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ANNUAL REPORT 2012
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Page 1: IFS · 9/3/2014  · TABLE OF CONTENTS Financial targets 2 . Five-year summary 3 . Highlights 4 . Message from the president 6 . IFS and IFS Applications 7 . The IFS share 10 . Table

ANNUAL REPORT 2012

Page 2: IFS · 9/3/2014  · TABLE OF CONTENTS Financial targets 2 . Five-year summary 3 . Highlights 4 . Message from the president 6 . IFS and IFS Applications 7 . The IFS share 10 . Table

TABLE OF CONTENTS

Financial targets 2

Five-year summary 3

Highlights 4

Message from the president 6

IFS and IFS Applications 7

The IFS share 10

Table of contents of the annual report 11

Annual report 12

Board of directors 74

Senior management and auditors 75

Financial trend 2008–2012 76

Definitions and glossary 78

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 2013

Interim report January–March April 18, 2013 Interim report January–June July 18, 2013 Interim report January–September October 24, 2013 Year-end report February 2014

ANNUAL GENERAL MEETING

The annual general meeting 2013 will be held on Tuesday, March 26, 2013 in Stockholm, Sweden.

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FIVE-YEAR SUMMARY

2008 2009 2010 2011 2012

Net revenue SKr, million 2,518 2,605 2,585 2,576 2,676 of which license revenue SKr, million 479 426 402 431 467 of which maintenance and support revenue SKr, million 703 789 811 823 909 of which consulting revenue SKr, million 1,310 1,373 1,357 1,311 1,283

Net revenue outside Sweden % 81% 83% 81% 80% 82%

EBIT SKr, million 154 198 221 233 195 EBIT margin % 6% 8% 9% 9% 7% Profit/loss before tax SKr, million 161 168 189 218 186 Profit margin % 6% 6% 7% 8% 7%

License margin % 92% 88% 90% 94% 94% Maintenance and support margin % 57% 62% 62% 67% 69% Consulting margin % 19% 19% 23% 22% 18% Product development expenditure/net revenue % 9% 7% 8% 9% 10% Administration expenses/net revenue % 10% 10% 10% 10% 10%

Return on average operating capital % 15% 19% 23% 26% 19% Equity/assets ratio, after full conversion % 50% 53% 51% 51% 49% Net debt SKr, million -81 -206 -328 -273 -105 Interest coverage rate times 15.6 10.3 12.2 37.3 24.2

Cash flow after investment operations SKr, million 98 186 234 94 -41 Accounts receivable (avg 12 month)/net revenue (rolling 12 month) % 23% 24% 21% 20% 19%

Average number of employees 2,663 2,681 2,644 2,716 2,830 Number of employees at year-end 2,723 2,664 2,675 2,821 2,829

Net revenue Maintenance and support revenue EBIT

Cash flow after investments Net debt Average number of employees

1,700

1,900

2,100

2,300

2,500

2,700

'08 '09 '10 '11 '120

200

400

600

800

1,000

'08 '09 '10 '11 '120

50

100

150

200

250

'08 '09 '10 '11 '12

-75

0

75

150

225

300

'08 '09 '10 '11 '12

-375

-300

-225

-150

-75

0 '08 '09 '10 '11 '12

2,400

2,500

2,600

2,700

2,800

2,900

'08 '09 '10 '11 '12

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Page 4: IFS · 9/3/2014  · TABLE OF CONTENTS Financial targets 2 . Five-year summary 3 . Highlights 4 . Message from the president 6 . IFS and IFS Applications 7 . The IFS share 10 . Table

SIGNIFICANT EVENTS

IFS and NEC Corporation launched an extension to IFS Applications for the Thai food and beverage industry. The extension is the result of a joint project and can be implemented as a NEC cloud computing service or as a standard server solution.

With the launch of IFS 360 Scheduling, the workforce optimization toolset, in the Windows Azure cloud, IFS can offer customer benefits such as quick implementation and flexible, on-demand scale-out to handle workload peaks. The new cloud offering is another step in IFS’s strategy for cloud computing.

In May, IFS launched a new core version, IFS Applications™ 8, which has been developed in close collaboration with early adopter customers. With the new generation, IFS brings to its customers leading-edge industry innovations realized through a uniquely intuitive user experience. The development of version 8 represents IFS’s most significant product investment, combining the user interface IFS Enterprise Explorer with market-leading functionality within IFS’s four process focus.

IFS releases new IFS Touch App “Notify Me”, a smartphone business app in the series IFS Touch Apps. Bringing the routine task of approving purchases and expenses to the ubiquitous smartphone, IFS Notify Me helps companies save time and offer even better customer service.

On May 23, the group acquired Metrix LLC. By bringing together the IFS, Metrix, and IFS 360 Scheduling products, IFS can offer the most complete service management offering on the market to address both asset-intensive and customer-centric service providers, and including a state-of-the-art on/off-line mobile application.

IFS signed a strategic global partnership with Mahindra Satyam, a leading global consulting and IT services provider. The partnership covers joint sales and marketing activities related to the IFS Applications software suite as well as staff training and sponsorship of the 2012 IFS World Conference.

IFS signed a new and expanded agreement with Saab, the aerospace and defense company. The new agreement represents an expansion of the existing business relationship and will enable global growth and standardization of Saab’s worldwide operations. The agreement also includes additional licenses for IFS Applications.

In October, IFS hosted its World Conference at the Swedish Exhibition & Congress Centre in Gothenburg. The event attracted attendees from all over the world who, over the course of three days, had the chance to speak to IFS executives and experts, attend breakout sessions, and network with other IFS customers.

IFS was named a Visionary in Gartner’s magic quadrant for enterprise asset management (EAM) software for power generation. The report recognized IFS’s ability to execute and completeness of vision. In addition, IFS earned Oracle Exadata Optimized and Oracle Exalogic Optimized status.

IFS signed a partner agreement with Honeywell. The alliance serves as a framework for technology alignment as well as joint business development, sales, and marketing activities. Through the agreement, IFS is able to provide packaged solutions that combine IFS’s mobility software with Honeywell’s scanning and mobility devices.

IFS launched its fourth-generation mobile client for service management for Android smartphones and tablets. The solution offers robust service management functionality, supporting offline mode. The new version complements IFS’s existing mobile solution for the Microsoft Windows Mobile platform.

IFS presented a new version of IFS Metrix Service Management. It includes enhanced features for usability by technicians in the field and managers in the office, and is available on-premise or in the cloud. The solution is recognized as the best-of-breed application of choice for companies managing a field service workforce.

IFS announced four new solutions for corporate social responsibility (CSR): Eco-footprint Management 2.0, IFS Health & Safety, IFS Export Control, and IFS Quality Assurance. The IFS solutions are applicable in a wide range of industries, covering environment, workplace, trade and compliance aspects of CSR.

IFS launched seven smartphone apps in the IFS Touch Apps series, together with IFS’s first app for Windows Phone and Windows 8. The applications offer mobile functionality in areas such as HR, customer relationship management, ad-hoc reporting, enterprise application search, vehicle management, and IFS support services.

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Page 5: IFS · 9/3/2014  · TABLE OF CONTENTS Financial targets 2 . Five-year summary 3 . Highlights 4 . Message from the president 6 . IFS and IFS Applications 7 . The IFS share 10 . Table

A number of significant agreements were signed during the year, including: Aerospace and Defense

Federal Aviation Administration

FNSS Savunma Sistemleri

General Dynamics Advanced Information

Lockheed Martin

SEAKR Engineering

TAE Gas Turbines

Asset-Intensive

APM Terminals

Billerud

Citic Terminal

Closed Loop

CuDeco

Nucor Corporation

Orco Property Group

Automotive

Aurora Konrad G. Schulz

Buisard

NGK Ceramics Polska

Rangs Limited

Sumitomo Rubber Co.

Tekis Teknik Erozyon Kalip

Tokai Rubber Compounding

Tokai Rubber Industries

T-RAD North America

Wilhelm Becker

Construction and Contracting

Brierty

Charoen Pokphand Engineering Co.

Damen Shipyards

Dekra Industrial

Graham

Hi-Crush Services

IMCO Engineering & Construction

ION Geophysical Corporation

Mostostal Zabrze Holding

SATO

Seaspan Marine Corporation

Sinopacific Shipbuilding Group Co.

Systra

Tebma Shipyards

Energy and Utilities

Brookfield Corporate Operations

Ceylon Electricity Board

EmiTel

Energiselskapet Buskerud

Groupe Le Du

Jammu & Kashmir State Power Development

Jeumont Electric

KVK Teknoloji Ürünleri

Lesedi Nuclear Services

Madhya Pradesh Power Generating Company

MPWiK Warszawie

MPWiK Wrocław

MTN Cote-d'Ivoire

MTN Uganda

MTN Zambia

Portsmouth Water

Process Group

SDIC Qinzhou Electric Power Co.

Shanxi International Electricity Group

Tauron Wytwarzanie

VA Tech Wabag

Vantaan Energia

Vattenfall

High Tech

Applikon Biotechnology

Baylan Ölçü Aletleri

Dainippon Screen MFG

Dürr Dental

EHIRC

Informatyka/Cyfrowe Sieci Multimedialne

JOT Automation

Lightware

NEC Corporation

Particle Measuring Systems

Saudi Fal Co

Senior India

Sofradir

Thomson Video Networks

Thoratec Corporation

Trüb

Uniden Corporation

Industrial Manufacturing

A E Atherton and Sons

Alpha Technology

Alteams Group

Aluminum Precision Products

Amplitude

Arvind

Avanco

AWG Fittings

Aydin Boru Endüstrisi

Barrday

Bemis Manufacturing Company

Best Makina Cam İşleme Makinalari İmalat

Bhilai Engineering Corporation

CDF Corporation

CeDo

CKD Corporation

Cleaver-Brooks

Conax Technologies

D. Samson Industries

Deere & Company

EGE

Elba Equipamentos e Serviços

FCPK-Bytów

Firestone Polymers

Gamak Makina

GZ Digital Media

Hafi Industries

Hopkins Manufacturing Company

Hoshizaki Co.

Instron

Khusheim Company

Libet

Maquinas San Martin

Matusewicz Budowa Maszyn

Merrill Technologies Group

Metawater Co.

Newag

Nihon Kaiheiki

Platt 2003

Pojazdy Szynowe PESA Bydgoszcz

Stolle Machinery Company

T.RAD North America

Thermisol Group

Valmont Industries

Zabrzańskie Zakłady Mechaniczne

Oil and Gas

Atlas Pipeline Continent Holdings

Bergen Group Rosenberg

BW Offshore

Ceona Offshore

GDK Angola

GOK Regler und Armaturen

Icon Engineering

Maersk

Mir Valve

Odfjell Drilling

Petroleum Geo-Services

Process Group

Rowan Companies

ShawCor

Technip Flexi-France

Trans-Northern Pipelines

Viru Keemia Group

Process Manufacturing

Al Rabie Saudi Foods Co

Atlas

Bio Products Laboratory

Bisam Cephe Sistemleri

Doumak

drom fragrances

Graal

Hakan Plastik Boru ve Profil

HaloPolymer

Hangzhou Wei Chuan Foods

Hecla Mining Company

Holmen

Intercontinental Brands (ICB)

Kazakhmys

KCC Paints

Laboratorio Farmaceutico Sobral

Lantmännen

Prince Minerals

SCA

Sherwin Williams

SIG

Tugcelic Aluminyum ve Metal

Vajda-Papír

Volac International

Walcownia Metali Dziedzice

Whitford Worldwide Co.

Wynn's Belgium

Retail

Apex Adelchi Footwear

Eizo Europe

MAS Brands

Singer

Stadium

Stafford Motor Co.

Ulker

Xenos Hoofdkantoor

Service Providers

Automateriell

Avinor

Eltel

EnerSys

Fitzgerald Brothers Beverages

Get

Indigo Telecom Group

Metro Safety

Ministry of Infrastructure & Environment

Tomra of North America

Vital Distribution Solutions

Miscellaneous

DeCrescente Distributing Co.

EHIRC

GE Healthcare Hungary

Inrada Group

Kollektivtransportproduksjon

Lagena

Lal Teer Seeds

Oriflame

PrimeWine

PZ HTL

Rexel China

Schlegel

Seaspan

Serimax

Spencer Technologies

Totolotek

Vega

Vyncke

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MESSAGE FROM THE PRESIDENT Steady progress but slower than expected The outlook for license revenue remains strong and during 2012, we continued to win highly-competitive contracts in our target sectors. Due to the timing of large contracts the first half of the year was slow and the second half, although much better, was not able to fully deliver our expectations for the full year. Consequently license growth was 8 percent on the full year, currency adjusted.

Our consulting revenue, which underperformed through the year, dropped to SKr 1,283 million (1,311) and consequently, together with the previously-described license effect, resulted in a disappointing reduced full-year EBIT. Despite the setback seen in 2012, we continue to hold the view that our target of a 15 percent EBIT margin remains achievable over time.

Consulting had a particularly challenging year for a number of reasons; partly caused by a combination of both shorter-term issues, such as the timing of licenses, and also longer-term issues including the changing demand for consulting skills. We are seeing significantly less demand for customization of the product and less overall consulting resource being needed to implement IFS Applications. These changes are positive and result from the investment we are making in the product. We are also actively building an ecosystem, which will result in more consulting work being delivered by partners. Our revenue mix will change over time in that product revenue will grow at least at twice the rate of consulting revenue. In 2012, with the continued growth of license and maintenance revenue, our product revenue amounted to 52 percent (49) of total net revenue.

In recent years we have made large investments in sales, marketing, and product development resulting in increased overall overhead costs. These investments, which we fully expect will yield benefits, have caused an increased exposure with regard to earnings, as was seen in 2012 when license revenue fell somewhat short of our expectations for the period, and the contribution from consulting vastly underperformed. Over the years we have for the most part exerted good cost control; however, due to our evolving business especially in the area of consulting, we need to make further efficiency improvements in 2013 to align resources with the evolving direction of the business. Our investment in sales, marketing, and product development will continue albeit at a lower rate than recent years.

The acquisition of Metrix undertaken in May 2012 is now successfully integrated into IFS North America as is the Latin America business acquired at the end of 2011.

These and our other recent acquisitions have been strategi-cally correct for IFS and although their early contribution has been marginal we expect they will produce a significant contribution to our future growth in revenue and earnings.

Industry analyst firms such as Gartner are optimistic yet cautious. They expect the market’s development in 2013 to be in line with the past year’s, with a growth in software revenue in the 6–7 percent range. Despite the continuing challenges that are seen in the global financial market we remain positive towards our target growth markets of off-shore, oil and gas, EPCI, power generation, and in 2012 we have closed a number of high-profile deals in both Europe and the Americas. We expect to build on these successes in 2013, grow our pipeline and achieve further improved recognition as the intelligent choice for global businesses. We expect EBIT to improve, driven by double-digit license revenue growth and a significant improvement in consult-ing margin as a result of the planned efficiency gains. Even though the cost for achieving this will affect EBIT in the first half of the year, we expect that the overall cost for im-proving our efficiency will be matched by savings realized in the full year, and that the efficiency improvement will significantly contribute to improved earnings thereafter. Alastair Sorbie President and 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 2,800 employees worldwide. With IFS Applications™, now in its seventh generation, IFS has pioneered component-based ERP software. 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 55 countries through wholly and jointly-owned subsidiaries, joint ventures, and partners. IFS has more than 2,100 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, specializa-tion, 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 mainte-nance 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 our 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 opportuni-ties to capitalize on new business opportunities. The use of

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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 competi-tors: 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 chiefly located at IFS’s development centers in Sri Lanka and Sweden. IFS continued to be creative in 2012: the most important event of the year in terms of product development was the launch of IFS Applications 8. IFS Applications 8 is the new core version of IFS Applications and represents IFS’s most substantial product investment to date. Through the new version, IFS is delivering leading industry functionality, which has been developed in collaboration with selected customers. In addition to the development of IFS Applications 8, a number of important milestones were launched during 2012. These include:

• Workforce scheduling and optimization tool IFS 360 Scheduling in the Windows Azure cloud. The new cloud offering ensures customer value through quick implementation and flexible scalability for managing workload peaks.

• InstantView, a new tool for document visualization in the IFS Document Management module. The feature

makes it possible to preview any document, regardless of file extension or installed software.

• Eco-footprint Management 2.0—The solution, which covers everything from raw material sourcing to product design, supply chain, and emission tracking and follow-up, has been enhanced in collaboration with industry-leading customers.

• IFS Health & Safety offers companies a complete solution to ensure the safety, health, and well-being of their employees.

• IFS Export Control is a complete solution for companies handling prod-ucts subject to export restrictions, for example, military equipment or high-tech electronics.

• IFS Quality Assur-ance offers complete system support for quality standards planning. The

tool also supports integrated quality revisions, non-conformance reporting, and CAPA (corrective and preventive actions).

• New IFS Touch Apps delivered through IFS Cloud, strengthening the product offering for the mobile individual. IFS’s mobile device strategy is founded on two cornerstones: IFS Touch Apps and IFS Cloud. IFS Touch Apps are connected to IFS Cloud, which, in turn, works as an intermediary layer between mobile devices and the IFS Applications business software suite. The strategy makes the apps easier for the customer to try, implement and update, which is an important factor in this ever-changing technological area. In 2012, IFS also launched the IFS Touch App Partner Program, making it possible for partners to develop smartphone apps for IFS’s customers.

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.

• Our product development will focus on maintaining our position as technical leader in component-based business software for a global market.

• Our product, IFS Applications, will support the standards that are important for our customers. We will supply integrated Internet-based solutions that

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enable increased cooperation among customers, suppliers and partners.

• Our 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, we will focus on a limited number of industry segments.

• We will continue to develop global and local cooperation with partners to enable continued development of our competence and market presence with lower risk and capital requirements.

• We will maintain our own supplier capacity for consultant services related to the implementation and use of IFS Applications in important markets and to support our partners.

• Our ability to offer resources from IFS’s Sri Lankan unit for customer projects and cooperation with partners will increase our competitiveness.

• We will stimulate increased mobility among all our employees to increase competence and understanding of various international markets.

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 environ-ment. This applies to the entire value chain, including program 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.

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.

CSR—Corporate Social Responsibility—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.

