Nordic Semiconductor Annual Report 2019

← All annual reports

FY2019 Annual Report · Nordic Semiconductor

Loading PDF…

Annual Report
2019

Content

3
4
7
19
60
62
68
72
76
79

This is Nordic

Message 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)

Executive Management 2019: Pål Elstad, Marianne Frydelund,
Svenn-Tore Larsen, Svein-Egil Nielsen, Ole Fredrik Morken, Geir Langeland,
Katarina Finneng, Kjetil Holstad and Ebbe Rømcke (Absent: Ståle Ytterdal)

THIS IS NORDIC

Nordic Semiconductor (Nordic or the Group) is a leading provider of ICs for
wireless connectivity and IoT solutions. Nordic is a market leader in short-
range wireless and ready to take on the large emerging market opportunity
within cellular IoT. Headquartered in Norway, Nordic is a technology success
story with operations and presence across the globe.

Bluetooth® Low Energy (Bluetooth LE) and cellular
IoT will be key enabling connectivity technologies
for Internet of Things (IoT) solutions, which holds the
potential to improve people’s lives, optimize the use
of resources and create large economic value at the
same time. IoT will become a major contributor to a
sustainable global economic development, within areas
such as healthcare, industry, innovation, infrastructure,
smart cities and clean energy.

Nordic pioneered the development of ultra-low power
wireless connectivity solutions during the early 2000s,
and later became a key contributor for the creation
and evolution of Bluetooth LE as a wireless standard.
Over the past years the company has further developed
its ICs to include support for IEEE standards such as
Zigbee and Thread across its nRF52 Series and its new
generation nRF53 Series. Nordic’s multiprotocol portfolio
ensures that the company is well positioned to benefit
from projects seeking to improve compatibility across
the different standards.

Nordic believes the market for its Bluetooth and
multiprotocol products will grow by 20-30% annually
in the medium-term, with potentially disruptive market

opportunities in areas such as smart home, logistics and
asset tracking, drug delivery & drug monitoring, and
smart lighting.

IoT will require more than short-range connectivity.,
which is why Nordic launched the nRF91 Series towards
the end of 2018. The nRF91 Series is Nordic’s first family
of low power devices for cellular IoT. Nordic’s solution
has integrated LTE-M, NB-IoT, GPS, RF Front-End
and power management into a very small System in
Package (SiP), under the highest security standards
and with significantly higher energy-efficiency than any
comparable products on the market.

The cellular IoT market is still in the early stages of the
commercialization phase, with Nordic measuring its
progress in the number of development kit shipments
and customer pilot projects. The company sees
projects ongoing across a wide range of industries and
applications. Nordic`s ambition for cellular IoT is that it
will over time grow to generate revenue on par with the
company’s short-range business.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | MESSAGE FROM THE CEO

MESSAGE FROM THE CEO

Nordic ended 2019 on a high note after a weak start to the year for the
semiconductor industry. In the first half, product demand was negatively
affected by trade tensions and inventory reductions throughout the value
chain. Demand from broad-market customers gradually picked up during
the second half, when Nordic also saw its long-term investments into
customer relationships with tier-1 clients beginning to yield results. We ended
2019 with an excellent platform on which to build in 2020 and beyond.

Nordic reported revenue of USD 288 million and an
overall revenue growth of 6% in 2019, and the gross
margin of 50.9% exceeded our 50% target. At the same
time, we saw the order backlog increasing to USD 107
million at the end of 2019, which was an increase of
more than 50% from the end of 2018.

market.

The Bluetooth segment now
accounts for more than three-
quarters of our total revenue.

The Bluetooth Low Energy portfolio remains our main
growth engine with a revenue increase of 19% last year,
whereas revenue from the proprietary portfolio declined
by 22%. The Bluetooth segment now accounts for more
than three-quarters of our total revenue.

We believe Bluetooth LE and multiprotocol products
with Thread and Zigbee will see annual growth of
20-30% in the medium term, with upside potential in
disruptive verticals such as smart homes, smart lighting,
drug delivery and disease monitoring, and logistics and
asset tracking.

Cellular IoT is still in the early stages of commercialization
and generated only moderate revenue in 2019. In our
view, the outlook for the long-range business remains
very solid. We aim to gradually build up the cellular IoT
business to a similar size as the short-range business
over the next five years.

Our overall aspiration for the Group is to build Nordic
into a USD 1 billion company within five years. To achieve
this goal, we have taken a lead on connectivity in the
IoT space.

I am very pleased to see us maintain or even strengthen
our leadership position in the Bluetooth LE market in 2019.
In terms of new designs, data provided by the Federal
Communications (FCC) Commission and collected by
DNB Markets show that 41% of the Bluetooth LE end
products that were certified during 2019 had Nordic
inside. This puts us as the clear market leader in the
broad market.

Svenn-Tore Larsen, Chief Executive Officer

Over the past five years, the FCC has certified more than
2,100 different Bluetooth LE products built on Nordic
technology. This broad customer engagement makes
us an attractive partner for the large global platform
companies, that are fighting for dominance in the home
automation or smart home market.

We have been working for years to build strong
customer relationships with these major players, as well
as with the market leaders in the verticals in which we
operate. We have invested considerable resources into
sales, R&D and quality control and assurance towards
these customers, and it is very rewarding to see the
initial results of these efforts beginning to show through
in our order book and revenue figures.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | MESSAGE FROM THE CEO

Taking the lead on connectivity also requires that we
continue to push the frontiers with new products and
solutions. The nRF52 Series is a winning product family
that has served us well and will continue to grow and
develop over the coming years.

The broad-market adoption of the nRF52 Series offers
unique market insights, which has allowed us to tactically
expand the product offering through the introduction of
lower-end and higher-end versions. This scalability has
enabled us to increase realized average selling price
over the past few years in a market characterized by
declining prices.

In 2019, the previously launched nRF52810, nRF52832
and nRF82840 SoCs were complemented by the lower-
end nRF52811 - a multiprotocol SoC with direction finding
capabilities - and the mid-range nRF52833 multiprotocol
SoC that supports temperatures of up to 105°C.

Late in the year we launched the first product in the next
generation nRF53 Series, with the dual-core nRF5340
SoC. This is the world’s first wireless SoC with separate
network and application processors. Supporting
Bluetooth Low Energy, Thread, ZigBee and NFC as
well as Bluetooth mesh, this is a production generation
that moves the market forward in terms of significantly
lower power consumption, increased performance, and
strengthened security.

Nordic's nRF5340 dual-core flagship SoC

Within cellular IoT, we introduced the Nordic Thingy:91
module in 2019. This is a prototyping tool that lowers the
barrier for customers to run proof-of-concept trials for
the wide array of future IoT applications we expect to
emerge across both consumer and industrial markets in
the years to come.

The Nordic Thingy:91 builds on our nRF9160 SiP, which
leads the field in size and power consumption, and
so far, remains the only product on the market with
embedded low-power application MCU and software
development kit.

Over the past year, we have made great progress with
regulatory and telecom carrier certification processes
and continue working with the aim to offer worldwide
coverage.

Through our technology advancements in both short-
range and cellular IoT Nordic continues to excite
developers. We were very glad to see development kit
shipments increase by 34% to more than 86,000 in 2019,
and that the share of cellular IoT kits was close to 10%
and increasing.

technical support community, Nordic
Our online
DevZone, also continues to thrive, attracting visits from
some 80 000 developers during 2019 entering more
than 20 000 questions. Through our Tech Tour seminar
program, we also met more than 4 000 developers face-
to-face during the year. We want to be “the engineers’
best friend”, and our strong ties to and collaboration
with the developer community represent integral and
invaluable parts of our truly customer-centric company
culture and DNA.

At Nordic, we have a history of investing early and
patiently to stay at the forefront of potential high-
growth market opportunities. This has been evident over
the past few years as we have continued to allocate
significant resources to grow the short-range business
at the same time as we have made large investments
into the development of cellular IoT technologies and
products.

Nordic Semiconductor’s success is based on the work
of a highly specialized, skilled and diverse workforce,
and our very competent organization continued to grow
in 2019. The overall headcount increased by 12% to 767
people, with the R&D workforce increasing by 9% to 563
people and the sales and marketing staff by 13% to 113
people.

Their level of competence and ideas is crucial to drive
the business forward and make us succeed with existing
and new initiatives. With 46 different nationalities
represented, Nordic is uniquely positioned to foster an
inclusive and diverse company culture.

Nordic has built its short-range portfolio on low energy
connectivity solutions and is now receiving market
acknowledgement and industry awards for our disruptive
lead on power consumption for our cellular IoT products.
We hold the potential to contribute to significant energy
savings enabled by cellular connectivity, for applications
ranging from environmental monitoring and disaster
prediction, to agriculture and industrial monitoring, and
smart home logistics. Focus on sustainability will be ever
more important for Nordic going forward.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | MESSAGE FROM THE CEO

Social and environmental aspects are increasingly
becoming a part of our corporate strategy, and our
progress can be review in our separate ESG Report. I
am particularly proud of our new program for support
and contribution to the UN Sustainable Development
Goals (SDGs).

Summing up, our fundament strengthened further
through 2019, and we have made inroads into customer
segments that have enabled us to build a larger and
higher-quality order book than ever before. This is an
excellent platform from which to build in 2020 and
beyond.

During February and March 2020, it has become clear
that the measures to stop the ongoing spread of the
coronavirus (SARS-CoV-2) will have significant effects on
global economic activity in 2020.

While this reduces the near-term visibility also for us, we
have an excellent platform to keep building towards our
long-term targets.

A global and truly permeating Internet of Things
represents a massive long-term market opportunity,
and we will continue to invest heavily in both the
short- range and long-range parts of our business in
the years to come. We remain confident that this is the
right way to maximize the long-term value of our market
opportunities.

Realization of these business opportunities and a high
operational leverage will gradually generate margin
improvements on the way towards our long-term
EBITDA-margin target of 20%.

Revenue excluding cellular IoT (USD million)

300

250

200

150

100

Short-range IoT

Wearables

PC Peripherals

Game controllers

Proprietary/ASIC

Bluetooth

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

REPORT FROM THE
BOARD OF DIRECTORS

Nordic saw overall revenue growth of 6% to USD 288 million in 2019, with
a year-on-year decline in the first half of the year followed by an increasingly
strong rebound in the second half. Bluetooth revenue increased 19% year-
on-year, reflecting both continued good momentum in the broad market
and higher sales and order inflow from tier-1 customers.

Group Overview
Nordic Semiconductor is a fabless semiconductor
company specializing
in wireless technology that
powers the Internet of Things (IoT). The company’s
award winning Bluetooth® LE solutions have made it
the market leader, and are complemented by ANT+,
Bluetooth mesh, Thread, and Zigbee products. Nordic’s
latest technologies, NB-IoT and LTE-M leverages cellular
infrastructure to extend the IoT.

The company has been a longstanding pioneer
from proprietary 2.4GHz
in wireless connectivity,
technology for PC accessories via pure Bluetooth LE
products, to todays’ short-range multiprotocol products
and long range cellular IoT solutions.

Over the past decade, the company has built an
undisputed leading position in the Bluetooth LE market,
and around 40% of the new designs coming to the
market use Nordic’s connectivity solution.

Nordic’s components are manufactured by world
class subcontractors and are distributed through an
extensive network of global and regional partners to
manufacturers of branded electronics. End-user verticals
include consumer electronics and wearables, building
and retail, healthcare, and an increasing number of
other verticals and applications.

Nordic Semiconductor was founded in 1983 as an
integrated circuits manufacturer. The Company is
headquartered in Trondheim (Norway) with offices in
Oslo (Norway), San Diego (USA), Beijing, Shanghai,
Shenzhen and Hong Kong (China), Taipei (Taiwan),
Manila (the Philippines), Yokohama (Japan), Seoul
(South Korea), Düsseldorf (Germany), Eindhoven (the
Netherlands) and London (UK). R&D activities are
carried out in Portland (USA), Krakow (Poland), Oulo,
Espoo and Turku (Finland) and in Trondheim (Norway).

At the end of 2019, Nordic Semiconductors had 767
employees, of which 563 work within R&D and 113 in
sales and marketing.

Strategy and long term target
Nordic’s mission is to be a world-leading supplier of low-
power connectivity solutions in both the short-range
and long-range markets, based on proprietary 2.4 GHz
RF technology, Bluetooth Low Energy technology, and
cellular IoT technology.

Nordic is a pioneer in ultra-low power wireless
technologies, building its development on six strategic
pillars;

integration and solutions

and tier-1 customer engagement model

performance, feature-rich, reliable and robust

Lead on connectivity – low power, high
Excite developers – ease-of-use, value-add
Customer engagement – combined broad market
Scalability – scalability across technologies,
Investing early – investing early in- and growing
High financial ambitions – strong long-term

with- high growth markets

profitable growth and value generation

markets and customers

Based on these fundamental strategic elements, the
company has developed a market leading position in the
short-range connectivity space, with a broad portfolio of
integrated circuits, systems and solutions. The company
delivered approximately 370 million units in 2019, to a wide
variety of applications and a broad customer base ranging
from single developers to high-volume tier-1 customers.
Nordic also delivered around 87,000 developer kits in
2019, and Nordic’s very active and growing developer

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

community ‘DevZone’ now counts more than 80,000 user
profiles.

Nordic holds a particularly strong position in the growing
Bluetooth LE market, and Bluetooth solutions accounted
for 79% of Group revenue in 2019. The company’s
proprietary 2.4 GHz RF products accounted for 20% of
Group revenue, mainly from sales into the mobile/PC
peripherals markets, with the remaining 2% generated
from cellular IoT, ASIC components, and consulting
services.

The cellular IoT product portfolio is in the early stages of
commercialization after five years of development, with
Nordic ready to deploy almost two decades of sales and
distribution experience from the short-range business into
the commercialization process. The market opportunity
within cellular IoT remains strong and we see increased
activity from both carriers, operators and end customers.

The company aspires to build a USD 1 billion revenue base
within five years, through an expected 20-30% annual
growth for Bluetooth and multi-protocol products, and a
gradual build-up of the cellular IoT business to a similar
size as the short-range business.

Operational review
Nordic continued to strengthen its product portfolio
in 2019. The highly successful nRF52 Series was further
broadened with the introduction of the lower-end
nRF52811 System-on-Chip (SoC) and the mid-range
nRF52833. Both are multiprotocol SoCs for Bluetooth
LE, Thread and Zigbee, meeting specific customer
demands such as direction finding and high temperature
tolerance, at the right price points.

Late in the year, the company launched the first product
in its new nRF53 generation, pushing the boundaries
further in terms of low power consumption, performance,
and security. The nRF5340 is the world’s first dual
processor multiprotocol System-on-Chip (SoC). Towards
the end of the year, the company also launched its first
front end module for range extension with the nRF2150.

On the customer side, Nordic continued to attract new
broad market clients but also began to see results
of years of work to establish customer relationships
with new tier-1 customers such as the global platform
companies. The introduction of more tier-1 customers
is demonstrated by the strong order backlog, which
increased from USD 70.0 million at the end of 2018 to
USD 106.6 million at the end of 2019.

In the cellular IoT area, Nordic launched the Thingy:91,
a multi sensor prototyping tool for customers to easily
run proof of concept trials for cellular applications. The
product builds on the nRF91 Series LTE-M/NB-IoT low-
power cellular IoT solution that was launched late in
2018.

The company is progressing with the cellular carrier
certification processes and has now obtained
certification from leading telecom carriers such as
Verizon, Deutsche Telecom and Vodafone, in addition
to the general GCF certification.

