEMENTS 26

Consolidated income statement 26

Consolidated statement of comprehensive income 27

Consolidated balance sheet—assets 28

Consolidated balance sheet—equity and liabilities 28

Consolidated capital account 29

Consolidated statement of cash flows 30

Income statement of the parent company 31

Statement of comprehensive income of the parent company 31

Balance sheet of the parent company—assets 32

Balance sheet of the parent company—equity and liabilities 32

Capital account of the parent company 33

Statement of cash flows of the parent company 34

NOTES TO THE FINANCIAL STATEMENTS 35

AUDITOR’S REPORT 67

Notes to the financial statements Note 1 Accounting principles 35

Note 2 Segment reporting 44

Note 3 License revenue 46

Note 4 Maintenance and support revenue 46

Note 5 Other revenue 46

Note 6 Development expenditure 47

Note 7 Sales and marketing expenses 47

Note 8 Other operating income 47

Note 9 Other operating expenses 47

Note 10 Transactions between subsidiaries 47

Note 11 Operating expenses per type of cost 47

Note 12 Auditors’ fees 47

Note 13 Salaries, other remunerations, and social costs 47

Note 14 Remunerations paid to the board and executive management 47

Note 15 Transactions with related parties 48

Note 16 Average number of employees per country 49

Note 17 Results from participations in subsidiaries 49

Note 18 Results from participations in associated companies 49

Note 19 Other interest income and similar income 49

Note 20 Interest expenses and similar expenses 49

Note 21 Taxes 49

Note 22 Profit and dividend per share 50

Note 23 Intangible fixed assets 50

Note 24 Tangible fixed assets 52

Note 25 Operating lease agreements 53

Note 26 Participations in subsidiaries 54

Note 27 Participations in associated companies and joint ventures 55

Note 28 Receivables in subsidiaries 55

Note 29 Deferred tax claims and tax liabilities 55

Note 30 Other long-term receivables 56

Note 31 Accounts receivable 56

Note 32 Other receivables 56

Note 33 Liquid assets 56

Note 34 Stockholders’ equity 56

Note 35 Liabilities to credit institutions 58

Note 36 Risk structure pertaining to interest and financing 58

Note 37 Pension commitments 59

Note 38 Other provisions and other liabilities 61

Note 39 Other liabilities 61

Note 40 Accrued expenses and prepaid income 61

Note 41 Pledged assets 61

Note 42 Contingent liabilities 61

Note 43 Adjustments for items not included in cash flow 61

Note 44 Business combinations 61

Note 45 Net acquisition of tangible fixed assets 62

Note 46 Financial risk management and derivatives 62

Note 47 Application of IFRS 11 ”Joint Arrangements” 64

Note 48 Conversion rates 65

Note 49 Information about the Parent company 65

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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 2014. 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 2014 was to achieve strong license growth and a significant improvement in EBIT. 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 during 2014 highly-competitive contracts in its target sectors. Net revenue for the year increased by 9 percent, currency adjusted, with license revenue being affected in the last quarter by the timing of deals that moved into 2015. Even though it meant the company did not achieve the license-growth target for the year, it points to the fact that it is targeting increasingly larger deals, by their nature the timing of which is harder to predict. Maintenance revenue increased by 11 percent, currency adjusted, resulting from license sales and strong customer loyalty, the ongoing development of which remains a priority. Consulting revenue increased by 11 percent, currency adjusted, with a steadily larger proportion of services being delivered from a growing partner ecosystem. Despite the higher proportion of services being delivered by partners, the consulting margin increased to 20 percent. Net revenue amounted to SKr 3,034 million ('13: SKr 2,704 million). EBIT increased to SKr 275 million ('13: SKr 202 million) and cash flow after investments was SKr 269 million ('13: SKr 122 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 2,700 employees worldwide. With IFS Applications™, now in its eighth generation, 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 2,400 customers and over 900,000 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 CRM, SCM, PLM, CPM, enterprise asset management, and 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.

Uncertainties surrounding the prospects for an upturn in global economic growth remain the major retardants of IT growth. This uncertainty has engendered the pessimistic business and consumer sentiment in evidence throughout much of the world. Despite caution among buyers due to the prevailing macroeconomic environment, companies in need of a business solution moved forward with their investment plans in 2014 and the enterprise application market showed a slow but steady rate of growth of approximately 4 percent. The buying environment’s trajectory leads industry analyst firms such as Gartner to expect that this trend of rather slight overall growth will persist in 2015.

The competitive position has not changed during 2014 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.

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SKr, million 2014 actual

Translation effect

Structural changes

2014 adjusted

2013 actual

Organic change

Reported change

NET REVENUE

License revenue 558 -19 -10 529 535 -1% 4%

Maintenance and support revenue 1,037 -35 -22 980 902 9% 15%

Total product revenue 1,595 -54 -32 1,509 1,437 5% 11%

Consulting revenue 1,427 -35 -25 1,367 1,256 9% 14%

Net revenue (including other revenue) 3,034 -89 -58 2,887 2,704 7% 12%

OPERATING EXPENSES

Operating expenses 2,759 -81 -48 2,630 2,502 5% 10%

Other operating income/costs net -1 -1 - -2 43 Capital gains/losses - 0 - 0 0 Exchange rate gains/losses -24 -3 - -27 -14 Restructuring costs/redundancy costs -15 1 - -14 -96 Reversal of restructuring costs 2 - - 2 14 Amortization of capitalized product development -175 - - -175 -153 Amortization of acquired intangibles -38 2 - -36 -31 Other amortization/depreciation -29 1 -1 -29 -28 Capitalized product development 190 - - 190 188 Adjusted operating expenses 2,669 -81 -49 2,539 2,425 5% 10%

Adjusted EBITDA 365 -8 -9 348 279 25% 31%

Adjusted EBITDA/net revenue 12% 12% 10%

NET REVENUE

License revenue for 2014 was 1 percent higher than in the previous year, currency adjusted. During the year, the ten largest license deals had a total value of SKr 107 million; the corresponding figure for 2013 was SKr 128 million. A total of 28 license agreements exceeding US$ 0.5 million in value were sold during the year. No single customer accounted for more than 10 percent of net revenue. Maintenance and support revenue continued to grow and consulting revenue was also higher than in the previous year, currency adjusted. Net revenue was SKr 330 million higher than in 2013, an increase of 9 percent, currency adjusted. COSTS AND EXPENSES

Operating expenses were SKr 257 million higher than in 2013, which represents an increase of 7 percent, currency adjusted. Variable expenses such as costs related to third-party suppliers, partners, and subcontracted consultants amounted to SKr 367 million (290), an increase of 23 percent, currency adjusted. Other operating expenses amounted to SKr 2,392 million (2,212), an increase of 5 percent, currency adjusted. Payroll expenses amounted to SKr 1,771 million (1,627), an increase of 6 percent, currency adjusted. PRODUCT-DEVELOPMENT EXPENDITURE

Product development expenditure for the year amounted to SKr 318 million (295). Capitalized product development totaled SKr 190 million (188) and amortization of previously capitalized product development amounted to SKr 175 million (153).

PERSONNEL NUMBERS AND EFFICIENCY

The average number of employees decreased, amounting to 2,645 (2,688). The headcount for product development at the end of the year was 593 (582), of whom 359 (340) worked at the development center in Sri Lanka. Net revenue per employee increased by 11 percent, currency adjusted, and by 14 percent non-currency adjusted to SKr 1,147 thousand (1,006). Personnel-related expenses per employee amounted to SKr 670 (605), an increase of 5 percent, currency adjusted. The number of employees at year end was 2,707 (2,616). EBIT

EBIT amounted to SKr 275 million (202), an increase of 36 percent compared with 2013. 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 365 million (279), corresponding to a margin of 12 percent. PROFIT FOR THE YEAR

Net financial items were SKr -17 million (-18). Adjusted for exchange rate effects, the net financial items, including bank costs, were SKr -9 million (-19). Net interest income was SKr -5 million (-7). Profit before tax increased to SKr 258 million (184) while profit for the year increased to SKr 211 million (143).

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OPERATING AREAS

In the comments, comparisons with the previous year refer to currency-adjusted values unless otherwise stated. EUROPE NORTH

SKr, million 2014 2013 Δ*

License revenue 149 140 6%

Maintenance and support revenue 361 343 5%

Consulting revenue 649 579 12%

Net revenue 1,185 1,083 9%

EBIT, undistributed** 359 297 21%

Number of employees at the end of the period 465 437 6%

* Change between the years not adjusted for currency effects ** EBIT before allocation of corporate revenue and expenses

Europe North’s revenue increased by 9 percent, with licenses growing by 8 percent and maintenance revenue by 5 percent. Consulting revenue increased by 11 percent, to a large extent as a result of the planned augmented usage of partners in implementation, which also explains the growth of 36 percent or SKr 55 million in variable expenses. Fixed expenses increased by 3 percent, mainly due to inflation. Other operating items net were SKr 40 million lower, due to the restructuring costs in the first quarter 2013. The earnings thereby improved by 21 percent, non-currency-adjusted. Larger license deals included Jotun, Saab, and Songa. EUROPE WEST



Maintenance and support revenue 224 174 29% Consulting revenue 188 152 24%

Net revenue 628 487 29%

EBIT, undistributed* 163 192 -15%



The numbers in 2014 were affected by the merge of the segment Defense. Net revenue increased by 18 percent, mainly due to a growth in product revenue. License revenue increased by 18 percent, maintenance revenue by 19 percent, and consulting by 22 percent. Operating expenses, excluding other operating items, were 21 percent higher. Earnings decreased by 15 percent, non-currency-adjusted, as 2013 was positively affected by a one-off item of SKr 47 million relating to the reorganization and acquisition of IFS Defence. Larger license deals included Aspire Defence, IMI, and Montupet.

EUROPE CENTRAL SKr, million 2014 2013 Δ*

License revenue 61 66 -8%







Net revenue for Europe Central was 4 percent better than in 2013, mainly due to an increase in consulting but also maintenance revenue increased. Earnings improved by 16 percent, non-currency-adjusted, as a result of the increased revenue. Some of the larger license deals in Europe Central were Huf, IHC Merwede, and Marabu. EUROPE EAST



Maintenance and support revenue 66 63 5% Consulting revenue 74 65 14%


EBIT, undistributed** 13 -21 n/a

Number of employees at the end of the period 208 228 -9%


Net revenue increased by 9 percent, following increases in all revenue streams. Costs, excluding other operating items, were 6 percent lower, mainly as a result of a restructuring program carried out in the fourth quarter 2013. Earnings thereby improved by SKr 34 million, non-currency-adjusted. Some of the major license contracts were CD Projekt, ENEA, and JSC Energo. AMERICAS


License revenue 129 120 8% Maintenance and support revenue 205 172 19%




Number of employees at the end of the period 280 283 -1%


Americas increased its net revenue by 7 percent, mainly due to higher maintenance but also growing consulting. Costs increased, mainly due to higher variable costs as a result of the planned increased usage of partners in implementation. Earnings were 7 percent better than in 2013, non-currency-adjusted. Some of the largest deals during the year were Advanced Technology Services, Calsonic, and Lockheed Martin.

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AFRICA, ASIA, AND PACIFIC SKr, million 2014 2013 Δ*

License revenue 66 78 -15%







Net revenue increased by 11 percent, due to improvements in maintenance and consulting revenue. Costs were 9 percent higher than in 2013, mainly due to reversed provisions for bad debts in 2013. Earnings improved by 26 percent, non-currency-adjusted. Larger license deals included DSI Samson, Mermaid Marine, and Pindan Asset Management. PRODUCT DEVELOPMENT

The Group’s product development is primarily conducted at IFS’s R&D centers in Sri Lanka, Poland, and Sweden. During the year, product development focused on IFS Applications 9, which is the next core release of IFS Applications and will be officially released in 2015.

A beta version of IFS Applications 9 was delivered to selected customers during 2014. The upcoming version offers new and existing customers major enhancements in terms of agility and usability, as well as powerful capabilities tailored to support customers in IFS’s target industries.

In addition, new versions of IFS Field Service Management and IFS Mobile Workforce Management have been released, as well as a number of important improvements, aimed at increasing the business benefits of existing versions. PARTNERS

The development of the IFS’s partner ecosystem continues to be a priority and remains a key part of the company’s global strategy to expand its footprint in key markets and to give its customers greater choice when choosing their service or technology partner. During 2014 many new modules were added to the IFS Academy content catalogue and IFS also continued to develop and expand the IFS Partner Program to extend its joint sales and marketing activities and improve access to IFS resources. All regions were actively engaged with their local partner ecosystem to identify and develop sales opportunities, with strong incremental pipeline development as a result.

In addition to the network of system integrator partners (SIs), IFS also continued the development of its ecosystem of technology partners. During 2014, the company successfully launched the IFS on Microsoft Azure Cloud solution and gained its first customers with this new offering. The company also launched “IFS-in-a-Box,” which is a fully-integrated, on premise, pre-configured, tested and optimized, complete hardware and software solution developed in partnership with Oracle. Both these solutions offer major

advantages to customers in IFS’s key markets wishing to speed up deployment time and reduce project risk.

During 2015, the company will continue to develop its relationships with its existing partner ecosystem and will also enter into new partnerships with both service and technology partners around the world. CASH FLOW, LIQUIDITY, AND FINANCIAL POSITION

Cash flow from current operations before change in working capital amounted to SKr 450 million (336). Change in tied working capital amounted to SKr 51 million (70). Days of sales outstanding (DSO) at year-end was 76 days (79). DSO calculated on the monthly receivables’ positions during the year was 55 days (55).

Investments totaled SKr 232 (284) million. Product development expenditure was capitalized in an amount of SKr 190 million (188). Cash flow after investments totaled SKr 269 million (122). Cash flow from financing operations was SKr -164 million (-13). Loans from credit institutions decreased by SKr 67 million during the year (increase by 18).

Cash and cash equivalents on December 31, 2014 totaled SKr 489 million (354). The Group’s net liquidity position at year end, excluding pension liabilities, amounted to SKr 359 million (157). Cash and unutilized credit totaled SKr 859 million (657). External financing amounted to SKr 130 million (197).

During the year, the Company distributed a dividend of SKr 87 million (87). During the year, the Company bought back warrants for an amount of SKr 11 million (2). IFS SHARE

The Parent Company is listed on the Nasdaq OMX Stockholm Mid-Cap list. The number of shareholders on December 31, 2014 was 5,778. The number of shares on December 31, 2014 was 24,971,830, of which 1,084,103 were A shares, carrying the right to 1.0 vote per share, and 23,887,727 were B shares, carrying the right to 0.1 vote per share. On December 31, 2014, the Company held 200,000 B shares in its own custody.

There is no limit to the number of votes a stockholder may cast at the AGM. The Company is not aware of any agreements between stockholders that limit the right to transfer shares.

Two stockholders in the Company, through direct or indirect holdings in the Company, represent at least one tenth of the voting rights of the total number of shares. They are Gustaf Douglas with family and associated companies, and Anders Böös through associated companies. The Company’s pension trust does not exercise direct ownership of company stock. The Company is party to loan agreements that may be affected if a change in the control of the Company occurs.

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GUIDELINES FOR THE REMUNERATION OF MEMBERS OF THE BOARD AND EXECUTIVE MANAGEMENT

Directors’ fees are paid to the chairman and the other directors of the board as resolved by the AGM. For 2014/2015, director’s fees totaled SKr 3.05 million, of which the chairman of the board received an amount of SKr 1.4 million and each of the other directors received an amount of SKr 375 000. The chief executive officer was not remunerated for work on the board. Remuneration for work on the audit committee was unchanged from the previous year: the chairman received SKr 100,000 and another director received SKr 50,000.