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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, 2012, IFS’s capital stock amounted to SKr 507,618,440, represented by 25,380,922 shares, before dilution, with a nominal value of SKr 20 per share. These comprised 1,368,913 A shares and 24,012,009 B shares. During the year, 600,000 B shares in the company’s own custody since being repurchased in 2011 were cancelled. On December 31, 2012, the company held 609,092 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 7.3 million B shares were traded, corresponding to 29 percent of the average total number of listed shares. The principal owner is Gustaf Douglas with associated companies, who controlled 21.1 percent of the capital and 19.4 percent of the voting rights on December 31, 2012.

PRICE DEVELOPMENT AND TRADE VOLUME 2012

SHARE CATEGORIES Number of

shares Number of

voting rights Share of capital

Share of voting rights

A shares 1,368,913 1,368,913 5.4% 36.3% B shares 24,012,009 2,401,201 94.6% 63.7%

Total 25,380,922 3,770,114 100.0% 100.0% Source: SIS Ägarservice, December 28, 2012

DISTRIBUTION OF SHAREHOLDERS

Share of capital

Share of voting rights

Swedish individuals 31.4% 50.6% Swedish mutual funds 41.5% 28.4% Swedish institutional owners 13.6% 7.7%

Swedish owners 86.5% 86.7%

International owners 13.5% 13.3%

Total 100.0% 100.0% Source: SIS Ägarservice, December 28, 2012

SHAREHOLDER STATISTICS

Shareholders Ownership

Number of shares held

Number

Proportion

Number of shares

Capital

Voting rights

1–1 000 5,943 93.5% 724,533 2.9% 2.1% 1 001–2 000 175 2.8% 262,725 1.0% 0.8% 2 001–5 000 102 1.6% 336,497 1.3% 1.2% 5 001–10 000 40 0.6% 282,651 1.1% 1.3% 10 001–50 000 48 0.8% 1,096,206 4.3% 5.1% 50 001–100 000 13 0.2% 861,757 3.4% 2.3% 100 001– 36 0.6% 21,816,553 86.0% 87.2%

Total 6,357 100.0% 25,380,922 100.0% 100.0% Source: SIS Ägarservice, December 28, 2012

MAJOR SHAREHOLDERS

Shareholder

Number of A shares

Number of B shares

Share of capital

Share of voting rights

Gustaf Douglas* 202,800 5,161,000 21.1% 19.4% Anders Böös* 427,010 - 1.7% 11.5% Bengt Nilsson* 382,013 3,300 1.5% 10.3% Lannebo funds - 3,415,755 13.5% 9.2% Catella funds - 3,096,742 12.2% 8.3% NEC Corporation 110,000 679,000 3.1% 4.8% Swedbank Robur funds - 1,339,538 5.3% 3.6% Unionen trade union - 927,146 3.7% 2.5% Skandia funds - 822,749 3.2% 2.2% Heinz Kopfinger 78,932 22,117 0.4% 2.2% Fourth Swedish National Pension Fund - 707,248 2.8% 1.9% SEB funds - 577,117 2.3% 1.6% SHB funds - 529,622 2.1% 1.4% Other shareholders 168,158 6,121,583 24.8% 21.0%

External shareholders 1,368,913 23,402,917 97.6% 100.0%

IFS's own custody - 609,092 2.4% -

Total 1,368,913 24,012,009 100.0% 100.0% *and associated companies Source: SIS Ägarservice. December 28, 2012

0

50,000

100,000

150,000

200,000

250,000

70

80

90

100

110

120

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 12

FINANCIAL STATEMENTS 28

Consolidated income statement 28

Consolidated statement of comprehensive income 28

Consolidated balance sheet—assets 29

Consolidated balance sheet—equity and liabilities 29

Consolidated capital account 30

Consolidated statement of cash flows 31

Income statement of the parent company 32

Statement of comprehensive income of the parent company 32

Balance sheet of the parent company—assets 33

Balance sheet of the parent company—equity and liabilities 33

Capital account of the parent company 34

Statement of cash flows of the parent company 35

NOTES TO THE FINANCIAL STATEMENTS 36

AUDITOR’S REPORT 72

Notes to the financial statements Note 1 Accounting principles 36

Note 2 Segment reporting 47

Note 3 License revenue 49

Note 4 Maintenance and support revenue 49

Note 5 Other revenue 49

Note 6 Development expenditure 49

Note 7 Sales and marketing expenses 50

Note 8 Other operating income 50

Note 9 Other operating expenses 50

Note 10 Transactions between subsidiaries 50

Note 11 Operating expenses per type of cost 50

Note 12 Auditors’ fees 50

Note 13 Salaries, other remunerations, and social costs 50

Note 14 Remunerations paid to senior executives 51

Note 15 Transactions with related parties 52

Note 16 Average number of employees per country 53

Note 17 Results from participations in subsidiaries 53

Note 18 Results from participations in associated companies 53

Note 19 Other interest income and similar income 53

Note 20 Interest expenses and similar expenses 53

Note 21 Taxes 53

Note 22 Profit and dividend per share 54

Note 23 Intangible fixed assets 54

Note 24 Tangible fixed assets 56

Note 25 Operating lease agreements 57

Note 26 Participations in subsidiaries 58

Note 27 Participations in associated companies and joint ventures 59

Note 28 Receivables in subsidiaries 59

Note 29 Deferred tax claims and tax liabilities 60

Note 30 Other long-term receivables 60

Note 31 Accounts receivable 60

Note 32 Other receivables 60

Note 33 Liquid assets 60

Note 34 Stockholders’ equity 61

Note 35 Liabilities to credit institutions 63

Note 36 Risk structure pertaining to interest and financing 63

Note 37 Pension commitments 63

Note 38 Other provisions and other liabilities 66

Note 39 Other liabilities 66

Note 40 Accrued expenses and prepaid income 66

Note 41 Pledged assets 66

Note 42 Contingent liabilities 66

Note 43 Adjustments for items not included in cash flow 67

Note 44 Business combinations 67

Note 45 Net acquisition of tangible fixed assets 67

Note 46 Financial risk management and derivatives 68

Note 47 Conversion rates 70

Note 48 Information about the Parent company 70

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BOARD OF DIRECTORS’ REPORT GENERAL

The board of directors and the president 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 2012. 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 2012 was to achieve strong organic license growth and improved 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 2012 highly-competitive contracts in its target sectors. Due to the timing of large contracts the first half of the year was slow and the second half, although much better, was not able to fully deliver the company’s expectations for license revenue for the full year. Furthermore, consulting had a particularly challenging year and underperformed, which, together with the previously-described license effect, resulted in a reduced full-year EBIT. Net revenue amounted to SKr 2,676 million (2,576). EBIT decreased to SKr 195 million (233) and cash flow after investments was SKr -41 million (94). 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 2,800 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 more than 2,100 customers and 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 60 countries through wholly and jointly owned subsidiaries, joint ventures, and partners. Operations are divided into seven operating areas: Europe North; Europe West; Europe Central; Europe East; Americas; Africa, Asia, and Pacific; and Defense. These areas have the operational responsibility for sales and delivery to customers. Product development and support are included in corporate functions. MARKET ANALYSIS

Global economic growth is projected to increase during 2013. Policy actions have lowered the acute crisis risks in the euro area and the United States, but in the euro area, the return to recovery after a protracted contraction is delayed. While Japan has slid into recession, economic stimulus is expected to boost growth in the near term. At the same time, policies have supported a modest growth pickup in some emerging market economies, although others continue to struggle with weak external demand and domestic bottlenecks. If the crisis risks do not materialize and financial conditions continue to improve, global economic growth could be stronger than projected. However, downside risks remain significant. 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. However, much of this uncertainty is nearing resolution.

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,

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continue to be a force in the long term. Industry analysts such as Forrester and Gartner forecast the software market in general, and the enterprise application market in particular, to grow in the region of 6–7 percent in 2013.

The competitive position has not changed during 2012 and is not expect to change over the coming years. After the consolidations of recent years, SAP and Oracle remain 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. STRUCTURAL CHANGES

In the second quarter of 2012, IFS acquired Metrix LLC, based in Milwaukee, USA.

NET REVENUE

SKr, million 2012 actual

Translation effect

Structural changes

2012 adjusted

2011 actual

Organic change

Reported change

License revenue 467 0 -23 444 431 3% 8% Maintenance and support revenue 909 0 -29 880 823 7% 10% Total product revenue 1,376 0 -52 1,324 1,254 6% 10% Consulting revenue 1,283 7 -43 1,247 1,311 -5% -2% Net revenue (including other revenue) 2,676 7 -96 2,587 2,576 0% 4%

License revenue for 2012 was 8 percent higher than in the previous year, currency adjusted. During the year, the 10 largest license deals had a total value of SKr 74 million. The corresponding figure for 2011 was SKr 93 million. A total of 22 license agreements exceeding US$ 0.5 million in value were sold during the year. Maintenance and support revenue continued to grow but consulting revenue was lower than in the previous year. Net revenue was SKr 100 million higher than in 2011, an increase of 4 percent, currency adjusted. COSTS AND EXPENSES

SKr, million 2012 actual

Translation effect

Structural changes

2012 adjusted

2011 actual

Organic change

Reported change

Operating expenses 2,481 6 -95 2,392 2,343 2% 6% Capital gains/losses 0 0 - 0 0 n/a n/a Exchange rate gains/losses -5 0 0 -5 1 n/a n/a Restructuring costs/redundancy costs -16 0 - -16 -24 n/a n/a Reversal of restructuring costs 1 - - 1 3 n/a n/a Depreciation and net capitalization of product development -17 -1 1 -17 -9 n/a n/a

Adjusted operating expenses 2,444 5 -94 2,355 2,314 2% 6%

Operating expenses were SKr 144 million higher than in 2011, currency adjusted, an increase of 1 percent excluding structural changes. Variable expenses, such as costs related to third-party suppliers and partners, and subcontracted consultants amounted to SKr 223 million (208), an increase of 10 percent, currency adjusted. Other operating expenses amounted to SKr 2,258 million (2,135), an increase of 6 percent, currency adjusted. Payroll expenses amounted to SKr 1,723 million (1,630), an increase of 6 percent, currency adjusted. The increase in payroll expense relates to ordinary inflation, the acquisitions of LatinIFS in December 2011 and Metrix in May 2012, and increases in Sales and R&D-related personnel.

Over the year, there were a number of one-off charges relating to bad debt, write-offs, legal costs for the arbitration process in Singapore, acquisition integration, redundancy costs, etc., all in all SKr 31 million for the year. Furthermore, amortization of intangibles relating to the acquisition of Metrix has reduced earnings with SKr 4 million for the year. Amortization of intangibles relating to the acquisition of 360 Scheduling was SKr 10 million for the year. PRODUCT-DEVELOPMENT EXPENDITURE

Product development expenditure for the year amounted to SKr 290 million (257). Capitalized product development totaled SKr 182 million (164) and amortization of previously capitalized product development amounted to SKr 152 million (131). PERSONNEL NUMBERS AND EFFICIENCY

The average number of employees increased to 2,830 (2,716), mainly due to the acquisitions of LatinIFS and

Metrix. The headcount for product development at the end of the year was 587 (573), of whom 341 (360) worked at the development center in Sri Lanka. Net revenue per employee was in line with 2011, currency adjusted, but decreased non-currency adjusted to SKr 946 thousand (948). Personnel-related expenses per employee amounted to SKr 609 (600), an increase of 1 percent. The number of employees at yearend was 2,829 (2,821), of which the Metrix acquisition represents 54.

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EBIT

EBIT amounted to SKr 195 million (233), a decrease of 16 percent compared with 2011. 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 232 million, corresponding to a margin of 9 percent. PROFIT FOR THE YEAR

Net financial items were SKr -9 million (-15). Adjusted for exchange rate effects, the underlying net financial items were SKr -9 million (-6). Net interest income was SKr -3 million (-1). Profit before tax decreased to SKr 186 million (218) and profit for the year decreased to SKr 135 million (156). OPERATING AREAS

EUROPE NORTH SKr, million 2012 2011 Δ

License revenue 114 104 10% Maintenance and support revenue 346 331 5% Consulting revenue 612 637 -4% Net revenue 1,106 1,105 0% EBIT, undistributed* 333 321 4% Number of employees at the end of the period 533 567 -6% * EBIT before allocation of corporate revenue and expenses

Europe North’s revenue was in line with previous year due to an improvement in product revenue, both in license and maintenance revenue. Consulting revenue decreased in Scandinavia primarily due to the fore-mentioned changing demand for consulting skills. Costs were in line with 2011 but the negative effects from other operating items were lower. The earnings thereby improved with 4 percent. Larger license deals included Maersk Drilling Services, Maersk Supply Service and Avinor. EUROPE WEST

SKr, million 2012 2011 Δ

License revenue 96 103 -7% Maintenance and support revenue 173 151 15% Consulting revenue 154 164 -6% Net revenue 483 467 3% EBIT, undistributed* 151 129 17% Number of employees at the end of the period 298 295 1% * EBIT before allocation of corporate revenue and expenses

Net revenue increased with 2 percent, currency adjusted, mainly due to an increase in maintenance revenue. Earnings increased with 14 percent, currency adjusted, in part due to the finalization of the earn-out calculation related to the 360 Scheduling acquisition made in 2010, resulting in a one-off benefit of SKr 30 million in Other Operating items. Larger license deals included Systra.

EUROPE CENTRAL SKr, million 2012 2011 Δ

License revenue 56 44 27% Maintenance and support revenue 80 75 7% Consulting revenue 127 153 -17% Net revenue 305 296 3% EBIT, undistributed* 52 51 2% Number of employees at the end of the period 202 196 3% * EBIT before allocation of corporate revenue and expenses

Net revenue for Europe Central was 7 percent better than 2011, currency adjusted, due to an increase in product revenue, both in license and maintenance revenue. Consulting revenue was 17 percent below 2011, currency adjusted, due to a relatively high portion of non-billable work in a few larger projects. The effect of these projects will fade out in the beginning of 2013. Earnings improved with 6 percent, currency adjusted, as a result of the increased product revenue. Some of the larger license deals were Damen Holding and Hüf. EUROPE EAST

SKr, million 2012 2011 Δ

License revenue 29 44 -34% Maintenance and support revenue 57 55 4% Consulting revenue 76 94 -19% Net revenue 184 210 -12% EBIT, undistributed* -6 36 n/a Number of employees at the end of the period 275 275 0% * EBIT before allocation of corporate revenue and expenses

Net revenue was lower than in 2011, due to lower licenses and lower consulting. Maintenance revenue was 9 percent higher than 2011, currency adjusted. In addition to the lower revenue, earnings were also negatively affected by exchange rates losses. Major license contracts were signed with Atlas Sp. z.o.o. and MS Bolt. AMERICAS

SKr, million 2012 2011 Δ

License revenue 112 90 24% Maintenance and support revenue 161 117 38% Consulting revenue 205 150 37% Net revenue 519 392 32% EBIT, undistributed* 147 139 6% Number of employees at the end of the period 286 248 15% * EBIT before allocation of corporate revenue and expenses

Americas increased its net revenue with 30 percent, currency adjusted, mainly due to the acquisitions of LatinIFS and Metrix, but net revenue also increased organically. Costs increased due to the acquisitions. Earnings were 2 percent better than 2011, currency adjusted. Some of the largest deals in 2012 were Rowan Companies PLC, Lockheed Martin, and Whitford Worldwide Company.

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AFRICA, ASIA, AND PACIFIC SKr, million 2012 2011 Δ

License revenue 57 45 27% Maintenance and support revenue 63 61 3% Consulting revenue 79 83 -5% Net revenue 213 209 2% EBIT, undistributed* -26 4 n/a Number of employees at the end of the period 284 291 -2% * EBIT before allocation of corporate revenue and expenses

Net revenue increased with 2 percent, currency adjusted, mainly deriving from an improved activity level in Asia Pacific. Middle East and Africa continued to face problems. Earnings were negatively affected by provisions for bad debts. The major deals in the region were IMCO and Brierty. DEFENSE

SKr, million 2012 2011 Δ

License revenue 2 1 100% Maintenance and support revenue 25 27 -7% Consulting revenue 27 25 8% Net revenue 73 69 6% EBIT, undistributed* 12 3 300% Number of employees at the end of the period 44 46 -4% * EBIT before allocation of corporate revenue and expenses

The defense sector is a targeted vertical, and IFS won some important defense deals, primarily in Americas and Europe North during 2012, but also in other regions. These deals are recognized as revenue in the respective regions, and only those deals where IFS Defence is a prime contractor are recognized as license revenue in Defense. Net revenue improved with 2 percent, currency adjusted. Earnings improved to SKr 12 million. PRODUCT DEVELOPMENT

The Group’s product development is chiefly located at IFS’s development centers in Sri Lanka and Sweden. The most important event last year related to product development was the launch of IFS Applications 8 in May. IFS Applications 8 is the new core version of IFS Applications and represents IFS’s most substantial product investment to date. Through the new version, IFS is delivering leading industry functionality, which has been developed in collaboration with selected customers. In addition to the development of IFS Applications 8, a number of important milestones have been launched during the previous year. These include:

• Workforce scheduling and optimization tool IFS 360 Scheduling in the Windows Azure cloud. The new cloud offering ensures customer value through quick implementation and flexible scalability for managing workload peaks.

• InstantView, a new tool for document visualization in the IFS Document Management module. The feature makes it possible to preview any document, regardless of file extension or installed software.

• Eco-footprint Management 2.0—The solution, which covers everything from raw material sourcing to product design, supply chain, and emission tracking and follow-up, has been enhanced in collaboration with industry-leading customers.

• IFS Health & Safety offers companies a complete solution to ensure the safety, health, and well-being of their employees.

• IFS Export Control is a complete solution for companies handling products subject to export restrictions, for example, military equipment or high-tech electronics.

• IFS Quality Assurance offers complete system support for quality standards planning. The tool also supports integrated quality revisions, non-conformance reporting, and CAPA (corrective and preventive actions).

• New IFS Touch Apps delivered through IFS Cloud, strengthening the product offering for the mobile individual. IFS’s mobile device strategy is founded on two cornerstones: IFS Touch Apps and IFS Cloud. IFS Touch Apps are connected to IFS Cloud, which, in turn, works as an intermediary layer between mobile devices and the IFS Applications business software suite. The strategy makes the apps easier for the customer to try, implement and update, which is an important factor in this ever-changing technological area. In 2012, IFS also launched the IFS Touch App Partner Program, making it possible for partners to develop smartphone apps for IFS’s customers.