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. Nordic
prepares consolidated annual accounts in accordance
with IFRS (International Financial Reporting Standards)
as approved by the EU, 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.

Note that the Group has identified gross margin,
EBITDA, EBITDA margin, adjusted EBITDA margin, total
operating expenses, cash operating expenses, and
order backlog as Alternative Performance Measures
in addition to the financial information as prepared in
accordance with IFRS as adopted by the EU. Please see
page 79 for further details.

Income Statement
The Group classifies its revenues into the following
technologies: Short-range wireless components,
including Bluetooth Low Energy based and proprietary
products, long range (cellular IoT), ASIC components
and Consulting services.

2018 Change%

Revenue by technology:

USDm

Proprietary wireless

Bluetooth

Cellular IoT

ASIC Components

Consulting services

2019

59.9

221.2

1.0

6.0

0.2

77.3

158.2

0.2

8.0

0.5

Total

288.4

271.1

-22%

19%

351%

-24%

-57%

Total revenue increased by 6.4% to USD 288.4 million in
2019, up from USD 271.1 million in 2018.

Revenue from Bluetooth LE increased by 19% to USD
221.2 million. Bluetooth sales were negatively affected by
trade uncertainties and distributor inventory adjustments
in the last part of 2018 and the first part of 2019. In the
second half of 2019 the market returned to growth. The
year-on-year growth pattern thus changed considerably
during the year, from a year-on-year decline of 13% in
the first quarter and 1% in the second quarter, to year-
on-year growth of 4% in the third quarter and 36% in
the fourth quarter.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

Going forward the Company expects medium-term
annual growth of 20%-30% for Bluetooth LE and multi-
protocol solutions including Thread and ZigBee.

of 2019. Total cellular development kit shipments since
launch has now passed 10,000,

Revenue from Proprietary wireless products declined
by 22% to USD 59.9 million in 2019, down from USD
77.3 million in 2018. The decline is partly explained
by customer migration from proprietary solutions to
Bluetooth LE. However, the decline was stronger than
anticipated, due to inventory reductions in the sales
channels.

Split by end-product markets, revenue from the short-
range wireless components are divided into Consumer
Electronics, Wearables, Building & Retail, Healthcare,
and Others.

Wireless components revenue by end-product
application, excluding cellular IoT:

USDm

Consumer electronics

Wearables

Building/retail

Healthcare

Other

Total

2019

119.4

50.4

51.6

19.7

40.0

281.1

2018 Change %

111.7

43.8

48.6

22.6

35.6

262.4

15%

-13%

12%

Consumer electronics overall showed 7% growth in 2019.
Most of the company’s proprietary products fall into this
category, and growth for Bluetooth LE products was
considerably higher.

Wearables revenue grew 15% and Building/Retail 7% in
2019, with very high year-on-year growth levels toward
the end of the year.

The Healthcare segment declined by 13% in 2019.
This portfolio is still quite narrow and dependent on
a small number of customers. One of the company’s
main Healthcare clients is currently between product
generations, and volumes are expected to pick up in the
second half of 2020.

The ‘Other’ segment increased 12%, mainly reflecting
increased revenue from 88 different modules produced
by our module partners.

Cellular IoT is still in an early stage of commercialization,
and the company focuses on KPIs such as the volume of
cellular development kit shipments and the number of
customer projects rather than revenues.

the nRF9160

shipments of

cellular
Combined
development kit and the cellular prototyping tool
Nordic Thingy:91 amounted to approximately 8,300
units in 2019. Shipments in the second half of the year
accounted for two thirds of this, and for more than 10%
of total development kit shipments in the second half

Sales of ASIC products declined by 24% in 2019. The
Company has not designed new ASICs since 2014 and
future revenue hence depend on demand from existing
customers and applications. ASIC sales and consulting
services combined accounted for 2% of Group revenue
in 2019.

Gross profit

USDm

Gross Profit

Gross Margin

2019

2018

Change%

146.8

135.0

50.9% 49.8%

1.1%p.p.

Nordic Semiconductor had targeted a gross margin
of 50% and exceeded this level in 2019. Gross profit
amounted to USD 146.8 million, which was an increase
of 9% from the previous year. The gross margin hence
increased to 50.9% from 49.8% in 2018.

The gross margin was stable around the full-year level
in the first half of the year, before dropping below 50%
in the third quarter and rebounding in the final quarter
of the year. The dip in the third quarter mainly reflected
increasing volume calls from tier-1 customers under
agreements that on average carry a lower gross margin.
In the fourth quarter this was more than balanced by
a favorable product mix, with a higher share of more
advanced chips such as the nRF52840.

Going forward the company expects to see changes
in product mix continuing to generate fluctuations
between quarters, and that higher tier-1 volumes will
translate into a reduction in gross margin for the short-
range business to 48%-50% in the medium-term.

The long-range module-based business model is
expected to have lower gross margins in the range of
35%-40%, with the effect on the total gross margin for
the Group depending on the pace of the volume ramp.

Operating expenses

USDm

Payroll expenses

Other OPEX

OPEX excl. D&A

Depr. & Amort.

Total

2019

80.3

33.7

113.9

23.5

137.5

2018 Change %

70.0

34.2

104.2

16.7

121.0

15%

-2%

41%

14%

Operating expenses amounted to USD 113.9 million in
2019, excluding depreciation and amortization. This was
an increase of 9% from USD 104.2 million in 2018.

The higher expenses mainly reflect a 12% increase in
the number of employees from 685 to 767 during the
year, which in turn reflects increased R&D activity and

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

strengthened sales efforts for both Bluetooth and
cellular IoT.

Measured by function, expensed R&D accounted for
USD 73.5 million of operating expenses, compared to
USD 64.1 million in 2018.

R&D is expected to continue to increase in absolute terms
for both the short-range and long-range businesses.
The R&D intensity, however, is expected to decline
from a peak level in 2019, measured as a percentage
of revenue.

Sales, general and administration (SG&A) expenses
increased to USD 40.5 million from USD 40.2 million in
2018. SG&A is also expected to continue the increase
in absolute terms, as the Company builds up its long-
range organization. However, increased operational
leverage is expected to reduce the cost as a percentage
of revenue going forward.

Total cash operating expenses amounted to USD 123.4
million, when adjusting for non-cash items, capitalized
development expenses, equity-based compensation,
and depreciation and amortization. This was an increase
from USD 116.0 million in 2018. Cellular IoT accounted for
USD 30.4 million of total cash operating expenses in
2019, compared to USD 26.8 million in 2018.

Nordic capitalized USD 11.3 million in 2019, down from
USD 13.0 million in 2018. Option expense for equity
based compensation was USD 1.8 million, compared
to USD 1.2 million in 2018. Please see the section on
Alternative Performance Measures for more details.

IFRS

Effective January 1, 2019 the Group implemented
accounting according
16- Leases. This
to
reduced operating expenses before depreciation and
amortization by USD 4.4 million for the full year and
increased depreciation and amortization by USD 3.8
million. The effect on profit before tax was USD 22,000.
Reported numbers for 2019 are in accordance with IFRS
16 but no adjustments have been made to the 2018
numbers. Please see note 1 for a detailed overview of
the 2019 effects.

EBITDA and Operating profit

USDm

EBITDA

EBITDA-margin

Adjusted EBITDA

2019

32.8

11.4%

57.6

Adj. EBITDA-margin

20.0%

Operating profit

EBIT-margin

9.3

3.2%

2018 Change %

30.8

11.4%

47.7

17.6%

14.0

5.2%

19%

2.4%-p

-35%

-2.0%-p

interest,

Earnings before
tax, depreciation and
amortization (EBITDA) amounted to USD 32.8 million,
an increase from USD 30.8 million in 2018. The
corresponding EBITDA-margin was flat at 11%.

Adjusted for negative EBITDA of USD 24.7 million in the
long-range (cellular IoT) business, the EBITDA was USD
57.6 million and the margin 20%. This compared to an
adjusted EBITDA of USD 47.7 million and a margin of
18% in 2018.

The Company has a long-term EBITDA margin ambition
of 20% for the Group.

Depreciation and amortization amounted to USD 23.5
million in 2019, compared to USD 16.7 million in 2018. The
introduction of IFRS 16 Leasing accounting increased
depreciation and amortization by USD 3.8 million
compared to 2018. Please see note 21 for further details.

Operating profit (EBIT) hence amounted to USD 9.3
million, compared to USD 14.0 million in 2018.

Net financial items

USDm

Net interest

Net foreign exchange

Net financial items

2019

2018

0.8

-0.4

0.4

1.4

-0.3

1.0

Net interest declined slightly from 2018 to 2019, mainly
due to a lower average cash balance.

Profits and taxes

USDm

Profit before tax

Income tax expense

Net profit after tax

2019

2018

9.7

-2.4

7.3

15.1

-6.2

8.9

The Group recognized tax charges of USD 2.4 million,
corresponding to an average tax rate of 25%. This
compares to USD 6.2 million and an average tax rate
of 41% in 2018.

The tax return is prepared in NOK, with currency effects
on taxable profit the main explanation for the deviations
from the nominal tax rate of 23%.

Tax payable amounted to USD 3.9 million, compared
to USD 6.1 million in 2018, with the balance reflecting
changes in deferred tax and tax benefit.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

Financial position
Balance sheet
Nordic has total assets of USD 318.4 million at the end
of 2019, of which USD 219.6 million in current assets and
USD 98.8 million non-current assets.

These assets were financed by total equity of USD 232.2
million at the end of 2019, non-current liabilities of USD
20.2 million and current liabilities of USD 66.0 million.

Current assets stood at USD 219.6 million at the end of
2019, compared to USD 205.5 million at the end of 2018.
This included cash and cash equivalents of USD 90.6
million at the end of the year, down from USD 103.9
million at the end of 2018.

Inventory increased to USD 53.1 million from USD 42.7
million at the end of 2018 and accounts receivables to
USD 64.5 million from USD 51.8 million at the end of
2018.

Overall, net working capital amounted to USD 70.2
million, compared to USD 61.3 million at the end of
2018. Measured as a percentage of full year revenue,
net working capital increased to 24.3% from 22.6%
at the end of 2018. This reflects a significantly higher
activity and sales level towards the end of 2019 than in
2018, and a significantly higher year-end order backlog
requiring a higher inventory.

Non-current assets amounted to USD 98.8 million at the
end of 2019, compared to USD 61.7 million at the end of
2018. The increase is mainly explained by the inclusion
of USD 23.9 million of right-of-use assets as a result of
the implementation of IFRS 16 -Leases with effect from
January 1, 2019.

Fixed assets increased to USD 26.6 million from USD
17.6 million, which mainly reflects the finalization of the
new lab facilities in Trondheim. Software and other
intangible assets declined to USD 11.4 million from 15.1
million, reflecting amortization in the period.

Capitalized development expenses increased to USD
34.0 million from USD 27.7 million at the end of 2018.
Total shareholders’ equity amounted to USD 232.2
million at the end of 2019, up from USD 221.5 million
at the end of 2018. The Group equity ratio was hence
72.9%, compared to 82.9% at the end of 2018. The
decline is mainly explained by the higher asset base as
a result of IFRS 16 - Leases.

Total liabilities amounted to USD 86.2 million, compared
to USD 45.6 million at the end of 2018. The increase is
mainly driven by the implementation of IFRS 16.

Non-current liabilities increased to USD 20.2 million
from USD 0.3 million, of which USD 19.9 million reflect
the non-current portion of lease liabilities after the
implementation of IFRS 16, and the remainder pension
liabilities.

Current liabilities increased to USD 66.0 million from USD
45.3 million, of which current lease liabilities accounted
for USD 4.0 million. The remainder of the increase is
explained by an increase in accounts payable to USD
19.7 million from USD 10.4 million at the end of 2018,
which in turn reflects the increased activity and sales
level.

Cash flow and funding

USDm

Net cash flow from:

Operating activities

Investing activities

Financing activities

Currency adj.

Net change in cash and cash
equivalents

Cash and cash equivalents 1.1

Cash and cash equivalents 31.12

2019

2018

19.7

-31.5

-1.5

-12.2

103.9

90.6

30.5

-30.5

66 8

0.4

67.2

36.7

103.9

Cash flow from operating activities was USD 19.7 million
in 2019, compared with USD 30.5 million in 2018. The
somewhat reduced cash conversion is explained by
working capital developments in the respective periods,
with significantly higher activity towards the end of year
than in 2018.

Cash flow used for investing activities was USD 31.5
million in 2019, compared to USD 30.5 million in 2018.
Capital expenditure increased to USD 20.2 million from
USD 17.5 million, including software, whereas capitalized
development expenses declined to USD 11.3 million from
USD 13.0 million.

Cash flow from financing activities was a negative USD
1.5 million, reflecting that USD 3.9 million repayment of
lease obligations was partly counterbalanced by USD
2.4 million cash inflow from sales of treasury stock. In
2018 the company saw a cash inflow of USD 66.8 million,
mainly reflecting the effect of a share issue, repayment
of debt and purchase of treasury shares.

Including the effect of exchange rates, net change in
cash and cash equivalents was a cash outflow of USD
13.2 million in 2019, compared to a cash inflow of USD
67.2 million in 2018.

Cash and cash equivalents hence declined to USD 90.6
million at the end of 2019, from USD 103.9 million at
the end of 2018. The cash is mainly held in the Group’s
functional currency USD, in order to minimize the impact
of currency fluctuations.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

In addition to cash at hand, Nordic has undrawn
revolving credit facilities (RCFs) of USD 40 million
and USD 25 million, and an unutilized EUR 10 million
overdraft facility with the company’s main bank.
Including these credit lines, available cash amounted
to approximately USD 167 million at the end of 2019,
compared to approximately USD 169 million at the end
of 2018. Both RCFs expire in November 2022, the USD
40 million facility was refinanced in December 2019. The
only financial covenant on the RCFs is for the company
to maintain an equity ratio above 40%, which compares
to the actual equity ratio of 73% at the end of 2019.

Tight cash management is a key priority for the Group,
as a strong financial position is required to realize the
Company’s strategic priorities and growth opportunities.
The Board of Directors’ assesses the liquidity position
as adequate given the company current activity level,
investment plans, and business outlook.

Allocation of net profit for parent company
The parent company Nordic Semiconductor ASA has a
net profit after tax of USD 4.3 million in 2019, compared
to USD 6.4 million in 2018.

The entire net profit is attributable to the equity holders
of the parent. Net profit after tax corresponds with
ordinary and fully diluted earnings per share of USD
0.042 for 2019. This compares to ordinary earnings per
share of USD 0.051 and fully diluted earnings per share
of USD 0.049 in 2018.

Nordic pursues an ambitious long-term growth strategy
which requires significant investments in R&D and sales
and marketing. The Board of Directors recommends
that Nordic maintains a solid balance sheet with a
high equity ratio and a cash reserve that enables the
company to continue driving its technology and product
roadmap.

The Board of Directors will hence propose to the Annual
General Meeting that the net profit of the parent
company is transferred to ‘Other equity’, and that no
dividend is distributed for 2019.

Risk Management
The Board of Directors oversee the risk management
process and carries out biannual reviews of the Group’s
most important areas of exposure and internal controls.
In addition, the Board receives regular updates and risk
assessments in board meetings. Nordic complies fully
with the Norwegian Code of Practice for Corporate
Governance.

Risk Factors
Based on the information currently known to us, we
believe that the following information identifies the most
significant risks affecting our business. Any of the factors
described below, or any other risk factor discussed
elsewhere in this report, could have negative impact on
our results or on our outlook.