In accordance with the guidelines adopted by the AGM of 2014, the remuneration of the CEO and other members of executive management consists of basic salary, variable remuneration, other benefits, and pension contributions. For the CEO, the maximum variable remuneration shall not exceed 50 percent of the basic salary, and for the other members of executive management variable remuneration shall be payable in the interval 25–60 percent of the basic salary, based on achievement of 80–120 percent of individual goals. The AGM of 2014 resolved to establish an incentive program whereby the Company offered executive management and other key personnel the opportunity to acquire warrants in the Company. The acquisition of one warrant at market price carried the right, subject to certain terms and performance conditions, to receive up to three additional warrants at no charge.

In 2014, the CEO received a basic annual salary of £ 366,000 and a premium-based pension with a premium corresponding to 20.0 percent of the basic salary. For 2014, variable remuneration to the CEO has been linked to Group EBIT and will be payable in the amount of £ 36,600. For further information, see note 14. INCENTIVE PROGRAM

In accordance with the resolution of the AGM of 2014, IFS issued during the year warrants that were offered to, and acquired by, executive management, other officers, and other key employees of the Group. For each warrant acquired at market price and subject to certain conditions, the participants were entitled to receive a maximum of three additional warrants free of charge.

The allotment of additional warrants free of charge has been dependent on the outcome of a performance condition linked to the company’s earnings-per-share (EPA) target for 2014 (SKr 8.32), under which a target completion rate of 85 percent would result in one (1), 100 percent in two (2), and 115 percent in three (3) additional warrants free of charge. The outcome of the 2014 EPA has now been established to SKr 8.45, corresponding to a target completion rate of 101.6 percent and meaning that the participants in the program will be allotted two additional warrants free of charge for each warrant they have acquired at market price.

The warrants can be exercised for subscription of B shares no later than June 2019. The strike price is SKr 206.80 per share. The warrants refer to a maximum of 179,430 B shares.

During the year, the Company bought back a number of warrants from program TO9B. RESOLUTION CONCERNING GUIDELINES FOR THE REMUNERATION OF EXECUTIVE MANAGEMENT

The board proposes that the AGM of 2015 resolve that the following guidelines for remuneration of the president and other members of executive management be applied. The Board strives for continuity and the proposals are thus essentially in line with the current guidelines and remuneration policy approved by the AGM 2014. The guidelines deal with remuneration and other terms and conditions of employment of the executive management of the Group, including its chief executive officer (CEO).

The principles apply to employment contracts entered into after the resolution is adopted by the AGM and to changes made to existing terms and conditions after this point in time.

Remuneration to the executive management in IFS shall be aligned with market terms and conditions, shall be individual and differentiated, and shall support the interests of the stockholders. Remuneration principles shall be predictable, both in terms of costs for the company and benefits for the individual, and shall be based on factors such as competence, experience, responsibility and performance.

Total remuneration paid to executive management shall consist of a basic salary, variable remuneration, an incentive program, pension contributions, and other benefits.

The total annual monetary remuneration paid to each member of executive management, i.e., basic salary and variable remuneration, shall correspond to a competitive level of remuneration in the respective executive's country of residence.

Variable remuneration shall be linked to predetermined measurable criteria designed to promote long-term value generation in the company. The relationship between basic salary and variable remuneration shall be proportionate to the executive’s responsibility and powers. Variable remuneration varies according to position. For 2015, it is proposed that the guidelines for the variable remuneration payable to the executive management be unchanged from the previous year. For the CEO this means that the maximum variable remuneration shall not exceed 50 percent of the basic salary, and for the other members of executive management variable remuneration shall be payable in the interval 25–60 percent of the basic salary, based on achievement of 80–120 percent of individual goals.

The board proposes that the AGM resolves to adopt an incentive program with a corresponding structure as last year, which entails that executive management, other officers, and key personnel in the IFS group are offered the opportunity to subscribe for warrants in the company at market price. For each warrant acquired at market price, on certain terms and conditions a maximum of three additional warrants may be received free of charge. The proposal entails the issue of not more than 247,000 warrants which shall be exercisable to subscribe for Series-B shares during an exercise period from the day after the release of the first quarterly report 2018 until

17

and including June 30, 2020. For information on IFS’s other equity-related incentive programs, see Note 34.

Pension benefits shall correspond to a competitive level in the respective executive’s country of residence and shall, as in previous years, consist of a premium-based pension plan. The CEO is entitled to a premium-based pension plan with a premium that is 20 percent of the basic salary. The retirement age for the CEO and other members of executive management is 65, but the CEO and the company are entitled to invoke the right to early retirement for the CEO at the age of 64. In such a case, the CEO shall receive the equivalent of 60 percent of the basic salary until he is 65. Furthermore, the CEO’s retirement should not affect the warrants acquired by him in the framework of the adopted incentive programs.

Other benefits are chiefly related to company cars and telephones and shall, where they exist, constitute a limited portion of the remuneration and be competitive in the local market.

If the company terminates the employment, the period of notice is normally 6–12 months; if the executive terminates the employment, the period of notice is normally 3–6 months. The basic salary during the period of notice, together with severance pay, shall not exceed an amount corresponding to two years’ basic salary.

The board of directors shall have the right to deviate from the above guidelines in individual cases if there is good reason to do so. In such an event, the board shall inform the immediately following AGM and explain the reason for the deviation. STOCK MARKET INFORMATION, ETC.

IFS issues information in accordance with the information policy established by the board. The annual and quarterly reports and press releases are published in Swedish and English. Press conferences for analysts, brokers, and journalists are held in connection with the quarterly reports. Information sessions and meetings are held regularly during the year with the media and the financial market.

Corporate governance information, annual and quarterly reports, and press releases are available at www.ifsworld.com, where information can be ordered or subscribed for. The annual report for 2014 will be distributed in a corresponding manner, and not in printed form.

The board, executive management, and certain other officers who are registered as insiders may trade in shares according to applicable legislation and current market praxis. No additional internal regulations exist. 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 46 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 2014. 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. In addition, the Company has efficient information distribution through its intranet, where all employees have access to policies and guidelines pertaining to sustainability, including environmental impact, gender equality, diversity, work environment, and the values of the Company and employees in relation to colleagues and customers.

Group management has adopted and published the IFS Code of Conduct, which is based on the 10 principles of the U.N. Global Compact embracing human rights, labor rights, the environment and anti-corruption. In addition, corporate management has adopted and published an environmental policy.

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. In most countries, discussions are held annually with all employees. Those who choose to leave IFS are interviewed, and their reasons for departing are compiled to increase employees’ job satisfaction and reduce personnel turnover. Absence related to illness was 4.3 days annually per Group employee and personnel turnover was 5.9 percent in 2014.

In 2014, the percentage of female employees was 31 percent. The percentage of female members on the Company’s boards was 21 percent, and the percentage of female senior managers was 22 percent. The share of female members on the Parent Company’s board of directors was 33 percent. The lower percentage of women in the Company is a frequently occurring 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’s largest research and development center is located in Sri Lanka. At the center, a comprehensive corporate social responsibility project comprising support to schools and universities has been operating for 10 years. Investments were increased after the 2004 tsunami disaster, and since then, more than 700 stipends have been distributed. IFS also strives to attain leadership in Sri Lanka with respect to salaries and other benefits. The Company actively works to promote equality regardless of gender, ethnicity, religion, or sexual orientation.

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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. 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.

Corporate Social Responsibility (CSR) 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 ERP offering includes a broad variety of solutions for efficient reporting and enhanced control in the field of CSR 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 and thereby cut 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 in respect of environmental issues. IFS is working intensively on product development to further improve functionality in this regard. 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, considers that it has addressed such risks and taken measures to reduce and control them. As the Parent Company does not engage in operational activities, its risk is limited to financing, foreign currency, and liquidity.

OUTLOOK

Despite caution among buyers due to the prevailing macroeconomic environment, companies in need of a business solution moved forward with their investment plans in 2014 and the enterprise application market showed a slow but steady rate of growth of approximately 4 percent. The buying environment’s positive trajectory leads industry analyst firms such as Gartner to anticipate the ERP market to maintain such growth rate in 2015. In 2015, 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 the year, IFS expects good growth in both license revenue and EBIT. 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 since 2002 been involved in a legal dispute concerning the partly-owned company IFS Sri Lanka. In October 2012, the counterparty in the dispute initiated arbitration proceedings against IFS with the Singapore International Arbitration Centre, on the basis of a shareholders’ agreement between the parties.

In the arbitration proceedings, the counterparty initially claimed compensation for damages in the amount of US$ 76 million including interest. However, the claim was later revised upwards. The revised claim was unspecified but could be understood to mean that IFS’s half-owned company IFS Sri Lanka be paid an amount in the range of US$ 237–535 million including interest, and that an unspecified amount be distributed as dividends to the owners.

Since the beginning of the legal dispute, IFS has deemed the counterparty’s allegations as completely unsubstantiated and without any merit and the claims raised in the arbitration proceedings have been rejected by IFS in their entirety as being frivolous and completely unmeritorious and unfounded.

The arbitral tribunal’s Final Award was received by IFS on June 20, 2014. In the Final Award, the counterparty’s claims have been completely rejected and it is declared that IFS did not breach the shareholders’ agreement as alleged by the counterparty. The counterparty has also been ordered to pay for the main part of the fees of the arbitral tribunal and a substantial portion of IFS’s legal costs in the proceedings.

With the information currently available, IFS is not able to assess if a contingent asset exists. 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 2014, net revenue amounted to SKr 19 million (22), with earnings before tax of SKr 124 million (17).

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During the year, no net investments were made in stock and shares as stockholders’ contribution or contingent consideration pertaining to acquisitions made during the year. The Parent Company has not made any investments in equipment. On December 31, 2014, Parent Company liquidity, including unutilized credit, amounted to SKr 587 million (424), and Parent Company debt was SKr 130 million (197), of which SKr 130 million (197) was from credit institutions and SKr 0 million (0) was related to intra-Group borrowing.

In 2014, stockholders’ equity in the Parent Company increased by SKr 15 million to SKr 1,548 million, of which unrestricted stockholders’ equity accounted for SKr 476 million (461). The change is mainly attributable to the net earnings and distributed dividend. At year-end, the Parent Company had 3 (3) employees. PROPOSED DISPOSITION OF PROFITS

The board of directors and the president propose that the following funds, SKr 476 million, which are available for disposition, be allocated as follows: Dividend of SKr 4.50 per share to stockholders SKr 111,473 thousand Carried forward SKr 364,983 thousand Total SKr 476,456 thousand STATEMENT BY THE BOARD OF DIRECTORS CONCERNING THE PROPOSED DIVIDEND

The proposed dividend reduces the Company’s equity ratio to 71 percent and the IFS Group’s equity ratio to 43 percent. The proposed action is not considered to impact the Company’s ability to promptly meet current and anticipated payment obligations. The Company’s liquidity forecast entails preparation to handle variations in the current payment obligations. The Company’s financial position does not indicate any assessment other than that the Company can continue to do business and that it can be expected to fulfill its short-term and long-term commitments.

The board’s assessment is that the extent of the equity as reported in the most recently issued annual report is in reasonable proportion to the extent of the Company’s operations taking into account the proposed dividend and acquisition of treasury shares.

In view of the above and based on what the board is otherwise aware of, the board considers that a comprehensive assessment of the financial position of the Company and Group justifies a dividend in accordance with Chapter 17, Section 3, paragraphs 2 and 3 of the Swedish Companies Act, i.e. taking into consideration the requirements imposed by the nature, extent and risks associated with doing business on the equity of the Company and Group and considering the need of the Company and Group to strengthen its balance sheet, liquidity and financial position in general.

CORPORATE GOVERNANCE REPORT Industrial and Financial Systems, IFS AB (publ) (hereafter “IFS”) is a public Swedish stock corporation listed on the Nasdaq OMX Stockholm. The Company is the parent company of the IFS Group. IFS corporate governance is based on legislation, where applicable, primarily the Swedish Companies Act, the Swedish Code of Corporate Governance, the regulations of the Nasdaq OMX Stockholm Nordic Exchange for issuers, and other rules, ordinances, and recommendations that might apply. IFS follows developments in the field of corporate governance, continuously adapting its corporate governance principles so as to generate value for its owners and other interested parties by providing timely information, real owner influence, and efficient working procedures on the part of the management and board of directors. APPLICATION OF THE SWEDISH CODE OF CORPORATE GOVERNANCE

This report, which has been submitted in accordance with the regulations for the Swedish Code of Corporate Governance, is the IFS corporate governance report for fiscal 2014 and reports on how corporate governance was conducted during that year. The report has been subject to a statutory review by the auditors. Deviation from the Swedish Code of Corporate Governance and infringements IFS has followed the Swedish Code of Corporate Governance in all respects apart from section 2.4 (concerning the composition of the audit committee), see further details under Nomination Committee. During 2014, IFS has not infringed Nasdaq OMX Stockholm regulations for issuers or been in breach of good practice on the securities market as resolved by the disciplinary committee of exchange or reported by the Swedish Securities Council. STOCKHOLDER INFLUENCE—THE GENERAL MEETING OF SHAREHOLDERS AND ITS RIGHT TO MAKE DECISIONS

Rules applying to the general meeting According to the Swedish Companies Act, the general meeting of shareholders is the highest decision-making body in a company. At the general meeting, stockholders exercise their right to vote. IFS has issued two categories of shares: A shares, which according to the articles of association entitles holders to one vote per share at the general meeting; and B shares, which entitle holders to 0.1 votes per share. All stockholders who are registered in the stock register on the record day and who have registered their intent to participate in time are entitled to attend the general meeting and vote in accordance with their total stockholding. Stockholders who are unable to attend in person may participate through a proxy.

Resolutions at the general meeting are usually adopted by a simple majority vote, except in cases where the Swedish Companies Act requires a higher proportion of the shares represented and votes cast at the general meeting. Resolutions adopted by the general meeting are published after the general meeting in a press release, and the minutes of the general meeting are published on the Company website.

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The general meeting resolves, among other things, on the adoption of the Company’s annual report, the disposition of the Company’s profit or loss, and on discharge from liability for the board of directors and the chief executive officer. The general meeting also appoints board directors and auditors, and resolves in respect of establishing a nomination committee. It also determines the fees paid to board directors and auditors in addition to guidelines for determining salary and other remuneration for the CEO and other members of executive management.

The Annual General Meeting (AGM) shall be held in Linköping or Stockholm within six months after the close of the fiscal year. Notice to attend the AGM reflects the simplified general meeting notification procedure pursuant to the rules of the Swedish Companies Act, through publication in the Swedish Official Gazette and on the Company website. At the same time, information to that effect is advertised in Svenska Dagbladet. Annual general meeting 2014 IFS’s Annual General Meeting (AGM) for 2014 was held at Courtyard by Marriott hotel, Rålambshovsleden 50 in Stockholm on March 26, 2014. A total of 84 stockholders, including proxies, participated in the meeting, representing 66.0 percent of the votes and 59.6 percent of the capital. The board of directors and management of IFS, and the Company’s auditor, were present at the meeting.

Resolutions adopted at the AGM 2014 concerned, among other things, the composition of the board of directors and auditor, fees paid to board directors and auditors, principles guiding the remuneration of executive management, the incentive program, and the establishment of a nomination committee. Moreover, a resolution to issue a dividend of SKr 3.50 per share was adopted. The AGM also resolved to re-authorize the board of directors to repurchase during the period up to the coming AGM Series-B shares on the Nasdaq OMX Stockholm in accordance with the rules of the stock exchange in such an amount that does not exceed 10 percent of the total number of shares in the Company, at a share price within the registered share price interval on each occasion, i.e. between the highest buying price and the lowest selling price.

