Nordic Semiconductor Annual Report 2018

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FY2018 Annual Report · Nordic Semiconductor

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Annual Report
2018

Content

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Introduction

Letter from the CEO

Report from the Board of Directors

Financial Statements

Declaration to the Annual Report

Standards of Corporate Governance

Auditor Opinion Letter

Board of Directors

Executive Management

Alternative Performance Measures (APM)

Ready to take the next big step into cellular IoT

#1 PROVIDER OF
LOW POWER WIRELESS

Nordic Semiconductor (Nordic or the Group) is a leading provider of IC
solutions for wireless connectivity and IoT. Nordic is a market leader in
short-range wireless and is prepared for the next big step into cellular IoT.
Headquartered in Norway, Nordic is a tech success story with operations and
presence across the globe.

A key enabler technology of the Internet of Things (or
"IoT" for short) is Bluetooth® Low Energy (Bluetooth LE):
The fastest growing wireless technology of all time and
on-trend to break all previous adoption rate records.
Bluetooth LE leverages the ubiquity, computing power,
and ease-of-use of modern smart-phones and apps,
and the on-going growth of the Internet in general.

Nordic pioneered
the development of ultra-low
power wireless (a category defined by the ability to
operate from small batteries for years, and which
includes Bluetooth LE) during the early 2000s. Nordic has
been a key contributor in the creation and evolution of
Bluetooth LE as a wireless standard within every version
of Bluetooth, since Bluetooth v4.0 and all the way up to
the latest Bluetooth 5. These efforts have culminated in
Nordic’s latest nRF52 Series that redefine what’s possible
on a Bluetooth LE single chip. But the IoT will require more
than just Bluetooth Low Energy to operate. To enable
reliable, any ‘thing’ anywhere global wireless connectivity
to the cloud and connected services, the IoT will require a
range of other complimentary wireless technologies.

For short
required
technologies include Wi-Fi and other wireless technologies.

range distances

to medium

Nordic has included support for these technologies,
including amongst others IEEE 802.15.4 (used by such
wireless technologies as ZigBee and Thread) in its latest
System-on-Chip (SoC).

At long-range, the IoT will need to leverage the ubiquity
and geographical reach of the world’s cellular (3G, 4G,
4G LTE, 5G) networks. Just as cellular networks provided
the IT infrastructure that made billions of modern smart-
phones and apps technologically and commercially
available for end users, it will now do the same for the
IoT to form what is being called ‘cellular IoT’.

launched

During 2018, Nordic
the nRF91 Series,
Nordic’s first family of low power cellular devices
for the Internet of Things. The series has been
engineered from inception to perform at the highest
possible standards for energy-efficiency and security
whilst simultaneously bringing advanced application
performance and possibilities to cellular IoT. With an
unprecedented level of integration bringing LTE-M,
NB-IoT, GPS, all RF Front End and power management
into a very small package the nRF91 Series makes single
chip solutions a real possibility.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | LETTER FROM THE CEO

LETTER FROM THE CEO

Macroeconomic factors hit the semiconductor industry in 2018. Nordic
Semiconductor delivered record revenue and launched a world-leading
cellular IoT solution with exciting prospects.

Svenn-Tore Larsen, Chief Executive Officer

2018 started off strong, with growth rates for our
Bluetooth product lines of 50.1% in the first half
compared to same period last year. However, during
the second half, we experienced disappointing
growth rates driven by a sharp reduction of demand
from one application within our Building and Retail
market in China, as well as uncertainties related to
trade tensions between China and the US, resulting in
reduced demand for our products.

above our 50% gross margin target. Although operating
margin was impacted by our significant investment in
development and scaling for our new cellular line of
products, we saw an 1.0% increase in EBITDA margin
(to 11%).

Continued profitability has allowed the company to
maintain vital investment spending in both its Bluetooth
and cellular R&D divisions.

After four years of investing in our cellular IoT module
product line, we finally released the product and
recognized the first revenue. Despite a challenging
market due to trade tensions between the US and China,
revenues from Nordic’s existing Bluetooth Low Energy
and proprietary ultra-low power wireless product lines
increased 15% year-on-year to MUSD 271. A strong focus
on operational improvements resulted in gross margin
expansion of 2.6 p.p. to 49.8% and we ended the year

I estimate the application-range for our cellular IoT
modules to be at least 10x the breadth and diversity
currently applicable to Bluetooth. Meanwhile, Bluetooth
chips will complement cellular IoT in many applications
and will therefore significantly expand its application
range as the IoT wave grows. Prime examples of areas
of opportunity for both technologies include smart
agriculture, cargo shipping, smart cities, utilities (e.g.
metering), and industrial IoT (IIoT).

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | LETTER FROM THE CEO

We intend to invest in maintaining and leveraging this
advantage over our competitors in time-to-market, total
cost and developer support with our future Bluetooth
chips and nRF91 Series of cellular IoT modules

Investment in Nordic’s sales activities remains crucial to
supporting a record number of design wins, customers,
and sales across an ever-expanding range of markets.
Also, Nordic’s marketing activities have enabled us to
reach record numbers of new and existing customers.
Our highly acclaimed Tech Tour program reached more
than 2000 developers in full-day, face-to-face seminars
on Nordic’s products and technology in 2018. Our
re-designed and modernized website attracted more
than 150K users per month in Q4 2018 and has continued
growing by 10K user per month into 2019. We are proud
to have established Nordic as a major player in cellular
IoT, especially in the eyes of influential international IoT
and telecoms media, most of which had not even heard
of Nordic Semiconductor this time last year, but now
write about the company on a regular basis.

Increased recognition in the IoT space has helped
Nordic forge the required cellular operator and carrier
relationships required for the seamless global rollout
of its nRF91 Series. Like mobile phones, all cellular IoT
modules rely on SIM technology and local operator
credentials to operate.

Leveraging our prior investments in ease-of-use for
Bluetooth Low Energy developers, in June 2018 we
launched the free "nRF Connect for Cloud" service to
enable simple out-of-the-box Cloud connectivity and
Cloud-based evaluation, test, and verification of Nordic-
based Bluetooth LE customer designs.

Cellular IoT as a business area will continue to be cash
negative. However, we plan to achieve break even in
2020. In parallel, Nordic expects its Bluetooth business
to continue expanding at 20-30% per year (Bluetooth
growth was 23.3% in 2018) in the medium term.

Nordic expects its Bluetooth
business to continue expanding
at 20-30% per year in the
medium term.

2018 was another record year for development kit
shipment with close to 65,000 units shipped, a 39%
increase from 2017. Nordic design wins in the wider
Bluetooth market also hit record high, according to
Bluetooth LE and FCC certification data from DNB
Markets. Both will contribute to future growth in
Bluetooth revenue, and are key leading indicators of our
on-going Bluetooth Low Energy market leadership.

Patient and long-term investment in R&D is vital for
Nordic to be positioned to maintain and meet future
growth opportunities. At year end, our R&D headcount
was 515, a ~20% increase in two years. We are also
building out our testing capabilities required to meet new
tier-1 customer requirements on quality and reliability
and increasing sales and marketing staff (around 100 =
~20% increase in two years) to be ready to go to market
with our new cellular product line.

Continued R&D investments were also a key factor
behind the increase of the company’s profit margins
in 2018, as evidenced in cost improvements and stable
yields from the nRF52 Series chip platform. With
highly advanced, market-leading integration, features,
performance and developer support, the nRF52 Series
platform delivers unique benefits to Nordic customers,
whose total design-in and end-product complexity
and costs are significantly lower than with competing
solutions. Nordic’s popular customer technical support
is regularly cited by customers as a key reason they not
only select Nordic but stay loyal to the company in the
long run. The numbers speak for themselves: Nordic’s
online technical support community – Nordic DevZone –
was visited 2.3 million times during 2018 by over 744,000
users. DevZone is widely regarded as one of the most
popular support sites in the semiconductor industry –
particularly for engineers with limited RF experience,
start-ups, developers, hobbyists, and students.

Nordic's nRF9160 SoC

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | LETTER FROM THE CEO

In the social responsibility arena, a delightful success story
has been Nordic’s ongoing involvement in the micro:bit,
which is designed to encourage and inspire children to
get into coding and IT. Nordic was an official Product
Partner of the BBC’s original micro:bit (which is powered
by a Nordic Bluetooth chip) and given free to every 11 to
12 year-old U.K. school child in 2016. Today the micro:bit
continues to be highly popular under the stewardship
of the not-for-profit Micro:bit Educational Foundation,
which in October 2018 announced that over two million
micro:bits had been shipped to over 50 countries while
the growth-rate shows no sign of slowing down.

In summary, 2018 was a challenging year for Nordic and
we are not content with our top or bottom-line growth.
However, this is the final year of our four-year investment
in cellular IoT without revenue contribution. Nordic is
well-positioned to capitalize on growth in cellular IoT,
while maintaining growth in existing Bluetooth and
ultra-low power wireless markets (including proprietary,
Thread, Zigbee offerings).

All these wireless technologies – together with Nordic
Semiconductor – will be critical enablers in the
construction of the wireless backbone which will connect
trillions of things to each other and billions of people in
the future world of IoT.

Revenue (MUSD)

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | REPORT FROM THE BOARD OF DIRECTORS

REPORT FROM THE
BOARD OF DIRECTORS

2018 saw continued Bluetooth growth from a large variety of verticals, in
addition to strong designs going into production from tier one customers.
Although the second half of the year was muted by trade tensions between
the US and China, as well as lower demand from certain high-volume
applications in China, overall Bluetooth revenue grew by 23% growth Y-o-Y.
This growth is a result of investments made in 2016 and 2017, which have
allowed us to significantly extend our Bluetooth Low Energy (Bluetooth)
product line and increase our share of design wins.

In 2019, we aim to further strengthen our position
in the rapidly developing Bluetooth market, while
simultaneously strengthen our readiness to pursue
market opportunities presented by long-range wireless
and cellular IoT.

Operations in 2018
Net profit after tax for Nordic Semiconductor Group
was MUSD 8.9 in 2018, an increase of 31.0% from 2017.
Revenue increased 14.9% from MUSD 236.0 in 2017
to MUSD 271.1 in 2018. Gross margin improved 2.6
percentage points to 49.8% in 2018 from 47.2% in 2017.
Yield issues at the end of 2016 and beginning of 2017
have been resolved and we achieved our 50% target for
gross margin in the second half of 2018.

While delivering operational improvements, we have
continued investing for future growth by strengthening our
R&D, operations and sales teams, with a focus on both
short-range and long-range applications. EBITDA margin
increased to 11% in 2018 from 10% in 2017, despite significant
investments in future growth. We achieved EBITDA of
MUSD 30.8 in 2018, a 32.0% increase from MUSD 23.3 in
2017. For a definition of Alternative Performance Measures
(APM), including EBITDA, see page 68.

During 2018, Nordic expanded the nRF52 Series and
ramped the nRF52840 multiprotocol System-on-Chip
(SoC), which is our most advanced chip yet, with a
unique Thread certified solution enabling simultaneous
Thread and Bluetooth 5 connectivity.

After nearly 4 years of dedicated development, we
released the nRF91 Series LTE-M/NB-IoT low-power
cellular IoT solution in December 2018. We sampled
more than 300 lead customers during 2018, we shipped

more than 2 000 cellular development kits in December
2018 and we have achieved approval for operation in
most live networks of cellular operators.

Strategy and long term target
Nordic’s mission is to be a world-leading supplier of
low-power connectivity. This includes both short-range
and long-range technologies, a combination we believe
makes Nordic unique in the industry. In order to capture
strong Bluetooth growth as well as new cellular IoT
opportunities, we have significantly strengthened our
sales and marketing capabilities in 2018, both within
key account sales and the technical teams supporting
existing and new customers. In close cooperation with
distribution partners these investments form a strong
foundation for future revenue growth. We expect
Nordic’s operational leverage to increase over time,
positively affecting EBITDA margins.

During 2018, we have continued to make efforts to
increase customer and vertical diversification, and this
will continue in 2019.

An important objective for 2018 has been to build a
strong position in low power cellular IoT, leveraging our
existing customer base and market reach. During 2018,
Nordic has secured the first design wins and launched
the nRF91 Series in the market. In 2019 Nordic will be
ramping up production.

Group Overview
Nordic is a fabless semiconductor group, which designs,
sells and delivers integrated circuits and related
intellectual property for use in short and now also
long-range wireless applications. The Group specializes

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | REPORT FROM THE BOARD OF DIRECTORS

in ultra-low power wireless solutions, based on its
proprietary 2.4 GHz RF, Bluetooth Low Energy and most
recently cellular IoT technologies. Nordic is a pioneer
in ultra-low power wireless technology, and with more
than 300 million units sold last year, the Group can
claim a leading position in this sector. With the launch
of our long-range low-power cellular chipset in 2018,
we are providing customers with a broad portfolio of
low-power connectivity solutions across the spectrum of
distances from near-field to long-range.

Nordic’s components are manufactured by world-class
subcontractors and sold through electronics distributors
to manufacturers of branded electronics across a wide
range of markets. These include consumer electronics,
wearables, building and retail, healthcare, and other
applications.

The Group is headquartered in Trondheim, Norway,
and has offices in USA, China, Korea, Japan, Taiwan,
Poland, Finland, Germany, the Philippines, UK and the
Netherlands.

Review of the annual accounts
In accordance with the provisions of the Norwegian
Accounting Act, the Board of Directors confirms that
the accounts have been prepared on a going concern
basis and that the going concern assumption applies.
Pursuant to Section 3-9 of the Norwegian Accounting
Act, Nordic prepares consolidated annual accounts in
accordance with IFRS, International Financial Reporting
Standards, approved by the EU. The statutory accounts
of Nordic Semiconductor ASA have been prepared
in accordance with International Financial Reporting
Standards as adopted by the EU (IFRS), relevant
interpretations, and the Norwegian Accounting Act. A
summary of internal controls related to the accounting
process can be found in the Corporate Governance
section of this annual report.

Revenue

Amounts in
USD thousand

2018

2017 Change %

number of designs at the end of 2016 and 2017, and
these wins positively affected revenue in the first half of
2018. Unfortunately, trade tensions between the US and
China as well as lower demand from specific market
segments in China resulted in muted revenue growth in
the second half of the year.

During 2018 there has been a significant growth especially
within the healthcare and others market (mainly module
manufacturers). Revenue from healthcare has increased
by 58.7 % to MUSD 22.6 and others market increased by
74.9 % to MUSD 35.6.

Revenue from proprietary products declined 0.2% to
MUSD 77.3 in 2018 from MUSD 77.44 in 2017. We won
new designs and with this confirmed an extended life
cycle for our proprietary products, resulting in a softer
revenue decline than expected, although we foresee
that sales of Proprietary products will be impacted by
changes in product mix and a transition to Bluetooth
Low Energy with a continued expected decline in
volumes in the years to come.

Sales of ASIC products during 2018 was similar to 2017
with 1.0% growth to MUSD 8.0. No new ASICS designs are
being developed and future revenue will therefore depend
on demand from existing customers and applications.

Gross Profit

Amounts in USD thousand

2018

2017

Gross Profit

Gross Margin

135 021

111 487

49.8%

47.2%

Gross profit was MUSD 135.0, or 49.8% of revenue,
compared with MUSD 111.5, or 47.2% of revenue in 2017.
Gross margin in 1H 2017 was negatively affected by yield
issues in connection with the ramp-up of the nRF52 Series
product line.

We continued driving gross margin improvements in
the second half of 2017 and throughout 2018 and are
satisfied that we reached our 50 % gross margin target
for 2H 2018.

Proprietary wireless

77 254

77 428

Bluetooth

185 148

150 126

Long-range (cellular IoT)

ASIC Components

Consulting services

232

7 994

505

7 916

533

Total

271 134 236 003

-0.2%

23.3%

1,0%

-5.2%

14.9%

Operating expenses

Amounts in USD thousand

Payroll expenses

Other operating expenses

Depreciation

Total operating expenses

2018

2017

70 048

60 517

34 199

27 657

16 727

12 863

120 974

101 037

Total revenue increased 14.9% to MUSD 271.1 in 2018 from
MUSD 236.0 in 2017. The increase is mainly attributable
to a 23.3% increase in sales of our Bluetooth LE solutions
to MUSD 185.1 from MUSD 150.1 in 2017. Bluetooth
revenue represented 68.3% of Nordic’s total revenue in
2018 compared to 63.6% in 2017. Nordic won a large

Total operating expenses ended at MUSD 121.0, an
increase of 19.7% from MUSD 101.0 in 2017. This increase
comprises an increase in the number of employees,
higher activity related to release of new products and
scaling operations for future growth expectations.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | REPORT FROM THE BOARD OF DIRECTORS

Total cash operating expenses (excluding depreciation
and amortization) before options, write-down of
receivables and net capitalized R&D expenses were
MUSD 116.0 in 2018, compared with MUSD 94.6 in 2017.
This represents an increase of 22.6% in absolute terms,
and an increase of 3 percentage points to 43% of
revenue in 2018, compared to 40% in 2017.

Total headcount grew 14.0% from 601 at the end of 2017
to 685 at the end of 2018, as we are devoting more
resources to both short-range and long-range R&D,
where the number of employees increased from 457
(2017) to 515 (2018). We have also strengthened our sales
and supply chain organization to be able to handle
expected growth in volumes in 2019 and beyond. Other
operating expenses related to R&D, software, IP and test
manufacturing have increased with the higher activity
level associated with to the nRF91 product launch.