Four major groups of risks are identified within the
Group: Strategic, Operational, Financial and Legal &
Compliance. Some of the risks are outside of Nordic’s
control, including industry and specific cyclical risks.

Strategic risk
Demand for semiconductors and electronic products is
sensitive to global economic conditions and international
trade flows. While the underlying, long-term market
trends point towards increasing demand for Nordic’s
products, the operations are exposed to a variety of
factors with real or perceived impact on the economy.

Geopolitical risk and trade tensions
Challenging global economic conditions and political
unrest and uncertainty can result in reduced demand
for our products. Geopolitical risks and trade frictions,
for example the ongoing trade war between China
and the US, could negatively impact global operations.
This includes selection of sourcing of products, as
the geographic location might be subject to tariffs or
increased costs, which may not be recoverable. In turn
this may lead to reduced demand for our customers'
end products.

During 2019, Nordic saw increased trade tensions having
a negative impact on the industry, particularly in the first
half of the year. Demand temporarily declined, which
resulted in increased risk for obsolete inventories and
excess manufacturing capacity.

Mitigation actions
Nordic actively monitors the geopolitical situation and
is taking actions to reduce the impact on the business,
for example by supporting our customers in optimizing
their value chain.

Coronavirus
The spreading of the coronavirus has increased the
uncertainty in our business outlook. The outbreak, with
origin in China, disrupted industry supply channels in
China. Although this has normalized in China, the
spreading of the virus outside of China, has lead
authorities in a number of countries to enforce strong
measures that are likely to affect global economic
activity for a period of time. This may impact demand
for end-user products in our industry, which in turn could
affect both Nordic’s products, distributor inventories,
and other parts of the industry supply chain. So far, the
company has seen only limited impact on demand and
operations, but a prolonged period of reduced global

activity and product demand may have significant
negative effects on the company’s business and
financial results.

Mitigation actions
During the first quarter of 2020, Nordic imposed strict
travel restrictions worldwide, and limited the number
of physical meetings to a minimum. The organization
is strengthening its capabilities for remote work. Nordic
is continuously monitoring the situation, and will make
necessary supply chain adjustments to optimize its
own production in alignment with any new signals
from governments, manufacturers, customers and
distributors.

Changes in competitive landscape
Nordic Semiconductor’s strategic goal is to maintain or
improve its market share, and remain a leading vendor
of wireless connectivity and embedded processing
solutions for internet connected things.

Nordic has a leading market share in Bluetooth
low energy. The markets in which we operate, are
highly competitive in terms of price, functionality and
software solutions. In a growing market, we face tough
competition from existing competitors as well as new
entrants, mainly from China. With Bluetooth Smart
being adopted across more than 25 identified market
verticals, it is likely that more focused and specialized
competitors gain market share, especially in verticals
where Nordic’s position is weaker.

Mitigation actions
In order to stay competitive and gain market share,
Nordic continues to invest in both products and software.
Over the past years the company has further developed
its products to include support for additional low power
short range connectivity standards, such as Zigbee and
Thread, across its nRF52 Series and its new generation
nRF53 Series. Nordic’s multiprotocol portfolio ensures
that the company is well positioned to benefit from
projects seeking to improve compatibility across the
different standards. Nordic continues to invest around
20% of short-range revenue in R&D. This is required in
order to stay competitive in this market.

As all technology players, we are dependent of
continuous innovation and development, to be able
to bring new products and product enhancements
to our existing portfolio. Our success depends on our
substantial R&D activities, and there can be risk and
uncertainty associated with these.

Risk of Bluetooth being replaced
There is a risk that Bluetooth becomes unattractive
compared to other technologies or is bundled with non-
Nordic technologies. The most immediate threat comes
from various wi-fi standards tightly integrated with
Bluetooth in combo-chipset, but other technologies like
UWB may be a risk factor longer term.

Mitigation actions
Nordic is a part of the Bluetooth Special Interest Group
(Bluetooth Sig), which is continuously developing the
Bluetooth standards. In addition, Nordic has developed
Zigbee and Thread solutions and will continue to
monitor the trends in the market, keeping the product
portfolio relevant.

Cellular IoT
There is a risk that we may not be successful in
executing our strategy to capture the cellular IoT market
opportunity in terms of scale, time and volume. Nordic
launched the nRF91 Series at the end of 2018, which is
Nordic’s first family of low power devices for cellular
IoT. There is still a risk that cellular IoT will not be as
successful as Nordic had hoped for, or that the market
is skewed toward NB-IoT. Customers may choose other
low power wide area network (LPWAN) technologies
or cancel roll-out of products due to lack of available
technologies.

Mitigation actions
Nordic’s solution has integrated LTE-M, NB-IoT, GPS, RF
Front-End and power management into a very small
System in Package (SiP), under the highest security
standards and with significantly higher energy-efficiency
than any comparable products currently on the market.

As carriers continue to roll out LTE-M and NB-IoT
capabilities and certification programs, there are
more and more customers looking to adopt these two
technologies. In order to mitigate the risk of cellular not
being as successful as Nordic had hoped for, Nordic
focuses on delivering user friendly products and works
closely with regulators and carriers to remove barriers
to entry.

Key personnel
In order to deliver on the roadmap we have promised our
customers, we are dependent on attracting talent and
building strong teams. Our employees are a key success
factor for executing our strategy. Losing key employees,
or not being able to attract key competencies, will affect
sales, quality of products or delay time to market.

Mitigation actions
Nordic focuses on talent management and succession
planning, and the evolvement of the organizational
culture. We are continuously improving and adapting
our compensation program to attract and retain key
talent.

Operational risk
Product availability, quality, safety and integrity
Nordic is a fabless semiconductor company, outsourcing
component manufacturing, and relying on distribution
partners for sales to the broad market of original
electronics manufacturers and to end-users.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

Being “Fabless”, Nordic Semiconductor outsources the
capital-intensive production of silicon wafers, packaging
and testing of its products to third-party suppliers, mainly
in South-East Asia. The manufacturing pipeline involves
multiple stages with multiple suppliers. The failure of
any of these third-party vendors to deliver products or
otherwise perform as required, could damage revenue
in the short-term, and customer relationships in the
long-term.

While execution is outsourced, the manufacturing
processes involved often depend on specific toolings
developed and provided by Nordic Semiconductor,
hereunder the chip design itself, as well as certain test
programs and hardware used for quality screening.
Failure on Nordic Semiconductor’s end to provide good
quality or enough quantity of such toolings may have
the same consequences as outlined above.

The main risk is that one supplier cannot deliver
according to requirements due to disasters (natural
disaster, fire, other force majeure situations) or due to
increased demand for supplier’s products, and that
Nordic does not have an alternative source.

Mitigation actions
To mitigate the risk of product shortage, Nordic keeps
a buffer stock of wafers or finished good, which covers
short-term demand. For medium-term demand, Nordic
seeks to have a second sourcing alternative, and
is insured in the event of supply disruption related
to disasters. Nordic’s partners are selected through
extensive qualification programs. Lastly, Nordic has its
own testers, often a bottleneck in production, which
helps improve availability and right quality of the
products.

Product ramp
There is a risk that Nordic is not able to ramp new
products according to customer requirements, either as
volume demands are not met or due to high yield loss.

Mitigation actions
Given the constraint for some key product introductions,
tight control over the New Product Introduction process
is imperative, including quality-assurance during high
volume product ramps. In addition, Nordic has invested
heavily in its own failure analysis lab, to be able solve
any issues as quickly as possible.

IT and cyber risk
Our operations are complex, several critical operations
are centralized and any disruptions to these operations
can impact our ability to deliver products to customers.
Further on, Nordic’s operations are dependent on
a fully reliable IT-infrastructure and that all systems
operate 100%. Downtime can impact development of
new products (delay launch, day to day support to
customers, manufacturing and delivery of end products

to end customers). Activities related to cyber-attacks are
a risk for our day to day operations.

Mitigation actions
Significant effort is put into having the best solutions
for data protection available on the market. We
provide awareness training to employees to reduce
the risk related to human behavior. In order to mitigate
any effects of potential cyber-attacks, Nordic has
implemented disaster recovery and backup routines, and
also seek to maintain appropriate insurance coverage.

Financial risk
Nordic’s strategy and growth ambitions require an
adequate cash position to fund the R&D activities
needed to drive the technology and product roadmaps
forward.

Maintaining a solid R&D cash coverage, measured as
cash holding divided by R&D spending, is necessary
to pass the procurement due diligence of tier-one
customers. Tier-one customers are expected to make up
an increasing part of the revenue base going forward.

At the end of 2019, the R&D cash coverage was 1.22X,
down from 1.35x at the end of 2018. Available cash at
the end of 2019 was approximately USD 167 million,
including credit facilities described above under ‘Cash
Flow and Funding’. The Board of Directors assesses the
current liquidity risk as low.

Interest-rate risk
Nordic holds minimal interest-bearing debt, whereas
cash and cash equivalents are held as cash, mainly in
USD. We consider the direct risk associated with interest
rate fluctuations as low.

Foreign currency risk
Nordic is exposed to foreign exchange risk, as our sales
revenue and direct production costs are almost entirely
nominated in USD, whereas our operating expenses
primarily are in NOK and EUR. Hence, fluctuations in the
exchange rates between these currencies may impact
profit margin.

Nordic does not use any financial instruments to hedge
the currency risk. A 1% increase in USD/NOK would –
all other things equal – translate into USD 0.6million in
added profit before tax.

The company presents its accounts in USD, with profits
translated into NOK for taxation purposes.

Credit risk
Nordic is exposed to credit risk related to both its
distributors and certain end-customers. The main
counterparties are leading international distributors of
electronic components based in Asia, and the company
has historically not suffered any significant credit losses.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

Nordic sells to electronics distributors and the 10 largest
distributors (customers) accounted for 90% of the total
revenue in 2019, with no losses on receivables.

Credit monitoring routines are integrated into any new
credit lines, requiring security in the form of payment
guarantees or advance payment requirements if
needed. The company’s receivables are not credit
insured. The credit risk is considered low.

Legal and compliance
With an increasing global presence, focus on governance
and ensuring compliance to foreign, local requirements
is important. Nordic recognizes the importance of
behaving as a good corporate citizen across the globe
and adopts international standards for compliance.

With the introduction of new laws and regulations, there
is a temporary risk that Nordic can be non-compliant,
and as such can be exposed to penalties or rulings
against the company.

In the normal course of business, we are involved in
legal proceedings related to commercial disagreements,
claims related to product quality, intellectual property as
well as governmental inquires. An unfavorable ruling in
any of these cases can have a material impact on our
results.

Our products are complex and vulnerabilities in our
products may not have been detected during product
development and manufacturing. This may result in
damages to our customers revenue and reputation if no
work-around is possible. Customer contracts regulates
our responsibilities, however there is a risk that legal
action can be brought forward representing a material
risk on our results.

Mitigating actions
Nordic follows very high standards in terms of policies,
training and audit in order to secure that our zero-
tolerance policy against fraud and corruption is adhered
to. Our whistleblowing channel is open to the public and
handled by the Executive Management Group.

Investing in lab equipment and testers reduces time
used on fault-finding and enables work-arounds to be
implemented faster. Nordic tries to limit the contractual
liability to an acceptable level in the industry.

Intellectual property rights
The current landscape of intellectual property rights
in and to patents that are essential for the radio
communication standards which Nordic base
its
products on is difficult to navigate in. Most owners of
standard essential patents have decided to only license
the end-device, leaving it up to Nordic’s customers to
get in place third party IP necessary for their products,
instead of enabling Nordic to secure such for the whole
value chain.

Nordic Semiconductor has never been prevented
from selling its established line of products under
any intellectual property rights, and is continuously
investigating any new allegations by patent holders
that Nordic’s products infringe on intellectual property
of others. Nordic is taking steps to ensure that any such
allegations do not prevent the selling, purchasing and
use of our products.

The Bluetooth specifications are intended written so
that all patent claims, which are necessary to implement
them, are held by members of the Bluetooth SIG. Any
necessary claims held by members of the Bluetooth SIG,
are automatically licensed to members like Nordic as
a condition of membership. However, there are other
participants in the industry, that own patents and are
not members of the Bluetooth SIG, who assert their
patents towards companies like Nordic.

The current landscape of both LTE and Bluetooth is
considered when Nordic assesses potential loss in
connection with litigation. While we believe the risk of
loss is minimal due to the company’s vast experience
and prior art from working with Bluetooth and cellular
technology, we will defend any claims asserted against
Nordic vigorously, in light of the inherent uncertainties of
access to licensing on component level.

Mitigating actions
Nordic is a willing licensee, and invites the owners of
standard essential patents for NB-IoT and LTE-M to
license Nordic’s products, based on FRAND terms and
on component level. Nordic Semiconductor ASA is a
member of the Fair Standards Alliance and plays an
active part in raising awareness around the implications
lack of licensing has on the industry. Nordic is, and has
always been, an active contributor to standard setting
organizations, promoting openness and availability for
all to standard essential patents.

Personnel and organization
The Group had 767 employees at the end of 2019, an
increase of 12% from 685 at the end of 2018.

The increase reflects increased R&D efforts in both
the short-range business and cellular IoT, as well as
increased Sales & Marketing resources.

The number of R&D personnel increased by 9% to 563
during 2019, representing 73% of the total number of
employees. The Sales & Marketing staff increased
by 13% to 113 people at the end of the year, with the
remaining 91 working in administration and other staff
functions.

At year end 2019, 376 or 49% of the employees were
employed outside of Norway, compared to 319 or 47%
of the employees at the end of 2018.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

The Executive Management consists of 8 men and 2
women, whereas the Board of Directors consists of 4
male and 3 female shareholder elected members, and
4 male employee-elected members.

At the end of 2019, Nordic had 107 female employees
(89), corresponding to 14% of the total number of
employees (13%).

61 women were employed in the Norwegian operation
(57), corresponding to 15% of the workforce in Norway
(16%). The relatively skewed gender balance in the
workforce must be viewed in an industry context. In
Norway, women represent around 33% of science
and engineering professionals but only around 15% of
science and engineering associate professionals.

46 women were employed outside of Norway (33),
corresponding to 12% of the workforce in Finland,
China, Hong Kong, South Korea, Japan, the Philippines,
Taiwan, Switzerland, Poland, the UK, the Netherlands
and the US.

Gender equality is a fundamental principle for the
Group, and efforts are being made to ensure that there
is no gender bias in the recruitment processes.

Nordic continuously work on employer branding
development, with emphasis on promoting gender
equality and employee diversity, and sees an increase
in the number of applications from female students and
graduate candidates.

Nordic participates in the Norwegian University of
“Jenteprosjektet Ada”,
Science and Technology’s
which aims to recruit, motivate and educate females
within the Norwegian IT industry. From 2020, Nordic
also participates in ‘Womens Directory’, a Global
Semiconductor Alliance initiative targeted at women in
the semiconductor industry.

Within the R&D functions in Norway, the average salary
for women is 95% of the average salary for males, which
is due to differences in seniority. The average salary
for female employees in all functions was 76% of the
average salary for male employees (83%), excluding
executive management. Gender difference in salary can
be explained both by function and location. A larger
relative proportion of the women in administrative
functions are based in the Philippines, where the salary
level is below the Group average.

To ensure a good working environment, the organization
seeks to maintain well-functioning cooperation and
open communication lines between management and
employee representatives and ensure that any issues
and challenges are being addressed at an early stage.

Sick leave remained below industry averages in 2019
with absence due to illness of 2.4% (2.2%). No
occupational illnesses or injuries were reported in 2019.