The minutes of the AGM can be downloaded from the Company website as can all proposals for resolution and other documentation. Annual general meeting 2015 The Annual General Meeting for 2015 will be held at Courtyard by Marriott hotel, Rålambshovsleden 50 in Stockholm on March 25, 2015 at 3:00 p.m. Notification of the AGM has been published in the Swedish Official Gazette and on the Company website on February 25, 2015. On the same day information to that effect has also been advertised in Svenska Dagbladet. Other information about the AGM will be published on the Company website. NOMINATION COMMITTEE

The election of the board of directors and auditors is prepared by the IFS nomination committee, which is

appointed in accordance with guidelines resolved by the AGM. The nomination committee also submits proposals for the directors’ remuneration divided among the chairman and other board members and any remuneration for committee work, remuneration for auditors, decisions on principles for the appointment of the nomination committee for the coming term of office, and the election of a chairman at the AGM. In addition to the chairman of the board, the nomination committee shall comprise a representative of the principal owner, one representative of each of the two largest institutional owners, and a representative of other stockholders, who is selected from the founders. The representative of IFS’s principal owners convenes and is the chairman of the nomination committee. Nomination committee members for the AGM 2015 The nomination committee for the AGM 2015, whose composition is based on the ownership position on August 29, 2014, consists of the following members: • Gustaf Douglas, Chairman, representing the Company’s

principal owners, the Douglas family and Förvaltnings AB Wasatornet

• Lars Bergkvist, Lannebo Fonder • Ulf Strömsten, Catella Fonder • Bengt Nilsson, for the founders • Anders Böös, chairman of the board of IFS The composition of the nomination committee was announced on September 19, 2014. The nomination committee represents approximately 52 percent of the votes in IFS. Its proposals, explanatory statement, and additional information about proposed members of the board were published in connection with the AGM notification and will be presented, with an account of the work of the committee, at the 2015 AGM. The members are not remunerated for their work on the nomination committee. BOARD OF DIRECTORS

The board consists of six members, without deputies, elected by the AGM. With the exception of Alastair Sorbie, the president and CEO of IFS, none of the members of the board is employed by IFS. The average age of the members is 57, and two are women. Information about the independence of board members follows below. The members of the board At the 2014 AGM, all board members were re-elected. In addition to the board members, other participants at the board meetings are the Group’s CFO Paul Smith, Fredrik vom Hofe, vice president Business Development, and Jesper Alwall, general counsel and secretary of the board of directors. Other salaried employees of the Group participate in the board meetings as representatives of specific issues when applicable. For the AGM 2015, the nomination committee has proposed the re-election of all directors and the election of Gunilla Carlsson.

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Independence of the board of directors The assessment of the nomination committee, which is shared by the board of directors, pertaining to the independence of board members in relation to the Company, executive management and stockholders, is indicated in the table below. As shown in the table, IFS complies with the

regulations of the Swedish Code of Corporate Governance that the majority of the board members elected by the AGM shall be independent in relation to the Company and the executive management, and that at least two of the members shall be independent in relation to the Company’s major stockholders.

Name Position Elected Independence Audit

committee Number of

series A shares Number of

series B shares Total number

of shares

Anders Böös Chairman 2003 No* - 427,010 - 427,010

Bengt Nilsson Vice-chairman 1983 Yes - 150,000 - 150,000

Ulrika Hagdahl Member 2003 Yes Chairman - 30,000 30,000 Birgitta Klasén Member 2009 Yes - - 12,000 12,000

Neil Masom Member 2009 Yes Member - - -

Alastair Sorbie Member 2006 No* - - 8,526 8,526

* Anders Böös is considered independent in relation to the Company and executive management, but as dependent in relation to the Company’s major owner as he controls more than 10 percent of the votes in the Company. Alastair Sorbie is dependent in relation to the Company as a result of his position as president and CEO of IFS.

The board of directors’ work The work of the board of directors is conducted in accordance with the requirements of the Swedish Companies Act, the regulations of the Nasdaq OMX Stockholm, the Swedish Code of Corporate Governance, other rules and regulations relevant to the Company, and operating procedures adopted by the board. Specific instructions regulate the division of tasks between the board and its committees, and between the board and the president, the forms of financial reporting, instructions to board committees, and the president's assignments and right to make decisions. Furthermore, the board establishes a finance policy that regulates risk related to financing, interest, liquidity, credit, and currency. It also determines an information policy that regulates the way in which IFS disseminates information. The operating procedures of the board, related instructions and the information policy are reviewed annually. Other instructions and guidelines are reviewed as required.

In accordance with the current operating procedures, the board shall meet at least six times per year (in addition to the statutory meeting held after the AGM). Each ordinary meeting addresses issues related to business and market development, adherence to the business plan and earnings, cash flow and financing, the current outlook, and acquisitions, divestment and pledged guarantees. One board meeting is dedicated mainly to strategic issues, and one is dedicated to the business plan and budget.

The chairman of the board leads the board’s work and is responsible for ensuring that other board members receive the necessary documentation for high- quality discussions and decisions, and for continuously updating and deepening their knowledge of the Company. In addition, the chairman monitors operations in dialog with the CEO and ensures that board decisions are executed. The chairman is also responsible for evaluating the work of the board and ensuring that the nominations committee gains access to this evaluation. Furthermore, the chairman also participates in assessment and development issues pertaining to the executive management and other officers of the Group. The chairman represents the Company in ownership issues.

In 2014, the board met 8 times (two of which were held by phone) in addition to the statutory meeting after the AGM. In addition to the ordinary items on its agenda, the work of the board in 2013 focused on managing IFS’s growth, profitability, strategic position, and development of the Company’s partner ecosystem. During the year, regional managers and other officers, according to a rolling schedule, presented and discussed their areas of responsibility with the board. Minutes are taken of each board meeting and are normally made available to directors pursuant to the stipulations of the Swedish Code of Corporate Governance.

In 2014, in accordance with the Swedish Code of Corporate Governance, the board submitted the nine-month report for review by the auditors, and on two occasions during the year met the auditors when neither the CEO nor any other member of executive management was present.

The work of the board in 2014 was evaluated both in writing and orally within the board and has also been treated at a plenary session of the board in December 2014 on the basis of an agenda established in advance in accordance with a structured, systematic process. Relevant parts of the result of the evaluation have been reported to the nomination committee. No external evaluation of the board was conducted during the year. In addition, the work of the CEO has been continuously evaluated, in particular at board meetings at which no members of the executive management were present.

The chairman of the board and other board members, with the exception of the CEO, are remunerated for work on the board in accordance with resolutions adopted by the AGM. The AGM 2014 resolved that directors’ fees of SKr 3.05 million be paid, of which SKr 1.4 million was paid to the chairman of the board and SKr 375,000 was paid to each of the remaining board members, with the exception of the CEO. A fee of SKr 100 000 was paid to the chairman and SKr 50 000 to other members of the audit committee. All directors’ fees were unchanged from the previous year.

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Board directors’ attendance during 2014

Name Position Board meeting

Audit committee

Anders Böös Chairman 100% -

Bengt Nilsson Vice-chairman 100% -

Ulrika Hagdahl Member 90% 80% Birgitta Klasén Member 100% -

Neil Masom Member 100% 100%

Alastair Sorbie Member 100% -

COMMITTEE WORK

Audit committee To increase the efficiency of, and intensify, the work of the board, an audit committee was established in April 2008. The audit committee is normally convened in conjunction with ordinary board meetings. The primary task of the committee is, in accordance with the instructions established by the board, to ensure compliance with the established principles with respect to the financial reporting, the review of the annual and consolidated accounts, and efficiency of internal control and risk management, and that appropriate relations with the board’s auditors are maintained with proper impartiality and independence, in particular with regard to non-auditing services. The audit committee is also responsible for managing the work of the internal audit function that the board established during 2010, see below for details, and assisting in preparation of proposal to the AGM for election of auditors.

The audit committee is a preparatory entity. The outcome of the audit committee’s work in the form of observations, recommendations and proposals for decisions and actions is reported continuously to the board, which takes any decisions made necessary by the audit committee’s work. Minutes are kept of audit committee meetings and are made available to the board.

In 2014/15, the audit committee comprised board members Ulrika Hagdahl, chairman, and Neil Masom. Accordingly, the Company deviated from section 7.3 of the Swedish Code of Corporate Governance, which states that the Audit Committee shall comprise at least three board members. However, the board, which appoints the committee members, determined that these persons were the most suited to constitute the Company’s Audit Committee for 2014/15, taking into account experience, interest and competence. In doing so, the board has taken into particular account the legal requirements of independence and requisite competence in matters of accounting or auditing. The Group’s CFO Paul Smith and General Counsel Jesper Alwall, who is also the secretary of the audit committee, participate in the audit committee’s meetings. The Audit Committee met five times in 2014, and all members were present at the meetings with one exception. IFS’s external auditors participated in two of the audit committee’s meetings. Remuneration committee The board has decided not to appoint a separate remuneration committee. Remuneration of the CEO is determined by the board, as are the principles and earnings targets for variable remuneration of the CEO and officers

reporting to the CEO. The CEO does not participate in decisions regarding his/her remuneration. Other remuneration of officers reporting to the CEO is determined in consultation with the chairman of the board, and information is subsequently provided to the other members of the board.

The board continuously monitors and evaluates both the execution of the guidelines determined by the AGM for remuneration of executive management and prevailing remuneration structures and remuneration levels in the Company, and the ongoing and completed programs for variable remuneration in the Company. In accordance with the regulations of the Code of Corporate Governance, a report on the findings of this evaluation is publicized on the Company website no later than two weeks before the AGM.

The Company website also contains a more detailed account of current guidelines for remuneration of executive management and of the outstanding incentive programs adopted by the board. THE PRESIDENT AND EXECUTIVE MANAGEMENT

The president is appointed by the board and is responsible, according to the Swedish Companies Act, the Operating Procedures of the Board and the Instruction to the President for the day-to-day management of the business of the Company and Group. The president leads the work of executive management and takes decisions in consultation with other members of management. In addition to the president, these comprise the Company’s CFO, the Vice President of Business Development and the general counsel. Executive management participates in regular operational reviews under the leadership of the president. AUDITORS

IFS’s auditing company, reelected at the 2014 AGM for a statutory term of one year, is PricewaterhouseCoopers AB (PwC). It is the responsibility of the auditors to appoint an auditor in charge. Since fiscal 2012, PwC has appointed Nicklas Kullberg as auditor in charge.

For the AGM 2015 the nomination committee has proposed that PwC be re-elected for an additional term of one year. Following the approval of the AGM, PwC has appointed Nicklas Kullberg to remain as auditor in charge.

The task of the auditor is to scrutinize, on behalf of the stockholders, the annual report and accounts, as well as the administration of the board of directors and the CEO. The auditor in charge also presents an audit report at the AGM. Stockholders are invited to question the auditor at the AGM.

In addition to the audit, PwC, when required, undertake a number of other assignments for IFS. These primarily pertain to audit-related services such as a more detailed presentation in connection with the audit as well as tax consultancy.

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GUIDELINES FOR REMUNERATION OF EXECUTIVE MANAGEMENT

For 2014, the following guidelines established by the AGM concerning remuneration and other terms and conditions of employment for the CEO and other members of the executive management were applied.

Remuneration of executive management in IFS shall be aligned with market terms and conditions, shall be individual and differentiated, and shall support the interests of the stockholders. Remuneration principles shall be predictable, both in terms of costs to the Company and benefits for the individual, and shall be based on factors such as competence, experience, responsibility and performance.

Total remuneration paid to executive management shall consist of a basic salary, variable remuneration, an incentive program, pension contributions, and other benefits.

The total annual monetary remuneration paid to each member of executive management, i.e., basic salary and variable remuneration, shall correspond to a competitive level of remuneration in the respective executive's country of residence.

Variable remuneration shall be linked to predetermined measurable criteria designed to promote long-term value generation in the Company. The relationship between basic salary variable remuneration shall be proportionate to the executive’s responsibility and powers. Variable remuneration varies according to position. For 2014, variable remuneration for the CEO was not permitted to exceed 50 percent of the basic salary, and for the other members of executive management variable remuneration was payable in the interval 25–60 percent of the basic salary, based on achievement of 80–120 percent of individual goals.

The AGM of 2014 resolved to adopt an incentive program for the executive management and key personnel based on terms and conditions consistent with the previous years’ programs.

The incentive program entails that the Company has offered executive management and key personnel in the Group the opportunity to subscribe for warrants in the Company valued at market price. To stimulate participation in the program, the participants will be allotted, subject to certain terms and conditions, up to three warrants free of charge for each warrant acquired at market price. The number of warrants that participants can be allotted free of charge is dependent on the outcome of a performance condition linked to the Company’s earnings-per-share target during 2014 as determined by the board. Each warrant carries the right to acquire one Series-B share during the period from publishing the interim report for the first quarter 2017 up to and including June 28, 2019, at a subscription price corresponding to 110 percent of the volume-weighted average price paid for the Company’s share on the Nasdaq OMX Stockholm Exchange between April 22, 2014 and April 28, 2014.

Pension benefits shall correspond to a competitive level in the respective executive’s country of residence and shall, as in previous years, consist of a premium-based pension plan. The CEO is entitled to a premium-based pension plan with a premium that is 20 percent of the basic salary. The retirement age for the CEO and other members of executive

management is 65, but the CEO and the Company are entitled to invoke the right to early retirement for the CEO at the age of 64. In such a case, the CEO shall receive the equivalent of 60 percent of the basic salary until he is 65.

Other benefits are chiefly related to company cars and telephones and shall, where they exist, constitute a limited portion of the remuneration and be competitive in the local market.

If the Company terminates the employment, the period of notice is normally 6–12 months; if the executive terminates the employment, the period of notice is normally 3–6 months. The basic salary during the period of notice, together with severance pay, shall not exceed an amount corresponding to two years’ basic salary.

The board of directors shall have the right to deviate from the above guidelines in individual cases if there is good reason to do so. In such an event, the board shall inform the immediately following AGM and explain the reason for the deviation.

The principles apply to employment contracts entered into after the resolution is adopted by the AGM and to changes made to existing terms and conditions after this point in time. INTERNAL CONTROL AND RISK MANAGEMENT PERTAINING TO FINANCIAL REPORTING

A report on internal control pertaining to financial reporting for fiscal 2014 was prepared and submitted by the board in accordance with the Swedish Code of Corporate Governance, the guidance developed by FAR SRS and the Confederation of Swedish Enterprise, and the instruction for 2007 issued by the Swedish Corporate Governance Board.

The report describes how IFS’ internal control pertaining to financial reporting is organized. Internal control pertaining to financial reporting is a process that involves the board of directors, executive management and other employees, and is designed to ensure reliability in the external financial reporting. The internal control function can be divided into five areas: the control environment, risk assessment, control activities, information and communication, and monitoring. This are further described below. Control environment IFS’s values form the basis for the control environment. Simplicity, commitment, and a businesslike nature are the key concepts that are the foundation for IFS’s work and interaction with customers, partners, and employees. Attitudes and values are at least as important as experience and competence, and IFS places great emphasis on ensuring that its operations are characterized by openness, for example by working for a strong cohesion and encouraging honest, open dialogue.