PARTNERS

IFS continues to develop its alliance partner strategy, building on collaboration both locally in region and globally with its large multinational alliance partners. This strategy allows the company to enter new markets using local knowledge and resource whilst working within a consistent global partnering program.

IFS focuses on partners that offer complementary products or technologies within the product or the industry segment that IFS operates in. The aim is to provide customers with solutions that increase the value of their investment in IFS Applications. Two examples of such partners are Microsoft and Oracle. The collaboration with Microsoft centers on user interface, business intelligence and cloud platforms while the Oracle cooperation is mainly

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aimed at databases and middleware. One concrete example where the collaboration with Oracle has yielded a tangible product is the built-in visualization tool that has been developed for the IFS Document Management solution. The preview tool is based on Oracle’s AutoVue Enterprise Visualization solutions.

IFS is also actively developing a network of partnerships with system integrators that assist organizations in identifying as well as implementing the IFS solution that addresses their unique needs. During the year, a strategic global partnership was entered into with Mahindra Satyam, a leading consulting and IT services provider, for joint sales and marketing activities around the IFS Applications software suite as well as staff training. IFS also signed a collaborative ISV agreement with Honeywell. Through this technological cooperation, IFS is able to provide packaged solutions that combine IFS’s mobility software for field service, asset management, and supply chain with Honeywell’s scanning and mobility devices. CASH FLOW, LIQUIDITY, AND FINANCIAL POSITION

Cash flow from current operations before change in working capital amounted to SKr 363 million (406). Tied working capital amounted to SKr -80 million (-96). Days of sales outstanding (DSO) at year-end was 78 (80) days. DSO calculated on the monthly receivables positions during the year was 56 (56) days.

Investments totaled SKr 324 (216) million. Product development expenditure was capitalized in an amount of SKr 182 million (164). Metrix LLC was acquired during the year. The investment affected cash flow with SKr -116 million. Cash flow after investments totaled SKr -41 million (94). Cash flow from financing operations was SKr -7 million (-163). Loans from credit institutions increased by SKr 127 million during the year (-15).

Cash and cash equivalents on December 31, 2012 totaled SKr 316 million (374).

The group’s net liquidity position at year end, excluding pension liabilities, amounted to SKr 137 million (322). Cash and unutilized credit totaled SKr 638 million (832). External financing amounted to SKr 179 million (52).

During the year, the company distributed a dividend of SKr 88 million (78) and bought back own shares for SKr 57 million (69). During the year, the company bought back warrants for an amount of SKr 3 million (3). IFS SHARE

The Parent Company is listed on the Nasdaq OMX Stockholm Mid-Cap list. The number of shareholders on December 31, 2012 was 6,355. The number of shares on December 31, 2012 was 25 380 922, of which 1 368 913 were A shares, carrying the right to 1.0 votes per share, and

24 012 009 were B shares, carrying the right to 0.1 votes per share. During the year, 600 000 B shares, repurchased in 2011, were cancelled. On December 31, 2012, the company held 609 092 B shares in its own custody.

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

Three 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 and family and associated companies, Bengt Nilsson and associated companies, and Anders Böös and associated companies. The company’s pension trust does not exercise direct ownership of company stock. The company is party to agreements that may be affected if a change in the control of the company occurs. GUIDELINES FOR THE REMUNERATION OF MEMBERS OF THE BOARD, THE PRESIDENT, AND SENIOR EXECUTIVES

Directors’ fees are paid to the chairman of the board and directors as resolved by the AGM. For 2012/2013, director’s fees totaled SKr 2.7 million, of which the chairman of the board received SKr 1.25 million and other directors SKr 325 000 each. 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.

Remuneration of the CEO and other members of corporate 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 corporate 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 2012 resolved to establish an incentive program whereby the company offered corporate 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 2012, the CEO received a basic annual salary of £ 335,000 and a premium-based pension with a premium corresponding to 20.0 percent of the basic salary. Variable remuneration for 2012 has been linked to Group EBIT. No variable remuneration will be paid to the CEO for 2012. For further information, see note 14.

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RESOLUTION CONCERNING GUIDELINES FOR THE REMUNERATION OF SENIOR EXECUTIVES

The board proposes that the AGM of 2013 resolve that the following guidelines for remuneration of the president and other members of corporate 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 2012. The guidelines deal with remuneration and other terms and conditions of employment of the senior executives of the IFS Group, including the company's chief executive officer (CEO), jointly referred to as ‘corporate management’ below.

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 of corporate 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 corporate 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 corporate management, i.e., basic salary and variable remuneration, shall correspond to a competitive level of remuneration in the respective executive’s country of residence. Basic salary The basic salary shall be on market terms and related to the executive’s position, responsibility, competence, and experience. Variable remuneration 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.

The basis for the variable remuneration of the CEO and other corporate management executives is established by the board and is based on individual goals linked to profitability goals set by the board for each year. When determining variable remuneration paid in cash to corporate

management, the board shall also consider introducing restrictions that:

• place conditions on part of such remuneration such that the performance on which the payments are based shall prove to be sustainable over time, and

• entitle the company to reclaim remuneration paid out on the basis of information that later proves to be clearly incorrect.

The limits for the maximum outcome for variable remuneration paid in cash shall be established. The Board proposes that the limits for the variable remuneration for 2013 be unchanged as compared to the applicable levels for 2012, as follows:

• For the CEO, the maximum variable remuneration shall not exceed 50 percent of the basic salary.

• For the other members of corporate 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.

Variable remuneration of corporate management for fiscal 2013 shall not exceed SKr 4.4 million. Long-term incentive program The AGM of 2010 resolved to adopt an incentive program for corporate management and key personnel based on terms and conditions consistent with incentive plans adopted in previous years. The AGM of 2011 adopted a revised incentive program for the corporate management and other key executives, which had been adjusted in accordance with the rules of the newly adopted Swedish Corporate Governance Code. A new incentive program based on the same structure as the program from 2011 was adopted at the AGM of 2012. The board of directors intends to propose that the AGM of 2013 adopt a new incentive program based on the same structure as the 2011 and 2012 program, which entails that senior executives and key personnel are offered the opportunity to purchase warrants in the company at market price. To stimulate participation in the program, it is proposed that employees be allotted, subject to certain terms and performance conditions, up to three additional warrants free of charge for each warrant acquired at market price.

The proposal entails the issue of not more than 253,000 warrants. If all 253,000 warrants are exercised to subscribe for shares, the company’s capital stock will increase by SKr 5,060,000, corresponding to approximately 1.0 percent of the capital stock and 0.7 percent of the voting rights after dilution. Together with the warrants issued at the respect of the incentive programs imple-mented 2010, 2011, and 2012, the four programs may, upon full subscription, entail a dilution of approximately

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2.2 percent of the existing capital stock and of approximately 1.5 percent of the voting rights. However, to minimize dilution and share price exposure resulting from the incentive program, the board, on the basis of mandates granted by the AGM, intends to purchase Series B shares in the company in an amount corresponding to the number of warrants issued within the framework of the incentive program.

The social security costs are estimated to around SKr 0.5 million, an average social security tax rate of 17 percent, and an annual share-price increase of 10 percent from issuance up to the day of allotment. At maximum fulfillment of the performance condition, the cost is approximately SKr 3.3 million.

For information on IFS’s other equity-related incentive programs, see Note 34 in the annual report 2012. It is the intention of the board in coming periods to evaluate and review the principles for long-term incentive programs. Other benefits 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. Pension Pension benefits shall correspond to a competitive level in the respective executive’s country of residence. 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 is 65, but the CEO and the company are entitled to invoke the right to retirement for the CEO at the age of 62. In such a case, the CEO shall receive the equivalent of 60 percent of the basic salary until he is 65. Other senior executives are included in IFS’s premium-based special pension plan or corresponding pension plans. The retirement age for other executives in corporate management is 65. Period of notice and severance payment 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 3–12 months. If the company terminates an executive’s employment, severance pay corresponding to a maximum of 12 months’ salary may be paid in exceptional cases. Variable remuneration is paid to the CEO during the period of notice in an amount corresponding to the variable remuneration paid during the immediately preceding year. 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. INCENTIVE PROGRAM

In 2012 IFS issued warrants that were offered to, and acquired by, senior executives and other key employees of the group. For each warrant acquired, a maximum of three additional warrants could be received free of charge. The warrants can be exercised for subscription of B shares no later than June 2017. The strike price is SKr 122.20 per share. The warrants refer to a maximum of 61,955 B shares. During the year, the company bought back a number of warrants from program TO7B, which matured at the end of June. At the end of the year, the company held 49,500 warrants from program TO8B. 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 2012 will be distributed in a corresponding manner, and not in printed form.

The board, management, and certain other senior executives 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 2012.

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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 4.7 days annually per Group employee and personnel turnover was 5.6 percent in 2012.

In 2012, the percentage of female employees was 30 percent. The percentage of female members on the company’s boards was 19 percent, and the percentage of female senior managers was 17 percent. The share of female members on the Parent Company’s board of directors was 33 percent. The relatively low 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 400 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.

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

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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

Industry analyst firms such as Gartner are optimistic yet cautious for 2013, and expect the market’s development to be in line with the past year’s, with a growth in software revenue in the 6–7 percent range. Despite the continuing challenges that are seen in the global financial market IFS remains positive towards its target growth markets of offshore, oil and gas, EPCI, power generation. In 2013, IFS expects EBIT to improve, driven by double-digit license revenue growth and a significant improvement in consulting margin as a result of planned efficiency gains. Even though the cost for achieving these planned efficiency gains will affect EBIT in the first half of the year, IFS expects that the overall cost for improving its efficiency will be matched by savings realized in the full year, and that the efficiency improvement will significantly contribute to improved earnings thereafter. ADDITIONAL INFORMATION

IFS is involved in a minor number of disputes and claims, among others in France, which can be considered normal given the nature of its operation. In addition to such disputes, one dispute exists that cannot be considered a normal aspect of the Group’s operations.

As previously reported, as recently as in the year-end report for 2012, IFS has since 2002 been involved in a legal dispute concerning the partly-owned company IFS Sri Lanka. The counterparty has now initiated legal proceedings against IFS with the Singapore International Arbitration Centre, on the basis of a shareholders agreement between the parties, with a now quantified claim for damages amounting to US$ 43 million plus interest in the amount of US$ 33 million calculated on an average annual interest of 10 percent starting from 1999. Since the beginning of this legal dispute, IFS has deemed the counterparty’s allegations as completely unsubstantiated and without any merit. Based on the information that IFS has been provided with to date and supported by its external legal counsels, IFS’s position with respect to the dispute remains unchanged: IFS rejects the counterparty’s

claims as being frivolous and completely unmeritorious and unfounded, and rejects the claims in their entirety.

During the year, IFS has reached out-of-court settlements in disputes pertaining to license payments, among other things.

The company assesses that no provisions are necessary, but its liquidity may be affected by the outcome of such disputes and claims. PARENT COMPANY

Parent Company, IFS AB, operations include certain corporate management and finance functions as well as the management of stockholdings for subsidiaries. In 2012, net revenue amounted to SKr 19 million (17), with earnings before tax of SKr 79 million (202).

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, 2012, Parent Company liquidity, including unutilized credit, amounted to SKr 423 million (572), and Parent Company debt was SKr 178 million (41), of which SKr 178 million (41) was from credit institutions and SKr 0 million (0) was related to intra-Group borrowing.

In 2012, stockholders’ equity in the Parent Company decreased by SKr 93 million to SKr 1,608 million, of which unrestricted stockholders’ equity accounted for SKr 527 million (608). The rise is mainly attributable to the distributed dividend and the buyback of shares. 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 527 million, which are available for disposition, be allocated as follows:

Dividend of SKr 3.50 per share to stockholders SKr 86,701 thousand Carried forward SKr 440,700 thousand Total SKr 527,401 thousand STATEMENT BY THE BOARD OF DIRECTORS CONCERNING THE PROPOSED DIVIDEND

The proposed dividend reduces the company’s asset/equity ratio to 76 percent and the IFS Group’s asset/equity ratio to 47 percent. The proposed action does not impact on 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

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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 2012 and reports on how corporate governance was conducted during that year. The report has been reviewed by an auditor. Deviation from the Swedish Code of Corporate Governance and infringements IFS has followed the Swedish Code of Corporate Governance in all respects apart from sections 2.4 and 7.3 (concerning the composition of the nomination committee and the audit committee respectively). Further details on these deviations are found below under Nomination Committee and Committee Work. During 2012, 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

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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.

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 chief execution officer and senior management.

The Annual General Meeting (AGM) shall be held in Linköping or Stockholm within six months after the close of the fiscal year. Since 2011, 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 shall be advertised in Svenska Dagbladet. Annual general meeting 2012 IFS’s Annual General Meeting (AGM) for 2012 was held at Courtyard by Marriott hotel, Rålambshovsleden 50 in Stockholm on March 29. A total of 77 stockholders, including proxies, participated in the meeting, representing 70.1 percent of the votes and 64.6 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 2012 concerned, among other things, the composition of the board of directors, fees paid to board directors and auditors, principles guiding the remuneration of senior 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. In addition, the AGM resolved to cancel 600,000 Series B shares that the company repurchased, on the basis of previous authorizations granted by the AGM, by reducing the capital stock by an amount corresponding to the total quote value of the repurchased shares (SKr 12 million). 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 2013 The Annual General Meeting for 2013 will be held at Courtyard by Marriott hotel, Rålambshovsleden 50 in Stockholm on March 26 at 3:00 p.m. Notification of the AGM has been published in the Swedish Official Gazette and on the company website on February 26, 2013. 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 2013 The nomination committee for the AGM 2013, whose composition is based on the ownership position on August 31, 2012, consists of the following members:

• Gustaf Douglas, Chairman, representing the company’s principal owners, the Douglas family and Förvaltnings AB Wasatornet

• Ulf Strömsten, Catella Capital

• Lars Bergkvist, Lannebo Fonder

• Bengt Nilsson, for the founders

• Anders Böös, chairman of the board of IFS

The composition of the nomination committee was announced on September 18, 2012. The nomination committee represents approximately 57 percent of the

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votes in IFS. Its proposals, explanatory statement, and additional information about proposed members of the board are published in connection with the AGM notification and will be presented, with an account of the work of the committee, at the 2013 AGM. The members are not remunerated for their work on the nomination committee.

As shown in the table under Board of Directors below, both Chairman Anders Böös and Vice-chairman Bengt Nilsson are considered not independent in relation to the company’s major owners. Accordingly, the constitution of the nomination committee deviates from section 2.4 of the Swedish Code of Corporate Governance, which states that if more than one member of the board is on the nomination committee, no more than one of these may be dependent of a major shareholder in the company. However, the nomination committee has considered, supported by the board, that its constitution represents the best interests of the shareholders as a whole and, consequently, does not affect its obligation to promote the interests of all shareholders. 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 55, and two are women. Information about the independence of board members follows below. The members of the board At the 2012 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. 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, Group 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 Group 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 A shares

Number of B shares

Total number of shares

Anders Böös Chairman 2003 No* - 427,010 - 427,010 Bengt Nilsson Vice-chairman 1983 No* - 382,013 3,300 385,313 Ulrika Hagdahl Member 2003 Yes Chairman - 30,000 30,000 Birgitta Klasén Member 2009 Yes - - 10,000 10,000 Neil Masom Member 2009 Yes Member - - - Alastair Sorbie Member 2004 No* - - 6,776 6,776

* Anders Böös and Bengt Nilsson are considered independent in relation to the company and Group senior management, but as dependent in relation to the company’s major owner as both control 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 principles 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. The chairman monitors operations in dialog with the president and is responsible for ensuring that other board members receive the necessary documentation for high-

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quality discussions and decisions, and for continuously updating and deepening their knowledge of the company. In addition, the chairman ensures that board decisions are executed, and is responsible for evaluating the work of the board and ensuring that the nominations committee gains access to the assessments. The chairman also participates in assessment and development issues pertaining to the Group’s senior executives. The chairman represents the company in ownership issues.

In 2012, the board met 12 times (two of which were by correspondence and three 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 2012 focused on managing IFS’s growth, profitability, and strategic position. During the year, regional managers and other senior executives, 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 2012, in accordance with the Swedish Code of Corporate Governance, the board submitted the nine-month report for review by the auditors, and on one occasion during the year met the auditors when neither the CEO nor any other member of senior management was present.

The work of the board in 2012 was evaluated both in writing and orally within the board and has also been treated at a plenary session of the board in December 2012 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 senior 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 2012 resolved that directors’ fees of SKr 2.7 million be paid, of which SKr 1.25 million was paid to the chairman of the board and SKr 325 000 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, both unchanged from the previous year.

Board directors’ attendance during 2012 Name Position Board

meeting Audit

committee

Anders Böös Chairman 100% - Bengt Nilsson Vice-chairman 92% - Ulrika Hagdahl Member 100% 100% 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 to ensure compliance with the established principles for financial reporting and internal control and that appropriate relations with the board’s auditors are maintained in accordance with the instructions established by the board for the audit committee. The audit committee also manages the work of the internal audit function that the board established during 2010, see below for details.

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 2012/13, 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 2012/13, taking into account experience, interest and competence. In doing so, the board has taken into particular account the requirements of Swedish Code of Corporate Governance that members of the audit committee have the requisite competence in matters of remuneration of senior executives. 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 six times in 2012, and all members were present at the meetings. 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 president is

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determined by the board, as are the principles and earnings targets for variable remuneration of the president and senior executives reporting to the president. Other remuneration of senior executives reporting to the president 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 senior executives and prevailing remuneration structures and remuneration levels in the company, and the ongoing and completed programs for variable remuneration of senior management in the company. In accordance with the regulations of the Code of Corporate Governance, a report on the findings of this evaluation is publicized no later than two weeks before the AGM.

The company website also contains a more detailed account of current guidelines for remuneration of senior management and of the outstanding incentive program adopted by the board. THE PRESIDENT AND SENIOR 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 Group 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. Group Management participates in regular operational reviews under the leadership of the president. AUDITORS

IFS’s auditing company, reelected at the 2010 AGM for four years, 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.

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 limited 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.