Corporate Social Responsibility (CSR)/

Environmental Social and Governance (ESG)

Nordic has a high focus on environmental and social
responsibility. The company’s commitments to CSR
and ESG topics are established in adherence to the
UN Global Compact’s (UNGC) ten principles on
human rights, labor, environment and anti-corruption,
the Responsible Business Alliance’s (RBA) Code of
Conduct for social, environmental, and ethical issues
in the electronics industry supply chain, and Nordic’s
Corporate Social Responsibility policy and other
company policies.

The framework is established in the ISO-certification of
the company’s management systems for Quality (ISO
9001), Environmental (ISO 14001), Occupational Health
and Safety (ISO 45001), and Information Security (ISO
27001). These standards enable a systematic approach
to improvement of the company’s business processes
and performance on ESG
include
hazardous substances, GHG emissions, responsible
sourcing of minerals, diversity, health & safety, anti-
corruption, non-retaliation, IP-protection, data privacy,
responsible supply chain, and transparency.

topics, These

identifying and addressing

Along with the commitment to UN Global Compact
principles and its ambitions for greater engagement,
Nordic Semiconductor in 2019 started a program
the UN
supporting,
Sustainable Development Goals (SDGs). While the initial
focus has been on identification and prioritization of the
most relevant SDGs with a qualitative approach, Nordic
targets to establish more quantitative measures of the
SDGs contribution going forward.

For further information, please refer to the separately
prepared ESG Report for 2019, which is prepared in
accordance with the UNGC, RBA Code of Conduct, and
the Norwegian Accounting Act, Section 3-3. The report
also represents the company’s official Communication
on Progress as a signatory to the UN Global Compact.

The ESG Report is available on www.nordicsemi.com,
along with the company’s CSR policy, the RBA Code of
Conduct, the ten principles of UN Global Compact, the
UN Global Compact letter of commitment.

Corporate Governance
Nordic’s guidelines and practices
for Corporate
Governance comply fully with the Norwegian Code of
Practice for Corporate Governance (“the Code”), dated
17 October 2018.

The guidelines also meet the disclosure requirements
of the Norwegian Accounting Act and the Securities
Trading Act.A thorough review of the guidelines and
compliance with the Code is included as a separate
section in this Annual Report.

Shareholder Matters
The Nordic Semiconductor share is listed on the Oslo
Stock Exchange (OSE) under the ticker NOD. Total return
for the Nordic share was 93% in 2019, compared to an
14% increase for the Oslo Stock Exchange (OBX) and
an 62%, increase for the PHLX Semiconductor Sector
Index (SOX).

The Nordic share closed at NOK 55.7 at year-end 2019,
corresponding to a market capitalization of NOK 10.0
billion.

Nordic had 175.7 million shares outstanding at the end
of 2019, of which 4.1 million treasury shares. Purchase of
treasury shares is viewed as an effective way to cover
the obligations related to equity-based compensation.

On the Annual General Meeting in April 2019 the
Board was given the authorization to purchase own
shares, and to hold treasury shares within the limits of
the Norwegian Public Limited Liability Companies Act.
The company will seek the same approval on the 2020
Annual General Meeting.

Nordic had approximately 3 300 shareholders at the
end of 2019, compared to 3 400 at the end of 2018. The
top 20 shareholders held 60.9% of the registered shares.

74.9% of the shares were held by institutions and
individuals based in Norway, down from 80.1% in 2018.
The below table outlines the geographical split of our
shareholder base. The geographical split is based on
results from our shareholder analysis vendor, are is
looking at data per 30th November 2018 and data per
1st December 2019.

Region

Norway

USA

Other Europe

England

Sweden

Rest of World

1st December 2019

74.9%

12.4%

4.5%

2.6%

2.5%

1.0%

Nordic aims to have an open dialog with shareholders
and investors. Through active communication with the
capital market and shareholders in 2019, Nordic ensured
that all relevant information required for external
evaluation of the company was published in accordance
with applicable rules and guidelines issued by the Oslo
Stock Exchange.

The company hosted well attended and webcasted
interim result presentations each quarter, and a
thorough Capital Markets Day outlining the longer-
term strategy and business outlook in connection with

the presentation of the third quarter results in October.
The company also conducted investor roadshows both
in Norway and internationally in connection with the
interim results and participated on a number of industry
and investment seminars during the year.

Environmental statement
Nordic is a fabless semiconductor company and does
not own or operate manufacturing facilities. The direct
environmental effect of the Group’s operations is hence
limited.

Manufacturing is outsourced to leading third-party
providers, required to operate in compliance with the
ISO 14001 environmental standards and under other
certifications and qualifications.

Nordic seeks to limit its resource consumption, prevent
unnecessary environmental pollution and manage
waste in an environmentally friendly and resource
efficient manner.

The Group has established routines to monitor these
conditions under management systems certified under
ISO 9001, ISO 14001 and OHSAS 18001. Nordic complies
with all current applicable laws and regulations, and
all its products comply fully with the REACH and RoHS
hazardous substance directives. This allows the Group
to market itself as a “Green supplier”, which is an
advantage towards major customers subject to stringent
environmental standards of operation.

In line with the recommendation of the Oslo Stock
Exchange, the Board of Directors has prepared a
separate report on corporate social responsibility including
employee and environmental considerations. The report
can be downloaded from www.nordicsemi.com.

Outlook
Revenue growth rebounded in the second half of 2019
after a disappointing start to the year, and Nordic
Semiconductor ended the year with all time high revenue
levels and a strong order backlog. While this represented
a strong platform for further growth in 2020, the overall
business environment has been severely affected by the
outbreak of the coronavirus (SARS-CoV-2) in the first
months of the year.

In the initial phase, the virus outbreak in China led to
temporary value chain disruptions which increased the
uncertainty in the near-term revenue outlook. Nordic
accounted for this by introducing a wider than normal
revenue guidance range of USD 64- 71 million for the
first quarter 2020, when the company presented its Q4
results on 7 February 2020. The gross margin for the first
quarter was expected at around 50%.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | REPORT FROM THE BOARD OF DIRECTORS

The guidance range for Q1 2020 remains intact at the
time of writing.

Further disruptions in the value chain or distribution
channels cannot be ruled out given the extent and
magnitude of the measures that the governments in
several countries currently are implementing to prevent
further spreading of the coronavirus. It has become
increasingly clear that these measures will have effects
on the the global economy, and this also affects the
near-term visibility for Nordic Semiconductor.

While Nordic expects revenue from Bluetooth Low
Energy and multiprotocol solutions to grow at an annual
rate of 20-30% in the medium-term, it is difficult to
estimate how changes in consumer spending will affect
the demand for end-user products for the rest of 2020.

Nordic’s proprietary business is expected to continue
to contribute to revenue and profits, although the
contribution is expected to gradually decline as a result
of customer migration to other short-range connectivity
solutions such as Bluetooth Low Energy.

Gross margins for the short-range business is expected
within the 48%-50% range in the medium term.

Looking further ahead, Nordic Semiconductors believes
the evolvement of Internet of Things (IoT) represents
a massive long-term market opportunity that relies on
robust and energy-efficient connectivity solutions.

Nordic Semiconductor is already a leader in short-range
connectivity solutions, with a particularly strong position
in Bluetooth Low Energy and multi-protocol solutions,
which are core technologies in the IoT space.

Nordic’s market position strengthened further in 2019,
with an expanding product portfolio and a customer
base including an increasing number of potentially high-
volume tier-1 customers.

The long-range cellular IoT business is still in the early
stages of commercialization. The technology holds a
large potential, and Nordic’s ambition is to gradually
build this business to a similar size as the short-range
business within five years. Gross margins for this module-
based business is expected at 35%-40% in the medium-
term, with the effect on Group margins depending on
the pace of the volume ramp-up.

Provided supply chains and the markets for Nordic's
products normalize in the aftermath of the coronavirus,
Nordic believes the long-term market outlook and the
company’s own product and customer roadmaps offer
a favorable backdrop for its aspiration to build a USD 1
billion revenue company within five years.

The technology and product roadmaps needed to
fulfill the growth ambitions will continue to require
investments in R&D and sales and marketing, although
the operational leverage is expected to generate higher
operating margins over time. The Company’s long-term
EBITDA margin ambition is 20%.

Oslo, March 18, 2020

Endre Holen
Board member

Birger Steen
Chair

Øyvind Birkenes
Board member

Inger Berg Ørstavik
Board member

Svenn-Tore Larsen
Chief Executive Officer

Jan Frykhammar
Board member

Anita Huun
Board member

Jon Helge Nistad
Board member, employee

Annastiina Hintsa
Board member

Asbjørn Sæbø
Board member, employee

Susheel Raj Nuguru
Board member, employee

Morten Dammen
Board member, employee

Financial
Statements

Income statement (for the year ended December 31)

GROUP

PARENT

2019

2018

Amount in USD 1000

Note

2019

2018

288 395

-141 290

-351

271 134

Total Revenue

-136 111

Cost of materials

-1

Direct project costs

146 753

135 021

Gross profit

289 226

-141 290

-351

147 584

-80 281

-70 048

Payroll expenses

9/10/12/18

-48 735

-33 665

-23 535

9 272

1 910

-1 102

-375

9 706

-2 379

7 327

-34 199

Other operating expenses

-16 727

Depreciation

14 047

Operating profit

1 782

Financial income

-428

-320

Financial expenses

Net foreign exchange gains (losses)

15 081

Profit before tax

-6 222

Income tax expense

8 859

Net profit after tax

Attributable to:

7 327

8 859

Equity holders of the parent

0,04

2019

7 327

-83

-117

0,05

Ordinary earnings per share (USD)

Fully diluted earnings per share (USD)

2018

Statement of comprehensive income

8 859

Net profit after tax

-21

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

Income tax effect

-324

Currency translation differences

5/21

11/12/21

6/22

6/21/22

6/22

271 878

-136 111

-1

135 766

-42 796

-68 546

-13 781

10 642

1 782

-427

-319

11 678

-5 263

-73 695

-19 789

5 365

1 910

-1 018

-373

5 885

-1 577

4 308

6 415

0,03

0,02

2019

4 308

-83

0,04

2018

6 415

-21

7 145

8 519

Total Comprehensive Income

4 243

6 399

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSStatement of financial position (as of December 31)

GROUP

PARENT

2019

2018

Amount in USD 1000

Note

2019

2018

ASSETS

Non-current assets

27 686

Capitalized development expenses

15 063

Software and other intangible assets

1 335

Deferred tax assets

Right of use assets

17 582

Fixed assets

Shares in subsidiaries

33 990

11 408

2 813

23 934

26 625

98 770

61 667

Total non-current assets

53 067

64 519

11 359

90 645

219 589

Current assets

42 679

Inventory

51 784

Accounts receivable

7 155

Other current receivables

103 876

Cash and cash equivalents

205 494

Total current assets

11/22

1/13

14/22

16/22

33 990

11 120

2 429

22 272

22 354

92 208

53 067

64 519

10 045

89 205

216 836

27 686

14 604

1 168

13 530

57 031

42 679

51 784

7 269

100 522

202 254

318 359

267 161

TOTAL ASSETS

309 044

259 285

303

-5

113 355

118 551

EQUITY

303

-5

Share capital

Treasury shares

113 355

Share Premium

107 896

Other components of equity

232 205

221 549

Total equity

LIABILITIESIABILITIES

Non-current liabilitiesn-current assets

310

19 886

20 196

19 738

3 136

3 761

4 044

35 279

65 958

86 155

279

Pension liability

Non-current lease liabilities

279

Total non-current liabilities

Current liabilitiesn

10 424

Accounts payable

5 043

Income taxes payable

2 901

Public duties

Current lease liabilities

26 966

Other current liabilities

45 333

Total current liabilities

45 612

Total liabilities

20/22

15/20

303

-5

113 355

108 101

303

-5

113 355

100 718

221 754

214 370

310

19 085

19 396

17 988

2 886

3 181

3 142

40 696

67 894

87 289

279

9 681

4 854

2 471

27 630

44 636

44 915

318 359

267 161

TOTAL EQUITY AND LIABILITY

309 044

259 285

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSOslo, March 18, 2020

Endre Holen
Board member

Birger Steen
Chair

Øyvind Birkenes
Board member

Inger Berg Ørstavik
Board member

Svenn-Tore Larsen
Chief Executive Officer

Jan Frykhammar
Board member

Anita Huun
Board member

Jon Helge Nistad
Board member, employee

Annastiina Hintsa
Board member

Asbjørn Sæbø
Board member, employee

Susheel Raj Nuguru
Board member, employee

Morten Dammen
Board member, employee

2222

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNordic Semiconductor Group

Consolidated statement of changes in equity

Amount in USD 1000

Share
capital

Treasury
shares

Share
premium

Other paid
in capital

Currency
translation
reserve

Retained
earnings

Total
equity

Equity as of 01.01.18

283

-2

14 436

2 094

134

108 008

124 953

Net profit for the period

Other comprehensive income

Purchase of treasury share

Issue of share capital

Share based compensation

Equity as of 31.12.18

Net profit for the period

Other comprehensive income

Sale of treasury shares (option
exercise)

Share based compensation

303

98 919

113 355

-4

-5

Equity as of 31.12.19

303

-5

113 355

8 859

-324

-16

-12 071

-341

-12 075

98 939

1 214

-190

104 780

221 549

7 327

-119

-65

-184

2 106

1 407

-309

112 042

232 205

1 213

3 307

2 105

1 407

6 819

Share
capital

Treasury
shares

Share
premium

Other paid
in capital

Retained
earnings

Total
equity

283

-2

14 436

541

104 999

120 258

Nordic Semiconductor Parent

Statement of changes in equity

Amount in USD 1000

Equity as of 01.01.18

Net profit for the period

Other comprehensive income

Purchase of treasury shares

Issue of share capital

Share based compensation

Equity as of 31.12.18

Net profit for the period

Other comprehensive income

Sale of treasury shares (option exercise)

Share based compensation

Equity as of 31.12.19

303

98 919

113 355

-4

-5

303

-5

113 355

6 415

-16

-12 071

-12 075

98 939

850

99 327

214 370

4 308

-65

4 308

-65

2 106

1 033

103 570

221 754

849

1 391

2 105

1 033

4 530

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS

Statement of cash flows
for the year ended December 31

GROUP

PARENT

2019

2018

Amount in USD 1000

Note

2019

2018

Cash flows from operating activities

15 081

-2 759

16 727

Profit before tax

Taxes paid for the period

Depreciation

11/12/21

5 885

-4 208

19 789

-4 708

Change in inventories, trade receivables and payables

4/14/20/22

-14 816

9 706

-4 846

23 535

-13 798

1 100

3 950

19 678

-20 182

-11 271

1 231

-30

Share-based compensation

Movement in pensions

4 974

Other operations related adjustments

30 516

Net cash flows from operating activities

Cash flows used in investing activities

-17 530

Capital expenditures (including software)

-12 993

Capitalized development expenses

-31 454

-30 523

Net cash flows used in investing activities

2 412

-12 075

Changes in treasury shares

Cash flows from financing activities

98 939

Capital increase

-32

Cash settlemet of options contract and issue of share capital

-3 906

Repayment of interest bearing debt

-20 000

Interest bearing debt

-1 494

66 832

Net cash flows from financing activities

357

Effects of exchange rate changes on cash and cash equivalents

-13 232

103 876

67 181

Net change in cash and cash equivalents

36 695

Cash and cash equivalents as of 1.1.

11 678

-2 759

13 781

-4 748

882

-30

7 243

26 046

-14 384

-12 993

-27 377

-12 075

98 939

-32

726

10 340

17 748

-17 233

-11 271

-28 504

2 412

-2 972

11/12

-20 000

-560

66 832

-11 316

100 522

65 501

35 020

90 644

103 876

Cash and cash equivalents as of 31.12.