The internal control environment pertaining to financial reporting is based on a clear division of roles and responsibility in the organization, established and communicated decision-making procedures, and instructions pertaining to authorization and responsibility. These are documented and communicated in the form of instructions to

24

the board, guidelines, manuals, codes, and accounting and reporting instructions. At the Group level, a well-defined Finance Manual is prepared and made available to ensure correct, reconciled and standardized financial reporting in all of the Group’s companies. Controls pertaining to correct reporting occur first locally, then regionally and finally at the Group level. Financial reporting is secured on these levels through continuous analysis of detailed monthly accounts and through a hard-close process that secures the quality of the annual financial statements well before year-end. Risk assessment Executive management prepares an annual combined risk assessment pertaining to the financial reporting, which is reviewed with the audit committee. In the risk assessment, IFS has identified a number of processes in which the relative risk of substantial errors is higher, depending on the complexity in the process, or in which there is a risk that the impacts of any errors will be significant because the value of the transactions is high. These processes include, for example, procedures for reporting license revenues and valuation of deferred tax and disputes. Control activities The risk assessment results in a number of control activities. The purpose of these activities is to prevent, detect and correct errors and discrepancies. The control activities include analytical monitoring of decisions, comparisons between income statement items, checklists and automatic controls through IT systems. A differentiation of work tasks is desirable so that different individuals carry out or check each task. The essential control activities are documented and updated continuously. Information and communication The Company has clear lines of communication and reporting, which form the basis for internal monitoring and external financial reporting. Manuals and guidelines that are significant for financial reporting are updated and communicated continuously to the affected employees. Executive management and the audit committee report regularly to the board based on established procedures. For

external communication, guidelines have been established to ensure that the Company meets strict requirements for correct information. Monitoring The board continuously evaluates information from executive management and the audit committee. At each board meeting, the Company’s financial position is reported. The audit committee thoroughly reviews all interim and annual reports before publication. The Company’s financial reporting process is evaluated annually by executive management to ensure that it includes all essential areas that affect financial reporting. As part of their audit, the accountants elected by the AGM, PwC, also review a selection of IFS’s controls. Recommendations from the external accounting are continuously monitored by executive management and the audit committee. The subsidiaries reported on a number of prioritized risk areas. The Company applies a process in conjunction with the year-end financial statement in which managing directors and financial managers of the subsidiaries submit representation letters on essential information for the accounting. Internal audit During 2010, the board established a separate internal audit function to take responsibility for strengthening internal risk management, monitoring and control, as well as processes. The internal audit’s tasks include mapping and scrutinizing essential areas of risk, and providing monitoring and specific scrutinizing and support input in selected areas. The internal audit plans its work in collaboration with the audit committee, executive management and the Company’s external auditors; the results of actions taken are reported continuously to the audit committee. During 2014, in addition to the continuous mapping of risk areas within the Group, the work of the internal audit has primarily been focused on implementing and following up minimum internal control requirements to be observed locally by the IFS group companies. The internal control requirements have been identified on the basis of financial reporting and divided into separate processes depending on materiality, risk for reporting errors, complexity, and risk for fraud etc.

The financial reports were approved for issuance by the board of directors of the Parent Company on March 4, 2015. Additional information on Group and Parent Company results and general position is available in the accompanying income statements, balance sheets, cash-flow statements, and notes to the financial statements.

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CONSOLIDATED INCOME STATEMENT

SKr, million Note 2014 2013

License revenue 3 558 535

Maintenance and support revenue 4 1,037 902

Consulting revenue

1,427 1,256

Other revenue 5 12 11

Net revenue 2 3,034 2,704

License expenses

-53 -40

Maintenance and support expenses

-264 -254

Consulting expenses

-1,149 -1,015

Other expenses

-12 -7

Direct expenses -1,478 -1,316

Gross earnings 1,556 1,388

Development expenditure 6 -303 -260

Sales and marketing expenses 7 -635 -591

Administration expenses

-312 -289

Other operating revenue 8 4 16

Other operating expenses 9 -35 -121

Result from joint venture 47 - 59

Indirect expenses, net -1,281 -1,186

EBIT 11, 12, 13, 14, 15, 16 275 202

Result from participation in associated companies 18 1 0

Other interest income and similar income 19 3 3

Interest costs and similar costs 20 -21 -21

Financial net -17 -18

Profit/loss before tax 258 184

Taxes 21 -47 -41

Profit/loss for the year 22 211 143

Profit/loss for the year is allocated as follows:

Parent Company stockholders (SKr million)

213 144

Non-controlling interests (SKr million)

-2 -1

Profit/loss per share pertaining to Parent Company stockholders, before dilution (SKr) 22 8.60 5.81

Profit/loss per share pertaining to Parent Company stockholders, after dilution (SKr) 22 8.45 5.72

Number of shares with deduction of shares in own custody (thousands)

On December 31

24,772 24,772

On December 31, after full dilution

25,177 25,192

Average for the period

24,772 24,772

Average for the period, after full dilution 25,202 25,196

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

SKr, million Not 2014 2013

Earnings for the year

211 143

Other comprehensive income

Items that will not be reclassified to profit or loss

Revaluation of defined-benefit pension plans

-100 44

Revaluation of defined-benefit pension plans related to joint venture

- 5

Items that may be subsequently reclassified to profit or loss

Exchange rate differences

106 -4

Other comprehensive income for the year, net of tax 6 45

Total comprehensive income for the year 217 188

Total comprehensive income allocated as follows:

Parent Company shareholders

219 189

Non-controlling interests -2 -1

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CONSOLIDATED BALANCE SHEET—ASSETS

SKr, million Note Dec 31, 2014 Dec 31, 2013

Capitalized expenditure for product development

608 594

Goodwill

452 398

Other intangible fixed assets

84 111

Intangible fixed assets 23 1,144 1,103

Tangible fixed assets 24, 25 115 96

Participations in associated companies 27 4 3

Deferred tax receivables 29 146 132

Other long-term receivables 30 28 23

Financial fixed assets 178 158

Fixed assets 1,437 1,357

Accounts receivable 31 790 740

Current tax receivable

50 38

Other receivables 32 262 200

Liquid assets 33 489 354

Current assets 1,591 1,332

Assets 3,028 2,689 CONSOLIDATED BALANCE SHEET—EQUITY AND LIABILITIES


Capital stock

499 499

Other capital contributed

694 701

Reserves

12 -94

Accumulated earnings, including profit/loss for the year

157 131

Stockholders' equity pertaining to Parent Company stockholders 1,362 1,237

Non-controlling interests

-2 0

Stockholders' equity 34 1,360 1,237

Liabilities to credit institutions 35, 36 0 0

Pension obligations 37 168 39

Deferred tax liabilities 29 10 46

Other provisions 38 4 6

Long-term liabilities 182 91

Accounts payable

127 111

Current tax liabilities

51 14


Other provisions 38 2 22

Other liabilities 39 1,176 1,017

Current liabilities 1,486 1,361

Liabilities 1,668 1,452

Stockholders' equity and liabilities 3,028 2,689

MEMORANDUM ITEMS

Pledged assets 41 903 721

Contingent liabilities 42 17 21

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CONSOLIDATED CAPITAL ACCOUNT

SKr, million Note 34

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, 2013 508 701 -90 17 1,136 1 1,137

Revaluation of defined-benefit pension plans - - - 49 49 - 49

Change in translation difference - - -4 - -4 - -4

Total changes in net wealth recognized in other comprehensive income, excl. transactions with the company's owners - - -4 49 45 - 45

Profit/loss for the year - - - 143 143 -1 142

Total changes in net wealth, excl. transactions with the company's owners - - -4 192 188 -1 187

Share-based payments - 2 - - 2 - 2

Repurchase of warrants - -2 - - -2 - -2

Cancellation of repurchased shares -9 - - 9 - - -

Dividend - - - -87 -87 - -87

Amount on December 31, 2013 499 701 -94 131 1,237 0 1,237

Revaluation of defined-benefit pension plans - - - -100 -100 - -100

Change in translation difference - - 106 - 106 - 106

Total changes in net wealth recognized in other comprehensive income, excl. transactions with the company's owners - - 106 -100 6 - 6

Profit/loss for the year - - - 213 213 -2 211

Total changes in net wealth, excl. transactions with the company's owners - - 106 113 219 -2 217

Share-based payments - 4 - - 4 - 4

Repurchase of warrants - -11 - - -11 - -11

Dividend - - - -87 -87 - -87

Amount on December 31, 2014 499 694 12 157 1,362 -2 1,360

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CONSOLIDATED STATEMENT OF CASH FLOWS


CURRENT OPERATIONS

Profit/loss after net financial items

258 184

Adjustments for items not included in the cash flow, etc. 43 264 184

Interest paid

-13 -21

Interest received

3 3

Income tax paid

-62 -14

Cash flow from operations before change in working capital 450 336

CHANGE IN WORKING CAPITAL

Change in current receivables

-73 -25

Change in current non-interest-bearing liabilities

124 95

Change in working capital 51 70

Cash flow from current operations 501 406

INVESTMENT OPERATIONS

Acquisition of subsidiaries 44 - -

Sale of subsidiaries

0 -3

Acquisition of intangible fixed assets

-192 -242

Acquisition of tangible fixed assets 45 -40 -32

Change in long-term receivables

0 -7

Cash flow from investment operations -232 -284

Cash flow after investment operations 269 122

FINANCING OPERATIONS

Repurchase of warrants

-11 -2

Raising of loans from credit institutions 35 0 105

Amortization of liability to credit institutions 35 -78 -86

Dividend distributed

-87 -87

Increase in other long-term liabilities

- 57

Decrease in other long-term liabilities

-1 -

Increase in financial liabilities

12 -

Received premium fee for warrants

1 0

Cash flow from financing operations -164 -13

Cash flow for the year 105 109

LIQUID FUNDS

Liquid funds on January 1

354 253

Exchange rate differences in liquid funds

30 -8

Liquid funds on December 31 33 489 354

30

INCOME STATEMENT OF THE PARENT COMPANY


Net revenue 5 19 22

Administration expenses

-33 -40

EBIT 10, 12, 13, 14, 15, 16 -14 -18

Result from participation in subsidiaries 17 118 0

Other interest income and similar income 19 58 58

Interest costs and similar costs 20 -38 -23

Profit/loss before tax 124 17

Tax on profit/loss for the year 21 -14 -4

Profit/loss for the year 110 13 STATEMENT OF COMPREHENSIVE INCOME OF THE PARENT COMPANY

SKr, million 2014 2013

Earnings for the year

110 13

Other comprehensive income

- -

Other comprehensive income for the year - -

Total comprehensive income for the year 110 13

31

BALANCE SHEET OF THE PARENT COMPANY—ASSETS


FIXED ASSETS

Tangible fixed assets 24 0 0

Participations in subsidiaries 26 994 992

Receivables in subsidiaries 28 57 73

Deferred tax receivables 29 2 10

Other long-term receivables 30 2 2

Financial fixed assets 1,055 1,077

Fixed assets 1,055 1,077

CURRENT ASSETS

CURRENT RECEIVABLES

Receivables in subsidiaries

851 867

Other receivables

4 4

Prepaid expenses and accrued revenue 2 6

Current receivables 857 877

Cash and bank balances 33 217 121

Current assets 1,074 998

Assets 2,129 2,075 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

118 126

Retained earnings

248 322

Profit/loss for the year

110 13

Unrestricted stockholders' equity 476 461

Stockholders' equity 34 1,548 1,533

PROVISIONS

Provisions for pensions and similar commitments 37 7 7

Provisions 7 7

CURRENT LIABILITIES


Accounts payable

18 16

Liabilities to subsidiaries

409 312

Other current liabilities

9 3

Accrued expenses and prepaid revenue 40 8 7

Current liabilities 574 535

Stockholders' equity, provisions, and liabilities 2,129 2,075

MEMORANDUM ITEMS

Pledged assets 41 983 981

Contingent liabilities 42 31 35

32

CAPITAL ACCOUNT OF THE PARENT COMPANY

RESTRICTED EQUITY UNRESTRICTED EQUITY Total

stockholders' equity

SKr, million Note 34 Capital

stock Reserve

fund

Total Premium fund

Earnings carried forward

Total

Amount on January 1, 2013 508 573 1,081

127 400 527

1,608

Change in share premium reserve - - -

1 - 1

1

Repurchase of warrants - - -

-2 - -2

-2

Cancellation of own shares -9 - -9

- 9 9

0

Dividend - - -

- -87 -87

-87

Profit/loss for the year - - -

- 13 13

13

Amount on December 31, 2013 499 573 1,072 126 335 461 1,533

Repurchase of warrants - - -

-11 - -11

-11

Share-based payments - - -

3 - 3

3

Dividend - - -

- -87 -87

-87

Profit/loss for the year - - -

- 110 110

110

Amount on December 31, 2014 499 573 1,072 118 358 476 1,548

33

STATEMENT OF CASH FLOWS OF THE PARENT COMPANY


CURRENT OPERATIONS

Profit/loss after net financial items

124 17

Adjustments for items not included in the cash flow, etc. 43 29 23

Interest paid

-8 -14

Interest received

1 1

Revenue tax paid

0 0

Cash flow from operations before change in working capital 146 27

CHANGES IN WORKING CAPITAL

Change in current receivables

6 3

Change in current non-interest-bearing liabilities

5 8

Change in working capital 11 11

Cash flow from current operations 157 38

INVESTMENT OPERATIONS

Change in receivables in subsidiaries

-447 -17

Change in liabilities to subsidiaries

530 69 Increase in other long-term receivables

30 14

Decrease in other long-term receivables

-10 -14

Cash flow from investment operations 103 52

Cash flow after investment operations 260 90

FINANCING OPERATIONS

Repurchase of warrants

-11 -2

Raising of loans from credit institutions 35 - 105

Amortization of liability to credit institutions 35 -78 -86

Deposit

- 0

Dividend distributed

-87 -87

Repurchase of own shares

- 0

Increase in financial liabilities

12 -

Cash flow from financing operations -164 -70

Cash flow for the year 96 20

LIQUID FUNDS

Liquid funds on January 1

121 101

Liquid funds on December 31 33 217 121

34

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 March 4, 2015. 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 on March 25, 2015. 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.

• 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 23. 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 23.

• Income tax. Management makes assessments to determine current tax liabilities and tax receivables, as well as provisions for deferred tax liabilities and deferred tax

35

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 29.

• 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 personnel-related expenses. For information on changes in the restructuring reserve, see Note 38.

• 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 37 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 44.

Changes in accounting principles Below are the standards that the Group has applied for the first time for fiscal year beginning on January 1, 2014, and which have affected the Group’s financial reports:

• IFS 10 Consolidated Financial Statements is based on existing principles as it identifies control as the decisive factor when determining whether a company shall be included in the consolidated accounts. The standard provides further guidance to help define control in cases where this is difficult to assess. The application of the new standard has not affected the financial statements.

• IFRS 11 Joint Arrangements. A joint arrangement is defined as an arrangement where two or more parties contractually agree to share control. The purpose is to focus on rights and obligations rather than on the legal form of an arrangement. IFRS 11 classifies a joint arrangement as either a joint operation or a joint venture. In a joint operation parties to the arrangement have direct rights to the assets and obligations for the liabilities. In such an arrangement, assets, liabilities, income and expenses shall be recognized in relation to the party’s interest in the arrangement. A joint venture gives parties rights to the net assets or earnings relating to the arrangement. An interest in a joint venture is recognized via the equity method as the proportionate method is no longer permitted. For the Group, the new standard entails a reduction in total assets as the various items previously reported item by item according to the proportionate method are accumulated on a single row that reports the share of the net assets. The consolidated income statement will also be impacted as the share of earnings from joint ventures is reported on one row instead of as a share of incomes and expenses. See Note 47 for its effect on the financial statement.

• IFRS 12 Disclosures of Interests in Other Entities covers disclosure requirements for holdings in other companies, such as subsidiaries, joint arrangements, associated companies and unconsolidated structured entities. The share of non-controlled interests in subsidiaries, the Group's investments in associated companies and joint ventures are insignificant. The application of IFRS12 has thus had no effect on the financial statements compared to previous years.

New IFRS and interpretations not yet applied A number of new standards and interpretations come into force for fiscal years beginning after January 1, 2014 and have not been pre-adopted by the Group. Of the standards and interpretations that have been published but have not yet come into force, the following have been deemed to affect the Group: • IFRS 9 Financial Instruments treats the classification,

evaluation and reporting of financial liabilities and assets. The complete version of IFRS 9 was issued in July 2014 for financial liabilities and replaces the parts of IAS 39 that relate to classifying and evaluating financial instruments. 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

36

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 not yet been adopted by the EU. The standard shall be applied for the fiscal year beginning on January 1, 2018. The Group has not yet assessed the effects of implementing the standard.

• 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, 2017. The Group has not yet assessed the effects of implementing the standard.

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 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.

37

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 shall be recognized using the equity method as the proportional consolidation principle is no longer permitted. For the Group, the new standard means that recognition is affected retroactively through a reduction in total assets as the various items that were previously recognized item by item in accordance with the proportional consolidation principle shall now be combined on a single row in which the share of net assets is reported. The income statement is also affected as the share in earnings from joint ventures is recognized on one row instead of as a share of earnings and expenses. 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 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.