Development of new wireless components is essential to
the Group’s continued competitiveness in a rapidly evolving
market. At the end of 2018, R&D personnel represented
75% of the Group’s employees (76% in 2017). During 2018,
total R&D spending including capitalized items amounted
to 28.4% of revenues compared with 26.8% in 2017. In 2018,
we capitalized MUSD 13.0 related to R&D projects that are
in the commercialization phase of development, compared
to MUSD 8.6 in 2017. Operating expenses recognized in
the P&L from these activities decreased to MUSD 17.0
in 2018 from MUSD 20.1 in 2017 due to capitalization of
cellular expenses. Nordic capitalized a total of MUSD 9.8
of the cellular expenses in 2018.

Taxes
The tax expense for the Group for the financial year 2018
was MUSD 6.2, representing 41.3 % of profit before tax.
The base tax rate for the Group is 23 %. The USD had a
strong appreciation against NOK in Q4 2018 and as the
tax return is prepared in NOK, the parent company had
a large currency gain, increasing taxable profit.

Cash flow and balance sheet
In 2018, the Group has generated net cash flow from
operating activities of MUSD 30.5 (MUSD 35.0 in 2017).
Cash flow from operating activities has been used to
finance the investing activities of MUSD 30.5 (MUSD 19.4
in 2017). The Group raised MUSD 98.9 in a capital increase
in April 2018, of which MUSD 20 was used to repay long-
term debt. In addition, the Group has purchased treasury
shares for a total of MUSD 12.4 during 2018. Cash at the
end of the year was MUSD 103.9.

Nordic has decreased inventory levels by MUSD 1.1 to
MUSD 42.7 at year-end 2018 from MUSD 43.8 year-end
2017 despite a significant revenue increase. Accounts
receivable increased by MUSD 3.2 to MUSD 51.8 at year-
end 2018 from MUSD 48.6 at year-end 2017. Tight cash
management and cash generation are key priorities
within the Group. Total assets increased by MUSD
82.0 to MUSD 267.1 at year-end 2018, mainly due to the
capital increase.

Financial Risk
Strategic risk
Demand for Nordic’s products is tied to the larger
semiconductor and electronics markets and is sensitive
to fluctuations in global economic conditions. Long-
term, the market is expected to grow significantly as
wireless solutions are embedded into a growing range
of new products. Shorter term, global market conditions
may, however, have certain negative or cyclical impacts
on the industry and corresponding growth rates. As
demand increases, new competitors are likely to enter
the market and different trends may increase volatility
of both revenue and earnings for Nordic.

Nordic’s success depends on its ability to anticipate
customer needs and address these with competitive
technical solutions and outstanding customer support.
Nordic invests heavily in research and development
to anticipate and respond to new market trends. The
Group rapidly implements new design to meet customer
needs and to adapt to new protocols available from
standard setting organizations.

In order to successfully execute our current and future
business commitments, we need to continue building
our organizational capability for continuous innovation
and at the same time grow our organization while
maintaining and refining the Nordic culture. We seek
to create a positive working environment that results
in low levels of staff turnover, while at the same
time maintaining effective recruitment and retention
processes to attract and engage the best candidates in
the global technology industry.

Operational Risk
The Group’s outsourcing of manufacturing and direct
distribution requires close collaboration with third-party
subcontractors and distributors. We conduct extensive
qualification programs in connection with new designs
in order to minimize risk with product launches. To
reduce risk of delivery issues related to natural disasters,
we ensure second sourcing and sufficient inventories of
all our key products.

Liquidity Risk
As a growing company, Nordic needs to have available
funds to ensure short-term variations in capital needs.
We maintain a sufficient balance of available cash
and we currently have in place two long-term revolving
credit facilities (“RCFs”), which enable us to borrow up to
MUSD 40 and MUSD 25 at any time with an interest rate
equal to LIBOR + margin. The line of credit of MUSD 40
expires in September 2020, while the MUSD 25 credit
line expires in November 2022. As of December 31,
2018, the Group had not drawn on any credit facilities.
In addition, the Group has a non-utilized MEUR 10
overdraft facility available to finance short-term working
capital requirements. Available cash on December 31,
2018 including credit facilities is close to MUSD 180
compared to MUSD 94, 31 December 2017. The Group
has a healthy equity ratio of 82.9 % at year-end 2018

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | REPORT FROM THE BOARD OF DIRECTORS

compared to 67.5% year-end 2017. Financial covenants
on the RCFs are limited to a required equity ratio above
40%. As the Group holds little interest-bearing debt, the
exposure to risk associated with interest rate fluctuations
is limited.

Foreign Currency Risk
The Group is exposed to foreign exchange risk in its
ordinary business, which can impact profit margin.
Nordic’s operating expenses are primarily in Norwegian
kroner and Euro and its sales and direct production
costs are nearly entirely in US dollars. The Group does
not use financial instruments to hedge this risk.

Credit risk
Finally, the Group has an inherent exposure to credit
risk, although this has historically not resulted in any
significant losses. Nordic sells its components to leading
international distributors of electronics components,
primarily based in Asia. The Group’s receivables are not
credit insured, but credit monitoring routines are in place
for setting up credit lines, providing security (payment
guarantees) and demanding advance payments when
required.

Overall Risk Management
The Board oversees the risk management process and
carries out biannual reviews of the Group's most important
areas of exposure and internal control processes.

Personnel and Organization
At the end of 2018, the Group had 685 employees,
compared to 601 in 2017, of whom 319 (270) were employed
outside of Norway. Well-functioning cooperation
between management and employee representatives
contributes to open lines of communication and
addressing any challenges at an early stage.

There were 89 (77) female employees at the end of
2018, corresponding to 13% (13%) of total number of
employees.

The Group had 363 full-time employees in Norway,
including 57 female employees. There were 319 full-
time employees in Finland, China, Hong Kong, South
Korea, Japan, the Philippines, Taiwan, Switzerland,
Poland, UK, the Netherlands and the US, including 33
females. The average salary for female employees was
83% (82%) of the average salary for male employees
excluding executive management. Gender differences
in salary levels can be explained by both the location
and function of the employees, with a larger proportion
of female employees in administrative functions and
based in the Philippines, where the average salary level
is below the average Group level. A comparison of the
R&D functions in Norway shows an average salary for
females at 95% of the average salary for males, which
mainly is due to differences in seniority.

Gender equality is a fundamental principle for the
Group, and efforts are being made to ensure that there
is no gender bias when recruiting for positions within
Nordic. Nordic’s experience is that there are fewer
female applicants to open engineering positions than
there are male applicants, which may be a result of the
proportion of female to male in engineering students and
experienced candidates in Norway and other primary
recruiting markets for Nordic. Nordic participates in the
"Jenteprosjektet Ada", initiated by Norwegian University
of Science and Technology. The project aims to recruit,
motivate and educate females within the IT industry in
Norway.

Absence due to illness was 2.2% in 2018 and in 2017. No
occupational illnesses or injuries were reported in 2018.

Executive Management consists of six men and one
female, and in the Board of Directors there are two
female and three male shareholder elected members.

Environmental Statement
Nordic does not own or operate manufacturing facilities.
Manufacturing is outsourced to leading third-party
providers which comply with the ISO 14001 environmental
standards, among other certifications and qualifications.
Consequently, there is limited pollution associated with
the Group’s operations. Nordic seeks to limit resource
consumption, prevent unnecessary environmental
pollution and manage waste in an environment-friendly
and resource efficient manner. The Group has established
routines to monitor these conditions under its ISO 9001,
ISO 14001 and OHSAS 18001 certified management
system.

Nordic complies with all current applicable laws and
regulations, and all products comply fully with the
REACH and RoHS hazardous substance directives. This
enables the Group to market itself as a “green” supplier,
which also is an advantage towards major customers
who have their own stringent environmental standards.

The Board has prepared a separate report on corporate
social responsibility in line with Oslo Stock Exchange’s
recommendation. The report also covers employee
and environmental considerations. The report can be
downloaded from www.nordicsemi.com.

Corporate Governance
for Corporate
Nordic’s guidelines and practice
Governance are in accordance with the Norwegian
Code of Practice for Corporate Governance, dated 17
October 2018 as required for all listed companies on
the Oslo Stock Exchange. Furthermore, the guidelines
meet the disclosure requirements of the Norwegian
Accounting Act and Securities Trading Act.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | REPORT FROM THE BOARD OF DIRECTORS

The guidelines are included separately in the annual
report.

Allocation of Net Profit
Nordic aims to distribute an annual dividend to
shareholders. However, in order to pursue required
investments in the Group’s longer-term growth strategy
in a highly cyclical business environment, the Board
recommends that Nordic preserve a high proportion of
equity and liquidity.

In accordance with the Group’s dividend policy and
taking into consideration the cash position and funding
requirements to pursue Nordic’s growth strategy in the
coming years, the Board is not proposing any dividend
distribution for 2018 at its Annual General Meeting in
April.

The net profit of the parent company of the Group
totaled MUSD 6.4 in 2018 and Board of Directors
proposes that the net profit to be transferred to other
equity.

Outlook
Bluetooth Low Energy is established as a core technology
within the IoT space, a market that is expected to
grow significantly and become nearly universal in its
application. In the medium term, we expect Bluetooth
revenue to grow by 20 to 30% annually. The Group
guides for a MUSD 50-55 in total revenue for Q1 2019.

Our proprietary business will continue to contribute
significantly to our financial results, although it is
expected that more designs will be transferred to the
Group’s Bluetooth Low Energy solutions over time.

Nordic has proven its technology leadership with the
introduction of the nRF52 Series on top of its existing
technology platform. The Group expects to maintain its
strong market position in Bluetooth Low Energy in the
future, building on a product range that includes the
higher value state-of-the-art nRF52 Series SoCs as well
as product variations at different price points. Nordic
will continue to target the most cost-optimized, high-
volume applications.

Bluetooth Low Energy is expected to continue to be
the main revenue driver for the next years. In terms
of emerging technological development, we expect to
see growth from our investments in low power cellular
technology, where our market leading technology
architecture is being integrated with wireless technology.

Nordic continues to be an important player in a
rapidly evolving and complex industry. We have every
confidence that the significant capabilities and sound
financial position of the Group will enable it to address
the opportunities as well as the challenges that it will
inevitably face in the coming years.

Oslo, March 14, 2019

Birger Steen
Chair

Tore Valderhaug
Vice-Chair

Craig Ochikubo
Board member

Inger Berg Ørstavik
Board member

Svenn-Tore Larsen
Chief Executive Officer

Anne Marit Panengstuen
Board member

Asbjørn Sæbø
Board member, employee

Susheel Raj Nuguru
Board member, employee

Jon Helge Nistad
Board member, employee

Financial
Statements

Income statement (for the year ended December 31)

GROUP

PARENT

2018

2017

Amount in USD 1000

Note

2018

2017

271 134

236 003

Total Revenue

-136 111

-123 645

Cost of materials

-1

-872

Direct project costs

135 021

-70 048

-34 199

-16 727

14 047

1 782

-428

-320

15 081

-6 222

8 859

111 487

Gross profit

-60 517

Payroll expenses

-27 657

Other operating expenses

-12 863

Depreciation

10 450

Operating profit

275

Financial income

-622

-322

Financial expenses

Net foreign exchange gains (losses)

9 780

Profit before tax

-3 017

Income tax expense

6 763

Net profit after tax

Attributable to:

8 859

6 763

Equity holders of the parent

0,05

2018

8 859

-21

-324

8 519

0,04

Ordinary earnings per share (USD)

Fully diluted earnings per share (USD)

2017

Statement of comprehensive income

6 763

Net profit after tax

-25

Actuarial gains (losses) on defined benefit plans
(before tax)

Income tax effect

134

Currency translation differences

6 878

Total Comprehensive Income

271 878

236 809

-136 111

-123 645

9/10/12/18

5/21

11/12

6/22

-1

135 766

-42 796

-68 546

-13 781

10 642

1 782

-427

-319

11 678

-5 263

6 415

0,04

2018

6 415

-21

-872

112 293

-38 788

-55 147

-10 571

7 787

274

-622

-352

7 087

-2 393

4 693

0,04

2017

4 693

-25

6 399

4 674

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSStatement of financial position (as of December 31)

GROUP

PARENT

2018

2017

Amount in USD 1000

Note

2018

2017

ASSETS

Non-current assets

27 686

15 063

1 335

17 582

18 925

Capitalized development expenses

15 509

Software and other intangible assets

1 516

Deferred tax assets

12 258

Fixed assets

Shares in subsidiaries

61 667

48 209

Total non-current assets

42 679

51 784

7 155

103 876

205 494

Current assets

43 789

Inventory

48 582

Accounts receivable

7 844

Other short-term receivables

36 695

Cash and cash equivalents

136 910

Total current assets

11/22

1/13

14/22

16/22

27 686

14 604

1 168

13 530

18 925

15 300

1 341

7 999

57 031

43 580

42 679

51 784

7 269

100 522

202 254

43 789

48 582

16 576

35 020

143 967

267 161

185 119

TOTAL ASSETS

259 285

187 548

303

-5

113 355

107 896

221 549

279

10 424

5 043

2 901

26 966

45 333

45 612

267 161

EQUITY

283

-2

Share capital

Treasury shares

14 436

Share Premium

110 306

Other components of equity

124 953

Total equity

LIABILITIESIABILITIES

Non-current liabilitiesn-current assets

293

Pension liability

20 000

Other long-term loan facility

20 293

Total non-current liabilities

Current liabilitiesn

13 075

Accounts payable

3 069

Income taxes payable

2 774

Public duties

20 955

Other short-term debt

39 873

Total current liabilities

60 166

Total liabilities

20/22

15/20

303

-5

113 355

100 718

283

-2

14 436

105 541

214 370

120 258

279

9 681

4 854

2 471

27 630

44 636

44 915

293

20 000

20 293

12 337

2 508

2 388

29 765

46 997

67 290

185 119

TOTAL EQUITY AND LIABILITY

259 285

187 548

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSOslo, March 14, 2019

Birger Steen
Chair

Tore Valderhaug
Vice-Chair

Craig Ochikubo
Board Member

Inger Berg Ørstavik
Board Member

Svenn-Tore Larsen
Chief Executive Officer

Anne Marit Panengstuen
Board Member

Asbjørn Sæbø
Board Employee Representative

Susheel Raj Nuguru
Board Employee Representative

Jon Helge Nistad
Board Employee Representative

1515

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNordic Semiconductor Group

Consolidated statement of changes in equity
for the year ended December 31

Amount in USD 1000

Share
capital

Treasury
shares

Share
premium

Other paid
in capital

Currency
translation
reserve

Retained
earnings

Total
equity

Equity as of 01.01.17

283

-2

14 436

968

101 264

116 949

Net profit for the period

Share based compensation

Other comprehensive income

1 126

Equity as of 01.01.18

283

-2

14 436

2 094

Net profit for the period

Purchase of treasury share

Issue of share capital

Share based compensation

Other comprehensive income

-4

98 919

1 213

Equity as of 31.12.18

303

-5

113 355

3 307

6 763

-19

6 763

1 126

115

108 008

124 953

8 859

-12 071

-16

-12 075

98 939

1 214

-341

104 780

221 549

134

-324

-190

Nordic Semiconductor Parent

Statement of changes in equity
for the year ended December 31

Amount in USD 1000

Equity as of 01.01.17

Net profit for the period

Share based compensation

Other comprehensive income

Equity as of 01.01.18

Net profit for the period

Purchase of treasury shares

283

Issue of share capital

Share based compensation

Other comprehensive income

Share
capital

Treasury
shares

Share
premium

Other paid
in capital

Retained
earnings

Total
equity

283

- 2

14 436

-366

100 324

114 676

907

4 693

907

-19

14 436

541

104 999

120 258

98 919

849

6 415

-12 071

-12 075

98 939

850

-16

-2

-4

Equity as of 31.12.18

303

-5

113 355

1 391

99 327

214 370

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS

Statement of cash flows
for the year ended December 31

GROUP

PARENT

2018

2017

Amount in USD 1000

Note

2018

2017

Cash flows from operating activities

9 780

Profit before tax

-1 600

Taxes paid for the period

12 863

Depreciation

11/12

12 152

Change in inventories, trade receivables and payables

4/14/20/22

-4 748

15 081

-2 759

16 727

-4 708

1 231

-30

4 974

30 516

-17 530

-12 993

1 126

Share-based compensation

-19

743

Movement in pensions

Other operations related adjustments

35 049

Net cash flows from operating activities

Cash flows used in investing activities

-10 832

Capital expenditures (including software)

-8 572

Capitalized development expenses

-30 523

-19 404

Net cash flows used in investing activities

-12 075

98 939

-32

-20 000

66 832

357

67 181

Cash flows from financing activities

Purchase of treasury shares

Capital increase

Cash settlemet of options contract and issue of share capital

Interest bearing debt

Net cash flows from financing activities

-86

Effects of exchange rate changes on cash and cash equivalents

15 560

Net change in cash and cash equivalents

36 695

21 135

Cash and cash equivalents as of 1.1.

11 678

7 087

-2 759

-1 382

13 781

882

-30

10 571

11 895

907

-19

11/12

7 243

1 819

26 046

30 880

-14 384

-7 720

-12 993

-8 572

-27 377

-16 292

-12 075

98 939

-32

-20 000

66 832

65 501

14 588

35 020

20 432

103 876

36 695

Cash and cash equivalents as of 31.12.

16/22

100 522

35 020

1 560

1 452

Restricted cash incl. in the cash and cash equivalents as of 31.12.