GUIDELINES FOR REMUNERATION OF CORPORATE MANAGEMENT

For 2012, the following guidelines established by the AGM concerning remuneration and other terms and conditions of employment for the CEO and other senior executives were applied.

Remuneration of corporate 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 corporate 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 corporate 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 2012, variable remuneration for the CEO was not permitted to exceed 50 percent of the basic salary, and for the other members of corporate 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 2010 resolved to adopt an incentive program for the corporate management and key personnel based on terms and conditions consistent with incentive plans adopted in previous years. The AGM of 2011 adopted a revised incentive program which had been adjusted in accordance with the rules of the Swedish Corporate Governance Code applicable as per February 1, 2010. A new incentive program based on the same structure as the program from 2011 was adopted at the AGM of 2012.

The 2012 program entails that the company has offered senior executives and key personnel in the company the opportunity to subscribe for warrants in the company valued at market price. To stimulate participation in the program, employees 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

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dependent on the outcome of a performance condition linked to the company’s earnings-per-share target during 2012 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 2015 up to and including June 29, 2017, 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 23, 2012 and April 27, 2012.

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 or its equivalent. 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 senior executives is 65, but the CEO and the company are entitled to invoke the right to retirement for the CEO at the age of 62. 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 2012 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, Group 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 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 Group 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

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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. Group 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 Group 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 Group Management to ensure that it includes all essential areas that affect financial reporting. As part of their audit, the accountants elected by the AGM, PricewaterhouseCoopers AB,

also review a selection of IFS’s controls. Recommendations from the external accounting are continuously monitored by Group 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, corporate management and the company’s external auditors; the results of actions taken are reported continuously to the audit committee. During 2012, the work of the internal audit has primarily been focused on defining minimum internal control requirements to be implemented and 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 5, 2013. 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 2012 2011

License revenue 3 467 431 Maintenance and support revenue 4 909 823 Consulting revenue

1,283 1,311

Other revenue 5 17 11

Net revenue 2 2,676 2,576 License expenses

-27 -25

Maintenance and support expenses

-281 -272 Consulting expenses

-1,047 -1,028

Other expenses

-10 -9

Direct expenses -1,365 -1,334

Gross earnings 1,311 1,242 Development expenditure 6 -270 -229 Sales and marketing expenses 7 -586 -510 Administration expenses

-279 -251

Other operating revenue 8 42 8 Other operating expenses 9 -23 -27

Indirect expenses, net -1,116 -1,009

EBIT 11, 12, 13, 14, 15, 16 195 233 Result from participation in associated companies 18 0 1 Other interest income and similar income 19 4 5 Interest costs and similar costs 20 -13 -21

Financial net -9 -15

Profit/loss before tax 186 218 Taxes 21 -51 -62

Profit/loss for the year 22 135 156

Profit/loss for the year is allocated as follows:

Parent Company stockholders (SKr million)

135 156

Non-controlling interests (SKr million)

0 0 Profit/loss per share pertaining to Parent Company stockholders, before dilution (SKr) 22 5.40 6.07 Profit/loss per share pertaining to Parent Company stockholders, after dilution (SKr) 22 5.27 5.96

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

On December 31

24,772 25,313

On December 31, after full dilution

25,237 25,905 Average for the period

24,988 25,690

Average for the period, after full dilution 25,616 26,189

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

SKr, million Note 2012 2011

Earnings for the period

135 156 Other comprehensive income

Exchange rate differences

-36 3

Other comprehensive income for the period, net of tax -36 3

Total comprehensive income for the period 99 159

Total comprehensive income allocated as follows:

Parent Company shareholders

99 159

Non-controlling interests 0 0

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CONSOLIDATED BALANCE SHEET—ASSETS

SKr, million Note Dec 31, 2012 Dec 31, 2011

Capitalized expenditure for product development

560 531 Goodwill

393 354

Other intangible fixed assets

108 68

Intangible fixed assets 23 1,061 953 Tangible fixed assets 24, 25 90 97 Participations in associated companies 27 3 3 Deferred tax receivables 29 115 151 Other long-term receivables 30 28 35

Financial fixed assets 146 189

Fixed assets 1,297 1,239 Inventories

0 0

Accounts receivable 31 718 701 Current tax receivable

33 27

Other receivables 32 209 218 Liquid assets 33 316 374

Current assets 1,276 1,320

Assets 2,573 2,559

CONSOLIDATED BALANCE SHEET—EQUITY AND LIABILITIES

SKr, million Note Dec 31, 2012 Dec 31, 2011

Capital stock

508 520 Other capital contributed

701 703

Reserves

-90 -54 Accumulated earnings, including profit/loss for the year

135 132

Stockholders' equity pertaining to Parent Company stockholders 1,254 1,301 Non-controlling interests

1 1

Stockholders' equity 34 1,255 1,302 Liabilities to credit institutions 35, 36 1 1 Pension obligations 37 36 49 Deferred tax liabilities 29 16 20 Other provisions 38 8 6 Other liabilities 38 3 13

Long-term liabilities 64 89 Accounts payable

93 94

Current tax liabilities

28 31 Liabilities to credit institutions 35, 36 178 51 Other provisions 38 3 13 Other liabilities 39 952 979

Current liabilities 1,254 1,168

Liabilities 1,318 1,257

Stockholders' equity and liabilities 2,573 2,559 Information of pledged assets and contingent liabilities, see note 41 and 42.

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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, 2011 529 701 -57 122 1,295 0 1,295 Change in translation difference - - 3 - 3 - 3 Total changes in net wealth recognized in other comprehensive income, excl. transactions with the company's owners - - 3 - 3 - 3 Profit/loss for the year - - - 156 156 1 157 Total changes in net wealth, excl. transactions with the company's owners - - 3 156 159 1 160 New share issue 1 2 - - 3 - 3 Issue of warrant program TO9B - - - 1 1 - 1 Repurchase of warrants - - - -3 -3 - -3 Repurchase of own shares - - - -69 -69 - -69 Cancellation of repurchased shares -10 - - 10 0 - 0 Changes in participating interest in subsidiaries - - - -7 -7 0 -7 Dividend - - - -78 -78 - -78

Amount on December 31, 2011 520 703 -54 132 1,301 1 1,302

Change in translation difference - - -36 - -36 - -36 Total changes in net wealth recognized in other comprehensive income, excl. transactions with the company's owners - - -36 - -36 - -36 Profit/loss for the year - - - 135 135 - 135 Total changes in net wealth, excl. transactions with the company's owners - - -36 135 99 - 99 New share issue - 4 - - 1 - 1 Issue of warrant program TO10B - - - 1 1 - 1 Repurchase of warrants - -3 - - -3 - -3 Repurchase of own shares - - - -57 -57 - -57 Cancellation of repurchased shares -12 - - 12 0 - 0 Changes in participating interest in subsidiaries - - - - 0 - 0 Dividend - - - -88 -88 - -88

Amount on December 31, 2012 508 701 -90 135 1,254 1 1,255

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CONSOLIDATED STATEMENT OF CASH FLOWS

SKr, million Note 2012 2011

CURRENT OPERATIONS

Profit/loss after net financial items

186 218

Adjustments for items not included in the cash flow, etc. 43 218 203 Interest paid

-14 -9

Interest received

4 4 Income tax paid

-31 -10

Cash flow from operations before change in working capital 363 406

CHANGE IN WORKING CAPITAL

Change in inventory

0 0

Change in current receivables

-36 -63 Change in current non-interest-bearing liabilities

-44 -33

Change in working capital -80 -96

Cash flow from current operations 283 310

INVESTMENT OPERATIONS

Acquisition of subsidiaries 44 -123 -19

Acquisition of intangible fixed assets

-178 -168 Acquisition of tangible fixed assets 45 -24 -34 Change in long-term receivables

1 5

Cash flow from investment operations -324 -216

Cash flow after investment operations -41 94

FINANCING OPERATIONS

Use of convertible debenture

- 3

Repurchase of convertible debenture

-3 -3 Raising of loans from credit institutions 35 178 42 Amortization of liability to credit institutions 35 -51 -57 Deposit

7 -

Dividend distributed

-88 -78 Repurchase of own shares

-57 -69

Change in other long-term liabilities

4 -2 Other adjustments

3 1

Cash flow from financing operations -7 -163

Cash flow for the year -48 -69

LIQUID FUNDS

Liquid funds on January 1

374 445

Exchange rate differences in liquid funds

-10 -2

Liquid funds on December 31 33 316 374

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INCOME STATEMENT OF THE PARENT COMPANY

SKr, million Note 2012 2011

Net revenue 5 19 17 Administration expenses

-21 -23

Other operating revenue 8 0 0

EBIT 10, 12, 13, 14, 15, 16 -2 -6 Result from participation in subsidiaries 17 20 171 Other interest income and similar income 19 78 65 Interest costs and similar costs 20 -17 -28

Profit/loss before tax 79 202 Tax on profit/loss for the year 21 -24 -38

Profit/loss for the year 55 164

STATEMENT OF COMPREHENSIVE INCOME OF THE PARENT COMPANY

SKr, million 2012 2011

Earnings for the period

55 164 Other comprehensive income

Other comprehensive income for the period - -

Total comprehensive income for the period 55 164

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BALANCE SHEET OF THE PARENT COMPANY—ASSETS

SKr, million Note Dec 31, 2012 Dec 31, 2011

FIXED ASSETS

Tangible fixed assets 24 0 0

Participations in subsidiaries 26 992 992 Receivables in subsidiaries 28 71 73 Deferred tax receivables 29 14 38 Other long-term receivables 30 2 8

Financial fixed assets 1,079 1,111

Fixed assets 1,079 1,111

CURRENT ASSETS

CURRENT RECEIVABLES

Receivables in subsidiaries

889 832 Other receivables

5 5

Prepaid expenses and accrued revenue 10 4

Current receivables 904 841 Cash and bank balances 33 101 114

Current assets 1,005 955

Assets 2,084 2,066

BALANCE SHEET OF THE PARENT COMPANY—EQUITY AND LIABILITIES

SKr, million Note Dec 31, 2012 Dec 31, 2011

STOCKHOLDERS' EQUITY

RESTRICTED STOCKHOLDERS' EQUITY

Capital stock

508 520 Restricted reserves

573 573

Restricted stockholders' equity 1,081 1,093 UNRESTRICTED STOCKHOLDERS' EQUITY

Share premium reserve

127 130 Retained earnings

345 314

Profit/loss for the year

55 164

Unrestricted stockholders' equity 527 608

Stockholders' equity 34 1,608 1,701

PROVISIONS

Provisions for pensions and similar commitments 37 2 2

Provisions 2 2

CURRENT LIABILITIES

Liabilities to credit institutions 35, 36 178 41

Accounts payable

2 2 Liabilities to subsidiaries

282 302

Other current liabilities

5 7 Accrued expenses and prepaid revenue 40 7 11

Current liabilities 474 363

Stockholders' equity, provisions, and liabilities 2,084 2,066

MEMORANDUM ITEMS

Pledged assets 41 981 987

Contingent liabilities 42 30 25

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CAPITAL ACCOUNT OF THE PARENT COMPANY

RESTRICTED EQUITY UNRESTRICTED EQUITY

SKr, million Note 34

Capital stock

Reserve

fund

Total

Premium

fund

Earnings carried forward

Total

Total stockholders'

equity

Amount on Jan 1, 2011 according to adopted balance sheet 529 573 1,102

128 453 581

1,683

Change in share premium reserve - - -

2 - 2

2 Repurchase of warrants 1 - 1

- -2 -2

-1

Repurchase of own shares - - -

- -69 -69

-69 Cancellation of own shares -10 - -10

- 10 10

0

Dividend 2011 - - -

- -78 -78

-78 Profit/loss for the year - - -

- 164 164

164

Amount on December 31, 2011 520 573 1,093 130 478 608 1,701

Change in share premium reserve - - -

0 - 0

0 Repurchase of warrants 0 - 0

-3 - -3

-3

Repurchase of own shares - - -

- -57 -57

-57 Cancellation of own shares -12 - -12

- 12 12

0

Dividend 2012 - - -

- -88 -88

-88 Profit/loss for the year - - -

- 55 55

55

Amount on December 31, 2012 508 573 1,081 127 400 527 1,608

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STATEMENT OF CASH FLOWS OF THE PARENT COMPANY

SKr, million Note 2012 2011

CURRENT OPERATIONS

Profit/loss after net financial items

79 202

Adjustments for items not included in the cash flow, etc. 43 -10 -99 Interest paid

-9 -7

Interest received

1 2 Revenue tax paid

0 0

Cash flow from operations before change in working capital 61 98

CHANGES IN WORKING CAPITAL

Change in current receivables

-8 1

Change in current non-interest-bearing liabilities

-8 -6

Change in working capital -16 -5

Cash flow from current operations 45 93

INVESTMENT OPERATIONS

Change in net receivables in subsidiary

-56 24

Group contributions paid to subsidiaries

- -5 Change in other long-term receivables

1 -1

Cash flow from investment operations -55 18

Cash flow after investment operations -10 111

FINANCING OPERATIONS

Use of warrants

0 3

Repurchase of warrants

-3 -3 Raising of loans from credit institutions 35 178 42 Amortization of liability to credit institutions 35 -42 -56 Deposit

7 -

Dividend distributed

-88 -78 Repurchase of own shares

-57 -69

Change in other long-term liabilities

2 0

Cash flow from financing operations -3 -161

Cash flow for the year -13 -50

LIQUID FUNDS

Liquid funds on January 1

114 164

Liquid funds on December 31 33 101 114

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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 5, 2013. 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 26, 2013. 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 venture companies.

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:

• 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% regardless of its age.

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• 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 or 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 (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 assets. This applies in particular to the valuation of deferred tax assets. 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 assets can be realized via future taxable revenue. For further information on deferred tax assets 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”.

Changes in accounting principles None of the IFRS or IFRIC interpretations that are mandatory for the fiscal year beginning January 1, 2012 have substantially affected the Group. New IFRS and interpretations not yet applied A number of new standards, amendments to standards and interpretations do not come into force until later than January 1, 2012 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:

• IAS 1 (amended) “Presentation of Financial Reports” entails amendments to Other Comprehensive Income. The most significant amendment is the requirement that items in Other Comprehensive Income be grouped based on whether or not they can be reclassified to profit and loss (reclassification adjustments). The amendment does not address which items should be presented in Other Comprehensive Income. The amended standard has been adopted by the EU and is effective for fiscal years beginning on or after July 1, 2012. The Group intends to apply the amended standard to the fiscal year that begins on January 1, 2013.

• IAS 19 (amended), Employee Benefits was amended in June 2011. As a result of the amendment, the Group will no longer use the ’corridor’ approach and will instead account for actuarial gains and losses in Other Comprehensive Income when they occur. Past service costs will be recognized immediately. Interest costs and expected dividends from plan assets will be replaced by a net interest rate calculated using the discount rate based on the net surplus or net deficit in the defined benefit plans. The Group intends to apply the amended standard for the fiscal year beginning January 1, 2013. An estimated effect of this is presented in Note 37, Pensions. From 2013, financial reports will include unreported actuarial gains and losses from December 31, 2011 as an opening balance in Equity as of January 1, 2012. Furthermore, actuarial gains and losses that occur during the comparative year (2012) will be booked in Other Comprehensive Income. Similarly actuarial gains and losses for the year (2013) will be booked in Other Comprehensive Income. The standard has been adopted by the EU. To estimate special payroll tax, the Group will apply the standard model approved by the Swedish Society of Actuaries. Earnings tax will not be included when estimating the pension liability in

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accordance with a statement from the Swedish Financial Reporting Board (UFR 9).

• IFRS 9, Financial Instruments treats the classification, evaluation and reporting of financial liabilities and assets. IFRS 9 was issued in November 2009 for financial assets and in October 2010 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 two categories: fair value and accrued acquisition value. The classification is determined when the asset is first reported based on the company’s business model and characteristic properties in the contractual cash flows. There are no major changes in the reporting of financial liabilities compared with IAS 39. The Group intends to apply the new standard no later than the fiscal year beginning January 1, 2015 and has not yet evaluated its effects. The standard has not yet been adopted by the EU.

• IFRS 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 standard has been adopted by the EU and the Group intends to apply IFRS 10 for the fiscal year beginning January 1, 2014. It is deemed unlikely that the new standard will have any impact on the Group as a whole.

• IFRS 11 Joint arrangements. A joint arrangement is defined as an arrangement where two or more parties contractually agreed 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 as the proportionate method is no longer permitted. The Group intends to apply IFRS 11 as of the fiscal year beginning January 1, 2014. For the IFS Group, the new standard will entail a reduction in the total assets as the various items previously reported item by item according to the proportionate method will be 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. The standard has been adopted by the EU.

• IFRS 12 Disclosures of interests in other entities covers disclosure requirements for subsidiaries, joint arrangements, associated companies and unconsolidated structured entities. The standard has been adopted by the EU. The Group intends to apply IFRS 12 as of the fiscal year beginning January 1, 2014 and has not yet assessed its full impact on the financial reports.

• IFRS 13 Fair value measurement seeks to ensure that fair value measurements are more consistent by providing an exact definition and a single framework in IFRS for fair value measurements and related disclosures. The purpose is to harmonize IFR and GAAP in terms of what constitutes fair value. The new standard does not regulate which assets and liabilities that are to be measured at fair value; that is treated within the respective standards for the asset/liability. IFRS 13 does, however, determine how fair value is to be decided and which disclosure requirements that result over and above those stipulated by other standards. The Group intends to apply IFRS 13 as of the fiscal year beginning January 1, 2013 and has not yet assessed its full impact on the financial reports. The standard has been adopted by the EU. IFRS 13 is not expected to have any substantial impact on the Group’s reporting.

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.

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Consolidated accounting principles

Subsidiaries Subsidiaries are companies in which the Parent Company has a controlling interest. A controlling interest entails a direct or indirect right to form a company’s financial and operational strategies for the purpose of gaining financial benefits. When assessing whether a controlling interest exists, potential shares with voting rights that can be utilized without delay shall be taken into account.

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. 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% 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. In the consolidated accounts, holdings in joint ventures are reported according to the principle of proportional consolidation, whereby the Group’s share of the joint venture’s assets, liabilities, revenue and expenses, is reported in the Group’s balance sheet and income statement. To do so, the joint owner’s share of assets, liabilities, revenue and expenses in a joint venture is combined item by item with corresponding items in the joint owners’ consolidated accounts. Only stockholders’ equity accruing after acquisition is reported in the Group’s stockholders’ equity. The proportional consolidation principle is applied from the point in time at which the joint controlling interest is obtained until it ceases to exist.