38

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 2014, 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 permanent product development centers, in Poland and Sri Lanka, among others. The product development company covers their actual expenses plus a general supplement of 5 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 2.35 percent. Group costs related to treasury are distributed by adding a supplement of 0.90 percent to the interest expenses and by invoicing a fee of 0.10 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 temporary differences and deficit deduction are reported as an asset if it is likely that the deficit deductions can be set off in coming years.

39

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.

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 risk 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 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

40

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. 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.

41

• 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 five 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 5 years • Acquired product rights 5–10 years • Software 5 years • Customer relations and other intangible fixed assets 2–5 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.

The primary purpose of Group assets and investments is to provide and implement IFS Applications, which: • Is developed by a central product development

organization; • Is sold on the global market, through sales companies in

various countries that collaborate in sales to customers with multinational operations;

• Is 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

42

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 Group has a number of incentive programs regulated by means of warrants. 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 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 37.

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. 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

43

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 pension obligations are reported in accordance with FAR RedR 4. 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 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

44

Europe Central: Germany, Italy, 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.

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, 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 2014

SKr, million Europe North

Europe West

Europe Central

Europe East

Americas

Africa, Asia, and Pacific

Total segments

Group items

GROUP 2014

License revenue 149 124 61 29 129 66 558 - 558

Maintenance and support revenue 361 224 98 66 205 83 1,037 - 1,037

Consulting revenue 649 188 178 74 243 98 1,430 -3 1,427

Other revenue 5 3 2 2 1 3 16 -4 12

Total external revenue 1,164 539 339 171 578 250 3,041 -7 3,034

Internal revenue 21 89 36 21 58 24 249 -249 -

Total revenue 1,185 628 375 192 636 274 3,290 -256 3,034

External operating expenses -719 -415 -269 -163 -435 -211 -2,212 -516 -2,728

Internal operating expenses -105 -40 -24 -3 -29 -11 -212 212 -

Other operating items, net -2 -10 -1 -13 7 -4 -23 -8 -31

Operating expenses -826 -465 -294 -179 -457 -226 -2,447 -312 -2,759

EBIT 359 163 81 13 179 48 843 -568 275

Result from participation in associated companies

1

Other interest income and similar income

3

Interest expenses and similar expenses

-21

Profit/loss before tax 258

Tax on profit/loss for the year

-47

Profit/loss for the year 211

Other information 2014 SKr, million Europe

North Europe West

Europe Central

Europe East

Americas


Total segments

Group items

GROUP 2014

External assets 492 381 125 65 412 136 1,611 1,413 3,024

Participations in associated companies - - - - - - - 4 4

Total assets 492 381 125 65 412 136 1,611 1,417 3,028

Liabilities 481 242 79 46 213 101 1,162 506 1,668

Investments in fixed assets 1 2 4 1 3 3 14 218 232

Depreciation and write-downs 3 22 2 2 12 2 43 199 242

Average number of employees 452 327 212 215 281 257 1,744 901 2,645

Number of employees at year end 465 327 229 208 280 264 1,773 934 2,707

45

Income statement 2013 SKr, million Europe

North Europe West

Europe Central

Europe East

Americas


Total segments

Group items

GROUP 2013

License revenue 140 104 66 26 120 78 534 1 535

Maintenance and support revenue 343 174 87 63 172 61 900 2 902

Consulting revenue 579 152 145 65 225 87 1,253 3 1,256

Other revenue 1 6 1 0 0 2 10 1 11

Total external revenue 1,063 436 299 154 517 228 2,697 7 2,704

Internal revenue 20 51 42 17 58 17 205 -205 -

Total revenue 1,083 487 341 171 575 245 2,902 -198 2,704

External operating expenses -653 -318 -244 -171 -374 -183 -1,943 -513 -2,456

Internal operating expenses -91 -34 -21 -1 -33 -18 -198 198 -

Other operating items, net -42 57 -6 -20 0 -6 -17 -29 -46

Operating expenses -786 -295 -271 -192 -407 -207 -2,158 -344 -2,502

EBIT 297 192 70 -21 168 38 744 -542 202

Result from participation in associated companies

0

Other interest income and similar income

3

Interest expenses and similar expenses

-21

Profit/loss before tax 184

Tax on profit/loss for the year

-41

Profit/loss for the year 143

Other information 2013 SKr, million Europe

North Europe West

Europe Central

Europe East

Americas


Total segments

Group items

GROUP 2013

External assets 426 351 124 69 369 119 1,458 1,228 2,686

Participations in associated companies - - - - - - - 3 3

Total assets 426 351 124 69 369 119 1,458 1,231 2,689

Liabilities 416 216 80 45 182 95 1,034 418 1,452

Investments in fixed assets 1 78 1 2 3 1 86 212 298

Depreciation and write-downs 4 14 2 2 12 2 36 176 212

Average number of employees 479 328 198 248 283 262 1,798 890 2,688

Number of employees at year end 437 323 197 228 283 255 1,723 893 2,616

Employees previously reported in the segment Defence are included in the financial statements in Europe West.

External net sales

GROUP


Sweden 455 425

Rest of the World 2,579 2,279

Total 3,034 2,704

Fixed assets

GROUP


Sweden 730 764 Rest of the World 707 593

Total 1,437 1,357

NOTE 3. LICENSE REVENUE

GROUP


License revenue, IFS 511 518

Third-party license revenue 47 17

Total 558 535

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 1,005 875

Third-party maintenance and support revenue 32 27

Total 1,037 902

NOTE 5. OTHER REVENUE

GROUP PARENT COMPANY

SKr, million 2014 2013 2014 2013

Hardware 3 2 - - Parent Company services - - 19 22

Miscellaneous 9 9 - -

Total 12 11 19 22

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NOTE 6. DEVELOPMENT EXPENDITURE GROUP


Product development expenditure -304 -281

Amortization of capitalized product development -175 -153

Other amortization -14 -14 Capitalized expenditure for product development 190 188

Total -303 -260

NOTE 7. SALES AND MARKETING EXPENSES

GROUP SKr, million 2014 2013

Sales and marketing expenses -96 -97

Corporate sales and marketing expenses -28 -43

Local sales and marketing expenses -511 -451

Total -635 -591

NOTE 8. OTHER OPERATING INCOME

GROUP


Reversal of unused restructuring reserve 2 14

Rental income 1 1 Miscellaneous 1 1

Total 4 16

NOTE 9. OTHER OPERATING EXPENSES

GROUP


Exchange rate losses, net -24 -14

Restructuring costs -8 -95

Miscellaneous -3 -12

Total -35 -121

NOTE10. TRANSACTIONS BETWEEN SUBSIDIARIES

In the Parent Company, SKr 19 million (22), or 100 percent (100) of the sales for the year, and SKr 0 million (0), or 1 percent (0) 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 -367 -290

Capitalized development cost 190 188 Personnel costs -1,771 -1,627

Travel expenses -135 -119

Costs for rented premises and other property costs -106 -108

External services -102 -100 Marketing and selling expenses -90 -88

Amortization, depreciation, and write-downs -242 -212

Other indirect expenses -105 -100

Total -2,728 -2,456

NOTE 12. AUDITORS’ FEES GROUP PARENT COMPANY

SKr, million 2014 2013 2014 2013

PricewaterhouseCoopers

Audit engagement -4 -4 -1 -2

Audit business in addition to the audit engagement 0 0 0 0 Tax consultancy -4 -4 -1 -1

Other services 0 -2 - -2

Total -8 -10 -2 -5

Other auditors

Audit engagement -1 -1 - -

Audit business in addition to the audit engagement 0 -1 - -1

Tax consultancy -1 -1 - -

Other services 0 0 - -

Total -2 -3 0 -1

Total fees -10 -13 -2 -6

“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. This includes, for example, the review of IFS’s interim report. NOTE 13. SALARIES, OTHER REMUNERATIONS, AND SOCIAL COSTS


SKr, million 2014 2013 2014 2013

Salaries and other remunerations -1,355 -1,236 -15 -11

Social costs -256 -243 -3 -3

Pension costs, defined benefit plans (see Note 37) -10 -11 - -4

Pension costs, defined contribution plans (see Note 37) -71 -68 -1 -2

Other personnel costs -79 -69 -2 -1

Total -1,771 -1,627 -21 -21

Pension expenses reported as financial expenses -2 -4 - -

Total -1,773 -1,631 -21 -21

Of the Parent Company’s pension expenses, SKr 198,000 (705,000) pertained to the board of directors and CEO. The corresponding amount for the Group was SKr 3 (4) million. NOTE 14. REMUNERATIONS PAID TO THE BOARD AND EXECUTIVE MANAGEMENT

Definitions Since the AGM held on March 26, 2014, the board has consisted of Anders Böös (chairman), Ulrika Hagdahl, Birgitta Klasén, Neil Masom, Bengt Nilsson (deputy chairman), and Alastair Sorbie (president and CEO). In addition to the CEO, executive management comprises the Company’s CFO Paul Smith, the vice president of Business Development Fredrik vom Hofe, and the general counsel Jesper Alwall. Executive management participates in regular operational reviews under the leadership of the president. ’Other officers’ means

47

regional and country management as well as group-level management positions in strategic functions. Remuneration principles According to the resolution adopted by the AGM, board members received SKr 3,050,000 in fees during 2014/2015, of which SKr 1,400,000 was paid to the chairman of the board and SKr 375,000 to each member not employed by the Company. Audit committee work was remunerated with SKr 100,000 to the chairman and SKr 50,000 to other member. 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 2014, 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 been made in the form of financial instruments. Remuneration and other benefits during the year Remuneration of the president and executive management

2014

SKr, thousand Basic salary

Variable remun.

Other benefits

Pension benefits

Total

President and CEO 4,680 413 0 197 5,291

Other group management 5,609 2,060 362 1,218 9,250

Total 10,289 2,473 362 1,415 14,540

2013

SKr, thousand Basic salary

Variable remun.

Other benefits

Pension benefits

Total

President and CEO 3,551 355 - 705 4,611

Other group management 5,126 1,998 95 1,517 8,736

Total 8,677 2,353 95 2,222 13,347

Comments on the table: • Executive management consisted of four persons during

the year. • Other benefits refer primarily to company cars and

options.

Holdings in stock and financial instruments Stockholdings

Series-A

shares, no. Series-B

shares, no. Options

BOARD OF DIRECTORS Anders Böös (Chairman) 427,010 - -

Ulrika Hagdahl - 30,000 -

Birgitta Klasén - 12,000 -

Neil Masom - - -

Bengt Nilsson 150,000 - - Alastair Sorbie (CEO) - 8,526 94,875

Total 577,010 50,526 94,875

EXECUTIVE MANAGEMENT Jesper Alwall - - 1,929

Fredrik vom Hofe - - 10,015

Paul Smith - - 63,250

Total - - 75,194

Comments on the table: • Holdings of stock and options are reported net after

acquisitions and divestments for the year. • Holdings including family and associated companies. • Stock and options held as of December 31, 2014. Period of notice and severance pay If the company terminates the employment, the CEO is to receive 12 months’ notice; if the CEO terminates the employment, the company is to receive 12 months’ notice. In addition, the CEO shall receive 12 months’ severance pay, as well as variable remuneration in an amount corresponding to the variable remuneration paid in the immediately preceding year. For executive management, the notification period is between 12 months from the company and 3 to 6 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 and executive mgmt Note 14 • shares in subsidiaries Note 26 • participations in associated companies

and joint ventures Note 27 • receivables from subsidiaries Note 28 • stockholders’ equity Note 34 • other liabilities Note 39 • pledged assets Note 41 • contingent liabilities Note 42 Bengt Nilsson, member of the board of IFS, is part-owner of Pagero AB, a partner company of IFS. The volume of transactions with Pagero during the year amounted to

48

SKr 0 million (0). No important transactions occurred with related parties during the year besides what is outlined above and in the notes referred to. NOTE 16. AVERAGE NUMBER OF EMPLOYEES PER COUNTRY


2014 2013 2014 2013

Sweden 437 467 3 3

of whom, women 134 143 - -

Australia 23 21 - - Brazil 55 55 - -

Canada 10 12 - -

China 40 41 - -

Czech Republic 21 21 - - Denmark 46 44 - -

Finland 68 68 - -

France 70 71 - -

Germany 150 140 - - Hungary 20 20 - -

India 53 66 - -

Italy 4 5 - -

Japan 11 9 - - Kazakhstan 2 2 - -

Malaysia 9 9 - -

Netherlands 48 44 - -

Norway 144 155 - - Poland 140 160 - -

Russia 24 37 - -

Singapore 9 11 - -

Slovakia 8 8 - - South Africa 21 18 - -

Spain 26 26 - -

Sri Lanka 715 685 - -

Switzerland 10 9 - - Thailand 15 13 - -

United Arab Emirates 23 23 - -

United Kingdom* 227 232 - -

United States 216 216 - -

Total, subsidiaries abroad 2,208 2,221 - - of whom, women 678 679 - -

Total 2,645 2,688 3 3

of whom, women 812 822 - - *United Kingdom includes those employees who were reported in 2013 in joint venture in the United Kingdom.

Board members and other officers


On December 31 2014 2013 2014 2013

Board members 62 56 6 6

of whom, women 13 12 2 2

President and other senior executives 96 83 3 3 of whom, women 21 16 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


Anticipated dividend from subsidiaries 65 -

Group contribution received from subsidiaries 55 -

Write-down of receivables in subsidiaries -2 0

Total 118 0

NOTE 18. RESULTS FROM PARTICIPATIONS IN ASSOCIATED COMPANIES

GROUP


Share in profit, IFS Retail AB 0 -1

Share in profit, Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S 1 1

Total 1 0

NOTE 19. OTHER INTEREST INCOME AND SIMILAR INCOME


SKr, million 2014 2013 2014 2013

External interest 3 3 1 1

Interest from subsidiaries - - 57 57

Total 3 3 58 58

NOTE 20. INTEREST EXPENSES AND SIMILAR EXPENSES


SKr, million 2014 2013 2014 2013

External interest costs -8 -10 -8 -9

Interest costs to subsidiaries - - -8 -5

Exchange rate losses, net -8 -1 -18 -4

Capitalized interest costs for development production 0 1 - -

Interest costs for defined-benefit pension plans -2 -4 0 0 Other financial costs -3 -7 -4 -5

Total -21 -21 -38 -23

NOTE 21. TAXES


SKr, million 2014 2013 2014 2013

Current tax

Current tax -56 -21 -6 -

Current tax relating to previous years 1 0 - -

-55 -21 -6 -

Deferred tax

Deferred tax relating to loss carry forward -9 -5 - -5

Deferred tax relating to temporary differences 17 -15 -8 1

8 -20 -8 -4

Total tax income/expense -47 -41 -14 -4

49


SKr, million 2014 2013 2014 2013

DIFFERENCES BETWEEN REPORTED TAX EXPENSES AND TAX EXPENSES BASED ON PREVAILING TAX RATES

Profit/loss before tax 258 184 124 17 Tax according to prevailing rate (22.0 percent) -57 -40 -27 -4 Not taxable dividend from subsidiaries - - 14 -

Other non-deductible expenses -4 -9 -1 0

Not taxable income 2 13 0 0

Effect of foreign tax rates -3 2 - - Tax relating to previous years 1 0 - -

Capitalized loss carry forward 20 - - -

Utilized loss carry forward, not previously accounted for 1 2 - -

Losses for which deferred tax has not been considered -7 -9 - -

Total -47 -41 -14 -4

NOTE 22. PROFIT AND DIVIDEND PER SHARE

Earnings per share GROUP

2014 2013

Profit for the year allocated to parent company shareholders, SKr million 213 144

Average no. of shares during the period, thousands 24,772 24,772 Adjustments for options program 430 424

Weighted average no. of outstanding shares after full dilution, thousands 25,202 25,196

Profit/loss per share before full dilution, SKr 8.60 5.81 Profit/loss per share after full dilution, SKr 8.45 5.72

Dividends per share

GROUP

SKr 2014 2013

Dividend per share accounted for during the year 3.50 3.50

Coming years' proposed dividend per share 4.50 3.50

Dividends paid during the year amounted to SKr 86,701,405 (86,701,405) on outstanding shares less treasury shares. A dividend totaling SKr 111,473,235 for fiscal 2014 will be proposed at the AGM to be held on March 25, 2015.