1 560

1 452

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 1: General

Nordic Semiconductor ASA is a public limited company
whose shares are listed on the Oslo Stock Exchange. The
Group’s head office is located at Otto Nielsens vei 12,
7052 Trondheim, Norway. The Group includes the parent
company Nordic Semiconductor ASA and five wholly-
owned subsidiaries, Nordic Semiconductor Inc., Nordic
Semiconductor Poland Sp. z.o.o, Nordic Semiconductor
Finland OY, Nordic Semiconductor Japan KK and Nordic
Semiconductor Germany GmbH.

Nordic Semiconductor develops and sells integrated circuits
and related solutions for short- and long-range wireless
communication. The company specializes in ultra-low power
(ULP) components, based on its proprietary 2.4 GHz RF,
Bluetooth low energy and LTE-M and NB-IoT.

The financial accounts were approved for publication by the
Board of Directors on March 14, 2019, and will be presented
for approval at the Annual General Meeting on April 24, 2019.

Note 2: Accounting Principles

2.1 Basis for preparation
The financial accounts for Nordic Semiconductor ASA “the
Parent Company” and its wholly-owned and controlled
subsidiaries, together called “the Group”, have been
prepared
International Financial
Reporting Standards as adopted by the EU (IFRS), relevant
interpretations, and the Norwegian Accounting Act.

in accordance with

As the Parent company has USD as its functional currency,
the financial accounts are presented in USD, rounded off to
the nearest thousand, if nothing else is noted. As a result
of rounding differences, it is possible that amounts and
percentages do not add up to the total.

Gross profit is revenue less cost of materials and direct
project costs. Cost of materials include direct and indirect
cost of production. Nordic Semiconductor uses gross profit
for internal reporting and has therefore chosen to include it
in the external financial reporting

Basis of consolidation
Subsidiaries are entities controlled by
the Parent
Company. The Parent Company controls an investee
when it is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to
affect those returns through its power over the investee.
Subsidiaries are consolidated from the date control is
obtained until the date that control ceases.

All subsidiaries are owned 100 percent and there are no
transactions,
non-controlling
balances and unrealized gains on transactions between
group companies are eliminated.

Intercompany

interests.

2.2 Significant accounting judgements,
estimates and assumptions
The Comp The preparation of financial statement in
accordance with IFRS requires that management uses
judgement, estimates and assumptions that influence
the amount reported in the financial statements and
notes. Management bases its estimates and judgement
on previous experience and on various other factors
deemed to be reasonable and sensible given the
specific circumstances. The main areas of uncertainty for
assessments and estimates on the balance sheet date,
which represent a risk of creating significant changes to
the value of assets and liabilities, are discussed below.

Estimates are continuously reassessed based on changes
in the underlying assumptions. Changes in accounting
estimates are recognized in the period in which such
changes occur. If such changes also apply to future periods,
the effect is distributed between current and future periods.

Revenue recognition
Revenue recognition principles are described in note 2.10.

Nordic Semiconductor predominantly sells to electronic
distributors under a distribution agreement. The distributors
will hold a given level of Nordic Semiconductors inventory
that is subsequently shipped to an end customer. Nordic
Semiconductor uses a “sell in” model in connection with
revenue recognition to distribution customers. Under a
“sell in” model, management needs to make judgements
and estimates the amount that can affect the reported
amounts of revenues and expenses. The main judgments
are described below.

Estimating variable consideration for “Ship and Debit”
When a distributor sells components to specified customer
accounts, the distributor will receive an additional discount
after the sale is made, commonly known as a “Ship and
Debit” discount. In estimating the variable consideration, the
Group is required to use either the expected value method
or the most likely amount method based on which method
better predicts the amount of consideration to which it will
be entitled. The Group uses the most likely amount method
for calculating the discount, by assessing historical discounts
to each distributor, the distributors’ inventory level as of 31
December 2018 and expected sales mix. An estimate for this
discount is provided in the accounts, reducing the revenue
and increasing refund liabilities.

Development cost
Development costs are capitalized in accordance with the
principles in Note 2.9. In order to determine the amount to
be capitalized, it is necessary for management to make
assumptions regarding expected future cash flow, and
the expected period of benefits. Capitalized development
costs are subject to amortization on a straight-line basis
over the period of expected future benefits, normally 3-5
years. Uncertainty exists with respect to the estimated
period of expected future benefit, as this depends on the

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSfuture technological development in the market. During
2018 MUSD 13.0 was capitalized, mainly related to the
long-range cellular IoT products. The carrying amount of
capitalized development costs as of December 31, 2018 and
2017 was MUSD 27.7 and MUSD 18.9 respectively.

2.3 Changes in accounting principles
The Group applied IFRS 15 and IFRS 9 for the first time. The
nature and effect of the changes as a result of adoption
of these new accounting standards are described below.
Several other amendments and interpretations apply for
the first time in 2018, but do not have an impact on the
consolidated financial statements of the Group. The Group
has not early adopted any standards, interpretations or
amendments that have been issued but are not yet effective.

IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18
Revenue and related interpretations and it applies, with
limited exceptions, to all revenue arising from contracts
with its customers. IFRS 15 establishes a five-step model to
account for revenue arising from contracts with customers
and requires that revenue be recognized at an amount that
reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to
a customer. IFRS 15 requires entities to exercise judgement,
taking into consideration all of the relevant facts and
circumstances when applying each step of the model to
contracts with their customers. The standard also specifies
the accounting for the incremental costs of obtaining a
contract and the costs directly related to fulfilling a contract.
In addition, the standard requires extensive disclosures. The
Group adopted IFRS 15 using the modified retrospective
method of adoption. There are no cumulative effects of
initially applying the standard and no changes in how the
Group recognizes revenue going forward. All the Group’s
revenue is revenue from contract with customers. The
Group does not have Contract Assets or Liabilities, but the
Ship and Debit accrual is classified as a Refund Liability,
included in Current Liabilities.

IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement for annual
periods beginning on or after 1 January 2018, bringing
together all three aspects of the accounting for financial
instruments: classification and measurement; impairment;
and hedge accounting.

The Group has applied IFRS 9 retrospectively, with the
initial application date of 1 January 2018 and adjusting the
comparative information for the period beginning 1 January
2017. The standard had no impact on the comparative
numbers.

(a) Classification and measurement
Under IFRS 9, debt instruments are subsequently measured
at fair value through profit or loss, amortized cost, or fair
value through OCI. The classification is based on two
criteria: the Group’s business model for managing the
assets; and whether the instruments’ contractual cash flows
represent ‘solely payments of principal and interest’ on the
principal amount outstanding.

The assessment of the Group’s business model was made
as of the date of initial application, January 1, 2018, and then
applied retrospectively to those financial assets that were
not derecognized before January 1, 2018. The assessment
of whether contractual cash flows on debt instruments are
solely comprised of principal and interest was made based
on the facts and circumstances as at the initial recognition
of the assets.

The classification and measurement requirements of IFRS 9
did not have a significant impact on the Group. The Group
has no financial assets at fair value. The following are the
changes in the classification of the Group’s financial assets:

Trade receivables and Other non-current financial assets
previously classified as Loans and receivables are held to
collect contractual cash flows and give rise to cash flows
representing solely payments of principal and interest.
These are now classified and measured as Debt instruments
at amortized cost.

The Group has not designated any financial liabilities as
at fair value through profit or loss. There are no changes
in classification and measurement for the Group’s financial
liabilities.

(b) Impairment
The adoption of IFRS 9 has changed the Group’s accounting
for impairment losses for financial assets by replacing IAS
39’s incurred loss approach with a forward-looking expected
credit loss (ECL) approach. IFRS 9 requires the Group to
recognize an allowance for ECLs for all debt instruments not
held at fair value through profit or loss and contract assets.
The Group has chosen the simplified approach and will
record lifetime expected losses on all trade receivables. The
Group has long-term relationships with current customers.
Taking the customers' strong market position and forward-
looking factors into consideration, the loss allowance has
remained at zero after implementing IFRS 9.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS2.4 Foreign currency
The presentation currency in the Group’s consolidated
financial statements is USD. The most significant subsidiary
in the Group, Nordic Semiconductor ASA, has USD as
its functional currency. Balance sheet items of foreign
branches and subsidiaries in other functional currencies are
translated into the presentation currency, USD, according
to the exchange rates prevailing on the balance sheet
date, while profit or loss items are translated according to
monthly average exchange rates. Changes in net assets
resulting from exchange rate movements are recognized in
other comprehensive income.

Monetary assets and liabilities in foreign currency are
translated into the entities’ functional currency at the
exchange rates prevailing on the balance sheet date.
Changes in the carrying amount of such assets due to
exchange rate movements between the transaction date
and the balance sheet date are recognized in the income
statement.

2.5 Cash and cash equivalents
Cash and short-term deposits in the statement of financial
position comprise cash at banks and on hand and short-
term deposits with a maturity of three months or less, which
are subject to an insignificant risk of changes in value.

2.6 Inventory
Inventory is valued at the lower of cost and net realizable
value after deduction for obsolescence. Net realizable value
is estimated as the selling price less cost of completion and
the cost necessary to make the sale. Costs are determined by
using the FIFO method. Work in progress includes variable
cost and non-variable cost which can be allocated to items
based on normal capacity. Obsolete inventory is written
down completely.

2.7 Non-current assets
Non-current assets are valued at the lower of cost net of
accumulated depreciation and net realizable value. When
an asset is sold or discontinued, the gain or loss from the
transaction is recognized in the income statement.

Cost of non-current assets includes fees/taxes and direct
costs associated with commissioning the non-current asset
for use. Repair and maintenance costs are expensed when
incurred. If repair and maintenance increase the value of
the non-current asset, the cost will be added to the asset
on the balance sheet.

Depreciation is calculated on a straight-line basis over the
following periods of time:

Office and lab equipment
Computer equipment
Installations in buildings

3-5 years
3-4 years
5 years

The assets’ residual value, useful lives and methods of
depreciation are reviewed on an ongoing basis and adjusted
prospectively, if necessary.

Financial leases
The Group does not have any significant financial leases.

Operational leases
Leases where the most significant risk rests with the lessor
are classified as operational leases. Lease payments are
classified as operating costs and are expensed over the
contract period.

2.8 Research and development
Research costs are expensed as incurred. Costs associated
with development are capitalized if the following criteria are
met in full:

cost elements can be identified and measured reliably;

The product or the process is clearly defined and the
The technical feasibility is demonstrated;
The product or the process will be sold or used in the
The asset will generate future financial benefits.
Sufficient technical, financial and other resources for

project completion are in place.

business;

Costs expensed in prior accounting periods will not be
capitalized.

Depreciation begins when the product is transferred from
development to production. Uncertainty exists with respect
to the expected period of benefits, as this depends on the
future technological development in the market.

2.9 Intangible assets
Intangible assets with finite lives are amortized over the
useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be
impaired. The amortization period and the amortization
method for an intangible asset with a finite useful life are
reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in
the asset are considered to modify the amortization period
or method, as appropriate, and are treated as changes in
accounting estimates.

2.10 Provisions
Provisions are recognized when the Group has a present
obligation (legal or constructive) as a result of a past event,
it is probable that economic benefits will be required to
settle the obligation and a reliable estimate can be made.
Provisions are reviewed each balance sheet date and the
level reflects the best estimate of the obligation. When the
time value is insignificant, the amount of the provision will

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS
be equal to the estimated expenditure required to settle the
obligation. When the time effect is significant, the amount
of the provision will be equal to the present value of future
estimated expenditures to settle the obligation.

2.11 Revenue from contracts with customers
The Group is in the business of developing and selling
integrated circuits. Revenue from contracts with customers
is recognized when control of the goods are transferred to
the customer (distributor) at an amount that reflects the
consideration to which the Group expects to be entitled in
exchange for those goods. The time of delivery, and the time
where control of goods are transferred, is usually the time
when the goods are transferred to the transport carrier. At the
delivery time, the Group has the right of payment for the asset,
the customer has legal title to the asset, physical possession
has been transferred to the customer and customer has the
significant risks and rewards of ownership of the asset.

Revenue from services is recognized as the services are
rendered/delivered. The service consists of working hours, and
invoicing of other costs, such as work done by subcontractors.
Interest earned is recognized as it is generated.

The normal credit term is 30-60 days upon delivery.

The Group considers whether there are other promises in
the contract that are separate performance obligations to
which a portion of the transaction price needs to be allocated
(e.g. warranties). In determining the transaction price for the
sale of integrated circuits, the Group considers the effects of
variable consideration, the existence of significant financing
components, noncash consideration, and consideration
payable to the customer (if any).

i) Variable consideration
If the consideration in a contract includes a variable amount,
the Group estimates the amount of consideration to which
it will be entitled in exchange for transferring the goods
to the customer. The variable consideration is estimated
at contract inception and constrained until it is highly
probable that a significant revenue reversal in the amount
of cumulative revenue recognized will not occur when the
associated uncertainty with the variable consideration
is subsequently resolved. Some contracts for the sale of
integrated circuits provide customers with ship and debit
rebates. The rights of ship and debit rebates give rise to
variable consideration.

Ship and Debit
The Group provides retrospective rebates to certain
distributors, given that the distributors have sold the
goods to specific customer accounts. The Ship and Debit
rebates are mostly offset against amounts payable by the
distributor, but can also be paid to the distributor if there
are no payable to offset against. To estimate the variable
consideration for the expected future rebates, the Group

applies the expected value method for each distributor
account with a Ship and Debit agreement. The Group
applies the requirements on constraining estimates of
variable consideration and recognizes a refund liability for
the expected future rebates

ii) Stock rotation
Certain contracts provide a distributor with a right to a certain
level of stock rotation. The Group tracks the distributor's
inventory and can initiate a stock rotation earlier if a certain
product is selling better with another distributor. As the
products have similar margin, there are no significant losses
for the Group when stock rotations are initiated. The Group
does not make provisions or adjustments for stock rotation
unless we expect the goods returned to be obsolete. Stock
rotation provisions are made if necessary based on most
likely amount method.

iii) Significant financing component
Generally, the Group receives no short-term advances
from its customers. Furthermore, no customers have more
than 60 days credit terms. The Group’s credit term is not a
significant benefit of financing and no adjustments to the
transaction price for significant financing components are
therefore required under IFRS 15.

Contract balances
Contract assets
A contract asset is the right to consideration in exchange for
goods or services transferred to the customer. If the Group
performs by transferring goods or services to a customer
before the customer pays consideration or before payment
is due, a contract asset is recognized for the earned
consideration that is conditional.

Trade receivables
A receivable represents the Group’s right to an amount of
consideration that is unconditional (i.e., only the passage of
time is required before payment of the consideration is due).
Refer to accounting policies of financial assets in section
2.19.

Contract liabilities
A contract liability is the obligation to transfer goods or
services to a customer for which the Group has received
consideration (or an amount of consideration is due) from
the customer. If a customer pays consideration before
the Group transfers goods or services to the customer, a
contract liability is recognized when the payment is made or
the payment is due (whichever is earlier). Contract liabilities
are recognized as revenue when the Group performs under
the contract.

Assets and liabilities arising from rights of return
Right of return asset
Right of return asset represents the Group’s right to recover
the goods expected to be returned by customers. The asset
is measured at the former carrying amount of the inventory,

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSless any expected costs to recover the goods, including any
potential decreases in the value of the returned goods. The
Group updates the measurement of the asset recorded for
any revisions to its expected level of returns, as well as any
additional decreases in the value of the returned products.
As the customers are only able to exchange the goods, the
Group does not have a right of return asset.

Refund liabilities
A refund liability is the obligation to refund some or all of
the consideration received (or receivable) from the customer
and is measured at the amount the Group ultimately expects
it will have to return to the customer. The Group updates its
estimates of refund liabilities (and the corresponding change
in the transaction price) at the end of each reporting period.

Cost to obtain a contract
The Group does not pay commission to employees and all
costs related to getting a customer order is immediately
expensed. The amortization period for a contract asset
would be one year or less, hence the Group is able to use
the practical expedient and expense costs directly.

2.12 Employee benefits
Defined benefit pension plans
The Group had a defined benefit pension plan for its
employees who were hired before December 31, 2007.
The group has also established a similar plan for employees
in the Philippines. This plan is still open. Pension plan assets
are valued at fair value.

The defined benefit scheme in Norway was converted to a
defined contribution scheme. In connection with the transfer,
the employees received a “Paid up benefit” for all earned
benefits in the defined benefit plan. As there exist certain
obligations related to retirees and employees on sick leave,
an actuarial calculation is performed and a liability for these
employees is included as of December 31, 2018.

Defined contribution pension plans
Employees hired after January 1, 2008 have a defined
contribution pension plan described in Note 18.

Share based payments
The cost of equity-settled transactions is determined by the
fair value at the date when the grant is made using an
appropriate valuation model, further details of which
are given in Note 19. That cost is recognized in employee
benefits expense, together with a corresponding increase in
equity (other paid in capital), over the period in which the
service and, where applicable, the performance conditions
are fulfilled (the vesting period). See Note 19.

2.13 Government grants
Grants received are tax refunds and are classified as
operating grants. Operating grants are accounted for at
the same time as the costs they are intended to cover. Tax
refunds are accounted for as a cost reduction. See Note 5
and 9.

2.14 Income taxes
Income tax expenses consist of taxes due and changes to
the deferred tax. Deferred tax and tax assets are calculated
based on all differences between the financial accounts
and the value for tax purposes of assets and liabilities.