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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 total earnings. 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.

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 2012, a profit margin spanning 2–5% 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

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product development company covers their actual expenses plus a general supplement of 5%. 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 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 assets are reported as financial fixed assets, whereas deferred tax liabilities are reported as long-term liabilities.

Deferred tax assets 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.

The Group reports losses carried forward pertaining as an asset as the restructuring and streamlining of operations implemented in recent years have resulted in taxable profits in recent years and because of expected taxable gains in the future.

The value of the deferred tax assets is based on assessments of future taxable gains and the related expectations concerning future use of loss carry-forward.

A current tax rate of 26.3% has been applied on the Swedish companies. With the reduction of the corporate

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tax rate to 22%, the remaining deferred tax assets and liabilities in the Swedish companies have been recalculated at the new tax rate as of the last of December. 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 and the benefit 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. Write-downs of accounts receivable are conducted after individual testing of each customer and are reported in operating expenses. Other financial liabilities Loans (convertible debentures/bonds and liabilities to credit institutions), accounts payable, and other liabilities are included in this category. Financial liabilities not held

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for trading are valued at their accrued acquisition value. 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. Derivatives valued at fair value via the income statement Currency futures and currency swaps are used to hedge assets, liabilities or forecast flows against exchange rate risks. 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.

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. 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.

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• The resources required to complete the project are available.

• The project is likely to entail financial benefits for IFS, either in the market where the product is to be sold or via internal savings.

• It is possible to calculate development expenditure in a reliable manner.

It must also have been decided that the development project is to be part of an IFS Applications release or will be used to streamline internal processes. This means that expenses related to research and support are not capitalized.

The Group works continuously with a number of product development projects, most of which focus on standard versions of IFS Applications. The acquisition value of product development expenditure mainly consists of personnel-related expenses. In addition, there are expenses for premises, travel, and office overheads. Borrowing expenses directly related to product development are included in the asset’s acquisition value as the Group deems that the asset requires a substantial amount of time to complete.

Capitalized development expenditure is amortized after the estimated lifetime of each product. This may not exceed 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 lists, 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 list & oth. 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

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essentially independent of other assets. In the impairment test, consolidated assets and expenses, apart from capitalized product development expenditure, are distributed to the segments in proportion to their share of revenue. Capitalized product development expenditure is not distributed as it occurs in a central product development organization and is not directly related to sales of the product in the segments. Capitalized product development expenditure is tested at Group level. Impairment testing of financial assets On each reporting date, the Group evaluates whether there is objective evidence of impairment for a financial asset. Objective evidence consists of observable events that have occurred and that have a negative impact on the ability to recover the acquisition value. Provisions Group provisions consist primarily of pension obligations and provisions for restructuring. Defined-benefits pension plans are reported in the consolidated accounts according to common principles and calculation methods. Provisions are reported when the following criteria are fulfilled:

• The Group has a legal or constructive obligation as a result of a past event.

• It is more likely than not that an outflow of resources will be required to settle an obligation.

• A reliable estimate can be made of the amount.

Provisions for restructuring are made when a detailed formal plan for these exists and a valid expectation has been created on the part of those affected. Provisions are not made for future losses. Residual provisions for restructuring pertain primarily to rental costs. All provisions are valued at present value. Stockholders’ equity Transaction expenses directly pertaining to the issuance of new shares or options are reported net after tax in stockholders’ equity as a deduction from the proceeds of the issue. Share repurchase is reported against stockholders’ equity. Stock-related benefits

The 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 two 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 price that was paid for them. The total cost, including the fair value of free warrants that have been distributed, is reported distributed over the vesting period in such where there is a vesting period. For programs that do not run with a vesting period the total cost is reported, including the fair value of the free warrants, distributed over the period until one of the following occur: the warrants are exercised or the warrants mature.

When the warrants are exercised, the company issues new shares. Payments received, after deductions for directly related transaction costs, are credited to the capital stock (quota value) and Other capital contributed. Employee benefits—pension obligations

Defined-contribution plans

Defined-contribution plans are those to which the Company’s obligations are limited to the contributions the Company has committed itself to pay. In such cases, the size of an employee’s pension is determined by the contributions made by the Company to the plan and the return on capital produced by the contributions. Consequently, the employee carries the actuarial and investment risks. Group earnings are charged with expenses as the benefits accrue. Defined-benefit plans Defined-contribution and defined-benefit pension plans exist within the Group. In Sweden, Norway, France, and the U.K., 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.

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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. The corridor rule is applied, whereby the portion of the accumulated actuarial profits and losses at the end of the previous year that exceed 10% of the highest of the obligation’s present value and the plan asset’s fair value is reported in the earnings over the employee’s average remaining period of service.

Interest expense less the expected dividend on 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 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.

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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 SRS 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 exceeding 10 percent of the plan assets’ fair value or the obligations’ present value at the beginning of the year are reported in the income statement during the remaining period of employment. 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, seven segments are reported, six of which are geographical and the seventh of which constitutes the Group’s commitments to IFS Defence (joint venture). The Group operates in various countries either directly via its own sales companies or indirectly via partners as follows:

Europe North: Denmark, Estonia, Finland, Latvia, Norway, and Sweden

Europe West: France, Spain, Portugal and the United Kingdom

Europe Central: Germany, Italy, the Netherlands, and Switzerland

Europe East: Cyprus, Czech Republic, Hungary, Kazakhstan, Georgia, Poland, Romania, Russia, Slovakia, Turkey, and Ukraine

Americas: Argentina, Brazil, Ecuador, Canada, Mexico and the USA

Africa, Asia, and Pacific: Ethiopia, Kenya, Nigeria, South Africa, Tanzania, Bangladesh, Botswana, Cameroon, Namibia, Uganda, China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Singapore, Sri Lanka, Taiwan, Thailand, the United Arab Emirates, Australia, and New Zealand

Defense: (joint venture)

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.

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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 assets and liabilities, corporate liquidity, corporate financing and all corporate functions.

Income statement 2012

SKr, million Europe North

Europe West

Europe Central

Europe East

Americas Africa, Asia, and Pacific

Defense Total segments

Group items

GROUP 2012

License revenue 114 96 56 29 112 57 2 466 1 467 Maintenance and support revenue 346 173 80 57 161 63 25 905 4 909 Consulting revenue 612 154 127 76 205 79 27 1,280 3 1,283 Other revenue 1 0 1 2 1 3 7 15 2 17 Total external revenue 1,073 423 264 164 479 202 61 2,666 10 2,676 Internal revenue 33 60 41 20 40 11 12 217 -217 0

Total revenue 1,106 483 305 184 519 213 73 2,883 -207 2,676 External operating expenses -701 -334 -233 -180 -339 -229 -48 -2,064 -436 -2,500 Internal operating expenses -65 -27 -20 -1 -33 -10 -13 -169 169 0 Other operating items, net -7 29 0 -9 0 0 0 13 6 19

Operating expenses -773 -332 -253 -190 -372 -239 -61 -2,220 -261 -2,481 EBIT 333 151 52 -6 147 -26 12 663 -468 195 Result from participation in associated companies

0

Other interest income and similar income

4 Interest expenses and similar expenses

-13

Profit/loss before tax 186 Tax on profit/loss for the year

-51

Profit/loss for the year 135

Other information 2012

SKr, million Europe North

Europe West

Europe Central

Europe East

Americas Africa, Asia, and Pacific

Defense Total segments

Group items

GROUP 2012

External assets 423 271 92 71 402 134 31 1,424 1,146 2,570 Participations in associated companies

3 3

Total assets 423 271 92 71 402 134 31 1,424 1,149 2,573 Liabilities 418 194 45 42 181 80 40 1,000 318 1,318 Investments in fixed assets 0 2 2 2 93 2 2 103 231 334 Depreciation and write-downs 5 14 3 2 4 2 3 33 166 199 Average number of employees 548 298 194 276 270 291 44 1,921 909 2,830 Number of employees at year end 533 298 202 275 286 284 44 1,922 907 2,829

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Income statement 2011 SKr, million Europe

North Europe West

Europe Central

Europe East

Americas Africa, Asia, and Pacific

Defense Total segments

Group items

GROUP 2011

License revenue 104 103 44 44 90 45 1 431 0 431 Maintenance and support revenue 331 151 75 55 117 61 27 817 6 823 Consulting revenue 637 164 153 94 150 83 25 1,306 5 1,311 Other revenue 1 0 2 2 0 4 0 9 2 11

Total external revenue 1,073 418 274 195 357 193 53 2,563 13 2,576 Internal revenue 32 49 22 15 35 16 16 185 -185 0 Total revenue 1,105 467 296 210 392 209 69 2,748 -172 2,576 External operating expenses -698 -316 -225 -178 -243 -195 -46 -1,901 -423 -2,324 Internal operating expenses -67 -21 -20 -1 -10 -10 -19 -148 148 0 Other operating items, net -19 -1 0 5 0 0 -1 -16 -3 -19 Operating expenses -784 -338 -245 -174 -253 -205 -66 -2,065 -278 -2,343

EBIT 321 129 51 36 139 4 3 683 -450 233 Result from participation in associated companies

1

Other interest income and similar income

5 Interest expenses and similar expenses

-21

Profit/loss before tax 218 Tax on profit/loss for the year

-62

Profit/loss for the year 156

Other information 2011

SKr, million Europe North

Europe West

Europe Central

Europe East

Americas Africa, Asia, and Pacific

Defense Total segments

Group items

GROUP 2011

External assets 431 300 90 87 293 160 27 1,388 1,168 2,556 Participations in associated companies

3 3

Total assets 431 300 90 87 293 160 27 1,388 1,171 2,559 Liabilities 431 235 42 47 164 75 41 1,035 222 1,257 Investments in fixed assets 0 5 3 1 71 4 3 87 182 269 Depreciation and write-downs 7 14 4 2 3 2 3 35 137 172 Average number of employees 576 279 193 269 198 289 45 1,849 867 2,716 Number of employees at year end 567 295 196 275 248 291 46 1,918 903 2,821

External net sales

GROUP

SKr, million 2012 2011

Sweden 477 511 Rest of the World 2,199 2,065

Total 2,676 2,576

Fixed assets

GROUP SKr, million 2012 2011

Sweden 709 671 Rest of the World 588 568 Total 1,297 1,239

NOTE 3. LICENSE REVENUE

GROUP SKr, million 2012 2011

License revenue, IFS 444 414 Third-party license revenue 23 17

Total 467 431

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

SKr, million 2012 2011

Maintenance and support revenue 880 794 Third-party maintenance and support revenue 29 29

Total 909 823

NOTE 5. OTHER REVENUE

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Hardware 4 4 - - Parent Company fees - - 19 17 Miscellaneous 13 7 - -

Total 17 11 19 17

NOTE 6. DEVELOPMENT EXPENDITURE

GROUP SKr, million 2012 2011

Product development expenditure -290 -257 Amortization of capitalized product development -152 -131 Other amortization -10 -5 Capitalized expenditure for product development 182 164

Total -270 -229

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NOTE 7. SALES AND MARKETING EXPENSES GROUP SKr, million 2012 2011

Sales and marketing expenses -79 -68 Corporate sales and marketing expenses -32 -35 Local sales and marketing expenses -475 -407

Total -586 -510

NOTE 8. OTHER OPERATING INCOME

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Reversal of unused restructuring reserve 1 3 - - Exchange rate gains, net - 2 - - Rental income 1 1 - - Adjustment of additional consideration for 360 Scheduling 30 - - - Miscellaneous 10 2 0 0

Total 42 8 0 0

NOTE 9. OTHER OPERATING EXPENSES

GROUP SKr, million 2012 2011

Exchange rate losses, net -5 - Restructuring costs -10 -19 Loss on divestment of operations 0 0 Miscellaneous -8 -8 Total -23 -27

NOTE10. TRANSACTIONS BETWEEN SUBSIDIARIES

In the Parent Company, SKr 19 (17) million, or 100 percent (100) of sales and SKr 0 (0) million, or 1 percent (1) of the purchases for the year pertain to subsidiaries in IFS Group. NOTE 11. OPERATING EXPENSES PER TYPE OF COST

GROUP SKr, million 2012 2011

Direct costs of goods and services sold -223 -208 Capitalized development cost 182 164 Personnel costs -1,723 -1,630 Travel expenses -129 -128 Costs for rented premises and other property costs -116 -110 External services -102 -74 Marketing and selling expenses -74 -60 Amortization, depreciation, and write-downs -199 -172 Other indirect expenses -116 -106 Other operating income 42 8 Other operating expenses -23 -27 Total -2,481 -2,343

NOTE 12. AUDITORS’ FEES GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

PricewaterhouseCoopers

Audit engagement -5 -6 -2 -2

Audit business beyond the audit engagement -1 -2 0 -1 Tax consultancy -3 -2 -2 -1 Other services -2 -1 0 0 Total -11 -11 -4 -4

Other auditors

Audit engagement -1 -1 - -

Audit business beyond the audit engagement 0 - 0 - Tax consultancy -1 -1 0 - Other services 0 0 - 0

Total -2 -2 0 0 Total fees -13 -13 -4 -4

“Audit engagement” refers to the examination of the annual accounts, the accounting records, and the administration by the Board of Directors and the President. It also includes other duties that are incumbent on the company’s auditors, as well as advisory services and other types of support as a result of observations made through such an examination. Everything else is considered to be audit business beyond the audit engagement. This includes, for example, the review of IFS’s interim report. NOTE 13. SALARIES, OTHER REMUNERATIONS, AND SOCIAL COSTS

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Salaries and other remunerations -1,303 -1,238 -7 -10 Social costs -253 -240 -1 -2 Pension costs, defined benefit plans (see Note 37) -20 -14 -1 0 Pension costs, defined contribution plans (see Note 37) -69 -68 -1 -1 Other personnel costs -78 -70 -1 -1 Total -1,723 -1,630 -11 -14 Pension expenses reported as financial expenses -4 -1 - - Total -1,727 -1,631 -11 -14

Of the Parent Company’s pension expenses, SKr 718,000 (951,000) pertained to the board of directors and CEO. The corresponding amount for the Group was SKr 4 (4) million.

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Salaries and other remunerations by country 2012 2011 SKr, million

Board, CEO, and mgmt*

Others

Total

Board, CEO, and mgmt*

Others

Total

SWEDEN

Parent company 7 0 7 10 - 10

Subsidiaries 8 275 283 11 279 290 Sweden, total 15 275 290 21 279 300

SUBSIDIARIES ABROAD

Australia 9 12 21 7 8 15

Brazil 2 14 16 0 - 0 Canada - 12 12 - 11 11 China - 13 13 - 12 12 Czech Republic 2 4 6 2 4 6 Denmark 2 39 41 2 39 41 Finland 7 35 42 6 34 40 France 5 29 34 5 28 33 Germany 8 79 87 8 78 86 Hungary 2 3 5 2 3 5 India 1 15 16 1 17 18 Italy - 2 2 - 2 2 Japan 4 6 10 4 5 9 Kazakhstan - 0 0 - 0 0 Malaysia 3 1 4 2 1 3 Netherlands 2 29 31 3 29 32 New Zealand - - - - 0 0 Norway 11 152 163 9 160 169 Poland 7 46 53 8 46 54 Russia 1 11 12 2 11 13 Singapore 4 5 9 4 4 8 Slovakia 0 1 1 0 1 1 South Africa 1 9 10 1 8 9 Spain 2 10 12 2 9 11 Sri Lanka 6 55 61 5 53 58 Switzerland 2 8 10 2 5 7 Thailand 1 1 2 1 1 2 United Arab Emirates 6 11 17 6 11 17 United Kingdom (excl. joint venture) 11 129 140 11 117 128 United States 9 144 153 9 115 124

Subsidiaries abroad, total 108 875 983 102 812 914 Joint venture in the United Kingdom 4 26 30 3 21 24

Group, total 127 1,176 1,303 126 1,112 1,238 * Management: other executives

Other executives are those who report to the president and local managing directors. NOTE 14. REMUNERATIONS PAID TO SENIOR EXECUTIVES

Definitions Since the AGM held on March 29, 2012, the board has consisted of Anders Böös (chairman), Ulrika Hagdahl, Birgitta Klasén, Neil Masom, Bengt Nilsson (deputy chairman), and Alastair Sorbie (president and CEO). Other senior executives are those who, together with Alastair Sorbie, have been part of corporate management during the whole or most of the year. These other senior executives consisted of Jesper Alwall, Fredrik vom Hofe, and Paul Smith.

Remuneration principles According to the resolution adopted by the AGM, board members received SKr 2,700,000 in fees during 2012/2013, of which SKr 1,250,000 was paid to the chairman of the board and SKr 325,000 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 2012, variable remuneration shall not exceed 50 percent of the basic salary. The basis for the variable salary of the president, corporate management, and senior executives who report to the president 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 president, corporate management, and senior executives 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 corporate management 2012

SKr, thousand

Basic salary

Variable remuneratn

Other benefits

Pension benefits

Total

President and CEO 3,588 670 0 718 4,976 Other group management 5,101 1,751 199 1,111 8,162

Total 8,689 2,421 199 1,829 13,138

2011

SKr, thousand Basic salary

Variable remuneratn

Other benefits

Pension benefits

Total

President and CEO 3,275 933 0 655 4,863 Other group management 4,614 2,340 89 979 8,022

Total 7,889 3,273 89 1,634 12,885

Comments on the table:

• Group management consisted of four persons during the year.

• Variable remuneration refers to compensation paid during the year attributable to the previous financial year.

• Other benefits refer primarily to company cars and options.

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Remuneration of board members, president, and other senior

executives GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Salaries and other remunerations 139 126 7 10 of which variable remuneration 24 21 0 0

Social fees 14 15 1 1 Pension benefits 9 9 1 2 Number of people 158 171 8 8

Comments on the table:

• Members of the boards of subsidiaries are employees, who are not paid directors’ fees for their work on the board.

• Other senior executives are those who report to the president.