16/22

89 205

100 522

1 847

1 560

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

1 847

1 560

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 1: Basis for preparation

Nordic Semiconductor ASA is a public limited company
whose shares are listed on the Oslo Stock Exchange with
ticker code NOD. The Company is domiciled in Norway, and
the registered head office is at Otto Nielsens vei 12, 7052
Trondheim.

Accounting standards adopted in 2019
The Group has adapted new accounting standard issued
by the International Accounting Standards Board, IFRS 16
Leases effective January 1, 2019. The nature and effect of
the changes as a result of adoption of this new accounting
standard is described below.

includes

The Group
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 for the Group have been prepared
International Financial Reporting
in accordance with
Standards (“IFRS”) as endorsed by the European Union and
Norwegian authorities and are effective as of 31 December
2019. The consolidated financial statements also comply with
IFRS as issued by the International Accounting Standards
Board (“IASB”) and the disclosure requirements as specified
under the Norwegian Accounting Law (Regnskapsloven).

The consolidated financial statements are presented in US
dollars (“USD”), which is the functional currency of the parent
company. All USD amounts are rounded 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.

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 its revenues in the geographical areas in
which its distributors are located.

The financial accounts were audited and approved for
publication by the Board of Directors on March 18 2020,
and will be presented for approval at the Annual General
Meeting on April 21, 2020.

IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining
whether an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance
of Transactions Involving the Legal Form of a Lease.
The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases and
requires lessees to recognize most leases on the balance
sheet.

The Group adopted IFRS 16 using the modified retrospective
method of adoption, with the cumulative effect recognized
at the date of initial application. Comparative figures are
not restated and the cumulative effect of initially applying
the standard is recognized as an adjustment to the opening
balance of retained earnings (or other component of equity,
as appropriate) at the date of initial application.

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)

21 010

Liabilities

Lease liability

21 010

The Group has lease contracts for offices, office machinery
and equipment and vehicles. The main leases recognized in
the balance sheet are the different office leases.

Before the adoption of IFRS 16, the Group classified each
of its leases (as lessee) at the inception date as either a
finance lease or an operating lease.

Upon adoption of IFRS 16, the Group applied a single
recognition and measurement approach for all leases
except for short-term leases and leases of low-value assets.
The Group has leases of certain office equipment (i.e., copy
machines, coffee machines etc.) that are considered of low
value.

The standard provides specific transition requirements
and practical expedients, which have been applied by the
Group.

reasonably similar characteristics

Used a single discount rate to a portfolio of leases with
Relied on its assessment of whether leases are onerous

immediately before the date of initial application

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS Applied the short-term leases exemptions to leases with

lease term that ends within 12 months of the date of
initial application

assets. The right-of-use assets were recognized based on
the amount equal to the lease liabilities, and the assets are
depreciated on a straight line basis over the lease term.

of the right-of-use asset at the date of initial application

Excluded the initial direct costs from the measurement
Used hindsight in determining the lease term where the

contract contained options to extend or terminate the
lease

The Group recognized right-of-use assets and lease
liabilities for those leases previously classified as operating
leases, except for short-term leases and leases of low-value

Lease liabilities were recognized based on the present value
of the remaining lease payments, discounted using the
incremental borrowing rate at the date of initial application.
If the expected lease payments change as a result of
index-linked consideration, the liability is remeasured. The
weighted-average incremental borrowing rate for lease
liabilities initially recognized as of January 1, 2019 was 4.05
% p.a.

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

Recognition exemption for:

Short-term leases

Leases for low-value assets

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

Lease liability recognized at January 1, 2019

IFRS 16 EFFECTS ON THE INCOME STATEMENT

Amount in USD thousand

Other Operating expenses

EBITDA

Depreciation

EBIT

Interest expense

Foreign exchange adjustments

Profit before tax

30 182

-250

-380

-8 541

21 010

2019

4 381

-3 853

528

-834

328

Accounting standards and interpretations issued but not adopted as at December 31, 2019
Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform.

The amendments to IFRS 9, IAS 39 and IFRS 7 have a mandatory effective date of January 1, 2020. The changes in regulations
will not have any impact for the Group.

However, the Group will have to negotiate a new reference rate for bank loan facilities and apply a new discount rate for
additions for IFRS 16 Leases when LIBOR is replaced.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 2: Significant Accounting Principles

2.1 Basis of consolidation
The consolidated financial statements incorporate the
results, cash flows and assets and liabilities of the parent
company and its subsidiaries.

A subsidiary is an entity that is controlled, either directly
or indirectly, by the parent company. Control exists when
the parent company 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 to direct
the relevant activities of the investee. Generally, such power
exists where the parent company holds a majority of the
voting rights of an investee.

Subsidiaries are consolidated from the date control is
obtained until the date that control ceases. All subsidiaries
are wholly owned by the parent company and there are
no non-controlling interests. Intercompany transactions,
balances and unrealized gains on transactions between
group companies are eliminated.

2.2 Significant accounting judgements,
estimates and assumptions
The preparation of financial statements requires that
management uses judgement, estimates and assumptions
that effect the amounts reported in the financial
statements and its disclosures. 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 2.4

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 as follows.

Variable consideration for “Ship and Debit”
When a distributor sells components to specified customer
accounts, the distributor will receive an additional rebate
after the sale is made, commonly known as a “Ship and
Debit” rebate. In estimating the variable consideration, the
Group is required to use the expected value method. The
Group estimate the rebate based on historical discounts
to each distributor, the distributors’ inventory level as of
31 December 2019 and expected sales mix. An estimate
for this rebate is provided in the accounts, reducing the
revenue and increasing refund liabilities. See Note 3.3.

Development costs
Development costs are capitalized in accordance with the
principles in Note 2.5.

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 future technological
development in the market.

During 2019 USD 11.3 million was capitalized, mainly related
to the long-range cellular IoT products. The carrying
amount of capitalized development costs as of December
31, 2019 and 2018 was USD 34 million and USD 27.7 million
respectively.

Leases - Estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit
in the lease, therefore, it uses its incremental borrowing
rate (IBR) to measure lease liabilities. The IBR is the rate of
interest that the Group would have to pay to borrow over a
similar term, and with a similar security, the funds necessary
to obtain an asset of a similar value to the right-of-use
asset in a similar economic environment. The IBR therefore
reflects what the Group ‘would have to pay’ , which requires
estimation when no observable rates are available (such as
for subsidiaries that do not enter into financing transactions)
or when they need to be adjusted to reflect the terms and
conditions of the lease (for example, when leases are not in
the subsidiary’s functional currency). The Group estimates
the IBR using observable inputs (such as market interest
rates) when available and is required to make certain
entity-specific estimates (such as the subsidiary’s stand-
alone credit rating).

2.3 Foreign currency translation
Each entity within the Group has a functional currency,
which is normally the currency in which the entity primarily
generates and expends cash. The parent company is the
most significant entity in the Group, and its functional
currency is USD.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS

At entity level, a foreign currency is a currency other than
the entity’s functional currency. Transactions in the profit
and loss statement denominated in foreign currencies are
recorded in the entity’s functional currency at the exchange
rate prevailing at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
translated at the exchange rate prevailing at the balance
sheet date. Currency translation differences arising at entity
level are recognized in profit or loss.

The Group’s presentation currency is USD, and foreign
operations are those of the parent company’s subsidiaries
and branches whose functional currency is not the USD.
On consolidation, assets and liabilities of foreign operations
are translated into USD according to the exchange rates
prevailing on the balance sheet date. 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
and taken to the currency translation reserve.

2.4 Revenue recognition
The Group is in the business of developing and selling
integrated circuits. Revenue from customers is mainly
generated from sale of products. Services delivered consists
of consulting services.

The Group and the customer do not receive financing from
the sales, and therefore there are no significant financing
components to be accounted for separately from the
revenue transaction. The normal credit term is 30-60 days
upon delivery. In other terms, the sale contracts do not
require the customer to pay in advance, and the contract do
not require the customer to pay significantly after delivery.

Sale of products
Sales of products are mostly made direct to distributors
(“customer”). Revenue from the sale of products is recognized
when control of the goods is transferred to the customer
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
is 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 recognized on the sale of products is measured at
the fair value of the consideration received or receivable,
excluding sales taxes and after making allowance for
variable considerations such as rebates and product returns.

Ship and debit rebate
The Group sells products to certain distributor on “ship and
debit” terms. It means that the distributor may be entitled to
a rebate if the distributor sells the product to end customers
at a price lower than the price at which the distributor

purchased the products from the Group. The difference in
price is then claimed (debited) by the distributor.

The Ship and Debit rebates are recognized as reduction in
revenue and increase in liabilities before the distributor do
their actual sale to end customers.

Stock rotation rights
Some distributors are entitled to limited rights of return,
referred to as stock rotation rights. 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.

Sale of services
Revenue from services is recognized as the services are
rendered/delivered.

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.

Contract assets are subject to impairment assessment. Refer
to accounting policies on impairment of financial assets in
Note 2.9

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 Note 2.10

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,
less any expected costs to recover the goods, including
any potential decreases in the value of the returned goods.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSThe 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.

2.5 Intangible assets
Research and development expenditure
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. Depreciation is
calculated on a straight-line basis over 5 years. Uncertainty
exists with respect to the expected period of benefits, as
this depends on the future technological development in
the market. During the period of development , the asset is
tested for impairment annually.

Other intangible assets
Other intangible assets comprise computer software. The
assets held by the Group have finite useful lives, and
are carried at cost less accumulated amortization and
impairment losses, if any.

The other intangible assets are amortized on a straight-
line basis over the useful economic life and assessed
for impairment whenever there is an indication that the
intangible asset may be impaired. The estimated useful lives
are normally 3 years.

The amortization period and the amortization method for
intangible assets 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.

2.6. 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.

2.7 Property, plant and equipment
Property, plant and equipment is 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
comprises the purchase price of the asset including fees/
taxes and any direct costs associated with commissioning
the asset for use.

Repair and maintenance costs are expensed when incurred.
If repair and maintenance increase the value of the 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
Leasehold improvements

1-5 years
3-5 years
5 years

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

2.8 Impairment of non-financial assets
The Group assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If
any indication exists, or when annual impairment testing
for an asset is required, the Group estimates the asset’s
recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or cash generating unit’s (CGU) fair
value less costs of disposal and its value in use.

The recoverable amount is determined for an individual
asset, unless the asset does not generate cash inflows that
are largely independent of those from other assets or groups
of assets. When the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS
time value of money and the risks specific to the asset. In
determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples,
quoted share prices for publicly traded companies or other
available fair value indicators.

2.9 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.

The Group is recognizing a financial asset or liability when
it becomes a party to the instrument's contractual terms.

The Group’s financial assets and liabilities includes accounts
receivable and other current receivables, , accounts payable
and other current financial liabilities (borrowings, including
bank overdrafts).

Financial assets
Initial recognition and measurement
At initial recognition, the Group measures a financial asset
at its fair value plus or minus, in the case of a financial asset
not at fair value through profit or loss, transaction costs
that are directly attributable to the acquisition of the asset.
There is an exemption for accounts 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 2.4 Revenue recognition.

Depending of the financial asset’s contractual cash
flow characteristics and the Group’s business model for
managing them, the assets are at initial recognition as
subsequently measured at amortized cost, fair value
through other comprehensive income (OCI) or fair value
through profit or loss.

Financial assets are classified and measured at amortized
cost or fair value through OCI, if it gives 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.

Financial assets designated at fair value through OCI

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

Financial assets at fair value through profit or loss

The only category relevant for the Group is amortized
cost, including accounts receivables and other short-term
receivables.

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 rate (EIR) method and
are subject to impairment. Gains and losses are recognized
in profit or loss when the asset is derecognized, modified
or impaired.

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:

expired, or

The rights to receive cash flows from the asset have
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.

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.

Financial liabilities
Initial recognition and measurement
All financial liabilities are recognized initially at fair value
and, in the case of loans and borrowings and accounts
payables, net of directly attributable transaction costs.

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

of cumulative gains and losses (debt instruments)

Subsequent measurement
All financial liabilities are measured at amortized cost,
except for financial liabilities at fair value through profit or
loss.

After initial recognition, borrowings are subsequently
measured at amortized cost using the EIR method. Gains

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSand 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.

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.

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.

2.11 Cash and cash equivalents
Cash and cash equivalents include cash at banks and in
hand, short- term deposits with an original maturity of three
months or less, which are subject to an insignificant risk of
changes in value.

2.12 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.

2.13 Leases
The Group assesses at contract inception whether a contract
is, or contains, a lease. That is, if the contract conveys the
right to control the use of an identified asset for a period of
time in exchange for consideration.

The Group applies a single recognition and measurement
approach for all leases, except for short-term leases and
leases of low-value assets. The Group recognizes lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.

recognizes

right-of-use assets at

Right-of-use assets
The Group
the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use assets are
measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets includes
the amount of lease liabilities recognized, initial direct
costs incurred, and lease payments made at or before the
commencement date less any lease incentives received.
Right-of-use assets are depreciated on a straight-line
basis over the lease term. If ownership of the leased asset
transfers to the Group at the end of the lease term or the
cost reflects the exercise of a purchase option, depreciation
is calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment, see
note 2.8.

Lease liabilities
At the commencement date of the lease, the Group
recognizes lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease
payments include fixed payments (including in substance
fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a
rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the
exercise price of a purchase option reasonably certain to
be exercised by the Group and payments of penalties for
terminating the lease, if the lease term reflects the Group
exercising the option to terminate. Variable lease payments
that do not depend on an index or a rate are recognized as
expenses in the period in which the event or condition that
triggers the payment occurs.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSIn calculating the present value of lease payments, the
Group uses its incremental borrowing rate at the lease
commencement date because the interest rate implicit in the
lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments
made. In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease
term, a change in the lease payments (e.g., changes to
future payments resulting from a change in an index or rate
used to determine such lease payments) or a change in the
assessment of an option to purchase the underlying asset.

Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition
exemption to its short-term leases (i.e., those leases that have
a lease term of 12 months or less from the commencement
date and do not contain a purchase option) and low-value
assets. Lease payments on short-term leases and leases of
low value assets are recognized as expense on a straight-
line basis over the lease term

2.14 Income taxes
Income tax expenses consist of taxes due and changes to
the deferred tax.

Deferred tax assets and liabilities are calculated based on
the differences between the carrying value of assets and
liabilities in the financial accounts and their tax basis when
such differences are considered at temporary in nature.

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 income tax relating to items recognized in Other
Comprehensive Income (“OCI”) or directly in equity is
recognized outside profit or loss.

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.

time value is insignificant, the amount of the provision will
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.

2.16 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, 2019.

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.

2.17 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.

2.18 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.

2.15 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

2.19 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 2019 | FINANCIAL STATEMENTSNote 3: Revenues

All figures in USD 1000

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 2019, wireless components accounted for 97.5% of sales versus 96.8% in 2018. In addition to standard components, the
Group sells customer-specific ASIC components (Application Specific Integrated Circuits) and related Consulting Services.

The Group recognized the first long-range (cellular IoT) revenue in the second half of 2018. Most of Nordic’s cellular IoT
customers are still in the development phase and revenue from this technology is mainly sale of development kits.
When cellular IoT revenue materialize, Nordic will report the revenue in the relevant end product areas.