Deferred tax assets are recognized to the extent that it is
probable that the individual company will have sufficient
taxable income in later periods to utilize the tax asset.

Deferred tax liabilities are accounted for at the nominal
value and classified as long-term obligations in the balance
sheet.

Deferred tax relating to items recognized outside profit or
loss is recognized outside profit or loss. Deferred tax items
are recognized in correlation to the underlying transaction
either in OCI or directly in equity. The Parent Company pays
its tax obligation in NOK and the fluctuations between the
NOK and the USD impact the financial items. The Group’s
legal entities that do not have their tax base in USD are
exposed to changes in the USD/tax base currency rates.
Effects within the current year are classified as tax expense.

2.15 Segments
The Group has only one operating segment. The group
does not report or monitor profitability on a lower level,
but breaks down its revenue into the following end product
markets: Consumer Electronics, Wearables, Healthcare,
Building and Retail, Others, Long-Range (cellular IoT),
ASIC components and Consulting Services. The Group
also breaks down
the geographical
its revenues
areas in which its distributors are located. See Note 3.

2.16 Events after the balance sheet date
Information available after the balance sheet date and
applicable to conditions existing at the balance sheet date
is included in the preparation of the financial statements.
Events after the balance sheet date that do not affect the
Group’s financial position as of the balance sheet date, but
that will affect the Group’s financial position in the future,
are disclosed if they are significant. See Note 23.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS2.17 Cash flow statement
The cash flow statement is prepared in accordance with the
indirect method. Cash and cash equivalents include cash,
bank deposits and other short-term liquid investments.

2.18 Treasury shares
When treasury shares are purchased, the purchase price,
including directly attributable costs are recognized as
changes in equity. Treasury shares are presented as a
reduction of equity. Gains or losses on transactions in
treasury shares are not recognized in the income statement.

2.19 Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity

Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortized cost, fair value
through other comprehensive income (OCI), and fair value
through profit or loss.

the Group’s business model

The classification of financial assets at initial recognition
depends on the financial asset’s contractual cash flow
characteristics and
for
managing them. With the exception of trade receivables
that do not contain a significant financing component or
for which the Group has applied the practical expedient,
the Group initially measures a financial asset at its fair
value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs. Trade receivables
that do not contain a significant financing component or for
which the Group has applied the practical expedient are
measured at the transaction price determined under IFRS
15. Refer to the accounting policies in section 2.11 Revenue
from contracts with customers.

In order for a financial asset to be classified and measured
at amortized cost or fair value through OCI, it needs to give
rise to cash flows that are ‘solely payments of principal and
interest (SPPI)’ on the principal amount outstanding. This
assessment is referred to as the SPPI test and is performed
at an instrument level.

The Group’s business model for managing financial assets
refers to how it manages its financial assets in order to
generate cash flows. The business model determines
whether cash flows will result from collecting contractual
cash flows, selling the financial assets, or both.

Subsequent measurement
For purposes of subsequent measurement, financial assets
are classified in four categories:

Financial assets at amortized cost (debt instruments)
Financial assets at fair value through OCI with recycling
Financial assets designated at fair value through OCI

of cumulative gains and losses (debt instruments)

with no recycling of cumulative gains and losses upon
derecognition (equity instruments)

Financial assets at fair value through profit or loss

The Group only has the first category; Financial assets at
amortized cost (debt instruments).

Financial assets at amortized cost (debt instruments)
This category is the most relevant to the Group. The Group
measures financial assets at amortized cost if both of the
following conditions are met:

The financial asset is held within a business model with

the objective to hold financial assets in order to collect
contractual cash flows.

and

The contractual terms of the financial asset give rise on

specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding

Financial assets at amortized cost are subsequently
measured using the effective interest (EIR) method and are
subject to impairment. Gains and losses are recognized in
profit or loss when the asset is derecognized, modified or
impaired.

The Group’s financial assets at amortized cost includes
trade receivables and other short-term receivables.

Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognized (i.e., removed from the Group’s consolidated
statement of financial position) when:

The rights to receive cash flows from the asset have

expired

The Group has transferred the asset according to IFRS

9.3.2.4 and 9.3.2.5

Impairment of financial assets
For trade receivables and contract assets, the Group applies
a simplified approach in calculating expected credit losses
(ECLs). The Group does not track changes in credit risk,
but instead recognizes a loss allowance based on lifetime
ECLs at each reporting date. The Group has established
a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to
the debtors and the economic environment.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSFinancial liabilities
Initial recognition and measurement
All financial liabilities are recognized initially at fair value
and, in the case of loans and borrowings and payables, net
of directly attributable transaction costs.

The Group’s financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts,
and derivative financial instruments.

Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:

Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through
profit or loss.

Financial liabilities are classified as held for trading if they are
incurred for the purpose of repurchasing in the near term.
This category also includes derivative financial instruments
entered into by the Group that are not designated as
hedging instruments in hedge relationships as defined by
IFRS 9. Separated embedded derivatives are also classified
as held for trading unless they are designated as effective
hedging instruments.

Gains or losses on liabilities held for trading are recognized
in the statement of profit or loss. Financial liabilities
designated upon initial recognition at fair value through
profit or loss are designated at the initial date of recognition,
and only if the criteria in IFRS 9 are satisfied. The Group has
not designated any financial liability as at fair value through
profit or loss.

Loans and borrowings
This is the category most relevant to the Group. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortized cost using the EIR
method. Gains and losses are recognized in profit or loss
when the liabilities are derecognized as well as through the
EIR amortization process.

Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that
are an integral part of the EIR. The EIR amortization is
included as finance costs in the statement of profit or loss.
This category generally applies to interest-bearing loans
and borrowings. For more information, refer to note 22.

Derecognition
A financial liability is derecognized when the obligation
under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another
from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such
an exchange or modification is treated as the derecognition
of the original liability and the recognition of a new liability.
The difference in the respective carrying amounts is
recognized in the statement of profit or loss.

Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of
financial position if there is a currently enforceable legal
right to offset the recognized amounts and there is an
intention to settle on a net basis, to realize the assets and
settle the liabilities simultaneously.

2.20 Approved standards and
interpretations not yet in effect
New standards, amendments to standards, and interpretations
have been published, but are not effective at December 31,
2018 and have not been applied in preparing these financial
statements. The Group intends to adopt these standards, if
applicable, when they become effective.

IFRS 16 Leases
IFRS 16, issued in January 2016, establishes a balance sheet
lease accounting model that will increase transparency
and comparability beginning in 2019. IFRS 16 sets out the
principles for the recognition, measurement, presentation
and disclosure of leases and requires lessees to account for
all leases under a single on-balance sheet model similar to
the accounting for finance leases under IAS 17. The standard
includes two recognition exemptions for lessees – leases of
’low-value’ assets (e.g., personal computers) and short-term
leases (i.e., leases with a lease term of 12 months or less). At
the commencement date of a lease, a lessee will recognize
a liability to make lease payments (i.e., the lease liability)
and an asset representing the right to use the underlying
asset during the lease term (i.e., the right-of-use asset).
Lessees will be required to separately recognize the interest
expense on the lease liability and the depreciation expense
on the right-of-use asset.

Lessees will also be required to remeasure the lease liability
upon the occurrence of certain events (e.g., a change in
the lease term, a change in future lease payments resulting
from a change in an index or rate used to determine those
payments). The lessee will generally recognize the amount
of the remeasurement of the lease liability as an adjustment
to the right-of-use asset.

Transition to IFRS 16

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSThere will be no impact on equity on January 1, 2019. For the
full year of 2019, the Group has estimated that the standard
will have the following impact (subject to change with new
leases and amendments of current leases):

Amounts in USD thousand

Other operating expenses

EBITDA

Depreciation

EBIT

Interest expense

Profit before tax

-3 989

3 989

3 779

210

789

-579

The Group plans to adopt IFRS 16 using the modified
retrospective approach and will not restate comparative
amounts for the year prior to first adoption.

The main leases that will be recognized in the balance
sheet are the different office leases. The Group will elect
to use the exemptions proposed by the standard on lease
contracts for which the lease terms end within 12 months
as of the date of initial application, and lease contracts
for which the underlying asset is of low value. The Group
has leases of certain office equipment (i.e., copy machines,
coffee machines etc.) that are considered of low value.

During 2018, the Group has performed a detailed impact
assessment of IFRS 16. In summary the impact of IFRS 16
adoption is expected to be, as follows:

Impact on the statement of financial position (increase/
(decrease) as at January 1, 2019:

Amounts in USD thousand

Assets

Property, plant and equipment (right-of-use assets)

21 843

Liabilities

Lease liability

21 843

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 3: Revenues

All figures in USD 1000

The Group has only one segment which is the semiconductor business. The Group classifies its revenues based on the
end product markets in which its products are used.

3.1 Disaggregated revenue information
Revenue classified by end product applications:
The Group focuses on the sale of standard components for wireless communication. These wireless components are
broken into the following end product areas: Consumer Electronics, Wearables, Building and Retail, Healthcare and Others.
In 2018, wireless components accounted for 96.8% of sales versus 96.4% in 2017. In addition to standard components, the
Group sells customer-specific ASIC components (Application Specific Integrated Circuits) and related Consulting Services.

The Group has during 2018 recognized the first long-range (cellular IoT) revenue. Most of Nordic’s cellular IoT customers
are in the development phase and revenue from this technology is mainly sale of development kits. During 2019, Nordic will
report the long-range (cellular IoT) revenue in the relevant end product area.

GROUP

2018

2017

Revenue

111 724

43 838

48 646

22 578

35 618

98 691

Consumer Electronics

37 355

Wearables

56 912

Building/Retail

14 231

Healthcare

20 365

Others

262 404

227 554 Wireless components

232

7 994

504

Long-range (cellular IoT)

7 916

ASIC components

533

Consulting services

Management fee

271 134

236 003

Total revenues

PARENT

2018

2017

111 724

43 838

48 646

22 578

35 618

98 691

37 355

56 912

14 231

20 365

262 404

227 554

232

7 994

504

744

7 916

533

806

271 878

236 809

Revenue classified by customers’ location:
The Group also classifies its revenues on a geographical basis according to its customers’ location.

GROUP

2018

33 608

32 810

2017

21 072

Europe

22 824

Americas

204 716

192 107

Asia/Pacific

271 134

236 003

Total revenues

PARENT

2018

34 195

32 966

204 717

2017

21 714

22 978

192 117

271 878

236 809

The Group sells its components to distributors (referred to as the Group's customers), which then sell components onward
to electronics manufacturers which build end products and sell them to end-customers across the world. Two distributors
represented more than 10% of the Group’s total revenues in 2018 (in total 40%). These two distributors represented 28% and
11% of the Group’s total revenues respectively. In comparison, three distributors represented more than 10% of the Group’s
total revenues in 2017 (in total 47%), with 21%, 16% and 10% of revenues respectively. These distributors are based in Asia.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSRevenue from contracts with customers classified by timing of revenue recognition:

2018

2017

270 630

235 470

Goods transferred at a point in time

504

533

Services transferred over time

271 134

236 003

Total revenue from contracts with customers

2018

2017

270 630

235 470

1 248

1 339

271 878

236 809

3.2 Contract balances

2018

51 784

2017

48 582

Trade receivables

2018

51 784

2017

48 582

Trade receivables are non-interest bearing and are generally on terms of 30 to 60 days. See note 22 for further details.

3.3 Right of return assets and refund liabilities

2018

11 393

1 600

2017

8 102

Refund liability – arising from ship & debit

Refund liability – arising from stock rotation

2018

11 393

1 600

2017

8 102

3.4 Performance obligations
The performance obligations for the sale of components is normally satisfied upon the time of delivery. Payment is
generally due 30 to 60 days within delivery.

For the consulting services the performance obligation is satisfied over-time and the customer is generally invoiced at
month-end for the work performed.

The Group has decided to use the practical expedient and not disclose unsatisfied or partially unsatisfied performance
obligations. All remaining performance obligations are expected to be recognized within one year.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 4: Cost of materials / inventory

All figures in USD 1000

GROUP

2018

2017

135 003

131 900

Cost of goods, gross

1 108

- 8 255

Changes in inventory

136 111

123 645

Cost of goods, net

21 491

21 932

Raw material

7 291

13 898

42 679

1 993

9 381 Work in Progress

12 476

Finished Goods

43 789

Total inventory, net

1 239

Amount written down

PARENT

2018

2017

135 003

131 900

1 108

- 8 255

136 111

123 645

21 491

21 932

7 291

13 898

9 381

12 476

42 679

43 789

1 993

1 239

As Nordic Semiconductor is a fabless manufacturer, all inventories, including raw materials and finished goods, are
located at sub-contractors.

Note 5: Other operating expenses

All figures in USD 1000

GROUP

2018

9 033

8 011

5 403

1 087

4 947

-36

2017

6 987

Service and maintenance

6 109

Other consultancy fees

4 512

Office rental expenses

1 140

Office equipment

4 080

Material and components

-27

Tax grant

-3 210

-3 046

Capitalized development expenses

3 811

5 153

3 107

Travel and meeting expenses

4 795

Other operating expenses

Other operating expenses intercompany

34 199

27 657

Total other operating expenses

Auditor remuneration, excl. of VAT
Fees to the auditor are included in consultancy fees above.

GROUP

2018

2017

106

156

Statutory audit services

Tax advisory services

Other audit related services

127

Total revenues

PARENT

2018

2017

8 478

5 182

4 144

907

4 483

-36

6 794

4 495

3 570

975

3 815

-27

-3 210

-3 046

2 649

4 890

41 059

2 317

4 535

31 719

68 546

55 147

PARENT

2018

2017

128

104

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 6: Net financial items

All figures in USD 1000

GROUP

2018

1782

428

320

748

2017

244

275

622

322

944

Interest income

Other financial income

Financial income

Financial expense

Foreign exchange loss (net)

Financial expense

Note 7: Tax

All figures in USD 1000

GROUP

2018

-6 119

-103

2017

Tax expense consists of

-2 451

Tax payable

-567

Change in deferred tax / tax benefit

-6 222

-3 017

Tax expense

GROUP

2018

2017

Reconciliation of nominal and actual tax expense

15 081

-3 469

-30

-153

-51

-2 521

-6 222

9 780

Profit before tax

-2 395

Tax at nominal rate 23 % (24% 2017)

Tax effect of different tax rates in other countries

-557

Tax effect permanent differences

Excess tax provision previous year

-59

-112

Effect of change in tax rate

Currency effect from translation to USD

-3 017

Tax expense

PARENT

2018

1782

427

319

746

2017

243

274

622

352

974

PARENT

2018

-5 160

-103

-5 263

2017

-1 684

-709

-2 393

PARENT

2018

11 678

-2 686

-62

-51

-2 557

-5 263

2017

7 087

-1 707

-515

-59

-131

-2 393

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSGROUP

Temporary differences:

Balance Sheet

Income Statement

Other Comp. income

2018

2017

2018

2017

2018

2017

Deferred tax benefit

Inventory

Fixed Assets

Options (share based payments)

Pension obligation

Accruals

Deferred tax benefit - gross

Gain and loss account

Net other tax-obligations

Deferred tax obligation - gross

Currency effect of translation to USD

Net deferred tax benefit (obligation)

Deferred tax expense

PARENT

322

951

453

1 809

409

474

1 335

236

957

323

1 607

1 516

-6

130

-6

-1

202

-25

409

384

-103

146

-262

-407

-3

-503

-25

-88

-567

Temporary differences:

Balance Sheet

Income Statement

Other Comp. income

2018

2017

2018

2017

2018

2017

Deferred tax benefit

Inventory

Fixed Assets

Options (share based payments)

Pension obligation

Accruals

Deferred tax benefit - gross

Gain and loss account

Net other tax-obligations

Deferred tax obligation - gross

Currency effect of translation to USD

Net deferred tax benefit (obligation)

Deferred tax expense

322

784

453

1 642

409

474

1 168

236

782

323

1 432

1 341

130

-11

-1

205

-25

409

384

-103

146

-437

-407

-9

-685

-25

-49

-709

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS
GROUP

2018

1 516

-104

-82

2017

Reconciliation of net deferred tax benefit:

1 973

-567

Opening balance as of 1.1

Tax expense/income recognized in profit and loss

Tax expense/income recognized in other comprehensive income

104

Currency effect from translation to USD

PARENT

2018

1 341

-104

-75

2017

1 946

-709

1 335

1 516

Net deferred tax benefit 31.12

1 168

1 341

GROUP

2018

2017

Net deferred tax recognized in OCI as of 31.12:

Net gain/(loss) on actuarial gains and losses

Total tax other comprehensive income

PARENT

2018

2017

Note 8: Shares outstanding

Basis for calculation of basic earnings per share

Earnings for the year (USD ‘000)

Weighted average number of outstanding shares (‘000)

Earnings per share (USD)

Basis for calculation of fully diluted earnings per share

Earnings for the year (USD ‘000)

Weighted average number of outstanding shares (‘000)

Earnings per share (USD)

The number of shares was as follows:

2018

2017

8 859

172 591

0,05

8 859

179 454

0,05

6 763

161 796

0,04

6 763

161 926

0,04

Date

2018-01-01

2018-12-31

Balance at beginning of period

Balance at end of period

163 481 600

179 781 600

161 795 781

175 236 600

Number of shares issued

Shares outstanding

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS
Note 9: Payroll expenses

All figures in USD 1000

GROUP

2018

2017

Combined expenses for salary and other compensation
are distributed as follows:

57 604

47 068

Salary and vacation pay

11 364

5 904

-482

9 928

Other compensation

4 932

Payroll tax

-521

Tax grant

5 432

4 636

Defined contribution pension

-9 774

-5 526

Capitalized development expenses (hourly costs)

70 048

60 517

Total

641

566

Weighted average number of full time employees

PARENT

2018

2017

36 412

30 408

8 330

7 350

5 661

4 759

-482

-521

2 649

2 317

-9 774

-5 526

42 796

38 788

415

371

PARENT

GROUP

2018

366

174

2017

Company’s employees as of December 31, are distributed as follows:

2018

2017

331

154

Norway

China

South Korea

USA

Taiwan

Japan

Philippines

Switzerland

Poland

Finland

Germany

Sweden

Spain

The Netherlands

366

331

685

601

Total

442

391

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 10: Compensation to Group management and Board of Directors

All figures in USD 1000

Total compensation expensed for Board Members

2018

2017

Birger Steen, Chair (from 14.12.2018)

Terje Rogne, Chair (until 24.10.2018)

Tore Valderhaug, Vice-Chair

Craig Ochikubo, Board Member

Inger Berg Ørstavik, Board Menber

Anne-Cecilie Fagerlie, Board Member

Beatriz Malo de Molina, Board Member (until 30.4.18)

Jon Helge Nistad, Board Employee Representativee (Board remuneration only)

Asbjørn Sæbø, Board Employee Representative (Board remuneration only)

Susheel Nuguru, Board Employee Representative (Board remuneration only)

Joakim Ferm, former Board Employee Representative (Board remuneration only)

Lasse Olsen, former Board Employee Representative (Board remuneration only)

Total

380

320

Total compensation* expensed during the year for the CEO and other executives:

2018

Svenn-Tore Larsen, CEO

Pål Elstad, CFO

Svein-Egil Nielsen, CTO

Geir Langeland, Sales & Marketing Director

Ebbe Rømcke, Quality Director

Ole Fredrik Morken, Supply Chain Director

Marianne Frydenlund, Legal Director

Thomas E. Bonnerud, Director of Strategy and IR***

Total

2017

Svenn-Tore Larsen, CEO

Pål Elstad, CFO

Svein-Egil Nielsen, CTO

Geir Langeland, Sales & Marketing Director

Ebbe Rømcke, Quality Director

Ole Fredrik Morken, Supply Chain Director

Thomas E. Bonnerud, Director of Strategy and IR

Salary Bonus Options**

Other
compensation

Pension
expenses

Total

421

241

226

233

166

304

103

147

587

356

338

345

240

409

142

160

1 841

289

314

120

2 577

Salary Bonus Options**

Other
compensation

Pension
expenses

Total

374

214

201

208

149

310

163

144

635

388

375

381

244

484

290

Total

1 619

432

625

111

2 797

*Management compensation is paid in NOK. Exchange rate for 2018: 8.13 and 2017: 8.27
**Option cost is the expense of fair value of options based on Black Scholes calculation
***Until August 2018

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS

The LTI rewards employees for creating shareholder value
over the long term. While the targets for the LTI is set at
Group level, the grant size per individual may differ given
the performance of the individual. The LTI is subject to an
absolute limit and fulfillment of performance criteria, both
decided by the Board at its discretion.

The grant size is proposed by the CEO in consideration of
the contribution, team-play and effort of each executive.
The Board reviews the rationales for the grants, refines
and/or approves the grant sizes.

The Group offers pensions plans to all employees, managers
included. In addition, the Group provides managers with
other limited benefits in kind such as a company telephone.

The Group’s Chief Executive Officer has agreed to a 6-month
mutual resignation period, except that the resignation
period increases to 12 months in the event that the Group
is acquired or merged with another company. The rest of
the executive management team has a 3 month resignation
period and there are no severance pay agreements.

The guidelines for determination of salary and other
compensation for leading employees as outlined for the
Annual General Meeting in 2018 have been complied with.

Executive Compensation Declaration 2019
The Board has established a Compensation Committee
to recommend and evaluate remuneration principles and
execution for the CEO, to guide and evaluate, principles and
strategy for the compensation of Executive Management
and to evaluate and oversee the overall compensation
strategy for the Group. The CEO's total compensation,
and any adjustments, is first reviewed by the Remuneration
Committee and then approved by the Board. The Board
considers CEO compensation each year. The compensation
of the other members of the Executive Management,
including adjustments of these, are agreed between the
CEO and the respective manager.

The Board proposes the following Declaration of the
Principles for Compensation of the CEO and other members
of the Executive Management according to the Norwegian
Public Limited Liability Companies Act § 6-16a:

The main principle of the Group’s policy for remuneration
and compensation is that the members of the Executive
Management team shall be offered competitive terms,
to achieve the desired competence and incentives in the
Group’s Executive Management team.

The Group has established an annual performance bonus
program for the Executive Management team, in which the
manager must remain within his position (not resigned) until
the start of the following year in order to be eligible. The
bonuses are awarded as a direct cash payment. The Plan
targets are set for the entire team to recognize Nordic’s
culture, collaboration and interdependencies among the
existing team members in additional to individual KPI’s.
Targets are set for total revenue, EBITDA, new product
revenue and achievement of individual KPI’s. Achievement
of targets will result in performance pay bonus of 25% of
base salary. The performance bonus is capped at 50% of
base salary.

The Executive Management team and other employees
have a long-term incentive plan (LTI), structured as a 4-year
option plan. The plan for the Executive Management team
was approved in 2015 and 4 692 812 option grants have
been made to both executives and other employees in 2016,
2017 and 2018.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSThe Group has granted executives and employee Board members the following options according to the terms:

Svenn-Tore Larsen, CEO

Pål Elstad, CFO

Geir Langeland, Sales Director

Svein-Egil Nielsen, CTO

Ebbe Rømcke, Quality Director

Options granted 2018*

Options granted 2017*

62 000 stock options

65 575 stock options

42 000 stock options

43 804 stock options

42 000 stock options

43 804 stock options

42 000 stock options

43 804 stock options

21 000 stock options

21 771 stock options

Ole Fredrik Morken, Supply Chain Director

42 000 stock options

43 804 stock options

Marianne Frydenlund. Legal Director

Jon Helge Nistad, Board Employee Representative

Susheel Nuguru, Board Employee Representative

Asbjørn Sæbø, Board Employee Representative

5 000 stock options

3 000 stock options

0 stock options

5 100 stock options

0 stock options

3 501 stock options

0 stock options

*No options were exercised in 2018 and 2017 by primary insiders.

Note 11: Fixed assets

All figures in USD 1000

GROUP

2018

Opening balance

Additions

Acquisition cost as of 31.12

Opening balance

Depreciation expenses

Accumulated depreciation as of 31.12

Net carrying value as of 31.12

PARENT

2018

Opening balance

Additions

Acquisition cost as of 31.12

Opening balance

Depreciation expenses

Accumulated depreciation as of 31.12

Net carrying value as of 31.12

Office
and lab
equipment

Computer
equipment
and machinery

Fixture
and
fittings

Property

Total

10 394

4 488

14 882

5 889

2 834

8 723

6 159

31 062

2 240

333

44 029

8 364

39 425

24 437

4 799

29 238

449

2 689

1 445

343

1 788

13 300

333

57 329

31 771

7 976

39 747

10 189

901

333

17 582

Office
and lab
equipment

Computer
equipment
and machinery

Fixture
and
fittings

Property

28 396

2 043

333

6 598

2 309

8 907

4 748

761

5 509

3 398

8 198

36 594

23 225

4 170

225

2 269

1 398

270

27 395

1 668

Total

37 370

10 733

333

48 103

29 371

5 201

34 573

9 199

601

333

13 530

Fixed assets located in countries where Nordic does not have a legal entity
The Group has testers located in the Philippines and Taiwan with net carrying value of MUSD 6.2 as of 31.12.2018.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS

GROUP

2017

Opening balance

Additions

Acquisition cost as of 31.12

Opening balance

Depreciation expenses

Accumulated depreciation as of 31.12

Net carrying value as of 31.12

PARENT

2017

Opening balance

Additions

Acquisition cost as of 31.12

Opening balance

Depreciation expenses

Accumulated depreciation as of 31.12

Net carrying value as of 31.12

GROUP AND PARENT

Estimated useful life

Depreciation method

Office
and lab
equipment

Computer
equipment
and machinery

Fixture
and
fittings

Property

Total

6 638

3 756

10 394

3 944

1 945

5 889

4 505

29 374

2 058

333

38 403

1 688

182

5 626

31 062

2 240

333

44 030

20 004

1 089

4 433

356

24 437

1 445

25 037

6 734

31 771

6 625

795

333

12 259

Office
and lab
equipment

Computer
equipment
and machinery

Fixture
and
fittings

1 899

144

Property

Total

333

34 966

2 404

27 312

1 084

28 396

2 043

333

37 370

19 913

3 312

1 086

312

23 225

1 398

24 918

4 453

29 371

5 171

645

333

7 999

5 422

1 176

6 598

3 919

829

4 748

1 850

3 – 5 years

3 – 4 years

5 years

Not

Straight-line

Straight-

Depreciated

Total depreciation expenses consist of depreciation of fixed assets and depreciation of intangible assets (note 12).

Write-offs
There are no indicators that assets need to be written off.

Change in depreciation periods
There has been no basis for changing depreciation
periods on fixed assets.

Non-depreciable property assets:
The Parent company has an apartment in Trondheim
for use by employees in the Oslo office while in Trondheim.
The apartment is assessed at acquisition cost. The residual
value is expected to be at least equal to the book value.

Scrapped capital assets
All capital assets that are ready to be scrapped have
been fully depreciated and have no residual book value.

Capital assets temporarily out of operation
The Group has no capital assets that are temporary
out of operation.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS

Note 12: Intangible assets

All figures in USD 1000.

GROUP

2018
Acquisition cost

Opening balance

Additions

Accumulated cost as of 31.12

Accumulated depreciation

Opening balance

Depreciation expenses

Total accumulated depreciation as of 31.12

Net carrying amount

PARENT

2018
Acquisition cost

Opening balance

Additions

Accumulated cost as of 31.12

Accumulated depreciation

Opening balance

Depreciation expenses

Total accumulated depreciation as of 31.12

Net carrying amount

GROUP

43 790

19 846

63 636

76 629

Non-capitalized R&D expenses:

Personnel expenses

Other operating expenses

Total cost recognized in income statement

Total cost for R&D (incl. capitalized development cost)

Purchased Software

Capitalized
Development costs

Total

27 296

4 072

31 368

11 787

4 518

16 305

15 063

41 711

69 007

12 993

17 066

54 704

86 073

22 786

34 573

4 232

8 751

27 018

43 324

27 686

42 749

Purchased Software

Capitalized
Development costs

Total

27 075

3 651

30 727

11 775

4 348

16 123

14 604

41 711

68 786

12 993

16 645

54 704

85 431

22 786

34 561

4 232

27 018

8 580

43 141

27 686

42 290

PARENT

22 783

13 505

36 288

49 281

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSGROUP

2017
Acquisition cost

Opening balance

Additions

Accumulated cost as of 31.12

Accumulated depreciation

Opening balance

Depreciation expenses

Total accumulated depreciation as of 31.12

Net carrying amount

PARENT

2017
Acquisition cost

Opening balance

Additions

Accumulated cost as of 31.12

Accumulated depreciation

Opening balance

Depreciation expenses

Total accumulated depreciation as of 31.12

Net carrying amount

Purchased Software

Capitalized
Development costs

Total

21 754

5 542

27 296

9 699

2 088

11 787

15 509

33 139

54 893

8 572

41 711

14 114

69 007

18 744

28 443

4 042

6 129

22 786

34 572

18 925

34 434

Purchased Software

Capitalized
Development costs

Total

21 760

5 315

27 075

9 699

2 076

11 775

15 300

33 139

54 899

8 572

41 711

13 887

68 786

18 744

28 443

4 042

6 118

22 786

34 561

18 925

34 225

PARENT

21 442

11 169

32 610

41 182

GROUP

38 596

15 100

53 696

62 268

Non-capitalized R&D expenses:

Personnel expenses

Other operating expenses

Total cost recognized in income statement

Total cost for R&D (incl. capitalized development cost)

Total depreciation expenses consist of depreciation of intangible assets and depreciation of fixed assets (note 11).

Estimated useful life

Depreciation method

3 – 10 years

Straight-line

1 – 5 years

Straight-line

Expensed research and development activities relate to new technologies and new services and products.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 13: Subsidiaries

All figures in USD 1000. The folowing subsidiaries have been included in the financial statements

Subsidiaries consolidated in

Nordic Semiconductor Inc

Nordic Semiconductor Poland S.P z o.o.

Nordic Semiconductor Finland OY

Nordic Semiconductor Japan KK

Nordic Semiconductor Germany GmbH

Established
Year

2006

2013

2014

2017

2018

Location

USA

Poland

Finland

Japan

Germany

Share
Ownership

Voting Rights

100%

Subsidiaries as of 31 December 2018

Ownership

Share of
votes

Net profit
2018

Equity
31. Dec 2018

Nordic Semiconductor Inc, USA

Nordic Semiconductor Poland S.p Z o.o.

Nordic Semiconductor Finland OY

Nordic Semiconductor Japan KK

Nordic Semiconductor Germany GmbH

100%

152

2 051

1 290

333

5 488

All intellectual property (IP) is owned by Nordic Semiconductor ASA. All subsidiaries operate as contract research
and development centers and invoice Nordic Semiconductor ASA according to the Group's transfer pricing policy.

Nordic Semiconductor Inc is manly a sales company, but in 2016 a small R&D department was also started.
All sales conducted are on behalf of the parent company.

Nordic Semiconductor Poland Sp. z.o.o. is an extension of the software development team in the parent company.

Nordic Semiconductor Finland OY is a development company. This R&D team works closely alongside the rest of the
R&D teams in the Group.

Nordic Semiconductor Japan KK is a sales company. All sales conducted are on behalf of the parent company.

Nordic Semiconductor Germany GmbH is a sales company. All sales conducted are on behalf of the parent company.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 14: Accounts Receivable

All figures in USD 1000

GROUP

2018

2017

51 784

48 582

Gross receivables

Provision for doubtful accounts

51 784

48 582

Accounts Receivable, net

Note 15: Intercompany balances

All figures in USD 1000

PARENT

Receivables

Loan to group companies

Receivables group companies

Total

Payables

Short-term debt group companies

Total

Note 16: Cash and cash equivalents

All figures in USD 1000

GROUP

PARENT

2018

2017

51 784

48 582

51 784

48 582

2018

2017

1 250

3 150

7 081

10 231

4 732

12 048

PARENT

2018

2017

Cash and cash equivalents as of the balance sheet date were as follows:

2018

2017

102 316

35 243

Cash holdings

1 560

1 452

Tax deduction account (restricted funds)

98 961

33 568

1 560

1 452

103 876

36 695

Cash and cash equivalents in statement of financial position

100 522

35 020

Cash at banks earns interest at floating rates based on daily bank deposit rates.

For information on liquidity risk, see note 22.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 17: Share capital and shareholder information

Share capital
The share capital in Nordic Semiconductor as of December 31, 2018 consists of one share class with a total of 179 781 600
shares with a face value of NOK 0.01, with a total share capital of NOK 1 797 816. Each share grants the same rights in the
company, and in the event of any increase in capital, existing shareholders have pre-emptive rights for any new shares.

During the year the following changes have been made in the number of shares, share capital and share premium:

GROUP

Number of shares

Share capital
(USD 1000)

Treasury shares
(USD 1000)

Share premium
(USD 1000)

2018

2017

2018

2017

2018

2017

2018

2017

Holdings as of 1.1

163 481 600

Issue of share capital

16 300 000

Change in treasury shares

283

Holdings as of 31.12

179 781 600

163 481 600

303

283

-2

-3

-5

-2

14 436

98 919

-2

113 355

14 436

Stock Option Grant
With reference to the Extraordinary General Meeting
(“EGM”), on December 8, 2015, Nordic Semiconductor
approved a 4-year option program for the Group.

See note 19 for further information on each annual grant.

Dividend
No dividend was paid during 2018.

Authority to issue shares
The Board of the Parent company, based on a resolution
from the annual general meeting on April 17, 2018, has used
the authority to increase the company’s share capital by
issuing up to 16,300,000 shares with a par value of NOK
163,000.

Treasury shares
The Company owned 4 545 000 treasury shares on
December 31, 2018. At January 1, 2018, the Company
owned 1,685,819 treasury shares. Based on a resolution
of the annual general meeting of April 17, 2018, the Board
has authority to purchase the company’s own shares with
a limit of a face value of NOK 163,000 through one or
more transactions. This authority is limited to 9.97% of the
company’s share capital, and the price per share that the
company may pay for shares shall not be lower than the
face value and not higher than NOK 200. This authority
applies until the company’s regular general meeting in 2019,
and by June 30, 2019 the latest.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSShareholder overview
The largest shareholders in Nordic Semiconductor ASA were as follows as of December 31, 2018:

Percentage

Shareholder

FOLKETRYGDFONDET

ACCELERATOR LTD

VERDIPAPIRFONDET DNB NORGE (IV)

Citibank, N.A.

KLP AKSJENORGE

NORDIC SEMICONDUCTOR ASA

KOMMUNAL LANDSPENSJONSKASSE

ALDEN AS

DANSKE INVEST NORSKE INSTIT. II.