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 - 10,000 - Neil Masom - - - Bengt Nilsson 382,013 3,300 - Alastair Sorbie (CEO) - 6,776 158,550

Total 809,023 50,076 158,550

GROUP MANAGEMENT Jesper Alwall - - 6,624 Fredrik vom Hofe - - 8,782 Paul Smith - - 105,700

Total 0 0 121,106

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, 2012.

Period of notice and severance pay If the company terminates the employment, the president is to receive 12 months’ notice; if the president terminates the employment, the company is to receive 12 months’ notice. In addition, the president 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 corporate management and senior executives, the notification period is between 12 months from the company and 3 to 6 months from the senior 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. NOTE 15. TRANSACTIONS WITH RELATED PARTIES

Separate notes contain information about: • Remuneration of the board, CEO, and 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 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.

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NOTE 16. AVERAGE NUMBER OF EMPLOYEES PER COUNTRY GROUP PARENT COMPANY

2012 2011 2012 2011

Sweden 511 519 3 3 of whom, women 160 158 - -

Australia 20 17 - - Brazil 56 4 - - Canada 13 15 - - China 44 42 - - Czech Republic 19 17 - - Denmark 49 49 - - Finland 66 67 - - France 66 58 - - Germany 139 136 - - Greece - 0 - - Hungary 20 21 - - India 94 104 - - Italy 4 3 - - Japan 9 7 - - Kazakhstan 2 0 - - Malaysia 8 7 - - Netherlands 42 48 - - New Zealand - 0 - - Norway 189 199 - - Poland 183 179 - - Russia 45 46 - - Singapore 13 12 - - Slovakia 7 6 - - South Africa 19 13 - - Spain 29 27 - - Sri Lanka 691 660 - - Switzerland 8 6 - - Thailand 12 10 - - United Arab Emirates 24 25 - - United Kingdom (excl. joint venture) 203 194 - - United States 201 180 - -

Total, subsidiaries abroad 2,275 2,152 - - of whom, women 693 647 - -

Joint venture in the United Kingdom 44 45 - - of whom, women 8 9 - -

Total 2,830 2,716 3 3 of whom, women 861 814 - -

Board members and senior executives

GROUP PARENT COMPANY On December 31 2012 2011 2012 2011

Board members 64 72 6 6 of whom, women 12 12 2 2

President and other senior executives 94 99 3 3

of whom, women 16 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 SKr, million 2012 2011

Other dividends from subsidiaries - 53 Group contribution received from subsidiaries 21 119 Write-down of shares in subsidiaries -1 -1

Total 20 171

NOTE 18. RESULTS FROM PARTICIPATIONS IN ASSOCIATED COMPANIES

GROUP SKr, million 2012 2011

Share in profit, Beijing IFS UFIDA Co., Ltd - 0 Share in profit, IFS Retail AB 0 0 Share in profit, Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S 0 1 Total 0 1

NOTE 19. OTHER INTEREST INCOME AND SIMILAR INCOME

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

External interest 4 5 1 2 Interest from subsidiaries - - 76 63 Exchange rate gains, net 0 - 1 - Other financial income 0 0 - - Total 4 5 78 65

NOTE 20. INTEREST EXPENSES AND SIMILAR EXPENSES

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

External interest costs -8 -6 -8 -6 Interest costs to subsidiaries - - -8 -14 Exchange rate losses, net - -10 - -6 Capitalized interest costs for development production 1 - - - Interest costs for defined-benefit pension plans - 0 - - Other financial costs -6 -5 -1 -2

Total -13 -21 -17 -28

NOTE 21. TAXES

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Current tax

Current tax -23 -24 - -

Current tax relating to previous years 1 0 - -

-22 -24 - -

Deferred tax

Deferred tax relating to

loss carry forward -30 -45 -24 -39 Deferred tax relating to temporary differences 1 7 0 1

-29 -38 -24 -38

Total tax income/expense -51 -62 -24 -38

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GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

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

Profit/loss before tax 186 218 79 202 Tax according to prevailing rate (26.3%) -49 -57 -21 -53 Not taxable dividend from subsidiaries - - - 14 Non-deductible write-down of goodwill/shares in subsidiaries and associated companies - - - 0 Effect of the lowering of the Swedish corporate tax rate from 26.3 percent to 22.0 percent -7 - -3 - Decrease/increase in deductible temporary differences, without corresponding capitalization of deferred tax 0 0 - - Other non-deductible expenses -12 -8 0 0 Not taxable income 16 3 0 0 Effect of foreign tax rates 0 -1 - - Tax relating to previous years 1 1 - - Other temporary differences 0 0 0 1 Capitalized loss carry forward 0 0 - - Utilized loss carry forward, not previously accounted for 2 2 - - Losses for which deferred tax has not been considered -2 -2 - -

Total -51 -62 -24 -38

NOTE 22. PROFIT AND DIVIDEND PER SHARE

Earnings per share GROUP 2012 2011

Profit for the year, SKr million 135 156 Average no. of shares during the period, thousands 24,988 25,690 Adjustments for options program 628 499 Weighted average no. of outstanding shares after full dilution, thousands 25,616 26,189 Profit/loss per share before full dilution, SKr 5.40 6.07 Profit/loss per share after full dilution, SKr 5.27 5.96

Dividend per share

GROUP SKr 2012 2011

Dividend per share accounted for during the year 3.50 3.00 Coming years' expected dividend per share 3.50 3.50

Dividends paid during the year amounted to SKr 87,969,000 (77,514,000) on outstanding shares less treasury shares. The AGM to be held on March 26, 2013 will propose a dividend totaling SKr 86,701,000 for fiscal 2012.

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, 2011 1,886 33 1,919

306 245

2,470

Acquisition of operations - - -

51 18

69 Purchases 164 - 164

- 0

164

Exchange differences during the year 0 - 0

1 -1

0

Closing balance Dec 31, 2011 2,050 33 2,083 358 262 2,703

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2011 -1,377 -28 -1,405

0 -151

-1,556

Depreciation during the year -132 -2 -134

- -14

-148

Closing balance Dec 31, 2011 -1,509 -30 -1,539 0 -165 -1,704 Book value Dec 31, 2011 541 3 544 358 97 999

ACCUMULATED WRITE-DOWNS Opening balance Jan 1, 2011 -13 0 -13

-4 -29

-46

Closing balance Dec 31, 2011 -13 0 -13 -4 -29 -46

Book value Dec 31, 2011 528 3 531 354 68 953

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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, 2012 2,050 33 2,083

358 262

2,703

Acquisition of operations - - -

60 27

87 Purchases 182 1 183

- 37

220

Sale/disposals -38 -26 -64

- -2

-66 Re-classification 19 - 19

- -26

-7

Exchange differences during the year -2 - -2

-21 -6

-29 Closing balance Dec 31, 2012 2,211 8 2,219 397 292 2,908

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2012 -1,509 -30 -1,539

0 -165

-1,704

Sale/disposals 38 26 64

- 2

66 Re-classification -20 1 -19

- 19

0

Depreciation during the year -152 -2 -154

- -20

-174 Exchange differences during the year 2 - 2

- 2

4

Closing balance Dec 31, 2012 -1,641 -5 -1,646 0 -162 -1,808

Book value Dec 31, 2012 570 3 573 397 130 1,100

ACCUMULATED WRITE-DOWNS Opening balance Jan 1, 2012 -13 0 -13

-4 -29

-46

Re-classification 0 - 0

- 7

7

Closing balance Dec 31, 2012 -13 0 -13 -4 -22 -39 Book value Dec 31, 2012 557 3 560 393 108 1,061

• 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 13.4 percent (13.5) before tax, corresponding to 10 percent (10) after tax.

• Revenue growth in the forecast period has been presumed to be 4.0–6.9 percent (4.0–7.9) and the EBIT margin has been presumed to be 10.2–16.8 percent (11.1–16.9).

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 3% 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.

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Goodwill per operating segment SKr, million Europe

North Europe West

Europe Central

Europe East

Americas Africa, Asia, and Pacific

Defense Group items

GROUP

Booked value December 31, 2011 45 70 2 0 189 9 26 13 354 Booked value December 31, 2012 45 68 2 0 230 9 26 13 393

Depreciation included in the income statement, per function

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

License costs -16 -14 - - Maintenance and support costs 0 - - - Consulting costs 0 0 - - Research and development expenditure -160 -134 - - Administration costs 2 0 - - Total -174 -148 - -

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, 2011 68 23 135 109 3

338

Acquisition of subsidiary 0 0 1 1 -

2 Purchases 3 2 16 11 2

34

Sales/disposals -1 0 -3 0 0

-4 Reclassifications - -2 0 1 -

-1

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

-3

Closing balance Dec 31, 2011 69 23 148 121 5 366

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2011 -26 -18 -114 -95 -1

-254

Depreciation during the year -4 -2 -10 -5 -1

-22 Sales/disposals 1 0 4 0 0

5

Reclassifications - 2 0 -1 -

1 Exchange differences during the year 0 0 1 0 0

1

Closing balance Dec 31, 2011 -29 -18 -119 -101 -2 -269

Book value Dec 31, 2011 40 5 29 20 3 97

GROUP SKr, million

Buildings and land

Leasing, inventories

Computers Office equipment

Other inventories

Total

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2012 69 23 148 121 5

366

Acquisition of subsidiary 0 - 1 1 -

2 Purchases 2 2 17 3 1

25

Sales/disposals 0 -7 -10 -9 0

-26 Reclassifications - -4 4 0 -

0

Exchange differences during the year -6 0 -7 -4 -1

-18

Closing balance Dec 31, 2012 65 14 153 112 5 349

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2012 -29 -18 -119 -101 -2

-269

Depreciation during the year -3 -2 -13 -6 -1

-25 Sales/disposals 0 7 10 9 0

26

Reclassifications 0 3 -3 0 -

0 Exchange differences during the year 2 0 5 2 0

9

Closing balance Dec 31, 2012 -30 -10 -120 -96 -3 -259

Book value Dec 31, 2012 35 4 33 16 2 90

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PARENT COMPANY SKr, million

Buildings and land

Leasing, inventories

Computers Office equipment

Other inventories

Total

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2011 - - 1 1 -

2

Closing balance Dec 31, 2011 - - 1 1 - 2

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2011 - - -1 -1 -

-2

Closing balance Dec 31, 2011 - - -1 -1 - -2

Book value Dec 31, 2011 - - 0 - - 0

ACCUMULATED ACQUISITION VALUE Opening balance Jan 1, 2012 - - 1 1 -

2

Closing balance Dec 31, 2012 - - 1 1 - 2

ACCUMULATED DEPRECIATION Opening balance Jan 1, 2012 - - -1 -1 -

-2

Closing balance Dec 31, 2012 - - -1 -1 - -2

Book value Dec 31, 2012 - - 0 0 - 0

Depreciation in the income statement, per function

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

License costs -1 -1 - - Maintenance and support costs -2 -2 - - Consulting costs -5 -5 - - Development expenditure -2 -2 - - Administration costs -15 -12 - 0

Total -25 -22 0 0

Tangible fixed assets do not include any write-downs. Financial-leasing agreements The Group’s tangible assets include leased items held under the terms of financial leasing agreements as follows:

SKr, million

Acquisition value

Accumulated depreciation

Book value

Computers 3 -1 2 Other 2 -1 1

Total 5 -2 3

Future minimum leasing payments pertaining to non-cancellable leasing agreements fall due as follows:

SKr, million

Nominal value

Current value

Within one year

1 1 Later than one year but within five years 0 0

Total 1 1

The current value of the future minimum leasing payments is reported as a liability to credit institutions, partly as a current liability and partly as a long-term liability.

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 PARENT COMPANY SKr million 2012 2011 2012 2011

Due for payment within one year 99 90 - - Due for payment later than one year but within five years 203 168 - - Due for payment later than five years 9 22 - -

Total 311 280 - -

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NOTE 26. PARTICIPATIONS IN SUBSIDIARIES Organization no. Registered office Share of

capital/votes

Number of shares

Book value, SKr million,

2012

Book value, SKr million,

2011

IFS Americas, Inc

USA 100% 100 104 104 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% 7,500 141 141 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 CIS" CJSC

Russia 90%

- - "IFS KZ" Ltd

Kazakhstan 90%

- -

IFS Czech s.r.o.

Czech Republic 100%

- - IFS Hellas SA (in liquidation)

Greece 90%

- -

IFS Systems (Cyprus) Ltd

Cyprus 90%

- - IFS Hungary 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 SAS

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%

- - Infiseuro - Serviços Informáticos, Lda (in liquidation)

Portugal 100%

- -

IFS Japan inc

Japan 100% 16,200 - - 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%

- - Multiplus Solutions China Ltd

China 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, Industrial & Financial Systems (Beijing) 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%

- - Torron System AB 556457-8960 Sweden 100% 20 0 0 Vendimo Business Solutions AB 556400-2946 Sweden 100% 1,754,383 15 15

Industrial and Financial Systems, IFS Schweiz AG

Switzerland 100%

- - LatinIFS Tecnologia da Informação Ltda

Brazil 100%

- -

Total book value in the Parent Company 992 992

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PARENT COMPANY SKr, million 2012 2011

ACCUMULATED ACQUISITION VALUE Opening balance 2,258 2,253

Group contributions paid - 5 Incentive program for key personnel 0 0 Closing balance 2,258 2,258

ACCUMULATED DEPRECIATION Opening balance -1,266 -1,266

Closing balance -1,266 -1,266

Book value 992 992

NOTE 27. PARTICIPATIONS IN ASSOCIATED COMPANIES AND JOINT VENTURES

GROUP PARENT SKr, million 2012 2011 2012 2011

Opening balance 3 3 - - Sale of associated companies - -1 - - Share in earnings of associated companies 0 1 - - Exchange differences 0 0 - -

Closing balance 3 3 - -

Registered office Net revenue Earnings before tax

Assets Liabilities Equity Share of capital/votes

2012 INDIRECTLY OWNED IFS Defence (pty) Ltd.* United Kingdom 73 9 103 47 56 50.00%

Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S Turkey 8 1 4 2 2 25.00% IFS Retail AB Sweden 7 0 3 2 1 49.99%

2011 INDIRECTLY OWNED IFS Defence (pty) Ltd.* United Kingdom 69 0 98 48 50 50.00%

Unitec Kurumsal Bilgi Sistemleri Yazlim Ve Danismanlika A.S Turkey 8 1 3 1 2 25.00% IFS Retail AB Sweden 6 0 3 2 1 49.99% * 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 IFS Defence (pty) Ltd, headquartered in the U.K, is a 50/50 joint venture with BAE Systems PLC. The company is a limited company. The IFS Group owns 2,500 shares in the company, which corresponds to 50 percent of the capital and voting rights. There are no contingent liabilities pertaining to these companies. The book value of the shares is SKr 52 (53) million. The following amounts constitute the companies’ share of the assets, liabilities, revenue and expenses in the joint venture, and are included in the companies’ financial reports.

INCOME STATEMENTS GROUP

SKr, million 2012 2011

License revenue 8 5 Maintenance and support revenue 26 28 Consulting revenue 32 36 Other revenue 7 0

Net sales 73 69 Other operating revenue 0 0

Operating revenue 73 69 Operating expenses -61 -66

Earnings before depreciation 12 3 Depreciation -3 -3 Operating profit 9 0 Financial items 0 0 Earnings before tax 9 0 Tax -2 2 Profit/loss for the year 7 2

BALANCE SHEETS GROUP

SKr, million 2012 2011

Intangible assets 23 24 Other fixed assets 5 7 Accounts receivable 7 3 Other current assets 5 2 Liquid assets 63 62 Total assets 103 98 Stockholders' equity 56 50 Provisions 18 26 Long-term liabilities - - Accounts payable 14 6 Other current non-interest-bearing liabilities 15 16 Total stockholders' equity and liabilities 103 98

NOTE 28. RECEIVABLES IN SUBSIDIARIES

PARENT COMPANY SKr million 2012 2011

Subordinated receivables 23 24 Other long-term receivables in subsidiaries 48 49

Total 71 73

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NOTE 29. DEFERRED TAX ASSETS AND TAX LIABILITIES GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

DEFERRED TAX ASSETS CONCERNING

Temporary differences 49 52 0 0

Deficit deduction 66 99 14 38 Total 115 151 14 38

DEFERRED TAX LIABILITIES CONCERNING

Temporary differences 16 20 - -

Total 16 20 - -

Deferred tax assets and tax liabilities are set off when this is legally possible for particular tax assets 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 assets.

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

DEFERRED TAX LIABILITIES

Fixed assets 20 24 - -

Current claims and liabilities 7 7 - - Total deferred tax liabilities 27 31 - -

DEFERRED TAX ASSETS

Fixed assets 16 17 - -

Current claims and liabilities 37 36 - 0 Provisions 8 11 - - Fiscal deficit deduction 145 183 14 38 Total Deferred tax assets 206 247 14 38 Unreported Deferred tax assets concerning deficit deductions -79 -84 - - Unreported Deferred tax assets concerning temporary differences -1 -1 - - Total unreported Deferred tax assets -80 -85 - -

Total Deferred tax assets, net 126 162 14 38

Deferred tax assets, net 99 131 14 38

Deficit deduction The total value of the deficit deductions on the balance sheet day can be utilized no later than during the following years:

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

2012 (2011) 3 3 - - 2013 (2012) 0 2 - - 2014 (2013) 2 1 - - 2015 (2014) 1 2 - - 2016 (2015) 0 1 - - Later 93 102 - - No time limit 46 72 14 38 Total 145 183 14 38

NOTE 30. OTHER LONG-TERM RECEIVABLES SKr, million

Deposits Other financial assets

Total

GROUP Opening balance, Jan 1, 2011 34 2 36

Changes during the year -1 0 -1

Closing balance, Dec 31, 2011 33 2 35 Changes during the year -7 0 -7

Closing balance, Dec 31, 2012 26 2 28

PARENT COMPANY Opening balance, Jan 1, 2011 6 2 8

Changes during the year 0 0 0 Closing balance, Dec 31, 2011 6 2 8 Changes during the year -6 0 -6 Closing balance, Dec 31, 2012 0 2 2

NOTE 31. ACCOUNTS RECEIVABLE

GROUP SKr, million 2012 2011

Accounts receivable, gross 777 749 Provision for doubtful receivables -59 -48

Accounts receivable, net 718 701

AGE ANALYSIS Accounts receivable, not due 449 494

Due 1–30 days 189 120 Due 31–90 days 44 51 Due >90 days 36 36

Total 718 701

Change in the reserve for doubtful receivables

GROUP SKr, million 2012 2011

On January 1 48 48 Provision for doubtful receivables 16 14 Receivables written off during the year -4 -8 Reversed unused amounts -1 -6

On December 31 59 48

NOTE 32. OTHER RECEIVABLES

GROUP SKr, million 2012 2011

Receivables, associated companies 4 4 Ongoing assignments 62 72 Accrued license revenue 4 6 Other prepaid expenses 68 56 Other accrued income 27 26 Other receivables 44 54 Total 209 218

NOTE 33. LIQUID ASSETS

The effective interest rate for current investments during 2012 was 1.0 percent. The current investments had an average duration of 22 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,

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• they have a duration of not more than three months from the time of acquisition.