GROUP

2019

2018

Revenue

119 409

50 386

51 595

19 725

39 979

111 724

Consumer Electronics

43 838

Wearables

48 646

Building/Retail

22 578

Healthcare

35 618

Others

281 094

262 404 Wireless components

1 046

6 039

216

232

Long-range (cellular IoT)

7 994

ASIC components

504

Consulting services

Management fee

288 395

271 134

Total revenues

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

GROUP

2019

31 464

27 946

2018

33 608

Europe

32 810

Americas

229 014

204 716

Asia/Pacific

288 395

271 134

Total revenues

PARENT

2019

2018

119 409

50 386

51 595

19 725

39 979

111 724

43 838

48 646

22 578

35 618

281 094

262 404

1 046

6 039

216

831

232

7 994

504

744

289 226

271 878

PARENT

2019

32 090

28 094

2018

34 195

32 966

229 042

204 717

289 226

271 878

The Group sells its components to distributors, which then sell components onward to electronics manufacturers which
build end products and sell them to customers across the world. One distributor represented more than 10% of the Group’s
total revenues in 2019 with 28% of total revenues. In comparison, two distributors represented more than 10% of the Group’s
total revenues in 2018 (in total 40%), with 28% and 11% of revenues respectively. These distributors are based in Asia.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSRevenue from contracts with customers classified by timing of revenue recognition:

2019

2018

288 179

270 630

Goods transferred at a point in time

216

505

Services transferred over time

288 395

271 134

Total revenue from contracts with customers

3.2 Contract balances

2019

64 519

2018

51 784

Trade receivables

2019

2018

288 179

270 630

1 047

1 248

289 226

271 878

2019

64 519

2018

51 784

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

2019

13 881

2018

11 393

Refund liability – arising from ship & debit

1 600

Refund liability – arising from stock rotation

2019

13 881

2018

11 393

1 600

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 2019 | FINANCIAL STATEMENTSNote 4: Cost of materials / inventory

All figures in USD 1000

GROUP

2019

2018

151 677

135 003

Purchased materials

-10 387

1 108

Changes in inventory

141 290

19 699

11 559

21 808

136 111

Cost of materials

21 491

Raw material

7 291 Work in Progress

13 898

Finished Goods

53 067

42 679

Total inventory

2 919

1 993

Amount written down

PARENT

2019

2018

151 677

135 003

-10 387

141 290

19 699

11 559

21 808

1 108

136 111

21 491

7 291

13 898

53 067

42 679

2 919

1 993

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

2019

2018

11 264

9 3511

1 428

1 095

5 236

-15

9 033

Service and maintenance

8 011

Other consultancy fees

5 403

Office rental expenses

1 087

Office equipment

4 947

Material and components

-36

Tax grant

-3 495

-3 210

Capitalized development expenses

4 023

4 778

3 811

Travel and meeting expenses

5 153

Other operating expenses

Other operating expenses intercompany

33 665

34 199

Total other operating expenses

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

GROUP

2019

171

2018

106

Statutory audit services

Tax advisory services

Other audit related services

156

Total revenues

PARENT

2019

2018

10 605

6 641

1 023

859

8 478

5 182

4 144

907

4 729

4 483

-15

-3 495

2 635

4 459

-36

-3 210

2 649

4 890

46 254

41 059

73 695

68 546

PARENT

2019

2018

148

128

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 6: Net financial items

All figures in USD 1000

GROUP

2019

1 910

834

268

375

1 477

2018

1 782

Interest income

Financial income

Interest expenses on lease liabilities

428

320

748

Financial expense

Foreign exchange loss (net)

Financial expense

PARENT

2019

1 910

750

268

373

1 391

2018

1 782

427

319

746

433

1 034

Net financial income

519

1036

Note 7: Tax

All figures in USD 1000

GROUP

2019

-3 852

1 473

-2 379

2018

-6 119

Tax expense consists of

Tax payable

-103

Change in deferred tax / tax benefit

-6 222

Tax expense

GROUP

2019

9 706

-2 135

-39

155

2018

Reconciliation of nominal and actual tax expense

15 081

Profit before tax

-3 469

Tax at nominal rate 22 % (23% 2018)

-30

Tax effect of different tax rates in other countries

-153

Tax effect permanent differences

-51

Excess tax provision previous year

Effect of change in tax rate

-405

-2 521

Currency effect from translation to USD

-2 379

-6 222

Tax expense

PARENT

2019

-2 833

1 256

-1 577

2018

-5 160

-103

-5 263

PARENT

2019

2018

5 885

-1 295

11 678

-2 686

-27

-62

-51

-398

-1 577

-2 557

-5 263

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSBalance Sheet

Income Statement

Other Comp. income

2019

2018

2019

2018

2019

2018

645

1 408

707

322

951

453

323

457

254

-11

1 037

-14

-409

-423

1 472

-6

130

-6

-1

202

-25

409

384

-103

Balance Sheet

Income Statement

Other Comp. income

2019

2018

2019

2018

2019

2018

GROUP

Deferred taxes:

Deferred tax benefit

Inventory

Fixed Assets

Leasing

Options (share based payments)

Pension obligation

Accruals

Deferred tax benefit - gross

2 865

1 809

Gain and loss account

Net other tax-obligations

Deferred tax obligation - gross

Currency effect of translation to USD

409

474

Net deferred tax benefit (obligation)

2 813

1 335

Deferred tax expense

PARENT

Deferred taxes:

Deferred tax benefit

Inventory

Fixed Assets

Leasing

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

645

1 024

707

2 481

Net deferred tax benefit (obligation)

2 429

Deferred tax expense

322

784

453

1 642

409

474

1 168

323

241

254

-11

821

-14

-409

-423

1 256

130

-11

-1

205

-25

409

384

-103

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS
GROUP

2019

1 335

1 472

-12

2018

Reconciliation of net deferred tax benefit:

1 516

-104

Opening balance as of 1.1

Tax expense/income recognized in profit and loss

Tax expense/income recognized in other comprehensive income

-82

Currency effect from translation to USD

PARENT

2019

1 168

1 256

-12

2018

1 341

-104

-75

2 813

1 335

Net deferred tax benefit 31.12

2 429

1 168

GROUP

2019

2018

Net deferred tax recognized in OCI as of 31.12:

Net gain/(loss) on actuarial gains and losses

Total tax other comprehensive income

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:

PARENT

2019

2018

2019

2018

7 327

175 313

0,04

7 327

176 394

0,04

8 859

172 591

0,05

8 859

179 454

0,05

Date

2019-01-01

2019-12-31

Balance at beginning of period

Balance at end of period

179 781 600

175 236 600

175 661 690

Number of shares issued

Shares outstanding

Options granted to employees are considered to be potential ordinary shares. They have been included in the
determination of diluted earnings per share if they have been vested at the reporting date, and to the extent to which they
are dilutive. The options have not been included in the determination of basic earning per share. Details relating to the
options are set out in note 19.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 9: Payroll expenses

All figures in USD 1000

GROUP

2019

2018

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

62 556

57 604

Salary and vacation pay

12 846

6 756

-497

6 396

-7 776

11 364

5 904

Other compensation

Payroll tax

-482

Tax grant

5 432

Defined contribution pension

-9 774

Capitalized development expenses (hourly costs)

80 281

70 048

Total

722

641

Weighted average number of full time employees

GROUP

2019

391

188

2018

366

174

Employees as of December 31, are distributed as follows:

Norway

Finland

Poland

USA

Taiwan

Philippines

Hong Kong

China

South Korea

Japan

Sweden

Switzerland

Germany

Spain

The Netherlands

PARENT

2019

2018

37 968

36 412

9 415

8 330

6 421

-497

3 204

-7 776

5 661

-482

2 649

-9 774

48 735

42 796

461

415

PARENT

2019

391

2018

366

767

685

Total

485

442

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 10: Compensation to Group management and Board of Directors

All figures in USD 1000

Total compensation expensed for Board Members

Birger Steen, Chair (from 14.12.2018)

Terje Rogne, Chair (until 24.10.2018)

Inger Berg Ørstavik, Board Member

Endre Holen, Board Member

Jan Magnus Frykhammar, Board Member

Øyvind Birkenes, Board Member

Annastiina Hintsa, Board Member

Anita Huun, Board Member

Tore Valderhaug (Vice Chair until 24.4.19)

Craig Ochikubo, Board Member (until 24.4.19)

Anne-Cecilie Fagerlie, Board Member (until 24.4.19)

Beatriz Malo de Molina, Board Member (until 30.4.18)

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

Asbjørn Sæbø, Board Employee Representative (Board remuneration only)

Susheel Nuguru, Board Employee Representative (Board remuneration only)

Morten Dammen, Board Employee Representative (Board remuneration only)

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

2019

104

2018

Total

446

380

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSTotal compensation* expensed during the year for the CEO and other executives:

2019

Svenn-Tore Larsen, CEO

Pål Elstad, CFO

Svein-Egil Nielsen, CTO & Strategy Director

Geir Langeland, Sales & Marketing Director

Ebbe Rømcke, Quality Director

Ole Fredrik Morken, Supply Chain
Director****

Marianne Frydenlund, Legal Director

Ståle Ytterdal, Director IR & Strategic
Sales****

Kjetil Holstad, Director of Product Management

Katarina Finneng, HR Director (from 1.9.2019)

Total

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***

Salary Bonus Options**

RSU

Other
Compensation

Pension
expenses

Total

394

240

279

255

168

314

130

325

142

583

368

412

383

253

427

190

390

188

2 315

273

265

246

151

3 269

Salary Bonus Options**

RSU

Other
Compensation

Pension
expenses

Total

421

241

226

233

166

304

103

147

314

587

356

338

345

240

409

142

160

120

2 577

Total

1 841

289

*Management compensation is paid in NOK. Exchange rate for 2019: 8.80 and 2018: 8.13
**Option cost is the expense of fair value of options based on Black Scholes calculation
***Until August 2018
**** Includes expat allowances (housing, school, etc.)

Executive Compensation Declaration 2020
The Board has established a People, Leadership and
Compensation Committee to recommend and evaluate
remuneration principles and execution for the CEO and
to guide and evaluate, principles and strategy for the
compensation of Executive Management. Furthermore,
the People, Leadership and Compensation Comittee
evaluates and oversees the overall compensation strategy
for the Group and provides deeper Board oversight other
people and organization related matters. The CEO's total
compensation, and any adjustments, is first reviewed by the
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 in the context of an overall
compensation plan recommended by the Committee and
approved by the Board.

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:

Nordic operates in a highly competitive international
technological market. The Board has approved a reward
strategy document that sets out the guiding principles of
Nordic’s remuneration strategy to support the attraction,
engagement and retention of the relevant talent.

Nordic’s remuneration strategy is based on the principles
of aligning remuneration arrangements with our strategic
drivers and rewarding executives and employees fairly for
their contribution. The Remuneration Strategy is underpinned
by Nordic’s values of Engagement, Contribution, Knowledge,
Respect and Responsibility.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS
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
attract and retain leaders with the desired competence to
the Group’s Executive Management team. Compensation
shall be split between fixed salary, short-term incentives
and long-term incentives. The mix between the short-term
and long-term incentives is set to reward the optimal value
creation for our shareholders.

The Group has established an annual performance bonus
program (“The Plan”) for the Executive Management
team, in which the executive must remain within his or her
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's targets are set for the
entire team to recognize Nordic’s culture, collaboration and
interdependencies among the existing team members in
addition to individual KPIs. Company and team targets are
set by the People and Compensation Committee combined
with achievement of individual KPIs. Achievement of targets
will result in performance pay bonus of 25% of base salary.
The performance bonus is capped at 50% of base salary.

In 2015, a long-term incentive plan (LTI) was introduced for
the Executive Management team and other employees,
structured as a 4-year option plan commencing in 2016.
Under the plan, 4 692 812 option grants have been made
to both executives and other employees in 2016, 2017 and
2018. In 2019, an amendment was made to the plan where
part of the options granted to executives was replaced by
Performance Shares.

For 2020, the Board will propose to the Annual General
Meeting to replace the stock option program with a
Restricted Stock Unit (RSU) program for all employees, and
a combination of Restricted Stock Units and Performance
Shares for Executive Management.

The RSUs will vest over 2 years and will be delivered to the
employee at the vesting date at par value.

For the Executive Management team of 10 people, 50% of
the LTI plan will be given as Performance Shares. Executives
are granted Performance Shares which are conditional upon
the achievement of a certain set of objectives, including
revenue growth, EBITDA growth, individual KPIs and Nordic’s
share price performance relative to the relevant indices.

The Performance Shares vest and will be delivered at par
value upon the completion of the performance period,
which is three years. Granting of shares is dependent on
achievement of at least 80% of the set performance targets.
At the threshold, 50% of the shares will be granted, whilst
on 120% achievement of targets a maximum 2 times the
shares will be granted.

In line with the market practices, the number of RSUs and
Performance Shares to be granted is changed during the
annual grant cycle in consideration of the proven results,
development and importance to the company of each
executive. The grant size is proposed by the CEO. The Board
reviews the basis for grants and refines and/or approves
the grant sizes.

The maximum dilutive effect (i.e. the sum of the number
of share options and performance shares) of both the
employee RSU program and the Executive Management
Long Term Incentive plan is set to 0.6% for 2020, assuming
maximum target achievement after 3 years.

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 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 2019, have been complied with.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSThe Group has granted executives and employee Board members the following options according to the terms:

Executives and employee Board members

Options granted 2019*

Options granted 2018*

Svenn-Tore Larsen, CEO

Pål Elstad, CFO

Geir Langeland, Sales Director

Svein-Egil Nielsen, CTO

Ebbe Rømcke, Quality Director

38 163 stock options

62 000 stock options

23 163 stock options

42 000 stock options

24 767 stock options

42 000 stock options

28 144 stock options

42 000 stock options

15 761 stock options

21 000 stock options

Ole Fredrik Morken, Supply Chain Director

19 701 stock options

42 000 stock options

Marianne Frydenlund, Legal Director

12 946 stock options

5 000 stock options

Ståle Ytterdal, Director IR & Strategic Sales

17 499 stock options

15 000 stock options

Kjetil Holstad, Director of product management

14 072 stock options

10 000 stock options

Katarina Finneng, HR Director

0 Stock options

0 stock options

Morten Dammen, Board Employee Representative

3 559 stock options

5 100 stock options

Jon Helge Nistad, Board Employee Representative

2 781 stock options

3 000 stock options

Susheel Nuguru, Board Employee Representative

Asbjørn Sæbø, Board Employee Representative

2 563 stock options

3 452 stock options

0 stock options

5 100 stock options

*No options were exercised in 2019 and 2018 by primary insiders.

Note 11: Fixed assets

All figures in USD 1000

GROUP

2019

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

2019

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

14 882

10 231

25 113

8 723

4 233

12 957

12 157

39 425

5 961

45 386

29 236

4 434

33 670

11 717

Office
and lab
equipment

Computer
equipment
and machinery

36 594

5 717

2 689

2 046

4 735

1 788

528

2 317

2 418

Fixture
and
fittings

2 269

1 827

333

57 329

18 239

333

75 568

39 747

9 196

48 943

333

26 625

Property

Total

333

48 103

15 426

8 907

7 882

16 789

5 509

1 968

7 447

9 312

42 311

4 095

333

63 529

27 395

1 668

34 573

4 219

416

31 615

2 084

6 603

41 176

10 697

2 012

333

22 354

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSGROUP

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

GROUP AND PARENT

Estimated useful life

Depreciation method

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

3 – 5 years

3 – 4 years

5 years

Not

Straight-line

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 2019 | FINANCIAL STATEMENTSNote 12: Intangible assets

All figures in USD 1000.