PASSESTA AS

VERDIPAPIRFONDET PARETO INVESTMENT

VERDIPAPIRFONDET DNB NORGE SELEKTI

FOUGNER INVEST AS

MP PENSJON PK

TTC INVEST AS

Norron Sicav - Target

Norron Sicav - Active

JPMorgan Chase Bank, N.A., London

Skandinaviska Enskilda Banken AB

DANSKE INVEST NORSKE AKSJER INST

Total for the 20 largest shareholders

Other shareholders

Total shares outstanding

Shares held by the Board of Directors and Executive Management were as follows as of December 31, 2018.

Name

Birger Steen

Tore Valderhaug

Anne Marit Panengstuen

Craig Ochikubo

Inger Berg Ørstavik

Asbjørn Sæbø

Susheel Nuguru

Jon Helge Nistad

Svenn-Tore Larsen

Pål Elstad

Geir Langeland

Svein-Egil Nielsen

Ebbe Rømcke

Ole Fredrik Morken

Marianne Frydenlund

Total

24 656 754

16 482 950

8 919 877

5 750 358

5 490 000

4 545 000

3 879 076

3 729 375

3 467 973

3 410 000

3 211 000

2 864 875

2 654 550

2 517 434

2 300 000

2 201 393

2 188 966

2 129 709

1 942 272

1 848 100

104 189 662

75 591 938

179 781 600

13,71 %

9,17 %

4,96 %

3,20 %

3,05 %

2,53 %

2,16 %

2,07 %

1,93 %

1,90 %

1,79 %

1,59 %

1,48 %

1,40 %

1,28 %

1,22 %

1,18 %

1,08 %

1,03 %

57,95 %

42,05 %

100 %

35 460

5 769

13 500

1 000

10 000

1 905 400

8 846

177 700

17 000

68 900

160 000

2 000

2 405 575

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS
Note 18: Pensions and other long-term employee benefits

The pension liability for the group consists of liabilities in Norway and The Philippines.

Nordic has set up a pension plan for the Philippine office as of January 2014. The retirement plan is unfunded and of the
defined benefit type which provides a retirement benefit calculated based on number of years of credited service. At the
end of 2018 the pension liability was USD 60 000.

For the company in Finland pensions are financed by contributions from the insured employees and employers. The
Norwegian company in the Group is required to have mandatory employment pension for employees in Norway,
according to the Mandatory Employment Pension Act.

The Board of Nordic Semiconductor ASA decided in December 2015 to change the pension plan for all employees currently
on a defined benefit plan effective January 1, 2016. Up until December 31, 2015 Nordic Semiconductor ASA (Norwegian
employees) had both a defined benefit plan and a defined contribution plan. The defined benefit plan was closed for new
members effective January 1, 2008 and from this point a new defined contribution plan was established. The two different
types of pensions are described below:

Defined Pension Plan

Current service cost

Interest expense

Expected return on plan assets

Administration fee

Total pension expense excl. social security tax

Social security tax

Total pension expense incl. social security tax

Net pension obligation for the year was calculated as follows:

Pension obligations

Plan assets

Estimated net pension obligations

Social security tax

Total pension expense incl. social security tax

Total pension liability for the Group

Employees in Norway

Employees in Philippines

Total

2018

2017

-21

2018

1 096

905

192

219

2018

219

279

-27

2017

1 135

901

234

267

2017

267

293

Defined contribution pension plan
All employees in Norway have a defined contribution pension plan from 01.01.2016. The main benefit is a contribution of
7% of salary up to 7.1 basis points (G) and 18% of salary between 7.1 and 12 basis points. Along with this the company has a
disability pension of approximately 66% of salary including estimated social security based on 40 years of full employment.
In 2018, the cost of the defined contribution pension was USD 2 649 000, and the plan had 362 members.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 19: Stock options

On February 26, 2016, Nordic Semiconductor granted 1,590,000 share options to 320 employees. The options were
granted at a strike price of NOK 47.72 (10% above volume weighted average share price the week following Q4
2015 results). If the company’s share price exceeds a cap of NOK 143.16, the company may settle the option grant by
compensating the employee the difference between the cap and the strike price.

On February 22, 2017, Nordic Semiconductor granted 1,625,412 share options to 307 employees. The options were
granted at a strike price of NOK 35.77 (10% above volume weighted average share price the week following Q4
2016 results). If the company’s share price exceeds a cap of NOK 107.31, the company may settle the option grant by
compensating the employee the difference between the cap and the strike price.

On February 27, 2018, Nordic Semiconductor granted 1,477,400 share options to 300 employees. The options were
granted at a strike price of NOK 47.27 (10% above volume weighted average share price the week following Q4
2017 results). If the company’s share price exceeds a cap of NOK 141.81, the company may settle the option grant by
compensating the employee the difference between the cap and the strike price.

A summary of share option transactions during 2018 and 2017 is below:

Outstanding options 1.1

Options granted

Options forfeited

Options exercised

Options expired

Outstanding options 31.12

Of which exercisable

2018

2017

3 127 663

5 287 714

1 477 400

1 625 412

97 060

54 761

287 710

3 730 702

4 194 293

3 127 663

1 265 338

506 671

The fair value of the options is set on the grant date and expensed over the vesting period. KUSD 1 213 was expensed
during 2018 and KUSD 1 130 in 2017.

The fair value of options granted in 2018 was NOK 11.17 per option. The value has been estimated using the Black &
Scholes model, subject to the following assumptions:

Share price on the grant date
The share price is set to the value weighted average price of
shares traded on the grant date, which was NOK 42.97 on
the date of grant in 2018.

Volatility
It is assumed that historic volatility is an indication of future
volatility. The expected volatility is therefore stipulated to be
the same as the historic volatility, which equaled 38.02% on
the date of grant in 2018.

Strike price
The strike price is the share price on the grant date +10%.

Cap price
The cap price on the options granted is NOK 141.81. At
this price, the company may settle the option grant by
compensating the employee the difference between the
cap and the strike price. When calculating the value of the
stock option, the value of the cap is calculated through the
Black Scholes model, and deducted from the uncapped
value of the option to the employee.

Average option term
The options are expected to have an average term of 4
years (between the minimum vesting period of one year
and the maximum exercise period of five years).

Dividend
Nordic does not forecast a dividend payout in the Black-Scholes
model.

The risk-free interest rate is set equal to the relevant interest rate
on government bonds on the date of grant in 2018, i.e. 1.39 %.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 20: Current liabilities

All figures in USD 1000

GROUP

2018

2017

10 424

5 043

2 901

5 751

11 393

9 821

13 075

Accounts payable

3 069

Income taxes payable

2 774

5 160

8 102

Social security tax and payroll tax

Holiday pay

Provision of Ship and Debit

7 693

Accrued expenses

PARENT

2018

9 681

4 854

2471

3 970

11 393

12 267

2017

12 337

2 508

2 388

3 538

8 102

18 124

45 333

39 873

Total Current liabilities

44 636

46 997

Note 21: Leases

All figures in USD 1000.

Operating leases:
The Group has several operating leases for machinery and office space. The lease expense consists of minimum lease only.

2018

2017

4 331

3 536

Office lease

385

4 717

Lease of machinery

3 616

Total lease expense

2018

2017

3 244

2 709

225

3 469

2 780

As of December 31, 2018, the Group leased offices in Trondheim, Oslo, Dahle, Oulu, Turku, Espoo, Krakow, Portland, Hong
Kong, Shenzhen, Bejing, Shanghai, Seoul, Tokyo, Manila and Taiwan. Some lease amounts are fixed, others are regulated
annualy based on the consumer price index.

Future minimum payments for non-cancellable leases are as follows:

GROUP

4 410

Within 1 year

12 263

1 to 5 years

9 291

After 5 years

25 964

Total non-cancellable leases

The following table present the reconciliation of lease liabilities as of January 1, 2019:

GROUP

PARENT

3 339

10 359

9 291

22 989

PARENT

25 964

Operating lease commitment December 31, 2018 as disclosed in the financial statements

22 989

Recognition excemption for:

-236

-434

Short-term leases

Leases for low-value assets

-3 451

Effect from discounting at the incremental borrowing rate as of January 1, 2019

21 843

Lease liability recognized at January 1, 2019

-217

-253

-3 303

19 217

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSNote 22: Financial instruments

All figures in USD 1000.

Capital structure
Nordic Semiconductor’s strategy relating to its capital structure is to maintain sufficient cash and cash equivalents to meet the
Group’s requirements for ongoing operations and for new investments. Management believes that it is especially important to
retain a strong credit rating and significant liquidity as the Group competes in a global market against larger companies.

Nordic Semiconductor manages its capital structure and makes revisions in light of changes in the overall economy and
its operating assumptions. In order to maintain or amend the capital structure, Nordic may purchase its own shares on the
market, pay dividends to shareholders, pay back capital to shareholders or issue new shares. No changes were made in
procedures or processes in the course of 2018.

Nordic Semiconductor targets to have an equity ratio above 50% at all times, measured as total equity divided by total assets.

GROUP

2018

2017

221 549

124 953

Total equity

267 161

185 119

Total assets

83 %

67%

Equity share

PARENT

2018

2017

214 370

120 258

259 285

187 548

83 %

64%

Financial assets
In the table below, the original measurement categories in accordance with IAS 39 and the new measurement categories
under IFRS 9 for the Group’s financial assets are shown.

GROUP

As of December 31, 2018

IAS 39 measurement category

Loans and receivables

Accounts receivables and short-term receivables

58 939

As of January 1, 2018

IAS 39 measurement category

Loans and receivables

Accounts receivables and short-term receivables

56 426

PARENT

As of December 31, 2018

IAS 39 measurement category

Loans and receivables

Accounts receivables and short-term receivables

59 053

As of January 1, 2018

IAS 39 measurement category

Loans and receivables

Accounts receivables and short-term receivables

65 158

IFRS 9 measurement category

Amortized cost

58 939

IFRS 9 measurement category

Amortized cost

56 426

IFRS 9 measurement category

Amortized cost

59 053

IFRS 9 measurement category

Amortized cost

65 158

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTSGROUP

Debt instruments at amortized cost

Accounts receivables and other short-term receivables

Total financial assets

PARENT

Debt instruments at amortized cost

Accounts receivables and other short-term receivables

Total financial assets

2018

2017

58 939

56 426

2018

2017

59 053

65 158

Financial liabilities
Interest-bearing loans and borrowings:
The Group has long-term revolving credit facilities ("RCF"), which enables it to borrow up to MUSD 40 and MUSD 25 at any
time with an interest rate equal to LIBOR + margin. The line of credit agreement of MUSD 40 expires in November 2020,
while the other MUSD 25 expires in November 2022. As of December 31, 2018, Nordic has not drawn on any of the credit
lines (MUSD 20 drawn as of 31.12.2017). The security is provided by inventory, receivables and operating equipment with
book values as follows; inventories MUSD 44, accounts receivable MUSD 49 and operating equipment MUSD 16.
The following financial covenants are included for the revolving credit facilities:

Equity ratio shall not be lower than 40 %.

In addition to the two RCFs, the Group has a MEUR 10 bank overdraft facility with its main bank. This overdraft is not
utilized at the end of December. The remainder of the Group’s financing is made through short-term, non-interest bearing
debt. This financing typically consists of debt to suppliers, the public sector, employees and others. Nordic has entered
into a Tenancy Guarantee with Danske Bank as unconditional guarantor for 40MNOK. The warranty is given to secure
payments of up to 24 months of rent for the office in Trondheim.

GROUP

Non-current interest-bearing loans and borrowings

RCF

Other financial liabilities at amortized cost, other than
interest-bearing loans and borrowings

Accounts payable and other short-term debt

Total financial liabilities

PARENT

Non-current interest-bearing loans and borrowings

RCF

Other financial liabilities at amortized cost, other than
interest-bearing loans and borrowings

Accounts payable and other short-term debt

Total financial liabilities

2018

2017

20 000

37 390

34 030

54 030

2018

2017

20 000

37 311

42 102

62 102

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS

Financial risk
As Nordic Semiconductor manages an
international
operation, the Group is subject to financial risk, primarily
credit risk and foreign currency risk. Procedures for control
of financial risk have been adopted by the Board and are
carried out by its finance department.

(i) Credit risk
Credit risk is the risk that a counterparty will not meet
its obligations under a financial instrument or customer
contract, leading to a financial loss. The Group is exposed
to credit risk from its operating activities (primarily trade
receivables) and from its financing activities, including
deposits with banks and financial institutions, foreign
exchange transactions and other financial instruments.

The Group’s sale of components takes place through its
distribution partners within defined geographic regions,
where Asia is the dominant region. The Group depends on a
relatively small number of customers. Customer credit risk is
managed by each region subject to the Group’s established
policy, procedures and control relating to customer credit
risk management. Credit quality of a customer is assessed
based on an extensive credit evaluation and individual
credit limits are defined in accordance with this assessment.
Outstanding customer receivables are regularly monitored
and assurance from distributors that end customer sales is
secured through letter of credits is obtained.

The Group's provision matrix is initially based on the
historical observed default rates. The Group has calibrated
the matrix to adjust the historical credit loss experience with
forward-looking information.

Age distribution of customer receivables was:

GROUP

2018

2017

Gross total

44 391

45 510

Not due

3 587

2 535

1 271

2 388

Past due 0-30 days

329

356

Past due 31-120 days

Over 120 days

51 784

48 582

Total

PARENT

2018

2017

44 391

45 510

3 587

2 535

1 271

2 388

329

356

51 784

48 582

86% of receivables are within terms. Expected credit loss rate is 0 % for all receivables. The Group has a limited number
of customers, regular contact and long-term relationships with most of its customer base. Some of the customers are
dependent on Nordic Semiconductor to stay in business. The book value of financial assets represents the maximum credit
exposure.

The maximum exposure to credit risk on the balance sheet date was:

GROUP

2018

2017

58 939

56 426

Accounts receivable and other short-term receivables

PARENT

2018

2017

59 053

65 158

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS
(ii) Liquidity risk
Overall, the Group seeks to minimize risk when investing its cash balance. Investments can only be made in securities which
have been approved by the Board. Any surplus cash is spread in bank deposits with at least two reputable international
banks. The company holds no other debt securities.

Nordic has no externally imposed capital requirements or agreements, and has no contracts or legal requirements which are not
being upheld. Nordic has the following due dates with regard to contracts for financial obligations as of December 31, 2018:

GROUP

Entered
amount

Contractual
cash flow

0-3
months

3-6
months

6-12
months

1-2
years

2-5
years

5-10
years

Supplier and other short-term debt

45 333

34 474

Other contractual obligations

27 206

1 103

5 327

1 103

5 532

2 205

7 830

5 675

9 291

PARENT

Entered
amount

Contractual
cash flow

0-3
months

3-6
months

6-12
months

1-2
years

2-5
years

5-10
years

Supplier and other short-term debt

44 636

35 747

3 546

Other contractual obligations

24 231

835

5 343

1 670

5 926

5 675

9 291

*Other contractual obligations is mainly office facility rent in Oslo and Trondheim

(iii) Interest rate risk
The Group’s liquidity requirements and risk assessment
determine its investment strategy and interest rate exposure.
The Group’s policy is to maintain a short-term investment
horizon for its surplus cash. The investment portfolio should
not have an average duration longer than six (6) months.

The Group has long-term revolving credit facilities, which
allows it to borrow up to a total of MUSD 65 at an interest
rate of LIBOR + margin. The line of credit agreement of
MUSD 40 expires in November 2020, while the other MUSD
25 expires in November 2022.

If interest rates increase 1 basis point, the negative effect on
profit before tax given current utilization of the RCF is MUSD
0 per year as the credit facility is not utilized.

For 2017 the negative effect on profit before tax given the
utilization of RCF as of 31.12.2017 of MUSD 20 was MUSD 0.2
per year.

(iv) Foreign currency risk
The Group is subject to foreign currency risk as it has its
development and commercial activities in different countries.
Nearly all revenues and cost of goods are in USD, while
approximately 60% and 20% of the Group’s operating
expenses excluding depreciation are in NOK and EUR.
Nordic does not hedge its exposure to foreign currency risk.

Below is a sensitivity analysis of changes in the NOK
exchange rate on balance sheet items, and their impact on
Profit before tax:

NOK exchange rate +/- 10%

Profit before tax
+/- 680

The table below shows sales in the most significant currencies:

GROUP

2018

Local
currency (1000)

268 597

2 163

Share of total
revenues in %

Local
currency (1000)

99.1%

0.9%

100.0%

234 231

1 560

USD (1000)

268 597

2 537

271 134

2018

Local
currency (1000)

USD (1000)

Share of total
revenues in %

Local
currency (1000)

268 713

2597,9

268 713

3 050

115

271 878

98.8%

1.1%

0.1%

100.0%

234 489

2 010

USD

EUR

Total

PARENT

USD

EUR

Other

Total

2017

USD (1000)

234 231

1 772

236 003

2017

USD (1000)

234 489

2 310

236 809

Share of total
revenues in %

99.2%

0.8%

100.0%

Share of total
revenues in %

99.0%

1.0%

0.0%

100.0%

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS

(v) Determination of fair value

As of December 31, 2018 the Group had no financial assets or financial liabilities where there is considered to be a difference
between book value and fair value.

Below is an overview of Nordic’s financial instruments:

GROUP

2018

2017

Book value

Fair market value

Book value

Fair market value

Financial assets

Accounts receivable and
other short-term receivables

Financial liabilities

RCF

Accounts payable and other
short-term debt

58 939

56 426

37 390

20 000

34 030

20 000

34 030

PARENT

2018

2017

Book value

Fair market value

Book value

Fair market value

Financial assets

Accounts receivable and
other short-term receivables

Financial liabilities

RCF

Accounts payable and other
short-term debt

59 053

65 158

37 311

20 000

42 102

20 000

42 102

Book value is a reasonable estimate of fair value in cases where these numbers are identical.