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Cash and bank 269 300 101 91 Current investment 47 74 - 23

Total 316 374 101 114

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. This includes share premium reserves transferred to statutory reserves as of December 31, 2005. Provisions made to the share premium reserve from January 1, 2006 and in the future are reported as directly contributed capital.

Reserves. This item consists solely of all exchange rate differences arising on translating financial reports from foreign entities that have prepared their financial reports in a currency other than that used by the Group for its financial reports. The Parent Company and Group present their financial reports in Swedish krona.

Accumulated earnings including earnings for the year. The accumulated earnings includes earnings for the year and profits carried forward/accumulated losses in the Parent Company and its subsidiaries, associated companies, and joint ventures. Previous provisions made to statutory reserves, excluding share premium reserve carried forward, are included in this equity item. PARENT COMPANY

Restricted stockholders’ equity

Capital stock. Refers to the Parent Company’s capital stock.

Reserve fund. Consists solely of amounts transferred to the premium fund before January 1, 2006.

Unrestricted stockholders’ equity

Premium fund. When shares are issued at a premium, i.e. when the price paid for shares exceeds their listed price, an amount corresponding to the amount paid in excess of the listed price shall be transferred to the 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, 2011 1,387,270 25,055,652 26,442,922 Conversion of shares from Series A to Series B -12,262 12,262 0 Cancellation of shares bought back, in own custody - -500,000 -500,000 Exercise of options - 37,000 37,000

Shares on Dec 31, 2011 1,375,008 24,604,914 25,979,922 Conversion of shares from Series A to Series B -6,095 6,095 0 Cancellation of shares bought back, in own custody - -600,000 -600,000 Exercise of options - 1,000 1,000

Shares on Dec 31, 2012 1,368,913 24,012,009 25,380,922 Quota value per share, SKr

20.00

Stockholders' equity at end of period, SKr 507,618,440

During the year, the company repurchased 542,111 Series B shares. During the year 600,000 Series B shares were cancelled as resolved by the AGM. During the year, the company issued 1,000 Series B shares. The increase in the number of shares is the result of a partial exercise of warrant programs established in 2009. Number of shares minus treasury shares held by the company

Thousands 2012 2011

At end of period 24,772 25,313 At end of period, after full dilution 25,237 25,905 Average during the period 24,988 25,690 Average during the period, after full dilution 25,616 26,189

Share options During 2009, the Group established an incentive program offering senior executives and key personnel (see Note 14) the opportunity to subscribe, on market terms, for warrants in the company. For each acquired warrant employees will receive an additional warrant free of charge. Each warrant entitles the warrant holder to subscribe for one new Series B share in IFS.

The exercise price for the allocated warrants amounts to SKr 80.21. The price per warrant was SKr 5.51. The warrants have been evaluated according to the Black & Scholes method. On calculation, the parameters were a risk-free interest of 1.13 percent and volatility of 53 percent over 12 months, 45 percent over 24 months, and 46 percent over 36 months.

It has been possible to exercise the warrants as of July 17, 2010. The warrants have a stipulated period of maturity up to and including June 29, 2012. The Group has preferential rights to repurchase the warrants should a holder wish to divest a holding.

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During 2010 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 acquired carries the right to receive a further warrant free of charge. Each warrant entitles the warrant holder to acquire Series B shares in IFS.

The exercise price for the allocated warrants amounts to SKr 96.06. On May 1 2012, the exercise price was adjusted to SKr 104.06. The price per warrant was SKr 6.42. The warrants have been evaluated according to the Black & Scholes method. On calculation, the parameters were a risk-free interest of 2.04 percent and volatility of 22 percent over 12 months, 38 percent over 24 months, and 46 percent over 36 months.

It has been possible to exercise the warrants as of July 18, 2010. The warrants have a stipulated period of maturity up to and including June 28, 2013. The Group has preferential rights to repurchase the warrants should a holder wish to divest a holding.

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

In the beginning of 2012, the company issued a time-limited invitation to redeem outstanding warrants for cash. The company repurchased warrants corresponding to 121,000 shares. Changes in the number of outstanding share options and their weighted average strike price are as follows:

2012 2011 Average

strike price Options,

thousands Average

strike price Options,

thousands

On January 1 108.79 592 83.20 475 Issued 122.20 62 131.90 264 Exercised -80.21 -1 -81.71 -37 Bought back -80.21 -121 -84.83 -110 Indexation of strike price on options issues in previous years 8.00 206 7.32 328 Unallocated -131.90 -66 - -

On December 31 118.32 466 108.79 592

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

Shares, thousands

Maturity, coming years Strike price

2012 2011

2012 & 2013 >80,21 205 328 2014-2016 131.90 198 264 2015-2017 122.20 62 -

Total 465 592

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NOTE 35. LIABILITIES TO CREDIT INSTITUTIONS GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

LONG-TERM LIABILITIES

Bank loan - - - -

Financial leasing liabilities 1 1 - -

CURRENT LIABILITIES

Bank loan 178 49 178 41

Financial leasing liabilities 0 2 - -

Total 179 52 178 41 Granted overdraft facility and line of credit. 500 507 500 500 Unused overdraft facility and line of credit. 322 458 322 459 Used overdraft facility and line of credit. 178 49 178 41

During the year, the average rate of interest on liabilities to credit institutions was 3.2 percent. For external funding, agreements exist with respect to interest coverage ratio, net debt in relation to adjusted EBIT, and the level of stockholders’ equity. For information on pledges to creditors, see Note 41, Pledged assets.

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 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Bank loan 178 49

- -

- -

- -

178 49 Financial leasing liabilities 1 3

- -

- -

- -

1 3

Total 179 52 - - - - - - 179 52

Loan and credit maturity in the interval

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

MONTHS TOTAL

Nominal amount 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Bank loan - 7

- -

178 42

- -

178 49 Financial leasing liabilities 1 1

0 1

0 1

- -

1 3

Derivatives 2 7

- -

- -

- -

2 7 Accounts payable and other loans 93 95

- -

- -

- -

93 95

Total 96 110 0 1 178 43 - - 274 154

NOTE 37. PENSION COMMITMENTS

Commitments in the balance sheet GROUP SKr, million 2012 2011

Defined-benefit pension plans 34 47 Other pension commitments 2 2

Total 36 49

Provisions for defined-benefit pension plans The Group has a small number of defined-benefit pension plans, according to which employees are entitled to benefits on retirement based on their final salary and years of service. The largest plans are in Sweden, Norway, and the United Kingdom. Most pension plans held by the Groups are premium-based.

GROUP SKr, million 2012 2011

Sweden 15 20 Norway 1 1 United Kingdom 19 25 Other countries 3 4 Total 38 50 Provisions for special employer's contribution -4 -3 Total provisions for pensions 34 47

Defined-Benefit Pension Plans, 2012 The amounts reported in the consolidated balance sheet have been calculated according to the following:

SKr, million

Sweden Norway United Kingdom

Other countries

Total

Present value of funded obligations 375 74 204 - 653 Fair value of plan assets -277 -68 -143 - -488 Total 98 6 61 0 165 Present value of unfunded obligations - - - 3 3 Unrecognized actuarial gains (+) and losses (-) -83 -5 -42 - -130

Total 15 1 19 3 38

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For the estimated effect of the change entailed by discontinuing the use of the ’corridor’ method as of 2013, upon calculation according to IAS 19 and the application of the standard method adopted by the Swedish Society of Actuaries to estimate special payroll tax, see the table below. The effect will be recognized in the opening balance in Equity for the comparative year 2012.

SKr, million

Sweden Norway United Kingdom

Total

Effect of unrealized actuarial gains and losses -70 -25 -17 -112

Effect of application of the standard model for special employer's contribution -15 - - -15

Total input effect in equity on comparative year 2012 -85 -25 -17 -127

Actuarial gains and losses arising in the year 2013 will be booked in other comprehensive income for the year 2013; the same applies for the comparative year 2012. The amount includes special employer’s contribution.

SKr, million

Sweden Norway United Kingdom

Total

Actuarial gains and losses that will be booked as other comprehensive income in the comparative year 2012 -18 19 -27 -26 Total -18 19 -27 -26

Adjusted net debt at the beginning of the year amounts to SKr 177 million after the effects of transit items for unreported actuarial losses and the application of the standard model for special payroll tax. According to developments during 2012, the closing adjusted net debt amounts to SKr 187 million, after the effect of beginning to apply the amended IAS19 standard. The effect of the amended IAS19 on the income statement for defined-benefit plans would be a cost of SKr 20 million rather than SKr 24 million; in addition there is an income of SKr 1 million related to special payroll tax pursuant to the application of the standard method for special payroll tax. Change in the defined-benefit commitment during the year is as follows:

GROUP SKr, million 2012 2011

Defined Benefit Obligation (DBO), beginning of the year 610 515 Current Service Cost (SCC) 16 13 Interest Cost 25 24 Expected benefit paid (pensions payment) -12 -9 Exchange rate differences -3 1 Actuarial gain / loss during the period 17 66

Defined Benefit Obligation (DBO), end of the year 653 610

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

GROUP SKr, million 2012 2011

Fair value of plan assets, beginning of the year 452 428 Expected return on plan assets 21 23 Employer contributions 33 19 Benefits paid (pensions payment) -9 -6 Exchange rate differences -2 2 Actuarial gain / loss during the period -7 -14

Fair value of plan assets, end of the year 488 452

Development of the present value of the commitment and the fair value of the plan assets is as follows:

SKr, million 2012 2011 2010 2009 2008

Present value of funded obligations 653 610 515 594 556 Fair value of plan assets -488 -452 -428 -403 -391

Deficit/(surplus) 165 158 87 191 165

Pension costs The total pension costs reported in the consolidated income statement are the following:

SKr, million 2012 2011

Service costs during the present year 16 13 Amortization of actuarial losses 4 1 Interest cost 25 24 Expected return on plan assets -21 -23 Total costs for defined-benefit plans 24 15 Total costs for defined-contribution plans 69 68 Total pension costs 93 83

Defined-benefit pension plans Pension costs are included in earnings in the amounts presented in the table below:

SKr, million 2012 2011

Maintenance and support expenses 1 1 Consulting expenses 1 2 Other expenses 0 0 Product development expenditure 0 0 Sales and marketing expenses 0 0 Administration expenses 18 11 Financial expenses 4 1 Total 24 15

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Defined-benefit pension plans, 2012 Specification of the changes in net liabilities reported in the consolidated balance sheet:

SKr, million

Sweden Norway United Kingdom

Other countries

Total

Net liability at beginning of year 20 1 25 4 50 Net cost reported in income statement 11 8 5 0 24 Employer’s contributions to funded plans -14 -8 -11 0 -33 Pension payments reduced with compensation -2 -1 0 0 -3 Exchange rate differences in international plans - 1 0 -1 0

Net liability at end of year 15 1 19 3 38

Key actuarial assumptions

Sweden Norway United Kingdom

2012 2011 2012 2011 2012 2011

Discount rate 3.8% 4.0% 3.9% 2.6% 4.4% 5.5% Expected return on plan assets 3.8% 3.9% 3.9% 4.1% 4.4% 6.8% Future annual salary increases 2.2% 3.0% 3.5% 3.5% 3.2% 4.5% Increase in Swedish income base amount 3.0% 3.0% 3.3% 3.3% 2.3% 3.2% Future annual pension increases 2.0% 2.0% 0.2% 0.1% 2.6% 3.0% Personnel turnover 8.0% 8.0% 7.0% 7.0% 7.0% 7.0%

For 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. For 2012, the basis for establishing the total expected dividends from plan assets is given below.

For Sweden Interest-bearing instruments are expected to produce an average yield corresponding to long-term government bonds over time. Shares and other assets are expected to yield a dividend that is 3 percent higher than the interest rate on government bonds. Assuming that the portfolio in the long term contains the highest permitted proportion of shares pursuant to the prevailing investment policy, this would produce an expected yield of approximately 4 percent after dividend tax.

For Norway The expected yield is based on the discount rate in accordance with IAS 19, to which a risk premium has been added. The risk premium reflects an average expected excess return (over the risk-free interest) on the assets for the entire term of the related pension commitment. Norsk Regnskapsstifelse (NRS) has estimated that the excess return in Norwegian life insurance companies has averaged 1.5 percent over the past 15 years. Norwegian life insurance companies have stringent regulations and limits pertaining to asset allocation. Therefore it must be assumed that the expected yield from the life insurance companies will vary

only little over time. Based on the above and on the assumption that the assets are normally distributed according to type, an excess of approximately 1.5 percent over the risk-free interest (i.e. the discount applied in accordance with IAS 19), which gives an estimated direct yield of 4.1 percent for Norway.

For the United Kingdom Historical performance is considered when establishing the total expected yield on plan assets, and the long-term historical relationship between shares and bonds is retained. This concurs with the generally accepted principle on the capital market that assets with greater volatility generate a higher yield over time. The current market situation in respect of inflation and interest rates is evaluated before assumptions about expected yields are established for the respective type of asset. The total expected yield is established taking into account diversity and balance in the types of assets. The estimated expected yield is compared with historical yields to assess plausibility. The current value of the commitment for Sweden amounts to SKr 375 million. If the discount rate had been one percentage point higher, the liability would have decreased by SKr 79 million; if it had been one percentage point lower, the liability would have increased by SKr 111 million.

The corresponding figures for Norway amount to a present value of SKr 74 million for the commitment. If the discount rate had been one percentage point higher, the liability would have decreased by SKr 11 million; if it had been one percentage point lower, the liability would have increased by SKr 15 million.

For the United Kingdom, the present value of the commitment amounts to SKr 204 million. A change in the discount rate of half a percentage point higher would have decreased the liability by SKr 18 million. If the change had instead been of half a percentage point lower, the liability would have increased by SKr 21 million.

The actual yield on the average plan assets in Sweden during the year was 3.0 percent. The corresponding figure for Norway during the year was 3.9 percent. In the United Kingdom, the corresponding figure for the period was 3.0 percent.

Payment of fees/provisions to plans for remuneration after terminated employment is expected to amount to SKr 36 million for the financial year 2013.

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Plan assets Plan assets consist of the following:

2012 2011

Equities 26% 27% Fixed-interest bonds 62% 61% Other assets 12% 12%

Total 100% 100%

Provisions for defined-benefit pension plans

PARENT COMPANY SKr, million 2012 2011

Provisions according to the Swedish Act on Income Security 1 0

NOTE 38. OTHER PROVISIONS AND OTHER LIABILITIES

GROUP SKr, million 2012 2011

Restructuring reserve 7 5 Other provisions 1 1 Other long-term liabilities 3 13

Total 11 19

Restructuring reserve

SKr, million Group

Opening balance Dec 31, 2011 5 Reversal, restructuring reserve -3 Provision, restructuring reserve 19 Use of restructuring reserve -3 Effects of exchange rate fluctuations 0

Closing balance Dec 31, 2011 18 Less current portion -13 Restructuring reserve, long term 2011 5 Reversal, restructuring reserve -2 Provision, restructuring reserve 10 Use of restructuring reserve -16 Effects of exchange rate fluctuations 0

Closing balance Dec 31, 2012 10 Less current portion -3

Restructuring reserve, long term 2012 7

NOTE 39. OTHER LIABILITIES GROUP SKr, million 2012 2011

Deferred maintenance revenue 399 367 Deferred license- and consulting revenue 16 20 Accrued consulting expenses 4 1 Advances from customers 4 6 VAT liabilities 86 82 Accrued payroll expenses 197 208 Accured pension cost, defined contribution plans 14 14 Accrued social security contributions 66 67 Retained preliminary tax for employees 33 32 Liabilities to employees 4 3 Accrued expenses, third-party suppliers 22 22 Accrued interest expenses 1 1 Liabilities to associated companies 1 1 Derivatives held for trading 2 7 Miscellaneous other liabilities 1 58 Other accrued expenses 101 89 Other prepaid revenue 1 1 Total 952 979

NOTE 40. ACCRUED EXPENSES AND PREPAID INCOME

PARENT COMPANY SKr, million 2012 2011

Accrued interest expenses 1 1 Accrued social security contributions 1 2 Accrued payroll expenses 0 5 Other accrued expenses 5 3

Total 7 11

NOTE 41. PLEDGED ASSETS

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Real estate mortgages - 16 - - Chattel mortgages 141 130 4 4 Blocked bank accounts 7 11 - 4 Shares in subsidiaries - - 977 977 Net assets in subsidiaries 529 484 - - Other 19 22 - 2

Total 696 663 981 987

Mortgages, receivables and shares in subsidiaries have been pledged as security for check credits, factoring and loans. Liabilities to credit institutions are detailed in Note 35. Net assets in subsidiaries pertain to shares in subsidiaries recognized at amounts corresponding to the corporate net assets. NOTE 42. CONTINGENT LIABILITIES

GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Sureties, external 14 8 9 - General surety for subsidiaries - - 14 17 Parent Company guarantees - - 7 8

Total 14 8 30 25

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NOTE 43. ADJUSTMENTS FOR ITEMS NOT INCLUDED IN CASH FLOW GROUP PARENT COMPANY SKr, million 2012 2011 2012 2011

Depreciation 199 172 - - Restructuring costs, net -8 12 - - Provisions for pensions -13 -7 0 0 Bad debts 20 9 - 1 Exchange rate gains/losses, net 5 10 -1 5 Write-down of financial assets 0 0 1 1 Group contributions received - - -21 -114 Interest costs for the year 14 9 9 7 Interest income for the year -4 -5 -1 -2 Other adjustments 5 3 3 3 Total 218 203 -10 -99

NOTE 44. BUSINESS COMBINATIONS

On May 23, the Group acquired 100 percent of the capital stock in Metrix LLC for SKr 126 million. Metrix, founded in 1980, is headquartered in Waukesha, Wisconsin, USA, with subsidiaries in the Netherlands and Singapore. Metrix has built a very strong position providing service management solutions to industries such as asset & capital equipment, telecommunications, high-tech & medical device manufacturing, transportation, and third-party/outsourced field service operations.