NOTE 23. 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, 2013 2,211 8 2,219

397 292

2,908

Acquisition of operations - - -

35 35

70 Purchases 190 1 191

- 0

191

Sales/disposals -382 - -382

-26 -40

-448

Exchange differences during the year 2 - 2

-4 -2

-4

Closing balance Dec 31, 2013 2,021 9 2,030 402 285 2,717

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2013 -1,641 -5 -1,646

- -162

-1,808

Sales/disposals 380 - 380

- 40

420 Depreciation during the year -154 -2 -156

- -30

-186

Exchange differences during the year -1 - -1

- 4

3

Closing balance Dec 31, 2013 -1,416 -7 -1,423 - -148 -1,571

Book value Dec 31, 2013 605 2 607 402 137 1,146

ACCUMULATED WRITE-DOWNS Opening balance Jan 1, 2013 -13 0 -13

-4 -22

-39

Write-down for the year - - -

- -4

-4

Closing balance Dec 31, 2013 -13 0 -13 -4 -26 -43

Book value Dec 31, 2013 592 2 594 398 111 1,103

50

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, 2014 2,021 9 2,030

402 285

2,717

Purchases 192 0 192

- 0

192

Sale/disposals 0 - 0

- -2

-2 Re-classification - - 0

- 2

2

Exchange differences during the year 1 - 1

54 18

73

Closing balance Dec 31, 2014 2,214 9 2,223 456 303 2,982

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2014 -1,416 -7 -1,423

- -148

-1,571

Sale/disposals -12 - -12

- 2

-10 Depreciation during the year -175 -1 -176

- -37

-213

Exchange differences during the year -3 - -3

- -10

-13

Closing balance Dec 31, 2014 -1,606 -8 -1,614 - -193 -1,807

Book value Dec 31, 2014 608 1 609 456 110 1,175

ACCUMULATED WRITE-DOWNS Opening balance Jan 1, 2014 -13 0 -13

-4 -26

-43

Write-down for the year 12 - 12

- -

12

Closing balance Dec 31, 2014 -1 0 -1 -4 -26 -31

Book value Dec 31, 2014 607 1 608 452 84 1,144

• 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 10.5 percent (13.3) before tax, corresponding to 8 percent (10) after tax.

• Revenue growth in the forecast period has been presumed to be 4.0–6.1 percent (4.0–5.1) and the EBIT margin has been presumed to be 11.8–19.8 percent (12.3–18.9).

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 percentage 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


Group items

GROUP

Booked value December 31, 2013 44 107 2 0 225 7 13 398 Booked value December 31, 2014 44 121 2 0 264 8 13 452

51

Depreciation included in the income statement, per function GROUP


License costs -26 -20

Maintenance and support costs 0 0

Consulting costs 0 0 Research and development expenditure -187 -165

Administration costs 0 -1

Total -213 -186

NOTE 24. TANGIBLE FIXED ASSETS

GROUP SKr, million

Buildings and land

Leasing, inventories

Computers

Office equipment

Other inventories

Total

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2013 65 14 153 112 5

349

Acquisition of subsidiary 0 - 0 - -

0

Purchases 6 - 16 13 2

37

Sales/disposals -2 -3 -9 -4 -1

-19

Reclassifications - -2 2 -1 -

-1 Exchange differences during the year 0 0 0 0 0

0

Closing balance Dec 31, 2013 69 9 162 120 6 366

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2013 -30 -10 -120 -96 -3

-259

Depreciation during the year -3 -1 -15 -6 -1

-26

Sales/disposals 1 2 8 3 0

14 Reclassifications 0 1 -1 1 -

1

Exchange differences during the year 0 0 0 0 0

0

Closing balance Dec 31, 2013 -32 -8 -128 -98 -4 -270

Book value Dec 31, 2013 37 1 34 22 2 96

GROUP SKr, million

Buildings and land


Computers

Office equipment

Other inventories

Total

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2014 69 9 162 120 6

366

Purchases 6 0 24 9 1

40

Sales/disposals -1 0 -7 -3 0

-11

Reclassifications - -1 -1 - -

-2

Exchange differences during the year 8 0 15 10 1

34

Closing balance Dec 31, 2014 82 8 193 136 8 427

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2014 -32 -8 -128 -98 -4

-270

Depreciation during the year -4 0 -16 -8 -1

-29

Sales/disposals 1 0 7 3 0

11

Reclassifications - 1 0 - -

1 Exchange differences during the year -4 0 -13 -8 0

-25

Closing balance Dec 31, 2014 -39 -7 -150 -111 -5 -312

Book value Dec 31, 2014 43 1 43 25 3 115

52

PARENT COMPANY SKr, million

Buildings and land


Computers

Office equipment

Other inventories

Total

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2013 - - 1 1 -

2

Closing balance Dec 31, 2013 - - 1 1 - 2

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2013 - - -1 -1 -

-2

Closing balance Dec 31, 2013 - - -1 -1 - -2

Book value Dec 31, 2013 - - 0 0 - 0

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2014 - - 1 1 -

2

Closing balance Dec 31, 2014 - - 1 1 - 2

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2014 - - -1 -1 -

-2

Closing balance Dec 31, 2014 - - -1 -1 - -2

Book value Dec 31, 2014 - - 0 0 - 0

* Category Computer 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 -1 -1

Maintenance and support costs -2 -2

Consulting costs -4 -4 Development expenditure -2 -2

Administration costs -20 -17

Total -29 -26

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 25. 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 2014 2013

Due for payment within one year 65 92

Due for payment later than one year but within five years 270 195 Due for payment later than five years 32 43

Total 367 330

53

NOTE 26. PARTICIPATIONS IN SUBSIDIARIES

Organization no.

Registered office

Share of capital/votes

Number of shares

Book value, SKr million,

2014

Book value, SKr million,

2013

IFS Americas, Inc.

USA 100% 100 105 104 IFS North America, Inc.

USA 100%

- -

IFS Industrial & Financial Systems Canada Inc.

Canada 100%

- - Metrix LLC

USA 100%

- -

IFS Europe AB 556139-5541 Sweden 100% 7,500 142 141 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%

- - Industrial and Financial Systems Central and Eastern Europe Sp. z o.o Poland 100%

- -

IFS Region RU

Russia 90%

- - Industrial and Financial Systems KZ

Kazakhstan 90%

- -

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%

- - SCI Le Chateau

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%

- - 360 Scheduling s.a.r.l

France 100%

- -

Application Software IFS South Africa (Pty) Ltd

South Africa 100%

- - IFS Aerospace & Defence Ltd

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 0 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%

- -

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 0 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% 2,400 588 588

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%

- -

Total book value in the Parent Company 994 992

54

PARENT COMPANY


ACCUMULATED ACQUISITION VALUE Opening balance 2,258 2,258

Incentive program for key personnel 2 0

Closing balance 2,260 2,258

ACCUMULATED WRITE-DOWNS Opening balance -1,266 -1,266

Closing balance -1,266 -1,266

Book value 994 992

NOTE 27. PARTICIPATIONS IN ASSOCIATED COMPANIES AND JOINT VENTURES

GROUP


Opening balance 3 3

Share in earnings of associated companies 1 0

Exchange differences 0 0

Closing balance 4 3

Registered office

Net revenue Earnings

before tax

Assets

Liabilities

Equity Share of

capital/votes

2014

INDIRECTLY OWNED Application Software IFS South Africa (Pty) Ltd South Africa 0 0 0 0 0 49.00%

Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S Turkey 13 1 9 5 4 25.00% IFS Retail AB * Sweden 8 0 - - - 49.99%

2013

INDIRECTLY OWNED IFS Defence (pty) Ltd.** United Kingdom 54 60 - - - 50.00%

Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S Turkey 11 1 5 2 3 25.00%

IFS Retail AB Sweden 5 -1 2 2 0 49.99%

* Starting October 1, the company is classified as a subsidiary. ** Accounted for according to the Proportional Method. See below.

The values in the table are the Group’s share of net sales, earnings before taxes, assets, liabilities, and equity. Shares in joint ventures On December 31, 2013, the group and BAE Systems plc completed the restructuring of their joint venture IFS Defence Ltd. As a result of the restructuring, the trade, assets, and employees focused on IFS Applications were transferred into a new 100-percent owned subsidiary to IFS UK Ltd, IFS Aerospace & Defence Ltd. The remaining business of IFS Defence was retained by BAE Systems plc, which also became a 100-percent owner of the former joint venture. NOTE 28. RECEIVABLES IN SUBSIDIARIES

PARENT COMPANY

SKr million 2014 2013

Subordinated receivables 2 24

Other long-term receivables in subsidiaries 55 49

Total 57 73

NOTE 29. DEFERRED TAX ASSETS AND TAX LIABILITIES


SKr, million 2014 2013 2014 2013

DEFERRED TAX CLAIMS CONCERNING

Temporary differences 83 76 2 1

Deficit deduction 63 56 0 9

Total 146 132 2 10

DEFERRED TAX LIABILITIES CONCERNING

Temporary differences 10 46 - -

Total 10 46 - -

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 2014 2013 2014 2013

DEFERRED TAX LIABILITIES

Fixed assets 7 27 - -

Provisions 0 12 - -

Current claims and liabilities 3 7 - 0

Total deferred tax liabilities 10 46 - 0

DEFERRED TAX CLAIMS

Fixed assets 5 14 - 1

Current claims and liabilities 40 44 1 -

Provisions 38 19 1 -

Fiscal deficit deduction 127 132 - 9

Total deferred tax claims 210 209 2 10

Unreported deferred tax claims concerning deficit deductions and temporary differences -64 -77 - - Total unreported deferred tax claims -64 -77 - -

Total deferred tax claims, net 146 132 2 10

Deferred tax claims, net 136 86 2 10

55

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 2014 2013 2014 2013

2015 (2014) 7 4 - -

2016 (2015) 0 1 - -

2017 (2016) 3 1 - - 2018 (2017) 3 0 - -

2019 (2018) 15 6 - -

Later 74 84 - -

No time limit 25 36 - 9

Total 127 132 - 9

NOTE 30. OTHER LONG-TERM RECEIVABLES

SKr, million

Deposits

Other financial assets

Total

GROUP Opening balance, Jan 1, 2013 26 2 28

Changes during the year -5 0 -5

Closing balance, Dec 31, 2013 21 2 23

Changes during the year 5 - 5


PARENT COMPANY Opening balance, Jan 1, 2013 0 2 2

Changes during the year - - -


Changes during the year - - -


NOTE 31. ACCOUNTS RECEIVABLE

GROUP


Accounts receivable, gross 848 796

Provision for doubtful receivables -58 -56

Accounts receivable, net 790 740

AGE ANALYSIS Accounts receivable, not due 519 519

Due 1–30 days 196 181

Due 31–90 days 55 20

Due >90 days 20 20

Total 790 740

Change in the reserve for doubtful receivables

GROUP


On January 1 56 59

Provision for doubtful receivables 20 26 Receivables written off during the year -8 -12

Reversed unused amounts -10 -17

On December 31 58 56

NOTE 32. OTHER RECEIVABLES GROUP


Receivables, associated companies 9 8

Ongoing assignments 57 49

Accrued license revenue 7 4 Other prepaid expenses 76 70

Other accrued income 75 23

Other receivables 38 46

Total 262 200

NOTE 33. LIQUID ASSETS

The effective interest rate for current investments during 2014 was 7.75 percent. The current investments, located in an overseas territory, had an average duration of 60 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. GROUP PARENT COMPANY

SKr, million 2014 2013 2014 2013

Cash and bank 480 346 217 121

Current investment 9 8 - -

Total 489 354 217 121

NOTE 34. 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.

56

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 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, 2013 1,368,913 24,012,009 25,380,922

Conversion of shares from Series A to Series B -106,468 106,468 0

Cancellation of shares bought back, in own custody - -409,092 -409,092

Shares on Dec 31, 2013 1,262,445 23,709,385 24,971,830

Conversion of shares from Series A to Series B -178,342 178,342 0

Shares on Dec 31, 2014 1,084,103 23,887,727 24,971,830

Quota value per share, SKr

20.00

Stockholders' equity at end of period, SKr 499,436,600

During the year, 178,342 shares of series A have been converted to series B. At year-end, the company had 200,000 shares in own custody. The shares were repurchased in 2012. Number of shares minus treasury shares held by the company

Thousands 2014 2013

At end of period 24,772 24,772 At end of period, after full dilution 25,177 25,192

Average during the period 24,772 24,772

Average during the period, after full dilution 25,202 25,196

Share options During 2011 the company established an incentive program whereby senior executives and key personnel (see Note 14) were invited to acquire, on market terms, warrants in the company. Each warrant affords the employee the opportunity, under certain conditions related to the company’s earnings per share in 2011, to receive not more than a further three warrants free of charge. Under the conditions, one warrant may be received if 85 percent of targets are achieved; two warrants if 100 percent of targets are achieved, and three warrants if 115 percent of targets are achieved.

Each warrant entitles the warrant holder to acquire Series B shares in IFS during the period from the publication of the first quarter earnings in 2014 up to and including June 29, 2016. The exercise price for the warrants amounts to SKr 131.90. The price per warrant was SKr 17.87. The warrants have been evaluated according to the Black & Scholes method. On calculation, the parameters were a risk-free interest of 3.01 percent and volatility of 25 percent over 12 months, a period of maturity of 4.74 years and an assumed

dividend of SKr 3.55 in 2012, SKr 4.29 in 2013, SKr 4.90 in 2014, and SKr 5.64 in 2015. The Group has preferential rights to repurchase the warrants should a holder wish to divest a holding.

The outcome regarding earnings per share for the year 2011 meant that two warrants were granted.

During 2012 the company established an incentive program whereby senior executives and key personnel (see Note 14) were invited to acquire, on market terms, warrants in the company. Each warrant affords the employee the opportunity, under certain conditions related to the company’s earnings per share in 2012, to receive not more than a further three warrants free of charge. Under the conditions, one warrant may be received if 85 percent of targets are achieved; two warrants if 100 percent of targets are achieved, and three warrants if 115 percent of targets are achieved.

Each warrant entitles the warrant holder to acquire Series B shares in IFS during the period from the publication of the first quarter earnings in 2015 up to and including June 29, 2017. The exercise price for the warrants amounts to SKr 122.20. The price per warrant was SKr 9.23. The warrants have been evaluated according to the Black & Scholes method. On calculation, the parameters were a risk-free interest of 1.41 percent and volatility of 21 percent over 12 months, a period of maturity of 4.74 years and an assumed dividend of SKr 4.16 in 2012, SKr 4.87 in 2013, SKr 5.47 in 2014, and SKr 6.29 in 2015. The Group has preferential rights to repurchase the warrants should a holder wish to divest a holding. The outcome regarding earnings per share for the year 2012 meant that no warrants were granted.

During 2013 the company established an incentive program whereby senior executives and key personnel (see Note 14) were invited to acquire, on market terms, warrants in the company. Each warrant affords the employee the opportunity, under certain conditions related to the company’s earnings per share in 2013, to receive not more than a further three warrants free of charge. Under the conditions, one warrant may be received if 85 percent of targets are achieved; two warrants if 100 percent of targets are achieved, and three warrants if 115 percent of targets are achieved.