Note 23: Events after the balance sheet date

There are no events after the balance sheet date with materially affect on the financial statements.

Note 24: Related party transactions

Nordic Semiconductor ASA, the Parent company of the Group, is listed on Oslo Stock exchange. The Group has no
material transactions with related parties.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | FINANCIAL STATEMENTS
Declaration to
the Annual Report

DECLARATION TO
THE ANNUAL REPORT

Responsibility Statement
The Chief Executive Officer and the Board of Directors confirm, to the best of our knowledge, that the financial

statements for 2018 have been prepared in accordance with current accounting standards and give a true
and fair view of the Parent company and the Group’s assets, liabilities, financial position and results of the
operations.

We also confirm that the report by the Board of Directors provides a fair overview of the Parent company

and the Group and its development, financial results and position, and describes the Group’s key risks and
uncertainties.

Oslo, March 14, 2019

Birger Steen
Chair

Tore Valderhaug
Vice-Chair

Craig Ochikubo
Board Member

Inger Berg Ørstavik
Board Member

Svenn-Tore Larsen
Chief Executive Officer

Anne Marit Panengstuen
Board Member

Asbjørn Sæbø
Board Employee Representative

Susheel Raj Nuguru
Board Employee Representative

Jon Helge Nistad
Board Employee Representative

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | DECLERATION TO THE ANNUNAL REPORTNORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | STANDARDS OF CORPORATE GOVERNANCE

STANDARDS OF
CORPORATE GOVERNANCE

The Board of Directors ("Board") and Management of Nordic Semiconductor
ASA ("Nordic" or the "Company") aim to execute their respective tasks in
accordance with the highest standards for corporate governance.

standards

Nordic Semiconductor’s
for corporate
governance provide a critical foundation for the
company’s management. These principles must be
viewed in conjunction with the company’s efforts
to constantly promote a sound corporate culture
throughout the organization. The company’s core values
of respect, trust, accountability and equal treat-ment are
central to the Board’s and management’s efforts to build
confidence in the company, both internally and externally.
Nordic Semiconductor is a UN Global Compact (UNGC)
signatory and is committed to the Ten Principles as set
forth by the UNGC in the areas of Human Rights, Labor,
Environment and Anti-corruption. Nordic Semiconductor
has adopted the Responsible Business Alliance (RBA)
Code of Conduct, which specifically focuses on topics
relevant for the electronics industry, and promotes this
to ensure sustainable business operations and supply
chain. Additional information on this work can be read
in the annual Corporate Social Responsibility (CSR)
report, as published on Nordic Semiconductor’s website.

The Board’s statement on corporate governance is set
out below. It complies with the structure adopted by the
Norwegian Corporate Governance Board (NUES). The
statement also meets the information requirements set
out in Section 3-3b of the Accounting Act and Section
5-8a of the Securities Trading Act.

The Articles of Association do not contain provisions that
deviate from Chapter 5 of the Public Limited Liability
Companies Act. The information requirements in the
Accounting Act are integrated into the statement below
where appropriate. This also applies to information
about matters related to shareholders.

Statement of corporate governance
The Company adheres to the NUES and is subject to
reporting requirements relating to corporate governance
according to Section 3-3b of the Accounting Act.

The Company's foundational values are described in
Nordic’s Company Policies, and the procedures and
guidelines for ethics and corporate responsibility have
been designed based on these policies. The company
has a separate annual report on CSR.

Deviations from the Code of Practice: None

Activities
The Articles of Association describe the objective and set
clear limits for the company’s business.

According to Nordic’s Articles of Association, “The
objective for which the company is established is
the development and sale of electronic components,
integrated circuits, design tools and related solutions.”

Nordic designs, sells and delivers integrated circuits and
related intellectual property for use in short and long-
range wireless applications. The company specializes in
ultra-low power components, based on its proprietary
2.4 GHz RF, various Bluetooth related standards and
emerging standards for cellular IoT communications
like NB-IoT and LTE-M. All manufacturing and direct
distribution of components are outsourced to specialist
subcontractors. The company is headquartered in
Trondheim, Norway, and has offices in USA, China,
Korea, Japan, Taiwan, Poland, Finland, Germany and
the Philippines.

The Board sets clear objectives for the business with
a view to create value for shareholders. The Board
leads the company’s strategic planning and make
decisions that form a basis for the company’s executive
management to prepare and carry out investments to
drive future growth. Strategic plans are evaluated on
an ongoing basis, with a Board strategy review being
conducted annually in an off-site multi-day meeting.
New and updated long-term objectives, strategies and
risk profiles are agreed on towards the end of the year,
or in connection with major events.

The objectives include matters that relate to human
rights, employee rights and social matters, the prevention
of corruption, the working environment equal treatment,
discrimination and environmental impact.; see the
separate statement on CSR. The objectives are revised
and adopted annually. Objectives for the coming year
are revised and determined annually towards the end of
the current year.

Deviations from the Code of Practice: None

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | STANDARDS OF CORPORATE GOVERNANCE

Equity and dividends
The Board of Directors ensures that the company has a
capital structure that is appropriate to the Company’s
objectives, strategy and risk profile. The Company’s
growth philosophy, as well as the cyclicality of its
business, means that the Company will aim to maintain
a high equity ratio and considerable liquidity. The
Company aims primarily to provide shareholders with
returns in the form of appreciation of the shares and
has a long-term goal to pay dividends based on surplus
cash generated by the company, while taking longer
term growth targets into consideration. The company’s
dividend policy is reviewed each year by the Board of
Directors. The Annual General Meeting can mandate the
Board the authorization to pay dividends based on the
latest approved Annual Report. The justification for this
authorization needs to be explained and should reflect
the Company’s dividend policy.

The Board of Directors, in accordance with the resolution
of the Annual General Meeting held April 17, 2018, has
been authorized to buy back up to 16,300,000 own
shares for a total par value of NOK 163,000.00 in one
or more transactions. The authorization is limited to 10
percent of the Company’s share capital, and the price
per share which the Company may pay for shares
acquired in this manner shall not be less than the par
value nor greater than NOK 200. This power of attorney
will remain in effect until the company’s ordinary Annual
General Meeting in 2019. The Board believes that it is
expedient for the Board to be authorized to purchase
own shares, partly to fulfil the remuneration schemes
for employees, and partly so that shares can be used
as a consideration in connection with the acquisition of
businesses or for subsequent sale or cancellation. Such
authorization must be decided by the General Meeting
and will apply until 30 June the following year.

In accordance with the decision passed at the general
meeting held April 17, 2018, the Board of Directors has
the authority to increase the company’s share capital by
issuing up to 16,300,000 shares with a total par value of
NOK 163,000. The authority is to be used for purposes
defined in the Notice of the Annual General Meeting,
including strengthening the Company’s shareholder’s
equity, to execute share capital increases with one or
more strategic partners, or to complete a merger or
acquisition using shares or cash. This power of attorney
will remain in effect until the Company’s Annual General
Meeting in 2019, and can be implemented through a
private placement, rights issue or public offering.

Nordic Semiconductor has one class of shares, where
each share has one vote at the Company’s shareholders’
meeting. Nordic Semiconductor strictly adheres to the
principle of equal treatment of all shareholders. The
Company’s transactions in its own shares are conducted

in accordance with good stock exchange practice in
Norway.

If the Board wishes to quickly raise capital, the Board
has been authorized to direct a share capital increase to
selected investors chosen by the Board, up to the limits
quantified above. In this event, the Company will notify
the stock exchange of its reasons for implementing
a directed share placement. Existing shareholders’
preemptive subscription rights under §10-4 in the
Norwegian Companies Act can be waived under these
circumstances.

Such capital increases shall be executed at or near the
current stock price listed on the Oslo Stock Exchange.
This authorization remains valid until the Company’s
ordinary annual general meeting in 2019.

Deviations from the Code of Practice: None.

Equal treatment of shareholders and
transactions with close associates
The Company is generally cautious in regard to
transactions with shareholders, members of the Board
of Directors, senior employees or related parties to the
above. To ensure that the best code of conduct applies,
the Board requires notification and review of any
process or transaction in which both the company and
a senior employee or member of the Board of Directors
may have interests. Nordic Semiconductor will seek to
comply with the principles of equal treatment of related
parties and possible transactions with related parties
that are laid down in the Norwegian Code of Practice
for Corporate Governance.

The Company considers Shareholders’ preemption
rights in connection with an increase in share capital
to be an important and fundamental right in a healthy
shareholder community, and the preemption right can
only be waived in exceptional circumstances. Waiving
of this right will be based on the Company’s and
shareholders’ mutual interests. In such case, there will be
full transparency about the matter, and the shareholders
will receive identical information simultaneously through
a stock exchange announcement and subsequently on
the Company's website.

This also applies if the Board utilizes the authorizations
it has been granted.

The Company’s transactions in own shares must always
comply with the arm’s length principle and be on
ordinary market terms.

Deviations from the Code of Practice: None.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | STANDARDS OF CORPORATE GOVERNANCE

Freely negotiable shares
Nordic Semiconductor’s shares are freely tradable and
there are no restrictions on the sale and purchase of the
Company’s shares beyond those pursuant to Norwegian
law.

Each share carries one vote.

Deviations from the Code of Practice: None.

General Meeting
The Annual General Meeting is the company’s highest
body and the shareholders exert their authority in
the company through the Annual General Meeting.
Nordic Semiconductor and the Board encourages all
shareholders to participate and exercise their rights at the
Annual General Meeting.

The Board of Directors should ensure that the Annual
General Meeting is held in accordance with the
Norwegian Code of Practice for Corporate Governance
ensuring all shareholders the ability to participate. The
notice of the Annual General Meeting, including relevant
information shall be announced and distributed at least
21 days in advance of the Annual General Meeting, and
the final date for notification of attendance is one working
day prior to the Annual General Meeting. The Board of
Directors should further ensure that:

The resolutions and supporting information distributed

are sufficiently detailed, comprehensive and specific
to allow shareholders to form a view on all matters to
be considered at the meeting

Any deadline for shareholders to give notice of their

intention to attend the meeting is set as close to the
date of the meeting as possible

The Chair of the Board of Directors and the Chair

of the Nomination Committee are present at the
general meeting. In addition, the Chair of the Audit
Committee and the Compensation Committee
should attend the meeting

The general meeting is able to elect an independent

Chair for the general meeting

including on each

Shareholders should be able to vote on each individual
matter,
individual candidate
nominated for election. Shareholders who cannot
attend the meeting in person should be given the
opportunity to vote. The Company should design the
form for the appointment of a proxy to make voting on
each individual matter possible and should nominate a
person who can act as a proxy for shareholders.

Deviations from the Code of Practice: None.

Nomination Committee
Nordic Semiconductor has a Nomination Committee, as
provided for in the Articles of Association. The Annual
General Meeting stipulate guidelines for the duties of
the nomination committee, elect the chair and members,
and stipulates the committee´s remuneration.

The Nomination Committee’s duties are to represent the
interests of the shareholders in general, and to propose
qualified candidates for the Annual General Meeting’s
election of the Board of Directors as well as to propose
the remuneration to the Board of Directors.

The Nomination Committee should justify why it is
proposing each candidate in the notice for the AGM
separately, including information on the candidates’
competence, capacity and independence.

The nomination committee holds regular meetings
with major shareholders as well as management and
individual shareholder elected Board members. In
addition, all shareholders can submit suggestions to
the nomination committee through a link on Nordic’s
webpage.

The Nomination Committee consists of three members
who are shareholders or who represent the shareholders.
The Company’s executive personnel are not represented
on the Nomination Committee. The deadline for
submitting proposals to the Nomination Committee is
one month before the Annual General Meeting

The members of the Nomination Committee are:

John Harald Henriksen
Viggo Leisner
Jarle Sjo

Deviations from the Code of Practice: None.

The composition and independence of
the Board of Directors
The Board of Directors and the Chair of the Board
of Directors are elected by the shareholders at the
Annual General Meeting on the basis of proposals

from the Nomination Committee.

The composition of the Board of Directors should ensure
that the Board can attend to the common interests of
all shareholders and meets the company’s need for
expertise, capacity and diversity. Attention should be
paid to ensuring that the Board can function effectively
as a collegiate body.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | STANDARDS OF CORPORATE GOVERNANCE

The composition of the Board of Directors should ensure
that it can operate independently of any special interests.
The majority of the shareholder-elected members of
the Board should be independent of the Company’s
executive personnel and material business contacts.
No executive personnel or representatives of business
associates are members of the Board.

The Board has established a Compensation Committee
to recommend and evaluate remuneration principles and
execution for the CEO, to guide and evaluate, principles and
strategy for the compensation of executive management
and to evaluate and oversee the overall compensation
strategy for the company. The committee consists of three
members and have planned 5 meetings in 2019.

The shareholder-elected Board members are elected, in
accordance with the Articles of Association, for one year
at a time. The employee representatives are elected for
two years at a time.

A more detailed description of the background,
qualifications, and term of service of each member
of the Board of Directors and the number of Nordic
Semiconductor shares they own are provided in the
annual report and on the Company’s webpage.

Members of the Board are encouraged to hold shares
in the company.

Deviations from the Code of Practice: None.

The work of the Board of Directors
The conduct of the Board of Directors is in accordance
with the Board instructions of Nordic Semiconductor
ASA. In accordance with the said instructions, the Board
is responsible, to the degree necessary, for approving
business strategies and budgets for the company. The
Board is also responsible for ensuring that the company
has competent executive management with clear
internal distribution of responsibility and work.

Each year, the Board of Directors adopts a specific
meeting and activity plan for the following year. This plan
covers strategic planning, monitoring of the business,
and other relevant business issues. The Board’s activity
plan for 2019 stipulates eight meetings, two of which are
scheduled as all day or multi-day meetings to discuss
and explore strategy and technology-specific issues.

The Board of Directors carries out an evaluation of
its activities each year and on this basis discusses
improvements in the organization and implementation
of its work.

The Board has established two board committees
comprising Board members – the Compensation
Committee and the Audit Committee. The committees’
mandates are based on a group perspective. The board
committees do not have decision-making power but are
charged with making proper preparations for board
meetings in the matters with which they are concerned.
In the Board's experience, the work of board committees
makes make the overall Board more effective and
efficient and has allows for deeper and stronger
involvement in the business’s challenges and initiatives.

The Audit Committee consists of two members of the
Board. The Committee collectively has the competence
required in the Public Limited Liability Companies Act
§ 6-42. Both members are independent according to
§ 6-42 Public Limited Liability Companies Act, and at
least one member has the required qualifications within
accounting or auditing. The Committee supports the
Board with respect to the assessment and control of
financial risk, financial reporting, auditing, control, and
prepares discussions and resolutions for Board meetings.

The Audit Committee held 6 meetings in 2018 and has
been in regular contact with the Company’s auditor
regarding audits of the statutory accounts and it also
assesses and monitors the auditor’s independence,
including non-audit services provided by the auditor.

Deviations from the Code of Practice: None.

Risk Management and internal control
The Board and Management are committed to ensure that
the company maintains sound and effective internal controls
to safeguard the value of the enterprise, as well as its principles
of ethical conduct and corporate social responsibility. Nordic
Semiconductor’s risk management system is fundamental to
the achievement of its financial goals.

The Board complies with NUES’s recommendations in
its work on risk management and internal control. The
Company’s most important risk areas and the internal
control system are continuously reviewed.

The Company’s primary internal control routines related
to financial reporting are as follows: The finance team
prepares a monthly financial report which is distributed
to and reviewed by CEO and the Board of Directors. In
preparing the monthly financial report, the accounting
team conducts reconciliations of all major balance sheet
items, which are independently reviewed by a second
member of the team. Balance sheet items subject to
accounting estimates are regularly analyzed to ensure
that all assumptions relating to the accounting estimate
remain valid. As part of the monthly financial report,
the financial results are compared with the company’s
budget and prior forecast to analyze variances and
ensure that they are not the result of incorrect reporting.

Each year, the external auditor performs tests of the
company’s internal control routines. The quarterly and
annual financial reports are also subject to review

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | STANDARDS OF CORPORATE GOVERNANCE

and approval by the Board. In addition, the Board of
Directors performs annual review of the company’s
business strategy focusing on market development,
technology updates, competitive positioning and risk
factors. In addition, the Board reviews various aspects of
the company’s business throughout the year, including
performing a half yearly detailed risk review.

The Board presents an in-depth description and
analysis of the company’s financial status in the report
of the Board of Directors in the company’s annual
report. The report also describes the main drivers
and risks related to the operation of the business.

Deviations from the Code of Practice: None.

Remuneration to the Board of Directors
Remuneration to the Board of Directors is decided by
the Annual General Meeting based in the Nomination
Committees recommendation. All remuneration to the
Board of Directors is disclosed in Note 10 of the Nordic
Semiconductor Group annual accounts. The remuneration
to Board members is not performance based or linked to
the company’s performance, and the company does not
provide share options to Board members. Members of the
Board of Directors receives remuneration for work related to
Board committees.

Deviations from the Code of Practice: None.

Remuneration to the Executive Management
Board of Directors discusses and approves the terms
and conditions for the CEO once a year and reviews
and monitors the general terms and conditions for other
senior employees of the group.