The acquisition provides IFS with a state of the art, built–in, configurable and packaged mobile application for the field service market. It is also a robust, mobile development framework which will add valuable mobile technology and experience to IFS. In addition, the acquisition further extends the existing IFS cloud/software-as-a-service strategy.

On acquisition the fair value of identified net assets and liabilities in Metrix LLC was SKr 62 million, of which SKr 14 million pertained to receivables, liquid assets, and fixed assets, SKr 28 million to customer relations and other intangible assets, SKr 37 million to product rights, and SKr -17 million to other liabilities. The remaining SKr 64 million constitutes consolidated goodwill. The acquired businesses contributed revenue of SKr 34 million and an EBIT of SKr -1 million to the Group during the year. Acquisition-related expenses of SKr 2 million have been reported as other operating expenses in the consolidated earnings.

If the acquisition had been made on January 1, 2012, Group revenue would have amounted to SKr 2,695 million, with earnings for the year of SKr 199 million.

Acquisition analysis Company SKr, million

2012 2011

Reported value in acquired company

before acquisition

Fair value reported in Group value

Reported value in acquired company

before acquisition

Fair value reported in Group value

Intangible fixed assets - - 0 16 Tangible fixed assets 1 1 2 1 Accounts receivable 11 11 16 16 Liquid assets, net 2 2 -7 -7 Accounts payable and other liabilities -16 -17 -43 -43 Deferred tax liabilities - - -26 -31

Fair value of net assets -2 -3 -58 -48 Group goodwill and other intangible assets 129

48

Total purchase consideration -126 0 Less liability to seller 8

-

Liquid assets in the acquired companies 2

-

Effect of the year's acquisition on liquid assets -116 0

Of the total value of the acquisition, Group goodwill accounts for SKr 64 million. The goodwill corresponds to the company’s market position and technical competence in service and asset management. The table below shows the effect on cash flow of acquisitions made during 2012 and previous years:

Company SKr, million

Date of acquisition

Acquired share in equity

and votes

GROUP

2012 2011

Metrix LLC May 2012 100% -118 - LatinIFS Tecnologia da Informação S.A. Dec 2011 100% - 0 "IFS CIS" CJSC Jan 2011 40% - -7 Total purchase sum -118 -7 Less liability to seller

- -

Liquid assets in the acquired companies

2 0

Effect of the year's acquisitions on the Group's liquid assets -116 -7 Payment of purchase price related to past acquisitions -7 -12 Total cash flow pertaining to investments in subsidiaries -123 -19

In respect of 360 Scheduling Ltd, which was acquired by Industrial and Financial Systems IFS UK Ltd during 2010, an additional consideration of SKr 7 million has been paid. Furthermore, the final calculation of the additional consideration on the acquisition of 360 Scheduling has led to a non-recurring item of SKr 30 million in “other operating income”. NOTE 45. NET ACQUISITION OF TANGIBLE FIXED ASSETS

GROUP SKr, million 2012 2011

Investments for the year, net -24 -34 Total -24 -34

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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 U.S. dollar, the pound sterling, and the Canadian dollar (CAD).

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, 2012, the Group had outstanding foreign exchange contracts in the following currencies (nominal values):

Currency futures contracts, nominal values in SKr million SKr, million 2012 2011

AED 41 47 AUD 10 7 CAD 0 5 CHF 7 - CZK 7 2 DKK 10 21 EUR 68 74 GBP 1 23 JPY 9 9 NOK 35 52 PLN 67 84 SGD 34 31 USD 42 56 ZAR 8 17

Total 339 428

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, 2012, the Group had outstanding currency options for the sale of € 5.6 million, £ 2.7 million, and NKr 38 million. Currency option contracts, nominal values in SKr million

2012 Maturit

y SKr, million within 3

months 3–6

months 6–12

months

CAD Outflow (CAD) - - -

Inflow (SEK) - - -

EUR Outflow (EUR) 3.0 1.5 1.1

Inflow (SEK) 26.4 12.4 9.0

GBP Outflow (GBP) 1.4 0.5 0.8

Inflow (SEK) 15.1 5.7 8.0

USD Outflow (USD) - - -

Inflow (SEK) - - -

NOK Outflow (NOK) 30.0 - 8.0 Inflow (SEK) 35.1 - 9.3

2011 Maturit

y SKr, million within 3

months 3–6

months 6–12

months

CAD Outflow (CAD) 0.5 0.3 -

Inflow (SEK) 3.2 1.5 -

EUR Outflow (EUR) 3.0 3.0 -

Inflow (SEK) 26.5 26.9 -

GBP Outflow (GBP) - 1.3 1.5

Inflow (SEK) - 13.2 16.1

USD Outflow (USD) 1.5 - 3.0

Inflow (SEK) 9.0 - 19.9

NOK Outflow (NOK) 30.0 - - Inflow (SEK) 32.9 - -

The Group has not applied hedge accounting for the current year. All profits and losses on foreign exchange contracts constitute financial hedging and have been reported in the income statement.

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The Parent Company has a number of investments in international operations whose net assets are exposed to exchange rate risks, translation risk. In certain cases, currency exposure in the net assets has been managed by taking loans in the local currency. The Group has a bank loan amounting to USD 16.5 million. Foreign currency sensitivity analysis A sensitivity analysis, considering the unhedged foreign currency exposure on December 31, 2012, 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

SKr, million 2012 2011

USD 10% -6.3 -1.5

-10% 6.3 1.5

EUR 10% 4.3 0.2 -10% -1.7 -0.2 GBP 10% 2.3 0.0 -10% -1.2 0.0 NOK 10% -1.5 -0.7 -10% 2.7 0.7

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, 2012, 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. Accounts receivable are reported net of provisions in the consolidated balance sheet. See Note 31for 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 30 months (42 months). Liquidity risk The Group manages liquidity risks by retaining sufficient liquidity to provide for the needs of the business. The process is monitored via the Group’s short-term, 0–3 months, and medium-term, up to 12 months, cash flow forecasts. Moreover, the Group ensures that it always has access to sufficient agreed credit facilities. See Note 36 for a maturity analysis of the loan portfolio. Fair value estimation

Accounts receivable, other receivables, accounts payable and other

liabilities

For receivables and payables with a remaining term of less than one year, the reported value constitutes the fair value. Other receivables and payables are estimated at present value with a discount rate corresponding to that used to estimate interest-bearing liabilities. There are no significant differences between fair value and reported value. Currency forward contracts The fair value of financial instruments not traded on an active market is established with the help of a fair value hierarchy. The fair value hierarchy consists of the following levels:

Level 1: Quoted prices (not adjusted) on an active market for similar instruments.

Level 2: Directly (e.g. prices) or indirectly (e.g. derived from prices) observable market inputs for the instrument other than the quoted price.

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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 2012

December 31, 2012 SKr, million

Fair value hierarchy

Financial assets

valued at fair value

on balance-sheet day

Accounts receivables

Of which current

Of which non-current

Financial assets 2012 Investments Level 3 2 - - 2

Other long-term receivables and other interests

- 33 - 33

Accounts receivable - 718 718 - Other receivables

- 238 238 -

Derivatives Level 2 4 - 4 - Cash and cash equivalents - 316 316 -

Total 6 1,305 1,276 35

December 31, 2012 SKr, million

Fair value hierarchy

Financial liabilities valued at fair value

on balance-sheet day

Other financial liabilities

Of which current

Of which non-current

Financial liabilities 2012 Liabilities to credit institutions - 179 178 1

Accounts payable

- 93 93 - Derivatives Level 2 2 - 2 -

Total 2 272 273 1

Financial assets and liabilities 2011

December 31, 2011 SKr, million

Fair value hierarchy

Financial assets

valued at fair value

on balance-sheet day

Accounts receivables

Of which current

Of which non-current

Financial assets 2011 Investments Level 3 3 - - 3

Other long-term receivables and other interests

- 33 - 33

Accounts receivable - 701 701 - Other receivables

- 240 240 -

Derivatives Level 2 5 - 5 - Cash and cash equivalents - 374 374 - Total 8 1,348 1,320 36

December 31, 2011 SKr, million

Fair value hierarchy

Financial liabilities valued at fair value

on balance-sheet day

Other financial liabilities

Of which current

Of which non-current

Financial liabilities 2011 Liabilities to credit institutions - 52 51 1

Accounts payable

- 94 94 - Derivatives Level 2 7 - 7 - Total 7 146 152 1

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, 2012, amounted to SKr 1,255 million (1,302). 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. CONVERSION RATES

Rate at year end Average rate

2012 2011 2012 2011

EUR 8.62 8.94 8.71 9.03 GBP 10.49 10.68 10.73 10.41 NOK 1.17 1.15 1.16 1.16 PLN 2.12 2.03 2.08 2.20 USD 6.52 6.92 6.78 6.50

NOTE 48. 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 2012 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 5, 2013

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 5, 2013. 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 26, 2013.

Our audit report was submitted on March 5, 2013

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 for the year 2012. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 12–71. 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 and 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 judgement, 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 opinion. 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 2012 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 2012 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. A corporate governance statement has been prepared. The statutory administration report and the corporate governance statement are 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 for the year 2012. 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. 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. 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. Stockholm, March 5th 2013 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: chairman of the board of Cision AB; member of the board of Investment AB Latour, Stronghold Invest AB, Newsec AB, East Capital Baltic Property Fund AB, and Tundra Fonder AB.

Work experience: 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 indepen-dent in relation to the major owners of the company.

BENGT NILSSON Deputy chairman of the board

Principal occupation: directorships.

Other assignments: member of the board of GreenTrade AB, Greenfield AB, Pagero AB, Hikka Group AB, Hikkadua Investments AB, Homes and Villas Ltd, Ides AB, Norelia AB, Proxio AB, and Pocket Mobile 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 and its management, but not indepen-dent in relation to the major owners of the company.

ULRIKA HAGDAHL Board director

Principal occupation: directorships.

Other assignments: member of the board of Anoto Group AB, Beijer Electronics AB, HiQ International AB, and AB Idre Golf Ski & Spa.

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 and Acando 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

Principal occupation: directorships.

Other assignments: member of the board of the UK Information Commissioner’s Office, UK Foreign & Commonwealth Office Services Agency, 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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SENIOR MANAGEMENT ALASTAIR SORBIE President and CEO

Born 1953

Employed by IFS since 1997

PAUL SMITH Chief financial officer

Born 1963

Employed by IFS since 2009

FREDRIK VOM HOFE Vice president, Business Development

Born 1966

Employed by IFS since 2003

AUDITORS PricewaterhouseCoopers AB

Auditors since 2001

NICKLAS KULLBERG Authorized public accountant and Auditor in charge

Born 1970

JESPER ALWALL General counsel

Born 1969

Employed by IFS since 2009

Holdings in stock and financial instruments December 31, 2012 Stockholdings

Series-A

shares, no. Series-B

shares, no. Options

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

Ulrika Hagdahl - 30,000 - Birgitta Klasén - 10,000 - Neil Masom - - - Bengt Nilsson 382,013 3,300 - Alastair Sorbie (CEO) - 6,776 158,550

Total 809,023 50,076 158,550 GROUP MANAGEMENT

Jesper Alwall - - 6,624 Fredrik vom Hofe - - 8,782 Paul Smith - - 105,700 Total 0 0 121,106

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

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FINANCIAL TREND

FROM THE INCOME STATEMENTS SKr, million 2008 2009 2010 2011 2012

License revenue

479 426 402 431 467 Maintenance & support revenue

703 789 811 823 909

Consulting revenue

1,310 1,373 1,357 1,311 1,283 Other revenue

26 17 15 11 17

Net revenue 2,518 2,605 2,585 2,576 2,676 Capitalized work for own use

119 143 157 164 185

Operating expenses

-2,290 -2,391 -2,328 -2,316 -2,486 EBITDA before other operating items 347 357 414 424 375 Other operating revenue

13 10 3 8 42

Other operating expenses

-34 -24 -23 -27 -23 EBITDA 326 343 394 405 394 Depreciation, amortization, and write-downs

-172 -145 -173 -172 -199

EBIT 154 198 221 233 195 Financial revenue

18 4 3 6 4

Financial expenses

-11 -34 -35 -21 -13 Profit/loss before tax 161 168 189 218 186 Taxes

-66 -45 -55 -62 -51

Profit/loss for the year 95 123 134 156 135

FROM THE BALANCE SHEETS SKr, million Dec 31, 2008 Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012

Intangible fixed assets

715 769 868 953 1,061 Other fixed assets

403 347 312 286 236

Accounts receivable

832 765 664 701 718 Other current assets

204 238 227 245 242

Liquid assets

317 355 445 374 316 Total assets 2,471 2,474 2,516 2,559 2,573

Stockholders' equity including minority interest

1,229 1,305 1,295 1,302 1,255 Long-term liabilities

76 80 75 89 64

Accounts payable

113 102 91 94 93 Current interest-bearing liabilities

176 74 59 51 178

Other current liabilities

877 913 996 1,023 983 Total stockholders' equity and liabilities 2,471 2,474 2,516 2,559 2,573

FROM THE CASH FLOW STATEMENTS SKr, million 2008 2009 2010 2011 2012

Cash flow from operations before change in working capital

317 345 373 406 363 Change in working capital

-75 53 93 -96 -80

Cash flow from current operations 242 398 466 310 283 Cash flow from investment operations

-144 -212 -232 -216 -324

Cash flow after investment operations 98 186 234 94 -41 Cash flow from financing operations

-47 -146 -130 -163 -7

Cash flow for the year 51 40 104 -69 -48 Liquid funds on January 1

254 317 355 445 374

Exchange rate differences in liquid funds

12 -2 -14 -2 -10 Liquid funds at end of period 317 355 445 374 316

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KEY FIGURES1 2008 2009 2010 2011 2012

Revenue indicator

Net revenue growth % 7% 3% -1% 0% 4% Net revenue outside Sweden % 81% 83% 81% 80% 82% Net revenue per employee SKr, '000 946 972 978 948 946

Expense and expenditure indicator

Total development SKr, million 205 219 236 257 290 of which, capitalized SKr, million 119 143 157 164 182

Development expenditure/net revenue % 8% 8% 9% 10% 11% Development expenditure/license revenue % 43% 51% 59% 60% 62% Product development expenses/net revenue % 9% 7% 8% 9% 10% Administration expenses/net revenue % 10% 10% 10% 10% 10% Personnel expenses per employee SKr, '000 575 612 605 600 609

Margin indicators

Gross margin % 44% 43% 46% 48% 49% License margin % 92% 88% 90% 94% 94% Maintenance & support margin % 57% 62% 62% 67% 69% Consulting margin % 19% 19% 23% 22% 18% Operating margin % 6% 8% 9% 9% 7% Profit margin % 6% 6% 7% 8% 7% Return on average operating capital % 15% 19% 23% 26% 19%

Capital indicators

Return on capital employed % 12% 14% 15% 17% 14% Return on stockholders' equity % 8% 10% 10% 12% 11% Equity/assets ratio % 50% 53% 51% 51% 49% Equity/assets ratio II % 50% 53% 51% 51% 49% Interest coverage ratio times 15.6 10.3 12.2 37.3 24.2 Working capital SKr, million 47 -12 -196 -171 -116 Accounts receivable (avg 12 mth)/net revenue (rolling 12 mth) % 23 24 21 20 19

Liquidity indicators

Net liquidity SKr, million 121 274 385 322 137 Debt/equity ratio times 0.2 0.1 0.1 0.1 0.2 Net debt SKr, million -81 -206 -328 -273 -105 Net debt, excluding convertible debentures/bonds SKr, million -81 -206 -328 -273 -105

Employees

Average number of employees

2,663 2,681 2,644 2,716 2,830 Number of employees at the end of the period

2,723 2,664 2,675 2,821 2,829

Stock

Average number of shares million 26,681 26,553 26,488 25,690 24,988 Number of shares at the end of the period million 26,553 26,553 25,943 25,313 24,772

Key data per share2

Profit/loss, before dilution SKr 3.56 4.63 5.06 6.07 3.38 Stockholders' equity SKr 46.28 49.15 49.92 51.44 50.76 Cash flow after investment operations SKr 3.67 7.00 8.83 3.66 -1.66 Market price at end of accounting period SKr 32.90 68.00 107.25 88.00 103.25 Market price/stockholders' equity times 0.7 1.4 2.1 1.7 2.0 Net turnover SKr 94.37 98.11 97.59 100.27 108.24 Market price/net turnover times 0.3 0.7 1.1 0.9 1.0 Dividend3 SKr 1.25 2.00 3.00 3.50 3.50

1 For definitions of key ratios see page 78. 2 Data per share is reported regardless of the effect of the redemption of outstanding warrants.

In accordance with IAS 33, dilution is not estimated when it improves earnings. 3 Dividend for 2012 refers to proposal from the board.

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DEFINITIONS Average number of shares Average of the number of shares outstanding during the year.

Cash flow per share Cash flow 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, including convertible debentures/bonds, 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 before conversions Stockholders’ equity and minority interest at year-end in relation to total assets.

Equity/assets ratio after conversions Stockholders’ equity and minority interest at year-end, including convertible debenture and bond programs and full exercise of the offset issue, in relation to total assets.

Gross margin Gross earnings in relation to net revenue.

Interest coverage ratio Profit/loss before tax plus interest expense in relation to interest expense.

License margin License revenue minus license, sales and marketing expenses, in relation to licenses 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, including convertible debentures/bonds, 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 public company (XSTO: IFS) founded in 1983 that develops, supplies, and implements IFS Applications™, a component-based extended ERP suite built on SOA technology. IFS focuses on agile businesses where any of four core processes are strategic: service and asset management, manufacturing, supply chain, and projects. The company has 2,100 customers and is present in approximately 55 countries with 2,800 employees in total. Net revenue in 2012 was SKr 2.7 billion.

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.

©2013 IFS AB


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