Each warrant entitles the warrant holder to acquire Series B shares in IFS during the period from the publication of the first quarter earnings in 2016 up to and including June 29, 2018. The exercise price for the warrants amounts to SKr 130.70. The price per warrant was SKr 8.23. The warrants have been evaluated according to the Black & Scholes method. On calculation, the parameters were a risk-free interest of 0.93 percent and volatility of 19 percent over 12 months, a period of maturity of 4.74 years and an assumed dividend of SKr 3.88 in 2013, SKr 5.00 in 2014, SKr 5.69 in 2015, and SKr 6.29 in 2016. The Group has preferential rights to repurchase the warrants should a holder wish to divest a holding.

The outcome regarding earnings per share for the year 2013 meant that two warrants were granted.

During the year the company established an incentive program whereby senior executives and key personnel (see

57

Note 14) were invited to acquire, on market terms, warrants in the company. Each warrant affords the employee the opportunity, under certain conditions related to the company’s earnings per share in 2013, to receive not more than a further three warrants free of charge. Under the conditions, one warrant may be received if 85 percent of targets are achieved; two warrants if 100 percent of targets are achieved, and three warrants if 115 percent of targets are achieved.

Each warrant entitles the warrant holder to acquire Series B shares in IFS during the period from the publication of the first quarter earnings in 2017 up to and including June 28, 2019. The exercise price for the warrants amounts to SKr 206.80. The price per warrant was SKr 16,60. The warrants have been evaluated according to the Black & Scholes method. On calculation, the parameters were a risk-free interest of 1,26 percent and volatility of 18 percent over 12 months, a period of maturity of 4.8 years and an assumed dividend of SKr 4,50 in 2014, SKr 5.00 in 2015, SKr 5.50 in 2016, SKr 6.05 in 2017, and SKr 6.66 in 2018. The Group has preferential rights to repurchase the warrants should a holder wish to divest a holding.

The cost of the program has been reported as personnel-related expenses amounting to SKr 0 million.

In the beginning of 2014, the company issued a time-limited invitation to redeem outstanding warrants related to program TO09B that was issued in 2010 for cash. The company repurchased warrants corresponding to 194,087 shares. Changes in the number of outstanding share options and their weighted average strike price are as follows:

2014 2013

Average strike price

Options, thousands

Average strike price

Options, thousands

On January 1 130.01 420 118.32 466

Issued 206.80 239 130.70 213 Exercised - - - -

Bought back 131.90 -194 -118.09 -206 Indexation of strike price on options issues in previous years - - 8.00 206

Unallocated 206.08 -60 130.70 -53

On December 31 163.09 405 130.01 420

Outstanding share options at year-end have the following year of maturity and strike prices:

Options, thousands

Maturity, coming years Strike price 2014 2013

2014–2016 131.90 4 198

2015–2017 122.20 62 62 2016–2018 130.70 160 160

2017–2019 206.80 179 -

Total 405 420

NOTE 35. LIABILITIES TO CREDIT INSTITUTIONS


SKr, million 2014 2013 2014 2013

LONG-TERM LIABILITIES

Financial leasing liabilities 0 0 - -

CURRENT LIABILITIES

Bank loan 130 197 130 197

Financial leasing liabilities 0 0 - -

Total 130 197 130 197 Granted overdraft facility and line of credit 500 500 500 500 Unused overdraft facility and line of credit 370 303 370 303

Used overdraft facility and line of credit 130 197 130 197

NOTE 36. 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 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

Bank loan 130 197

- -

- -

- -

130 197

Financial leasing liabilities - 0

- -

0 -

- -

0 0

Total 130 197 - - 0 - - - 130 197

Loan and credit maturity in the interval

0–6 MONTHS 7–12 MONTHS 13–60 MONTHS MORE THAN 60 MONTHS TOTAL

Nominal amount 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

Bank loan - -

130 0

- 197

- -

130 197 Financial leasing liabilities - 0

- 0

0 0

- -

0 0

Derivatives 3 3

- -

- -

- -

3 3

Accounts payable and other loans 127 111

- 0

- -

- -

127 111

Total 130 114 130 0 0 197 - - 260 311

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NOTE 37. PENSION COMMITMENTS

Commitments in the balance sheet GROUP


Defined-benefit pension plans 166 37

Other pension commitments 2 2

Total 168 39

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 143 23

Norway 19 10 Other countries 4 4

Total provisions for pensions 166 37

Defined-benefit pension plans, 2014 The amounts reported in the consolidated balance sheet have been calculated according to the following: Net value defined-benefit pension plans

SKr, million

Sweden

Norway

Other countries

Total

Present value of funded obligations 497 95 - 592

Fair value of plan assets -354 -76 - -430

Total 143 19 - 162

Present value of unfunded obligations - - 4 4

Total 143 19 4 166

Change in the defined-benefit commitment during the year is as follows:

GROUP


Defined Benefit Obligation (DBO), beginning of the year 408 454

Current Service Cost 10 11

Interest Cost 19 18 Expected benefit paid (pensions payment) -5 -7

Special employer's contribution 26 -23

Exchange rate differences 0 -6 Experience gains / losses -14 9 Actuarial gain / loss due to change in demographic assumptions - 6 Actuarial gain / loss due to change in financial assumptions 152 -54

Defined Benefit Obligation (DBO), end of the year 596 408

Change in fair value of plan assets during the year is as follows:

GROUP


Fair value of plan assets, beginning of the year 371 346

Interest income 17 14

Employer contributions 35 25 Benefits paid (pensions payment) -2 -3

Exchange rate differences 0 -7

Actuarial gain / loss during the period 9 -4

Fair value of plan assets, end of the year 430 371

Defined-benefit pension plans, 2014 Specification of the changes in net liabilities recognized in the Group’s balance sheet: Specification of change in net liability

SKr, million

Sweden

Norway

Other countries

Total

Net liability at beginning of year 25 8 4 37

Net cost reported in income statement 5 7 0 12 Employer's contributions to funded plans -27 -8 - -35 Pension payments reduced with compensation -3 - - -3

Special employer's contribution 26 - - 26 Exchange rate differences in international plans - 0 - 0

Experience gains / losses -12 -2 - -14 Actuarial gain / loss due to change in financial assumptions 129 14 - 143

Net liability at end of year 143 19 4 166

Key actuarial assumptions

Sweden Norway United Kingdom

2014 2013 2014 2013 2014 2013

Discount rate 3.4% 4.6% 2.3% 4.0% - 4.6%

Future annual salary increases 3.0% 2.2% 2.8% 3.8% - 3.8%

Future annual pension increases 2.0% 2.0% 0.0% 0.6% - 3.3%

For 2014 and 2013, 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 24 million for fiscal year 2015. Sensitivity analysis The current value of the commitment for the Swedish defined-benefits pension plans amounts to SKr 474 million excluding special payroll tax. If the discount rate had been one percentage point higher, the liability would have decreased by SKr 114 million; if it had been one percentage point lower, the liability would have increased by SKr 151 million. If the average life expectancy increases by 1 year, the liability will increase by SKr 21 million; if it decreases by 1 year, the liability will decrease by SKr 22 million.

The corresponding figures for Norway amount to a present value of SKr 95 million for the commitment. If the discount rate had been one percentage point higher, the liability

59

would have decreased by SKr 16 million; if it had been one percentage point lower, the liability would have increased by SKr 18 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 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% 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, 8 percent of the total fixed income portfolio consisted of real interest bonds of long-term duration.

The weighted average term for pension commitments is 28 years. The asset plans consist of the following:

2014 2013

Quoted Unquoted Total Quoted Unquoted Total

Share-based investments 21% - 21% 18% - 18%

Structured products - 12% 12% - 9% 9%

Real-interest based investments - 10% 10% - 15% 15%

Long-term interest-bearing investments 15% 6% 21% 12% 6% 18% Short-term investments, cash, and cash equivalents 31% - 31% 34% - 34%

Other assets - 5% 5% - 6% 6%

Total 67% 33% 100% 64% 36% 100%

Defined-contribution pension plans 2014 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 2014, costs pertaining to defined-contribution plans amounted to SKr 71 million (68). Provisions for defined-benefit pension plans

PARENT COMPANY


Provisions according to the Swedish Act on Income Security 0 5

NOTE 38. OTHER PROVISIONS AND OTHER LIABILITIES

GROUP


Restructuring reserve 2 4 Other provisions 2 2

Total 4 6

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Restructuring reserve

SKr, million Group

Opening balance Jan 1, 2013 10

Reversal, restructuring reserve -17

Provision, restructuring reserve 95 Use of restructuring reserve -62

Effects of exchange rate fluctuations 0

Closing balance Dec. 31, 2013 26

Less current portion -22

Restructuring reserve, long term 2013 4

Reversal, restructuring reserve -4

Provision, restructuring reserve 8 Use of restructuring reserve -29

Effects of exchange rate fluctuations 3

Closing balance Dec. 31, 2014 4

Less current portion -2

Restructuring reserve, long term 2014 2

NOTE 39. OTHER LIABILITIES

GROUP


Deferred maintenance revenue 478 408 Deferred license- and consulting revenue 26 25

Accrued consulting expenses 39 7

Advances from customers 6 0

VAT liabilities 103 100 Accrued payroll expenses 240 212

Accrued pension cost, defined contribution plans 22 15

Accrued social security contributions 73 86

Retained preliminary tax for employees 33 33 Liabilities to employees 5 3

Accrued expenses, third-party suppliers 27 23

Accrued interest expenses 1 1

Liabilities to associated companies 1 2 Derivatives held for trading 3 3

Miscellaneous other liabilities 6 0

Other accrued expenses 109 99

Other prepaid revenue 4 0

Total 1,176 1,017

NOTE 40. ACCRUED EXPENSES AND PREPAID INCOME

PARENT COMPANY


Accrued interest expenses 1 1

Accrued social security contributions 2 2

Accrued payroll expenses 2 1

Other accrued expenses 3 3

Total 8 7

NOTE 41. PLEDGED ASSETS GROUP PARENT COMPANY

SKr, million 2014 2013 2014 2013

Chattel mortgages 141 141 4 4

Blocked bank accounts 7 7 - -

Shares in subsidiaries - - 979 977 Net assets in subsidiaries 736 559 - -

Other 19 14 - -

Total 903 721 983 981

Mortgages, receivables and shares in subsidiaries have been pledged as security for the revolving credit facility. Liabilities to credit institutions are detailed in Note 35. Net assets in subsidiaries pertain to the corporate net assets. NOTE 42. CONTINGENT LIABILITIES


SKr, million 2014 2013 2014 2013

Sureties, external 17 21 15 19

General surety for subsidiaries - - 11 11

Parent Company guarantees - - 5 5

Total 17 21 31 35

NOTE 43. ADJUSTMENTS FOR ITEMS NOT INCLUDED IN CASH FLOW


SKr, million 2014 2013 2014 2013

Depreciation 242 212 - -

Restructuring costs, net -22 16 - -

Provisions for pensions -12 -94 1 4

Bad debts 8 10 - - Exchange rate gains/losses, net 38 15 21 4

Write-down of financial assets 0 0 2 0

Interest costs for the year 13 21 9 14

Interest income for the year -3 -2 -1 -1 Other adjustments 0 6 -3 2

Total 264 184 29 23

NOTE 44. BUSINESS COMBINATIONS

During the year, the remaining outstanding shares in IFS Retail AB have been acquired. The acquisition had a marginal effect on the financial statements.

On December 31, 2013, the group and BAE Systems plc completed the restructuring of their joint venture IFS Defence Ltd. As a result of the restructuring, the trade, assets, and employees focused on IFS Applications were transferred into a new 100-percent owned subsidiary to IFS UK Ltd, IFS Aerospace & Defence Ltd. The remaining business of IFS Defence was retained by BAE Systems plc, which also became a 100-percent owner of the former joint venture. The transaction resulted in a one-off gain of SKr 47 million and is recognized as other operating revenue in the consolidated earnings for the period.

The goodwill recognized for the acquisition corresponds to the company’s market position in the aerospace & defense market, the expertise and experience of the workforce in serving this market, and anticipated future growth opportunities. As a result of this transaction, IFS will now address this market through its wholly-owned operations,

61

giving IFS greater flexibility to align and deploy its global capabilities to best effect.

For further information, please see the annual report for 2013.

Acquisition analysis

Company SKr, million

Fair value reported in Group value

2014 2013

Intangible fixed assets

- 37

Tangible fixed assets

- 1

Accounts receivable

- 12 Liquid assets, net

- 18

Accounts payable and other liabilities

- -24

Deferred tax liabilities

- -8

Fair value of net assets - 36

Group goodwill

- 39

Total purchase consideration -

Transferred compensation: fair value of share in joint venture - -75

Less liability to seller

- - Liquid assets in the acquired companies

- -

Effect of the year's acquisition on liquid assets - -

NOTE 45. NET ACQUISITION OF TANGIBLE FIXED ASSETS

GROUP


Investments for the year, net -40 -32

Total -40 -32

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 Norwegian kroner (NOK), the euro (€), the pound sterling (£), and the U.S. dollar ($), a reflection of the fact that a considerable amount of Group revenue and payments is 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, including NOK, the euro, the pound sterling, and the Polish zloty.

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, 2014, the Group had outstanding foreign exchange contracts in the following currencies (nominal values): Currency futures contracts, nominal values in SKr million


AED - 22

AUD 13 10

BRL 5 - CAD - 7

CHF 10 6

CZK 7 7

DKK 11 8 EUR 69 67

GBP 41 7

JPY 12 8

NOK 21 42 PLN 76 59

SGD 38 31

USD 12 -

ZAR 3 10

Total 318 284

Moreover, the group uses option instruments that, depending on the spot price on the date of expiry, enable the Group to sell currencies. On December 31, 2014, the Group had outstanding currency options for the sale of EUR 0.9 million, GBP 1.25 million, and NOK 45 million.

62

Currency option contracts, nominal values in SKr million 2014 Maturity

SKr, million within 3 months

3–6 months

6–12 months

EUR Outflow (EUR) 0.5 - 0.4

Inflow (SEK) 4.4 - 3.6

GBP Outflow (GBP) 0.5 0.3 0.5 Inflow (SEK) 5.4 2.8 5.7

NOK Outflow (NOK) 45.0 - -

Inflow (SEK) 47.0 - -

2013 Maturity

SKr, million within 3 months

3–6 months

6–12 months

EUR Outflow (EUR) 1.2 0.7 1.5

Inflow (SEK) 10.4 5.5 13.0

GBP Outflow (GBP) 0.7 0.9 0.7

Inflow (SEK) 7.3 8.9 6.6

NOK Outflow (NOK) 30.0 - -

Inflow (SEK) 33.5 - -

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, 2014, 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. Currency exposure sensitivity analysis

Increase/decrease of rate on balance

sheet day

Profit/loss


USD 10% -0.4 -7.8

-10% 0.4 7.8

EUR 10% -0.1 4.1

-10% -1.1 -3.6

GBP 10% 3.0 3.4 -10% -3.0 -3.6

NOK 10% 1.7 3.8

-10% -2.7 -1.8

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. On December 31, 2014, the company held no interest rate swaps. A sensitivity analysis shows that if the floating interest rate had increased/decreased by 1 percentage point earnings would have been SKr 1 million lower/higher. 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 per cent regardless of age. Accounts receivable are reported net of provisions in the consolidated balance sheet. See Note 31 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. During 2010, the Group entered into a new financing agreement with a duration of 5 years. Under the terms of the agreement, the company shall not take new local operating capital facilities in subsidiaries. At year-end, the average term of contracted loans and credit facilities was 6 months (18 months). 100 percent of the loan portfolio matures within 12 months. It is the intention to refinance the existing loan facility during 2015. 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 36 for a maturity analysis of the loan portfolio.