The main principle in the Company’s policy for
remuneration and compensation is that the leading
employees shall be offered competitive terms, so as to
ensure the Company continues to attract and retain
the desired and necessary talent . Compensation for
executive management is established in accordance
with the above-mentioned main principle.

The Company has established an annual performance
bonus for the executive management team, for which
the employee must remain within his position until the
start of the following year to be eligible. The bonuses
are awarded through a direct cash payment and,
when appropriate, long-term incentives in the form of
restricted shares and/or stock options. Performance-
based compensation is subject to absolute payout limits
and fulfillment of performance criteria, both decided by
the Board at its discretion.

Deviations from the Code of Practice: None.

Information and Communications
The Board of Directors has established a communications
strategy for the company’s reporting of financial and
other information based on openness and taking into
account the requirement for equal treatment of all
participants in the securities market. The strategy has
been published on the Company’s investor relations
web pages (www.nordicsemi.com/About-us/Investor-
Relations).

Nordic Semiconductor aims to communicate actively,
openly and in a timely fashion with the financial market.
The Company's accounting procedures are highly
transparent and its financial statements are prepared
and presented in accordance with the International
Financial Reporting Standards (IFRS). The Board of
Directors monitors the company’s reporting.

Nordic Semiconductor’s financial reporting calendar for
2019 has been announced to the Oslo Stock Exchange
and can be found on the company’s website. The
company’s annual and quarterly reports contain extensive
information about the various aspects of the company’s
activities. The Company’s quarterly presentations are
transmitted directly on the internet and may be found
on Nordic Semiconductor’s investor relations webpages
together with the quarterly and annual reports and
a comprehensive and detailed presentation of other
information, reports and documents. .

Nordic Semiconductor’s Chief Financial Officer
is
responsible for contact with shareholders outside of the
General Meeting. The Chief Financial Officer reports
regularly to the Board about the Company’s investor
relations activities.

Deviations from the Code of Practice: None.

Takeovers
The Board of Directors have established guiding principles
for how it will act in the event of a takeover bid.

The Board of Directors will not seek to hinder or obstruct
any takeover bid for the Company’s activities or shares.
In the event of a takeover bid, as discussed in item
14 of the Norwegian Code of Practice for Corporate
Governance, the Board of Directors will seek to comply
with the recommendations therein as well as complying
with relevant legislation and regulations.

If the Company is acquired, the CEO’s resignation period
extends to 12 months, and any remaining retention
bonus to the CEO will be paid in its entirety following
the closing of the acquisition, as described in Note 10
of the Group financial statements. There are otherwise
no material obligations expected by the Company as
a result of an acquisition, aside from normal legal and
advisory fees

Deviations from the Code of Practice: None.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | STANDARDS OF CORPORATE GOVERNANCE

Auditor
EY has been elected by the Annual General Meeting
to act as auditor to confirm to the Annual General
Meeting that Nordic Semiconductor’s annual accounts
have been prepared and presented in accordance with
current laws and regulations. Fees paid to the auditor
are approved at the Annual General Meeting.

In the fall, the external auditor presents to the Audit
Committee an evaluation of risk, internal control and
the quality of reporting at Nordic Semiconductor, and
the audit plan for the current year. In addition, the
auditor meets the Audit Committee on a regular basis.
The external auditor also takes part in the Board’s
discussions on the annual financial statements. On
both occasions, the Board of Directors ensures that
the Board and the external auditor are able to discuss
relevant matters at a meeting at which the executive
management is not present.

The auditor shall be independent of the company.
Therefore, Nordic Semiconductor does not engage the
elected auditor for tasks other than the financial audit
required by law. Nevertheless, the auditor is used for
tasks that are naturally related to the audit, such as
technical assistance with tax returns, annual accounts,
understanding of accounting and tax rules and
confirmation of financial information in various contexts

Deviations from the Code of Practice: None.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | AUDITOR OPINION LETTER

AUDITOR OPINION LETTER

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | AUDITOR OPINION LETTER

Board of directors &
Executive Management

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | BOARD OF DIRECTORS

BOARD OF DIRECTORS

Birger Steen Chair

Birger Steen is a technology investor based in Seattle, WA. He served as CEO of
Parallels, Inc. from 2010 to 2016. He was Vice President of Worldwide SMB and
Distribution at Microsoft Corp. in Redmond and General Manager of Microsoft
Russia and Microsoft Norway from 2002 to 2010. Prior to joining Microsoft, Mr.
Steen was CEO of Scandinavia Online and Vice President of Business Development
in Schibsted ASA, where he first served as a consultant while at McKinsey &
Company from 1993 to 1996. Mr. Steen received his MSc in Computer Science and
Industrial Engineering from the Norwegian Institute of Technology in Trondheim. He
also holds a degree in Russian language from the Defense School of Intelligence
and Security in Oslo and received his MBA from INSEAD in France. Mr. Steen has
served as a Non-Executive Director of Schibsted ASA since 2014 and at Nordea
Bank AB since 2015. Current holdings in the company: 138 460 shares.

Tore Valderhaug Vice-Chair

Tore Valderhaug is a Norwegian State Authorized Public Accountant with ten
years of audit experience mainly from Arthur Andersen & Co. He has held
positions as finance director and CFO in several public listed companies,
including Cermaq ASA, EDB Business Partner, ASK Proxima/InFocus, Ocean
Rig and Unitor. Mr. Valderhaug has also worked within corporate finance and
private equity firms. Tore Valderhaug is currently working as a consultant and is
also a board member of the public listed company Q-Free ASA and Salmones
Camanchaca SA, as well as the non-listed inApril AS, Optimar AS and Remøy
Group. Current holdings in the company: 5 769 shares.

Craig Ochikubo Board Member

Craig Ochikubo has a Master of Science degree in Electrical Engineering from
the University of Southern California in Los Angeles and has more than 30
years experience in the wireless semiconductor and electronics industries at
both start-up and Fortune 500 companies including, Broadcom Corporation,
Innovent Systems, RF-Link Technology, Cadence, and TRW. He has led global
engineering and business teams in Europe, Asia, and North America and
successfully drove long-term business at top-tier consumer electronics companies.
He spent 14 years at Broadcom where he held senior executive positions running
their global wireless personal area networking business unit, and LTE cellular
development teams. Current holdings in the company: 13 500 shares.

Inger Berg Ørstavik Board Member

Inger Berg Ørstavik is an associate professor at the Department of Private
Law, University of Oslo. She has previously been a partner with Advokatfirmaet
Schjødt AS and a lawyer at the office of the Attorney General for Civil Affairs.
Mrs. Ørstavik has a law degree from the University of Oslo, a Ll.M. from
Ruprecht-Karls-Universität in Heidelberg, Germany, and a Ph.D. from the
University of Oslo in the areas of intellectual property law and competition law.
She has taught international human rights law at Fudan University in Shanghai,
China where she resided from 2005 to 2009. Mrs. Ørstavik is member of the
BoD in REC Silicon ASA, and she chairs the Food and Drink Industry Professional
Practices Committee (MFU). Current holdings in the company: 1 000 shares.
(Photo: UiO v/E. Dobos)

BOARD OF DIRECTORS

Anne Marit Panengstuen Board Member

Mrs. Panengstuen has since August 2014 served as CEO of Siemens AS.
In Siemens, she has worked as project engineer, and had several positions
within sales and management. Before she became the CEO, she was
Head of the Industry Sector, one of 4 sectors within Siemens.

Jon Helge Nistad Board Employee Representative

Jon Helge Nistad has a Master of Science degree in Electrical Engineering from
NTNU in Trondheim. Jon Helge has been employed in Nordic Semiconductor
since 2006, where he has gained experience in application development,
embedded software design and project management. He is currently working
as a Senior R&D Engineer in Nordic Semiconductor. Holdings in the company:
10 001 share options.

Asbjørn Sæbø Board Employee Representative

Asbjørn Sæbø has a Ph.D. degree in Telecommunications from NTNU in
Trondheim. He has been with Nordic since 2006, working with development
of firmware for Bluetooth Low Energy in various roles. Currently he dedicates
his time to participating in the development of new Bluetooth specifications
and implementation of those specifications. Before that, he was responsible
for development and release of Nordic’s Bluetooth Low Energy protocol stack,
delivering 150 releases of that over five years. Before joining Nordic, Asbjørn
Sæbø worked as a development engineer in a startup company on active noise
control and as a Post.Doc. at the Centre for Quantifiable Quality of Service in
Communication Systems (a Centre of Excellence at NTNU). Current holdings
in the company: 10 000 shares and 10 700 share options.

Susheel Raj Nuguru Board Employee Representative

Susheel has a Master of Science in Electronics from Tampere University of
Technology. He has been with Nordic since 2012, but has been working with
embedded programming since 2004. His area of focus is the software side of
real time systems. Susheel is currently employed as a Technical Support Senior
Engineer at Nordic. During his employment with Nordic he has gained experience
within sales, marketing and R&D while working for various departments.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | BOARD OF DIRECTORS
NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | EXECUTIVE MANAGEMENT

EXECUTIVE MANAGEMENT

Svenn-Tore Larsen Chief Executive Officer

Mr. Larsen is an Electronic Engineer from the University of Strathclyde, UK. He
was appointed Chief Executive Officer of Nordic Semiconductor in February 2002.
Mr. Larsen has broad international experience in the semiconductor business,
previously as Director for the Nordic region for Xilinx Inc. He has also been working
at Philips Semiconductor. Larsen was member of the Board of Nordic Semiconductor
from 2000-2002. Current holdings in the company: 1 905 400 shares and 193 150 share
options.

Pål Elstad Chief Financial Officer

Mr. Elstad has held several senior financial positions, most recently as investor
relations responsible for REC Silicon ASA and Head of Finance for REC Solar in
Singapore. In addition, he has extensive manufacturing and supply-chain experience
from General Electric Healthcare. Mr. Elstad holds a Bachelor of Economics degree
from the Norwegian Business School (BI) and is a State Authorized Public Accountant
(CPA). Current holdings in the company: 8 846 shares and 129 608 share options.

Geir Langeland Sales and Marketing Director

Mr. Langeland has a B.Eng. Honours degree in Electronics from University of
Manchester Institute of Science and Technology (UMIST). He was appointed
Product Manager Standard Components at Nordic Semiconductor in October
1999, before being appointed to Director Sales and Marketing September 2005.
Before joining Nordic, Mr. Langeland worked as Field Sales/Applications Engineer
in Memec Norway, a leading global electronic components distribution company.
Current holdings in the company: 177 700 shares and 129 608 share options.

Svein-Egil Nielsen Chief Technology Officer

Mr. Nielsen holds an MBA from the Haas School of Business at the University of
California, Berkeley and a Bachelor of Engineering honors degree in Computer
and Electronics Systems from University of Stathclyde. He joined Nordic in 2001
as Director of Sales and Marketing. He also held a position as R&D director from
2005 to 2006 and Director of Emerging Technologies and Strategic Partnerships
from 2010 to 2012. Additionally, he served Innovation Norway as their Director
of San Francisco and Houston offices where he was in charge of promoting
Norwegian technology from 2007 to 2010. Prior to Nordic, he worked for Boston
Consulting Group as a consultant. Current holdings in the company: 17 000 shares
and 129 608 share options.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | EXECUTIVE MANAGEMENT

EXECUTIVE MANAGEMENT

Ebbe Rømcke Quality Director

Mr. Rømcke has an M.Sc. degree in Electronics Engineering from Norwegian
University of Science and Technology (NTNU). He was appointed Quality
Director of Nordic Semiconductor in 2002. Prior to this Mr. Rømcke worked
eight years in the company as Digital Designer, Project Manager and Group
Manager. He has also experience from Digital Design and Project Management
in Normarc AS (now Park Air Systems), a leading manufacturer of aviation
systems. Holdings in the company: 68 900 shares and 64 542 share options.

Ole Fredrik Morken Supply Chain Director

Mr. Morken joined the company as an Analog IC designer in 1994 and has
since held numerous positions related to Project- and Supply Chain Management,
including a brief employment for SensoNor ASA in 1999. He was appointed Supply
Chain Director in 2010 and is currently based in Taipei. Mr. Morken holds a
Master’s degree in Electronics Engineering from Norwegian University of
Science and Technology (NTNU). Holdings in the company: 160 000 shares
and 129 608 share options.

Marianne Frydenlund Legal Director

Mrs. Frydenlund holds a law degree from the University of Oslo and North
Dakota. She started her career in 2007 as a Warranty Responsible in StatoilHydro
(Equinor), before taking on various Legal Counsel and Contract Manager
positions. Her experience includes working for Huawei Technologies, Aker
Engineering & Technologies (Aker Solutions) and Nexans Norway. During
her time with these companies she was responsible for contract negotiations
related to tenders for large engineering, procurement, construction & installation
projects and contract management in the execution phase of such projects.
Marianne sits on the Board of the Norwegian Company Lawyers Association
and is on the committee for the annual vinter seminar for Industrijuristgruppen/
Industry Lawyer Association. Mrs. Frydenlund was appointed Legal Director
at Nordic Semiconductor in February 2018, and also acts as Secretary to the
Board of Directors. Holdings in the company: 2 000 shares and 5 000 share
options.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | ALTERNATIVE PERFORMANCE MEASURES

ALTERNATIVE PERFORMANCE
MEASURES

The financial information is prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by EU. Additionally, it is
management’s intent to provide alternative performance measures (APM)
that are regularly reviewed by management to enhance the understanding
of the Group’s performance. An Alternative Performance Measure is
a measure of historical or future financial performance, financial position,
or cash flows other than a financial measure defined or specified in the
applicable financial reporting framework.

The Group has identified the following APMs used in reporting (amount in USD million):

Gross Margin. Gross Profit divided by Total Revenue.

Gross margin is presented as it is the main financial
KPI to measure the Group’s operations performance.

GROUP

Gross profit

Total revenue

Gross Margin

2018

135.0

271.1

2017

111.5

236.0

49.8%

47.2%

EBITDA
terms are presented as
commonly used by investors and financial analysts.

they are

EBITDA. Earnings before interest, taxes (operating

profit), depreciation and amortization.

GROUP

Operating profit

Depreciation

EBITDA

2018

14.0

16.7

30.8

2017

10.5

12.9

23.3

EBITDA Margin. EBITDA divided by Total Revenue.

GROUP

EBITDA

Total Revenue

EBITDA Margin

2018

30.8

271.1

2017

23.3

236.0

11.4%

9.9%

Adjusted EBITDA Margin. EBITDA excluding cellular

IoT, divided by Total Revenue exluding cellular
IoT revenue. This APM shows Nordic's profitability
excluding products in an investment phase with
limited revenue.

GROUP

Reported EBITDA

Long-range (cellular IoT)
EBITDA loss

Adjusted EBITDA

Total revenue (excluding
cellular IoT revenue)

2018

2017

30.8

16.9

47.7

23.3

20.0

43.4

270.9

236.0

Adjusted EBITDA margin

17.6%

18.4%

68
68

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2018 | ALTERNATIVE PERFORMANCE MEASURES

Cash Operating Expenses. Total payroll and other operating expenses adjusted for non-cash related

items including option expenses, receivable write-off and capitalization of development expenses. Nordic
management believes that this measurement best captures the expenses impacting the cash flow of the Group.

GROUP

Payroll expenses

Other opex

Depreciation

Total operating expenses

Depreciation

Option expense

Receivable write-off

Capitalized expenses

Cash Operating Expenses

2018

70.0

34.2

16.7

121.0

-16.7

-1.2

13.0

116.0

2017

60.5

27.7

12.9

101.0

-12.9

-1.1

-1.0

8.6

94.6

Last twelve months operating expenses exluding depreciation divided by last twelve months revenue.

Nordic’s business is seasonal and by dividing last twelve months operating expenses excl. depreciation by last
twelve months revenue, management is able to track cost level trends in relation to revenue. As a growth business
it is key to keep cost level under control while still growing the business, and this ratio keeps track on that.

Total operating expenses

Depreciation

Operating expenses excluding depreciation

Total revenue

LTM opex / LTM revenue

2018

121.0

-16.7

104.2

271.1

38.4%

2017

101.0

-12.9

88.

236.0

37.4%

Net working capital divided by last twelve months revenue. Net working capital is a measure of both a company's

efficiency and its short-term financial health, and by dividing the measure by last twelve months, seasonal effects
are excluded. Nordic management uses this ratio to report on liquidity management to the financial market and
internally to track performance.

Current assets

Cash and cash equivalents

Current liabilities

Income taxes payable

Net working capital

Total revenue

NWC / LTM revenue

2018

205.5

-103.9

-45.3

5.0

61.3

271.1

22.6%

2017

136.9

-36.7

-39.9

3.1

63.4

236.0

26.9%

69
69

Nordic offices

TRO HEIM,
ND
NORWA
HEAD OFFICE

OSLO, NORWAY

PORTLAND, USA

LONDON, UNITED KINGDOM

LU, FINLAND

ESPOO, FINLAND

TURKU, FINLAND

SAN JOS USA

EINDHOVEN, THE NETHERLANDS

KRAKOW

, POLAND

BEIJING, CHINA

SEOUL, KOREA

YOKOHAMA, JAPAN

SHANGHAI, CHINA

SHENZHEN, CHINA

HONG KONG
CHINA

TAIPEI,
TAIWAN

LA
PH

GUN
ILIPPI

NES

NORWAY | TRONDHEIM
Otto Nielsens veg 12
7004 Trondheim, Norway
Phone: +47 72 89 89 00

NORWAY | OSLO
Karenslyst Allé 5
0213 Oslo, Norway
Phone: +47 22 51 10 50