GROUP

2019
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

2019
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

48 973

24 515

73 487

84 758

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

31 368

1 863

33 231

16 305

5 519

21 824

11 407

54 704

86 073

11 271

13 134

65 976

99 207

27 018

43 324

4 967

10 486

31 986

53 810

33 990

45 398

Purchased Software

Capitalized
Development costs

Total

30 727

1 807

32 533

16 123

5 290

21 413

11 120

54 704

85 431

11 271

13 078

65 976

98 509

27 018

43 141

4 967

10 258

31 985

53 399

33 990

45 110

PARENT

26 256

16 296

42 552

53 823

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSGROUP

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

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

GROUP

43 790

19 846

63 636

72 208

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 2019 | FINANCIAL STATEMENTSNote 13: Subsidiaries

All figures in USD 1000.

The following 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 2019

Ownership

Share of
votes

Net profit
2019

Equity
31. Dec 2019

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%

267

297

2 486

1 641

650

8 146

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 mainly 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 2019 | FINANCIAL STATEMENTSNote 14: Accounts Receivable

All figures in USD 1000

GROUP

2019

2018

64 519

51 784

Gross receivables

Provision for doubtful accounts

64 519

51 784

Accounts Receivable, net

Note 15: Intercompany balances

All figures in USD 1000

PARENT

Receivables

Receivables group companies

Total

Payables

Short-term debt group companies

Total

Note 16: Cash and cash equivalents

All figures in USD 1000

GROUP

PARENT

2019

2018

64 519

51 784

64 519

51 784

2019

2018

224

10 586

1 250

4 732

PARENT

2019

2018

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

2019

2018

88 797

102 316

Cash holdings

1 847

1 560

Tax deduction account (restricted funds)

90 645

103 876

Cash and cash equivalents in statement of financial position

87 358

1 847

98 961

1 560

89 205

100 522

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

The parent company presents total bank deposits in the international cash pool, while Nordic Semiconductor OY presents
its share of the international cash pool as a receivable from group company. Nordic Semiconductor ASA and Nordic Semi-
conductor OY participate in the cash-pool, which is operated by Danske Bank.

For information on liquidity risk, see note 22.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 17: Share capital and shareholder information

Share capital
The share capital in Nordic Semiconductor as of December 31, 2019 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)

2019

2018

2019

2018

2019

2018

2019

2018

Holdings as of 1.1

Issue of share capital

Change in treasury shares

179 781 600

163 481 600

303

283

16 300 000

Holdings as of 31.12

179 781 600

303

-5

-2

-3

-5

113 355

14 436

98 919

113 355

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 2019.

Treasury shares
The Company owned 4,119,910 treasury shares on December
31, 2019. At January 1, 2019, the Company owned 4,545,000
treasury shares. Based on a resolution of the annual
general meeting of April 24, 2019, the Board has authority
to purchase the company’s own shares with a limit of a face
value of NOK 179,000 through one or more transactions.
This authority is limited to 9.96% 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 2020, and by June
30, 2020 the latest.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSShareholder overview
of December 31, 2019:
The largest shareholders in Nordic Semiconductor ASA were as follows as of December 31, 2019:

Percentage

Shareholder

FOLKETRYGDFONDET

ACCELERATOR LTD

VERDIPAPIRFONDET DNB NORGE

STATE STREET BANK AND TRUST COMP

CITIBANK, N.A.

VERDIPAPIRFONDET KLP AKSJENORGE

NORDIC SEMICONDUCTOR ASA

DANSKE INVEST NORSKE INSTIT. II.

KOMMUNAL LANDSPENSJONSKASSE

ALDEN AS

DNB MARKETS AKSJEHANDEL/-ANALYSE

VERDIPAPIRFONDET PARETO INVESTMENT

PASSESTA AS

MP PENSJON PK

JPMORGAN CHASE BANK, N.A., LONDON

VERDIPAPIRFONDET ALFRED BERG GAMBA

TTC INVEST AS

VERDIPAPIRFONDET DNB TEKNOLOGI

KLP AKSJENORGE INDEKS

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, 2019.

Board of Directors

Birger Steen

Inger Berg Ørstavik

Jan Frykhammar

Anita Huun

Endre Holen

Øyvind Birkenes

Annastiina Hintsa

Jon Helge Nistad

Asbjørn Sæbø

Susheel Nuguru

Morten Dammen

Total

169 460

1 000

10 000

156 500

5 112

Executive Management

Svenn-Tore Larsen

Pål Elstad

Katarina Finneng

Geir Langeland

Svein-Egil Nielsen

Ebbe Rømcke

Ole Fredrik Morken

Ståle ytterdal

10 000

Kjetil Holstad

Marianne Frydenlund

352 072

Total

24 006 970

17 482 950

11 499 060

8 565 244

5 750 358

5 160 588

4 119 910

3 809 487

3 642 944

2 950 000

2 778 797

2 735 000

2 510 000

2 467 434

2 378 696

2 330 588

2 300 000

1 801 014

1 717 302

1 582 800

109 589 142

70 192 458

179 781 600

13,35 %

9,72 %

6,40 %

4,76 %

3,20 %

2,87 %

2,29 %

2,12 %

2,03 %

1,64 %

1,55 %

1,52 %

1,40 %

1,37 %

1,32 %

1,30 %

1,28 %

1,00 %

0,96 %

0,88 %

60,96 %

39,04 %

100 %

1 905 400

8 846

177 700

17 000

68 900

160 000

244 000

6 604

2 000

2 590 450

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSNote 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 59 000.

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 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

2019

-23

2019

1 141

921

220

251

2019

251

310

2018

-21

2018

1 096

905

192

219

2018

219

279

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 2019, the cost of the defined contribution pension was USD 3 204 000, and the plan had 392 members.

Note 19: Stock options and performance shares

All employee options vest over three years and expire after five years.

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.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS
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.

On March 15, 2019, Nordic Semiconductor granted 1,752,366 share options to 666 employees. The options were granted
at a strike price of NOK 39.44 (10% above volume weighted average share price the five days prior to the grant date).

If the company’s share price exceeds a cap of NOK 118.32, the company may settle the option grant by compensating the
employee the difference between the cap and the strike price. On May 3, 2019, Nordic Semiconductor granted 196,644
share options and 55,814 performance shares to the management group. The options were granted at a strike price
of NOK 45.1 (10% above volume weighted average share price the five days prior to the grant date If the company’s
share price exceeds a cap of NOK 135.3, the company may settle the option grant by compensating the employee the
difference between the cap and the strike price. The performance shares are issued conditional upon the achievement
of a certain set of objectives. The performance shares vest and will be delivered at par value upon the completion of the
performance period, which is three years.

A summary of share option transactions during 2019 and 2018 is below:

Outstanding options 1.1

Options granted

Options forfeited

Options exercised

Options expired

Outstanding options 31.12

Of which exercisable

Weighted average exercise price

2019

2018

4 194 293

3 127 663

1 947 010

1 477 400

222 384

448 545

97 060

283 710

5 470 374

4 194 293

2 283 646

1 265 338

42.62

43.56

The fair value of the options and performance shares are set on the grant date and expensed over the vesting period.
USD 1 540 thousand was expensed during 2019 and USD 1 213 thousand in 2018.

The fair value per option for employee and management options granted in 2019 was NOK 9.5 and NOK 11.1, respectively.
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 volume weighted average
share price the five days prior to the grant date, which for
employees and management in 2019 was NOK 35.9 and
NOK 41.0, respectively.

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 41.28% on
the date of grant in 2019.

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

Cap price
The cap price on the options granted for employees and
management was NOK 118.32 and NOK 135.3, respectively.
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 and interest rate
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 2019, i.e. 1.37 %.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS
Note 20: Current liabilities

All figures in USD 1000

GROUP

2019

2018

19 738

10 424

Accounts payable

3 136

3 761

6 258

13 881

4 044

15 141

Accounts payable subsidiaries

5 043

Income taxes payable

2 901

5 751

Social security tax and payroll tax

Holiday pay

11 393

Provision of Ship and Debit

Current lease liabilities

7 821

Accrued expenses

PARENT

2019

17 988

10 586

2 886

3 181

4 271

13 881

3 142

11 958

2018

9 681

4 732

4 854

2 471

3 970

11 393

7 535

65 958

45 333

Total Current liabilities

67 894

44 636

Note 21: Leases

All figures in USD 1000.

The Group's lease agreements consists of office buildings, office equipment and machinery and vehicles. Office buildings
have a lease period of 1-7 years. IT equipments and office machines are leased in a 3-5 year period, and vehicles are leased
for less than 3 years.

There are no leases with variable lease payments, other than lease payments linked to an index. Extension and termination
options are included in a number of property and equipment leases across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options
held are exercisable only by the Group and not by the respective lessor. Extension options have not been included in the
lease liability, because the Group could replace the assets without significant cost or business distruption.

The Group also has certain leases of office buildings and office equipment and machinery with lease terms of 12 months or
less and leases of office equipment and machinery and vehicles with low value. The Group applies the "short-term lease" and
‘lease of low-value assets’ recognition exemptions for these leases.

Minimum lease payments payable on leases are presented in note 24 Financial assets and liabilities.

The Group implemented IFRS 16 January 1, 2019. The implementation is further presented in note 1.

Amounts recognized in the balance sheet
The balance sheet shows the following amounts relating to leases:

GROUP

31.12.2019

01.01.2019

Right of use assets

20 639

Property

371

Office equipment and machinery

21 010

Total

23 237

696

23 934

GROUP

31.12.2019

01.01.2019

Lease liabilities

4 044

19 886

23 931

3 200

17 810

Current

Non-Current

21 010

Total

PARENT

31.12.2019

01.01.2019

21 575

696

22 272

18 013

371

18 384

PARENT

31.12.2019

01.01.2019

3 142

19 085

22 272

3 142

15 283

18 425

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSGROUP

2019

7 672

845

2018

Additions to the right-of-use assets

Disposals to the right-of-use assets

Amounts recognized in the statement of profit or loss:
The statement of profit or loss shows the following amounts relating to leases:

GROUP

2019

3 648

205

3 853

837

470

199

5 360

4 393

2018

Depreciation charge of right-of-use assets

Properties

Office equipment and machinery

Total

Interest expense

Expenses relating to short-term leases

Expenses relating to leases of low-value

Total amount recognised in profit and loss

Total cash outflow for leases

Set out below are the carrying amounts of lease liabilities and the movements during the period:

GROUP

Cash flow information for lease liabilities

20 010

Net liabilties as at 1 January 2019

-3 906

Cash flows from financing activitites

3 87 7 672

Aquisitionsons

-845

Disposals

Other changes

23 931

Net liabilties as at 31 December 2019

PARENT

2019

7 672

845

2018

PARENT

2019

2 723

205

2 928

753

357

4 132

3 420

2018

PARENT

18 4250

- 2 972

7 661

-845

-42

22 227

Operating leases:
Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as operating lease
(IAS 17).

2019

2018

Amounts recognized in the statement of profit or loss

602

669

4 331

Office lease

385

Lease of machinery

4 717

Total lease expense

2019

391

451

2018

3 244

255

3 469

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | 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 2019.

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

GROUP

2019

2018

232 205

221 549

Total equity

318 359

267 161

Total assets

73 %

83%

Equity ratio

Financial assets
The group holds the following financial assets:

GROUP

2019

2018

64 519

51 784

Accounts receivables

3 190

7 155

Other short-term receivables

90 645

103 876

Cash and cash equivalents

158 353

162 815

Total

Financial liabilities

The group holds the following financial liabilities:

GROUP

2019

19 738

35 279

2018

Financial liabilities at amortised cost

10 424

Accounts payable

26 966

Other short-term debt

Lease Liabilities

23 391

Lease Liabilities

78 408

37 390

Total

PARENT

2019

2018

221 754

214 370

303 076

259 285

73 %

83%

PARENT

2019

2018

64 519

51 784

2 322

7 269

83 237

100 522

150 078

159 575

PARENT

2019

17 988

2018

9 681

40 696

27 630

22 227

80 912

37 311

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTSInterest-bearing loans and borrowings:
The Group has long-term revolving credit facilities ("RCF"), which enables it to borrow up to USD 40 million and USD 25
million at any time with an interest rate equal to LIBOR + margin. The line of credit agreements of USD 40 million and USD
25 million expire in November 2022. As of December 31, 2019, Nordic had not drawn on any of the credit lines. The security
is provided by inventory, receivables and operating equipment with book values as follows; inventories USD 53 million,
accounts receivable USD 65 million and operating equipment USD 24 million.

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 EUR 10 million 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 NOK 40 million. The warranty is given to secure
payments of up to 24 months of rent for the office in Trondheim.

Financial risk management
The Group's finance departement is responsible for carrying out the policies and guidelines for financial risk management
approved by the Board.

The Group is mainly exposed to counterparty credit risk, liquidity risk, interest rate risk and foreign currency risk.

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

2019

2018

Gross total

55 052

44 391

Not due

6 214

1 948

1 304

3 587

2 535

Past due 0-30 days

Past due 31-120 days

1 271

Over 120 days

64 519

51 784

Total

PARENT

2019

2018

55 052

44 391

6 214

1 948

1 304

3 587

2 535

1 271

64 519

51 784

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS85% of customer receivables are within terms. Expected credit loss for all receivables is limited, and allowances for doubtful
accounts at 31 December 2019 equal 0. The Group has historically not suffered any significant credit losses.

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

2019

2018

64 519

11 359

51 784

Accounts receivable

7 156

Other short-term receivables

75 878

58 939

Total

PARENT

2019

2018

64 519

10 045

51 784

7 269

74 563

59 053

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. The company holds no debt securities.

The Group has no externally imposed capital requirements or agreements, and has no contracts or legal requirements
which are not being upheld. The Group has the following due dates with regard to contracts for financial liabilities as of
December 31, 2019:

GROUP

Carrying
amount

Contractual
cash flow

0-3
months

3-6
months

6-12
months

1-2
years

2-5
years

5-10
years

Accounts payable

19 738

Other short-term liabilities

42 176

29 958

8 555

3 663

Lease liabilities

23 931

27 116

1 236

1 224

2 410

4 588

9 554

8 103

Total

85 845

89 030

50 933

9 779

6 073

4 588

9 554

8 103

PARENT

Carrying
amount

Contractual
cash flow

0-3
months

3-6
months

6-12
months

1-2
years

2-5
years

5-10
years

Accounts payable

17 988

Other short-term liabilities

46 763

36 781

6 569

3 412

Lease liabilities

22 227

25 333

987

1 937

3 773

9 546

8 103

Total

86 979

90 085

55 756

7 556

5 349

3 773

9 546

8 103

*Lease liabilities is mainly office facility rent in Oslo and Trondheim

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS

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.

long-term

revolving credit

The Group has
facilities,
which allows it to borrow up to a total of USD 65 million
at an interest rate of LIBOR + margin. The line of credit
agreement of USD 40 million and USD 25 million expires
end of November 2022.