63

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. Financial assets and liabilities 2014

December 31, 2014 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 2014 Investments Level 3 2 - - 2

Other long-term receivables and other interests

- 26 - 26

Accounts receivable - 790 790 -

Other receivables - 310 310 - Derivatives Level 2 2 - 2 -

Cash and cash equivalents - 489 489 -

Total 4 1,615 1,591 28



Financial liabilities


Other financial liabilities

Of which current


Financial liabilities 2014 Liabilities to credit

institutions - 130 130 -

Accounts payable - 127 127 - Derivatives Level 2 3 - 3 -

Total 3 257 260 -

Financial assets and liabilities 2013 December 31, 2013 SKr, million


Financial assets


Accounts- and other

receivables

Of which current


Financial assets 2013 Investments Level 3 2 - - 2

Other long-term receivables and other interests

- 21 - 21

Accounts receivable - 740 740 -

Other receivables - 235 235 -

Derivatives Level 2 3 - 3 - Cash and cash equivalents - 354 354 -

Total 5 1,350 1,332 23



Financial liabilities


Other financial liabilities

Of which current


Financial liabilities 2013 Liabilities to credit

institutions - 197 197 -

Accounts payable - 111 111 -

Derivatives Level 2 3 - 3 -

Total 3 308 311 -

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 36 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, 2014, amounted to SKr 1,360 million (1,237). 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.

IFS reviews its capital structure and amends it when required. To maintain or amend the company’s capital structure, the company can adjust the level of dividends to stockholders, repurchase shares, issue shares, or sell assets. NOTE 47. APPLICATION OF IFRS 11 ”JOINT ARRANGEMENTS”

As of January 1, 2014, IFRS 11, “Joint Arrangements” joint ventures must be consolidated according to the equity method. Previously, assets, liabilities, revenue, and expenses were recognized on the basis of the party’s interest according to the proportional method. As the new principles affect reporting retrospectively, the new standard has an impact on the consolidation of the joint venture, IFS Defence Ltd. The holding was restructured on December 31, 2013. Thereafter, neither shares in IFS Defence Ltd nor earnings from shares in IFS Defence Ltd are included. This change of principle has no impact on net income or equity.

64

The effect of the change in accounting principle on holdings in joint ventures is detailed in the following tables. Consolidated income statement

SKr million 2013

Net revenue -36

Direct expenses 19

Gross earnings -17

Product development, sales, marketing, and administration expenses 10

Other operating revenue/expenses, net -54

Result from joint venture 59

EBIT -2

Financing expenses and other financial items, net 2

Earnings before tax 0

Tax -

Earnings for the period 0

Consolidated balance sheet

SKr million Dec. 31 2013

Intangible fixed assets -

Tangible fixed assets -

Participation in joint venture -

Deferred tax receivables -

Non-current assets -

Current assets -

Assets -

Shareholders' equity -

Non-current liabilities -

Current liabilities -

Equity and liabilities -

Consolidated statement of cash flows SKr million 2013

Cash flow from operations before change in working capital 8

Change in working capital 18

Cash flow from current operations 26

Cash flow after investment operations 2

Cash flow for the period 63

Cash and cash equivalents at the beginning of the period -63

Exchange rate differences in cash and cash equivalents 0

Cash and cash equivalents at the end of the period 0

NOTE 48. CONVERSION RATES

Rate at year end Average rate

2014 2013 2014 2013

EUR 9.52 8.94 9.10 8.65

GBP 12.14 10.73 11.29 10.19 NOK 1.05 1.06 1.09 1.11

PLN 2.21 2.15 2.17 2.06

USD 7.81 6.51 6.86 6.51

NOTE 49. INFORMATION ABOUT THE PARENT COMPANY

Industrial and Financial Systems, IFS AB, is a Swedish registered company headquartered in Linköping, Sweden. The company is listed on the Nasdaq OMX Stockholm Mid-Cap list. The visiting address of the head office is Teknikringen 5, Linköping, Sweden; its postal address is Box 1545, SE-581 15 Linköping, Sweden.

The consolidated accounts for 2014 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.

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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, March 4, 2015 Anders Böös Ulrika Hagdahl Birgitta Klasén CHAIRMAN OF THE BOARD BOARD MEMBER BOARD MEMBER

Neil Masom Bengt Nilsson Alastair Sorbie BOARD MEMBER BOARD MEMBER BOARD MEMBER VICE CHAIRMAN PRESIDENT AND CEO

As indicated above, the annual report and the consolidated accounts were approved for publication by the board of directors on March 4, 2015. 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 on March 25, 2015.

Our audit report was submitted on March 4, 2015

PricewaterhouseCoopers AB

Nicklas Kullberg AUTHORIZED PUBLIC ACCOUNTANT

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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 We have audited the annual accounts and consolidated accounts of Industrial and Financial Systems, IFS AB (publ) for the year 2014, except for the corporate governance statement on pages 20–25. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 13–66. Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards , as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director 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. Auditor’s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the annual accounts and consolidated accounts 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions 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 the parent company as of 31 December 2014 and of its financial performance and its cash flows 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 2014 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 20–25. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company’s profit or loss and the administration of the Board of Directors and the Managing Director of Industrial and Financial Systems, IFS AB (publ) for the year 2014. We have also conducted a statutory examination of the corporate governance statement. 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, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act and that the corporate governance statement on pages 20–25 has been prepared in accordance with the Annual Accounts Act. Auditor’s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company’s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss, we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Furthermore, we have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a sufficient basis for our opinions. This means that our statutory examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Opinions We recommend to the annual 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.

A corporate governance statement has been prepared, and its statutory content is consistent with the other parts of the annual accounts and consolidated accounts. Stockholm, March 4, 2015 PricewaterhouseCoopers AB Nicklas Kullberg AUTHORIZED PUBLIC ACCOUNTANT

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BOARD OF DIRECTORS

ANDERS BÖÖS Chairman of the board

Principal occupation: directorships.

Other assignments: member of the board of Investment AB Latour, Stronghold Invest AB, Newsec AB, and Tundra Fonder AB.

Work experience: chairman of the board of Cision AB; CEO of Drott AB and H&Q AB.

Born 1964. Elected 2003. Anders Böös is considered independent in relation to the company and its management, but not independent in relation to the major owners of the company.

BENGT NILSSON Deputy chairman of the board

Principal occupation: member of the board, president, and CEO of Pagero AB.

Other assignments: member of the board of Greenfield AB, GreenTrade AB, GreenTrade Aviation AB, Hikka Group AB, Hikkadua Investments AB, Homes and Villas Ltd, Ides AB, Leandev AB, Norelia AB, Payer AB, Pocket Mobile AB, and Primelog AB.

Education: studies at Linköping Institute of Technology.

Work experience: one of the founders of IFS, and of European Flight Service & European Maintenance Service; president and CEO of IFS.

Born 1955. Elected 1983. Bengt Nilsson is considered independent in relation to the company, its management, and its major stockholders.

ULRIKA HAGDAHL Board director


Other assignments: member of the board of Beijer Electronics AB and HiQ International AB.

Education: M.Sc. in Engineering Physics from the Royal Institute of Technology, Stockholm

Work experience: founder of Orc Software AB; CEO and member of the board of Orc Software AB; member of the board of Strålfors AB and Protect Data AB.

Born 1962. Elected: 2003. Ulrika Hagdahl is considered independent in relation to the company, its management, and its major stockholders.

BIRGITTA KLASÉN Board director

Principal occupation: senior IT advisor for Swedish and international corporate management.

Other assignments: member of the board of Assa-Abloy AB, Acando AB, and Avanza AB.

Education: M.Sc. in applied physics from the Royal College of Technology, Stockholm, B.A. from Stockholm University (business economics, psychology, and sociology) and management training courses (Ruter Dam, IFS, and IMD).

Work experience: member of the board of OMX AB and Telelogic AB; CIO at EADS, Pharmacia & Upjohn, and Telia. Prior to this, a long period that included various management positions at IBM, including deputy CEO of IBM’s wholly-owned outsourcing subsidiary, Responsor AB.

Born 1949. Elected 2009. Birgitta Klasén is considered independent in relation to the company, its management, and its major stockholders.

NEIL MASOM OBE Board director


Other assignments: member of the board of High Speed Two (HS2) Ltd, CQC Holdings Ltd, and Solutions SK Ltd.

Education: B.Sc.(Eng) Hons. Imperial College, London.

Work experience: chairman of the board of IFS Defence Ltd and CEO for Logistics and Information Systems in BAE Systems plc.

Born 1959. Elected 2009. Neil Masom is considered independent in relation to the company, its management, and its major stockholders.

ALASTAIR SORBIE Board director, president, and CEO

Principal occupation: president and CEO of IFS AB.

Education: B.Sc. (Hons), University of London.

Work experience: managing director of IFS EMEA, sales director at Avalon Software UK, services director application products at Computer Associates, services director at Pansophic Systems, and director of Insight Applications division of Hoskyns Group.

Born: 1953. Elected: 2006. Alastair Sorbie is not considered independent in relation to the company and its management, but independent in relation to the major stockholders in the company.

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http://www.ifsworld.com/includes/showimage.asp?img=/binaries/birgitta_big_tcm31-79455.jpg

http://www.ifsworld.com/includes/showimage.asp?img=/binaries/Neil Masom Adj_tcm31-81114.jpg

EXECUTIVE MANAGEMENT ALASTAIR SORBIE President and CEO

Born 1953

Employed by IFS since 1997

PAUL SMITH Chief financial officer

Born 1963


FREDRIK VOM HOFE Vice president, Business Development

Born 1966


AUDITORS PricewaterhouseCoopers AB Auditors since 2001

NICKLAS KULLBERG Authorized public accountant and Auditor in charge

Born 1970

JESPER ALWALL General counsel

Born 1969


Holdings in stock and financial instruments December 31, 2014 Stockholdings

Series-A shares, no.

Series-B shares, no. Options

BOARD OF DIRECTORS Anders Böös (Chairman) 427,010 - -

Ulrika Hagdahl - 30,000 -

Birgitta Klasén - 12,000 -

Neil Masom - - -

Bengt Nilsson 150,000 - - Alastair Sorbie (CEO) - 8,526 94,875

Total 577,010 50,526 94,875

EXECUTIVE MANAGEMENT Jesper Alwall - - 1,929

Fredrik vom Hofe - - 10,015

Paul Smith - - 63,250

Total - - 75,194

For information concerning stock and options held by members of the board and executive management, see note 14.

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FINANCIAL TREND

FROM THE INCOME STATEMENTS SKr, million 2010 2011 2012 2013 2014

License revenue

402 431 467 535 558 Maintenance & support revenue

811 823 909 902 1,037

Consulting revenue

1,357 1,311 1,283 1,256 1,427 Other revenue

15 11 17 11 12

Net revenue 2,585 2,576 2,676 2,704 3,034 Capitalized work for own use

157 164 182 188 190

Operating expenses

-2,328 -2,316 -2,478 -2,373 -2,676 EBITDA before other operating items 414 424 380 519 548 Other operating revenue

3 8 42 16 4

Other operating expenses

-23 -27 -23 -121 -35 Result from joint venture

- - - 59 -

EBITDA 394 405 399 414 517 Depreciation, amortization, and write-downs

-173 -172 -199 -212 -242

EBIT 221 233 200 202 275 Financial revenue

3 6 4 3 4

Financial expenses

-35 -21 -14 -21 -21 Profit/loss before tax 189 218 190 184 258 Taxes

-55 -62 -52 -41 -47

Profit/loss for the year 134 156 138 143 211

FROM THE BALANCE SHEETS SKr, million Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014

Intangible fixed assets

868 953 1,061 1,103 1,144 Other fixed assets

312 286 269 254 293

Accounts receivable

664 701 718 740 790 Other current assets

227 245 242 238 312

Liquid assets

445 374 316 354 489 Total assets 2,516 2,559 2,606 2,689 3,028 Stockholders' equity including non-controlling interests

1,295 1,302 1,137 1,237 1,360

Long-term liabilities

75 89 215 91 182 Accounts payable

91 94 93 111 127

Current interest-bearing liabilities

59 51 178 197 130 Other current liabilities

996 1,023 983 1,053 1,229

Total stockholders' equity and liabilities 2,516 2,559 2,606 2,689 3,028

FROM THE CASH FLOW STATEMENTS SKr, million 2010 2011 2012 2013 2014

Cash flow from operations before change in working capital

373 406 363 336 450 Change in working capital

93 -96 -80 70 51

Cash flow from current operations 466 310 283 406 501 Cash flow from investment operations

-232 -216 -324 -284 -232

Cash flow after investment operations 234 94 -41 122 269 Cash flow from financing operations

-130 -163 -7 -13 -164

Cash flow for the year 104 -69 -48 109 105 Liquid funds on January 1

355 445 374 253 354

Exchange rate differences in liquid funds

-14 -2 -10 -8 30 Liquid funds at end of period 445 374 316 354 489

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KEY FIGURES1 2010 2011 2012 2013 2014

Revenue indicator

Net revenue growth % -1% 0% 4% 1% 12% Net revenue outside Sweden % 81% 80% 82% 84% 85% Net revenue per employee SKr, '000 978 948 946 1,006 1,147

Expense and expenditure indicator

Total product development SKr, million 236 257 290 295 318 of which, capitalized SKr, million 157 164 182 188 190

Development expenditure/net revenue % 9% 10% 11% 11% 10% Development expenditure/license revenue % 59% 60% 62% 55% 57% Product development expenses/net revenue % 8% 9% 10% 10% 10% Administration expenses/net revenue % 10% 10% 10% 11% 10% Personnel expenses per employee SKr, '000 605 600 607 605 670

Margin indicators

Gross margin % 46% 48% 49% 51% 51% License margin % 90% 94% 94% 93% 91% Maintenance & support margin % 62% 67% 69% 72% 75% Consulting margin % 23% 22% 18% 19% 20% Operating margin % 9% 9% 7% 7% 9% Profit margin % 7% 8% 7% 7% 9% Return on average operating capital % 23% 26% 22% 19% 24%

Capital indicators

Return on capital employed % 15% 17% 15% 15% 17% Return on stockholders' equity % 10% 12% 11% 12% 16% Equity ratio % 51% 51% 44% 46% 45% Interest coverage ratio times 12.2 37.3 24.7 19.4 33.2 Working capital SKr, million -196 -171 -116 -186 -254 Accounts receivable (avg 12 mth)/Net revenue (rolling 12 mth) % 0.21 0.2 0.19 0.19 0.18

Liquidity indicators

Net liquidity SKr, million 385 322 137 157 359 Debt/equity ratio times 0.1 0.1 0.2 0.2 0.2 Net debt SKr, million -328 -273 50 -118 -191

Employees

Average number of employees

2,644 2,716 2,830 2,688 2,645 Number of employees at the end of the period

2,675 2,821 2,829 2,616 2,707

Stock

Average number of shares million 26,488 25,690 24,988 24,772 24,772 Number of shares at the end of the period million 25,943 25,313 24,772 24,772 24,772

Key data per share2

Profit/loss, before dilution SKr 5.06 6.07 5.52 5.81 8.60 Stockholders' equity SKr 49.92 51.44 50.76 49.94 54.90 Cash flow after investment operations SKr 8.83 3.66 -1.66 4.84 10.86 Market price at end of accounting period SKr 107.25 88.00 103.25 154.00 239.09 Market price/stockholders' equity times 2.1 1.7 2.0 3.1 4.4 Net turnover SKr 97.59 100.27 108.24 110.61 122.48 Market price/net turnover times 1.1 0.9 1.0 1.4 2.0 Dividend3 SKr 3.00 3.50 3.50 3.50 4.50

1 For definitions of key ratios see page 72. 2 In accordance with IAS 33, dilution is not estimated when it improves earnings. 3 Dividend for 2014 refers to proposal from the Board.

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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.

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ABOUT IFS

IFS™ is a globally recognized leader in developing and delivering business software for enterprise resource planning (ERP), enterprise asset management (EAM), and enterprise service management (ESM). IFS brings customers in targeted sectors closer to their business, helps them be more agile, and enables them to profit from change. IFS is a public company (XSTO: IFS) founded in 1983 and currently has over 2,700 employees. IFS supports more than 2,400 customers worldwide from its network of local offices and through a growing ecosystem of partners.

www.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.

©2015 IFS AB

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