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

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 50% 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

+/- 2 692

The table below shows the Group's exposure in sales to foreign currency risk in the most significant currencies:

GROUP

2019

Local
currency (1000)

287 124

1 134

Share of total
revenues in %

Local
currency (1000)

99,6 %

0,4 %

100,0 %

268 597

2 163

USD (1000)

287 124

1 271

288 395

2019

2018

USD (1000)

268 597

2 537

271 134

2018

Share of total
revenues in %

99,1 %

0,9 %

100,0 %

Local
currency (1000)

USD (1000)

Share of total
revenues in %

Local
currency (1000)

USD (1000)

Share of total
revenues in %

287 124

1 730

287 124

1 933

169

99,3 %

0,7 %

0,1 %

289 226

100,0 %

268 713

2 598

268 597

3 050

115

271 762

98,8 %

1,1 %

0,0 %

100,0 %

USD

EUR

Total

PARENT

USD

EUR

Other

Total

The table below shows the Group's exposure at the end of reporting period in the most significant currencies:
All amounts stated in USD 1000

GROUP

USD

EUR

NOK

Other

Total

PARENT

USD

EUR

NOK

Other

Total

2019

Accounts
receivable

64 519

Accounts
receivable

51 236

548

Accounts
papayable

15 809

1 886

1 547

497

64 519

19 738

51 784

2019

Accounts
receivable

64 519

Accounts
receivable

51 236

548

Accounts
payable

15 809

109

1 547

523

64 519

17 988

51 784

2018

Accounts payable

8 098

595

1 216

515

10 424

Accounts payable

8 98

-144

1 216

511

9 681

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | FINANCIAL STATEMENTS

Determination of fair value
As of December 31, 2019 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

2019

2018

Book value

Fair market value

Book value

Fair market value

Financial assets

Accounts receivables

Short-term receivables

Cash and cash equivalents

Financial liabilities

Accounts receivables

Other short-term liabilities

64 519

3 190

90 645

19 738

35 279

64 519

3 190

90 645

19 738

35 279

51 784

7 155

103 876

10 424

26 966

51 784

7 155

103 876

10 424

26 966

PARENT

2019

2018

Book value

Fair market value

Book value

Fair market value

Financial assets

Accounts receivable

Short-term receivables

Cash and cash equivalents

Financial liabilities

Accounts payable

Other short-term liabilities

64 519

2 322

83 237

17 988

40 696

64 519

2 322

83 237

17 988

40 696

51 784

7 269

100 522

9 681

27 630

51 784

7 269

100 522

9 681

27 630

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 2019 | FINANCIAL STATEMENTSDeclaration 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 2019 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 18, 2020

Endre Holen
Board member

Birger Steen
Chair

Øyvind Birkenes
Board member

Inger Berg Ørstavik
Board member

Svenn-Tore Larsen
Chief Executive Officer

Jan Frykhammar
Board member

Anita Huun
Board member

Jon Helge Nistad
Board member, employee

Annastiina Hintsa
Board member

Asbjørn Sæbø
Board member, employee

Susheel Raj Nuguru
Board member, employee

Morten Dammen
Board member, employee

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | DECLERATION TO THE ANNUNAL REPORTNORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | 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 treatment 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 Environmental, Social, Governance (ESG)
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 ESG.

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.

rights and social matters,

The objectives include matters that relate to human
rights, employee
the
prevention of corruption, the working environment equal
treatment, discrimination and environmental impact.;
see the separate ESG report. 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 2019 | 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 24,
2019, has been authorized to buy back up to 17,900,000
own shares for a total par value of NOK 179,000.00 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 2020. 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 24, 2019, the Board of Directors has
the authority to increase the company’s share capital by
issuing up to 17,900,000 shares with a total par value of
NOK 179,000. 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 2020, 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 2020.

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 2019 | 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 2019 | 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 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 2020 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 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 four members and have planned
5 meetings in 2020.

The Audit Committee consists of three 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 2019 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.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | STANDARDS OF CORPORATE GOVERNANCE

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 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.

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).

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.

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
2020 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 2019 | STANDARDS OF CORPORATE GOVERNANCE

Auditor
PWC 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 2019 | AUDITOR OPINION LETTER

AUDITOR OPINION LETTER

To the General Meeting of Nordic Semiconductor ASA

Independent Auditor’s Report

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Nordic Semiconductor ASA, which comprise:

• The financial statements of the parent company Nordic Semiconductor ASA (the Company),

which comprise the balance sheet as at 31 December 2019, the income statement, statement of
changes in equity and cash flow statement for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies, and

• The consolidated financial statements of Nordic Semiconductor ASA and its subsidiaries (the
Group), which comprise the balance sheet as at 31 December 2019, the income statement,
statement of changes in equity and statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of significant accounting policies.

In our opinion:

• The financial statements are prepared in accordance with the law and regulations.

• The accompanying financial statements give a true and fair view of the financial position of the
Company as at 31 December 2019, and its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards as adopted by the
EU.

• The accompanying consolidated financial statements give a true and fair view of the financial

position of the Group as at 31 December 2019, and its financial performance and its cash flows
for the year then ended in accordance with International Financial Reporting Standards as
adopted by the EU.

Basis for Opinion

We conducted our audit in accordance with laws, regulations, and auditing standards and practices
generally accepted in Norway, including International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of the Company and the
Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.

PricewaterhouseCoopers AS, Dronning Eufemias gate 71, Postboks 748 Sentrum, NO-0106 Oslo
T: 02316, org. no.: 987 009 713 VAT, www.pwc.no
State authorised public accountants, members of The Norwegian Institute of Public Accountants, and authorised
accounting firm

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | AUDITOR OPINION LETTER

Independent Auditor's Report - Nordic Semiconductor ASA

Key Audit Matter

How our audit addressed the Key Audit Matter

Revenue Recognition – ship and debit
provision

Revenue from contracts with customers is
recognized when control of the goods is
transferred to the customer (distributor).
The time of delivery, and the time where
control of goods is transferred, is usually
the time when the goods are transferred to
the transport carrier.

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. The
group uses the expected value method for
calculating the discount. The method
requires assessing historical discounts to
each distributor, the distributors’
inventory level as of 31 December 2019
and expected sales mix. An estimate for
this discount is provided for in the
financial statements, reducing revenue and
increasing liabilities with 13,9 million as of
31 December 2019. Due to the judgements
involved we determine the ship and debit
provision to be a key audit matter

Refer to note 2.2 and note 2.4 where group
management explain the Group’s revenue
recognition policy, including significant
judgements, estimates and assumptions,
and the recorded ship and debit provision
as of 31 December 2019.

Other information

We assessed the Group’s revenue recognition policy,
including revenue recognition for ship and debit sales.
Furthermore, we obtained an understanding of
management’s process for estimating the ship and debit
provision as of 31 December 2019 and reviewed a sample
of distributor sales agreements.

We performed a retrospective review of the monthly ship
and debit provisions throughout 2019 and compared the
monthly discount provision levels to actual ship and
debit discount levels. We compared the estimated ship
and debit provision as of 31 December 2019 to historical
discount levels and discussed with management to
challenge their estimated distributor discounts on an
individual distributor basis. We performed an
assessment of the outcome of management’s prior year
estimates by comparing actual discounts in 2019 to the
prior year ship and debit provision. We tested the
mathematical accuracy of the calculation of the
provision.

We also obtained the actual ship and debit claims in
January 2020 and compared the ship and debit level to
the ship and debit provision as of 31 December 2019.

Based on our audit procedures we found management’s
assumptions to be reasonable.

We also assessed the information in note 2.2 and 2.4 and
found it appropriate.

Management is responsible for the other information. The other information comprises information in
the annual report, except the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.

(2)

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | AUDITOR OPINION LETTER

Independent Auditor's Report - Nordic Semiconductor ASA

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements

The Board of Directors and the Managing Director (Management) are responsible for the preparation
in accordance with law and regulations, including fair presentation of the financial statements in
accordance with International Financial Reporting Standards as adopted by the EU, and for such
internal control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s and the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with laws, regulations, and auditing standards and practices
generally accepted in Norway, including ISAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.

As part of an audit in accordance with laws, regulations, and auditing standards and practices
generally accepted in Norway, including ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:

•

identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error. We design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

• obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's or the Group's internal control.

•

evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Company and the Group's ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company and the Group to cease to continue as a going concern.

•

evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.

(3)

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | AUDITOR OPINION LETTER

Independent Auditor's Report - Nordic Semiconductor ASA

• obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

We also provide the Board of Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Opinion on the Board of Directors’ report

Based on our audit of the financial statements as described above, it is our opinion that the
information presented in the Board of Directors’ report and in the statements on Corporate
Governance and Corporate Social Responsibility concerning the financial statements, the going
concern assumption and the proposed allocation of the result is consistent with the financial
statements and complies with the law and regulations.

Opinion on Registration and Documentation

Based on our audit of the financial statements as described above, and control procedures we have
considered necessary in accordance with the International Standard on Assurance Engagements
(ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial
Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly
set out registration and documentation of the Company’s accounting information in accordance with
the law and bookkeeping standards and practices generally accepted in Norway.

Oslo, 18 March 2020

PricewaterhouseCoopers AS

Eivind Nilsen

State Authorised Public Accountant

(This document is signed electronically)

(4)

Board of directors &
Executive Management

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | 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: 169 460 shares.

Jan Frykhammar Board Member

Jan Frykhammar is former interim CEO, CFO, Head of Professional Services
and CFO North America in Ericsson AB. He has extensive knowledge of the
telecom market and a broad experience in the accounting area in his former
role as CFO. Current holdings in the company: 10 000 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.

Anita Huun Board Member

Anita Huun, currently CFO in Cappelen Damm and a former CFO of
Microsoft Norway with background as equity analyst with focus on IT
companies. She has also been a Director at Link Mobility ASA.
Current holdings in the company: 10 000 shares.

BOARD OF DIRECTORS

Endre Holen Board Member

Endre Holen has more than 25 years consultancy experience from McKinsey
& Co. He has primarily worked with large international technology companies
and has been Managing Partner for McKinsey's Global Tech Media and
Telecom team. Mr. Holen also has a broad experience and a wide professional
network from counseling Fortune 1000 CEOs on topics like strategy, corporate
performance, succession planning, leadership and Board governance.
Current holdings in the company: 156 500 shares.

Øyvind Birkenes Board Member

Øyvind Birkenes, currently the CEO at Airthings AS, and formerly General
Manager for Low Power RF at Texas Instruments (TI) in the USA, where he
headed the product lines that developed and sold ultra-low power wireless
MCUs, radio transceivers and System on Chips. Current holdings in the
company: 5 112 shares.

Annastiina Hintsa Board Member

Annastiina Hintsa is the COO of Hintsa Performance in Finland, a company
focusing on enhancing the performance and leadership of client companies,
best known for working with Formula 1 teams. Ms. Hintsa also has experience
from McKinsey & Co. and from the Bank of Finland. Current holdings in the
company: 1 000 shares.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | BOARD OF DIRECTORSBOARD OF DIRECTORS

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. Current holdings in the
company: 0 shares, 12 782 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, 14 152 share options.

Susheel Ray Nuguru Board Employee Representative

Susheel Ray Nuguru 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. Current holdings in the company: 0 shares,
2 563 share options.

Morten Dammen Board Employee Representative

Morten Dammen has a Master of Science degree in Electrical Engineering from
NTNU in Trondheim. Morten has been employed in Nordic Semiconductor since
2001, with a seven-year break between 2007 and 2014. Morten is currently
working as a Senior Project Manager in IC development. Morten has also
been working in Q-Free ASA for 10 years, in several positions from project
management, team management to VP R&D. Current holdings in the
company: 0 shares, 18 227 share options.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | BOARD OF DIRECTORS

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | 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. Holdings in the company: 1 905 400
shares and 231 313 share options and 13 436 performance share.

Pål Elstad Chief Financial Officer

Pål 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). Holdings in the company: 8 846 shares
and 153 249 share options and 6 402 performance shares.

Katarina Finneng Human Resources Director

Mrs. Finneng has extensive international experience within management,
Human Resources and Communications/PR from several different sectors.
Her most recent position before being appointed HR Director in Nordic
Semiconductor from September 2019 was with Norwegian Air Shuttle ASA.
Katarina Finneng holds a Master of Political Science degree from the
University of Gothenburg, Sweden, as well as an Executive Master degree in
Management from BI Norwegian Business School. Mrs. Finneng is a Director
of the Board in the real estate development company Solon Eiendom ASA.

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. Marianne sits on the Board of the Norwegian Company Lawyers
Association and the Fair Standards Alliance. 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 17 946 share options and 3 506 performance shares.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | EXECUTIVE MANAGEMENT

EXECUTIVE MANAGEMENT

Kjetil Holstad Director of Product Management

Mr. Holstad has a B.Sc degree in Electronics from Høgskolen i Sør-Trøndelag.
After working 15 years in various technical and marketing positions related to
MCUs and wireless technologies in Atmel Corporation and Texas Instruments,
he joined Nordic in 2015 as a Product Manager for the short range wireless
business. In 2019 Kjetil was appointed Director of Product Management.
Holdings in the company: 6 604 shares and 35 741 share options and 3 811
performance shares.

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. Holdings in the company: 177 700 shares
and 154 375 share options and 6 707 performance shares.

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 149 309 share options and 5 335
performance shares.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | EXECUTIVE MANAGEMENT

EXECUTIVE MANAGEMENT

Svein-Egil Nielsen Chief Technology Officer & Director of Strategy

Mr. Nielsen holds MBA from the Haas School of Business at the University of
California, Berkeley and Bachelor of Engineering honors degree in Computer
and Electronics Systems from University of Strathclyde.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. Holdings in the company:
17 000 shares and 157 752 share options and 7 622 performance shares.

Ebbe Rømcke Quality Director

Mr. Rømcke has a 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 80 303 share
options and 4 268 performance shares.

Ståle "Steel" Ytterdal Director Investor Relations

Mr. Ytterdal holds a Bachelor of Electronics Engineering and Business
Administration from NKI College of Engineering in Oslo, Norway. He worked
several years in Ericsson Standard Component before starting in Nordic as
Regional Sales Manager for Asia and the Pacific in 2001. Between 2004 and
2019, Mr. Ytterdal was stationed in Hong Kong as Director of Sales&Marketing
in APAC, establishing Nordic’s presence in the region. He also held a position
as Director of the Board of the Norwegian Chamber of Commerce in Hong
Kong from 2005-2008. Mr. Ytterdal is from 2019 based in Oslo, Norway,
appointed as Director IR. Holdings in the company: 244 000 shares and
64 955 share options and 4 726 performance shares.

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | 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

2019

146.8

288.4

2018

135.0

271.1

50.9%

49.8%

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

EBITDA. Earnings before interest, taxes (operating

profit), depreciation and amortization.

GROUP

Operating profit

Depreciation

EBITDA

2019

9.3

23.5

32.8

2018

14.0

16.7

30.8

EBITDA Margin. EBITDA divided by Total Revenue.

GROUP

EBITDA

Total Revenue

EBITDA Margin

2019

32.8

288.4

11.4%

2018

30.8

271.1

11.4%

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)

2019

32.8

24.7

57.6

2018

30.8

16.9

47.7

287.3

270.9

Adjusted EBITDA margin

20.0%

17.6%

79
79

NORDIC SEMICONDUCTOR | ANNUAL REPORT 2019 | 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

Capitalized expenses

Cash Operating Expenses

2019

80.3

33.7

23.5

137.5

-23.5

-1.8

11.3

123.4

2018

70.0

34.2

16.7

121.0

-16.7

-1.2

13.0

116.0

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

2019

137.4

-23.5

113.9

288.4

39.5%

2018

121.0

-16.7

104.2

271.1

38.4%

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

Current lease liabilities

Income taxes payable

Net working capital

Total revenue

NWC / LTM revenue

2019

219.6

-90.6

-66.0

4.0

3.1

70.2

288.4

24.3%

2018

205.5

-103.9

-45.3

5.0

61.3

271.1

22.6%

Backlog. Customer orders placed by the end of the reporting period for delivery in next and following quarters.

This APM can be used as support for guidance for next quarter.

80
80

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